rollsroyce holdings plc
annual report 2013 “  2013 was a year of good progress in which our  
order book underlying revenue and underlying  
profit all grew our priorities remain the 4 cs  
customer concentration cost and cash”
 john rishton chief executive
better 
power 
for a changing world introduction
rollsroyce is a global company providing 
integrated power solutions for customers 
in civil and defence aerospace marine 
energy and power markets 
our vision is to deliver ‘better power 
for a changing world’
2013
restated
2012 change
order book £m 71612 60146 19
underlying revenue £m 15505 12209 27
underlying profit 
before tax £m 1759 1434 23
underlying earnings per share 6559p 5959p  10
full year payment to 
shareholders 220p 195p  13
reported revenue £m 15513 12161 28
reported profit before tax £m 1759 2766 36
reported earnings per share 7326p 12538p 42
net cash £m 1939 1317
  2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits 
and the change in accounting policy for rrsas
strategic report
introduction 1
group at a glance 2
chairman’s review 4
chief executive’s review 6
our vision business model
strategy and values 8
chief financial officer’s review 10
civil aerospace 14
defence aerospace 16
marine 18
energy 20
power systems 22
engineering and technology 24
operations 25
sustainability 26
key performance indicators 30
principal risks and uncertainties 32
directors’ report
chairman’s introduction 35
board of directors 36
international advisory board 38
executive leadership team 38
corporate governance report 39
audit committee report 44
nomination committee report 47
ethics committee report 49
risk committee report 51
safety committee report 52
remuneration committee report 53
directors’ remuneration policy 55
directors’ remuneration report 62
shareholders and share capital 70
other statutory information 72
financial statements
contents 74
other information
subsidiaries jointly controlled
entities and associates 127
independent auditor’s report 130
group fiveyear review 136
additional financial information 137
shareholder information 139
glossary 141
forwardlooking statements
this annual report contains forwardlooking 
statements any statements that express forecasts 
expectations and projections are not guarantees of 
future performance and will not be updated by their 
nature these statements involve risk and uncertainty 
and a number of factors could cause material 
differences to the actual results or developments
this report is intended to provide information to 
shareholders is not designed to be relied upon by any 
other party or for any other purpose and the company 
and its directors accept no liability to any other person 
other than that required under english law
rollsroyce holdings plc annual report 2013 1
strategic report financial statements directors’ report other information group at a glance
as in previous years our business priorities remain 
the 4 cs customer concentration cost and cash
group overview 2013
 first flight of the airbus a350 xwb powered by 
trent xwb engines
 first flight of the boeing 7879 powered by 
trent 1000 engines
 major new orders from jal iag lufthansa 
united singapore and etihad 
 delivered 3000th br700 series engine
the civil aerospace segment is a major 
manufacturer of aero engines for the airline and 
corporate jet markets rollsroyce powers more 
than 30 types of commercial aircraft and has 
almost 13000 engines in service around the world
 tp400powered a400m entered service
 missioncare
tm
 contract for saudi arabian ej200 
engines secured 
 1500th ae 2100 engine delivered
 upgraded ae 1107 engines for v22 osprey
 t56 engine enhancement kits gained first sales
 delivered 40th rollsroyce liftfan® for 
f35b lightning ii fighter programme
 rtm322 helicopter engine programme sold 
to turbomeca 
rollsroyce is the second largest provider of defence 
aeroengine products and services globally with 
around 16000 engines in service with over 160 
military customers in more than 100 countries
£844m
underlying profit 2013
£6655m
underlying revenue 2013
revenue mix
revenue mix
2013 revenue by business segment
£438m
underlying profit 2013
£2591m
underlying revenue 2013
civil aerospace
defence aerospace
 46 oe revenue
 54 services revenue
 50 oe revenue
 46 services revenue
 4 development
 the order book increased 19 per cent to 
£716 billion this included a £16 billion 
contribution from power systems
 order intake was £269 billion in the year
 underlying revenue increased to 
£155 billion with 53 per cent from 
original equipment oe and 47 per cent 
from services revenue
 underlying profit before tax increased 
23 per cent to £18 billion including 
£257 million from tognum
 42 civil aerospace
 17 defence aerospace
 7 energy
 16 marine
 18 power systems
rollsroyce holdings plc annual report 2013 2 strategic report £281m
underlying profit 2013
£25 27m
underlying revenue 2013
£26m
underlying profit 2013
£1048m
underlying revenue 2013
 range of world ‘firsts’ of lngpowered vessel 
types delivered
 mt30 selected for new uk mod type 26 frigate
 £800 million contract agreed with uk mod 
for provision of future nuclear submarine 
propulsion systems
 new ut 830 seismic survey vessel launched
 cosco ordered new wavepiercing design of 
offshore vessels
 third service centre in china opened
the marine segment has 4000 customers and 
equipment installed on over 25000 vessels 
worldwide including those of 70 navies
revenue mix
revenue mix
power systems
marine
 57 oe revenue
 43 services revenue
energy
 40 oe revenue
 60 services revenue
£294m
underlying profit 2013
revenue mix
 mtu powerpacks ordered for uk intercity 
express programme 
 fjord line ordered bergen engines for cruise 
ferries
 uk mod selects mtu gensets alongside mt30 
gas turbine
 polish partnership created to supply and 
maintain cogeneration plants
 mining trucks powered by mtu delivered to 
rio tinto in australia
rollsroyce power systems is headquartered in 
germany and specialises in reciprocating engines 
propulsion systems and distributed energy systems
 71 oe revenue
 29 services revenue
 33 rb211s ordered for oil and gas applications
 major service contract secured with petrobras
 new santa cruz brazil assembly plant 
operational
 signed tripartite agreement with rosatom and 
fortum to assess nuclear reactor design for uk 
new build
 renewed agreement with westinghouse to 
provide nuclear inspection services in us
to date energy has sold 4600 gas turbines 
with 180 million operating hours recorded
rollsroyce has over 50 years of experience 
in the nuclear industry
£283 1 m
underlying revenue 2013
rollsroyce holdings plc annual report 2013 3
strategic report financial statements directors’ report other information this is my first chairman’s review before i 
joined rollsroyce i sensed that it would be an 
extraordinary privilege to serve such a great 
company with such a rich history so it has 
proved to be in the past nine months i have 
travelled widely and met a broad cross
section of colleagues customers suppliers 
and investors all have been free with their 
time and open with their perspectives 
i have two dominant initial impressions  
the first is of the pride that people across  
the world have in the activities and 
achievements of the group we have a team 
that really does aspire to be ‘trusted to 
deliver excellence’ in everything it does yet is 
under no illusions about what this will take 
there is pride but no sense of complacency
the second impression is of opportunity 
some of our business segments face strong 
headwinds and there will be some inevitable 
volatility but overall rollsroyce competes in 
markets characterised by longterm demand 
growth and the opportunity to add value 
this is as true of the services we provide as  
it is of our products these opportunities are 
increasingly global in nature rollsroyce has 
a great british history but its future has to 
be as a great global company
in 2013 rollsroyce delivered another year  
of growth in revenues profits and order book 
this performance was achieved against a 
background of significant global economic 
and political uncertainty the 13 per cent of 
increase in the payment to shareholders to 
220 pence reflects the confidence that the 
board has in the fundamentals of the 
business as well as in its future prospects
the increase in the payment to shareholders 
also recognises the importance that many of 
our investors place on annual cash returns 
nevertheless a key characteristic of  
rollsroyce is that it is a longterm business 
with technologies that take years to develop 
this creates the necessity of a longterm 
view and for longterm investment together 
with a commensurate attitude and mindset 
for risk
our strategy must be directed towards 
creating a sustainable business for  
rollsroyce that means driving profitable 
growth whilst achieving a positive economic 
social and environmental impact we will 
deliver better power to our customers use 
innovation to secure a better future and 
build on today’s achievements to develop  
a better business ready to meet the 
challenges ahead
research and development and innovation 
more broadly are crucial they will become 
more so as we strive to improve the quality 
and performance of our power systems and 
services the trent xwb for example has 
proved to be the most efficient large civil 
aero engine in the world design and 
development of that engine started in 2006 
in our marine business innovation and the 
development of liquefied natural gas lng 
power systems has led to the possibility  
of a 40 per cent reduction in a ship’s co 2 
emissions and the virtual elimination of 
sulphur and oxides of nitrogen emissions 
compared with conventional dieselpowered 
craft this presents a clear environmental 
and commercial opportunity these 
innovations have also taken years to develop
we are committed to both the shortterm 
performance and to the longterm health  
of the group it is a matter of ‘bothand’  
not ‘eitheror’ in my experience the most 
successful most enduring organisations 
invest equivalent resource and imagination 
in the longterm health of their business  
as they do in their short to mediumterm 
performance
chairman’s review
 
in 2013 rollsroyce 
delivered another year  
of growth in underlying 
revenues underlying 
profits and orders 
the board is proposing  
an increase in the final 
payment to shareholders  
of 134p bringing the full  
year payment to 220p
rollsroyce holdings plc annual report 2013 4 strategic report ian davis
chairman
dwelling on performance i am totally 
supportive of john rishton and the 
management team’s operational focus on 
the 4 cs – customer concentration cost and 
cash john describes the progress and the 
continuing opportunities of these 4 cs in 
this report i am particularly pleased at the 
progress in improving customer service and 
delivery reliability engineering and 
technology companies can have an inbuilt 
tendency to focus on product rather than  
on customer yet it is our customers who pay 
our bills and finance our investments it is  
of the highest strategic and commercial 
importance that we deliver on our product 
and service commitments to our customers 
over and above the continuing need for 
investment i would like to comment on  
a couple of themes relating to longterm 
health diversity and good governance 
i have remarked already on the need for 
rollsroyce to establish itself as an even 
more global group this will require us to 
become more diverse in our workforce and 
in our people development to achieve our 
aspirations we have to attract retain and 
develop the best talent everywhere we 
operate – commercial as much as 
engineering female as much as male 
we are making real progress our global 
apprenticeship programme enjoys world
wide renown our record graduate intake  
in 2013 includes 32 nationalities from 97 
universities around the world additionally 
we continue to broaden internationally our 
network of university technology centres 
which are so important to our future but 
more needs to be done 
we can and need to do more to attract and 
particularly retain exceptional women  
the engineering sector has not always been 
a favoured destination for wellqualified 
women and there may be cultural and 
historical reasons for this for a group  
like rollsroyce this should be as much  
an opportunity as a problem purposeful 
diversity is an important part of our  
longterm planning
fundamental to a healthy company are 
strong ethical standards and behaviours 
supported by good governance as john 
rishton has repeatedly made clear the  
group will not tolerate improper conduct 
we are striving to ensure that every single 
rollsroyce employee knows what is 
expected of them and understands the 
standards to be met the board and 
management are united in this endeavour 
in particular i will focus on ensuring that  
we have the appropriate governance 
arrangements and structures in place  
to reinforce the required conduct and 
behaviours wherever we operate
over recent years the board and 
management have been greatly assisted  
by the wise counsel of our international 
advisory board iab whose membership  
is described on page 38 the iab’s primary 
role is to provide context on political and 
economic developments around the world 
and to alert the group to possible longterm 
opportunities threats and risks they are 
also available to provide counsel and support 
in specific areas of expertise i am grateful  
to the iab members for their contributions 
i am also indebted to my fellow board 
directors for their hard work and remarkable 
commitment to our group as well as for 
their patience and good humour in dealing 
with the new chairman the board has been 
augmented in january 2014 by lee hsien 
yang and warren east both of whom bring  
a wealth of experience in global technology 
oriented industries further details of their 
careers are included on pages 36 and 37 i am 
delighted that they have joined the group
in the queen’s birthday honours michel 
dubarry rollsroyce international president 
– france head of europe and northern 
africa was awarded an obe in the new 
year’s honours hamid mughal director  
of manufacturing received an obe and my 
fellow board member warren east a cbe 
their recognition is well deserved and i 
congratulate each of them 
i would also like in closing to acknowledge 
sir simon robertson for his inspirational 
chairmanship and leadership of the board  
i am sure that over time i will forgive him 
for being such a hard act to follow 
i feel honoured to have the opportunity to 
serve as chairman of rollsroyce we have 
and will have challenges however i would 
be disappointed if this review does not 
convey my deep sense of opportunity to 
improve both shortterm performance and 
to build the longterm health of the group 
2013 was a good year for rollsroyce and i 
would like to thank my colleagues for their 
hard work and efforts in making this happen
ian davis
chairman
12 february 2014 
rollsroyce holdings plc annual report 2013 5
strategic report financial statements directors’ report other information in 2013 rollsroyce continued to grow  
its order book and expand its portfolio  
the group increased its underlying profits 
and underlying revenues the order book 
increased to £716 billion 
this performance demonstrates both the 
longterm demand for our products and 
services and the confidence our customers 
place in us 
we strive continually to improve quality 
performance and cost to that end we invest 
in innovation infrastructure and in the 
global workforce upon whose ability and 
ambition our current and future success 
entirely depends i am impressed every day 
by the commitment and professionalism of 
my colleagues around the world and i thank 
them for their hard work
the leaders of the group have devoted 
considerable time and energy into 
articulating the vision values strategy and 
business priorities that we share as well  
as setting out the standards of behaviours 
expected from everybody at rollsroyce 
providing clarity on these core beliefs  
and making sure they are understood by 
everyone in the group will enable us to 
better serve our customers and secure  
a profitable future for our employees and 
shareholders 
vision better power for a changing world
values trusted to deliver excellence
strategy customer innovation  
profitable growth
these are described in greater length on 
pages 8 and 9
our business priorities in 2013 remained  
the same as in previous years and have been 
characterised as ‘the 4 cs’
customer – deliver on the promises  
we have made
concentration – decide where to grow  
and where not to
cost and cash – improve financial 
performance
in 2013 we have made progress in all of 
these although there remains much more  
to do
customer
it is essential that we deliver on the promises 
made to our customers across the business 
we have significantly improved ontime 
delivery this foundational step will 
strengthen our customer relationships and 
drive more efficient use of resources such  
as inventory in civil aerospace ontime 
delivery to our widebody customers was  
100 per cent in 2013 for the first time 
in 2013 major milestones were achieved  
in a number of important programmes  
the airbus a350 xwb flew for the first time 
powered by our trent xwb engines we have 
now received orders for more than 
1600 trent xwbs making this our best
selling trent engine the trent 1000 engine 
which powers the boeing 787 dreamliner 
has achieved the best performance of any 
new widebody engine entering service with 
a 999 per cent despatch reliability in june it 
was selected by singapore airlines to power 
50 boeing 787 aircraft in marine the first of 
our innovative environships went to sea this 
vessel combines a wavepiercing bow 
gaspowered engines and advanced 
propulsion systems that together reduce co 2 
emissions by 40 per cent compared with 
equivalent dieselpowered vessels lastly  
bae systems announced that the uk’s type 26 
destroyer programme will feature four mtu 
diesel gensets from power systems together 
with our trentderived mt30 gas turbines
concentration
concentration means deciding where to 
invest for future growth and where not  
we have two technology platforms gas 
turbines and reciprocating engines within 
gas turbines we have a strong civil aerospace 
business with over £60 billion in orders  
we will continue to invest here including in 
the next generation of narrowbody aircraft 
engines we will also look for opportunities 
to expand in reciprocating engines
in 2013 we acquired hypertherm htc  
a specialist ceramics company to increase  
our capabilities in ceramic matrix materials 
that will in the future play a critical part in 
improving the performance of gas turbine 
engines we also acquired a norwegian 
company smartmotor as a leader in the 
permanent magnet technology employed  
in our marine business we integrated pkmj 
technical services a usbased nuclear 
engineering services business with expertise 
in extending the life of nuclear plants
areas where we have decided not to grow 
include the sale of our 50 per cent holding  
in the rtm322 helicopter engine programme 
to turbomeca a safran company
chief executive’s review
rollsroyce holdings plc annual report 2013 6 strategic report cost
the highly regulated nature of the aerospace 
industry means that it will take both time 
and tenacity to drive cost out of the 
business and we are still not where we need 
to be however there are a number of areas 
where progress is being made we reduced 
indirect headcount by 11 per cent with 
further savings identified for 2014 unit cost 
fell in marine energy and power systems 
although this was more than offset by an 
increase in civil where capacity growth has 
preceded volume growth and the cost per 
unit has predictably risen we are building 
newer more efficient facilities and capacity 
that will support a doubling of production  
of trent engines we are moving production 
away from high cost countries and we are 
consolidating our supply chain these 
actions will deliver benefits over time 
we have prioritised investment that 
improves operational performance adds  
to our technical capability and reduces cost 
this includes a shop floor it modernisation 
programme that will increase operational 
efficiency and an integrated production 
systems programme that will improve 
delivery to customers while reducing cost 
cash
the group delivered a cash inflow of 
£359 million £312 million excluding 
tognum after payments to shareholders 
prior to acquisitions disposals and foreign 
exchange inventory has been an area of 
significant focus while substantially 
improving our ontime delivery to customers 
and preparing for the rampup in volumes 
we have improved inventory turns from  
3 times to 34 times excluding tognum  
this is one of the largest oneyear 
improvements in our stock turns
we continue to invest significantly to deliver 
our order book in 2013 capital expenditure 
was £687 million £590 million excluding 
tognum and £491 million in 2012 this 
included two new aeroengine test facilities 
one at the nasa stennis space center in 
mississippi us and the other at dahlewitz 
germany we have extended our global 
marine services network with a new facility 
in guangzhou china an advanced aerofoil 
machining facility at crosspointe in virginia 
us will begin production in 2014 in the uk 
production has started at our new stateof
theart fan disc factory in washington tyne 
and wear and we are also close to completing 
a new turbine blade factory in rotherham
in january 2013 we appointed lord gold to 
lead a review of our process and procedures 
regarding compliance and business ethics 
this followed our report to the serious fraud 
office sfo of concerns about bribery and 
corruption involving intermediaries in 
overseas markets in december the sfo 
confirmed that it had begun a formal 
investigation into these matters we have 
cooperated fully with the regulatory 
authorities and will continue to do so 
during the year we published a new global 
code of conduct under a programme 
implemented in 2013 all employees are 
asked to certify they have received a copy  
of the global code read and understood it 
will comply with it and have received a 
management briefing i have made it 
explicit that we will not tolerate improper 
business conduct of any sort we have 
updated and relaunched our confidential 
reporting line for employees now known  
as the ethics line available 24 hours a day  
to make sure that we can hear about and 
address any matters of concern
it is important that everyone at rollsroyce 
recognises that they are an ambassador for 
the group we have set out three common 
behaviours that will make sure we maintain 
high ethical standards build trust with our 
customers and each other and help secure 
the longterm success of our business
win right – securing business fair  
and square 
focus with firm resolve – decide what  
needs to be done then focus relentlessly  
on delivery – refusing to be distracted  and 
communicate – simply consistently  
and often
every aspect of the group’s performance 
results from the endeavours of the 55000 
men and women who share a vision of 
delivering ‘better power for a changing 
world’ it is their ingenuity and commitment 
alongside our continued investment in 
technology that allows us to seize the 
opportunities that our changing world 
presents and to face the future with 
confidence
john rishton
chief executive
12 february 2014
john rishton
chief executive
rollsroyce holdings plc annual report 2013 7
strategic report financial statements directors’ report other information customer placing the customer 
at the heart of our organisation 
is key we need to listen to our 
customers share ideas really 
understand their needs and 
then relentlessly focus on 
delivering our promises
customer our strategy
our vision our business model
since its earliest days rollsroyce has been striving to 
achieve ever higher standards our vision is delivering 
‘better power for a changing world’
better we will succeed only by continually raising 
standards we constantly improve quality performance 
and cost we are inquisitive energetic and ‘better’ every 
day even when we may be the best we must continue 
to get better
power we are a power systems company that develops 
sells and services missioncritical products our customers 
demand innovation that improves performance and 
reduces the environmental impact of our power systems
changing world the world around is changing 
rapidly and the pace of change is accelerating new 
markets are emerging shifting the balance of economic 
power regulation is rightly driving the requirement for 
cleaner power and setting new standards for business 
conduct our continuous investment in technology our 
ingenuity and our commitment to excellence allow us to 
seize the opportunities that change presents and to face 
the future with confidence
better power for a changing world
we operate in competitive markets our 
competitors are wellfunded ambitious 
and full of smart people 
our strategy will enable us to win by focusing 
on three powerful themes customer  
innovation and profitable growth
the business model is built around our core strategic themes 
of customer innovation and profitable growth we are a power 
systems company based on two technology platforms gas 
turbines and reciprocating engines continuous investment 
in innovation delivers better products and services on behalf 
of customers this allows us to meet their needs and grow 
profitably to the benefit of our shareholders 
around the core strategic themes of the model we
grow sales for original equipment and the associated aftermarket 
through developing strong routes to market based on customer 
relationships understanding and knowledge allocate capital 
in a disciplined way choosing where to grow and where not to 
reduce costs and generate cash to enable profitable growth from 
our order book and the maintenance of a strong balance sheet 
fund research development infrastructure and future 
programmes our financial resilience and resources provide a 
firm foundation from which to invest risk and revenue sharing 
arrangements are a particular feature of the civil aerospace 
sector as a means of sharing risk due to the scale of 
investment  required for large gas turbines
our business model places emphasis on reducing 
costs so that we can generate the funds we need 
to deliver our vision of ‘better power for a 
changing world’
our vision business model strategy and values
rollsroyce is a global group providing integrated power 
solutions for customers in civil and defence aerospace 
marine energy and power markets our products work 
in missioncritical environments where safety is paramount 
 read more on pages 14 to 23
rollsroyce holdings plc annual report 2013 8 strategic report profitable growth innovation
innovation is our lifeblood 
we must continually innovate 
to remain competitive to drive 
innovation we create the right 
environment – curious 
challenging unafraid of failure 
disciplined openminded and 
able to change with pace but 
most importantly we ensure 
our innovation is relevant to 
our customers’ needs
profitable growth by 
focusing on our customers 
and offering them a 
competitive portfolio of 
products and services we 
will create the opportunity 
to grow our market share of 
course we have got to make 
sure that we are not just 
growing but growing 
profitably that means 
ensuring our costs are 
competitive we look after 
our cash and we win right
our values
we say we are ‘trusted to deliver 
excellence’ but simply being rollsroyce 
does not give us the right to make that 
claim trust takes a long time to earn 
and can be lost in an instant
trust is earned by doing what we say 
we will it demands care consistency 
courage and competence trust commits 
us to high ethical standards – it is 
central to who and what we are
deliver part of being trusted we 
must deliver on our promises meeting 
our customers’ requirements for quality 
delivery responsiveness and reliability 
always recognising that the safety of our 
products and our people is paramount
excellence if we are trusted and 
we deliver then we will be regarded 
as excellent 
customer
profitable
growth
innovation
fund rd and infrastructure
grow sales
 allocate capital to new growth
reduce costs generate cash  
rollsroyce holdings plc annual report 2013 9
strategic report financial statements directors’ report other information 2013 was another good year for the group 
with significant growth in our order book 
good growth in underlying revenues and 
profits coupled with a cash inflow but as 
ever there are some areas where progress 
has been slower than i would have liked  
our confidence in the future remains high 
reflected in our increased final payment to 
shareholders but as you would expect me  
to say we have more to do on cost and cash 
across the group to deliver the future 
performance implicit in this confidence
the results reflect the full consolidation  
of rollsroyce power systems ag formerly 
tognum ag from 1 january 2013 previously 
tognum was accounted for as a joint venture
order intake in the year of £269 billion saw 
the order book grow yet again to reach 
record levels this reflects £25 billion from 
power systems and £189 billion from our 
civil business reflecting a very successful 
year for the trent xwb this vote of 
confidence from our customers gives good 
visibility and underpins our confidence to 
invest for the future 
underlying revenues and profit before tax 
increased by 27 per cent and 23 per cent 
respectively prior to the impact of 
consolidating power systems underlying 
revenue growth was six per cent and profit 
advanced by 11 per cent the 11 per cent 
growth in profits reflected strong  
margins in defence the benefit of the 
iae international aero engines ag iae 
restructuring which was executed in the 
middle of 2012 and a lower research and 
development charge against profits profits 
were adversely impacted by price pressure  
in our marine business and the pace of cost 
reduction in our civil business 
summary
2013
restated
2012 change
order book £m 71612 60146 19
underlying revenue £m 15505 12209 27
underlying profit before tax £m 1759 1434 23
underlying earnings per share 6559p 5959p 10
full year payment to shareholders 220p 195p 13
reported revenue £m 15513 12161 28
reported profit before tax £m 1759 2766 36
reported earnings per share 7326p 12538p 42
net cash £m 1939 1317
average net cashdebt £m 350 145
  2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits and the change in accounting 
policy for rrsas
our largest business civil aerospace was 
the backbone of the group’s order increase 
and saw revenue grow steadily the installed 
base saw more engines flying more hours 
profit benefited from the higher volumes 
the new iae trading arrangements and 
higher entry fees from our partners 
however our civil profits were held back by 
higher unit costs where progress has lagged 
our expectations but the actions we have 
taken in 2013 will yield savings in 2014
defence aerospace performed very well  
in 2013 largely due to higher export  
sales and lower research and development 
rd spend services held up well albeit 
with some softness on flying hours of 
military transport aircraft we expect a 
1520 per cent decline in both defence 
revenue and profit in 2014 as we complete 
some major export delivery schedules we 
expect original equipment revenue to 
decrease by 3040 per cent due to fewer 
deliveries of engines to power the c130js 
v22 ospreys and typhoons as well as fewer 
adour engine kits 
as always it is important to put this into 
perspective our defence business has had 
two very good years of revenue and profit 
growth which means the numbers we are 
guiding for in 2014 bring us back only to 
2011 revenue levels and we expect growth 
again in 2015 
marine’s offshore and merchant markets 
continue to see intense competition driven 
by overcapacity and price pressure this 
affected the order intake during the year 
that sees order cover for 2014 at a lower level 
than we started 2013 in this challenging 
environment we made some good progress 
on cost but have more to do if we are to 
compete more effectively our naval 
business remains stable
energy saw some improvement in 2013 and 
we continue to work hard to improve further 
its financial performance
power systems delivered a very strong 
second half performance contributing 
£26 billion to revenue in 2013 nil in 2012 
and an underlying profit before tax of 
£257 million 2012 £77 million we are very 
pleased with power systems and it remains a 
key part of our desire to go to market via two 
strong technology platforms gas turbines 
and reciprocating engines
our cost base can be broadly split between 
85 per cent relating directly to our delivered 
product ten per cent indirect commercial 
and administration and five per cent on 
rd we continue to push hard on product 
cost as we work with the internal and 
external supply chains and although civil 
unit costs increased in 2013 we did realise 
improvements in marine and energy  
we expect to see progress across all our 
segments in 2014 in terms of indirect cost 
we achieved our objectives to reduce 
headcount by 11 per cent primarily through 
voluntary severance arrangements after 
taking into account the related restructuring 
costs during the year the benefits to this 
reduction will be seen in future years 
we were pleased with the cash inflow  
of £359 million at group level prior to 
acquisitions disposals and foreign exchange 
which included an inflow of £47 million from 
power systems net working capital improved 
slightly reflecting a good second half 
performance on inventory and higher 
deposits mainly in civil flowing from the 
order intake we made good progress on 
inventory improving turns from 3 to 34 
times excluding power systems helped by a 
consistent focus in the second half of the year 
cost and cash remain areas of intense focus 
going forward
in terms of financial reporting please note 
the following
1  to better align our reporting structure 
with our organisation going forward  
we will report as aerospace and marine 
 industrial power systems mips 
aerospace comprises civil aerospace  
and defence aerospace mips comprises 
our marine power systems energy  
and nuclear businesses our nuclear 
submarines business will be reported 
within energy and nuclear we will 
continue to report the same level of 
financial detail for our business segments 
as we normally do
rollsroyce holdings plc annual report 2013 10 strategic report
chief financial officer’s review mark morris
chief financial officer
development and production phases of the 
contract should be considered separately  
in accounting for the rrsa which results  
in the entry fee being matched against the 
nonrecurring development costs as 
described above 
the frc conduct committee’s view is that 
the rrsa contract cannot be divided into 
separate development and production 
phases as the fees and development 
components received by the group during 
the development phase are exchanged for 
the obligation to pay the supplier a pre
determined share of any sales receipts 
during the production phase on this basis 
the entry fees received would be deferred in 
their entirety and recognised over the period 
of production
the frc conduct committee has confirmed 
that in view of the change to the policy and 
the additional disclosure we have made it 
does not intend to pursue its consideration 
of this accounting policy further we will 
keep the size of the difference under review 
and do not currently expect the difference 
between the two approaches to become 
material in the foreseeable future
we consider that the policy we have adopted 
best reflects the commercial effect of the 
agreements and is in accordance with 
adopted ifrs so far as we can tell it is also 
aligned with the approach taken by others  
in our industry under both ifrs and us 
accounting standards which we believe 
does not conflict with ifrs in this regard 
historically we recognised the entry fee as 
income when received which we believed 
matched it to the recognition of non
recurring development costs incurred on 
behalf of the workshare partner however 
this did not take account of the fact that  
we capitalise some of our nonrecurring 
development costs therefore where we 
capitalise those costs we will now defer the 
equivalent portion of the entry fee received 
and recognise it as the related costs are 
amortised in the production phase as 
required by adopted ifrs we have made this 
change retrospectively the impact of the 
change in policy in 2012 has been to increase 
profit before tax by £25 million and to reduce 
net assets at 31 december 2011 and 2012 by 
£184 million and £170 million respectively 
had the policy not been amended profit 
before tax in 2013 would have been 
£39 million higher and at 31 december 2013  
net assets £208 million higher
adopted ifrs does not explicitly deal with 
payments of this nature from suppliers and 
so in developing an accounting treatment 
for entry fees that best reflects the 
commercial objectives of the contractual 
arrangement we have analysed key features 
of rrsas in the context of relevant 
accounting pronouncements and have had 
to weigh the importance of each feature  
in faithfully representing the overall 
commercial effect consequently this is a 
judgemental area the judgements we have 
taken in respect of this matter are set out in 
detail in note 1 to the financial statements 
in summary our view is that the 
2  consistent with past practice and ifrs 
accounting standards the group provides 
both reported and underlying figures  
we believe underlying figures are more 
representative of the trading 
performance by excluding the impact  
of year end marktomarket adjustments 
principally the gbpusd hedge book in 
addition postretirement financing and 
the effects of acquisition accounting are 
excluded the adjustments between the 
underlying income statement and the 
reported income statement are set out  
in more detail in note 2 to the financial 
statements this basis of presentation  
has been applied consistently since the 
transition to ifrs in 2005 
3  the group has changed its accounting 
policy in respect of entry fees arising from 
risk and revenue sharing arrangements 
rrsas following discussions with the 
conduct committee of the financial 
reporting council frc this is covered 
further in note 1 to the financial 
statements
rrsas with key suppliers are a feature of  
our civil aerospace business under these 
arrangements the workshare partner shares 
in the risks and costs of developing an 
engine and during the production phase 
supplies components and receives a share  
of the programme revenues over the life  
of the engine programme the share of 
development costs borne by the workshare 
partner and of the revenues it receives 
reflect the proportionate forecast cost of 
providing their parts compared to the overall 
forecast manufacturing cost of the engine
the contribution to the development costs  
is achieved by the workshare partner 
performing their own development work 
providing parts in the development phase 
and paying a nonrefundable cash entry  
fee such that both parties bear their 
proportionate share of the forecast non
recurring development costs
the impact of the different approaches on profit before tax and net assets is as follows
2013
 
2012
reported
profit 
before tax
£m
underlying
profit 
before tax
£m
net assets
£m
reported
profit 
before tax
£m
underlying
profit 
before tax
£m
net assets
£m
previous policy 1798 1798 6511 2741 1409 6166
difference 39 39 208 25 25 170
adopted policy 1759 1759 6303 2766 1434 5996
difference 37 37 365 10 10 323
alternative policy 
1
1722 1722 5938 2756 1424 5673
1
 consistent with frc conduct committee’s view
rollsroyce holdings plc annual report 2013 11
strategic report financial statements directors’ report other information underlying revenue increased £33 billion  
to £155 billion of which £26 billion was due 
to the inclusion of rollsroyce power systems 
ag rrps from 1 january 2013 the 
remaining increase six per cent reflects a 
seven per cent growth in oe revenue and  
a four per cent increase in services revenue 
original equipment performance included 
growth of 21 per cent in energy 13 per cent in 
defence aerospace and 12 per cent in marine 
underlying services revenue continues to 
represent around half 47 per cent of the 
group’s underlying revenue in 2013 services 
revenue grew in all businesses as the 
installed base of products continued to  
grow and the services network expanded
underlying profit before financing  
and taxation increased 22 per cent to 
£18 billion including £190 million from the 
consolidation of rrps from 1 january 2013 
excluding rrps the increase was due to a 
number of factors increased revenue 
continued strong margins in defence 
aerospace and the restructured relationship 
with iae 
further discussion of trading is included in 
the business segment reports on pages 14  
to 23
underlying financing costs increased 
18 per cent to £72 million including 
£10 million from rrps
underlying taxation was £434 million  
an underlying tax rate of 247 per cent 
compared with 221 per cent in 2012  
the group’s tax payments are described  
on page 137
underlying eps increased 10 per cent to 
6559 pence lower than the increase in the 
underlying profit after tax due to the nci 
share of rrps
payments to shareholders at the agm on  
1 may 2014 the directors will recommend  
an issue of 134 c shares with a total nominal 
value of 134 pence for each ordinary share 
together with the interim issue on 2 january 
2014 of 86 c shares for each ordinary share 
with a total nominal value of 86 pence this  
is the equivalent of a total annual payment to 
ordinary shareholders of 220 pence for each 
ordinary share further details are on page 43
net underlying rd charged to the income 
statement increased by 18 per cent to  
£624 million including £174 million from 
rrps reflecting a combination of increased 
spend of £33 million offset by higher net 
capitalisation of £61 million due to the 
phasing of major new programmes  
in particular the certification of the  
trent xwb 84k rd tax credits of £28 million 
and net deferral of rrsa entry fees of 
£26 million the group continues to expect 
net rd investment to remain within four 
to five per cent of group underlying revenue
reported profit before tax has reduced  
from £2766 million to £1759 million in 
addition to the changes in underlying profit 
before tax described above reported profit 
before tax has been affected by i the 
impact of marktomarket adjustments on 
derivative contracts £497 million reduction 
ii the impact of consolidating rrps 
£322 million reduction comprising the 
unrealised profit on reclassification to a 
subsidiary the additional amortisation  
on recognised intangible assets and the 
revaluation of the put option on nci  
iii the net impact of disposals £483 million 
reduction disposal of rtm322 in 2013 more 
than offset by the restructuring of iae  
in 2012 and iv the cost of providing 
discretionary pension increases £64 million 
the reported tax charge is affected by the 
related tax impact of these items and the 
reduction of tax rates in the uk this is set 
out in more detail in note 2 to the financial 
statements 
intangible assets note 9 represent long
term assets of the group these assets 
increased by £121 million with additional 
development certification and software 
costs being largely offset by annual 
amortisation charges
the carrying values of the intangible assets 
are assessed for impairment against the 
present value of forecast cash flows 
generated by the intangible asset the 
principal risks remain reductions in assumed 
market share programme timings increases 
in unit cost assumptions and adverse 
movements in discount rates there have 
been no significant impairments in 2013
property plant and equipment increased  
by £283 million due to the ongoing 
development and refreshment of facilities 
and tooling as the group prepares for 
increased production volumes
net postretirement scheme deficits  
note 19 reduced by £100 million as a result 
of adopting the amendments to ias 19 
during the year the net deficit fell by 
£49 million principally due to the 
movements in the assumptions used to 
underlying income statement
£ million 2013
restated
2012 change
revenue 15505 12209 27
civil aerospace 6655 6437 3
defence aerospace 2591 2417 7
marine 2527 2249 12
energy 1048 962 9
power systems 2831 287 886
intrasegment 147 143
profit before financing and taxation 1831 1495 22
civil aerospace 844 743 14
defence aerospace 438 395 11
marine 281 294 4
energy 26 19 37
power systems 294 109 170
intrasegment 2 11
central costs 54 54
net financing 72 61 18
profit before taxation 1759 1434 23
taxation 434 317 37
profit for the year 1325 1117 19
eps 6559p 5959p 10
payments to shareholders 220p 195p 13
other items
gross rd investment 1118 919 22
net rd charged to the income statement 624 531 18
  2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits and the change in accounting 
policy for rrsas
rollsroyce holdings plc annual report 2013 12 strategic report
chief financial officer’s review value the underlying assets and liabilities in 
accordance with ias 19 this reduction in the 
deficit was after agreeing to fund additional 
pension increases in the rollsroyce pension 
fund where there is no indexation for 
pre1997 service at a cost of £64 million 
overall funding across the schemes has 
improved in recent years as the group has 
adopted a lower risk investment strategy 
that reduces volatility going forward and 
enables the funding position to remain 
stable interest rate and inflation risks are 
largely hedged and the exposure to equities 
is around 11 per cent of scheme assets
the group’s funding of its defined benefit 
schemes is expected to increase modestly  
in 2014 largely as a result of funding the 
discretionary benefits
net funds increased by £06 billion to  
£19 billion due in part to the £250 million 
proceeds received on the sale of the group’s 
interest in the rtm322 engine average net 
funds were £350 million
investments in joint ventures and 
associates increased by 15 per cent largely 
as a result of retained profits in existing 
joint ventures
provisions largely relate to warranties and 
guarantees provided to secure the sale of  
oe and services
net financial assets and liabilities relate to 
the fair value of foreign exchange commodity 
and interest rate contracts financial rrsas 
and the put option on the nci of rollsroyce 
power systems holding gmbh set out in 
detail in note 17 the change largely reflects 
the inclusion of the put option there is also 
an impact of the change in the gbpusd 
exchange rate on the valuation of foreign 
exchange contracts and the movement in  
put options on nci of £259 million 
the usd hedge book increased ten per cent
 
to us247 billion this represents around 
four years of net exposure and has an 
average book rate of £1 to us159 
net totalcare® assets relate to longterm 
service agreement ltsa contracts in the 
civil aerospace business including the 
flagship services product totalcare these 
assets represent the timing difference 
between the recognition of income and 
costs in the income statement and cash 
receipts and payments
customer financing facilitates the sale of oe 
and services by providing financing support 
to certain customers where such support  
is provided by the group it is generally to 
customers of the civil aerospace business 
and takes the form of various types of credit 
and asset value guarantees these exposures 
produce contingent liabilities that are 
outlined in note 18 the contingent liabilities 
represent the maximum aggregate 
discounted gross and net exposure in respect 
of delivered aircraft regardless of the point 
in time at which such exposures may arise
during 2013 the group’s gross exposure 
reduced by £213 million to £356 million due 
largely to the expiry of guarantees on a net 
basis exposures reduced by £11 million
segmental reporting
during 2013 we have revised the internal 
structure of the business to focus on 
i aerospace and ii marine and industrial 
markets the internal reporting structure has 
been developed to reflect this consequently 
in accordance with ifrs 8 operating 
segments from 1 january 2014 we will 
report the group’s segments as follows 
aerospace comprising civil aerospace and 
defence aerospace and 
marine and industrial power systems 
comprising marine power systems energy 
and nuclear 
balance sheet
£ million 2013
1 january 2013
 including
 power systems
restated
31 december
 2012 
intangible assets 4987 4866 2901
property plant and equipment 3392 3109 2564
net postretirement scheme deficits 793 842 445
net working capital 970 819 1321
net funds 1939 1354 1317
provisions 733 741 461
net financial assets and liabilities 1587 154 127
joint ventures and associates 601 523 1800
other net assets and liabilities 533 515 232
net assets 6303 6781 5996
other items
usd hedge book us billion 247 225
totalcare assets
 1
1901 1629
totalcare liabilities
 2
314 317
net totalcare assets 1587 1312
gross customer finance contingent liabilities 356 569
net customer finance contingent liabilities 59 70
  2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits and the change in accounting 
policy for rrsas
1
 included in amounts recoverable on contracts note 13
2
 included in accruals and deferred income note 16
the 2013 figures on the revised basis are 
included in note 26 to the financial 
statements
group 2014 guidance
for the full year 2014 we expect underlying 
group revenue and profit to be flat this 
reflects a significant decline in defence 
revenue as we complete the delivery phase 
of a number of major export programmes 
additionally the largest part of our marine 
business offshore will generate lower 
revenue in 2013 we expect growth to 
resume in 2015 as civil and defence 
deliveries increase
we expect profitability to be much stronger 
in the second half of 2014 reflecting the 
timing and mix of trading and cost 
reduction to be more consistent with 
market practice our cash guidance in the 
future will be based on free cash flow we 
expect our 2014 free cash flow to be similar 
to 2013 £781 million 
additional financial information can be 
found on pages 137 and 138
rollsroyce holdings plc annual report 2013 13
strategic report financial statements directors’ report other information revenue by sector 2013
 57 widebody
 32  corporate and regional
 11 narrowbody
 46 oe revenue
 54 services revenue
revenue mix 2013
£6655m
underlying revenue 2013
overview
underlying revenue £m
4481
2009 2010 2011 2012 2013
4919
5572
6437
6655
we remain focused on delivering 
on all of our major programme 
commitments
tony wood
president – aerospace
strategic report rollsroyce holdings plc annual report 2013 14
civil aerospace rollsroyce powers more 
than 30 types of commercial 
aircraft and has almost 
13000 engines in service 
around the world
what we do
the civil aerospace segment is a major 
manufacturer of aero engines for the  
airliner and corporate jet markets we have 
particular strengths in the widebody 
market where rollsroyce has a 54 per cent 
share of aircraft on order demand for our 
products and services remains robust 
2013 financial review
the order book increased 22 per cent 
including new orders of £189 billion  
£103 billion in 2012 trent engines and 
aftermarket services now constitute 
73 per cent of the civil aerospace order book 
revenue increased three per cent including 
three per cent growth in oe revenue there 
was a 20 per cent increase in business jet 
engine deliveries and a small increase in 
trent engines profit increased 14 per cent 
reflecting higher volumes the £112 million 
higher benefit from the restructured 
trading relationship with iae and £26 million 
higher rrsa entry fees 
in 2014 we expect modest growth in 
revenue and good growth in profit 
how we are performing
the airline industry saw global passenger 
traffic up around five per cent in 2013 
airlines in developed markets benefited 
from a modest economic recovery in many 
developing markets there were significant 
increases in traffic supported by economic 
growth and market liberalisation
civil large engines nearly 1400 trent 700 
engines for the airbus a330 have been 
delivered to date and during 2013 airbus 
delivered the 1000th aircraft the milestone 
aircraft and its trent 700 engines were 
accepted by cathay pacific the first airline  
to put the trent 700 into service in 1995
important milestones were achieved in  
two major civil large engine programmes  
in june the first flight of the new airbus 
a350 xwb was powered by our trent xwb 
engines then in september the boeing 
7879 version of the dreamliner took to the 
skies for the first time powered by our  
trent 1000 engines 
singapore airlines group placed a major 
order with us to power 50 boeing 787 
aircraft with trent 1000 engines
in july we celebrated the first delivery of  
two new rollsroyce powered aircraft to the 
british airways fleet – the airbus a380 and 
the boeing 787 dreamliner 
in september we announced that due to the 
current regulatory environment we would 
not proceed with a planned joint venture 
with united technologies corporation to 
develop an engine to power future midsize 
aircraft rollsroyce remains fully committed 
to this important market segment and we 
continue to invest in technologies that will 
enable us to take advantage of opportunities 
as they arise
the trent xwb will enter service in 2014 
with qatar airways this is the bestselling 
trent engine yet with more than 1600 
engines already on order 
significant orders for the trent xwb came 
from airlines in europe north america the 
middle east and asia and these included a 
landmark first ever engine order for  
rollsroyce from japanese airline jal
corporate and regional in our corporate 
and regional engine business we delivered 
the 3000th br700 series engine this engine 
series powers the gulfstream g500 and 
g550 the bombardier global 5000 and 
global 6000 br710 the boeing 717 br715 
and the gulfstream g650 br725
the first production version of the cessna 
citation x business jet flew in august 
powered by our ae 3007c engines deliveries 
of the new aircraft are due to begin in 
early 2014
services revenue from services for civil 
airliners increased by three per cent in 2013 
reflecting continued growth in the fleet of 
widebodied engines more than 1100 
aircraft in service are covered by totalcare
some 1500 business aircraft are covered  
by corporatecare® and in 2013 more than 
70 per cent of customers for new rollsroyce 
powered business jets enrolled in 
corporatecare
future priorities and opportunities
in 2014 particular priority will be given to 
supporting the smooth entry into service  
of the airbus a350 xwb rollsroyce is the 
sole engine supplier for this new aircraft 
and orders for the trent xwb represent 
53 per cent of the civil aerospace order book 
significant management attention  
will continue to be paid to financial 
performance in particular reducing costs 
and improving inventory turn 
developing new technology for future 
engine programmes and enhancing existing 
products remains a major priority 
market outlook we estimate that the  
global civil engine market will be worth 
approximately us1750 billion over the next 
20 years with us1050 billion being for 
original equipment and us700 billion of 
aftermarket services over half of this value 
comprises engines for twin aisle airliners 
and large business jets where rollsroyce is 
currently the number one engine supplier  
in terms of market share our forecasts are 
based on our own internal forecasting tools 
data from ascend online fleets and airline 
schedules from official airline guide oag
highlights
 first flight of the airbus a350 xwb 
powered by trent xwb engines 
 first flight of the boeing 7879 powered 
by trent 1000 engines
 major new trent orders from jal iag 
lufthansa united singapore and etihad
 delivered the 3000th br700 series engine
key financial data
2009 2010 2011 2012 2013 
order book £m 47102
8
48490
3
51942
7
49608
4
60296
22
engine deliveries 844 846 962 668 753
underlying revenue £m 4481
0
4919
10
5572
13
6437
16
6655
3
underlying oe revenue £m 1855 1892 2232 2934 3035
underlying service revenue £m 2626 3027 3340 3503 3620
underlying profit before financing £m 493
13
392
20
499
27
743
49
844
14
 all years before 2012 include iae order book and engine deliveries include iae v2500
rollsroyce holdings plc annual report 2013 15
strategic report financial statements directors’ report other information  38 combat
 48 transport
 14 uavtrainer
 50 oe revenue
 46 services revenue
 4 development
revenue by sector 2013 revenue mix 2013
overview
underlying revenue £m
£2591m
underlying revenue 2013
2010
2123
2235
2417
2591
2009 2010 2011 2012 2013
we are focused on managing 
costs to ensure we can 
effectively compete and win 
in today’s challenging market 
tom bell
president – defence aerospace
rollsroyce holdings plc annual report 2013 16 strategic report
defence aerospace we are the second largest 
provider of defence  
aeroengine products  
and services globally with 
around 16000 engines  
in service with over 160 
military customers in  
more than 100 countries 
what we do 
our engines power aircraft in every major 
market sector including transport combat 
patrol trainers helicopters and unmanned 
aerial vehicles 
2013 financial review
the defence order book declined 21 per cent 
15 per cent decrease in 2012 reflecting 
continued budgetary pressures on our major 
customers the net order intake of £16 billion 
was five per cent higher than the previous 
year revenue increased seven per cent 
reflecting a 13 per cent increase in oe and a 
two per cent increase in services strong oe 
growth was driven by higher export sales 
particularly of our ej200 and adour engine 
programmes profit increased 11 per cent due 
to higher volumes and lower rd spending 
in 2014 we expect a decline in revenue and 
profit of between 1520 per cent before 
growth resumes in 2015 this one year 
decline is the consequence of well publicised 
cuts in defence spending among major 
customers and the completion of the 
delivery phase of a number of major export 
programmes after two record years this 
rebasing supported by cost reduction 
programmes will position the business well 
for future growth
how we are performing
2013 was a challenging year as traditional 
markets continued to experience 
unprecedented budgetary pressures while 
this environment creates risks for existing 
business it also presents opportunities for 
us to develop innovative solutions to meet 
the evolving needs of our customers 
nowhere is this more evident than in  
the area of services where we have the 
opportunity to help customers manage  
their budgets and costs more efficiently
we also continue to pursue new equipment 
sales opportunities in global markets such 
as asia and the middle east where budgets 
are less constrained
missioncare contracts worth £492 million 
were secured in 2013 these included the 
first missioncare contract for the support  
of ej200 engines in saudi arabia 
in order to get closer to our customers we 
are expanding our presence at operational 
bases during 2013 we opened a new 
support facility at raf marham in the uk 
and announced another at tinker air force 
base in the us 
inservice fleets continue to benefit from 
technology enhancements with the 
upgraded ae 1107 now providing 17 per cent 
more power for the v22 osprey aircraft  
the latest t56 enhancement kits achieved 
federal aviation authority faa certification 
and recorded their first sales in the us 
where fuel savings in the us air force c130 
fleet could amount to billions of dollars 
our leading position in transport was 
underpinned by the entry into service of  
the a400m powered by tp400 engines 
broadening our portfolio in a market where 
the rollsroyce powered c130 is the leading 
player this year we delivered our 1500th 
ae 2100 engine for the c130j
the rollsroyce liftsystem® continued to 
perform well as the f35b lightning ii 
aircraft expanded its flight test programme 
and deliveries to the us marine corps 
accelerated we delivered the 40th  
rollsroyce liftfan and the 50th 3 bearing 
swivel module 3bsm 
in order to concentrate our resources on 
markets where we can add greatest value 
we sold our share in the rtm322 helicopter 
engine programme to turbomeca a safran 
company in september 2013 to further 
improve efficiency we have reconfigured 
our organisation to bring us closer to our 
major customers 
we expect our services business to  
continue to grow as we continue to provide 
customers with greater capability
future priorities and opportunities
we are focused on managing costs to ensure 
we maximise our ability to compete and win 
in an increasingly uncertain market 
our inclusion in the hawk advanced jet 
training system team to pursue the us air 
force tx training contract provides just one 
of several paths to growth customers also 
continue to invest in their transport aircraft 
fleets where we have a strong position 
defence applications for the trent 700  
should increase as the airbus a330 tanker 
aircraft is selected by more military 
customers the uk’s fleet of tankers 
continues to expand with rollsroyce 
benefiting both as the engine supplier  
and as an airtanker shareholder
market outlook we estimate a business 
opportunity over the next 20 years of 
us155 billion in original equipment and 
us260 billion in services source forecast 
international 2014
highlights
 tp400powered a400m entered service
 missioncare contract for saudi arabian 
ej200 engines secured 
 1500th ae 2100 engine delivered
 upgraded ae 1107 engines for v22 osprey 
 t56 enhancement kits gained first sales
 delivered 40th rollsroyce liftfan for f35b 
lightning ii fighter programme
 rtm322 helicopter engine programme  
sold to turbomeca 
key financial data
2009 2010 2011 2012 2013 
order book £m 6451
17
6506
1
6035
7
5157
15
4071
21
engine deliveries 662 710 814 864 893
underlying revenue £m 2010
19
2123
6
2235
5
2417
8
2591
7
underlying oe revenue £m 964 1020 1102 1231 1385
underlying service revenue £m 1046 1103 1133 1186 1206
underlying profit before financing £m 253
13
309
22
376
22
395
5
438
11
rollsroyce holdings plc annual report 2013 17
strategic report financial statements directors’ report other information marine
 37 naval
 15 merchant
 48  offshore
 57 oe revenue
 43 services revenue
revenue by sector 2013 underlying revenue £m revenue mix 2013
overview
£2527m
underlying revenue 2013
innovation remains an important 
differentiator in the sector as 
technology will address the future 
challenges related to the 
environment and the cost of 
owning and running vessels
lawrie haynes
president – marine and nuclear
2589 2591
2271 2249
2527
2009 2010 2011 2012 2013
rollsroyce holdings plc annual report 2013 18 strategic report the marine segment has 
4000 customers and 
equipment installed on over 
25000 vessels worldwide 
including those of 70 navies 
what we do 
we are leaders in the provision and 
integration of complex missioncritical 
systems for offshore oil and gas merchant 
and naval vessels we are located in 35 
countries and have a global service network 
supporting our customers’ operations 
around the clock
our advanced ship designs combine the 
latest technologies to offer highlyefficient 
solutions for ship owners and operators 
including a range of engines using liquefied 
natural gas lng 
2013 financial review
the order book increased one per cent 
including new orders of £27 billion 
£33 billion in 2012 in 2013 we saw stable 
order inflow in our merchant and naval 
businesses this was offset by weaker  
order flow in offshore where the phasing  
of projects has slowed growth in some of our 
key products revenue increased 12 per cent 
reflecting higher sales in both new 
equipment and in services growth was 
particularly strong in offshore and in naval 
offset by further weakening in our merchant 
business which declined 11 per cent profit 
decreased four per cent as volume growth 
was more than offset by pricing pressure 
and a less favourable mix in 2013 
profitability was also offset by investments 
in marine to better position the business for 
future growth including higher spending on 
rd and restructuring costs 
in 2014 we expect a modest decline in 
revenue with a modest increase in profit 
the nuclear submarine business will be 
reported in the energy and nuclear segment 
going forward
how we are performing
the global shipbuilding industry has had  
a challenging year important factors driving  
the market continue to be ship efficiency 
environmental performance and value 
for money 
merchant the adoption of lng as a marine 
fuel is gaining momentum the first 
lngpowered cargo vessel of our environship 
design took to the seas in may the world’s 
first lngpowered cruise ferry entered 
service during the summer and the world’s 
first lngpowered tug boat was delivered 
we also won our first contract to convert a 
dieselpowered cargo ship to lng bergen 
engines using lng fuel are all provided via 
the power systems business segment
naval our mt30 gas turbine was 
successfully installed in the royal navy’s new 
aircraft carrier hms queen elizabeth the 
mt30 was also selected by bae systems for 
the uk’s new type 26 frigate programme and 
has now been selected by navies in the uk 
us and south korea across five types of ship 
we delivered a new design of water jet to the 
us navy’s littoral combat ship programme
this year we opened a new facility in derby 
uk to support our submarine business in 
february we agreed an £800 million 
contract with the mod for the provision of 
nuclear propulsion systems for the uk’s 
submarine flotilla a critical design gate was 
successfully passed by our new nuclear plant 
design pwr 3 
offshore we delivered one of our most 
advanced vessels to date when a ut 830 
seismic survey ship was launched it features 
a wealth of rollsroyce equipment 
integrated into our own vessel design  
it is now at work identifying oil and gas 
reserves around the world 
our wavepiercing hull design was chosen for 
the first time in asia when chinese customer 
cosco announced an order for two ut 
vessels with options for four more these will 
feature a range of rollsroyce equipment 
and include mtu diesel gensets from our 
rollsroyce power systems ag subsidiary 
several contracts were won to supply our 
largest azimuth thrusters for drill ships 
we enhanced our technology portfolio 
through the acquisition of a norwegian 
company smartmotor as a leader in 
permanent magnet technology 
services we offer customers a global  
service capability through a network of 37 
workshops in 28 countries with more than 
1100 service engineers we provide round
theclock support wherever our customers 
need it and offer not only repair and overhaul 
but also a growing number of vessel 
upgrades to improve efficiency we also train 
our customers in the operation of our 
equipment in our training centres in norway 
singapore and brazil this year we opened 
our third workshop in southern china 
future priorities and opportunities
the key priorities for the marine segment 
are to increase our competitiveness in a 
challenging market and continue to develop 
innovative technologies 
we will continue to develop the synergies 
between the marine and power systems 
segments we are working with a number  
of oil majors in developing the availability  
of lng the aftermarket offers growth 
opportunities as we continue to utilise  
our growing global network of service 
engineers and workshops in submarines 
our focus is on maintaining customer 
confidence by achieving our savings 
commitment to the mod through  
increased operational efficiency 
market outlook we see a business 
opportunity over the next 20 years of 
us270 billion for original equipment and 
us125 billion for services not including 
nuclear submarine business based on our 
own forecasting tools
key financial data
2009 2010 2011 2012 2013 
order book £m 3526
32
2977
16
2737
8
3954
44
3996
1
underlying revenue £m 2589
17
2591
0
2271
12
2249
1
2527
12
underlying oe revenue £m 1804 1719 1322 1288 1438
underlying service revenue £m 785 872 949 961 1089
underlying profit before financing £m 263
44
332
26
287
14
294
2
281
4
 2011 figures restated due to transfer of bergen to power systems segment
highlights
 a range of world ‘firsts’ of lngpowered 
vessel types delivered 
 mt30 selected for the new uk mod  
type 26 frigate
 £800 million contract agreed with uk mod  
for provision of future nuclear submarine 
propulsion systems
 new ut 830 seismic survey vessel launched
 cosco ordered new wavepiercing design 
of offshore vessels
 third service centre in china opened
rollsroyce holdings plc annual report 2013 19
strategic report financial statements directors’ report other information  68 oil and gas
 21 power generation
 11  civil nuclearother
 40 oe revenue
 60 services revenue
revenue by market sector 2013 underlying revenue £m
overview
£1048m
underlying revenue 2013
revenue mix 2013
1028
1233
1083
962
1048
2009 2010 2011 2012 2013
we are capitalising on oil and 
gas demand we will also grow 
our civil nuclear services globally 
and support the uk new build 
programme 
andrew heath
president – energy
rollsroyce holdings plc annual report 2013 20 strategic report
energy energy has sold 4600 gas 
turbines with 180 million 
operating hours recorded 
rollsroyce has over 
50 years of experience 
in the nuclear industry
what we do
our energy segment supplies customers 
with aeroderivative gas turbines 
compressors and related services 
in civil nuclear we provide products and 
services spanning the nuclear reactor 
lifecycle from concept design and 
installation to obsolescence management 
and plant life extension we have a strong 
position in nuclear instrumentation and 
control systems
2013 financial review
the order book increased by 14 per cent 
with new orders of £11 billion £08 billion 
in 2012 the business saw a strong recovery 
in order intake in oil and gas power 
generation markets remain suppressed 
in civil nuclear we continue to extend the 
suite of products and services that we offer 
to nuclear utilities to enable them to achieve 
safe efficient and reliable lifetime reactor 
operations revenue increased nine per cent 
driven by higher oe volumes in our oil and 
gas business profit increased by £7 million 
reflecting higher volumes partially offset 
by strong pricing pressure and continued 
investment in our civil nuclear business 
we continue to work to improve the 
financial performance of the business 
in 2014 energy will include nuclear 
submarines to form our energy and nuclear 
business we expect good growth in revenue 
and profit with further improvement in the 
return on sales 
how we are performing
oil and gas in total 33 rb211 gas turbines 
were ordered for oil and gas applications 
22 of which were for pipeline compression 
projects this includes a us175 million 
contract from asia gas pipeline for 12 units
our new purposebuilt packaging assembly 
and test facility in santa cruz brazil became 
operational and the first units were delivered 
to petrobras for use in its deepwater offshore 
production activities
power generation demand continued to be 
subdued for new power generation capacity 
in mature economies seven trent 60 units 
were ordered including five for the sarb 
offshore oilfield project in the uae
we released enhanced power ratings for 
the trent 60 gas turbine consolidating 
its position as the most powerful aero 
derivative available
services we continue to strengthen both our 
aftermarket products and services capability 
as well as our penetration of the installed 
fleet resulting in a six per cent yearonyear 
increase in aftermarket revenue 
currently 24 per cent of the core engine 
fleet is under longterm service agreements 
during the year we received several new major 
service contracts including a us138 million 
fiveyear contract from petrobras to support 
15 of its rb211 industrial gas turbine power 
generation units installed on four oil 
platforms operating in the campos basin
civil nuclear we strengthened our strategic 
relationships during the year with areva 
westinghouse hitachi edf and rosatom 
our acquisition of pkmj technical services 
in the us means we now provide services to 
every nuclear utility in the us and canada 
we continued to deliver the instrumentation 
and control ic upgrade for edf’s fleet of 
1300mw nuclear reactors in france and 
provided ic systems and components for 
seven new nuclear reactors currently under 
construction in china
future priorities and opportunities
our focus is on growing our market position 
in oil and gas including opportunities in 
pipelines and lng in power generation we 
will benefit from any recovery in industrial 
demand for electricity
in civil nuclear our priorities will continue 
to be satisfying our customers winning new 
orders and highquality delivery improving 
operational efficiency will be a key feature 
for the nuclear business during 2014 
we will assess potential investments in 
highvalue manufacturing in order to 
contribute positively to a successful new 
build programme for the uk
in international markets we will extend the 
suite of products and services that we offer 
to nuclear utilities to enable them to achieve 
safe efficient and reliable lifetime nuclear 
reactor operations
market outlook in the oil and gas and 
power generation sectors the group’s 
20year forecast values demand for total 
aeroderivative gas turbine and compressor 
systems at more than us60 billion and 
associated services at around us60 billion 
sources mccoy power reports lek consulting 
booz  co iea infield systems and our own 
forecasting tools we estimate a demand for 
nuclear missioncritical equipment systems 
engineering and support services of 
us610 billion over the next 20 years 
based on nuclear capacity forecasts from 
the international energy agency the world 
nuclear association the international 
atomic energy agency and the us 
department of energy
key financial data
2009 2010 2011 2012 2013 
order book £m 1262
1
1180
6
1420
20
1290
9
1469
14
engine deliveries 87 95 48 49 56
underlying revenue £m 1028
36
1233
20
1083
12
962
11
1048
9
underlying oe revenue £m 558 691 527 344 415
underlying service revenue £m 470 542 556 618 633
underlying profit before financing £m 24
1300
27
13
16
41
19
19
26
37
 2011 figures restated due to transfer of bergen to power systems segment
highlights
 33 rb211s ordered for oil and gas 
applications
 major service contract secured with 
petrobras 
 new santa cruz brazil assembly plant 
operational
 signed tripartite agreement with rosatom 
and fortum to assess nuclear reactor 
design for uk new build
 renewed agreement with westinghouse 
to provide nuclear inspection services 
in the us
rollsroyce holdings plc annual report 2013 21
strategic report financial statements directors’ report other information 2013 proved a challenging year 
however in 2014 we expect 
most markets to stabilise
john paterson
president – marine and industrial power systems
 71 oe revenue
 29 services revenue
revenue mix 2013 underlying revenue £m
overview
£2831m
underlying revenue 2013
2846 2831
2012 2013
 35 marine
 26 industrial
 27 energy
 12  defence and other
revenue by market sector 2013
rollsroyce holdings plc annual report 2013 22 strategic report
power systems rollsroyce and daimler ag 
each has a 50 per cent 
shareholding in rollsroyce 
power systems holding 
gmbh
power systems is based in friedrichshafen  
in southern germany and together with its 
worldwide subsidiaries employs around 
11000 people it specialises in reciprocating 
engines propulsion systems and distributed 
energy systems the company previously 
operated under the name of tognum ag  
in 2013 bergen engines as including its 
subsidiaries was contributed to the business
what we do 
the product portfolio includes mtubrand 
highspeed engines and propulsion systems 
for ships for heavy land rail and defence 
vehicles and for the oil and gas industry 
under the mtu onsite energy brand the 
company markets diesel and gas gensets for 
applications such as emergency base load 
peak load or cogeneration bergen engines 
as manufactures mediumspeed engines for 
marine and power generation applications 
l’orange completes the portfolio producing 
fuel injection systems for large engines
2013 financial review
the order book increased 6 per cent with new 
orders of £27 billion £28 billion in 2012 the 
final quarter of 2013 saw strong sales driven 
by the prepurchase of engines for industrial 
including agricultural applications ahead of 
the introduction of tighter environmental 
standards in europe marine revenue is well 
supported by demand from navies in asia 
and the us in defence major programmes to 
power military tanks provide stability despite 
continued pressure on government spending 
revenue decreased 05 per cent with good 
growth in the marine and industrial  
divisions offset by lower revenue in oil  
and gas mediumspeed engines and  
lower aftermarket sales profit increased 
03 per cent reflecting a strong second half 
the fjord line shipping company ordered 
bergen gaspowered engines its 
stavangerfjord and bergensfjord cruise 
ferries both 170 metres long are each to be 
equipped with four bergen bgas engines 
the engines ensure that these ships already 
meet future imo tier iii limits as well as 
satisfying mandatory eu regulations 
projected for 2015 for sulphur emissions 
from ferries
in addition to these contract wins we 
continue to build capacity through joint 
ventures and partnerships l’orange has 
established a consortium with hoerbiger for 
the supply of equipment for largescale diesel 
and dualfuel engines for the asian market 
onsite energy and regional polish energy 
supplier kogeneracja zachód intend to form  
a partnership for the supply and maintenance 
of cogeneration plants over the coming years 
both companies plan on working exclusively 
with each other to supply small to medium
sized polish cities with environmentally
friendly energy from chp plants
future priorities and opportunities
our longterm growth relies on five pillars 
power propulsion services regional 
expansion and the product portfolio
in 2014 we expect most markets to stabilise 
although some segments are expected to 
remain difficult this leads us to expect 
continued volatility in revenues overall we 
expect to see a positive performance 
primarily driven by marine applications
we will invest in future technologies to 
maintain our technological leadership we are 
configuring our different engine series to 
meet tougher emission standards at the same 
time we will improve efficiency and keep a 
focus on costs and cash in all other areas
market outlook we estimate the total 
market opportunity for highspeed engine 
original equipment over the next ten years 
to be €280 billion the forecast data is taken 
from a range of sources including global 
insight oxford economics diesel and gas 
turbine worldwide clarkson research and 
our own internal forecasting tools
in 2014 we expect modest growth in revenue 
and good growth in profit driven by growth 
in marine and land power systems markets
how we are performing
2013 proved a challenging year headwinds 
confronting the business included the 
eurozone crisis us fiscal challenges and 
slowing of growth in emerging countries 
general nervousness about the global 
economic environment led to constrained 
order activity within the market
despite these adverse market conditions a 
number of significant orders and contracts 
were achieved
as outlined in the marine segment review 
power systems also benefited from contracts 
awarded by chinese customer cosco and 
from the uk mod for the generator sets of  
the royal navy’s future type 26 frigate the  
type 26 propulsion system will consist of a 
combination of four mtu diesel gensets and a 
rollsroyce mt30 gas turbine these examples 
highlight the synergies and benefits of 
complementary product portfolios
mtu introduced the upgraded series 1163 
marine engines for imo tier ii and imo  
tier iii emission standards these are cleaner 
and more fuelefficient than the previous 
generation and offer a better powerto
weight ratio
for the british intercity express programme 
mtu received orders of rail powerpacks with 
series 1600 engines the powerpacks will 
drive hitachi’s future highspeed trains 
which are scheduled to go into service from 
2017 on great western main line and east 
coast main line routes twenty locomotives 
built by chinese manufacturer dalian 
locomotive  rolling stock and powered by 
mtu engines went into service in argentina
chinabased xiangtan electric manufacturing 
corporation shipped its first ever export of 
mine dump trucks to the pilbara mine site  
in australia for rio tinto each of the 230 
metric ton trucks is powered by an mtu 
mining engine
key financial data
2012 2013 change 
order book £m 1823 1927 57
underlying revenue £m 2846 2831 05
underlying oe revenue £m 1938 2004 34
underlying services revenue £m 908 827 89
underlying profit before financing £m 293 294 03
the table above shows a trading comparison as if both tognum and bergen engines had been fully consolidated in 2012  
as well as in 2013
highlights
 mtu powerpacks ordered for uk intercity 
express programme
 fjord line ordered bergen engines for 
cruise ferries
 upgraded series 1163 engines introduced
 uk mod selects mtu gensets alongside 
mt30 gas turbine
 polish partnership to be created to supply 
and maintain cogeneration plants
 mining trucks powered by mtu delivered 
to rio tinto in australia
rollsroyce holdings plc annual report 2013 23
strategic report financial statements directors’ report other information in 2013 we invested £1118 million in gross 
research and development rd of which 
£746 million was funded by the group prior 
to receipts from risk and revenue sharing 
arrangements 
we continually pursue innovation that will 
improve the performance of our power 
systems and benefit our customers 
we have developed and actively deployed 
a new innovation portal to improve the 
exchange of ideas around the world as we 
invest to improve the efficiency of our 
global rd footprint
people
we have an engineering resource inside the 
group of around 16600 engineers many 
work as integrated teams across borders on 
our major programmes and a number of our 
top engineers or rollsroyce fellows are 
recognised as worldrenowned experts in 
their fields
we continued our commitment to recruit 
and develop the very best engineers and 
scientists and the first cohort of our 
evolving internal specialist academy has 
graduated in october 2013 the academy 
has been designed for technologists who 
have the potential to join the rollsroyce 
fellowship at the very top of our specialist 
career ladder
research and technology
worldclass technology gives us competitive 
product performance we generate the 
largest number of patents of any uk 
company 549 new patent applications were 
approved for filing in 2013 including 
rollsroyce power systems ag to further 
expand our capabilities we acquired 
hypertherm htc a usbased specialist 
in ceramic materials and smartmotor a 
world leader in permanentmagnet machines 
and drives technology headquartered in 
norway in addition we acquired from gkn 
the 49 per cent of composite technology 
and applications limited ctal that we 
did not already own giving us 100 per cent 
ownership ctal is engaged in the 
development of composite fan blades and 
containment cases for the next generation 
of advanced turbofan engines
in 2013 we further increased our 
investment in earlystage research and 
technology to about 20 per cent of the net 
rd spend we have good visibility of stable 
longterm government matchfunding for 
research investments in aerospace 
technologies following the creation in the 
uk of the aerospace technology institute 
and in the eu through the clean sky 2 joint 
technology initiative in horizon 2020 and 
continuous german support via
luftfahrtforschungsprogramm lufo v 
university technology centres
in addition to our significant inhouse rd 
capability we pursue advanced technologies 
via a global network of 29 university 
technology centre utc partnerships 
each centre is partfunded by the group and 
works closely with our engineering teams 
undertaking specialist work led by world
class academics in 2013 nanyang 
technological university joined this network 
with the launch of the rollsroycentu 
corporate lab a joint investment of 
sgd75 million £385 million between 
rollsroyce nanyang university and the 
national research foundation nrf 
of singapore 
our model of developing technology 
through collaboration with academia 
and other partners was recognised by the 
german fraunhofer institute for production 
technology which benchmarked 160 
european companies rollsroyce was one 
of five companies to receive the ‘successful 
practices’ award in technology 
management in 2013
research and development
flight test results have shown the trent xwb 
to be the world’s most efficient large civil 
aero engine 
the trent 1000 package c received easa 
certification in september and a few weeks 
later powered the newest version of the 
dreamliner the boeing 7879 on its first 
flight from seattle usa
the joint strike fighter f35b with short take 
off and vertical landing stovl capability 
provided by the rollsroyce liftsystem® 
successfully completed its second set of 
carrier trials aboard the uss wasp in august 
2013 in september the t56 engine series 35 
technology enhancement program received 
faa approval and has now been chosen to 
power the ‘hurricane hunter’ aircraft of 
the us national oceanic and atmospheric 
administration
in 2013 we received the green ship 
technology award for our environship 
concept – a design for cargo ships that 
reduces co 2 emissions by up to 40 per cent 
compared to similar diesel powered vessels
colin smith cbe
director – engineering and technology
we continued our commitment 
to recruit and develop the very best 
engineers and scientists
gross research and development £m
864
2009 2010 2011 2012 2013
923
908 919
1118
rollsroyce holdings plc annual report 2013 24 strategic report
engineering and technology development training and is expected 
to secure at least 5000 highvalue 
manufacturing jobs in aerospace we are 
also supporting a £76 million sharing in 
growth programme in the nuclear industry
we continue to seek new capabilities in 
emerging markets across the world through 
our supplier development groups these help 
drive competition with our existing internal 
plants and suppliers and also allow us to 
develop new markets – brazil energy and 
china marine being good examples we 
expect the proportion of our supplier spend 
in emerging markets to increase 
information technology 
in 2013 we invested over £100 million in it 
continuing with the modernisation of our 
it infrastructure and also launching our shop 
floor it modernisation programme we have 
launched an integrated production systems 
programme to address the need for 
simplified globally scalable and secure 
systems the programme will improve 
delivery to the customer whilst improving 
efficiency and reducing operating costs we 
are also investing in our customer systems 
to improve the customer experience through 
the use of portals and digital workflow 
£687 million
expenditure in 2013 on property plant 
and equipment
we are delivering customer and business 
benefits as we continue to invest at record 
levels and transform our industrial 
infrastructure
our teams around the world focus on 
improvement in all the classical operational 
metrics – safety quality cost ontime 
delivery inventory – while at the same time 
ensuring that the next generation of 
advanced products and processes are 
successfully industrialised 
our operations employ 25000 people in 
17 countries at 85 rollsroyce facilities 
in addition 33 joint venture facilities seven 
manufacturing technology partnerships 
and over 70 significant suppliers help us 
to meet customer demand 
developing our capacity
this year we have extended our own 
capacity and capability this included our 
new turbine blade factory in rotherham 
uk and our new 17000 square metre 
stateoftheart discs manufacturing facility 
in washington uk that has now started 
production when fully operational later this 
year it will have the capacity to manufacture 
over 2000 fan and turbine discs annually 
we are also taking steps to adjust capacity 
where market segments are contracting or 
demanding a lower price point although 
our diverse portfolio helps us balance 
growing and shrinking segments we do 
expect an ongoing need to adjust capacity 
through plant renewal and closures 
advanced manufacturing
we apply advanced technologies methods 
and processes to deliver ‘best in class’ 
manufacturing performance through our 
rollsroyce production system and the 
advanced manufacturing network which 
has developed over the past five years
the advanced centres in this network bring 
together university government and 
industrial partners to provide a realistic 
testing ground for new industrial techniques 
that improve yield and reduce costs these 
have proved to be successful both for 
rollsroyce and our supplier partners
the advanced forming research centre in 
glasgow uk the national composites 
centre in bristol uk and the manufacturing 
technology centre in coventry uk are 
expanding their facilities and the new 
commonwealth centre for advanced 
manufacturing in richmond usa is now 
fully operational 
our future advanced remanufacturing 
and technology research centre in singapore 
and high temperature components centre 
of excellence in the uk will ensure we lead 
in highperformance lowemission turbine 
technology
our processes will increasingly include 
powderbased manufacturing additive layer 
manufacturing technologies and ultrahigh 
temperature materials ‘knowledgebased 
manufacturing’ is another developing area 
here we will use dynamic computer models 
to design and verify processes these 
approaches will increase design flexibility 
speed of manufacture and performance
suppliers 
strong relationships with our suppliers are 
critical to our performance we work closely 
to align our strategies as well as assessing 
performance through our supplier advanced 
business relationship sabre requirements
rollsroyce has taken a leading role in the 
establishment of the aerospace engine 
supplier quality committee through this 
body gas turbine engine makers and their 
suppliers – with input from regulatory 
agencies – aim to agree a set of common 
industrywide standards these will help 
remove variability and waste enabling the 
aerospace supply chain to be leaner and 
more competitive
to support uk suppliers in the global 
aerospace market rollsroyce is sponsoring 
the uk governmentbacked sharing in 
growth programme it is a £110 million 
programme of intensive supplier 
alain michaelis 
operations director 
record levels of investment continue 
to drive improvements in product 
and operational performance
rollsroyce holdings plc annual report 2013 25
strategic report financial statements directors’ report other information
operations sustainability
better power
helping our customers do more 
using less 
better future
we are committed to innovation 
powering better cleaner economic 
growth that creates value for customers 
employees investors suppliers and 
wider society
better business 
we invest in technology people and 
ideas to improve all aspects of our 
performance and to drive profitable 
growth building on today’s 
achievements to meet the business 
challenges of the future 
better power
helping our customers do 
more using less 
each of our customerfacing segments 
provides services and customer operation 
solutions to improve the effectiveness of 
our equipment in each of our markets we 
are focused on reducing fuel consumption 
and emission levels find out more by 
visiting wwwrollsroycecom 
improving the environmental performance 
of our products
rollsroyce has a strong track record of 
reducing emissions through significant 
investment in technology in 2013 we 
invested £1118 million in rd of which 
around twothirds is aimed at reducing 
the environmental impact of our products 
and services 
in civil aerospace the advisory council for 
aviation research and innovation in europe 
acare has set challenging goals for aviation 
to meet by 2050 these include reducing 
aircraft co 2 emissions by 75 per cent per 
passenger kilometre reducing noise by 
65 per cent and reducing oxides of nitrogen 
nox by 90 per cent all relative to a typical 
new aircraft produced in 2000
trent 800
trent 500
trent 900
trent 1000
trent xwb
trent family
acare flightpath 2050 target
 co 2 or fuel burn
co 2 engine
acare target
75 overall reduction 
in co 2 per passenger
kilometre 30 engine
contribution rollsroyce
engine longterm goals
2000
30
25
20
15
10
5
0
2010 2020 2030 2040 2050
the trent xwb is the world’s most efficient 
turbofan aero engine flying today the low 
noise technology built into the trent 1000 
makes it the quietest engine on the boeing 
787 dreamliner which itself has half the 
noise level of the corresponding previous 
generation aircraft 
in defence aerospace we have worked with 
the us air force to complete the final testing 
of the series 35 enhancement of the 
t56 engine providing fuel savings of up 
to ten per cent in addition to improved 
performance and reliability
in marine our environship design together 
with our advanced propulsion systems can 
reduce co 2 emissions by up to 40 per cent 
compared to conventional dieselpowered 
vessels the environship concept was 
awarded the green ship technology 
award this year 
our civil nuclear portfolio makes a 
significant contribution to future low 
carbon electricity generation we are 
strongly positioned to support growth 
in this industry
rollsroyce holdings plc annual report 2013 26 strategic report
sustainability
our strategy is to create a sustainable business through our 
focus on customer innovation and profitable growth our 
commitment is to continually improve the environmental 
performance of our products and services with our customer 
at its heart our strategy will deliver ‘better power a better 
future and a better business’ better future 
we are committed to  
innovation powering 
better cleaner economic 
growth that creates value 
for customers employees 
investors suppliers and 
wider society
our people
our culture fosters innovation collaboration 
and continuous improvement developing 
strong people management and leadership 
skills alongside our technical expertise helps 
ensure that our employees are engaged  
and understand the wider role they play  
in the group’s success we work actively  
to attract young people to science 
technology engineering and mathematics 
stem subjects 
content and figures do not include rollsroyce 
power systems ag unless indicated
in 2013 we recruited 2530 experienced 
professionals to support the growth of our 
business our graduate programme is 
expanding we recruited 379 graduates 
through our global programmes an increase 
of 21 per cent from 2012 our graduate 
population is becoming more representative 
of the diverse and global company we are 
working in with this year’s graduates 
representing 32 nationalities and coming 
from 97 universities our apprenticeship 
programme has been running for over 100 
years at any one time we have over 1000 
apprentices around the world
average number of employees 2012 2013
by region
 united kingdom 22800 24800
 rest of the world 20000 30400
total 42800 55200
by sector
 civil aerospace 21500 23400
 defence aerospace 7800 7900
 marine 8800 9200
 energy 3700 4000
 power systems 1000 10700
total 42800 55200
 includes rollsroyce power systems ag
we retained our title as ‘the most popular 
graduate recruiter – engineering designs 
and manufacture’ in the uk targetjobs 
awards for the fourth year running our 
position has also risen in the ‘times top 100 
graduate employers’ rankings and in the 
‘guardian uk 300’ survey
employee involvement
employee engagement is critical to our 
success we use a variety of channels to 
communicate with our employees we have 
wellestablished frameworks for managing 
employee and trade unionemployee 
representative participation which include 
formal information and consultation 
arrangements our incentive schemes and 
allemployee share plans make sure that 
every employee has the opportunity to share 
in our success we encourage our employees 
to improve their knowledge and enhance 
their careers by providing meaningful 
training and development in 2013 we 
supported 49600 employees customers and 
suppliers through our learning management 
system learning investment for 2013 was 
£397 million and a total of 272000 training 
course completions were delivered during 
the year
human rights
our human rights policy sets out our 
commitment to respect the human rights  
of our employees through core labour 
standards regarding employee involvement 
diversity and equality pay and benefits 
working hours forced labour and child 
labour we set equivalent standards for our 
supply chain through our supplier code 
of conduct 
diversity and inclusion 
a diverse workforce will help ensure our 
continued success as a global business and 
contribute towards a better future we 
continue to face challenges in increasing 
diversity across the organisation and are 
working with our leadership teams to raise 
awareness of the need for change over 
recent years we have seen increased levels  
of diversity in both our early career pipeline 
and high potential pool with females 
making up 26 per cent of our uk graduate 
intake in 2013 and 29 per cent of our 
graduate intake into countries outside the 
uk females are 24 per cent of our high 
potential population as compared to 
15 per cent of our general population 
this year rollsroyce sponsored the uk 
female undergraduate of the year 2013 
awards the winner ella jakubowska 
accepted a place on our customer 
management graduate programme
headcount by gender
fulltime equivalents
at 31 december 2013
male 46975
female 8225
total 55200
 includes rollsroyce power systems ag
senior managers by gender
male 188
female 11
 includes rollsroyce power systems ag
board directors by gender
male 10
female 2
we give full and fair consideration to 
applications for employment made by 
disabled people and also support employees 
who become disabled during employment 
helping them make the best use of their 
skills and potential
carbon disclosure project
the rollsroyce 2013 carbon disclosure  
score of 85 is our highest score to date  
this along with our performance  
band ‘b’ rating demonstrates our 
commitment to continually improving  
our environmental performance
dow jones sustainability index
rollsroyce has been listed for the 12th 
consecutive year we achieved an overall 
score of 67 in 2013 above average in all 
areas within the aviation and defence sector
left to right sarah armstrong rollsroyce 
ella jakubowska and sir trevor mcdonald at 
the targetjobs female undergraduate of  
the year 2013 awards
rollsroyce holdings plc annual report 2013 27
strategic report financial statements directors’ report other information community investment
we are committed to conducting business to 
the highest standards and building positive 
relationships within the communities where 
we operate in 2013 our total contribution 
was £8 million we actively work with 
schools and universities to increase interest 
and encourage diversity amongst those 
taking stem subjects and to broaden the 
career aspirations of individuals from 
underrepresented groups
working with governments 
national governments are often our 
customers and we aim to build strategic 
relationships with governments in our 
key markets 
national governments and the eu also set 
the legislative and policy framework for 
doing business and they are a potential 
source of funding and support for research 
and technology rt rd manufacturing 
education and training initiatives as well as 
for certain capital projects 
we engage in dialogue to align our own 
business needs with the political social 
economic industrial and commercial 
requirements of national governments  
and the eu 
in 2013 we have worked with the uk 
government on the development and 
implementation of the aerospace growth 
partnership in eu affairs we have  
focused on the horizon 2020 eu funding 
programme and in north america we 
focused on defence appropriations and 
policy issues 
globally we are members of national 
industry bodies and trade associations that 
represent our sector and group interests  
in the uk we are members of the 
confederation of british industry cbi and 
aerospace defence and security ads in 
north america the aerospace industries 
association organisation for international 
investment and the us chamber of 
commerce in brussels on eu affairs we 
belong to the aerospace and defence 
industries association of europe asd and 
eu turbines amongst others and globally 
we are members of local chambers of 
commerce in our countries of operation 
rollsroyce does not make corporate 
contributions or donations to political 
parties or to any organisations thinktanks 
academic institutions or charities closely 
associated to a political party or cause as 
outlined in our global code of conduct 
better business 
we invest in technology 
people and ideas to 
improve all aspects of our 
performance and to drive 
profitable growth building 
on today’s achievements to 
meet the business 
challenges of the future 
ethics 
we have made a strong commitment to 
improving our ethical performance in line 
with building a better business 
you will have read in the chief executive’s 
review on pages 6 and 7 about lord gold’s 
review the sfo investigation and the 
publication of our new global code of 
conduct we have also introduced a 
confidential ethics line which is available  
24 hours a day where individuals can ask 
questions or raise concerns you can read 
more on these topics in the ethics committee 
report on pages 49 and 50 we are also 
refreshing our supplier code of conduct for 
deployment in 2014 compliance with the 
code will continue to be monitored through 
our regular supplier audits
the group continues to be an active 
participant in ethical initiatives of the 
european and us aerospace and defence 
business sectors we are a signatory to the 
‘common industry standards’ which were 
drawn up by asd and aim to promote  
and enhance integrity practices among 
its members 
the group is also a member of the 
international forum on business ethical 
conduct’s ifbec steering committee  
this organisation includes leading us and 
european companies in the aerospace  
and defence sectors and aims to promote 
responsible and ethical business behaviours 
through the global principles of 
business ethics
improving operational performance
improving the environmental performance 
of our operations contributes to profitable 
growth we have set a threeyear target  
to reduce energy consumption by ten per cent 
by the end of 2015 with 2012 as the baseline 
year excluding product test and development 
and normalised by revenue
our energy use increased slightly in 2013 
reflecting our increased levels of activity 
but we are on track to reduce our overall 
emissions of greenhouse gases we continue 
to invest in improvements to our facilities 
our total spend in 2013 amounted to almost 
£3 million on projects including upgrades  
to compressed air systems lighting systems 
and controls and additional energy 
monitoring capability in our plants and 
offices we are seeking to make wider  
use of more sustainable energy sources 
where cost effective and practical to do so 
our business segments have third 
party accredited certification to the 
environmental management systems 
standard iso 14001 in addition we have 
maintained our focus on requiring key 
suppliers to become certified to iso 14001 
for further information on how we  
work with suppliers please visit  
wwwrollsroycecomsustainability
rollsroyce holdings plc annual report 2013 28 strategic report
sustainability  we are helping to lead the way on reach 
registration evaluation and authorisation  
of chemicals regulations and have submitted 
the first ever reach authorisation 
application this is in the final stages of the 
approval process with the european 
chemicals agency and european commission 
additionally we continue to work with our 
suppliers to assist them in meeting their 
own obligations with a focus on the 
managed reduction and phase out of the use 
of targeted substances that are hazardous to 
health and dangerous to the environment 
through our active participation in the 
international aerospace environment group 
we are also helping to introduce new 
standards to facilitate efficient data sharing 
across the aerospace supply chain this 
focuses on the uses of hazardous substances 
in both manufacturing processes and 
included in our products and related 
substitution and phase out programmes 
greenhouse gas emissions
in 2013 our total greenhouse gas ghg 
emissions from our facilities processes 
product test and development was 
520 kilotonnes carbon dioxide equivalent 
ktco 2e this represents a reduction of 
nine per cent compared with 572 ktco 2e  
in 2009 see table this reduction has been 
achieved despite a growth in our global 
facilities footprint we have introduced a 
longer term ghg target over ten years 
aimed at reducing emissions by 17 per cent 
by the end of 2022 baselined at 2012 
excluding product test and development
the figures in the table do not include 
emissions associated with rollsroyce power 
systems ag we expect to integrate this 
subsidiary into our reporting process  
during 2014 power generation relates  
to the operation of commercial gasfired  
power stations
we have used the ghg protocol corporate 
accounting and reporting standard  
revised edition data gathered to fulfil our 
requirements under the carbon reduction 
commitment crc energy efficiency 
scheme and the uk government’s ghg 
reporting guidance as the basis of our 
methodology and source of emissions factors 
for company reporting for 2013 further 
details on our methodology can be found 
within our ‘basis of reporting’ available at 
wwwrollsroycecomsustainability
safety
we are committed to continually improving 
the standards of health and safety in the 
workplace we have steadily improved 
performance over previous years in 2013 
there were no fatalities or significant 
injuries and we achieved a 17 per cent 
reduction in the total reportable injury tri 
rate from 054 in 2012 to 045 tris per 100 
employees over the longer term we have 
reduced the tri rate by 37 per cent since 
2009 we have set a new target to reduce 
tris per 100 employees by 15 per cent by 
2015 baselined at 2012 
we continue to analyse highpotential 
incidents and each of them is investigated  
at business segment level with some also 
included in group level assessment the 
number of highpotential incidents has 
declined slightly from previous years and  
the number of ‘near misses’ reported has 
significantly increased the increased level 
of near miss reporting reflects greater risk 
awareness overall proactive reporting  
risk based investigation and other 
improvements these contribute to both  
tri and high potential incident reductions 
throughout the year we continued several 
global safety improvement plans the 
electrical and process safety programmes 
included site reviews and training and tools 
for ensuring efficient implementation of 
control measures reviews have also been 
carried out on the use and control of 
exposure to a number of chemicals newly
regulated under the reach regulations 
these reviews confirmed that our controls 
are suitable and that they ensure 
occupational exposures and releases to the 
environment are within limits set by the 
new requirements 
health
the current incidence of occupational illness 
stands at 086 cases per 1000 employees 
the leading causes of illness are noise
induced hearing loss workrelated upper 
limb disorders and stress this reflects our 
global health risk profile and provides the 
focus for our health improvement activities
following a prosecution in the uk by the 
health and safety executive for one case  
of handarm vibration syndrome havs 
independent advice was sought from the  
uk health and safety laboratory and we are 
continuing to strengthen our management 
of havs
total ghg emissions ktco 2e 2009 2010 2011 2012 2013
direct emissions – facilities processes product  
test and development scope 1 215 236 229 213 218
indirect emissions – facilities processes product  
test and development scope 2 357 365 346 337 302
total for facilities processes product test  
and development 572 601 575 550 520
direct emissions – power generation to grid scope 1 56
indirect emissions – power generation to grid scope 2 3
total for facilities processes product  
test and development and power generation to grid 579
normalised by revenue emissions ratio for facilities 
processes product test and development ktco2e£m 004
uk prime minister  
david cameron meets 
colin smith cbe  
director – engineering  
and technology and 
some of our apprentices 
at the apprentice 
academy derby uk
rollsroyce holdings plc annual report 2013 29
strategic report financial statements directors’ report other information key performance indicators
the board uses a range of financial and nonfinancial 
indicators to monitor group and segmental performance 
in line with the strategy
financial indicators are shown below the key objectives of the board and its committees are described on pages 
39 to 54 and nonfinancial key performance indicators are shown in the sustainability section on pages 26 to 29
rollsroyce power systems ag rrps formerly tognum ag was fully consolidated from 1 january 2013 
to aid understanding the impact on 2013 of consolidation has been displayed separately below
the order book provides an indicator of future business 
it is measured at constant exchange rates and list prices and 
includes both firm and announced orders in civil aerospace 
it is common for a customer to take options for future 
orders in addition to firm orders placed such options are 
excluded from the order book in defence aerospace 
longterm programmes are often ordered for only one year 
at a time in such circumstances even though there may be 
no alternative engine choice available to the customer only 
the contracted business is included in the order book only 
the first seven years’ revenue of longterm aftermarket 
contracts is included
order book
19 
16 before rrps
order intake
67 
52 before rrps
underlying revenue
27
6 before rrps
order intake is a measure of new business secured during 
the year and represents new firm orders net of the 
movement in the announced order book between the start 
and end of the period any orders which were recorded in 
previous periods and which are subsequently cancelled 
reducing the order book are included as a reduction to 
intake order intake is measured at constant exchange rates 
and list prices and consistent with the order book policy of 
recording the first seven years’ revenue of longterm 
aftermarket contracts order intake for any given year 
includes the seventh year of revenue 
monitoring of revenues provides a measure of business 
growth underlying revenue is used in order to eliminate the 
effect of the decision not to adopt hedge accounting and to 
provide a clearer yearonyear measure 
the group measures foreign currency revenue at the actual 
exchange rate achieved as a result of settling foreign 
exchange contracts from forward cover
£m
customer
583
£bn
2009 2010 2011 2012 2013
592
622
601
700
716
16
141
£bn
2009 2010 2011 2012 2013
123
163 161
245
24
269
10108
£m
2009 2010 2011 2012 2013
10866
11277
12209
12919
15505
2586
 rollsroyce   rrps
rollsroyce holdings plc annual report 2013 30 strategic report underlying profit before financing is presented on a basis 
that shows the economic substance of the group’s hedging 
strategies in respect of the transactional exchange rate and 
commodity price movements in particular a revenues and 
costs denominated in us dollars and euros are presented on 
the basis of the exchange rates achieved during the year 
b similar adjustments are made in respect of commodity 
derivatives and c consequential adjustments are made to 
reflect the impact of exchange rates on trading assets and 
liabilities and longterm contracts on a consistent basis
underlying profit 
before financing
22
10 before rrps
average cashdebt
£380m before rrps
cash flow
£539m before rrps
net rd expenditure
as a proportion of 
underlying revenue
45 before rrps
the group reports the balance of net fundsdebt on a 
weekly basis and average cash is therefore the average of 
these weekly net balances these balances are reported at 
prevailing exchange rates and in recent periods yearon
year movements in average cash balances reflect the 
significant acquisitions and disposals which have taken 
place most notably rrps in 2011 and iae restructuring in 
2012 the impact on average cash balances will depend on 
when these transactions took place during the year
in a business requiring significant investment the board 
monitors cash flow to ensure that profitability is converted 
into cash generation both for future investment and as a 
reward for shareholders the group measures cash flow as 
the movement in net fundsdebt during the year after 
taking into account the value of derivatives held to hedge 
the value of balances denominated in foreign currencies
the figure for 2011 includes investment of £1496 million 
in rrps
rd is measured as the selffunded expenditure both 
before amounts capitalised in the year and amortisation of 
previouslycapitalised balances the group expects to spend 
approximately five per cent of revenues on rd although 
this proportion will fluctuate depending on the stage of 
development of current programmes this measure reflects 
the need to generate current returns as well as to invest for 
the future
983
£m
1010
1206
1418
1564
1831
267
77
1495
2009 2010 2011 2012 2013
2009 2010
183
2011
258
2012
1310
2013
1094
539
83
622
£m
2009 2010
635
2011 2012
320
350
2013
145
960
£m
profitable growth
innovation
47

2009 2010 2011 2012 2013
47
46
47
48
capital expenditure
40
20 before rrps
to deliver on its commitments to customers the group 
invests significant amounts in its infrastructure all 
proposed investments are subject to rigorous review to 
ensure that they are consistent with forecast activity and 
will provide value for money annual capital expenditure is 
measured as the cost of property plant and equipment 
acquired during the period
291
£m
2009 2010 2011 2012 2013
361
467
491
590
687
97
rollsroyce holdings plc annual report 2013 31
strategic report financial statements directors’ report other information principal risks and uncertainties
the group places great importance on the identification and effective 
management of risks our approach to enterprise risk management 
helps us to deliver our objectives and maximise the returns of the group
the following table describes the risks that the risk committee with endorsement from the board considers to have the most material 
potential impact on the group they are specific to the nature of our business notwithstanding that there are other risks that may occur 
and may impact the achievement of the group’s objectives
the risk committee discussions have been focused on these risks and the actions being taken to manage them
risk or uncertainty and potential impact how we manage it
product failure
product not meeting safety expectations or causing 
significant impact to customers or the environment 
through failure in quality control
 operating a safety first culture
 our engineering design and validation process is applied from initial 
design through production and into service
 the safety committee reviews the scope and effectiveness of the group’s 
product safety policies to ensure that they operate to the highest 
industry standards see safety committee report on page 52
 a safety management system sms has been established by a dedicated 
team this is governed by the product safety review board and is subject 
to continual improvement based on experience and industry best 
practice product safety training is an integral part of our sms
 crisis management team led by the director – engineering and 
technology or general counsel as appropriate
business continuity
breakdown of external supply chain or internal facilities 
that could be caused by destruction of key facilities 
natural disaster regional conflict financial insolvency 
of a critical supplier or scarcity of materials which would 
reduce the ability to meet customer commitments 
win future business or achieve operational results
 continued investment in adequate capacity and modern equipment 
and facilities see operations section on page 25
 identifying and assessing points of weakness in our internal 
and external supply chain our it systems and our people skills
 selection and development of stronger suppliers see operations 
section on page 25
 developing dual sources or dual capability 
 developing and testing sitelevel incident management and business 
recovery plans
 crisis management team led by the director – engineering and 
technology or general counsel as appropriate
 customer excellence centres provide improved response to supply 
chain disruption
competitor action
the presence of large financially strong competitors 
in the majority of our markets means that the group 
is susceptible to significant price pressure for original 
equipment or services even where our markets are mature 
or the competitors are few our main competitors have 
access to significant government funding programmes 
as well as the ability to invest heavily in technology 
and industrial capability 
 accessing and developing key technologies and service offerings 
which differentiate us competitively see engineering and technology 
section on page 24
 focusing on being responsive to our customers and improving 
the quality delivery and reliability of our products and services
 partnering with others effectively
 driving down cost and improving margins see chief executive’s review 
on pages 6 and 7 and chief financial officer’s review on page 10 
 protecting credit lines see additional financial information on 
pages 137 and 138
 investing in innovation manufacturing and production see operations 
section on page 25
 understanding our competitors
rollsroyce holdings plc annual report 2013 32 strategic report risk or uncertainty and potential impact how we manage it
international trade friction
geopolitical factors that lead to significant tensions 
between major trading parties or blocs which could 
impact the group’s operations for example explicit 
trade protectionism differing tax or regulatory regimes 
potential for conflict or broader political issues
 where possible locating our domestic facilities in politically stable 
countries andor ensuring that we maintain dual capability
 diversifying global operations to avoid excessive concentration 
of risks in particular areas
 network of regional directors proactively monitors local situations
 maintaining a balanced business portfolio in markets with high 
technological barriers to entry and a diverse customer base
 understanding our supply chain risks
 proactively influencing regulation where it affects us see sustainability 
on page 28
major product programme delivery
failure to deliver a major product programme on time 
to specification or technical performance falling 
significantly short of customer expectations would have 
potentially significant adverse financial and reputational 
consequences including the risk of impairment of the 
carrying value of the group’s intangible assets and the 
impact of potential litigation
 major programmes are subject to board approval see additional 
financial information on page 137
 major programmes are reviewed at levels and frequencies appropriate 
to their performance against key financial and nonfinancial 
deliverables and potential risks throughout a programme’s life cycle 
see additional financial information on page 137
 technical audits are conducted at predefined points performed 
by a team that is independent from the programme
 programmes are required to address the actions arising from reviews 
and audits and progress is monitored and controlled through to closure
 knowledge management principles are applied to provide benefit to 
current and future programmes
compliance
noncompliance by the group with legislation or other 
regulatory requirements in the regulated environment in 
which it operates for example export controls offset use 
of controlled chemicals and substances and antibribery 
and corruption legislation compromising our ability to 
conduct business in certain jurisdictions and exposing 
the group to potential reputational damage financial 
penalties debarment from government contracts for 
a period of time andor suspension of export privileges 
or export credit financing any of which could have 
a material adverse effect
 an uncompromising approach to compliance is now and should 
always be the only way to do business
 the group has an extensive compliance programme this programme 
and the global code of conduct are promulgated throughout the group 
and are updated and reinforced from timetotime to ensure their 
continued relevance and to ensure that they are complied with both 
in spirit and to the letter the global code of conduct and the group’s 
compliance programme are supported by appropriate training 
see ethics committee report on pages 49 and 50 
 a legal and compliance team has been put in place to manage the 
current specific issue see ethics committee on pages 49 and 50 
through to a conclusion and beyond
 lord gold has reviewed the group’s current compliance procedures 
and an improvement plan is being implemented
rollsroyce holdings plc annual report 2013 33
strategic report financial statements directors’ report other information risk or uncertainty and potential impact how we manage it
market shock
the group is exposed to a number of market risks some 
of which are of a macroeconomic nature for example 
foreign currency exchange rates and some which are more 
specific to the group for example liquidity and credit risks 
reduction in air travel or disruption to other customer 
operations significant extraneous market events could 
also materially damage the group’s competitiveness and
or credit worthiness this would affect operational results 
or the outcomes of financial transactions
 maintaining a strong balance sheet through healthy cash balances 
and a continuing low level of debt
 providing financial flexibility by maintaining high levels of liquidity 
and an investment grade ‘a’ credit rating see additional financial 
information on page 138
 the portfolio effect from our business interests both in terms of 
original equipment to aftermarket split and our different segments 
provide a natural shock absorber since the portfolios are not correlated
 deciding where and what currencies to source in where and how much 
credit risk is extended or taken and hedging residual risk through the 
financial derivatives markets foreign exchange interest rates and 
commodity price risk – see additional financial information on page 137
it vulnerability
breach of it security causing controlled data to 
be lost made inaccessible corrupted or accessed 
by unauthorised users
 establishing ‘defence in depth’ through deployment of multiple 
layers of software and processes including web gateways filtering 
firewalls intrusion advanced persistent threat detectors and 
integrated reporting
 security and network operations centres have been established
 active sharing of information through industry government and 
security forums see risk committee report on page 51
the strategic report was approved by the board on 12 february 2014
by order of the board
nigel t goldsworthy
company secretary
rollsroyce holdings plc annual report 2013 34 strategic report
principal risks and uncertainties as chairman i am responsible for leading the board and for 
ensuring its effectiveness in all aspects of its role strong 
governance is vital to this and i was reassured when i joined 
rollsroyce to find a robust governance foundation already in place 
the challenge ahead is to build upon this foundation and ensure 
that the group’s values ‘trusted to deliver excellence’ apply not just 
to our products but also to the way that we conduct and govern our 
business
governance structure
in november i led a discussion on governance with the non
executive directors we will regularly review and develop our 
governance arrangements to ensure that the right decisions are 
made by the right people
my instinct from my discussions to date is to allow as much time 
as possible at board meetings for discussion on strategic and 
operational issues with regard to committees i have concluded that 
merging the work of the separate safety and ethics committees into 
one broaderbased safety and ethics committee will give greater 
focus to our sustainability agenda
i agree with the association of british insurers abi that good 
governance enhances a company’s sustainable performance and 
so helps underpin longterm economic growth sustainability has to 
be part of everything we do if our business is to endure in the long 
term further details on sustainability are on pages 26 to 29 we 
must provide excellent products which are safe reliable kinder to 
the environment and provide the right solutions for our customers 
at the right price we can only endure if we are trusted by the world 
to deliver excellence in everything we do 
board changes
during the year sir simon robertson retired as chairman and peter 
byrom and ian strachan retired as nonexecutive directors at the 
conclusion of the agm on 2 may 2013 i was appointed as a non
executive director on 1 march 2013 and was appointed chairman 
on 2 may 2013 lee hsien yang and warren east were appointed as 
nonexecutive directors on 1 january 2014 having served for nine 
years as a nonexecutive director iain conn has decided to retire and 
will not be standing for reelection at the agm on 1 may 2014
business ethics
in january 2013 we appointed lord gold to lead a review of our 
compliance procedures lord gold presented an interim report to 
the board in july 2013 having spent time immersing himself in the 
culture and systems of the company 
we require high standards of ethical behaviour wherever we do 
business and for that behaviour to be second nature for every 
employee with over 55000 employees operating in many business 
sectors regions and cultures across the world we are well aware 
that this is not something that can be achieved overnight but only by 
relentless pursuit over time further details on ethics related matters 
can be found in the ethics committee report on pages 49 and 50
remuneration
our remuneration report reflects the new reporting regulations 
at the 2014 agm shareholders shall for the first time have the right 
to vote on the policy section of the remuneration report separately 
and that vote is binding the remuneration report can be found on 
pages 53 to 69
at the 2014 agm we will be proposing to renew our longterm 
incentive plan the performance share plan psp we are also taking 
the opportunity to ask shareholders to approve our deferred share 
bonus plan further details are set out in the remuneration report
i believe that rollsroyce benefits from a strong board though we 
will continue to look for opportunities to further strengthen and 
diversify as discussed in the nomination committee report on 
page 47 i look forward to continuing to work with and support 
my colleagues at rollsroyce as we face the challenges and 
opportunities ahead
ian davis
chairman
ian davis
chairman
we will regularly review and develop 
our governance arrangements to ensure 
that the right decisions are made by the 
right people 
rollsroyce holdings plc annual report 2013 35
strategic report financial statements directors’ report other information
chairman’s introduction
directors’ report 1 ian davis 
2 
chairman appointed march 2013
skills and experience ian spent his early career at 
bowater moving to mckinsey  company in 1979 
he was managing partner of mckinsey’s practice 
in the uk and ireland from 1996 to 2003 in 2003 
he was appointed as chairman and worldwide 
managing director of mckinsey serving in this 
capacity until 2009 during his career with 
mckinsey ian served as a consultant to a range of 
global organisations across the private public and 
notforprofit sectors he retired as senior partner 
of mckinsey  company on 30 july 2010
external appointments ian serves as a non
executive director on the boards of johnson 
 johnson inc bp plc and as a nonexecutive 
member of the cabinet office board he is 
also senior adviser to apax partners llp
2 john rishton 
5 
chief executive appointed march 2011
skills and experience john began his career in 
1979 at ford motor company where he held a 
variety of positions in the uk and in europe in 
1994 he joined british airways plc where he was 
chief financial officer from 2001 to 2005 in 2006 
he was appointed cfo at royal ahold and became 
ceo in 2007 john was appointed as a non
executive director of rollsroyce in 2007 and 
served as chairman of the audit committee 
and a member of the ethics and nomination 
committees until his appointment as chief 
executive he is a former nonexecutive director 
of allied domecq
external appointments john was appointed 
as a nonexecutive director of unilever nv 
and unilever plc in may 2013
3 iain conn 
1246
 
senior independent director appointed 
january 2005
skills and experience iain joined the bp group 
in 1986 and has held a number of executive 
positions within the bp group worldwide
external appointments iain is chief executive of 
refining and marketing bp plc he is a member 
of the imperial college council and of the cbi’s 
energy and climate change board he is also a 
member of the development advisory board of 
the rae and of the advisory boards of the centre 
for european reform the centre for china in the 
world economy at tsinghua university and of the 
schwarzman school at tsinghua university
4 dame helen alexander 
234
 
nonexecutive director appointed 
september 2007
skills and experience dame helen was chief 
executive of the economist group until 2008 
which she joined in 1985 she was president of the 
cbi until 2011 she has also been a nonexecutive 
director of northern foods plc bt group plc and 
centrica plc she was awarded a dbe in 2011 for 
services to business
external appointments dame helen is chairman 
of ubm plc the port of london authority and 
incisive media she is also deputy chairman of 
esure group plc and senior adviser to bain capital 
dame helen is chancellor of the university of 
southampton and she is involved with a number 
of other notforprofit organisations in media the 
internet the arts and education
5 lewis booth cbe 
124
 
nonexecutive director appointed may 2011
skills and experience lewis is the former 
executive vice president and chief financial 
officer of ford motor company a position he held 
for over three years until his retirement from the 
company in april 2012 during his 34year career 
at ford he held a series of senior positions in 
europe asia africa and the united states lewis 
began his career with british leyland before 
joining ford in 1978 he was awarded a cbe in 
june 2012 for services to the uk automotive and 
manufacturing industries
external appointments lewis is a director of 
mondelez international inc gentherm inc and 
of university of liverpool in america inc
6 sir frank chapman 
236
 
nonexecutive director appointed november 2011
skills and experience sir frank has worked in 
the oil and gas industry for 38 years including 
appointments within royal dutch shell plc and 
bp plc he was chief executive of bg group plc 
for 12 years until december 2012 sir frank is a 
fellow of the royal academy of engineering the 
institution of mechanical engineers and the 
energy institute
 7 warren east cbe  
12
 
nonexec utive director appointed january 2014
skills and experience warren joined arm holdings 
in 1994 and was appointed chief executive in 
2001 under his leadership the company became 
the world’s leading semiconductor ip licensing 
company he retired from arm holdings in 2013 
he is a fellow of the institute of engineering and 
technology a fellow of the royal academy of 
engineering and a distinguished fellow of the bcs 
he was awarded a cbe in 2014 for services to the 
technology industry
external appointments warren is a non
executive director and chairman of the audit 
committee of de la rue plc and a nonexecutive 
director of dyson ltd bt group plc and micron 
technology inc
1 2 3 4
5 6 7 8
rollsroyce holdings plc annual report 2013 36 directors’ report
board of directors 8 l ee hsien yang 
246
 
nonexecutive director appointed january 2014
skills and experience hsien yang was chief 
executive of singapore telecommunications 
limited for 11 years he served as chairman and 
nonexecutive director of fraser and neave 
limited from 2007 until february 2013 
external appointments hsien yang serves as 
a special advisor of general atlantic llc he is 
chairman of the civil aviation authority of 
singapore general atlantic singapore fund pte 
ltd and the islamic bank of asia private limited 
the australian and new zealand banking group 
ltd and the lee kuan yew school of public policy 
he is also president of the insead south east 
asia council 
9 john mcadam 
236
 
nonexecutive director appointed february 2008
skills and experience john was the chief 
executive of ici plc until ici’s acquisition by 
akzo nobel he has held a number of positions 
at unilever within its birds eye walls and 
unichema international businesses and is a 
former nonexecutive director of severn trent plc 
and sara lee corporation
external appointments john is chairman 
of united utilities group plc and rentokil 
initial plc and the senior independent director 
of j sainsbury plc
10 john neill cbe 
12
 
nonexecutive director appointed 
november 2008
skills and experience john is a member of the 
council and board of business in the community 
is vice president of the society of motor 
manufacturers and traders ben the automotive 
industry charity and the institute of the motor 
industry he was formerly a director of the bank 
of england and a nonexecutive director of royal 
mail and charter international plc he was 
awarded a cbe in june 1994
external appointments john is the chairman and 
group chief executive of the unipart group of 
companies limited and was appointed chairman 
of atlantis resources limited in december 2013
11 jasmin staiblin 
2 4
 
nonexecutive director appointed may 2012
skills and experience jasmin is the ceo of alpiq 
holding ag and was ceo of abb switzerland ltd 
until december 2012 she has lived and worked 
in switzerland sweden and australia
external appointments jasmin is a non
executive director of georg fischer ag and a 
member of the board of the federal institute 
of technology the eth domain
12 james guyette 
5
 
president and chief executive officer of 
rollsroyce north america inc appointed 
january 1998
skills and experience before joining the 
company jim was executive vice president 
marketing and planning of united airlines
external appointments jim is chairman of 
privatebancorp inc of chicago illinois and he is 
lead independent director of pricelinecom inc 
of norwalk connecticut he is also chairman 
emeritus of the smithsonian national air  space 
museum washington dc
13 mark morris 
5
 
chief financial officer appointed january 2012 
skills and experience mark joined rollsroyce 
in 1986 he has held a number of senior positions 
throughout the company and before his 
appointment as chief financial officer was 
group treasurer from 2001
14 colin smith cbe 
5
 
director – engineering and technology appointed 
july 2005
skills and experience colin joined rollsroyce in 
1974 he has held a variety of key positions within 
the company including director – research and 
technology and director of engineering and 
technology – civil aerospace colin is a fellow 
of the royal academy of engineering the royal 
aeronautical society and the institution of 
mechanical engineers he is also a member 
of the council for science and technology in 
june 2012 he was awarded a cbe for services 
to uk engineering
15 nigel t goldsworthy 
company secretary  head of legal appointed 
december 2012
skills and experience a solicitor nigel has held 
a number of senior legal and company secretary 
roles within the company and before his 
appointment as company secretary  head of 
legal was deputy general counsel from 2008 
before joining rollsroyce in 2004 nigel was a 
partner in the banking group of lovells now 
hogan lovells
13
9 10 11 12
14 15
committee membership
1 audit committee
2 nomination committee
3 remuneration committee
4 ethics committee
5 risk committee
6 safety committee
 denotes chairman of committee
rollsroyce holdings plc annual report 2013 37
strategic report financial statements directors’ report other information the iab formed in 2006 advises the board 
on political and economic developments 
around the world and alerts the company  
to possible longterm opportunities threats 
and risks its members are
lord powell of bayswater  
chairman of the iab
former foreign affairs and defence adviser 
to prime ministers baroness thatcher and  
sir john major
vladimír dlouhý 
international advisor to goldman sachs  
for central and eastern europe european 
deputy chairman of the trilateral  
commission and a former member of the 
czech government
sir rod eddington
chairman of jp morgan australia  new 
zealand and former chief executive of 
british airways plc
dr fan gang
professor at china’s academy of social 
sciences and director of national economic 
research institute
mustafa koç
chairman of koç holding aş
akio mimura
senior advisor honorary chairman 
nippon steel  sumitomo 
metal corporation
lubna olayan
ceo and deputy chairperson of the  
olayan financing company
ratan tata
former chairman of tata sons limited
ambassador robert b zoellick
chairman of goldman sachs international 
advisors senior fellow at the belfer center 
at harvard university former president of 
world bank group us deputy secretary of 
state and us trade representative
during 2013 john rishton chaired  
meetings of the elt an executive forum  
at which his first line reports the group’s 
most senior business and functional leaders 
review communicate and agree on issues 
and actions of groupwide significance  
in addition to john rishton its other 
members are
miles cowdry
corporate development director
kath durrant
human resources director
james guyette 
president and chief executive officer –  
rollsroyce north america inc
lawrie haynes
president – marine and nuclear
andrew heath 
president – energy
alain michaelis
operations director
mark morris
chief financial officer
john paterson
president – marine and industrial 
power systems
colin smith
director – engineering and technology
robert webb
general counsel
tony wood
president – aerospace
 
rollsroyce holdings plc annual report 2013 38 directors’ report
international advisory board iab
the executive leadership team elt board members and attendance
there are currently 14 directors on the board comprising the 
nonexecutive chairman the chief executive three other 
executive directors and nine nonexecutive directors
attendance in 2013
ian davis chairman appointed 1 march 2013 77
dame helen alexander 89
lewis booth cbe 99 
peter byrom retired 2 may 2013 44
sir frank chapman 89
iain conn 89
warren east cbe appointed 1 january 2014 na
james guyette 99
lee hsien yang appointed 1 january 2014 na
john mcadam 89
mark morris 99
john neill cbe 99
sir simon robertson retired 2 may 2013 34
john rishton 99
colin smith cbe 99
jasmin staiblin 49
ian strachan retired 2 may 2013 44
the general counsel and the company secretary are also invited 
to attend meetings jasmin staiblin who is based in switzerland 
was unable to attend two scheduled meetings during pregnancy 
and three due to unavoidable diary clashes in respect of 
commitments entered into before her appointment to the board
key objective
 create longterm success for the group within an acceptable 
risk profile and provide value for the longterm investor
responsibilities
 ensure the safety of its products and people
 ensure the development of strategy
 monitor implementation of the strategy
 ensure necessary resources are in place
 ensure controls exist to manage risk
 safeguard values brand and reputation
 oversee performance of management
 ensure effective succession planning
 agree remuneration policy and
 maintain effective governance
governance principle leadership
board membership
the directors biographical details are on pages 36 and 37 which 
demonstrate the skills and experience of the board the experience 
and knowledge of each of the directors gives them the ability to 
constructively challenge strategy and scrutinise performance 
on 12 february 2014 the board noted that iain conn intended to 
retire as the senior independent director and as a nonexecutive 
director and would therefore not seek reelection at the agm on 
1 may 2014 the board has resolved that lewis booth subject to 
reelection at the agm will succeed iain conn as the senior 
independent director at the conclusion of the agm
uk corporate governance code the code
this report explains how the company discharges its corporate 
governance responsibilities in the year to 31 december 2013 
the revised principles and provisions of the code published in 
september 2012 by the financial reporting council frc applied 
to the company 
throughout the 2013 financial year the company did not fully 
comply with the provisions of the code for the following reasons
code provision explanation
c35 – the audit 
committee should review 
arrangements by which 
staff of the company may 
in confidence raise 
concerns about possible 
improprieties in matters 
of financial reporting or 
other matters
the board considered it 
appropriate that this provision 
of the code be the primary 
responsibility of the ethics 
committee the ethics 
committee is however required 
to refer concerns about possible 
improprieties in matters of 
financial reporting to the 
audit committee
c37 – the audit 
committee should have 
primary responsibility 
for making a 
recommendation 
on the appointment 
reappointment and 
removal of the external 
auditors ftse 350 
companies should put the 
external audit contract 
out to tender at least 
every ten years 
the audit committee has 
considered the requirement to 
put the audit out to tender every 
ten years in line with the frc’s 
transitional arrangements the 
committee will do so during the 
tenure of the current lead 
partner which expires in 2017 
the committee concluded that 
in order to ensure that a 
potential change in auditor is 
managed effectively it would 
not be in the company’s 
interests to put the audit out to 
tender in 2013 more detail can 
be found in the audit committee 
report on page 46
rollsroyce holdings plc annual report 2013 39
strategic report financial statements directors’ report other information
corporate governance report in accordance with the code and the company’s articles of 
association all directors will retire and put themselves forward for 
election or reelection at the agm in 2014 with the exception of iain 
conn who is not seeking reelection and will retire from the board  
at the conclusion of that meeting
the process for succession planning is discussed in the nomination 
committee report on page 47
the work of the board in 2013
during 2013 the board held nine meetings eight of which were 
scheduled and a further one called at short notice in addition two 
formal resolutions were passed by consent of all directors using 
electronic means nonexecutive directors communicate directly 
with executive directors and senior management between formal 
board meetings at each scheduled meeting executive directors 
supplied reports on business and financial performance including 
the usual approval of financial statements and budgets the board 
also received regular updates on health safety and environment 
hse and employee and legal issues including a review of its 
governance arrangements in addition the chairman of each of the 
board committees provided reports on matters discussed by that 
committee since the previous board meeting
the board holds an annual daylong strategy meeting which 
provides a forum for directors to challenge strategy and help 
develop it for the future the strategy meeting held in september 
2013 included discussions on the tenyear financial plan and the 
strategic context including market structure competitor 
positioning cost challenges technology and with a focus on the civil 
aerospace and the marine and industrial power systems businesses 
in addition to its routine business matters considered by the board 
in 2013 included
 marine strategy focused on markets costs supply chain product 
development and alignment with the rollsroyce power systems 
and bergen engines businesses
 the closure of the proposed joint venture with pratt  whitney
 updates on the referral to the serious fraud office
 discussion on lord gold’s interim findings the adoption of a new 
global code of conduct and the rollout of a comprehensive ethics 
training programme to all employees 
 relocation to new group headquarters
 the effect of sequestration on us defence spending
 civil nuclear business strategy
 investors’ view on our agm business
 restructuring of the aerospace business
 liquidity and additional funding
 the renewal of the euro medium term note programme
 preliminary discussions with wärtsilä regarding a possible offer 
for the company and
 cyber security
board committees
the board has established a number of committees the principal 
ones being audit remuneration nomination ethics risk and safety 
terms of reference for each committee are available on the group’s 
website at wwwrollsroycecom reports by committee chairmen  
on the activities of each of the principal committees are on  
pages 44 to 54 the chairman’s introduction provides more detail  
on page 35 of changes to the committee structures
senior management and advisers are invited to attend board and 
committee meetings where appropriate to contribute to discussions 
and advise members of the board and committees on relevant 
matters the involvement of senior management additionally  
helps strengthen the relationship between the board and senior 
management and helps to provide the board with a greater 
understanding of operations and strategy
internal control 
the directors are responsible for the group’s system of internal 
control and for maintaining and reviewing its effectiveness from 
both a financial and an operational perspective our risk 
management process is a key element of the group’s internal control 
system this system of internal control is designed to identify and 
manage rather than eliminate the risk of failure to achieve business 
objectives and to provide reasonable but not absolute assurance 
against material misstatement or loss the processes we use to 
identify and manage risk are set out in the risk committee report  
on page 51 the board’s report on the group’s principal risks and 
actions taken to mitigate them is on pages 32 to 34 
turnover from joint ventures constitutes an increasingly large part 
of our reported group activity responsibility for internal control 
procedures in joint ventures where we do not have a control 
agreement lies with the managers of those operations we seek to 
exert influence over such ventures by board representation and 
regularly review the activities of these ventures
the audit committee has reviewed the effectiveness of the systems of 
internal control for the year under review further information can be 
found in the audit committee report on page 45 the board confirms 
that the processes and systems currently in place ensure that the 
group continues to be compliant with the ‘turnbull guidance’ as 
contained in ‘internal control revised guidance for directors on the 
combined code’ issued by the financial reporting council in 2005
financial reporting 
the group has a comprehensive budgeting system with an annual 
budget approved by the board revised forecasts for the year are 
reported at least quarterly actual results at both a business and 
group level are reported monthly against budget and variances  
are kept under scrutiny
financial managers are required to acknowledge in writing that 
their routine financial reporting is based on reliable data and that 
results are properly stated in accordance with group requirements 
in addition for annual reporting business presidents and finance 
directors are required to confirm that their business has complied 
with the group’s finance manual
rollsroyce holdings plc annual report 2013 40 directors’ report
corporate governance report roles and responsibilities 
the board has a written remit for the chairman ian davis who  
has responsibility for the running of the board and ensuring its 
effectiveness and the chief executive john rishton who has 
responsibility for running the business this division of responsibility 
ensures that no one individual has unfettered powers of decision
in addition the board has agreed a set of guiding principles to 
govern the relationship between the chairman and chief executive 
which for example requires that the two roles are structured in a 
complementary manner and demands that the relationship 
between the two be based on mutual respect and trust and be 
frank and open
the senior independent director iain conn acts as a sounding 
board for the chairman and can act as an intermediary for other 
directors he led the nomination committee in the process which 
resulted in the appointment of ian davis as chairman in may 2013 
each year the senior independent director leads a separate meeting 
of the board excluding the chairman to review the chairman’s 
performance 
role and operation of the board
the principal role of the board is to ensure that the group’s strategy 
creates longterm success for the group within an acceptable risk 
profile and provides value for the longterm investor
to achieve its longterm success the board must
 ensure the safety of its products and its people
 oversee and approve the development of the group’s strategy 
monitoring both its achievement and the group’s risk appetite
 uphold the values of the group including its brand and 
corporate reputation
 oversee the quality and performance of management and ensure 
it is maintained at worldclass standards through effective 
succession planning and remuneration policies and 
 maintain an effective corporate governance framework with 
transparent reporting
the board has established a formal schedule of matters reserved for 
its approval generally being those items which affect the shape and 
risk profile of the group as well as items such as the annual budget 
and performance targets the financial statements payments to 
shareholders major capital investments substantial changes to 
balance sheet management policy and the strategic plan this 
schedule of matters reserved is reviewed annually
john rishton as the chief executive is responsible for the daytoday 
leadership operational and performance management of the group 
within the confines of the strategy business plans and budgets 
agreed by the board the delegation of responsibilities to the 
executive team is set out in a detailed schedule approved by the 
chief executive
information is supplied to directors in a manner which enables them 
to fulfil their responsibilities this includes the circulation of papers 
to be discussed generally one week before meetings presentations 
are made by senior management at board meetings on business 
financial and operating issues directors are expected to attend all 
meetings of the board and the committees on which they sit and to 
devote sufficient time to the company’s affairs to enable them to 
fulfil their duties as directors if directors are unable to attend a 
meeting their comments on the papers to be considered are 
discussed in advance with the chairman so that their contribution 
can be included in the wider board discussion
executive leadership team elt
the elt is the senior decisionmaking executive committee and met 
26 times during the year its membership is described on page 38  
it developed detailed strategic options for the group culminating  
in approval of strategy by the board in september it reviewed hse 
performance customer relations governance financial and 
operational performance it also reviewed acquisitions and disposals 
and recommended them to the board where required
each business segment holds executive meetings to review 
operational performance of its business assisting the business 
president in taking such decisions as fall within his remit and 
reviewing proposals before presentation to the elt or the board  
for approval as appropriate
governance principle effectiveness
board evaluation
the code requires that the board undertakes an annual evaluation 
of its own performance and that of its committees and individual 
directors and to do so externally at least every three years in 2013 
the evaluation process was again conducted internally full  
external reviews having been carried out by jan hall associates  
in 2010 and 2011
initially directors were asked to complete a confidential survey 
covering the areas set out as best practice published by the financial 
reporting council’s ‘guidance on board effectiveness’ the company 
secretary then produced a report which consolidated the responses 
following which the chairman conducted onetoone interviews 
with each director and the senior independent director interviewed 
the chairman the findings were considered by the board and 
actions to be taken were agreed 
the evaluation concluded that the board was proving to be effective 
under the leadership of ian davis and john rishton and that 
relationships and board discussions work well the principal 
recommendation was that succession planning for senior executive 
positions could be improved other areas for improvement 
identified included risk processes mitigation plans board papers 
and governance 
directors’ terms of appointment
executive directors are employees who have daytoday 
responsibilities as executives of the group in addition to their duties 
as directors each executive director receives a service contract on 
appointment see pages 60 and 61 for further information
nonexecutive directors are generally independent of the company 
are not employees and do not participate in the daily business 
management of the group on appointment each nonexecutive 
director receives a letter setting out the conditions of his or her 
appointment nonexecutive directors are appointed for an initial 
term of three years which may be extended with the agreement of 
the board although reappointment is not automatic their term  
of office is also subject to annual reelection by shareholders at the 
agm and will terminate without compensation if they fail to be 
reelected see page 60 for further information 
rollsroyce holdings plc annual report 2013 41
strategic report financial statements directors’ report other information director training
newly appointed directors participate in a structured induction 
programme as detailed in the table below and receive a 
comprehensive data pack providing detailed information on the 
group an existing executive director can act as a mentor to each 
newly appointed nonexecutive director giving guidance and 
advice as required
issues facilitated by
operation of the board 
and governance 
chairman and company 
secretary 
group strategy development 
and current issues 
chief executive 
financial structure chief financial officer 
risk strategy general counsel 
operational strategy operations director 
technology and 
engineering issues
director – engineering 
and technology 
key site visits company secretary 
committee technical 
requirements 
committee chairmen internal 
or external experts 
further training is available for directors including presentations 
by the executive team on particular aspects of the business in 2013 
the board received training in ethics conducted by our head of 
business ethics in december 2013 our corporate lawyers slaughter 
and may held a seminar immediately following the board meeting 
to update the board on developments in corporate law and 
regulation in addition there is a procedure for directors to take 
independent professional advice at the company’s expense and 
every director has access to the general counsel and to the company 
secretary who is responsible to the board on corporate governance 
all directors are advised of changes in legislation regulation and 
changing risks with the assistance of the company’s advisers where 
necessary inhouse training is provided to directors of the 
company’s subsidiaries and joint ventures 
independence of the nonexecutive directors
the board conducts a rigorous review of the independence of 
the nonexecutive directors every year based on the criteria in 
the code this review was undertaken in november 2013 and the 
board concluded that all the nonexecutive directors remained 
independent in character and judgement the chairman met the 
code’s independence criteria upon his election as chairman in may 
2013 his other external commitments are described on page 36
nonexecutive directors are advised of the time required to fulfil the 
role and are asked to confirm that they can make the required 
commitment before the appointment is made the board is satisfied 
that each of the nonexecutive directors is able to devote sufficient 
time to the company’s business 
the board believes it can be appropriate for executive directors to 
take nonexecutive positions in other companies and organisations 
as such appointments should broaden their experience the 
appointment to such positions is subject to the approval of the 
chairman and the board and must not conflict with a director’s 
duties and commitments to the company
conflicts of interest
directors have a duty to avoid a situation in which they have or can 
have a direct or indirect interest which conflicts or possibly may 
conflict with the interests of the company unless that situational 
conflict has been authorised by the board the nomination 
committee has reviewed and authorised all directors’ situational 
conflicts and has agreed that while directors are required to keep 
confidential all company information they shall not be required to 
share with the company confidential information received by them 
from a third party which is the subject of the situational conflict
governance principle accountability
the directors consider the annual report and accounts taken as 
a whole is fair balanced and understandable and provides the 
information necessary for shareholders to assess the company’s 
performance business model and strategy
investor relations
communications with shareholders regarding business strategy 
and financial performance are coordinated by a dedicated investor 
relations department that reports to the chief financial officer 
communications regarding the general administration of 
shareholdings are coordinated by the company secretary
the group conducts a dedicated investor relations programme with 
institutional investors which includes various formal events during 
the year as well as a regular series of onetoone and group 
meetings the purpose of these events is to highlight a particular 
issue theme or announcement that the group believes warrants 
further explanation or clarification the events also provide 
opportunities for shareholders to meet members of the senior 
management team examples of these events in 2013 were the 
preliminary and halfyear results announcements the agm the 
update given at the paris air show on trends in the civil and defence 
aerospace businesses visits to certain of the group’s sites and 
industry conferences the onetoone and group meetings provide 
additional context around the group’s business strategy and 
financial performance 
in 2013 over 380 meetings took place with over 340 separately 
identifiable institutional investors the majority of meetings took 
place in the uk 273 81 meetings were in the usa and canada 
and a further 26 meetings took place in europe the chairman also 
meets institutional investors from timetotime 
rollsroyce holdings plc annual report 2013 42 directors’ report
corporate governance report shareholder communications
information about the group is available on the group’s website 
wwwrollsroycecom and in the published annual report an online 
version of which is also available on the website the website 
contains financial and other information about the group including 
current business strategy historical financial data and recent 
presentation materials together with information on the group’s 
businesses products and services 
over 20000 rollsroyce shareholders have registered their email 
addresses with etree so that they benefit from immediate 
communication of the posting of our preliminary results and of the 
publication of our notice of meetings and our online annual report 
this reduces our printing and mailing costs as well as our carbon 
footprint we would encourage other shareholders to register for 
this service by following the instructions on the etree website at 
wwwetreeukcomrollsroyce
annual general meeting agm
all holders of ordinary shares are invited to attend the company’s 
agm the chief executive gives a presentation highlighting key 
business developments during the year and shareholders have an 
opportunity to ask questions all directors normally attend the agm 
and the chairmen of the audit nomination remuneration ethics 
safety and risk committees are available to answer any questions 
from shareholders on the work of their committees
the company sends the agm notice and relevant documentation to 
all shareholders at least 20 working days before the date of the agm 
for shareholders who have consented to receive communications 
electronically notice is given by email or by written notice of the 
availability of documents on the group’s website
this year’s agm will be held at 1100am on thursday 1 may 2014 at 
the qeii conference centre broad sanctuary westminster london 
sw1p 3ee the agm notice and the annual report will be available to 
view on the group’s website shareholders unable to attend the agm 
can vote on the business of the meeting either by post or online
shareholders and share capital
information on shareholders and share capital which also forms 
part of the corporate governance report is detailed on pages 70  
and 71
change of control
contracts and joint venture agreements
there are a number of contracts and joint venture agreements 
which would allow the counterparties to terminate or alter those 
arrangements in the event of a change of control of the company 
the terms of those arrangements are commercially confidential  
and their disclosure could be seriously prejudicial to the company 
borrowings and other financial instruments
the group has a number of borrowing facilities provided by 
various banks these facilities generally include provisions which 
may require any outstanding borrowings to be repaid or the 
alteration or termination of the facility upon the occurrence of  
a change of control of the company at 31 december 2013 these 
facilities were less than 35 per cent drawn 2012 30 per cent
the group has entered into a series of financial instruments to 
hedge its currency interest rate and commodity exposures these 
contracts provide for termination or alteration if a change of 
control of the company materially weakens the creditworthiness  
of the group
employee share plans
in the event of a change of control of the company the effect on 
the employee share plans would be as follows
 psp – awards would vest pro rata to service in the performance 
period subject to remuneration committee judgement of group 
performance
 apra deferred shares – the shares would be released from trust 
immediately
 sharesave – options would become exercisable immediately the 
new company might offer an equivalent option in exchange for 
cancellation of the existing option and
 share incentive plan sip – consideration received as shares 
would be held within the sip  if possible otherwise the 
consideration would be treated as a disposal from the sip 
payment to shareholders
at the agm on 1 may 2014 the directors will recommend an issue 
of 134 c shares with a total nominal value of 134 pence for each 
ordinary share the final issue of c shares will be made on 1 july 
2014 to shareholders on the register on 25 april 2014 and the final 
day of trading with entitlement to c shares is 22 april 2014 
together with the interim issue on 2 january 2014 of 86 c shares 
for each ordinary share with a total nominal value of 86 pence  
this is the equivalent of a total annual payment to ordinary 
shareholders of 22 pence for each ordinary share
the payment to shareholders will as before be made in the form  
of redeemable c shares which shareholders may either choose to 
retain or redeem for a cash equivalent the registrar on behalf of 
the company operates a c share reinvestment plan crip and can 
on behalf of shareholders purchase ordinary shares from the 
market rather than delivering a cash payment shareholders wishing 
to redeem their c shares or else redeem and participate in the crip 
must ensure that their instructions are lodged with the registrar 
computershare investor services plc no later than 500pm on 
2 june 2014 redemption will take place on 3 july 2014
rollsroyce holdings plc annual report 2013 43
strategic report financial statements directors’ report other information i am pleased to present the report of the audit committee for the 
year i would like to thank committee members the executive 
management team and kpmg for the open discussions that take 
place at our meetings and the importance they all attach to its work
work of the committee in 2013
at our meetings during 2013 we focused on financial reporting 
internal control internal audit and external audit we received 
presentations from senior executives from the civil aerospace 
defence aerospace and civil nuclear businesses these 
presentations covered key accounting judgements and estimates 
internal control and risk management 
we also reviewed the committee’s own terms of reference
financial reporting
in addressing our key objective which is to assist the board in 
ensuring the integrity of its financial statements we reviewed 
financial announcements and financial statements with both 
management and the external auditor concentrating on
 compliance with financial reporting standards and governance 
reporting requirements
 areas requiring significant judgements to be made in applying 
accounting policies
 the appropriateness of accounting policies
 the procedures and controls around estimates that are key in 
applying accounting policies
 whether the annual report and accounts taken as a whole is fair 
balanced and understandable and provides the information 
necessary for shareholders to assess the group’s business model 
strategy and performance and
 any relevant correspondence from regulators
our committee is focused on ensuring integrity of the group’s 
financial reporting and improving the financial controls framework 
including the restructuring of business audit committees which 
now report directly to this committee during the year we 
encouraged and supported the development of an enhanced 
business audit committee process under this process management 
of each of the group’s businesses consider the appropriateness and 
related governance of accounting policies judgements and 
estimates and the control environment relating to their businesses 
including internal audit findings and the robustness of the 
processes used to execute their risk management responsibilities 
we receive reports on the results of these reviews
lewis booth cbe
chairman of the audit committee
committee members and attendance
the audit committee consists exclusively of independent 
nonexecutive directors and met four times in 2013
attendance in 2013
lewis booth cbe chairman 44
iain conn 44
warren east cbe appointed 1 january 2014 na
john neill cbe 44
ian strachan retired 2 may 2013 22
the external auditors kpmg audit plc kpmg the director of 
internal audit the general counsel the director of risk the 
company secretary the chairman of the board the chief 
executive and the chief financial officer are also invited to 
attend meetings other board members including the 
remuneration committee chairman and senior executives 
attended meetings during the year at the invitation of the 
committee chairman
key objective
 to assist the board in ensuring the integrity of its 
financial statements
responsibilities
 to review the financial results announcements and financial 
statements monitoring compliance with relevant regulations
 to review the appropriateness of accounting policies and the 
supporting key judgements and estimates
 to assess the scope and effectiveness of the systems to identify 
manage and monitor financial and nonfinancial risks
 to review the procedures for detecting monitoring and 
managing the risk of fraud
 to oversee the relationship with the external auditor and make 
recommendations to the board regarding the external auditor’s 
appointment and
 to review the scope resources results and effectiveness of 
internal audit
audit committee report
our committee is focused on ensuring the integrity 
of the group’s financial reporting and improving 
the financial controls framework
rollsroyce holdings plc annual report 2013 44 directors’ report our business is complex in particular the development of gas 
turbines for use in civil aircraft applications requires large upfront 
investments a long period of sale of original equipment and a very 
long period over which we generate profits and cash flows from the 
aftermarket by the sale of spare parts and engine maintenance 
work the inservice period could be longer than 25 years for any 
engine and the total life cycle of an engine could be more than  
40 years from initial concept through production and then through 
the inservice life much of the aftermarket repair and overhaul is 
provided through longterm service agreements given this long 
exposure the amount of revenue and profit recognised during any 
period requires a significant number of accounting judgements and 
estimates supported by engineering and business assessments 
consequently one of our primary responsibilities is to ensure that 
the bases for these judgements and estimates are robust 
in 2013 our work focused on
 carrying values of the principal intangible assets in civil aerospace 
– we considered the business plans for the relevant engine 
programmes including the key assumptions on which they are 
based and which support the value in use assessments for the 
intangible assets we were satisfied that no impairments were 
required 
 longterm contractual arrangements in civil aerospace – we 
reviewed the forecasts of future contract performance on which 
the accounting is based we also considered performance to date 
against these forecasts and the results of a detailed review  
of certain aspects of the processes supporting these forecasts 
where the accounting results in a contract asset we assessed  
the recoverability of the asset against agreed criteria we were 
satisfied that the forecasts have been prepared on an appropriate 
and consistent basis
 risk and revenue sharing arrangements rrsas in civil aerospace 
– as described in the chief financial officer’s review on page 11 
during the year and following discussions with the conduct 
committee of the financial reporting council frc the group  
has reassessed its accounting policy for entry fees received from 
workshare partners adopted ifrs does not contain requirements 
that are specific to arrangements of this type and we assessed 
possible alternative policies developed by management we 
reviewed the revised policy considered the frc’s and kpmg’s views 
and i attended a meeting with the frc on balance we agreed 
with management’s view that the revised policy fairly reflects  
the nature of the transaction and that it should be adopted 
retrospectively
 we reviewed the contractual arrangements that resulted in the 
group consolidating rollsroyce power systems ag from 1 january 
2013 we also reviewed the accounting for the business 
combination based on a thirdparty valuation of the intangible 
assets acquired and the valuation of the daimler put option on 
the noncontrolling interest we were satisfied that appropriate 
judgements and estimates have been made
 customer financing liabilities in civil aerospace – we considered 
the adequacy of provisions for these liabilities we considered the 
likelihood of the liabilities crystallising based on an assessment  
of customers’ fleet plans and their creditworthiness we also 
considered the value of any security held based on thirdparty 
valuations we were satisfied that provisions have been made  
on an appropriate basis
 contingent liabilities – we considered the adequacy of the 
disclosures in particular we considered legal advice in respect of 
the possible outcome of the sfo enquiries we were satisfied that 
the disclosures appropriately reflect the current position and
 segmental reporting – we considered the changes in management 
structure and internal reporting described on page 10 and the 
implications for reporting in accordance with ifrs 8 we were 
satisfied with the appropriateness of the revised segmental 
reporting from 1 january 2014
since the year end we have reviewed the form and content of the 
group’s 2013 annual report the committee has reported to the 
board that it considers the annual report taken as a whole to be fair 
balanced and understandable 
internal control
the director of internal audit provided a report setting out an 
overview of the group’s control environment and we reviewed the 
processes by which the control environment is assessed and any 
identified weaknesses resolved we considered control weaknesses 
identified by the auditors in accounting for civil aerospace long
term aftermarket contracts and management’s plans to address 
these we also received reports of any identified frauds that are 
significant or demonstrate significant weakness in internal control 
we also reviewed a report on compliance with the group’s policies 
in respect of expenses incurred by the directors and other senior 
executives which did not identify any significant issues
internal audit
the director of internal audit presented two updates on audit 
activities and findings covering sixmonth periods the resolution  
of control weaknesses progress against the agreed plan and the 
resourcing of the department we are continuing to develop with 
him a simplified metricsdriven approach to the reporting focusing 
on the closure of open items on a timely basis and the identification 
of recurring themes we were satisfied that the scope extent and 
effectiveness of internal audit are appropriate for the group 
i meet the director of internal audit in private before each meeting 
and the committee as a whole has a private meeting with him at 
least once a year
external auditor
the external audit is a continuous process at the start of the audit 
cycle kpmg presented their audit strategy identifying their 
assessment of the key risks for the purposes of the audit and the 
scope of their work
for 2013 these risks were the implementation of a new 
consolidation system the business combination and daimler’s  
put option in respect of rollsroyce power systems holding gmbh 
impairment of intangible assets longterm contractual 
arrangements warranties and guarantees rrsas customer 
financing arrangements contingent liabilities valuation of 
derivatives valuation of pension liabilities recoverability of tax 
assets and adequacy of tax provisions the adjustments between 
the reported results and the group’s underlying performance and 
the form and content of the annual report more detail is set out in 
kpmg’s report on pages 130 to 135
rollsroyce holdings plc annual report 2013 45
strategic report financial statements directors’ report other information kpmg reports to the committee at both the half and fullyear 
setting out their assessment of the group’s judgements and 
estimates in respect of these risks and the adequacy of the 
reporting i meet the lead audit partner in private before each 
meeting and the whole committee meets with kpmg in private  
at least once a year 
nonaudit services provided by kpmg
in order to safeguard auditors’ independence and objectivity we do 
not engage kpmg for any nonaudit services except where it is work 
that they must or are clearly best suited to perform fees paid to 
kpmg for audit audit related and other services are set out in note 8 
to the financial statements
excluding rollsroyce power systems see below the main nonaudit 
related services provided by kpmg during the year were in respect  
of grant claims and tax compliance and were 11 per cent of the audit 
fee the nature and level of all services provided by the external 
auditor is a factor taken into account by the audit committee in its 
annual review of the external auditor 
all proposed services must be preapproved in accordance with  
an agreed policy we review the nonaudit fees charged by kpmg  
at each meeting and annually review the approval limits
following the consolidation of rollsroyce power systems on 
1 january 2013 we took the decision to allow the completion of 
engagements already in progress as a result rollsroyce power 
systems incurred fees on nonaudit services provided by kpmg  
in 2013 of £21 million 210 per cent of its audit fee this will  
reduce in 2014
reappointment of auditor
following the completion of the audit we reviewed the effectiveness 
and performance of kpmg with feedback from committee members 
senior finance personnel and internal audit covering overall quality 
independence and objectivity business understanding technical 
knowledge quality and continuity of personnel responsiveness and 
cost effectiveness we also considered the reports on kpmg by the 
frc’s audit quality review team the audit of rollsroyce was not 
subject to their review in 2013 kpmg were appointed as auditors in 
1990 and this appointment has not been subject to a tender process 
since that date 
the lead audit partner is required to rotate every five years and 
other key audit partners are required to rotate every seven years 
jimmy daboo took over as lead audit partner in 2013 and has had no 
previous involvement with rollsroyce in any capacity no contractual 
obligations restrict our choice of external auditors we concluded 
that kpmg provides an effective audit and the committee and the 
board have recommended their reappointment at the 2014 agm 
audit tendering
the group is a complex and technologically advanced business  
with a long cycle from the development of an engine to its eventual 
retirement we believe that kpmg’s knowledge of this built up over 
a number of years enhances the effectiveness of the audit and that 
the existing professional requirements such as the rotation of audit 
personnel maintain independence however the uk corporate 
governance code now requires the external audit contract be 
tendered at least every ten years the frc has proposed nonbinding 
transitional arrangements with respect to audit tendering 
including a suggestion that tendering should normally fit the 
fiveyearly cycle with respect to the lead partner 
we plan to recommend a tender of the audit during the tenure  
of the current lead partner which subject to kpmg’s annual 
reappointment is due to end following the 2017 audit this will also 
satisfy the requirements proposed by the competition commission 
however before we make such a recommendation we will satisfy 
ourselves that if the tender resulted in a change of auditor i it 
would not be unnecessarily disruptive taking account of any other 
activities and ii appropriate plans are in place to ensure audit 
effectiveness is maintained during the year we approved a tender 
plan prepared by management to be used when the audit is 
tendered but we do not plan to tender the audit during 2014 the eu 
is also finalising requirements which would require mandatory 
rotation of auditors the draft proposals would require us to appoint 
a different firm by 2020 at the latest once finalised we will take 
account of the eu requirements in our assessment of when to 
recommend an audit tender
lewis booth cbe
chairman of the audit committee
 
rollsroyce holdings plc annual report 2013 46 directors’ report
audit committee report ian davis
chairman of the nomination committee
i am pleased to present my first report as chairman of the 
nomination committee 
during the year the committee continued to develop its succession 
plans for new nonexecutive directors taking into account their 
respective tenures of office analysing the skills which were either 
missing or could be missing in future and how different personalities 
would fit around the board table we are very clear that we must 
continue to appoint the best candidates but we will show an 
increasing emphasis on recruiting candidates from more diverse 
backgrounds and with international experience
we are pleased that lee hsien yang has joined the board as a 
nonexecutive director hsien yang was already known to the board 
as a valued member of the iab a role that he has relinquished upon 
his appointment to the board the committee did not therefore 
engage search consultants in connection with his appointment
hsien yang will bring to our board a wealth of business experience 
in the asian marketplace his biography can be found on page 37
the board has been further bolstered by the appointment of warren 
east as a nonexecutive director warren has extensive experience in 
the global technology sector and an outstanding record of business 
achievement that will be of great value to rollsroyce his biography 
can be found on page 36 both warren and hsien yang took up their 
posts from 1 january 2014 sciteb was engaged as search consultant 
for warren’s appointment the firm has no other connection with 
the company
the topic of boardroom diversity has received much attention over 
the past two years in september 2011 we issued our response to 
the davies report on women on boards stating that we expected to 
make demonstrable progress in this area by 2015 maintaining the 
right balance on the board and getting the succession policy right is 
high on my agenda and the board is clear that purposeful diversity 
is a valuable goal gender diversity is an important part of that 
although we do not consider it appropriate to fix a specific target 
we continue to participate in the ftse 100 crosscompany 
mentoring programme the objective of which is to increase the pool 
of eligible senior female candidates for uk board positions and we 
have comprehensive programmes in place to increase the diversity 
of our internal pipeline of future leaders we have also issued 
guidance to executive search companies outlining the importance 
of diverse candidate short lists further details of our gender 
representation can be found in sustainability on page 27
committee members and attendance
the nomination committee consists of all of the nonexecutive 
directors and met six times in 2013
attendance in 2013
ian davis chairman appointed 1 march 2013 44 
dame helen alexander 66
lewis booth cbe 55
peter byrom retired 2 may 2013 22
sir frank chapman 46
iain conn 56
warren east cbe appointed 1 january 2014 na
lee hsien yang appointed 1 january 2014 na
john mcadam 66
john neill cbe 66
john rishton 22
sir simon robertson retired 2 may 2013 22
jasmin staiblin 46
ian strachan retired 2 may 2013 22
 the committee decided on july 2013 that the committee should only consist of 
nonexecutive directors and john rishton therefore ceased to be a member
key objective
 to lead the process for appointments to the rollsroyce board
responsibilities
 monitor the composition and performance of the board and 
its committees 
 evaluate the balance of skills and experience on the board and 
the diversity of its members
 consider and recommend the appointment and removal 
of directors
 monitor executive development and succession planning
 evaluate any conflicts of interest that directors might have and
 evaluate the independence of the nonexecutive directors and 
their time commitments
we must continue to appoint the best 
candidates but we will show an increasing 
emphasis on recruiting candidates from 
more diverse backgrounds
rollsroyce holdings plc annual report 2013 47
strategic report financial statements directors’ report other information
nomination committee report during the year the committee reviewed the use of executive search 
consultants and concluded that the existing agency relationships 
were working well and should continue the overarching brief is to 
find candidates of international stature with international mindsets 
and relevant experience who could demonstrate sound judgement 
and board skills with an emphasis towards greater diversity
mwm consulting was engaged in the search for the vacant 
chairman’s post earlier in 2013 a detailed brief was approved by the 
board covering both the responsibilities of the role and the desired 
profile which formed the blueprint against which candidates were 
identified and assessed the search was broad and global in outlook 
constrained only by the requirements of the brief seventy 
candidates from ten different countries were actively considered 
mwm consulting has no other connection with the company
in addition to the work described above the committee also carried 
out the following tasks during the year
 considered time commitments and potential conflicts faced by 
directors who wished to take up nonexecutive positions on the 
boards of other companies
 authorised john rishton’s acceptance of a nonexecutive role 
at unilever
 reviewed its own terms of reference
 considered the independence of the nonexecutive directors
 considered the standing schedule of directors’ conflicts of interest 
and recommended to the board that the schedule be approved 
 recommended the appointment of a new chairman and two  
new nonexecutive directors and renewed terms of office for 
dame helen alexander john mcadam and iain conn
 discussed governance arrangements for the group and the board 
evaluation process
 reviewed the board’s diversity policy and
 since the year end the committee has reviewed and approved the 
form of this report 
ian davis
chairman of the nomination committee
rollsroyce holdings plc annual report 2013 48 directors’ report
nomination committee report committee members and attendance
the ethics committee consists exclusively of independent 
nonexecutive directors and met four times in 2013
attendance in 2013
iain conn chairman 33
dame helen alexander 44
lewis booth cbe 44
peter byrom retired 2 may 2013 11 
lee hsien yang appointed 1 january 2014 na
jasmin staiblin 34
ian strachan retired 2 may 2013 11 
the chairman of the board the chief executive the general 
counsel the director of risk and the head of business ethics are 
also invited to attend meetings on a regular basis
key objective
 review compliance with rollsroyce ethics policies
responsibilities
 review compliance with and recommend changes to the 
global code of conduct
 monitor evolving practice and requirements of regulatory bodies 
and recommend how they should be applied in the group
 establish bribery prevention policies and procedures
 review arrangements by which staff may raise concerns 
and ensure such concerns are handled effectively and
 ensure that ethical policies and practices are subject to an 
appropriate level of independent internal scrutiny
the ethics committee was formed in 2008 in response to the 
publication of the woolf committee report it is responsible on 
behalf of the board for reviewing compliance with the group’s 
global code of conduct for improving bribery and corruption 
prevention policies and for reviewing arrangements by which 
staff may raise ethical concerns in confidence it considers 
recommendations on ethical matters made by external regulatory 
authorities or other bodies and makes recommendations to the 
board on how they should be applied in rollsroyce i would like to 
thank ian strachan for his chairmanship of this committee from 
november 2008 to may 2013
referral to serious fraud office sfo
on 6 december 2012 we announced that we had passed 
information to the sfo relating to concerns in overseas markets 
since that date we have continued our investigations and are 
engaging with the sfo and other authorities in the uk the usa and 
elsewhere in december 2013 we announced that we had been 
informed by the sfo that it had commenced a formal investigation 
the consequence of these disclosures will be decided by the 
regulatory authorities it remains too early to predict the outcomes 
but these could include the prosecution of individuals and of the 
group accordingly the potential for fines penalties or other 
consequences including debarment from government contracts 
suspension of export privileges and reputational damage cannot 
currently be assessed as the investigation is ongoing it is not yet 
possible to identify the timescale in which these issues might be 
resolved we continue to demand the highest standards of behaviour 
from our people john rishton has stated unequivocally that neither 
he nor the board will tolerate improper business conduct of any sort 
and all necessary action will be taken to ensure compliance 
lord gold’s review
the group has taken significant further action to strengthen and 
enhance its ethics and compliance programme in january 2013 
the group appointed lord gold to review its ethical and compliance 
procedures and make recommendations lord gold began his work 
in 2013 reporting directly to the ethics committee and attending 
its meetings in july 2013 he presented an interim report having 
interviewed over 80 senior managers across the group in addition 
to a number of detailed recommendations the report drew 
attention to the need for further strengthening of the group’s ethics 
and compliance function in the following three areas develop and 
implement an integrity and values communication strategy 
provide integrity and values training for all employees and 
reorganise the compliance function the ethics committee the 
board and the elt have all reviewed and accepted lord gold’s 
interim report and the recommendations made in it and the group 
has started to implement those recommendations the group has 
the board has a firm belief that the only 
way we can succeed as a group is by 
applying sound and ethical business 
practices wherever we operate
iain conn
chairman of the ethics committee
rollsroyce holdings plc annual report 2013 49
strategic report financial statements directors’ report other information
ethics committee report developed an holistic ethics and compliance improvement 
programme overseen by a newly appointed director of risk 
clarifying with a new global code of conduct what is expected 
from all individuals in the group defining processes to combat 
bribery and corruption and strengthening oversight and review of 
the group’s performance in these areas the following is a summary 
of some of the group’s major activities undertaken in 2013
global code of conduct global code
in july 2013 the board and the elt approved a revised version of the 
group’s global code of conduct which is a condensed updated and 
more readable version of the previous global code of business 
ethics the global code is being used as a platform for the group’s 
enhanced ethics and compliance programme and its rollout is being 
supported by managerled facetoface awareness briefings for all 
employees and a detailed programme of training which will 
continue the board and the elt received the awareness briefing  
and supporting ethics training in july 2013 and provided feedback  
and input into the materials the board agreed that the training 
programme would be compulsory for all employees 
the rollout programme started in september 2013 and will be 
delivered to all employees and all new starters all employees are 
being asked to certify they have received a copy of the global code 
read and understood it will comply with it and have received a 
management briefing in future years periodic refresher training 
will continue and will also be compulsory 
ethics line
since 2008 employees have been able to access a confidential 
reporting line to report any concerns they might have in 2013 the 
group has reviewed updated and relaunched its confidential 
reporting line now known as the ethics line today we have contact 
numbers in 48 countries in addition to a webbased reporting tool 
which enables employees to ask questions or raise concerns  
24 hours a day wherever they are based in the world the ethics 
committee receives reports and questions raised through the ethics 
line in july 2013 it was agreed that an oversight committee would 
be established to monitor the detailed operation of the ethics line 
and ensure it remains effective and efficient
antibribery and corruption policies abc policies
much progress has been made in developing policies to govern the 
use of intermediaries since the formation of the ethics committee  
in 2008 the number of intermediaries used by our businesses has 
continued to fall dramatically during the year businesses now have 
greater ownership and direct responsibility for the marketing sales 
and support of the group’s products and services an updated  
and simpler version of the global gifts and hospitality policy was 
introduced in october 2012 and work has continued in the year to 
capture data develop a reporting regime and develop key metrics
in july 2013 following the issue of lord gold’s interim report the 
director of risk undertook to carry out a further thorough review  
of all abc policies taking account of lord gold’s recommendations 
this review is underway and the group has started the process  
of updating and modifying its suite of antibribery and corruption 
policies so that they are robust simpler meet the current needs  
of the business and are embedded as a core part of the group’s 
processes for winning new business all revised and enhanced abc 
policies and procedures will meet the recommendations made by 
lord gold and will be supported by a training programme
abc compliance team
the abc compliance organisation’s remit is to embed the abc 
policies in the businesses take the abc programme into a ‘business 
as usual’ mode and make compliance a central part of the group’s 
processes for winning new business the abc compliance team has 
been reorganised during the year to ensure team members remain 
independent of the businesses they are policing the team has been 
strengthened with the creation of several new roles and broader 
areas of responsibility including offset compliance a new role of 
head of risk training has been created to ensure that there is a 
robust and effective training programme to support all risk policies 
including compliance and ethics in response to lord gold’s 
recommendations a protocol is being developed which will ensure 
that the group’s legal hr compliance and ethics functions work  
in a coordinated manner when investigating potential ethics and 
compliance breaches ensuring that any proposed disciplinary action 
is reported to the director of risk 
ethics team
the ethics team manages the global code and the reporting 
helplines it works closely with the compliance team the team has 
been strengthened by the creation of the new role of group ethics 
officer responsible for establishing and coordinating a network of 
trained ethics officers across all business sectors to act as a local 
point of contact for ethical issues 
conclusion
when i took up the post of chairman of the ethics committee in 
2013 i was well aware of the huge amount of effort and resource 
that this group had already dedicated to improving the way our 
employees conduct our business the board has a firm belief that 
the only way we can succeed as a group is by applying sound and 
ethical business practices wherever we operate we are equally 
aware that there will always be more to do and we must always  
seek to improve 
iain conn
chairman of the ethics committee
rollsroyce holdings plc annual report 2013 50 directors’ report
ethics committee report risks more focus was given to our key business continuity risks and 
the committee considered and assessed each of the key business 
continuity risks identified by the businesses and their mitigation 
plans our discussion on it vulnerability led us to have an indepth 
review of our it operations centre and give detailed consideration 
to how it security risks including the growing global threat of cyber 
attack are managed we also reviewed the committee’s own terms 
of reference
risk process
the director of risk leads our risk team across the group which 
is responsible for implementing risk policy and processes line 
ownership for risk management is devolved to our business units 
and functions supported by a network of risk champions and 
risk managers
each business maintains a risk register which comprises those risks 
that it considers are material to its objectives and operations the 
businesses regularly review the effectiveness and consistency of 
risk management activity via their assurance framework and the 
application of the risk management process all of which are subject 
to review by the business audit committees each business formally 
reviews their risks at least twice yearly taking account of work 
carried out by the underlying business units programmes and 
functions business continuity plans are put in place by the 
businesses to mitigate continuity risks
every six months as part of the full and halfyear results process 
the risk committee reviews the key risks that the businesses and 
functions report in accordance with our enterprisewide risk 
management system the committee crosschecks the risks 
identified by the business with those risks it has identified from its 
own assessments and concludes a list of principal risks during the 
year the committee discusses how the risks have changed and how 
each risk is managed identifying where further action is required
we have benefited from the work we did in 2012 to concentrate our 
focus on a smaller number of risks i am particularly pleased with 
the way the quality of discussion at these meetings has improved 
as a result of this focus the attendance of business presidents at 
meetings has provided greater visibility across the group of the 
principal risks and has enabled the group to better manage and 
mitigate such risks 
john rishton
chairman of the risk committee
john rishton
chairman of the risk committee
we have benefited from the work we 
did in 2012 to concentrate our focus 
on a smaller number of risks 
committee members and attendance
the risk committee consists of all of the executive directors and 
met three times in 2013
attendance in 2013
john rishton chairman 33
jim guyette 33
mark morris 33
colin smith cbe 23
other members of the executive leadership team the director 
of risk the company secretary and the head of enterprise risk 
management are also invited to attend meetings
key objective
 to assist the board in determining the nature and extent 
of the principal risks it is willing to take in achieving its 
strategic objectives
responsibilities
 develop and implement the company’s risk management 
strategy and policy
 review reports on key risks and monitor the total level of risk 
across the group and
 assess the adequacy of management plans to address the risks
introduction
each of the group’s principal risks are owned by specific members of 
my executive team we continually review and challenge ourselves 
as to whether these continue to be our principal risks and whether 
our management of those risks remains effective this year in 
addition to executive directors all members of my executive team 
were invited to attend the meetings to ensure there was enhanced 
visibility of the principal risks affecting the business and good 
communication of the outcomes of our discussions to each of the 
businesses and functions
work of the committee in 2013
the committee discussed all of the key risks in depth in advance of 
the annual and halfyear results process and produced a report on 
principal risks for the board’s approval it also discussed the work 
of the crisis management team and agreed to hold more frequent 
crisis management exercises during the year work continued on 
the development of meaningful indicators to measure the principal 
rollsroyce holdings plc annual report 2013 51
strategic report financial statements directors’ report other information
risk committee report sir frank chapman
chairman of the safety committee
the safety of our products and our 
people will always remain a central 
pillar of our business
committee members and attendance
the safety committee consists exclusively of independent 
nonexecutive directors and met twice in 2013
attendance in 2013
sir frank chapman chairman 22
iain conn 22
lee hsien yang appointed 1 january 2014 na
john mcadam 22
the chairman of the board the chief executive the general 
counsel the director – engineering and technology the company 
secretary the technical and quality director and the head of 
product safety assurance are also invited to attend meetings
key objective
 review and assure the board on all safety policies practices and 
procedures and ensure that these operate reliably and to 
appropriate industry standards
responsibilities
 keep product safety hse and personnel security policies 
under review
 make recommendations as to content and communication 
of those policies
 measure and review safety performance and
 review external issues which relate to safety policies 
and practices
product safety
in all sectors the group supplies high value capital products that are 
strictly regulated with regard to safety civil aerospace products are 
required to meet relevant airworthiness authority standards whilst 
defence operators define their own standards for military aerospace 
and naval products our marine and energy businesses need to 
meet industry specific standards with our nuclear business being 
particularly highly regulated
in june 2013 the committee reviewed a trent case study which 
demonstrated how the company’s product safety process operates 
in practice both in the design stage and during the operational life 
of an engine the committee found this product safety process to be 
very thorough and of a very high standard 
at its meeting in july 2013 the committee considered how the 
group applied judgements in product safety beyond the levels 
defined in legislation it received an update on the product safety 
management system and on recent developments in safety in the 
aerospace industry it also examined the findings of the australian 
transport safety bureau in respect of the qantas qf32 event and the 
actions taken by the group 
in september the committee was briefed by senior manufacturing 
and quality managers from the supply chain units scus the 
technical and quality director and the head of product safety 
assurance on the rollsroyce management system as it applies to 
safety this was followed by an indepth look at the compressor scu 
and the design to manufacture process for widechord fan blades 
as well as the process for monitoring ongoing blade production 
at our meeting in december the committee reviewed how the 
director – engineering and technology executes his accountability 
for product safety on behalf of the chief executive through the 
company product safety review board and the quality system 
the committee also reviewed its own terms of reference
health safety and environment
in july the committee considered how the as low as reasonably 
practical alarp approach is applied to hse risks and received 
updates on the global improvement programmes being 
implemented in relation to process safety management and 
electrical safety
in december we received an update on 2013 hse activity 
including briefings on the global improvement programmes related 
to process safety electrical safety and occupational health 
further information on our hse performance can be found in 
sustainability on pages 28 and 29
overall the committee made good progress in 2013 particularly in 
relation to examining the processes that manage product safety 
alongside this central theme the areas of asset integrity 
occupational safety occupational health environmental 
performance and personnel security arrangements for staff 
working in difficult environments were reviewed in 2014 we intend 
to establish a framework for a structured cyclical review of all hse 
and personnel security matters
this is a company built on a brand promise of being ‘trusted to 
deliver excellence’ and the safety of our products and our people 
will always remain a central pillar of our business
sir frank chapman
chairman of the safety committee
rollsroyce holdings plc annual report 2013 52 directors’ report
safety committee report committee members and attendance
the remuneration committee consists exclusively of independent 
nonexecutive directors and met five times in 2013
attendance in 2013
dame helen alexander 55
sir frank chapman 45
john mcadam 55
the chairman the chief executive the director – human 
resources the hr director – reward  pensions the company 
secretary and the chief financial officer are also invited to 
attend meetings none of these executives were present during 
any discussion of their own remuneration packages
key objective
 to develop a remuneration policy capable of attracting and 
retaining individuals necessary for business success
responsibilities
 to consider and make recommendations to the board on the 
policy for the remuneration of the executive directors 
members of the executive leadership team and other direct 
reportees to the chief executive collectively the senior 
executives and the chairman
 to determine the whole remuneration package for senior 
executives and recommend to the board the whole 
remuneration package for the chairman
 to determine the terms and conditions of service contracts for 
senior executives
 to determine the design conditions and coverage of any annual 
and longterm incentive schemes for senior executives and to 
approve total and individual payments under these schemes
 to determine targets for any annual and longterm incentive 
schemes
 to determine the issue and terms of all sharebased plans 
available to all employees
 to determine compensation if any in the event of termination 
of service contracts of any of the senior executives and
 to approve the appointment of former executive directors by 
the company as consultants
on behalf of the board i am pleased to present our directors’ 
remuneration report that has been prepared in accordance 
with the new reporting regulations which became effective 
on 1 october 2013
the report is divided into two sections a policy report which sets 
out the approach to remuneration and a remuneration report 
which details what has been paid to the directors during 2013 
each report will be proposed as a separate resolution at the agm 
the vote on the policy report is a binding vote
the remuneration policy must be approved at least every three years 
if it remains unchanged or sooner in the event the policy needs 
revising the policy will become effective on 1 may 2014 subject to 
shareholder approval at the agm 
we have a clearly defined strategy to win in competitive markets 
through our focus on the customer innovation and profitable 
growth our remuneration policy supports the delivery of this 
strategy and aligns the interests of our directors with that of our 
shareholders this is achieved by shortterm and longterm incentive 
plans which focus on delivering business objectives profitable 
growth and strong shareholder returns annual incentives are also 
based on personal performance which will include the progress 
made on longerterm strategic objectives an important principle 
of the annual bonus plan is that no bonus can be paid unless the 
entire group has achieved a base level of business performance 
for the first time the bonus and psp targets we set in 2014 will 
include both profit and cash contributions from rollsroyce power 
systems we believe this is appropriate now that rollsroyce power 
systems is being integrated into the rollsroyce business
our overall remuneration policy remains relatively conservative 
which has served us well in recent years there will be no increase in 
basic pay for most of the senior leadership team in 2014 we remain 
satisfied that the existing remuneration arrangements continue to 
align with the group’s strategy and there are no plans to change the 
current arrangements significantly the committee will continue to 
monitor our market competitiveness in order to ensure we are able 
to attract and retain the best talent
annual bonus
for executive directors and all senior managers a proportion of any 
annual bonus is made in deferred shares the committee has agreed 
to allow flexibility to allot new shares to satisfy awards and this 
provision will be part of the new rollsroyce plc deferred share 
bonus plan which will be proposed at this year’s agm
dame helen alexander
chairman of the remuneration committee
we believe that our remuneration policy 
is aligned with our strategy to enhance 
longterm value for our stakeholders
rollsroyce holdings plc annual report 2013 53
strategic report financial statements directors’ report other information
remuneration committee report performance share plan
the current performance share plan psp approved by shareholders 
ten years ago expires in 2014 a new psp will be put forward for 
approval at the agm this will be broadly unchanged with the 
following two exceptions which we believe increase the link to 
shareholder interests
 the new plan will contain malus and clawback provisions to enable 
the withdrawal or amendment of share grants before vesting and 
the right to reclaim awards that have vested or their proceeds in 
the case of serious noncompliance with the group’s global code 
of conduct reputational damage or gross misconduct and
 the directors will be obliged to retain half of all psp shares released 
to them until a multiple of salary is reached the shareholding 
requirement has been increased to 250 per cent of salary for the 
chief executive and 200 per cent of salary for the other executive 
directors the share retention policy is explained on page 66 
annual bonus outcome
this year’s bonus reflects ontarget performance group underlying 
profit was £1500 million which met the base level performance  
and there was a net cash inflow of £312 million which resulted in an 
annual bonus outcome of 60 per cent the targets and results exclude 
rollsroyce power systems ag previously named tognum ag
psp outcome
over the threeyear performance period for the 2011 psp grant 
earnings per share growth was 60 per cent which exceeded the 
oecd index of consumer prices of six per cent and cash flow per 
share was 86p this resulted in 100 per cent of the shares 
conditionally granted being released the company’s total 
shareholder return tsr performance was ninth in the ftse 100 over 
the threeyear performance period which resulted in a 50 per cent 
increase in the number of shares released to executive directors
summary of activity during 2013
during 2013 amongst other things the committee
 endorsed the outturn of the 2012 annual bonus and 2010 psp
 reviewed executive directors’ base salary levels
 set 2013 annual bonus targets and performance targets for the 
psp 2013 – 2015
 recommended the approval of the 2012 remuneration report  
to the board
 approved psp grants to certain senior management
 considered the structure of the annual bonus for 2014
 considered the new bis regulations in respect of drafting the 
remuneration report
 considered the projected outturns for the 2013 annual bonus 
allemployee bonus scheme and the 2011 psp
 considered a benchmarking report for the executive salary review 
in 2014 and
 reviewed its own terms of reference
we believe our current remuneration practices are in line with  
the new reporting regulations and we welcome the structure and 
transparency introduced by the new requirements overall we 
believe that our remuneration policy is aligned with our strategy  
to enhance longterm value for our stakeholders
dame helen alexander 
chairman of the remuneration committee
rollsroyce holdings plc annual report 2013 54 directors’ report
remuneration committee report remuneration policy framework
the group is committed to achieving sustained improvements  
in performance and this depends crucially on the individual 
contributions made by the executive team and by employees at all 
levels the board believes that an effective remuneration strategy 
plays an essential part in the future success of the group
accordingly the remuneration policy will continue to reflect the 
following broad principles
 the remuneration of executive directors and other senior 
executives should reflect their responsibilities and contain 
incentives to deliver the group’s performance objectives without 
encouraging excessive risk taking
 remuneration must be capable of attracting and retaining  
the individuals necessary for business success
 remuneration policy must be sufficiently flexible to take  
account of changes in the group’s business environment and 
market practices
 total remuneration should be based on group and individual 
performance both in the short and long term
 the system of remuneration should establish a close identity of 
interest between senior executives and shareholders through 
measures such as encouraging the senior executives to acquire 
shares in the company therefore a significant proportion of 
senior executive remuneration will comprise sharebased 
longterm incentives and
 when determining remuneration the committee will take into 
account pay and employment conditions elsewhere in the group
policy report
the policy will start on 1 may 2014 subject to shareholder approval at the agm
executive directors’ remuneration policy
element
purpose and link 
to strategy operation
maximum  
opportunity
performance  
measures
salary it is essential that the 
company provides 
competitive salaries 
suitable to attract 
and retain individuals 
of the right calibre to 
develop and execute 
the business strategy 
salary levels are set using careful 
judgement taking into account  
the scope of the role and 
responsibilities performance 
experience potential retention 
issues and salaries elsewhere in the 
group judgement will be informed 
but not led by reference to 
companies of a similar size 
complexity and internationality
salaries are reviewed annually and 
normally fixed for 12 months from 
1 march each year however salary 
increases are not automatic 
exceptionally salaries may be 
increased on other dates in the year 
executive directors may be 
appointed at salaries below the 
target level to enable pay 
progression commensurate with 
growth in the new role 
annual salary increases will not 
normally exceed average increases 
for employees in other appropriate 
parts of the group 
on occasion increases may be 
larger where the committee 
considers this to be necessary 
circumstances where this may apply 
include growth into a role to 
reflect a change in scope of role and 
responsibilities where market 
conditions indicate a level of under 
competitiveness and the committee 
judges that there is a risk in relation 
to attracting or retaining 
executives
where the committee exercises its 
discretion to award increases above 
the average for other employees the 
resulting salary will not exceed the 
competitive market range
none although individual 
performance is the primary 
consideration in setting salary 
alongside overall company 
affordability and market 
competitiveness 
rollsroyce holdings plc annual report 2013 55
strategic report financial statements directors’ report other information
directors’ remuneration policy executive directors’ remuneration policy
element
purpose and link 
to strategy operation
maximum  
opportunity
performance  
measures
benefits to provide market
competitive benefits 
sufficient to recruit 
and retain and to 
support the 
executive to give 
maximum attention 
to their role
benefits provided include a car or 
car allowance contribution to the 
cost of fuel use of a driver financial 
planning assistance life assurance 
and medical insurance other 
appropriate benefits may be 
provided from timetotime at the 
discretion of the committee
certain benefits such as 
accommodation or use of a driver 
are to enable an executive to devote 
maximum time and attention to 
their role club membership fees 
may also be provided the group 
may pay any tax due on these 
benefits
the group offers relocation for 
executives to be located within 
reasonable reach of their place  
of work where relocation is not 
practical or a preferred option or 
where work is mainly split between 
two locations support for 
accommodation and travel may 
be provided
relocation support may include 
items such as transaction and legal 
fees removals disturbance 
allowance and temporary travel  
and subsistence costs international 
relocation support may include 
items such as school fees tax 
equalisation and home visits
benefits will be market competitive 
taking into account the role and the 
local market
benefits excluding any 
accommodation relocation and 
associated tax costs will not exceed 
£100000 per annum 
the value of benefits provided for 
international and domestic 
relocation and any ongoing 
accommodation and travel support 
will be appropriate to the individual 
circumstances of the executive and 
only expenses that the committee 
considers necessary and appropriate 
will be supported
none
pension to provide market
competitive 
pensions sufficient 
to recruit and retain
new executives to the company are 
offered membership of a defined 
contribution pension plan pension 
contributions are based on base 
salary only
there are a number of legacy 
pension arrangements including 
defined benefit plans which were in 
place before 27 june 2012 and have 
not changed since commitments  
to these arrangements will be 
honoured 
executives may opt to receive a cash 
allowance in lieu of pension
the maximum employer 
contribution to defined 
contribution pension arrangements 
is 38 of base salary under the 
group’s legacy defined benefit 
arrangements the pension due is 
the higher of a pension based on  
the executive’s final salary with a 
maximum annual accrual rate of 
25 or based on career average 
salary with a maximum annual 
accrual rate of 33 the resulting 
pension is limited so that the 
maximum pension at normal 
retirement age is two thirds of the 
executive’s final remuneration the 
benefits under these arrangements 
include a lump sum payable on 
death in service and pensions for 
surviving spouses civil partners 
and certain dependants 
none
rollsroyce holdings plc annual report 2013 56 directors’ report
directors’ remuneration policy  executive directors’ remuneration policy
element
purpose and link 
to strategy operation
maximum  
opportunity
performance  
measures
pension 
continued
executives may opt to receive a cash 
allowance in lieu of pension the 
cash allowance is calculated to be 
equivalent to the employer’s defined 
contribution pension contributions 
reduced to allow for the additional 
national insurance cost incurred  
by the employer
james guyette participates in 
qualified and nonqualified defined 
benefit and defined contribution 
pension arrangements in the us 
under these various arrangements 
combined it is expected that the 
benefits provided by the company 
will be equivalent in value to a 
pension of two thirds of salary with 
post retirement increases similar to 
those required by statute in the uk 
annual 
bonus
to incentivise and 
reward execution of 
the business strategy 
delivery of financial 
performance targets 
and achievement of 
personal objectives
compulsory deferral 
of part of any bonus 
encourages retention 
and provides 
alignment with 
shareholders
the committee sets group financial 
targets and agrees personal 
objectives for each executive director 
at the start of the financial year  
at the end of the year business 
performance determines the 
company bonus payout level and the 
committee considers whether any 
adjustment to the payout level is 
appropriate each executive 
director’s bonus is also dependent on 
the achievement of their personal 
objectives and wider contribution to 
the group the committee may apply 
an uplift of up to 20 or a reduction 
potentially to zero as appropriate
a portion of the bonus paid in a 
range 30 to 50 is compulsorily 
deferred into the company’s shares 
for a period of two years and is 
subject to continued employment 
with early release in certain 
circumstances there are no further 
performance conditions 
deferred shares may receive a bonus 
issue of c shares or equivalent 
during the deferral period 
the bonus plan is noncontractual 
and may be offered on a yearbyyear 
basis the committee has the right to 
apply the malus provision on an 
individual or group basis and amend 
or withdraw the bonus before 
payment from 2014 the same right 
over deferred shares will apply as will 
the right to clawback bonuses paid or 
vested shares on an individual basis 
if it can be demonstrated that 
individuals have acted in an 
improper manner malus andor 
clawback provisions may apply in 
exceptional cases such as material 
misstatement of results a material 
failure of risk management serious 
reputational damage serious 
individual wrongdoing such as 
noncompliance with the company’s 
code of conduct or gross 
misconduct 
the current maximum annual 
bonus linked to business 
performance is 135 of salary for 
the chief executive and 125 for 
other executive directors this is 
based on achieving the highest 
targets set for business performance 
however the committee may adjust 
the bonus to reflect personal 
performance as described in the 
previous column giving an overall 
maximum of 162 and 150 
respectively
the committee has the discretion to 
increase the overall maximum bonus 
level to 200 of salary for the chief 
executive and 175 for other 
executive directors subject to this 
not being above the competitive 
market range
the bonus payout level is 
determined primarily by group 
financial performance but the 
committee may introduce 
nonfinancial metrics andor 
adjust the payout level to reflect 
other factors as appropriate  
the final bonus awarded to each 
director is also linked to their 
personal performance
any nonfinancial metrics used  
in the annual bonus plan will be 
linked to the group’s strategy and 
will not be weighted more than 
50 of the whole bonus a 
principle applies that no bonus is 
payable unless the base financial 
targets are achieved and this also 
applies if nonfinancial measures 
are introduced
based on the current bonus 
opportunity
chief executive bonus generated 
by business performance is 40 
of salary for achieving the base 
level targets and 135 of salary 
for achieving the highest level of 
targets bonus may then be 
adjusted for personal 
performance in a range 0120  
at committee discretion with 
100 typically applying for good 
performance and a 20 uplift 
available for outstanding 
personal performance
other executive directors  
bonus generated by business 
performance is 37 of salary for 
achieving the base level targets 
and 125 of salary for achieving 
the highest level of targets  
bonus may then be adjusted for 
personal performance as above
rollsroyce holdings plc annual report 2013 57
strategic report financial statements directors’ report other information executive directors’ remuneration policy
element
purpose and link 
to strategy operation
maximum  
opportunity
performance  
measures
per for mance  
share plan  
psp
post 2014  
agm 
onwards
to incentivise and 
reward development 
and execution of the 
business strategy 
over the longer term
the plan provides 
alignment with 
shareholder interests 
through the 
performance 
measures chosen 
and a retention 
element through  
the plan timescale 
a shareholding 
requirement is linked 
to the psp in order  
to further provide 
alignment with  
shareholders 
the link between the 
performance 
measures and the 
company’s strategy 
is explained in the 
notes to this table on 
page 59
executive directors are granted 
awards over shares annually at the 
start of a threeyear performance 
period the proportion of the those 
awards that vest is determined at 
the end of the period according  
to a set of company performance 
measures
vesting of awards is subject to 
continued employment until 
vesting date with the exception  
of certain leaver circumstances  
in which case vesting is subject  
to company performance and 
prorating for service
the plan rules contain malus and 
clawback provisions the committee 
has the right to amend and 
withdraw share grants before 
vesting for individuals and groups 
and the right to reclaim vested 
shares or their proceeds from 
individuals where it has been 
demonstrated that they acted in  
an improper manner situations 
where the provisions will apply are 
as described in the bonus section  
on page 57 
executive directors are required to 
hold a level of shareholding as 
described on page 66
the chief executive is granted 
awards each year over shares to the 
value of 120 of salary other 
executive directors are granted 
100 of salary subject to the 
earnings per share eps condition 
being met these shares vest at the 
end of the performance period if  
the company has achieved the 
maximum target set for cash flow 
per share cps the number of 
shares vesting can be increased by 
25 for above median tsr ranking 
rising to 50 increase for upper 
quartile tsr ranking
maximum face values of annual 
awards are therefore 180 of salary 
for the chief executive and 150 of 
salary for other executive directors
 
the three corporate performance 
measures are
1 eps – condition
the increase in eps over the 
threeyear period must exceed  
an appropriate index of consumer 
prices for the same period if this 
condition is not met share vesting 
is zero
2 cps – prime measure 
the aggregate cps over the 
performance period will 
determine the number of shares 
which vest achieving a base 
target of cps will result in 30 of 
the shares vesting and achieving 
a maximum cps target will cause 
100 of the shares to vest the 
number of shares which may vest 
is determined on a straightline 
basis between the 30 and 
100 level
3 total shareholder return tsr 
relative to ftse 100 or other 
appropriate index the number  
of shares vesting will be increased 
by 25 if the company’s tsr is 
ranked above the median of the 
ftse 100 or other appropriate 
index over the same periods and 
by 50 if ranked at or above the 
upper quartile of the same group 
intermediate tsr ranking will 
increase the number of shares 
released on a straightline basis
performance 
share plan 
psp
legacy 
awards –  
2004 plan
the purpose of the 
2004 share plan is 
fully consistent with 
the purpose of the 
2014 plan described 
above
the operation of the 2004 plan is as 
described above with the exception  
of malus and clawback elements  
which will apply for 2014 grants
as above as above
sharesave 
plan
this savingsrelated 
share option plan 
provides all 
employees 
worldwide an 
interest in the 
performance of 
rollsroyce shares
executive directors may participate 
on the same terms as other 
employees the option price may be 
discounted by up to 20
accumulated savings may be used 
to exercise an option to acquire 
shares 
the maximum savings amount is 
currently £250 per month over a 
three or fiveyear period this may 
be increased in accordance with 
changes to uk legislation
no performance measures are 
permitted by uk legislation 
applicable to this type of plan
share 
incentive 
plan sip
uk employees may 
elect to receive part 
of any annual bonus 
in shares 
uk employees may 
elect to make regular 
monthly purchases 
of shares from 
pretax income
ukbased executive directors may 
participate on the same terms as all 
other uk employees shares held in 
the sip for five years will vest free 
from income tax and national 
insurance contributions
currently up to £3000 of the 
annual cash bonus can be applied  
to purchase shares
the maximum monthly amount  
of £125 may be used to purchase 
shares
the above limits may be increased 
in accordance with changes to uk 
legislation
the award of any bonus  
will depend on performance 
conditions see page 57 but no 
further conditions apply once the 
employee elects to participate  
in the sip
rollsroyce holdings plc annual report 2013 58 directors’ report
directors’ remuneration policy  nonexecutive directors’ remuneration policy
element
purpose and link 
to strategy operation
maximum  
opportunity
performance  
measures
fees to reward 
individuals for 
fulfilling the relevant 
role and to attract 
individuals of the 
skills and calibre 
required
the committee makes 
recommendations to the board on 
the remuneration of the chairman 
the chairman and the executive 
directors determine the 
remuneration for the nonexecutive 
directors the level of remuneration 
is set within a limit approved from 
timetotime by shareholders
the chairman is paid a single 
consolidated fee other non
executive directors are paid a base 
fee covering board and committee 
membership committee chairmen 
and the senior independent director 
receive an additional fee 
the articles of association require 
the company to set a maximum 
ceiling on the total remuneration 
payable to nonexecutive directors 
including the nonexecutive 
chairman a resolution to increase 
this to £1400000 will be proposed 
at the 2014 agm 
fees are set at a level appropriate for 
the role and are reviewed regularly 
taking in to account fees payable to 
nonexecutive directors of 
companies of a similar size and 
complexity
none
benefits to devote maximum 
time and attention 
to the requirements  
of the role
the chairman has occasional  
use of chauffeur services 
travel hotel and subsistence 
expenses incurred in attending 
board meetings and committee 
meetings or otherwise required to 
attend the company’s offices are 
reimbursed by the company  
the group may pay any tax due  
on such benefits
where a nonexecutive director is 
based outside the uk and has to file 
a uk tax return the company may 
pay towards tax advice and filing
the maximum value for chauffeur 
services will not exceed £25000  
per annum 
the maximum contribution 
towards tax advice and filing is 
£5000 per annum
none
performance measures and targets
the annual bonus measures are primarily based on group financial 
performance but may contain nonfinancial measures as detailed  
in the above table 
the committee will set the group financial targets with reference to 
the prior year and to the budgets and business plans for the coming 
year ensuring the levels to achieve base ontarget and maximum 
bonus payout are appropriately challenging
the psp performance measures set out in the policy table support 
the group’s strategy as follows
 the eps growth hurdle ensures any payout is supported by 
sound profitability
 the aggregate cps measure incentivises the generation of cash 
flow in line with the group’s strategy this measure is set in line 
with the principles described for the annual bonus and
 the tsr performance measure aligns interests with shareholders by 
rewarding tsr outperformance the tsr is measured with reference 
to constituents of an appropriate index such as the ftse 100
in accordance with the rules of the psp  the performance condition 
may be replaced or varied if an event occurs or circumstances arise 
which cause the committee to determine that the performance 
conditions have ceased to be appropriate if the performance 
condition is varied or replaced the amended performance 
conditions must in the opinion of the committee be fair reasonable 
and materially no more or less difficult than the original condition 
when set
shareholders’ views 
this statement of remuneration policy is largely a consolidation of 
policies which have enjoyed the support of shareholders for many 
years we have considered the guidance provided by the gc 100  
and shareholder advisory groups in preparing this policy and have 
followed this insofar as it is appropriate in the context of our 
business prior to finalising the policy we have shared it with a 
selection of major shareholders looking ahead we welcome an open 
dialogue with shareholders and intend to continue to consult with 
major shareholders before implementing any significant change
group employee considerations 
when setting remuneration for executive directors the committee 
takes into account contextual information about pay and conditions 
within the group including the following
 salary increases for the allemployee population
 bonus awards for the allemployee population and
 pay ratios between executive directors and other employees
rollsroyce holdings plc annual report 2013 59
strategic report financial statements directors’ report other information rollsroyce employs over 55000 people in more than 50 countries 
inevitably remuneration arrangements differ to reflect local 
markets but some common themes apply to employees at all 
levels worldwide
 we aim to offer competitive levels of remuneration benefits 
and incentives to attract and retain employees
 all employees participate in bonus arrangements where the bonus 
is determined by the same financial measures as that applicable 
to executive directors and
 all employees have the opportunity to participate in a savings 
related share option plan
at more senior levels remuneration is increasingly long term and 
larger proportions are dependent on both group and individual 
performance and paid in the form of shares
given the scale of the employee population the committee 
considered that it would be impractical to consult all employees 
when drawing up the policy 
illustrations of remuneration policy application
the bar chart below illustrates projected executive remuneration 
for 2014 at four different levels of performance showing payments 
from minimum to maximum the table below the chart explains 
performance levels one to four and the associated remuneration 
mark morris colin smith james guyette john rishton
1
0
2000
1500
1000
500
2500
3000
3500
4000
4500
£000
23 4 1 2 34 1 2 34 12 3 4
66
30
25 18
16
45
13
71 100 100 100 100
10
13
77
11
13
76
20
22
58
30
25
45
25
24
51
 20
21
59
34
29
37
30
25
45
39
29
32
salary plus pension and benefits
potential value of bonus depending on the performance scenario
potential value of psp depending on the performance scenario
 salary values are as at 31 december 2013
16
remuneration achieved for key levels of performance are
1 minimum fixed remuneration only no bonus or psp paid
2 base level bonus and psp resulting from base level of business 
performance bonus at 30 of maximum payment 
assuming no adjustment for personal performance 
psp vesting at 30 of maximum from achieving 
base cps target with no tsr multiplier
3 ontarget bonus and psp resulting from performance in line 
with company expectations bonus at 60 of 
maximum assuming no adjustment for personal 
performance psp vesting midway between base 
and maximum levels with 25 tsr multiplier
4 maximum maximum annual bonus based on achieving the 
highest targets set for business performance and 
outstanding individual performance psp vesting 
from achieving maximum cps target and with 
maximum 50 tsr multiplier
service contracts
ukbased executive directors’ contracts include the 
following provisions
 12 months’ notice of termination from rollsroyce
 6 months’ notice of termination from the executive and 
 reimbursement of reasonable business expenses
the committee recognises that in the case of appointments to 
the board from outside the group it may be necessary to offer 
a longer initial notice period which would subsequently reduce 
to 12 months after that initial period
the policy on exit payments is set out in the next section the 
following table summarises the terms of the executive directors’ 
service contracts
date of 
contract
notice 
period
company
notice 
period
individual
james guyette 29 sep 1997 30 days 30 days
mark morris 1 jan 2012 12 months 6 months
john rishton 10 mar 2011 12 months 6 months
colin smith cbe 1 july 2005 12 months 6 months
james guyette has a contract with rollsroyce north america inc 
drawn up under the laws of the state of virginia us this provides 
that on termination without cause he is entitled to 12 months’ 
severance pay without mitigation and in addition appropriate costs 
incurred in relocating household and personal effects the contract 
also provides for the payment of club membership fees and for tax 
and financial planning up to a maximum of us15000 per annum 
and the group will gross up any amounts to cover any applicable 
taxes arising
all contracts also include the entitlement to paid holidays sick pay 
and other standard employee terms
the chairman and the nonexecutive directors have letters of 
appointment rather than service contracts no compensation is 
payable to the chairman or to any nonexecutive director if the 
appointment is terminated early or if they fail to be reelected 
at an agm
appointment date
current letter 
of appointment
 end date
dame helen alexander 1 sep 2007 31 aug 2016
lewis booth cbe 25 may 2011 24 may 2014
sir frank chapman 10 nov 2011 9 nov 2014
iain conn 20 jan 2005 19 jan 2015
ian davis 1 mar 2013 29 feb 2016
warren east cbe 1 jan 2014 31 dec 2016
lee hsien yang 1 jan 2014 31 dec 2016
john mcadam 19 jan 2008 18 feb 2017
john neill cbe 13 nov 2008 12 nov 2014
jasmin staiblin 21 may 2012 20 may 2015
rollsroyce holdings plc annual report 2013 60 directors’ report
directors’ remuneration policy  policy on exit payments
the notice period the company is required to give to executive 
directors under their contracts of employment is 12 months 
payment in lieu of notice will not exceed the value of 12 months’ 
salary benefits and pension contributions both mitigation and  
the staggering of payments through the notice period will be 
considered by the committee where appropriate as will the funding 
of reasonable outplacement and other professional fees should 
additional compensation matters arise such as a settlement or 
compromise agreement the committee will exercise judgement 
and will take into account the specific commercial circumstances
pension benefits on early retirement should be payable in 
accordance with the normal rules of the relevant pension plan 
under legacy uk defined benefit pension arrangements accrued 
pension is reduced to reflect early receipt in accordance with factors 
set by the trustees from timetotime and is limited to a maximum 
pension of two thirds of the executive’s final remuneration 
prorated by actual service to potential service
the committee has the discretion to preserve incentive awards 
prorated to service and to release deferred shares in exercising this 
discretion the committee will have regard to performance and the 
circumstances of leaving for deferred shares these are usually 
released in cases such as retirement death injury illhealth and 
redundancy
for psp  the rules state that unvested awards may be preserved at 
the committee’s discretion according to the circumstances in such 
cases vesting will be at the normal date subject to the established 
performance conditions and pro rata to employment in the 
performance period in cases such as death and terminal illness the 
committee also has the discretion to vest the awards immediately 
using an estimate of future outturn
the treatment of leavers in the company’s sharesave and sip plans  
is governed by the plan rules the uk rules are hmrc approved  
an executive director who has sharesave options who retires or who 
leaves the company through illhealth disability or redundancy will 
be entitled to exercise their options pro rata to the savings made 
within six months of leaving the company an executive director 
who leaves in any other manner such as dismissal would only be 
entitled to have their savings returned to them participants in  
the sip who leave the company for the same reasons listed above 
will have their shares released to them free of tax and national 
insurance contributions
in the event of a change of control of the company psp awards will 
vest based on the extent to which the committee determines the 
performance conditions have been or would have been met 
prorating for service in the performance period will apply deferred 
shares earned under apra would vest in full sharesave options would 
immediately be exercisable pro rata to savings made consideration 
received as shares would be held in the sip  if possible otherwise the 
consideration would be treated as a disposal from the sip 
if awards are made on recruitment such as buyouts the treatment 
on leaving would be determined at the time at the committee’s 
discretion
policy on new appointments 
the committee will normally award newly appointed executive 
directors with a remuneration package which is consistent with the 
policy and principles as set out in this report base salary may be set 
at a level higher or lower than previous incumbents and in certain 
circumstances to facilitate the recruitment of individuals of the 
required calibre the committee may use its discretion to make 
individual additional incentive awards up to a maximum of 
100 per cent of annual salary incentive levels may also be increased 
by up to 30 per cent of salary per annum for incentives commencing 
within two years of joining this level of discretion is considered 
appropriate given the current conservative market positioning of 
rollsroyce and our potential need to recruit from other market 
sectors or countries outside of the uk
in addition remuneration forfeited on resignation from a previous 
employer may be compensated the form of this compensation 
would be considered on a casebycase basis and may comprise 
either cash or shares generally 
 if such remuneration was in the form of shares compensation  
will be in the company’s shares
 if remuneration was subject to achievement of performance 
conditions compensation will be subject to rollsroyce 
performance conditions and
 the timing of any compensation will where practicable match  
the vesting schedule of the remuneration forfeited
a newly appointed executive director may be provided with 
reasonable relocation support as set out in the policy table  
internal appointments would receive a remuneration package  
that is consistent with the remuneration policy legacy terms and 
conditions would be honoured including pension entitlements  
and any outstanding incentive awards 
if an executive director is appointed following a merger or an 
acquisition of a company by rollsroyce of which the executive 
director was employed legacy terms and conditions may be 
honoured
legacy commitments
contractual commitments made before 27 june 2012 and before the 
policy comes into effect will be honoured this will include grants  
made under the old psp arrangement which will vest subject to the 
performance criteria being achieved after the adoption of this policy  
as well as previous contractual provisions relating to the defined 
benefit pension scheme 
the committee may make minor amendments to the policy set out 
above for regulatory exchange control tax administrative purposes  
or to take account of a change in legislation without obtaining 
shareholder approval for that amendment
the remuneration policy report was approved by the board on  
12 february 2014 and signed on its behalf
dame helen alexander
chairman of the remuneration committee
rollsroyce holdings plc annual report 2013 61
strategic report financial statements directors’ report other information single figure of remuneration subject to audit
the total remuneration for the directors of the company for the financial year ending 31 december 2013 is detailed below
salaryfees a
£000 
benefits b 
£000 
bonus c 
£000 
ltip d
£000 
other e
£000 
subtotal 
£000
pension f
£000 
total 
£000 
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
james guyette 535 517 107 100 423 663 1464 1399 – – 2529 2679 532 472 3061 3151
mark morris 506 482 159 189 383 464 445 333 6 – 1499 1468 162 719 1661 2187
john rishton 921 896 125 126 824 1239 4055 1998 – – 5925 4259 303 318 6228 4577
colin smith cbe 523 506 128 23 394 596 1329 1194 – – 2374 2319 531 1034 2905 3353
dame helen alexander 75 75 – – – – – – – – 75 75 – – 75 75
lewis booth cbe 80 80 10 4 – – – – – – 90 84 – – 90 84
peter byrom 20 60 – – – – – – – – 20 60 – – 20 60
sir frank chapman 75 75 3 – – – – – – – 78 75 – – 78 75
iain conn 82 72 – – – – – – – – 82 72 – – 82 72
ian davis 292 – 2 – – – – – – – 294 – – – 294 –
john mcadam 60 60 – – – – – – – – 60 60 – – 60 60
john neill cbe 60 60 2 2 – – – – – – 62 62 – – 62 62
sir simon robertson 126 370 2 7 – – – – – – 128 377 – – 128 377
jasmin staiblin 60 37 2 – – – – – – – 62 37 – – 62 37
ian strachan 26 75 – – – – – – – – 26 75 – – 26 75
total 3441 3365 540 451 2024 2962 7293 4924 6 – 13304 11702 1528 2543 14832 14245
notes to the table 
a   salaryfees – cash paid in the year james guyette was paid in us dollars translated at £1  us1565 2012 us1585
b  benefits – taxable value of all benefits paid in the year the benefits for the nonexecutive directors relate to travel and subsistence 
associated with attending board meetings with the exception of sir simon robertson which was related to the use of a chauffeur
james guyette 
£000
mark morris 
£000
john rishton 
£000
colin smith cbe
£000
benefits 2013 2012 2013 2012 2013 2012 2013 2012
car or car allowance including fuel allowance 11 11 24 24 18 18 21 22
chauffeur services – – – – 13 8 – –
financial planning 19 16 – – – – – –
medical insurance – – 1 1 1 1 1 1
life assurance 38 37 – – – – – –
club membership fees 23 20 – – – – – –
travel and subsistence – – 30 36 – – 3 –
housing costs 16 16 104 128 93 99 103 –
total 107 100 159 189 125 126 128 23
c   bonus this is the total apra bonus earned in 2013 the bonus based on group profit and cash performance was 60 per cent of the 
maximum as detailed on page 57 personal performance is taken into account in determining individual bonuses payable the awards 
made to john rishton and james guyette included a modification for personal performance of 110 per cent and 105 per cent 
respectively 60 per cent of the bonus is paid as cash and 40 per cent is deferred into shares for two years subject to continuous 
employment with the group
d  longterm incentives this is the estimated value of the psp shares that are due to vest in march 2014 2013 being the final year of the 
performance period and for john rishton as well as his psp shares the performance related shares he received on joining the 
company it is based on the number of shares that will vest multiplied by the average share price of 118452p over the quarter ending 
31 december 2013 as the vesting price is not known at the date of approval of the remuneration report performance has already 
been determined for these awards as detailed on page 64 and 150 per cent of the original award will vest based on achievement of 
the eps growth hurdle the maximum cps target and tsr performance in the upper quartile of ftse 100 companies the share price at 
the date of vesting for the psp in 2013 was 102052p the vesting price for john rishton’s release of the performance related and 
restricted shares in 2013 was 1048p
e   value of the gain made on the exercise of sharesave options is the difference between the exercise price of 387p and the midmarket 
price of 1062p on the date of exercise sharesave is not subject to performance conditions and the uk plan rules are hmrc approved
f   pensions for defined benefit plans this is the increase in pension benefit net of inflation for the current year and applying the hmrc 
methodology multiplier of 20 cash in lieu of pension accrual is also included
rollsroyce holdings plc annual report 2013 62 directors’ report
directors’ remuneration report implementation of remuneration policy 
information on the elements of remuneration and how the 
company intends to implement the remuneration policy in 2014  
are set out below and on pages 64 to 66
base salary 
the committee reviewed the salary levels of executive directors and 
decided not to award any increases for 2014
name base salary
james guyette 840000
mark morris £510000
john rishton £925000
colin smith cbe £525000
annual bonus 
the annual bonus pool is delivered under apra
in 2013 executive directors were eligible for award levels as detailed 
in the policy report on page 57
apra 2013 performance measures
the apra bonus is determined by group financial performance  
and personal performance 
for 2013 the group financial measures were cashflow performance 
and profit targets for both measures were set as follows
 of maximum bonus
base 15
target 30
maximum 50
the group financial performance is the addition of the cash and 
profit outturns provided a specified minimum level is achieved  
on both after deduction of the cost of bonus from profit otherwise 
no bonus is payable
the 2013 financial performance which resulted in the apra bonus 
outturn of 60 per cent was as follows
group underlying  
profit
group underlying profit was £1500 million  
which matched the base level but fell short of 
the ontarget level of £1530 million 
the profit performance resulted in achievement 
of 15
cash flow cash flow for the year was £312 million which 
exceeded both the ontarget level of breakeven 
and the maximum target of £200 million 
the cash flow performance resulted in the 
achievement of 50
overall award the minimum level of profit after the cost of 
bonus necessary to enable payment of bonus 
was £1500 million to ensure this was achieved 
the bonus earned through the separate profit 
and cash elements was limited to 60 of the 
maximum
  group underlying profit and cash flow excludes the results of rollsroyce power 
systems ag previously named tognum ag the impact of acquisitions and disposals  
in the year and unbudgeted foreign exchange translation effects where material
the extent of this disclosure reflects the board’s view that apra 
profit and cash targets are commercially sensitive this will be kept 
under review
deferred apra awards in march 2013 subject to audit
for executive directors and other senior executives 40 per cent  
of apra was delivered in deferred shares as detailed on page 57 
ordinary shares held as deferred shares may receive a bonus issue  
of c shares during the deferral period
name
number
of shares
face 
value
£000
vesting
date
james guyette 25770 264 01032015
mark morris 18057 185 01032015
john rishton 48250 494 01032015
colin smith cbe 23207 237 01032015
apra 2014
the committee have determined that the bonus in respect of 2014 
will be operated on similar terms to 2013 there will be no change  
to the maximum bonus opportunities for executive directors  
as described above bonus targets are not disclosed
longterm incentives – psp
the psp is designed to reward and incentivise selected senior 
executives who can influence the longterm performance of  
the group 
psp 2013
in 2013 executive directors received psp grants in line with the 
policy report on page 58
psp awards made in march 2013 subject to audit
the targets were as follows
aggregate cps over 
the threeyear period
 of maximum 
award released
less than 56p 0
56p 30
94p 100
straight line vesting will apply between these points
number 
of shares 
awarded
 
 of 
salary
face 
value at
 maximum
 vesting
£000
minimum
  vesting 
as a  of
 maximum
performance
 period 
end date
james guyette 51714 100 794 20 31122015
mark morris 49838 100 765 20 31122015
john rishton 108470 120 1665 20 31122015
colin smith cbe 51304 100 788 20 31122015
all awards are made as performance shares based on a percentage  
of salary and the value is divided by the average share price over a 
threeday period which was 102333p before to the date of grant  
the face value is the maximum number of shares that would vest 
150 per cent of the award multiplied by the share price at the date  
of grant if the base eps or cps targets are not achieved no shares vest
rollsroyce holdings plc annual report 2013 63
strategic report financial statements directors’ report other information psp awards vesting in march 2014
the following sets out details in respect of the march 2011 psp award for which the final year of performance was the 2013 financial year 
targets for 2011 – 2013 period performance against targets
eps growth hurdle awards may vest if eps growth exceeds the oecd 
index of consumer prices awards will lapse if hurdle 
not met
eps growth of 60 over the threeyear period 
exceeded the hurdle which was 6
aggregate cps 
100 of award
aggregate cps over threeyear period  
of less than 56p – zero vesting
aggregate cps over threeyear period of  
56p – 30 vesting
aggregate cps over threeyear period  
of 83p – 100 vesting
straightline vesting between these points
aggregate cps performance over three years of 86p
100 vesting 
tsr performance
multiplier of up to 50
tsr below median of ftse 100 – no additional 
vesting
tsr above median of ftse 100 – 25 increase
tsr at upper quartile of ftse 100 – 50 increase
straightline basis between these points
tsr performance was ninth best amongst the  
ftse 100
50 increase
total 150 of shares will vest during march 2014
psp awards to be made in march 2014
the performance targets in respect of the 2014 to 2016 performance 
period under the aggregate cps measure will be as follows
aggregate cps over 
the threeyear period
 of maximum
 award released
less than 125p 0
125p 30
155p 100
cps is calculated as reported cash flow before the cost of business 
acquisitions or proceeds of disposals foreign exchange translation 
effects special payments into pension schemes and payments to 
shareholders divided by the weighted average number of shares  
in issue
we believe that the combination of eps cps and tsr targets are 
challenging and that the performance necessary to achieve awards 
towards the upper end of the range is stretching they should not 
therefore be interpreted as providing guidance on the group’s 
performance over the relevant period
nonexecutive directors’ fees paid
the chairman and the other nonexecutive directors are not  
eligible to participate in any of the group’s share schemes incentive 
arrangements or pension schemes a facility is in place which 
enables nonexecutive directors to use some or all of their fees after 
the appropriate statutory deductions to make market purchases of 
shares in the company on a monthly basis
nonexecutive directors’ base fees
2014 
1
£000
2013
£000
2012
£000
chairman
 2
425 425 370
other nonexecutive directors 70 60 60
chairman of audit committee 25 20 20
chairman of ethics committee 20 15 15
chairman of remuneration committee 20 15 15
chairman of safety committee 20 15 15
senior independent director 15 12 12
1
  subject to approval at the agm the base fees will be increased with effect from  
1 may 2014
2
  sir simon robertson retired as chairman on 2 may 2013 the fee was increased on the 
appointment of the new chairman ian davis
payments to past directors not subject to audit
john cheffins retired from the board on 30 september 2007 he 
continued in his role as chairman of rollsroyce fuel cell systems 
limited and provided nonexecutive advice to the energy business 
until 28 september 2013 he was paid £35811 and benefits totalling 
£2051 in 2013 paid in canadian dollars and translated at 
£1cad1612 
dr mike howse retired from the board on 30 june 2005 following 
his retirement he has continued to be retained by the company  
for his expertise in engineering and was paid £23310 in 2013
payments to past directors subject to audit 
mike terrett retired from the board on 31 december 2012 the psp 
award granted to him on 1 march 2010 for the performance period 
1 january 2010 to 31 december 2012 vested on 1 march 2013 at a 
vesting price of 102052p the value of the psp released to him was  
£14 million 2012 £24 million before tax and national insurance 
contributions psp awards that will vest in 2014 and may vest in 
2015 subject to meeting the performance criteria will be prorated 
to the length of service during the performance period
rollsroyce holdings plc annual report 2013 64 directors’ report
directors’ remuneration report loss of office payments subject to audit
there were no payments in respect of loss of office during the year
external directorships 
the directors retained the payments detailed below from serving on the boards of these companies
directorships held 
payments
received
£000
james guyette 
12
privatebancorp inc and pricelinecom 128
john rishton 
3
unilever plc and unilever nv 56
1 
james guyette was paid in us dollars translated at £1us1565
2  
james guyette received 2548 restricted stock units rsus at us1963 per share in privatebank in addition to an annual fee he also received 359 shares of restricted stock at  
us69562 per share in pricelinecom 
3  
john rishton was appointed as a director of unilever plc and unilever nv on 15 may 2013 part of his fee was paid in euro’s translated at £1  eur 1178
pension entitlements subject to audit 
the group’s uk pension schemes are funded registered schemes and were approved under the regime applying until 6 april 2006 they 
include both defined contribution and defined benefit pension schemes in the defined benefit pension schemes normal retirement  
age is 62
john rishton is a member of one of the group’s uk defined contribution pension schemes and received employer contributions restricted 
to the annual allowance limits with any excess paid as a cash allowance the cash allowance is calculated as equivalent to the cost of the 
pension contributions allowing for national insurance costs
mark morris opted out of future pension accrual and salary linkage with effect from 16 august 2012 and receives a cash allowance in lieu 
of future pension accrual
colin smith cbe opted out of future pension accrual with effect from 1 april 2006 and receives a cash allowance in lieu of future 
pension accrual 
james guyette participates in pension plans sponsored by rollsroyce north america inc he is a member of two defined benefit plans in 
the us one qualified and one nonqualified he accrues a retirement lump sum benefit in both of these plans in addition james guyette is 
a member of two 401k savings plans in the us one qualified and one nonqualified to which both he and his employer rollsroyce north 
america inc contribute he is also a member of an unfunded nonqualified deferred compensation plan in the us to which his employer 
makes notional contributions under the defined benefit plans the earliest age at which benefits can be taken without consent and 
without actuarial reduction by james guyette is age 65 
details of the pension benefits of the executive directors as at 31 december 2013 in the group’s uk and us pensions schemes are  
given below 
total accrued annual pension
 entitlement at 
31 december 2013 
£000
mark morris 167
colin smith 391
total accrued retirement lump
 sum entitlement at 
 31 december 2013 
£000
james guyette 
1
1181
1 
benefits are translated at £1  us16542
details of the defined contribution pension contributions paid by the group on behalf of the following executive directors are given below
2013
£000
2012
£000
james guyette 
1
395 394
john rishton 50 123
1
  benefits are translated at £1us1565 2012 us1585
rollsroyce holdings plc annual report 2013 65
strategic report financial statements directors’ report other information share retention policy subject to audit
we believe it is important that the interests of the executive directors should be closely aligned with those of shareholders the deferred 
apra award and the psp provide considerable alignment however participants in the psp are also required to retain at least one half of the 
number of aftertax shares released from the psp  until the value of their shareholding reaches the percentage of salary shown in the table 
below when this level is reached it must be maintained until retirement or departure from the group the director’s total shareholding  
for the purposes of comparing it with the minimum shareholding requirement includes shares held by their connected persons in the sip 
apra deferred shares that have not vested and psp shares that have vested but does not included unvested psp awards the shareholding 
requirement will increase in 2014 to 250 per cent of salary for the chief executive and 200 per cent of salary for the other executive 
directors apra deferred shares will no longer count towards their minimum shareholding requirement
as at 31 december 2013 the executive directors each complied with the 2013 minimum shareholding requirement as detailed in the  
table below
base salary
£000
total
 shareholding
minimum
 shareholding
 requirement
as  of salary
minimum
 shareholding
requirement 
1
actual
 shareholding as
  of minimum
 requirement
james guyette
 2
508 447868 150 74462 601
mark morris 510 86954 150 74756 116
john rishton 925 293947 200 180782 163
colin smith cbe 525 346466 150 76954 450
1
 salary divided by the march 2013 psp grant price of 102333p multiplied by percentage of salary
2
 translated at £1  us16542
directors’ interests in shares subject to audit
the directors and their connected persons had the following interests in the ordinary shares and c shares
 1
 of the company at 31 december 
2013 or at date of retirement if earlier are shown in the table below 
unvested awards vested awards
 ordinary 
shares
 
c shares
conditional
 shares not
 subject to
 performance
 conditions
 apra
conditional
shares 
subject to
performance
conditions 
psp
options over
 shares subject
 to savings
 contracts
 sharesave
vested shares
 and options 
exercised 
in year
james guyette 393937 – 53931 198503 – 174265
mark morris 62752 12676120 24202 134776 541 41713
john rishton 201297 – 92650 510681 1450 190691
colin smith cbe
 
296274 – 50192 189104 – 150678
dame helen alexander 2442 605377 – – – –
lewis booth cbe 12500 950000 – – – –
peter byrom
 
retired 2 may 2013 229910 – – – – –
sir frank chapman 4832 358759 – – – –
iain conn 27353 11178 – – – –
ian davis
 
6595–––––
dr john mcadam 2174 – – – – –
john neill cbe 41426 12722692 – – – –
sir simon robertson retired 2 may 2013 43072 – – – – –
jasmin staiblin ––––––
ian strachan
 
retired 2 may 2013 11500 – – – – –
1
 noncumulative redeemable preference shares of 01p each 
rollsroyce holdings plc annual report 2013 66 directors’ report
directors’ remuneration report changes in interests subject to audit
ordinary shares c shares
31 december 
2013
changes from
31 december
2013 to 
12 february
2014
31 december 
2013
changes from
31 december
2013 to 
12 february
2014
james guyette 393937 2609 – –
mark morris 62752 6 12676120 2362936
john rishton 201297 1335 – –
colin smith cbe
 
296274 1951 – –
dame helen alexander 2442 204 605377 605377
lewis booth cbe 12500 – 950000 950000
sir frank chapman 4832 534 358759 354062
iain conn 27353 580 11178 –
ian davis 6595 361 – –
dr john mcadam 2174 39 – –
john neill cbe 41426 442 12722692 12722692
directors’ interests in unvested and vested awards
james guyette
 
31 december
 2012
granted 
during year
tsr uplift
at vesting
dividend
 enhancement
vested 
awards
31 december
 2013
market price at 
date of award
 p
date 
of grant
date 
of vesting
market price 
at vesting 
p
psp 2010 91383 – 45692 137075 – 54470 01032010 01032013 102052
psp 2011 82404 ––– 82404 60150 09032011 09032014 –
psp 2012 64385 – – – 64385 80970 01032012 01032015 –
psp 2013 – 51714 – – 51714 102333 01032013 01032016 –
238172 51714 45692 137075 198503
apra 2010 35595 – 1595 37190 – 60100 11032011 11032013 104800
apra 2011 28161 – – – 28161 80880 01032012 01032014 –
apra 2012 – 25770 – – 25770 102333 01032013 01032015 –
63756 25770 1595 37190 53931
mark morris
31 december
 2012
granted 
during year
tsr uplift
at vesting
dividend
 enhancement
vested 
awards
31 december
 2013
market price at 
date of award
 p
date 
of grant
date 
of vesting
market price 
at vesting
exercise 
p
psp 2010 26085 – 6522 32607 – 54470 01032010 01032013 102052
psp 2011 25039 – – – 25039 60150 09032011 09032014 –
psp 2012 59899 ––– 59899 80970 01032012 01032015 –
psp 2013 – 49838 – – 49838 102333 01032013 01032016 –
111023 49838 6522 32607 134776
apra 2010 7881 – 353 8234 – 60100 11032011 11032013 104800
apra 2011 6145––– 6145 80880 01032012 01032014 –
apra 2012 – 18057 – – 18057 102333 01032013 01032015 –
14026 18057 353 8234 24202
sharesave
 
options 872 – – 872 – 38700 01022010 01022013 106200
sharesave
 
options 541 ––– 541 52500 01022012 01022015 –
1413 –– 872 541
 for sharesave the share price shown is the exercise price which was 85 per cent of the market price at the date of award
rollsroyce holdings plc annual report 2013 67
strategic report financial statements directors’ report other information john rishton
31 december
 2012
granted 
during year
tsr uplift 
at vesting
dividend
 enhancement
vested
awards
31 december
 2013
market price 
at date 
of award 
p
date 
of grant
date 
of vesting
market price 
at vesting
 exercise 
p
psp 2011 164866 –  –  – 164866 60150 09032011 09032014 –
psp 2012 133383 –  –  – 133383 80970 01032012 01032015 –
psp 2013 – 108470 –  – 108470 102333 01032013 01032016 –
298249108470 – – 406719
performance related shares 76365 – 38183 114548 – 60150 09032011 11032013 1048
performance related shares 63397 –  –  – 63397 60150 09032011 01032014 –
performance related shares 40565 –  –  – 40565 60150 09032011 01032015 –
180327 – 38183 114548 103962
apra 2011 44400 –  –  – 44400 80880 01032012 01032014 –
apra 2012 – 48250 –  – 48250 102333 01032013 01032015 –
44400 48250 – – 92650
restricted shares 76143 – – 76143 – 60150 09032011 01032013 1048
sharesave options 1450 ––– 1450 52500 01022012 01022017 –
 for sharesave the share price shown is the exercise price which was 85 per cent of the market price at the date of award
colin smith cbe
31 december
 2012
granted 
during year
tsr uplift at
 vesting
dividend
 enhancement
vested
awards
31 december
 2013
market price 
at date 
of award
 p
date 
of grant
date 
of vesting
market price
 at vesting
p
psp 2010 78025 – 39013 117038 – 54470 01032010 01032013 102052
psp 2011 74813 ––– 74813 60150 09032011 09032014 –
psp 2012 62987 – – – 62987 80970 01032012 01032015 –
psp 2013 – 51304–– 51304 102333 01032013 01032016 –
215825 51304 39013 117038 189104
apra 2010 32197 – 1443 33640 – 60100 11032011 11032013 104800
apra 2011 26985––– 26985 80880 01032012 01032014 –
apra 2012 – 23207 – – 23207 102333 01032013 01032015 –
59182 23207 1443 33640 50192
chief executive pay tsr and allemployee pay
this section of the report enables our remuneration arrangements to be seen in context by providing
 a fiveyear history of our chief executive’s remuneration 
 our tsr performance over the same period 
 a comparison of the yearonyear change in our chief executive’s remuneration with the change in average remuneration across the 
group and 
 a yearonyear comparison of the total amount spent on pay across the group with profit before tax and dividends paid
chief executive pay
year chief executive
 1 2
single figure 
of total
 remuneration
£000
annual bonus
 as a  of
 maximum
psp
 as a  of 
 maximum
2013 john rishton 6228 55 100
2012 john rishton 4577 85 –
2011 john rishton 3677 63 –
2011 sir john rose 3832 – 75
2010 sir john rose 3914 100 100
2009 sir john rose 2409 29 93
1
 on 31 march 2011 sir john rose retired as chief executive and john rishton was appointed
2
  the remuneration for sir john rose does not include any pension accrual or contribution  
as he was receiving his pension from 1 february 2008 john rishton received a special grant 
of shares on joining the company on 1 march 2011 to mirror the shares he forfeited on 
resigning from his previous employer the share price has increased from 48350p at the 
time this grant was made to 1275p at the end of 2013 these are the main reasons why  
john rishton’s remuneration exceeds that of his predecessor
fiveyear tsr performance
the company’s tsr performance over the previous five years 
compared to a broad equity market index is shown in the graph 
opposite the ftse 100 has been chosen as the comparator because 
it contains a broad range of other uk listed companies
the graph shows the growth in value of a hypothetical £100 holding 
in the company’s ordinary shares over five years relative to the  
ftse 100 index the values of the hypothetical £100 holdings at the 
end of the fiveyear period were £43240 and £18310 respectively
rollsroyce holdings plc annual report 2013 68 directors’ report
directors’ remuneration report advisers to the committee
during the year the committee had access to advice from deloitte 
llp’s executive compensation advisory practice total fees for advice 
provided to the committee during the year by deloitte were 
£120850 deloitte also advised the company on tax assurance 
pensions and corporate finance and deloitte mcs limited provides 
consulting services 
deloitte is a founding member of the remuneration consultants 
group and adheres to its code in relation to executive remuneration 
consulting the committee requests deloitte to attend meetings 
periodically during the year the committee is satisfied that the 
advice it has received has been objective and independent
statutory requirements
the remuneration report has been prepared on behalf of the board 
by the remuneration committee
we adopt the principles of good governance as set out in the uk 
corporate governance code and comply with the regulations 
contained in the schedule 8 of the large and mediumsized 
companies and groups accounts and reports amendment 
regulations 2013 the listing rules of the financial conduct 
authority and the relevant schedules of the companies act 2006
the companies act 2006 and the listing rules require the 
company’s auditor to report on the audited information in their 
report on page 135 and to state that this section has been properly 
prepared in accordance with these regulations the remuneration 
policy report and the annual remuneration report are subject to 
shareholder approval at the agm on 1 may 2014
the directors’ remuneration report was approved by the board on 
12 february 2014 and signed on its behalf
dame helen alexander 
chairman of the remuneration committee
2008 2009 2010 2011 2012 2013
300
250
200
150
100
rollsroyce – five year tsr data
ftse 100 rebased to 100
rollsroyce rebased to 100
350
400
450
percentage change in chief executive remuneration
the following table compares the percentage change in the chief 
executive’s remuneration to the average percentage change in 
remuneration for all uk employees from 2012 to 2013 
salary benefits
annual
 bonus
chief executive 28 08 33
uk employees average 32 06 12
uk employees were chosen as a comparator group in order to avoid 
the impact of exchange rate movements over the year uk 
employees make up approximately 45 per cent of the total  
employee population
relative spend on pay
the following table sets out the percentage change in payments  
to shareholders and overall expenditure on pay across the group
2013
£m
2012
£m
change 

payments to shareholders 
note 17 – financial statements 366 328 116
group employment costs 
note 7 – financial statements 3675 2762 347
statement of shareholder voting
 for against votes withheld 
approval of 2012 remuneration report
percentage of votes  9841 159 058
number of votes cast 1297319180 20981975 7611187
we monitor carefully shareholder voting on our remuneration  
policy and implementation we recognise the importance of 
ensuring that our shareholders continue to support our 
remuneration arrangements
rollsroyce holdings plc annual report 2013 69
strategic report financial statements directors’ report other information share capital and voting rights
on 31 december 2013 there were 1880301654 ordinary shares  
of 20 pence each 16286039565 redeemable c shares of 01 pence 
each and one special share of £1 in issue the ordinary shares are 
listed on the london stock exchange
payments to shareholders
payments to shareholders will as before be made in the form of 
redeemable c shares and at the agm on 1 may 2014 the directors 
will recommend an issue of 134 c shares with a total nominal value 
of 134 pence for each ordinary share the c shares will be issued on 
1 july 2014 together with the interim issue on 2 january 2014 of  
86 c shares for each ordinary share with a total nominal value of  
86 pence this is the equivalent of a total annual payment to 
ordinary shareholders of 22 pence for each ordinary share 
you can find out more about payments to shareholders by going to 
the ‘shareholder information’ section of this report on page 139 or 
by visiting the group’s website wwwrollsroycecominvestors
shareinformation 
share class rights
the rights and obligations attaching to the different classes of 
shares are summarised below the full rights are set out in the 
company’s articles of association the latest copy of which can be 
found on the group’s website at wwwrollsroycecom
ordinary shares
holders of ordinary shares are entitled to receive the company’s 
annual report they are also entitled to attend and speak at general 
meetings of the company to appoint one or more proxies or if they 
are corporations corporate representatives and to exercise voting 
rights they have the right to ask questions at the agm relating to 
the business of the meeting and for these to be answered unless 
such answer would interfere unduly with the business of the 
meeting involve the disclosure of confidential information if the 
answer has already been published on the group’s website or if it is 
not in the interests of the group or the good order of the meeting 
that the question be answered holders of ordinary shares may 
receive a bonus issue of c shares or a dividend and on liquidation 
may share in the assets of the company
c shares
the company issues noncumulative redeemable preference shares 
c shares as an alternative to paying a cash dividend 
shareholders can choose to
 redeem all c shares for cash
 redeem all c shares for cash and reinvest the proceeds in 
additional ordinary shares using the crip operated by the 
registrar or
 keep the c shares 
any c shares retained have limited voting rights and attract a 
dividend of 75 per cent of libor on the 01p nominal value of each 
share paid on a twiceyearly basis the company has the option to 
redeem the c shares compulsorily at any time if the aggregate 
number of c shares in issue is less than ten per cent of the aggregate 
number of all c shares issued or on the acquisition or capital 
restructuring of the company
on a return of capital on a windingup the holders of c shares are 
entitled in priority to any payment to the holders of ordinary shares 
to the repayment of the nominal capital paidup or credited as 
paidup on the c shares held by them together with a sum equal to 
the outstanding preferential dividend which has been accrued but 
not paid until the date of return of capital
the holders of c shares are entitled to attend speak and vote at a 
general meeting only if a resolution to wind up the company is to  
be considered in which case they may vote only on such resolution
special share
certain rights attach to the special rights nonvoting share special 
share issued to hm government special shareholder subject to 
the provisions of the companies act 2006 the treasury solicitor may 
redeem the special share at par at any time the special share 
confers no rights to dividends but in the event of a windingup it 
must be repaid at its nominal value in priority to any other shares
certain articles that relate to the rights attached to the special share 
may only be altered with the consent of the special shareholder 
such articles include i the foreign shareholding limit provisions 
whereby a foreign person cannot hold more than a 15 per cent 
voting interest in the company and ii the nationality of directors 
provisions whereby at least the chairman or the chief executive 
must be a british citizen and at least half of the number of directors 
must be british citizens the special shareholder is not entitled to 
vote at any general meeting or any other meeting of any class of 
shareholders
rollsroyce holdings plc annual report 2013 70 directors’ report
shareholders and share capital restrictions on transfer of shares and limitations on holdings
there are no restrictions on transfer or limitations on the holding  
of the ordinary shares or c shares other than under the articles of 
association as described here under restrictions imposed by law  
or regulation for example insider trading laws or pursuant to the 
company’s share dealing code the articles of association provide 
that the company should be and remain under united kingdom 
control as such an individual foreign shareholding limit is set at  
15 per cent of the aggregate votes attaching to the share capital of 
all classes taken as a whole and capable of being cast on a poll and 
to all other shares that the directors determine are to be included  
in the calculation of such holding the special share may only be 
issued to held by and transferred to the special shareholder or his 
successor or nominee
shareholder agreements and consent requirements
there are no known arrangements under which financial rights 
carried by any of the shares in the company are held by a person 
other than the holder of the shares and no known agreements 
between the holders of shares with restrictions on the transfer of 
shares or exercise of voting rights no disposal may be made to a 
nongroup member which alone or when aggregated with the 
same or a connected transaction constitutes a disposal of the whole 
or a material part of either the nuclear business or the assets of the 
group as a whole without consent of the special shareholder
authority to issue shares
at the agm in 2013 authority was given to the directors to allot new 
ordinary shares up to a nominal value of £124821118 equivalent to 
onethird of the issued share capital of the company
this is called the first section 551 amount in addition a special 
resolution was passed to effect a disapplication of preemption 
rights for a maximum of five per cent of the issued share capital of 
the company these authorities are valid until the agm in 2014 and 
the directors propose to renew these authorities at that agm it is 
proposed to seek a further authority at the agm in 2014 to allot up 
to two thirds of the total issued share capital but only in the case  
of a rights issue this is called the second section 551 amount
the board believes that this additional authority will allow the 
company to retain the maximum possible flexibility to respond  
to circumstances and opportunities as they arise and to allot new 
c shares up to a nominal value of £500 million as an alternative  
to a cash dividend such authority expires at the conclusion of the 
agm the directors propose to renew the authority to allot new 
c shares at the agm
authority to purchase own shares
at the 2013 agm the company was authorised by shareholders to 
purchase up to 187231677 of its own ordinary shares representing 
ten per cent of its issued ordinary share capital
the company did not make use of this authority during 2013 the 
authority for the company to purchase its own shares expires at the 
conclusion of the agm or 18 months from 2 may 2013 whichever  
is the earlier a resolution to renew it will be proposed at the agm
voting rights
deadlines for exercising voting rights
electronic and paper proxy appointments and voting instructions 
must be received by the company’s registrar not less than 48 hours 
before a general meeting
voting rights for employee share plan shares
shares are held in various employee benefit trusts for the purpose 
of satisfying awards made under the various employee share plans 
for shares held in a nominee capacity or if plantrust rules provide 
the participant with the right to vote in respect of specifically 
allocated shares the trustee votes in line with the participants’ 
instructions for shares that are not held absolutely on behalf of 
specific individuals the general policy of the trustees in accordance 
with investor protection guidelines is to abstain from voting in 
respect of those shares
major shareholdings
at 31 december 2013 the following companies had notified an 
interest in the issued ordinary share capital of the company in 
accordance with the financial conduct authority’s disclosure  
and transparency rules
company 
date 
notified 
 of issued
 ordinary share
 capital
blackrock inc 03 sep 2010 502
invesco limited 04 feb 2008 691
capital research and management company 16 may 2013 303
the company had not received any further notifications from  
31 december 2013 to 12 february 2014
rollsroyce holdings plc annual report 2013 71
strategic report financial statements directors’ report other information political donations
in line with its established policy the group made no political 
donations pursuant to the authority granted at the 2013 agm 
although the company does not make and does not intend to make 
donations to political parties within the normal meaning of that 
expression the definition of political donations under the 
companies act 2006 is very broad and includes expenses 
legitimately incurred as part of the process of talking to members  
of parliament and opinion formers to ensure that the issues and 
concerns of the group are considered and addressed these 
activities are not intended to support any political party
a resolution will therefore be proposed at the agm seeking 
shareholder approval for the directors to be given authority to make 
donations and incur expenditure which might otherwise fall within 
the terms of the companies act 2006 the authority sought will be 
limited to a maximum amount of £25000 per group company but 
so as not to exceed £50000 for the entire group in aggregate
during the year the business expenses incurred by rollsroyce north 
america inc towards the operation of the rollsroyce north america 
political action committee rrnapac in the us was us69430 
2012 us44161 pacs are a common feature of the us political 
system and are governed by the federal election campaign act
the rrnapac is independent of the group and independent of any 
political party the rrnapac funds are contributed voluntarily by 
employees and the company cannot affect how they are applied 
although under us law the business expenses are paid by the 
company such contributions do not require authorisation by 
shareholders under the companies act 2006 and therefore do not 
count towards the £25000 and £50000 limits for political donations 
and expenditure for which shareholder approval will be sought at 
the agm
indemnity
the company has entered into separate deeds of indemnity in 
favour of its directors which were in force during the financial year 
and remain in force at the date of this report the deeds provide 
substantially the same protection as that already provided to 
directors under the indemnity in article 216 of the company’s 
articles of association the company has also reviewed arranged 
and maintains appropriate insurance cover for any legal action 
taken against its directors and officers
disclosures in the strategic report
the board has taken advantage of section 414c11 of the 
companies act 2006 to include disclosures in the strategic report on
 greenhouse gas emissions on page 29
 disabled people and employee involvement on page 27
 the future development performance and position of the group 
throughout pages 1 to 34
 the financial position of the group on pages 10 to 13 
 the rd and net rd expenditure as a proportion of underlying 
revenue on pages 24 and 31 and
 the summary of principal risks on pages 32 to 34
in addition notes 1 14 15 and 17 to the consolidated financial 
statements include the group’s objectives policies and processes for 
financial risk management details of its cash and cash equivalents 
indebtedness and borrowing facilities and its financial instruments 
hedging activities and its exposure to counterparty credit risk 
liquidity risk currency risk interest rate risk and commodity 
pricing risk
going concern 
as described on page 138 the group meets its funding 
requirements through a mixture of shareholders’ funds bank 
borrowings bonds and notes the group has facilities of £36 billion 
of which £24 billion was drawn at the year end £200 million of 
these facilities mature in 2014
the group’s forecasts and projections taking into account reasonably 
possible changes in trading performance show that the group has 
sufficient financial resources if the put option on rollsroyce power 
systems holding gmbh formerly named engine holding gmbh is 
exercised by daimler ag estimated cost £19 billion the directors 
consider that the group would be able to raise additional resources  
in the necessary timeframe to meet this commitment as a 
consequence the directors have a reasonable expectation that the 
company and the group are well placed to manage their business 
risks and to continue in operational existence for the foreseeable 
future despite the current uncertain global economic outlook
accordingly the directors continue to adopt the going concern basis 
in accordance with the guidance ‘going concern and liquidity risk 
guidance for directors of uk companies 2009’ issued by the frc in 
preparing the consolidated financial statements
responsibility statements 
statement of directors’ responsibilities in respect of the annual 
report and the financial statements
the directors as listed on pages 36 to 37 are responsible for 
preparing the annual report and the group and parent company 
financial statements in accordance with applicable law and 
regulations
company law requires the directors to prepare group and parent 
company financial statements for each financial year under that 
law they are required to prepare the group financial statements in 
accordance with ifrs as adopted by the eu and applicable law and 
have elected to prepare the parent company financial statements in 
accordance with uk accounting standards and applicable law uk 
generally accepted accounting practice
under company law the directors must not approve the financial 
statements unless they are satisfied that they give a true and fair 
view of the state of affairs of the group and parent company and  
of their profit or loss for that period
rollsroyce holdings plc annual report 2013 72 directors’ report
other statutory information in preparing each of the group and parent company financial 
statements the directors are required to
 select suitable accounting policies and then apply them 
consistently
 make judgements and estimates that are reasonable and prudent
 for the group financial statements state whether they have been 
prepared in accordance with ifrs as adopted by the eu
 for the parent company financial statements state whether 
applicable uk accounting standards have been followed subject 
to any material departures disclosed and explained in the parent 
company financial statements and
 prepare the financial statements on the going concern basis 
unless it is inappropriate to presume that the group and the 
parent company will continue in business
the directors are responsible for keeping adequate accounting 
records that are sufficient to show and explain the parent and 
group’s transactions and disclose with reasonable accuracy at any 
time the financial position of the parent company and enable them 
to ensure that its financial statements comply with the companies 
act 2006 they have general responsibility for taking such steps as 
are reasonably open to them to safeguard the assets of the group 
and to prevent and detect fraud and other irregularities
under applicable law and regulations the directors are also 
responsible for preparing a strategic report and a directors’ report 
including the directors’ remuneration report and corporate 
governance statement that comply with that law and those 
regulations
the directors are responsible for the maintenance and integrity of 
the corporate and financial information included on the group’s 
website legislation in the uk governing the preparation and 
dissemination of financial statements may differ from legislation  
in other jurisdictions
disclosure of information to auditors
each of the persons who is a director at the date of approval of this 
report confirms that
i  so far as the director is aware there is no relevant information  
of which the company’s auditor is unaware and
ii  the director has taken all steps that he or she ought to have taken 
as a director in order to make himself or herself aware of any 
relevant audit information and to establish that the company’s 
auditor is aware of that information
this confirmation is given and should be interpreted in accordance 
with the provisions of section 418 of the companies act 2006
responsibility statements under the disclosure and  
transparency rules and the uk corporate governance code
each of the persons who is a director at the date of approval of this 
report confirms that to the best of his or her knowledge
i   each of the group and parent company financial statements 
prepared in accordance with ifrs and uk accounting standards 
respectively gives a true and fair view of the assets liabilities 
financial position and profit or loss of the issuer and the 
undertakings included in the consolidation taken as a whole
ii   the strategic report on pages 1 to 34 and pages 137 to 138 of the 
directors’ report include a fair review of the development and 
performance of the business and the position of the company 
and the undertakings included in the consolidation taken as a 
whole together with a description of the principal risks and 
uncertainties that they face and
iii  the annual report taken as a whole is fair balanced and 
understandable and provides the information necessary for 
shareholders to assess the company’s performance business 
model and strategy 
by order of the board
nigel t goldsworthy
company secretary
12 february 2014
rollsroyce holdings plc annual report 2013 73
strategic report financial statements directors’ report other information consolidated financial statements
124 company balance sheet
124 reconciliation of movements in shareholders’ funds
company financial statements
75  consolidated income statement
75  consolidated statement of comprehensive income
76  consolidated balance sheet
77  consolidated cash flow statement
79  consolidated statement of changes in equity
80  notes to the consolidated financial statements
80  1 accounting policies
89  2 segmental analysis
93  3 other income and expenses
93  4 net financing
94  5 taxation
96  6 earnings per ordinary share
97  7 employee information
97  8 auditors’ remuneration
98  9 intangible assets
100 10 property plant and equipment
101 11 investments
102 12 inventories
102 13 trade and other receivables
102 14 cash and cash equivalents
103 15 borrowings
103 16 trade and other payables
104 17 financial instruments
112 18 provisions for liabilities and charges
113 19 postretirement benefits
118 20 share capital
118 21 sharebased payments
119 22 operating leases
120 23 contingent liabilities
120 24 related party transactions
121 25 acquisitions and disposals
123 26 segmental analysis from 1 january 2014
125 notes to the company financial statements
125 1 accounting policies
125 2 investments – subsidiary undertakings
125 3 financial liabilities
126 4 share capital
126 5 movements in capital and reserves
126 6 contingent liabilities
126 7 other information
rollsroyce holdings plc annual report 2013 74 financial statements notes
2013
£m
restated 
2012 
£m
revenue 2 15513 12161 
cost of sales 12197 9432
gross profit 3316 2729 
other operating income 3 65 –
commercial and administrative costs 1323 993
research and development costs 3 683 531
share of results of joint ventures and associates 11 160 173 
operating profit 1535 1378 
profit on transfer of joint ventures to subsidiaries 119 –
profit on disposal of businesses 2012 iae international aero engines ag restructuring £699 million 25 216 699 
profit before financing and taxation 2 1870 2077 
financing income 4 327 797 
financing costs 4 438 108
net financing 111 689 
profit before taxation 
1
1759 2766 
taxation 5 380 431
profit for the year 1379 2335 
attributable to 
ordinary shareholders 1367 2321 
noncontrolling interests nci 12 14 
profit for the year 1379 2335 
  
earnings per ordinary share attributable to ordinary shareholders 6 
basic 7326p 12538p 
diluted 7244p 12373p 
payments to ordinary shareholders in respect of the year 17 
per share 220p 195p 
total 414 365 
1
 underlying profit before taxation 2 1759 1434 
consolidated statement of comprehensive income 
for the year ended 31 december 2013
notes
2013
£m
restated
2012 
£m
profit for the year 1379 2335 
other comprehensive income oci
 items that will not be reclassified to profit or loss 
 movements in postretirement schemes 19 48 305
 share of oci of joint ventures and associates 11 – 46
 related tax movements 5 10 105 
58 246
 items that may be reclassified to profit or loss 
 foreign exchange translation differences on foreign operations 64 118
 share of oci of joint ventures and associates 11 6 12
 related tax movements 5 1 1
69 131
total comprehensive income for the year 1368 1958 
attributable to 
ordinary shareholders 1356 1945 
noncontrolling interests 12 13 
total comprehensive income for the year 1368 1958 
 2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits – see note 19 and the change in the accounting policy for rrsas – see note 1
rollsroyce holdings plc annual report 2013 75
strategic report financial statements directors’ report other information
consolidated income statement 
for the year ended 31 december 2013  restated
notes
2013 
£m 
31 december
2012 
£m
1 january
2012 
£m
assets 
noncurrent assets 
intangible assets 9 4987 2901 2882 
property plant and equipment 10 3392 2564 2338 
investments – joint ventures and associates 11 601 1800 1680 
investments – other 11 27 6 10 
other financial assets 17 674 592 327 
deferred tax assets 5 316 342 387 
postretirement scheme surpluses 19 248 348 520 
10245 8553 8144 
current assets 
inventories 12 3319 2726 2561 
trade and other receivables 13 5092 4119 4009 
taxation recoverable 16 33 20 
other financial assets 17 74 115 91 
shortterm investments 321 11 11 
cash and cash equivalents 14 3990 2585 1310 
assets held for sale 6 4 313 
12818 9593 8315 
total assets 23063 18146 16459 
liabilities 
current liabilities 
borrowings 15 207 149 20
other financial liabilities 17 1976 312 111
trade and other payables 16 7045 6401 6263
tax liabilities 204 126 138
provisions for liabilities and charges 18 348 220 276
liabilities associated with assets held for sale – – 135
9780 7208 6943
noncurrent liabilities 
borrowings 15 2164 1234 1184
other financial liabilities 17 360 418 919
trade and other payables 16 2138 1672 1533
tax liabilities 10 ––
deferred tax liabilities 5 882 584 445
provisions for liabilities and charges 18 385 241 226
postretirement scheme deficits 19 1041 793 807
6980 4942 5114
total liabilities 16760 12150 12057
net assets 6303 5996 4402 
equity 
equity attributable to ordinary shareholders 
calledup share capital 20 376 374 374 
share premium account 80 ––
capital redemption reserve 163 169 173 
cash flow hedging reserve 68 63 52
other reserves 250 314 433 
retained earnings 4804 5185 3473 
5605 5979 4401 
noncontrolling interests 698 17 1 
total equity 6303 5996 4402 
 2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits – see note 19 and the change in the accounting policy for rrsas – see note 1
the financial statements on pages 75 to 123 were approved by the board on 12 february 2014 and signed on its behalf by
ian davis chairman     mark morris chief financial officer
consolidated balance sheet
at 31 december 2013
rollsroyce holdings plc annual report 2013 76 financial statements notes
2013
£m
restated 
2012 
£m
reconciliation of cash flows from operating activities 
operating profit 1535 1378 
lossprofit on disposal of property plant and equipment 7 9
share of results of joint ventures and associates 11 160 173
dividends received from joint ventures and associates 11 99 129 
amortisation and impairment of intangible assets 9 428 231 
depreciation and impairment of property plant and equipment 10 372 256 
impairment of investments 11 – 2 
decrease in provisions 17 40
decreaseincrease in inventories 119 158
increase in trade and other receivables 533 284
increase in trade and other payables 376 242 
cash flows on other financial assets and liabilities held for operating purposes 9 29
net defined benefit postretirement cost recognised in profit before financing 279 173 
cash funding of defined benefit postretirement schemes 315 299
sharebased payments 21 79 55 
net cash inflow from operating activities before taxation 2278 1474 
taxation paid 238 219
net cash inflow from operating activities 2040 1255 
cash flows from investing activities 
additions of unlisted investments 11 1 –
disposals of unlisted investments 11 1 4 
additions of intangible assets 9 503 250
disposals of intangible assets 9 – 1 
purchases of property plant and equipment 669 435
government grants received 21 10 
disposals of property plant and equipment 7 30 
acquisitions of businesses 25 37 20
reclassifications of joint ventures to subsidiaries 25 245 –
acquisitions of preference shares in subsidiary 25 34 –
restructuring of iae international aero engines ag – 942 
disposals of businesses 25 273 –
investments in joint ventures and associates 43 24
repayment of loan to rollsroyce power systems holding gmbh – 167 
transfer of subsidiary to associate – 1
net cash outflowinflow from investing activities 740 424 
cash flows from financing activities 
repayment of loans 133 99
proceeds from increase in loans 1013 221 
net cash flow from increase in borrowings 880 122 
interest received 15 11 
interest paid 58 52
increase in shortterm investments 313 –
issue of ordinary shares and cash received on sharebased payments vesting 20 32 –
purchase of ordinary shares 3 94
dividend to nci 60 –
redemption of c shares 357 318
net cash inflowoutflow from financing activities 136 331
net increase in cash and cash equivalents 1436 1348 
cash and cash equivalents at 1 january 2585 1291 
exchange losses on cash and cash equivalents 34 54
cash and cash equivalents at 31 december 3987 2585 
 2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits – see note 19 and the change in the accounting policy for rrsas – see note 1  
    
rollsroyce holdings plc annual report 2013 77
strategic report financial statements directors’ report other information
consolidated cash flow statement
for the year ended 31 december 2013 2013
£m
2012 
£m
reconciliation of movements in cash and cash equivalents to movements in net funds 
increase in cash and cash equivalents 1436 1348 
cash flow from increase in borrowings 880 122
cash flow from increase in shortterm investments 313 –
change in net funds resulting from cash flows 869 1226 
net funds excluding cash and cash equivalents of businesses acquired 204 78
exchange losses on net funds 43 54
fair value adjustments 105 2 
movement in net funds 727 1096 
net funds at 1 january excluding the fair value of swaps 1213 117 
net funds at 31 december excluding the fair value of swaps 1940 1213 
fair value of swaps hedging fixed rate borrowings 1 104 
net funds at 31 december 1939 1317 
the movement in net funds defined by the group as including the items shown below is as follows 
 at 
1 january 
 2013 
£m
funds
flow
£m
net funds
of businesses
acquired
£m
exchange
 differences 
£m
fair value
 adjustments 
£m
reclassifications 
£m 
at 
31 december 
2013 
£m 
cash at bank and in hand 674 333 25– – 982 
money market funds 408 754 5– – 1157 
shortterm deposits 1503 352 4– – 1851 
overdrafts – 3 – – – 3
cash and cash equivalents 2585 1436 34– – 3987 
shortterm investments 11 313 – 3 – – 321 
current borrowings excluding overdrafts 149 133 4 – 17 201 204
noncurrent borrowings 1233 1013 200 6 88 201 2163
finance leases 1 –––– – 1
net funds excluding fair value of swaps 1213 869 204 43 105 – 1940 
fair value of swaps hedging fixed rate borrowings 104 105 1
net funds 1317 869 204 43 – – 1939 
rollsroyce holdings plc annual report 2013 78 financial statements
consolidated cash flow statement attributable to ordinary shareholders
notes
share
 capital 
£m
share
 premium 
£m
capital
 redemption
 reserve 
£m
cash flow
 hedging
 reserve
 1
 
£m
other
 reserves
 2
 
£m
retained
 earnings
 3
 
£m
total 
£m
non
controlling
 interests 
£m
total
equity
£m
at 1 january 2012 as previously reported 374 – 173 52 433 3590 4518 1 4519 
effect of amendments to ias 19 19 – – – – – 67 67 – 67 
effect of change in accounting policy for rrsas 1 – – – – – 184 184 – 184
at 1 january 2012 as restated 374 – 173 52 433 3473 4401 1 4402 
profit for the year – – – – – 2321 2321 14 2335 
foreign exchange translation differences on 
foreign operations – – – – 117 – 117 1 118
movement on postretirement schemes 19 – – – – – 305 305 – 305
share of oci of joint ventures and associates 11 – – – 11 1 46 58 – 58
related tax movements 5 – – – – 1 105 104 – 104 
total comprehensive income for the year – – – 11 1192075 1945 13 1958 
issue of c shares 17 – – 328 – – 4 324 – 324
redemption of c shares 17 – – 324 – – 324 – – – 
ordinary shares purchased – – – – – 94 94 – 94
sharebased payments – direct to equity
 4
 – – – – – 47 47 – 47 
transactions with nci
 5
 – – – – – 116 116 48 164 
initial recognition of put option on nci
 6
 – – – – – 121 121 45 166
related tax movements 5 – – – – – 9 9 – 9 
other changes in equity in the year – – 4 – – 363 367 3 364
at 1 january 2013 374 – 169 63 314 5185 5979 17 5996 
profit for the year – – – – – 1367 1367 12 1379 
foreign exchange translation differences on 
foreign operations – – – – 64 – 64 – 64
movement on postretirement schemes 19 – – – – – 48 48 – 48 
share of oci of joint ventures and associates 11 – – – 5 1 – 6 – 6
related tax movements 5 – – – – 1 10 11 – 11 
total comprehensive income for the year – – – 5 64 1425 1356 12 1368 
arising on issues of ordinary shares 20 2 80 – – – 81 1 – 1 
issue of c shares 17 – – 366 – – 3 363 – 363
redemption of c shares 17 – – 360 – – 360 – – –
ordinary shares purchased – – – – – 3 3 – 3
sharebased payments – direct to equity
 4
 –––––99 99 –99 
reclassification of rollsroyce power systems ag 25 – – – – – – – 669 669 
transactions with nci
 7
 –––––––4545
initial recognition of put option on nci
 6
 17 25 – – – – –14771477 45 1432
related tax movements 5 – – – – – 13 13 – 13 
other changes in equity in the year 2 80 6 – – 1806 1730 669 1061
at 31 december 2013 376 80 163 68 250 4804 5605 698 6303 
1
  see accounting policies note 1
2
  other reserves include a merger reserve of £3m 2012 £3m 2011 £3m and a translation reserve of £247m 2012 £311m 2011 £430m
3
  at 31 december 2013 11960535 ordinary shares with a net book value of £91m 2012 20365787 2011 22541187 ordinary shares with net book values of £125m and £116m 
respectively were held for the purpose of sharebased payment plans and included in retained earnings during the year 16603840 ordinary shares with a net book value of £118m 
2012 13533646 shares with a net book value of £85m vested in sharebased payment plans during the year the company acquired 298588 of its ordinary shares via reinvestment of 
dividends received on its own shares in addition the company issued 7900000 new ordinary shares to the group’s share trust for its employees sharebased payment plans with a net 
book value of £81m 
4
  sharebased payments direct to equity is the net of the credit to equity in respect of the sharebased payment charge to the income statement and the actual cost of shares vesting 
excluding those vesting from own shares
5
  on 2 january 2012 the group contributed its interest in bergen engines as to rollsroyce power systems holding gmbh rrpsh – previously engine holding gmbh a company jointly 
held by rollsroyce and daimler ag under the terms of agreement with daimler rollsroyce retained certain rights such that bergen engines continued to be classified as a subsidiary 
and consolidated
6
  as part of the rrpsh shareholders’ agreement daimler has the option to sell its shares in rrpsh to rollsroyce for a period of six years from 1 january 2013 the initial fair value of the 
exercise price of this option in respect of bergen engines as £166m was recognised in 2012 and that amount in respect of rrps £1432m has been recognised in 2013 and charged to 
retained earnings in addition £45m of the initial recognition of the put option on nci relating to bergen engine as recognised in 2012 has been reclassified from nci to retained 
earnings subsequent movements in the value of this liability are included in the income statement but excluded from the underlying results 
7
  on 1 january 2013 the group exercised rights in rrpsh that resulted in rollsroyce power systems ag rrps – formerly tognum ag being classified as a subsidiary and  
consolidated – see note 25
rollsroyce holdings plc annual report 2013 79
strategic report financial statements directors’ report other information
consolidated statement of changes in equity
for the year ended 31 december 2013  rollsroyce holdings plc annual report 2013 80 financial statements
notes to the consolidated financial statements
1 accounting policies
the company
the consolidated financial statements of rollsroyce holdings plc the ‘company’ for the year ended 31 december 2013 consist of the 
consolidation of the financial statements of the company and its subsidiaries together referred to as the ‘group’ and include the group’s 
interest in jointly controlled and associated entities 
basis of preparation and statement of compliance
in accordance with european union eu regulations these financial statements have been prepared in accordance with international 
financial reporting standards ifrs issued by the international accounting standards board iasb as adopted for use in the eu effective 
at 31 december 2013 adopted ifrs 
the company has elected to prepare its parent company financial statements under uk generally accepted accounting practices gaap 
these are set out on pages 124 to 126 and the accounting policies in respect of company financial statements are set out on page 125
these consolidated financial statements have been prepared on the historical cost basis except where adopted ifrs requires the 
revaluation of financial instruments to fair value and certain other assets and liabilities on an alternative basis – most significantly 
postretirement scheme liabilities are valued on the basis required by ias 19 employee benefits – and on a going concern basis as described 
on page 72
the consolidated financial statements are presented in pound sterling which is the company’s functional currency
the preparation of financial statements in conformity with adopted ifrs requires management to make estimates and judgements that 
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and 
expenses during the reporting period the key areas of judgement and key sources of estimation uncertainty are described below actual 
results could differ from those estimates
the group’s significant accounting policies are set out on the following pages these accounting policies have been applied consistently  
to all periods presented in these consolidated financial statements and by all group entities
amendment to accounting policy
as explained in the chief financial officer’s review on page 11 following discussions with the conduct committee of the frc the group 
has reassessed its policy for the recognition of entry fees received under risk and revenue sharing arrangements rrsas whilst the impact 
on our historical results is not significant the directors believe that the change represents an improvement in the policy
in prior years entry fees were recognised as other operating income when they were received on the basis that this matched it to the 
recognition of nonrecurring development costs incurred on behalf of the workshare partner this policy has been revised to reflect better 
the fact that some of these nonrecurring development costs are capitalised under the amended policy where the relevant costs in the 
development programme are capitalised ie development costs incurred between engine certification and entry into service and 
certification costs and participation fees paid to airframers an equivalent portion of the entry fee received is deferred and recognised as 
the related costs are amortised after entry into service in addition the amount of entry fees recognised in the year will be presented as a 
contribution to research and development expenses rather than other operating income
as required by ias 8 accounting policies changes in accounting estimates and errors this change has been made retrospectively the impact 
of the change in policy in 2012 was to increase profit before tax by £25 million and to reduce net assets at 31 december 2011 and 2012 by 
£184 million and £170 million respectively had the policy not been amended profit before tax in 2013 would have been £39 million higher 
and at 31 december 2013 net assets £208 million higher
the frc conduct committee’s view is that the rrsa contract cannot be divided into separate development and production phases as the 
fees and development components received by the group during the development phase are exchanged for the obligation to pay the 
supplier a predetermined share of any sales receipts during the production phase on this basis the entry fees received would be deferred 
in their entirety and recognised over the period of production 
as explained in the chief financial officer’s review on page 11 the frc conduct committee has confirmed that in view of the change to 
the policy and the additional disclosure the group has made it does not intend to pursue its consideration of this accounting policy further 1 accounting policies continued
key areas of judgement
the directors consider the potential key areas of judgements required to be made in applying the group’s accounting policies to be
 assessing whether or not the group controls rollsroyce power systems holding gmbh rrpsh requires judgement the shares of rrpsh 
are held equally by the group and daimler ag and the rights of each shareholder are encapsulated in shareholder agreements which set 
out amongst other things key matters on which the group has the casting vote at the shareholders’ committee of rrpsh these most 
important matters subject to casting vote which are relevant to assessing whether rrpsh is controlled include a setting the annual 
budget and operating and financial plan b appointing removing and setting the remuneration of key management personnel though 
removal of the ceo or the cfo requires joint agreement c entering into contracts in the ordinary course of business and d establishing 
management procedures and responsibilities the group considers that these provisions are sufficient to give it control over rrpsh 
daimler ag has protective rights covering matters such as i significant changes to the scale scope and financing of rrpsh’s business 
ii certain significant supplier relationships and iii changes to contractual arrangements between rrpsh and rollsroyce these are not 
considered sufficient to prevent the group from directing the activities of rrpsh
 a large proportion of the group’s activities relate to longterm aftermarket contracts the determination of appropriate accounting 
policies for recognising revenue and costs in respect of these contracts requires judgement
 i  whether a longterm aftermarket contract is linked for accounting purposes to the related sale of original equipment – where the 
longterm aftermarket contract is agreed or agreed in principle at the same time as the original equipment contract these are 
considered to be linked for accounting purposes and treated as a single contract – or whether it should be treated separately and 
 ii  the appropriate measure of stage of completion of the contract – this will vary depending on the precise nature of the arrangements 
where the service provided is assessed to be continuous the stage of completion is measured by reference to the flying hours or 
equivalent under the contract other aftermarket contracts are overhaul event based and the stage of completion is measured 
accordingly
 the group has significant intangible assets in deciding whether certain intangible assets should be recognised judgement is required
 i  ias 38 intangible assets requires that internallygenerated development costs should only be recognised if strict criteria are met in 
particular relating to technical feasibility and generation of future economic benefits the directors consider that due to the complex 
nature of new equipment programmes these criteria are not met until relatively late in the programme – civil aerospace programmes 
represent 54 per cent of development costs for these the criteria are generally satisfied at the time of the initial engine certification
 ii  on delivery of engines without a linked longterm aftermarket contract the group has contractual rights to supply aftermarket parts 
to the customers and its intellectual rights warranty arrangements and where relevant statutory airworthiness or other regulatory 
requirements provide reasonable control over this supply accordingly the directors consider that these rights meet the definition of an 
intangible asset in ias 38 however the directors do not consider that it is possible to determine a reliable fair value for this intangible 
asset accordingly an intangible asset recoverable engine cost or rec is only recognised on the occasions where the contractual price 
of the engine is below the cost of manufacture and then only to the extent of this deficit as this amount is a reliable value 
 rrsas with key suppliers workshare partners are a feature of our civil aerospace business under these contractual arrangements the 
key commercial objectives are that i during the development phase the workshare partner shares in the risks of developing an engine  
by performing its own development work providing development parts and paying a nonrefundable cash entry fee and ii during the 
production phase it supplies components in return for a share of the programme revenues as a ‘life of type’ supplier the share of 
development costs borne by the workshare partner and of the revenues it receives reflect a jointly agreed forecast of the proportionate 
cost of providing its production parts compared to the overall forecast manufacturing cost of the engine  
these arrangements are complex and have features that could be indicative of a collaboration agreement including sharing of risk  
and cost in a development programme a longterm supply agreement sharing of intellectual property or a combination of these  
there is no directly applicable ifrs to determine an accounting policy for the recognition of entry fees of this nature in the income 
statement consequently in developing an accounting treatment for such entry fees that best reflects the commercial objectives of the 
contractual arrangement the directors have analysed these features in the context of relevant accounting pronouncements including 
those of other standard setters where these do not conflict with ifrs and have weighed the importance of each feature in faithfully 
representing the overall commercial effect the most important considerations that need to be balanced are the transfer of development 
risk the workshare partner receiving little standalone value from the payment of the entry fee and the overall effect being collaboration 
between the parties which falls short of being a joint venture as the group control the programme also important in the analysis is the 
fact that whilst the group and the workshare partner share risks and rewards through the life of the contract these risks and rewards are 
very different during the development and production phases 
in this context the entry fee might be considered to represent an amount paid as an equalisation of development costs a payment to 
secure a longterm supply arrangement a purchase of intellectual property or some combination thereof the accounting under these 
different scenarios could include recognition of the entry fee to match the associated costs in the income statement being spread over 
the life of the programme as a reduction in the cost of supply during production or being spread over the time period of the access to the 
intellectual property by the workshare partner  
rollsroyce holdings plc annual report 2013 81
strategic report financial statements directors’ report other information 1 accounting policies continued
  the directors consider that the most important features of the arrangement are the risk sharing and that the entry fee represents a 
contribution to the development costs that the group incurs in excess of its proportionate programme share the key judgements taken in 
reaching this view are the entry fee is determined by the parties on that basis and the contract specifies that in the event that a derivative 
engine is to be developed further entry fees will also be calculated on this basis the workshare partners describe the entry fee in this way 
although the workshare partner receives little standalone value from paying the entry fee the entry fee together with its own 
development activities represent its aggregate investment in the collaboration the amount of the entry fee does not include any amount in 
excess of that necessary to equalise forecast development costs the group is not ‘on risk’ for the full development costs it incurs but for that 
amount less the entry fees received and as far as can be determined this appears to be common industry accounting for arrangements of 
this type under both adopted ifrs and us accounting standards which we believe do not conflict with ifrs in this regard
  the resulting accounting policy described below represents the commercial effect of the contractual arrangements in that the group 
recognises only those development costs to which it is exposed and thus reflects the significant transfer of development risk to the 
workshare partner and the costs of supply of parts during the production phase is measured at the workshare partner’s share of 
programme revenues which we consider to be a commercial fair value the directors do not consider that accounting which would result 
in entry fees only being recognised in the production phase would appropriately reflect the sharing of development risk accordingly the 
directors believe that the policy adopted best reflects the commercial objectives of the arrangements the nature of the relationship with 
the workshare partner and is in accordance with adopted ifrs 
 the group has contingent liabilities in respect of financing support provided to customers in order to assess whether a provision  
should be recognised judgement as to the likelihood of these crystallising is required this judgement is based on an assessment on  
the knowledge of the customers’ fleet plans the underlying value of the security provided and where appropriate the customers’ 
creditworthiness
key sources of estimation uncertainty
in applying the accounting policies estimates are made in many areas the actual outcome may differ from that calculated the key sources 
of estimation uncertainty at the balance sheet date that have a significant risk of causing material adjustment to the carrying amounts of 
assets and liabilities within the next financial year are set out below the estimation of the relevant assets and liabilities involves the 
combination of a number of assumptions sensitivities are disclosed in the relevant notes where this is appropriate and practicable
intangible assets arising on consolidation of rollsroyce power systems ag and put option on rollsroyce power systems holding gmbh
the fair value of intangible assets of rrps at 1 january 2013 involved the use of valuation techniques and the estimation of future cash 
flows to be generated by rrps over a considerable period of time the group engaged a specialist valuer to assist with these 
for a period of six years from 1 january 2013 the group is obliged to acquire at daimler ag’s option the latter’s 50 per cent interest in 
rrpsh the estimated exercise price of this option has been recognised as a liability the exercise price of the option is based on averaging 
three valuations at the date the option is exercised which are based on both internal metrics requiring estimation of future performance 
of the business and external metrics
forecasts and discount rates
the carrying values of a number of items on the balance sheet are dependent on the estimates of future cash flows arising from the 
group’s operations in particular
 the assessment of whether the goodwill and other intangible assets carrying value at 31 december 2013 £1864 million arising on the 
consolidation of rrpsh is impaired is dependent of the present value of the future cash flows expected to be generated by the business 
these cash flows are based on the business plan jointly agreed by the shareholders
 the assessment as to whether there are any indications of impairment of development participation certification recoverable engine 
costs and customer relationships recognised as intangible assets carrying values at 31 december 2013 £2499 million 31 december 2012 
£1457 million is dependent on estimates of cash flows generated by the relevant assets and the discount rate used to calculate a present 
value these estimates include the performance of longterm contractual arrangements as described below as well as estimates for 
future market share pricing and unit cost for uncontracted business the risk of impairment is generally higher for newer programmes 
and for customer specific intangible assets recs for launch customers
assessment of longterm contractual arrangements
the group has longterm contracts that fall into different accounting periods and which can extend over significant periods – the most 
significant of these are longterm service arrangements in the civil aerospace business the estimated revenues and costs are inherently 
imprecise and significant estimates are required to assess engine flying hours time on wing and other operating parameters the pattern 
of future maintenance activity and the costs to be incurred and life cycle cost improvements over the term of the contracts the estimates 
take account of the inherent uncertainties and the risk of nonrecovery of any resulting contract balances 
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
82 financial statements 1 accounting policies continued
postretirement benefits
the group’s defined benefit pension schemes and similar arrangements are assessed annually in accordance with ias 19 the accounting 
valuation which was based on assumptions determined with independent actuarial advice resulted in a net deficit of £793 million before 
deferred taxation being recognised on the balance sheet at 31 december 2013 31 december 2012 £445 million the size of the net deficit  
is sensitive to the market value of the assets held by the schemes and to actuarial assumptions which include price inflation pension and 
salary increases the discount rate used in assessing actuarial liabilities mortality and other demographic assumptions and the levels of 
contributions further details are included in note 19
provisions
as described in the accounting policy on page 87 the group measures provisions carrying value at 31 december 2013 £733 million 
31 december 2012 £461 million at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet 
date these estimates take account of information available and different possible outcomes
taxation
the tax payable on profits is determined based on tax laws and regulations that apply in each of the numerous jurisdictions in which the 
group operates where the precise impact of these laws and regulations is unclear then reasonable estimates may be used to determine 
the tax charge included in the financial statements
basis of consolidation
the group consolidated financial statements include the financial statements of the company and all of its subsidiary undertakings 
together with the group’s share of the results of joint ventures and associates made up to 31 december
a subsidiary is an entity controlled by the company control exists when the company has the power directly or indirectly to govern the 
financial and operating policies of the entity so as to derive benefits from its activities 
a joint venture is an entity in which the group holds a longterm interest and which is jointly controlled by the group and one or more other 
venturers under a contractual arrangement an associate is an entity being neither a subsidiary nor a joint venture in which the group 
holds a longterm interest and where the group has a significant influence the results of joint ventures and associates are accounted for 
using the equity method of accounting
any subsidiary undertakings joint ventures or associates sold or acquired during the year are included up to or from the dates of change  
of control transactions with noncontrolling interests are recorded directly in equity
where the group has issued a put option over shares held by a noncontrolling interest the group recognises a liability for the estimated 
exercise value of that option movements in the estimated liability after initial recognition are recognised in the income statement
all intragroup transactions balances income and expenses are eliminated on consolidation adjustments are made to eliminate the profit 
or loss arising on transactions with joint ventures and associates to the extent of the group’s interest in the entity
significant accounting policies
revenue recognition
revenues comprise sales to outside customers after discounts excluding value added taxes
sales of products both original equipment and spare parts are recognised when the significant risks and rewards of ownership of the 
goods are transferred to the customer the sales price agreed and the receipt of payment can be assured – this is generally on delivery on 
occasion the group may participate in the financing of oe most commonly by the provision of guarantees as described in note 18 in such 
circumstances the contingent obligations arising under these arrangements are taken into account in assessing when the significant risks 
and rewards of ownership have been transferred to the customer as described on page 81 a sale of oe at a contractual price below its cost 
of manufacture is considered to give rise to an intangible asset a recoverable engine cost in these circumstances revenue is recognised to 
the same value as the recoverable engine cost 
sales of services are recognised by reference to the stage of completion based on services performed to date as described on page 81 the 
assessment of the stage of completion is dependent on the nature of the contract but will generally be based on flying hours or equivalent 
for longterm aftermarket arrangements where the service is provided on a continuous basis costs incurred to the extent these relate to 
services performed up to the reporting date or achievement of contractual milestones where relevant
rollsroyce holdings plc annual report 2013 83
strategic report financial statements directors’ report other information 1 accounting policies continued
as described on page 81 sales of products and services are treated as though they are a single contract where these components have been 
negotiated as a single commercial package and are so closely interrelated that they do not operate independently of each other and are 
considered to form a single transaction with an overall profit margin the total revenue is allocated between the two components such that 
the total agreed discount to list prices is allocated to revenue for each of the two components pro rata based on the list prices this revenue 
is then recognised for each component on this basis as the products are delivered and services provided as described above where the 
contractual price of the oe component is below the revenue allocated from the combined arrangement this will give rise to an asset 
included in ‘amounts recoverable on contracts’ this asset reduces as services are provided increases as costs are incurred and reduces  
to zero by the end of the contract where the overall balance is a liability it is recognised in ‘accruals and deferred income’ 
full provision is made for any estimated losses to completion of contracts having regard to the overall substance of the arrangements
progress payments received when greater than recorded revenue are deducted from the value of work in progress except to the extent 
that payments on account exceed the value of work in progress on any contract where the excess is included in accruals and deferred 
income within trade and other payables the amount by which recorded revenue of longterm contracts is in excess of payments on 
account is classified as amounts recoverable on contracts and is separately disclosed within trade and other receivables
risk and revenue sharing arrangements rrsas
as described on page 81 the group enters into arrangements with certain workshare partners under which these suppliers i contribute  
to the forecast costs of developing an engine by performing their own development work providing development parts and paying a 
nonrefundable cash entry fee and ii supply components for the production phase for which they receive consideration which is an agreed 
proportion of the total programme revenues both the suppliers’ contributions to the forecast nonrecurring development costs and their 
consideration are determined by reference to their proportionate forecast scopes of supply relative to that of the engine overall once the 
forecast costs and the scopes of supply have been agreed at the inception of the contract each party is then accountable for its own 
incurred costs no accounting entries are recorded when the suppliers undertake development work or when development components are 
supplied cash sums received are recognised in the income statement as a reduction in research and development costs incurred to match 
the expensing of the group’s related costs – where the cash sums are received in advance of the related costs being expensed or where the 
related costs are capitalised as intangible assets the recognition of the cash received is deferred in accruals and deferred income to match 
the recognition of the related expense or the amortisation of the related intangible asset respectively the payments to suppliers of their 
shares of the programme revenues for their production components are charged to cost of sales as programme revenues arise
the group has arrangements with partners who do not undertake development work or supply parts such arrangements are considered  
to be financial instruments as defined by ias 32 financial instruments presentation and are accounted for using the amortised cost method
government investment
where a government or similar body has previously invested in a development programme the group treats payments to that body as 
royalty payments which are matched to related sales
government grants
government grants are recognised in the income statement so as to match them with the related expenses that they are intended to 
compensate where grants are received in advance of the related expenses they are included in the balance sheet as deferred income 
nonmonetary grants are recognised at fair value
interest
interest receivablepayable is creditedcharged to the income statement using the effective interest method where borrowing costs are 
attributable to the acquisition construction or production of a qualifying asset such costs are capitalised as part of the specific asset
taxation
the tax chargecredit on the profit or loss for the year comprises current and deferred tax
 current tax is the expected tax payable for the year using tax rates enacted or substantively enacted at the balance sheet date and any 
adjustment to tax payable in respect of previous years
 deferred tax is provided using the balance sheet liability method providing for temporary differences between the carrying amounts  
of the assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and is calculated using the 
enacted or substantively enacted rates that are expected to apply when the asset or liability is settled
tax is charged or credited in the income statement or other comprehensive income oci as appropriate except when it relates to items 
credited or charged directly to equity in which case the deferred tax is also dealt with in equity
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
84 financial statements 1 accounting policies continued
deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures except 
where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse 
in the foreseeable future deferred tax is not recognised on taxable temporary differences arising on the initial recognition of goodwill or 
for temporary differences arising from the initial recognition of assets and liabilities in a transaction that is not a business combination 
and that affects neither accounting nor taxable profit
deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets 
can be utilised
accruals for tax contingencies require management to make judgements and estimates of exposures in relation to tax audit issues tax 
benefits are not recognised unless the tax positions will probably be sustained once considered to be probable management reviews each 
material tax benefit to assess whether a provision should be taken against full recognition of that benefit on the basis of potential 
settlement through negotiation andor litigation all provisions are included in current liabilities 
foreign currency translation
transactions denominated in currencies other than the functional currency of the transacting group undertaking foreign currencies 
are translated into the functional currency at the exchange rates ruling on the date of the transaction monetary assets and liabilities 
denominated in foreign currencies are translated into the relevant functional currency at the rate ruling at the year end exchange 
differences arising on foreign exchange transactions and the retranslation of assets and liabilities into functional currencies at the rate 
ruling at the year end are taken into account in determining profit before taxation
the trading results of group undertakings are translated into sterling at the average exchange rates for the year the assets and liabilities  
of overseas undertakings including goodwill and fair value adjustments arising on acquisition are translated at the exchange rates ruling 
at the year end exchange adjustments arising from the retranslation of the opening net investments and from the translation of the 
profits or losses at average rates are recognised in oci the cumulative amount of exchange adjustments was on transition to ifrs in 
2004 deemed to be nil 
financial instruments
ias 39 financial instruments recognition and measurement requires the classification of financial instruments into separate categories 
for which the accounting requirement is different the group has classified its financial instruments as follows
 shortterm investments are generally classified as available for sale
 shortterm deposits principally comprising funds held with banks and other financial institutions trade receivables and shortterm 
investments not designated as available for sale are classified as loans and receivables
 borrowings trade payables financial rrsas put options on nci and c shares are classified as other liabilities and
 derivatives comprising foreign exchange contracts interest rate swaps and commodity swaps are classified as fair value through  
profit or loss
financial instruments are recognised at the contract date and initially measured at fair value their subsequent measurement depends  
on their classification
 available for sale assets are held at fair value changes in fair value arising from changes in exchange rates are included in the income 
statement all other changes in fair value are taken to equity on disposal the accumulated changes in value recorded in equity are 
included in the gain or loss recorded in the income statement
 loans and receivables and other liabilities are held at amortised cost and not revalued except for changes in exchange rates and forecast 
contractual cash flows which are included in the income statement unless they are included in a fair value hedge accounting 
relationship where such a hedging relationship exists the instruments are revalued in respect of the risk being hedged with the change 
in value included in the income statement
 fair value through profit or loss items are held at fair value changes in fair value are included in the income statement unless the 
instrument is included in a cash flow hedge if the instruments are included in an effective cash flow hedging relationship changes  
in value are taken to equity when the hedged forecast transaction occurs amounts previously recorded in equity are recognised in  
the income statement
financial instruments are derecognised on expiry or when all contractual rights and obligations are transferred
hedge accounting
the group does not generally apply hedge accounting in respect of forward foreign exchange contracts or commodity swaps held to 
manage the cash flow exposures of forecast transactions denominated in foreign currencies or in commodities respectively
the group applies hedge accounting in respect of transactions entered into to manage the fair value and cash flow exposures of its 
borrowings forward foreign exchange contracts are held to manage the fair value exposures of borrowings denominated in foreign 
currencies and are designated as fair value hedges interest rate swaps are held to manage the interest rate exposures and are designated 
as fair value or cash flow hedges of fixed and floating rate borrowings respectively
rollsroyce holdings plc annual report 2013 85
strategic report financial statements directors’ report other information 1 accounting policies continued
changes in the fair values of derivatives designated as fair value hedges and changes in the fair value of the related hedged item are 
recognised directly in the income statement
changes in the fair values of derivatives that are designated as cash flow hedges and are effective are recognised directly in equity any 
ineffectiveness in the hedging relationships is included in the income statement the amounts deferred in equity are recognised in the 
income statement to match the recognition of the hedged item
hedge accounting is discontinued when the hedging instrument expires or is sold terminated exercised or no longer qualifies for hedge 
accounting at that time for cash flow hedges and if the forecast transaction remains probable any cumulative gain or loss on the hedging 
instrument recognised in equity is retained in equity until the forecast transaction occurs if a hedged transaction is no longer expected to 
occur the net cumulative gain or loss previously recognised in equity is transferred to the income statement
the portion of a gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective 
hedge is recognised directly in equity the ineffective portion is recognised immediately in the income statement gains and losses 
accumulated in the translation reserve will be recycled to profit when the foreign operation is sold
business combinations and goodwill
on the acquisition of a business fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair 
value cannot be measured reliably in which case the value is subsumed into goodwill where fair values of acquired contingent liabilities 
cannot be measured reliably the assumed contingent liability is not recognised but is disclosed in the same manner as other contingent 
liabilities 
goodwill recognised represents the excess of the fair value of the purchase consideration over the fair value to the group of the net of  
the identifiable assets acquired and the liabilities assumed on transition to ifrs on 1 january 2004 business combinations were not 
retrospectively adjusted to comply with adopted ifrs and goodwill was recognised based on the carrying value under the previous 
accounting policies goodwill in respect of the acquisition of a subsidiary is recognised as an intangible asset goodwill arising on the 
acquisition of joint ventures and associates is included in the carrying value of the investment
certification costs and participation fees
costs incurred in respect of meeting regulatory certification requirements for new civil aeroengineaircraft combinations including 
payments made to airframe manufacturers for this and participation fees are carried forward in intangible assets to the extent that they 
can be recovered out of future sales and are charged to the income statement over the programme life up to a maximum of 15 years from 
the entry into service of the product
research and development
in accordance with ias 38 intangible assets expenditure incurred on research and development is distinguished as relating either to a 
research phase or to a development phase
all research phase expenditure is charged to the income statement development expenditure is capitalised as an internally generated 
intangible asset only if it meets strict criteria relating in particular to technical feasibility and generation of future economic benefits as 
described on page 81 the group considers that it is not possible to distinguish reliably between research and development activities until 
relatively late in the programme
expenditure capitalised is amortised on a straightline basis over its useful economic life up to a maximum of 15 years from the entry into 
service of the product 
 
the fair value of research and development recognised during a business combination relate to the acquired company’s technology 
amortisation occurs on a straightline basis over its useful economic life up to a maximum of 15 years
recoverable engine costs
the group may sell oe to customers at a price below its cost on the basis that this deficit will be recovered from the profits of highly 
probable future aftermarket sales as described on page 81 this sale is considered to give rise to an intangible asset which subject to  
an impairment review is recognised at the time of delivery and amortised on a straightline basis over the period that highly probable 
aftermarket sales are expected to be earned
customer relationships
the fair value of customer relationships recognised during a business combination relate to the acquired company’s established 
relationships with its existing customers that result in repeat purchases and customer loyalty amortisation occurs on a straightline basis 
over its useful economic life up to a maximum of 15 years 
 
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
86 financial statements 1 accounting policies continued
software
the cost of acquiring software that is not specific to an item of property plant and equipment is classified as an intangible asset and 
amortised over its useful economic life up to a maximum of five years
property plant and equipment
property plant and equipment assets are stated at cost less accumulated depreciation and any provision for impairment in value
depreciation is provided on a straightline basis to write off the cost less the estimated residual value of property plant and equipment 
over their estimated useful lives no depreciation is provided on assets in the course of construction estimated useful lives are as follows
i land and buildings as advised by the group’s professional advisers
 a freehold buildings – five to 45 years average 24 years
 b leasehold buildings – lower of adviser’s estimates or period of lease
 c no depreciation is provided on freehold land
ii plant and equipment – five to 25 years average 13 years
iii aircraft and engines – five to 20 years average 15 years
operating leases
payments made and rentals received under operating lease arrangements are chargedcredited to the income statement on a straight
line basis
impairment of noncurrent assets
impairment of noncurrent assets is considered in accordance with ias 36 impairment of assets where the asset does not generate cash 
flows that are independent of other assets impairment is considered for the cashgenerating unit to which the asset belongs goodwill and 
intangible assets not yet available for use are tested for impairment annually other intangible assets property plant and equipment and 
investments are assessed for any indications of impairment annually if any indication of impairment is identified an impairment test is 
performed to estimate the recoverable amount
if the recoverable amount of an asset or cashgenerating unit is estimated to be below the carrying value the carrying value is reduced  
to the recoverable amount and the impairment loss recognised as an expense the recoverable amount is the higher of value in use or fair 
value less costs to sell if this is readily available the value in use is the present value of future cash flows using a pretax discount rate that 
reflects the time value of money and the risk specific to the asset
inventories
inventories and work in progress are valued at the lower of cost and net realisable value on a firstin firstout basis cost comprises direct 
materials and where applicable direct labour costs and those overheads including depreciation of property plant and equipment that 
have been incurred in bringing the inventories to their present location and condition net realisable value represents the estimated selling 
prices less all estimated costs of completion and costs to be incurred in marketing selling and distribution
cash and cash equivalents
cash and cash equivalents include cash at bank and in hand investments in moneymarket funds and shortterm deposits with a maturity 
of three months or less on inception the group considers overdrafts repayable on demand to be an integral part of its cash management 
activities and these are included in cash and cash equivalents for the purposes of the cash flow statement
provisions
provisions are recognised when the group has a present obligation as a result of a past event and it is probable that the group will be 
required to settle that obligation provisions are measured at the directors’ best estimate of the expenditure required to settle the 
obligation at the balance sheet date and are discounted to present value where the effect is material
postretirement benefits
pensions and similar benefits principally healthcare are accounted for under ias 19 employee benefits
for defined benefit plans obligations are measured at discounted present value whilst plan assets are recorded at fair value surpluses  
in schemes are recognised as assets only if they represent economic benefits available to the group in the future a liability is recognised  
to the extent that the minimum funding requirements in respect of past service will give rise to an unrecognisable surplus 
the service and financing costs of such plans are recognised separately in the income statement
 current service costs are spread systematically over the lives of employees
 past service costs are recognised immediately and
 financing costs are recognised in the periods in which they arise
rollsroyce holdings plc annual report 2013 87
strategic report financial statements directors’ report other information 1 accounting policies continued
actuarial gains and losses and movements in unrecognised surpluses and minimum funding liabilities are recognised immediately in oci
payments to defined contribution schemes are charged as an expense as they fall due
sharebased payments
the group provides sharebased payment arrangements to certain employees these are principally equitysettled arrangements and are 
measured at fair value excluding the effect of nonmarket based vesting conditions at the date of grant the fair value is expensed on a 
straightline basis over the vesting period the amount recognised as an expense is adjusted to reflect the actual number of shares or 
options that will vest except where additional shares vest as a result of the total shareholder return tsr performance condition in the 
performance share plan psp
cashsettled share options grants in the international sharesave plan are measured at fair value at the balance sheet date the group 
recognises a liability at the balance sheet date based on these fair values taking into account the estimated number of options that will 
actually vest and the relative completion of the vesting period changes in the value of this liability are recognised in the income statement 
for the year
the cost of shares of rollsroyce holdings plc held by the group for the purpose of fulfilling obligations in respect of employee share plans 
is deducted from equity in the consolidated balance sheet see note 21 for a further description of the sharebased payment plans
sales financing support
in connection with the sale of its products the group will on occasion provide financing support for its customers these arrangements 
fall into two categories creditbased guarantees and assetvalue guarantees in accordance with the requirements of ias 39 and ifrs 4 
insurance contracts creditbased guarantees are treated as insurance contracts the group considers assetvalue guarantees to be non
financial liabilities and accordingly these are also treated as insurance contracts as described on page 82 the directors consider the 
likelihood of crystallisation is assessing whether provision is required for any contingent liabilities
the group’s contingent liabilities relating to financing arrangements are spread over many years and relate to a number of customers 
and a broad product portfolio and are reported on a discounted basis
revisions to adopted ifrs in 2013
with effect from 1 january 2013 the group has adopted the amendments to ias 19 employee benefits issued by the iasb in june 2011 
a description of these amendments and their effect is set out in note 19 in summary the amendments require
 recognition of certain administrative costs as operating costs rather than being included in net financing
 net financing to be calculated on the net asset or liability recognised on the balance sheet using an aa corporate bond rate rather than 
using an expected rate of return for scheme assets and
 immediate recognition of previously unrecognised pastservice credits 
had these amendments not been adopted the results would have been affected as follows
 profit before financing £15 million higher 2012 £22 million higher
 net postretirement financing £107 million higher 2012 £56 million higher and
 net assets £73 million lower 2012 £100 million lower
revisions to ifrs not applicable in 2013
standards and interpretations issued by the iasb are only applicable if endorsed by the eu  
 
under adopted ifrs ifrs 10 consolidated financial statements ifrs 11 joint arrangements ifrs 12 disclosure of interests in other entities 
and amendments to ias 17 separate financial statements are effective for 2014 the principal potential effect is that certain entities 
previously classified as joint ventures might be classified as joint operations requiring the group’s share of the individual assets and 
liabilities of these entities to be included in the financial statements rather than the equity accounting method previously applied the 
group has reviewed its material joint ventures and has concluded that none are to be classified as joint operations under the requirements 
of ifrs 11 if endorsed ifrs 9 financial instruments will simplify the classification of financial assets for measurement purposes but is not 
anticipated to have a significant impact on the financial statements
the group does not consider that any other standards amendments or interpretations issued by the iasb but not yet applicable will have a 
significant impact on the financial statements
rollsroyce holdings plc annual report 2013 88 financial statements
notes to the consolidated financial statements 2 segmental analysis
the analysis by business segment is presented in accordance with ifrs 8 operating segments on the basis of those segments whose 
operating results are regularly reviewed by the board the chief operating decision maker as defined by ifrs 8 as follows
civil aerospace – development manufacture marketing and sales of commercial aero engines and aftermarket services
defence aerospace – development manufacture marketing and sales of military aero engines and aftermarket services
marine – development manufacture marketing and sales of marinepower propulsion systems and aftermarket services
energy –  development manufacture marketing and sales of power systems for the offshore oil and gas industry and 
electrical power generation and aftermarket services 
power systems – development manufacture marketing and sales of diesel engines
engineering and technology and operations discussed in the strategic report operate on a groupwide basis across all the above segments
the operating results reviewed by the board are prepared on an underlying basis which the board considers reflects better the economic 
substance of the group’s trading during the year the principles adopted to determine underlying results are
underlying revenues – where revenues are denominated in a currency other than the functional currency of the group undertaking these 
reflect the achieved exchange rates arising on settled derivative contracts
underlying profit before financing – where transactions are denominated in a currency other than the functional currency of the group 
undertaking this reflects the transactions at the achieved exchange rates on settled derivative contracts in addition adjustments have 
been made to exclude oneoff pastservice costs and credits on postretirement schemes and the effect of acquisition accounting
underlying profit before taxation – in addition to those adjustments in underlying profit before financing
 includes amounts realised from settled derivative contracts and revaluation of relevant assets and liabilities to exchange rates forecast 
 to be achieved from future settlement of derivative contracts and
 excludes unrealised amounts arising from revaluations required by ias 39 financial instruments recognition and measurement changes 
in value of financial rrsa contracts arising from changes in forecast payments changes in the value of put options on nci and the net 
impact of financing costs related to postretirement scheme benefits
this analysis also includes a reconciliation of the underlying results to those reported in the consolidated income statement
year ended 31 december 2013
civil 
aerospace
£m
defence
 aerospace
£m
marine
£m
energy
£m
power
systems
£m
inter
segment 
£m
total 
reportable
 segments
£m
underlying revenue from sale of original equipment 3035 1385 1438 415 2004 72 8205 
underlying revenue from aftermarket services 3620 1206 1089 633 827 75 7300 
total underlying revenue 6655 2591 2527 1048 2831 147 15505 
underlying operating profit excluding share of results  
of joint ventures and associates 708 424 281 15 296 2 1726 
share of results of joint ventures and associates 136 14 – 11 2 – 159 
underlying profit before financing and taxation 844 438 281 26 294 2 1885 
segment assets 9587 1437 1910 1407 3927 744 17524 
investments in joint ventures and associates 495 17 6 54 29 – 601 
segment liabilities 6243 1660 1312 688 3034 733 12204
net assetsliabilities 3839 206 604 773 922 11 5921 
investment in intangible assets property plant and 
equipment and joint ventures and associates 891 103 37 66 142 – 1239 
depreciation amortisation and impairment 349 53 75 51 272 – 800 
rollsroyce holdings plc annual report 2013 89
strategic report financial statements directors’ report other information 2 segmental analysis continued
year ended 31 december 2012 restated – see note 1
civil 
aerospace
£m
defence
 aerospace
£m
marine
£m
energy
£m
power
systems
£m
inter
segment 
£m
total 
reportable
 segments
£m
underlying revenue from sale of original equipment 2934 1231 1288 344 118 22 5893 
underlying revenue from aftermarket services 3503 1186 961 618 169 121 6316 
total underlying revenue 6437 2417 2249 962 287 143 12209 
underlying operating profit excluding share of results of 
joint ventures and associates 613 382 295 7 32  11 1318 
share of results of joint ventures and associates 130 13 1 12 77 – 231 
underlying profit before financing and taxation 743 395 294 19 109 11 1549 
segment assets 8683 1434 2059 1279 150 682 12923 
investments in joint ventures and associates 440 22 4 50 1328 – 1800 
segment liabilities 5819 1797 1467 570 282 671 9264
net assetsliabilities 3304 385 596 759 1196 11 5459 
investment in intangible assets property plant and 
equipment and joint ventures and associates 581 126 101 94 11 – 913 
depreciation amortisation and impairment 322 46 55 42 4 – 469 
reconciliation to reported results
year ended 31 december 2013
total 
reportable
 segments
£m
underlying
 central items 
£m
total 
underlying 
£m
underlying
 adjustments 
£m
group 
£m
revenue from sale of original equipment 8205 – 8205 70 8275 
revenue from aftermarket services 7300 – 7300 62 7238 
total revenue 15505 – 15505 8 15513 
operating profit excluding share of results of joint 
ventures and associates 1726 54
1
1672 297 1375 
share of results of joint ventures and associates 159 – 159 1 160 
profit on transfer of joint ventures to subsidiaries –– – 119 119 
profit on disposal of businesses –– – 216 216 
profit before financing and taxation 1885 54 1831 39 1870 
net financing 72 72 39 111
profit before taxation 126 1759 – 1759 
taxation 434 434 54 380
profit for the year 560 1325 54 1379 
ordinary shareholders 1224 143 1367 
noncontrolling interests 101 89 12 
profit for the year 1325 54 1379 
year ended 31 december 2012 restated – see note 1
total 
reportable
 segments
£m
underlying
 central items 
£m
total 
underlying 
£m
underlying
 adjustments 
£m
group 
£m
revenue from sale of original equipment 5893 – 5893 41 5934 
revenue from aftermarket services 6316 – 6316 89 6227 
total revenue 12209 – 12209 48 12161 
operating profit excluding share of results of joint 
ventures and associates 1318 54
 1
1264 59 1205 
share of results of joint ventures and associates 231 – 231 58 173 
profit on disposal of businesses – – – 699 699 
profit before financing and taxation 1549 54 1495 582 2077 
net financing 61 61 750 689 
profit before taxation 115 1434 1332 2766 
taxation 317 317 114 431
profit for the year 432 1117 1218 2335 
ordinary shareholders 1103 1218 2321 
noncontrolling interests 14 – 14 
profit for the year 1117 1218 2335 
1
 central corporate costs
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
90 financial statements 2 segmental analysis continued
underlying adjustments 
2013 2012
revenue 
£m
profit before 
financing
£m
net 
financing 
£m
taxation
£m
revenue 
£m
profit before 
financing
£m
net 
financing 
£m
taxation
£m
underlying performance 15505 1831 72 434 12209 1495 61 317
revenue recognised at exchange rate  
on date of transaction 8 ––– 48 –––
realised gains on settled  
derivative contracts
 1
 –10 5 – –25 – –
net unrealised fair value changes to 
derivative contracts
 2
 – – 250 – – – 747 –
effect of currency on contract accounting –18 – – –23 – –
put option on nci and financial rrsas – 
foreign exchange differences and other 
unrealised changes in value –– 251 – –– 11 –
effect of acquisition accounting
 3
 –265 – – –69 – –
profit on reclassification of joint ventures 
to subsidiaries –119 – – ––––
pensions discretionary increase
 4
–64 – – ––––
net postretirement scheme financing –– 26 – –– 8 –
profit on disposal of businesses –216 – – ––––
other
 5
 – 61 7 – ––––
related tax effect ––– 54 ––– 151
iae restructuring –––– –699 – 37 
total underlying adjustments 8 39 39 54 48 582 750 114
reported per consolidated income statement 15513 1870 111 380 12161 2077 689 431
1
 realised gains on settled derivative contracts include adjustments to reflect gainslosses in the same period as the related trading cash flows
2
  unrealised fair value changes to derivative contracts i include those included in equity accounted joint ventures and ii exclude those for which the related trading contracts have 
been cancelled when the fair value changes are recognised immediately in underlying profit 
3
  the adjustment eliminates charges recognised as a result of recognising assets in acquired businesses at fair value
4
 discretionary increase of £64m on unindexed pensions – see chief financial officer’s review on page 12
5
 other includes the exclusion of other operating income of £63m and the revaluation of preference shares in rrps which have now been acquired
the reconciliation of underlying earnings per ordinary share is shown in note 6
restated
2013
£m
31 december
2012
£m
1 january
2012
£m
reportable segment assets 17524 12923 12425 
investments in joint ventures and associates 601 1800 1680 
cash and cash equivalents and shortterm investments 4311 2596 1321 
fair value of swaps hedging fixed rate borrowings 47 104 106 
income tax assets 332 375 407 
postretirement scheme surpluses 248 348 520 
total assets 23063 18146 16459 
reportable segment liabilities 12204 9264 9463
borrowings 2371 1383 1204
fair value of swaps hedging fixed rate borrowings 48 ––
income tax liabilities 1096 710 583
postretirement scheme deficits 1041 793 807
total liabilities 16760 12150 12057
net assets 6303 5996 4402 
 restated – see note 1
rollsroyce holdings plc annual report 2013 91
strategic report financial statements directors’ report other information 2 segmental analysis continued 
geographical segments
the group’s revenue by destination is shown below
2013
£m
2012
£m
united kingdom 1803 1641 
norway 520 446 
germany 977 319 
switzerland 871 63 
spain 178 177 
italy 236 151 
france 259 182 
russia 114 165 
rest of europe 670 613 
usa 3972 3999 
canada 507 351 
south america 393 303 
saudi arabia 547 308 
rest of middle east 426 389 
india 244 148 
china 1087 1117 
south korea 452 194 
japan 244 158 
malaysia 292 322 
singapore 558 333 
rest of asia 772 376 
africa 139 123 
australasia 174 240 
other
 1
78 43 
15513 12161 
1 
other revenue mainly originates from central america
in 2012 revenue included in all reportable segments other than power systems of £1203 million was received from a single customer  
in 2013 no single customer represented ten per cent or more of the group’s revenue
the carrying amounts of the group’s noncurrent assets excluding financial instruments deferred tax assets and postretirement benefit 
surpluses by the geographical area in which the assets are located are as follows
2013
£m
2012
£m
united kingdom 3649 3139 
north america 872 723 
nordic countries 823 889 
germany 2739 2023 
other 924 497 
9007 7271 
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
92 financial statements 3 other income and expenses
in october 2011 rollsroyce and united technologies corp utc announced their intention to form a new joint venture to develop an 
engine to power future midsize 120–230 passenger aircraft in september 2013 the parties agreed not to proceed with the partnership 
other operating income includes £63 million received by the group as a result of this 
research and development costs
2013
£m
2012
£m
expenditure in the year 750 572
capitalised as intangible assets 110 38 
amortisation of capitalised costs 130 55
net research and development cost 770 589
entry fees received 126 33 
entry fees deferred in respect of charges in future years 50 5
recognition of previously deferred entry fees 11 30
net cost recognised in the income statement 683 531
underlying adjustments relating to effects of acquisition accounting and foreign exchange 59 –
net underlying cost recognised in the income statement 624 531
 restated – see note 1
4 net financing 
2013 2012
note
per 
consolidated
 income
 statement
£m
underlying
financing
  1
£m
per 
consolidated
 income
 statement
£m
underlying
financing 
1
£m
financing income
interest receivable 15 15 10 10 
fair value gains on foreign currency contracts
 2
17 287 – 750 – 
put options on nci and financial rrsas – foreign exchange  
differences and other unrealised changes in value 17 8 – 11 – 
financing income on postretirement scheme surpluses 19 17 – 26 – 
327 15 797 10 
financing costs
interest payable 58 58 51 51
fair value losses on foreign currency contracts
 2
17 3 – – – 
put options on nci and financial rrsas – foreign exchange  
differences and other unrealised changes in value 17 259 – – – 
financial charge relating to financial rrsas 17 9 9 10 10
fair value losses on commodity derivatives
 2
17 34 – 3 – 
financing costs on postretirement scheme deficits 19 43 – 34 – 
net foreign exchange losses 5 – – – 
other financing charges 27 20 10 10
438 87 108 71
net financing 111 72 689 61
analysed as
net interest payable 43 43 41 41
net postretirement scheme financing 26 – 8 – 
net other financing 42 29 738 20
net financing 111 72 689 61
1
 see note 2
2
 net gain on fair value items through profit or loss 250 – 747 – 
rollsroyce holdings plc annual report 2013 93
strategic report financial statements directors’ report other information 5 taxation
uk overseas total
2013
£m
2012 
£m
2013
£m
2012 
£m
2013
£m
2012 
£m
current tax
current tax chargecredit for the year 7 3 290 218 297 215 
less double tax relief 1 1 – – 1 1
6 4 290 218 296 214 
adjustments in respect of prior years 2 7 29 18 31 25
8 11 319 200 327 189 
deferred tax
chargecredit for the year 224 216 66 38 158 254 
adjustments in respect of prior years 8 1 37 6 45 7 
credit resulting from reduction in tax rates 59 19 1 – 60 19
157 198 104 44 53 242 
recognised in the income statement 165 187 215 244 380 431 
other tax chargescredits
oci equity
items that will not 
be reclassified
 items that may 
be reclassified
2013
£m
2012 
£m
2013
£m
2012
£m
2013
£m
2012
£m
current tax 
 sharebased payments – direct to equity 5 3 
deferred tax 
 net investment hedge 1 1
 movement in postretirement schemes 10 105 
 sharebased payments – direct to equity 8 6 
10 105 1 1 13 9 
tax reconciliation
2013
£m
2012 
£m
profit before taxation 1759 2766 
less share of results of joint ventures and associates note 11 160 173
profit before taxation excluding joint ventures and associates 1599 2593 
nominal tax charge at uk corporation tax rate 2325 2012 245 372 635 
uk rd credit 13 26
rate differences 51 59 
profit on reclassification of joint ventures to subsidiaries 27 – 
changes in value of put option on nci 60 –
restructuring of iae
 1
– 209
other permanent differences 12 9 
benefit to deferred tax from previously unrecognised tax losses and temporary differences 7 – 
tax losses in year not recognised in deferred tax 6 – 
adjustments in respect of prior years 14 18
reduction in closing deferred taxes resulting from decrease in tax rates 60 19
380 431 
underlying items note 2 434 317 
nonunderlying items 54 114 
380 431 
 restated – see note 1 
1
 pursuant to the substantial shareholdings exemption the majority of the upfront proceeds received on the iae restructuring were not subject to tax
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
94 financial statements 5 taxation continued 
deferred taxation assets and liabilities
2013
£m
2012
£m
at 1 january as previously reported 77
effect of amendments to ias 19 – see note 19 43 
effect of amendment to rrsas – see note 1 62
at 1 january as restated 242 58
amount charged to income statement 53 242
amount credited to other comprehensive income 11 104 
amount credited to equity 8 6 
acquisition of businesses 282 1
transferred to assets held for sale – 46
exchange differences 8 5
at 31 december 566 242
deferred tax assets 316 342 
deferred tax liabilities 882 584
566 242
the analysis of the deferred tax position is as follows
at
1 january
2013
£m
recognised
in income
statement
£m 
recognised
in oci
£m
recognised
in equity
£m
acquisition 
of businesses
£m
transferred
 from assets 
held for sale
£m
exchange
 differences
£m
at
31 december
2013
£m
intangible assets 232 34 – – 311 – 2 511
property plant and equipment 158 17 – – 70 – 1 210
other temporary differences 12 9 1 3 60 – 5 80 
amounts recoverable on contracts 351 29 – – – – – 380
pensions and other postretirement 
scheme benefits 110 – 10 – 36 – 3 153 
foreign exchange and commodity financial 
assets and liabilities 56 36 – – – – – 92
losses 369 55 – 5 3 – 1 323 
rd expenditure credit – 7 – – – – – 7 
advance corporation tax 64 – – – – – – 64 
242 53 11 8 282 – 8 566
restated
at
1 january
2012
£m
recognised
in income
statement
£m 
recognised
in oci
£m
recognised
in equity
£m
acquisition 
of businesses
£m
transferred
 to assets 
held for sale
£m
exchange
 movements
£m
at
31 december
2012
£m
intangible assets 243 58 – – – 46 1 232
property plant and equipment 135 25 – – 1 – 1 158
other temporary differences 1 10 1 – – – 2 12 
amounts recoverable on contracts 250 101 – – – – – 351
pensions and other postretirement 
scheme benefits 56 41 105 – 2 – 8 110 
foreign exchange and commodity financial 
assets and liabilities 121 177 – – – – – 56
losses 328 34 – 6 – – 1 369 
advance corporation tax 64 – – – – – – 64 
58 242 104 6 1 46 5 242
 restated – see note 1  
2013
£m
2012
£m
advance corporation tax 118 118 
losses and other unrecognised deferred tax assets 39 39 
deferred tax not recognised on unused tax losses and other items on the basis that future economic benefit is uncertain 157 157 
rollsroyce holdings plc annual report 2013 95
strategic report financial statements directors’ report other information 5 taxation continued 
deferred taxation assets and liabilities
the 2013 budget announced that the uk corporation tax rate will reduce to 21 per cent from 1 april 2014 and to 20 per cent from  
1 april 2015 these reductions were substantively enacted on 2 july 2013 as the reduction to 20 per cent was substantively enacted  
prior to the year end the closing deferred tax assets and liabilities have been calculated at this rate the resulting charges or credits have 
been recognised in the income statement except to the extent that they relate to items previously charged or credited to oci or equity 
accordingly in 2013 £59 million has been credited to the income statement £1 million has been charged to the oci and £9 million has  
been charged directly to equity
the temporary differences associated with investments in subsidiaries joint ventures and associates for which a deferred tax liability  
has not been recognised aggregate to £573 million 2012 £144 million no deferred tax liability has been recognised on the potential 
withholding tax due on the remittance of undistributed profits as the group is able to control the timing of such remittances and it is 
probable that consent will not be given in the foreseeable future 
6 earnings per ordinary share
basic earnings per ordinary share eps are calculated by dividing the profit attributable to ordinary shareholders by the weighted average 
number of ordinary shares in issue during the year excluding ordinary shares held under trust which have been treated as if they had 
been cancelled
diluted eps are calculated by adjusting the weighted average number of ordinary shares in issue during the year for the bonus element  
of share options
2012 figures have been restated to reflect the adoption of amendments to ias 19 employee benefits – see note 19 and the change in the 
accounting policy for rrsas – see note 1 the impact of the restatement on the previously reported eps of 12323p was an increase of 140p 
relating to the ias 19 amendments and an increase of 075p relating to the change in the accounting policy for rrsas
2013 2012
basic
potentially
 dilutive share
 options diluted basic
potentially
 dilutive share
 options diluted
profit attributable to ordinary shareholders £m 1367 1367 2321 2321 
weighted average number of ordinary shares millions 1866 21 1887 1851 25 1876 
eps pence 7326 082 7244 12538 165 12373 
the reconciliation between underlying eps and basic eps is as follows
2013 2012
pence £m pence £m 
underlying epsunderlying profit attributable to ordinary shareholders 6559 1224 5959 1103 
total underlying adjustments to profit before tax note 2 – – 7196 1332 
related tax effects 289 54 617 114
related nci effects 478 89 ––
 
epsprofit attributable to ordinary shareholders 7326 1367 12538 2321 
 excluding iae restructuring 7326 1367 8562 1585 
 iae restructuring – – 3976 736 
diluted underlying eps 6486 5880 
  the impact of the restatement on the previously reported underlying eps of 5927p was a decrease of 071p relating to the ias 19 amendments and an increase of 103p relating to the 
change in the accounting policy for rrsas
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
96 financial statements 7 employee information
2013 
number
2012 
number
average number of employees
united kingdom 24800 22800 
united states 8500 7200
 
canada 1600 1700
 
germany 10500 2800
 
rest of world 9800 8300 
55200 42800 
civil aerospace 23400 21500 
defence aerospace 7900 7800 
marine 9200 8800 
energy 4000 3700 
power systems 10700 1000 
55200 42800 
 
£m £m 
group employment costs
 1
wages and salaries 2843 2163 
social security costs 374 265 
sharebased payments note 21 79 55 
pensions and other postretirement scheme benefits note 19 379 245 
3675 2728 
1
 remuneration of key management personnel is shown in note 24
8 auditors’ remuneration
fees payable to the company’s auditors and its associates were as follows 
2013 
£m
2012 
£m
fees payable to the company’s auditors for the audit of the company’s annual financial statements
 1
02 02 
fees payable to the company’s auditors and its associates for the audit of the company’s subsidiaries pursuant to legislation 56 45 
total fees payable for audit services 58 47 
fees payable to the company’s auditors and its associates for other services
 2

 audit related assurance services
 3
08 06 
 taxation compliance services 08 03 
 taxation advisory services 01 02 
 internal audit services
 4
02 06 
 information technology services
 4
– 04 
 all other services 10 01 
87 69 
fees payable in respect of the group’s pension schemes
 audit 02 02 
 taxation compliance services 01 01 
1
  the level of fees payable to the company’s auditors for the audit of the company’s annual financial statements reflects the fact that limited incremental work is required in respect of  
the audit of these financial statements rollsroyce plc a subsidiary of the company is also required to prepare consolidated financial statements and the fees payable to the company’s 
auditors for the audit of those financial statements including the audit of the subconsolidation is included in the audit of the company’s subsidiaries pursuant to legislation
2
  as described on page 46 in 2013 fees for other services to kpmg in respect of rollsroyce power systems ag rrps were £21m following the consolidation of rrps on 1 january 2013 
the audit committee approved the continuation of engagements already in progress at that date 
3
  this includes £03m 2012 £03m for the review of the halfyear report
4
  in 2012 as part of the group’s it modernisation programme kpmg provided specialist internal audit support while the group recruited its own personnel in addition consulting 
services were provided by a firm which was acquired by kpmg after being engaged by the group
rollsroyce holdings plc annual report 2013 97
strategic report financial statements directors’ report other information rollsroyce holdings plc annual report 2013 98 financial statements
notes to the consolidated financial statements
9 intangible assets
goodwill
£m
certification
costs and
participation
fees
£m
development
expenditure
1
£m
recoverable
engine
costs
£m
customer
 relationships
1
£m
software
1
£m
other
1
£m
total
£m
cost
at 1 january 2012 1106 720 998 464 45 267 134 3734 
exchange differences 4 2 1 – – 1 3 11
additions – 28 38 35 – 119 5 225 
acquisitions of businesses 10 ––––2 7 19 
transferred from subsidiary to associate – – 1 –––– 1
disposals 1 6 6 – – 2 1 16
at 1 january 2013 1111 740 1028 499 45 385 142 3950 
exchange differences 18 3 5 – 3 1 17 3 
additions – 185 110 52 – 69 87 503 
acquisitions of businesses 773 – 508 – 433 – 286 2000 
disposals of businesses 5 – 5 –––– 10
at 31 december 2013 1861 928 1646 551 475 453 532 6446 
accumulated amortisation
at 1 january 2012 7 197 274 231 7 104 32 852 
charge for the year
 2
– 34 55 64 5 41 10 209 
impairment 3 ––––––3 disposals 1 6 6 – – 1 1 15
at 1 january 2013 9 225 323 295 12 144 41 1049 
exchange differences 1 – 7 – 8 – 5 11
charge for the year
 2
– 40 130 28 61 54 91 404 
impairment 17 –3 –4 –– 24 disposal of businesses 2 – 5 –––– 7
at 31 december 2013 23 265 444 323 69 198 137 1459 
net book value
at 31 december 2013 1838 663 1202 228 406 255 395 4987 
at 31 december 2012 1102 515 705 204 33 241 101 2901 
at 1 january 2012 1099 523 724 233 38 163 102 2882 
1
  following the acquisition of rrps on 1 january 2013 intangible assets relating to rd customers relationships and software have been reclassified from ‘other’ into their respective 
categories from 1 january 2012 onwards
2
 charged to cost of sales except development costs which are charged to research and development costs 
goodwill
in accordance with the requirements of ias 36 impairment of assets goodwill is allocated to the group’s cashgenerating units or  
groups of cashgenerating units that are expected to benefit from the synergies of the business combination that gave rise to the 
goodwill as follows
cashgenerating unit cgu or group of cgus
primary 
reporting 
segment
2013
£m
2012
£m
rollsroyce deutschland ltd  co kg civil aerospace 230 223 
commercial marine – arising from the acquisitions of vinters limited and 
scandinavian electric holding as marine 620 649 
commercial marine – arising from the acquisition of odim asa marine 88 115 
rollsroyce power systems ag power systems 785 – 
other various 115 115 
1838 1102  rollsroyce holdings plc annual report 2013 99
9 intangible assets continued
goodwill has been tested for impairment during 2013 on the following basis
 the carrying value of goodwill has been assessed by reference to value in use these have been estimated using cash flows from the most 
recent forecasts prepared by management which are consistent with past experience and external sources of information on market 
conditions given the longterm and established nature of many of the group’s products product lives are often measured in decades 
these forecast the next ten years growth rates for the period not covered by the forecasts are based on a range of growth rates  
20 – 275 per cent that reflect the products industries and countries in which the relevant cgu or group of cgus operate
 the key assumptions for the impairment tests are the discount rate and in the cash flow projections the programme assumptions  
the growth rates and the impact of foreign exchange rates on the relationship between selling prices and costs impairment tests are 
performed using prevailing exchange rates
 the pretax cash flow projections have been discounted at 13 per cent 2012 13 per cent based on the group’s weighted average cost 
of capital adjusted for specific risk where appropriate
the principal value in use assumptions for goodwill balances considered to be individually significant are
 rollsroyce power systems ag – volume of equipment deliveries pricing achieved and cost escalation these are based on current and 
known future programmes estimates of capture of market share and longterm economic forecasts the principal foreign exchange 
exposures are on translating income in a variety of nonfunctional currencies into euros for the purposes of the impairment only cash 
flows beyond the tenyear forecasts are assumed to grow at two per cent following the recognition of rrps at fair value on 1 january 
2013 reasonably possible changes in the key assumptions could cause the value of goodwill to fall below its carrying value such as a 
reduction in the level of cash generation of nine per cent a reduction in the assumed longterm growth rate to 08 per cent or an increase 
in the assumed discount rate of 07 per cent 
 rollsroyce deutschland ltd  co kg – volume of engine deliveries flying hours of installed fleet and cost escalation these are based on 
current and known future programmes estimates of customers’ fleet requirements and longterm economic forecasts the principal 
foreign exchange exposure is on translating us dollar income into euros for the purposes of the impairment test only cash flows beyond 
the tenyear forecasts are assumed to grow at 25 per cent 2012 25 per cent the directors do not consider that any reasonably possible 
change in the key assumptions would cause the value in use of the goodwill to fall below its carrying value the overall level of business 
would need to reduce by more than 85 per cent to cause an impairment of this balance
 vinters limited – volume of equipment deliveries capture of aftermarket and cost escalation these are based on current and known 
future programmes estimates of customers’ fleet requirements and longterm economic forecasts the principal foreign exchange 
exposures are on translating income in a variety of nonfunctional currencies into norwegian kroner for the purposes of the impairment 
test only cash flows beyond the tenyear forecasts are assumed to grow at 25 per cent 2012 25 per cent the directors do not consider 
that any reasonably possible change in the key assumptions would cause the value in use of the goodwill to fall below its carrying value 
the overall level of business would need to reduce by more than 75 per cent to cause an impairment of this balance
other intangible assets
certification costs and participation fees customer relationships technology patents and licences order backlog trademark development 
costs and recoverable engine costs have been reviewed for impairment in accordance with the requirements of ias 36 impairment of assets 
where an impairment test was considered necessary it has been performed on the following basis
 the carrying values have been assessed by reference to value in use these have been estimated using cash flows from the most recent 
forecasts prepared by management which are consistent with past experience and external sources of information on market conditions 
over the lives of the respective programmes
 the key assumptions underlying cash flow projections are assumed market share programme timings unit cost assumptions discount 
rates and foreign exchange rates
 the pretax cash flow projections have been discounted at 11 per cent 2012 11 per cent based on the group’s weighted average cost 
of capital
 no impairment is required on this basis however a combination of changes in assumptions and adverse movements in variables that 
are outside the group’s control discount rate exchange rate and airframe delays could result in impairment in future years rollsroyce holdings plc annual report 2013 100 financial statements
notes to the consolidated financial statements
10 property plant and equipment
land and
 buildings
£m
plant and 
equipment
£m
aircraft and
 engines
£m
in course of
 construction
£m
total
£m
cost
at 1 january 2012 981 2646 216 454 4297 
exchange differences 14 25 1 9 49
additions 50 124 18 299 491 
acquisitions of businesses – 45 – – 45 
disposals of businesses – 4 – – 4
reclassifications 60 168 4 232 – 
disposalswriteoffs 5 65 14 1 85
at 1 january 2013 1072 2889 223 511 4695 
exchange differences 11 28 2 8 49
additions 17 150 83 437 687 
acquisitions of businesses 202 300 – 44 546 
disposals of businesses – 1 – – 1
reclassifications 19 242 21 282 –
disposalswriteoffs 2 62 1 2 67
at 31 december 2013 1297 3490 324 700 5811 
accumulated depreciation
at 1 january 2012 315 1598 44 2 1959 
exchange differences 3 13 – – 16
charge for the year
 1
39 196 20 – 255 
reclassifications 7 7 – – – 
disposals of businesses – 2 – – 2
disposalswriteoffs 3 58 2 2 65
at 1 january 2013 355 1714 62 – 2131 
exchange differences 9 22 1 – 32
charge for the year
 1
48 301 23 – 372 
reclassifications 88 –
disposals of businesses – 1 – – 1
disposalswriteoffs –51 – –51
at 31 december 2013 386 1949 84 – 2419 
net book value
at 31 december 2013 911 1541 240 700 3392 
at 31 december 2012 717 1175 161 511 2564 
at 1 january 2012 666 1048 172 452 2338 
1
 depreciation charged during the year is presented in the income statement or included in the cost of inventory as appropriate
property plant and equipment includes 
2013
£m
2012
£m
net book value of finance leased assets
land and buildings 7 7
plant and equipment 4 4
assets held for use in operating leases
cost 320 242
depreciation 79 65
net book value 241 177
capital expenditure commitments 317 258
cost of fully depreciated assets 899 721
the group’s share of equity accounted entities’ capital commitments is £150 million 2012 £31 million  rollsroyce holdings plc annual report 2013 101
11 investments
equity accounted other
joint ventures
£m
associates
£m
total
£m
unlisted
£m
at 1 january 2012 1680 – 1680 10 
exchange differences 58 – 58 – 
additions 191 – 191 – 
taxation paid by the group 6 – 6 – 
transfer to subsidiary 5 – 5 – 
impairment 2 – 2 – 
share of retained profit 44 – 44 – 
transferred from subsidiary to associate – 2 2 – 
disposals – – – 4
share of oci – will not be reclassified to profit and loss 46 – 46 – 
share of oci – may be reclassified to profit or loss 12 – 12 – 
at 1 january 2013 1798 2 1800 6 
exchange differences 4 – 4 1 
additions 43 – 43 1 
taxation paid by the group 6 – 6 –
transfers to subsidiaries
1
1327 – 1327 –
acquisition of businesses 30 – 30 20 
share of retained profit 61 – 61 –
disposals 2 – 2 1
share of oci – will not be reclassified to profit and loss ––––
share of oci – may be reclassified to profit or loss 6 – 6 –
at 31 december 2013 599 2 601 27 
1
  at 31 december 2012 rollsroyce power systems gmbh a 5050 joint holding company with daimler ag held 99 per cent of the rrps ag shares as part of the shareholders’ 
agreement certain conditions allowed the group to classify rrps ag as a subsidiary and consolidate it these conditions were fulfilled and the rights exercised on 1 january 2013 
resulting in £1328m being transferred to subsidiaries
the summarised aggregated financial information of the group’s share of equity accounted investments is as follows
joint ventures associates total
2013
other
£m
2012 
power 
systems
£m
2012
other
£m
2012
£m
2013
£m
2012
£m
2013
£m
2012
£m
assets
 noncurrent assets 1839 1590 1717 3307 1 1 1840 3308 
 current assets 852 718 818 1536 2 2 854 1538 
liabilities
 current liabilities 623 421 655 1076 1 1 624 1077
 noncurrent liabilities 1469 559 1410 1969 – – 1469 1969
599 1328 470 1798 2 2 601 1800 
liabilities include borrowings of 1291 103 1271 1374 – – 1291 1374
   
revenue 2343 1223 2827  4050 1 3 2344 4053 
profit before financing and taxation 188 33 189 222 – – 188 222 
net financing 16 10 22 32 – – 16 32
taxation 12 1 16 17 – – 12 17
results recognised in the consolidated 
income statement 160 22 151 173 – – 160 173 
dividends received 99 28 101 129 – – 99 129
retained profit 61 6 50 44 – – 61 44 
the principal joint ventures at 31 december 2013 are listed on pages 128 and 129 rollsroyce holdings plc annual report 2013 102 financial statements
notes to the consolidated financial statements
12 inventories 
2013
£m
2012
£m
raw materials 593 336 
work in progress 1177 1056 
longterm contracts work in progress 15 10 
finished goods 1426 1282 
payments on account 108 42 
3319 2726 
inventories stated at net realisable value 447 136 
amount of inventory writedown 89 64 
reversal of inventory writedown 5 1 
13 trade and other receivables
2013
£m
2012
£m
trade receivables 1601 1182 
amounts recoverable on contracts 2239 1902 
amounts owed by joint ventures and associates 380 351 
other receivables 637 479 
prepayments and accrued income 235 205 
5092 4119 
analysed as
financial instruments note 17
 trade receivables and similar items 2118 1662 
 other nonderivative financial assets 527 364 
nonfinancial instruments 2447 2093 
5092 4119 
trade and other receivables expected to be recovered in more than one year
 trade receivables 51 40 
 amounts recoverable on contracts 1751 1473 
 amounts owed by joint ventures and associates – 3 
 other receivables 41 63 
 prepayments and accrued income 84 32 
1927 1611 
14 cash and cash equivalents
2013
£m
2012
£m
cash at bank and in hand 982 674 
moneymarket funds 1157 408 
shortterm deposits 1851 1503 
3990 2585 
overdrafts note 15 3 – 
cash and cash equivalents per cash flow statement page 77 3987 2585 
cash held as collateral against thirdparty obligations note 18 50 64 
cash and cash equivalents at 31 december 2013 includes £286 million 2012 £78 million that is not available for general use by the group 
this balance relates to cash held in nonwholly owned subsidiaries and the group’s captive insurance company rollsroyce holdings plc annual report 2013 103
15 borrowings
current noncurrent total 
2013
£m
2012
£m
2013
£m
2012
£m
2013
£m
2012
£m
unsecured
overdrafts 3 – – – 3 – 
bank loans 204 2 412 404 616 406 
7
3
8 notes 2016 £200m – – 200 200 200 200 
638 notes 2013 us230m
 1
– 147 – – – 147 
655 notes 2015 us83m
 1
– – 55 58 55 58 
675 notes 2019 £500m
 2
– – 535 571 535 571 
2125 notes 2021 €750m
 1
– – 611 – 611 – 
3375 notes 2026 £375m
 2
– – 350 – 350 – 
secured
obligations under finance leases
 3
– – 1 1 1 1 
207 149 2164 1234 2371 1383 
1
  these notes are the subject of interest rate swap agreements under which the group has undertaken to pay floating rates of interest and currency swaps which form a fair 
value hedge 
2
  these notes are the subject of interest rate swap agreements under which the group has undertaken to pay floating rates of interest which form a fair value hedge 
3
 obligations under finance leases are secured by related leased assets
16 trade and other payables
current noncurrent total 
2013
£m
2012
£m
2013
£m
2012
£m
2013
£m
2012
£m
payments received on account
 1
1594 1361 750 609 2344 1970 
trade payables 1370 1109 16 – 1386 1109 
amounts owed to joint ventures and associates 191 202 – 1 191 203 
other taxation and social security 101 107 – – 101 107 
other payables 1820 1574 143 95 1963 1669 
accruals and deferred income 1969 2048 1229 967 3198 3015 
7045 6401 2138 1672 9183 8073 
1
  includes payments received on account from joint  
ventures and associates 180 262 151 162 331 424 
included within trade and other payables are government grants of £100 million 2012 £89 million during the year £26 million  
2012 £16 million of government grants were released to the income statement
included in accruals and deferred income are deferred receipts from rrsa workshare partners of £260 million 2012 £221 million
trade and other payables are analysed as follows
2013
£m
2012
£m
financial instruments note 17
 trade payables and similar items 2989 2571 
 other nonderivative financial liabilities 806 704 
nonfinancial instruments 5388 4798 
9183 8073 
 restated – see note 1 rollsroyce holdings plc annual report 2013 104 financial statements
notes to the consolidated financial statements
17 financial instruments
carrying values and fair values of financial instruments
assets liabilities total
notes
basis for
 determining
 fair value
fair value 
through 
profit or 
los s  
£m
loans 
and
 receivables
£m
available 
for sale
£m
cash
£m
fair value
 through
 profit 
or loss
£m
other
£m £m
at 31 december 2013 
unlisted noncurrent asset investments 11 a – 27 – – – – 27 
trade receivables and similar items 13 b – 2118 – – – – 2118 
other nonderivative financial assets 13 b – 527 – – – – 527 
derivative financial assets c 748 – – – – – 748 
shortterm investments b – 321 – – – – 321 
cash and cash equivalents 14 b – 1851 1157 982 – – 3990 
borrowings 15 d – – – – – 23712371
derivative financial liabilities c – – – – 295 – 295
exercise prices of put options on nci e – – – – –1858 1858
financial rrsas f – – – – – 167 167
c shares b – – – – – 16 16
trade payables and similar items 16 b – – – – – 29892989
other nonderivative financial liabilities 16 b – – – – – 806 806
748 4844 1157 982 295 8207 771
at 31 december 2012 
unlisted noncurrent asset investments 11 a – 6 – – – – 6 
trade receivables and similar items 13 b – 1662 – – – – 1662 
other nonderivative financial assets 13 b – 364 – – – – 364 
derivative financial assets c 707 – – – – – 707 
shortterm investments b – 11 – – – – 11 
cash and cash equivalents 14 b – 1503 408 674 – – 2585 
borrowings 15 d – – – – – 13831383
derivative financial liabilities c – – – – 360 – 360
exercise price of put option on nci e – – – – – 167 167
financial rrsas f – – – – – 193 193
c shares b – – – – – 10 10
trade payables and similar items 16 b – – – – – 25712571
other nonderivative financial liabilities 16 b – – – – – 704 704
707 3546 408 674 360 5028 53
fair values equate to book values for both 2013 and 2012 with the following exceptions
2013 2012
book value
£m
fair value
£m
book value
£m
fair value
£m
borrowings 2371 2495 1383 1542
financial rrsas 167 184 193 215
the fair value of a financial instrument is the price at which an asset could be exchanged or a liability settled between knowledgeable 
willing parties in an armslength transaction fair values have been determined with reference to available market information at the 
balance sheet date using the methodologies described below
a these primarily comprise unconsolidated companies where fair value approximates to the book value
b  fair values are assumed to approximate to cost either due to the shortterm maturity of the instruments or because the interest rate of the investments is reset after periods not 
exceeding six months 
c  fair values of derivative financial assets and liabilities are estimated by discounting expected future contractual cash flows using prevailing interest rate curves amounts 
denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date these financial instruments are included on the balance sheet at fair value 
derived from observable market prices level 2 as defined by ifrs 13 fair value measurement
d  borrowings are carried at amortised cost amounts denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date level 2 as defined by ifrs 13
e  the value of the put option on nci is determined in accordance with the contractual terms which requires averaging three valuations covering forecasts of the business performance 
and external metrics of comparable business and transactions 
f  the fair value of rrsas is estimated by discounting expected future cash flows the contractual cash flows are based on future trading activity which is estimated based on latest 
forecasts level 3 as defined by ifrs 13 
ifrs 13 defines a threelevel valuation hierarchy
level 1 – quoted prices for similar instruments
level 2 – directly observable market inputs other than level 1 inputs and
level 3 – inputs not based on observable market data rollsroyce holdings plc annual report 2013 105
17 financial instruments continued
carrying values of other financial assets and liabilities 
derivatives
foreign
 exchange
 contracts 
£m
commodity
 contracts 
£m
interest rate
 contracts 
£m
total
 derivatives 
£m
exercise price 
of put options 
on nci 
£m
financial 
rrsas 
£m
c shares 
£m
total 
£m
at 31 december 2013 
noncurrent assets 631 – 43 674 – – – 674 
current assets 72 2 – 74 – – – 74 
703 2 43 748 – – – 748 
current liabilities 63 16 1 80 1858 22 16 1976
noncurrent liabilities 142 25 48 215 – 145 – 360
205 41 49 295 1858 167 16 2336
498 39 6 453 1858 167 16 1588
at 31 december 2012 
noncurrent assets 498 4 90 592 – – – 592 
current assets 104 6 5 115 – – – 115 
602 10 95 707 – – – 707 
current liabilities 97 8 – 105 167 30 10 312
noncurrent liabilities 233 15 7 255 – 163 – 418
330 23 7 360 167 193 10 730
272 13 88 347 167 193 10 23
derivative financial instruments 
the group uses various financial instruments to manage its exposure to movements in foreign exchange rates where the effectiveness  
of a hedging relationship in a cash flow hedge is demonstrated changes in the fair value that are deemed effective are included in the cash 
flow hedge reserve and released to match actual payments on the hedged item the group uses commodity swaps to manage its exposure 
to movements in the price of commodities jet fuel and base metals to hedge the currency risk associated with a borrowing denominated 
in us dollars the group has currency derivatives designated as part of fair value hedges the group uses interest rate swaps forward rate 
agreements and interest rate caps to manage its exposure to movements in interest rates 
movements in the fair values of derivative financial assets and liabilities were as follows 
foreign
 exchange
 instruments
£m
commodity
 instruments
£m
interest rate
 instruments
£m
total 
£m
at 1 january 2012 447 12 81 378
movements in fair value hedges
 1
 8 – 6 2
movements in cash flow hedges 4 – – 4
movements in other derivative contracts
 2
 750 31 748 
contracts settled
 3
 19 2 – 17
at 1 january 2013 272 13 88 347 
business acquisitions 4 1 – 3 
movements in fair value hedges
 1
 3 – 91 88
movements in other derivative contracts
 2
 284 34–250 
contracts settled
 3
 65 9 3 59
at 31 december 2013 498 39 6 453 
1
 gain on related hedged items £88m 2012 £2m net gain
2
 included in financing 
3
 includes contracts settled in fair value hedges £17m 2012 nil and cash flow hedges £nil 2012 £4m loss 
exercise price of put option on noncontrolling interests and financial rrsas
the group has agreed a put option with daimler ag such that daimler can sell its interest in rollsroyce power systems holding gmbh 
rrpsh to the group the exercise price of this option is included as a financial liability 
the group has financial liabilities arising from financial rrsas these financial liabilities are valued at each reporting date using the 
amortised cost method this involves calculating the present value of the forecast cash flows of the arrangements using the internal rate  
of return at the inception of the arrangements as the discount rate rollsroyce holdings plc annual report 2013 106 financial statements
notes to the consolidated financial statements
17 financial instruments continued
movements in the carrying values were as follows
put options on nci financial rrsas
2013
£m
2012
£m
2013
£m
2012
£m
at 1 january 167 – 193 230
cash paid to partners – – 33 35 
business acquisitions 2 – – –
additions 1432 167 – – 
exchange adjustments included in oci – – 4 1 
financing charge
 1
 – – 9 10
excluded from underlying profit
 changes in put options exercise prices
 1
212 5
 exchange adjustments
 1
 45 5 4 9 
 changes in forecast payments
 1
  2 2 
at 31 december 1858 167 167 193
1
 included in financing
risk management policies and hedging activities
the principal financial risks to which the group is exposed are foreign currency exchange rate risk liquidity risk credit risk interest rate 
risk and commodity price risk the board has approved policies for the management of these risks
foreign currency exchange rate risk – the group has significant cash flows most significantly us dollars followed by the euro 
denominated in currencies other than the functional currency of the relevant trading entity to manage its exposures to changes in values 
of future foreign currency cash flows so as to maintain relatively stable longterm foreign exchange rates on settled transactions the 
group enters into derivative forward foreign currency transactions for accounting purposes these derivative contracts are not designated 
as hedging instruments
the group also has exposures to the fair values of nonderivative financial instruments denominated in foreign currencies to manage the 
risk of changes in these fair values the group enters into derivative forward foreign exchange contracts which are designated as fair value 
hedges for accounting purposes
the group regards its interests in overseas subsidiary companies as longterm investments the group aims to match its translational 
exposures by matching the currencies of assets and liabilities where appropriate foreign currency financial liabilities may be designated 
as hedges of the net investment
liquidity risk – the group’s policy is to hold financial investments and maintain undrawn committed facilities at a level sufficient to ensure 
that the group has available funds to meet its mediumterm capital and funding obligations and to meet any unforeseen obligations and 
opportunities the group holds cash and shortterm investments which together with the undrawn committed facilities enable the group 
to manage its liquidity risk 
credit risk – the group is exposed to credit risk to the extent of nonpayment by either its customers or the counterparties of its financial 
instruments the effective monitoring and controlling of credit risk is a key component of the group’s risk management activities the 
group has credit policies covering both trading and financial exposures credit risks arising from treasury activities are managed by a 
central treasury function in accordance with the group credit policy the objective of the policy is to diversify and minimise the group’s 
exposure to credit risk from its treasury activities by ensuring the group transacts strictly with ‘bbb’ or higher rated financial institutions 
based on preestablished limits per financial institution at the balance sheet date there were no significant concentrations of credit risk to 
individual customers or counterparties the maximum exposure to credit risk at the balance sheet date is represented by the carrying 
value of each financial asset including derivative financial instruments
interest rate risk – the group’s interest rate risk is primarily in relation to its fixed rate borrowings fair value risk floating rate borrowings 
and cash and cash equivalents cash flow risk interest rate derivatives are used to manage the overall interest rate profile within the group 
policy which is to maintain a higher proportion of net debt at floating rates of interest as a natural hedge to the net cash position these 
are designated as either fair value or cash flow hedges as appropriate
commodity risk – the group has exposures to the price of jet fuel and base metals arising from business operations to minimise its cash 
flow exposures to changes in commodity prices the group enters into derivative commodity transactions for accounting purposes these 
derivative contracts are not designated as hedging instruments
other price risk – the group’s cash equivalent balances represent investments in money market instruments with a term of up to three 
months the group does not consider that these are subject to significant price risk  rollsroyce holdings plc annual report 2013 107
17 financial instruments continued
derivative financial instruments
the nominal amounts analysed by year of expected maturity and fair values of derivative financial instruments are as follows
expected maturity fair value
nominal
amount
£m
within
one year
£m
between
one and
two years
£m
between
two and
five years
£m
after
five years
£m
assets
£m
liabilities
£m
at 31 december 2013 
foreign exchange contracts
 fair value hedges 46 – 46 ––3 –
 nonhedge accounted 19654 4759 4530 9493 872 700 205
interest rate contracts
 fair value hedges 1550 – 50 – 1500 43 48
 nonhedge accounted 5 –5 ––– 1
commodity contracts
 nonhedge accounted 262 79 62 80 41 2 41
21517 4838 4693 9573 2413 748 295
at 31 december 2012 
foreign exchange contracts
 fair value hedges 175 129 – 46 – 15 – 
 nonhedge accounted 17701 4585 3542 9029 545 587 330
interest rate contracts
 fair value hedges 692 141 51 – 500 89 – 
 nonhedge accounted 7 – – 7 – 6 7
commodity contracts
 nonhedge accounted 286 76 68 99 43 10 23
18861 4931 3661 9181 1088 707 360
as described above all derivative financial instruments are entered into for risk management purposes although these may not be 
designated into hedging relationships for accounting purposes
currency analysis
derivative financial instruments related to foreign exchange risks are denominated in the following currencies
currencies purchased forward
sterling
£m
us dollar
£m
euro
£m
other
£m
total
£m
at 31 december 2013 
currencies sold forward
 sterling – 429 – 10 439 
 us dollar 15936 – 2036 913 18885 
 euro 4 – – 249 253 
 other 22 23 75 3 123 
at 31 december 2012
currencies sold forward
 sterling – 495 – 23 518 
 us dollar 14407 – 1817 840 17064 
 euro – – – 177 177 
 other 21 11 70 15 117 
other derivative financial instruments are denominated in the following currencies 
2013 
£m
2012 
£m
sterling 880 506 
us dollar 300 479 
euro 637 – 
other – –  rollsroyce holdings plc annual report 2013 108 financial statements
notes to the consolidated financial statements
17 financial instruments continued
nonderivative financial instruments are denominated in the following currencies 
sterling
£m
us dollar
£m
euro
£m
other
£m
total
£m
at 31 december 2013 
assets
unlisted noncurrent investments – – 26 1 27 
trade receivables and similar items 199 995 829 95 2118 
other nonderivative financial assets 289 48 89 101 527 
shortterm investments 282 – 4 35 321 
cash and cash equivalents 1619 1080 980 311 3990 
2389 2123 1928 543 6983 
liabilities
borrowings 1490 55 826 – 2371
exercise prices of put options on nci – – 1858 – 1858
financial rrsas –114 53 – 167
c shares 16 – – – 16
trade payables and similar items 1501 641 653 194 2989
other nonderivative financial liabilities 208 328 158 112 806
3215 1138 3548 306 8207
826 985 1620 237 1224
at 31 december 2012 
assets
unlisted noncurrent investments 1 – 4 1 6 
trade receivables and similar items 234 1176 169 83 1662 
other nonderivative financial assets 121 75 40 128 364 
shortterm investments 5 – – 6 11 
cash and cash equivalents 495 1038 606 446 2585 
856 2289 819 664 4628 
liabilities
borrowings 1173 205 5 – 1383
exercise price of put option on nci – – 167 – 167
financial rrsas – 139 54 – 193
c shares 10 – – – 10
trade payables and similar items 1254 825 289 203 2571
other nonderivative financial liabilities 250 320 17 117 704
2687 1489 532 320 5028
1831 800 287 344 400
currency exposures
the group’s actual currency exposures after taking account of derivative foreign currency contracts which are not designated as hedging 
instruments for accounting purposes are as follows
functional currency of group operation
sterling
£m
us dollar
£m
euro
£m
other
£m
total
£m
at 31 december 2013 
sterling
 1
– 13 1855 12 1830
us dollar 8 – – 7 15 
euro 1 2 – – 3
other 5 41 11 4 21 
at 31 december 2012 
sterling
 1
– 22 166 4 140
us dollar 4 – 6 5 3 
euro 1 2 – – 3
other 6 1 5 1 3 
1
  included in the £1855m liability 2012 £166m liability euro currency exposure is a £1858m liability 2012 £167m liability relating to the put option on daimler’s interest in  
rrpsh – see page 105 rollsroyce holdings plc annual report 2013 109
17 financial instruments continued
ageing beyond contractual due date of financial assets
within
terms
£m
up to
three
months
overdue
£m
between
three
months and
one year
overdue
£m
more than
one year
overdue
£m
total
£m
at 31 december 2013 
unlisted noncurrent asset investments 27 – – – 27 
trade receivables and similar items 1769 240 90 19 2118 
other nonderivative financial assets 523 1 1 2 527 
derivative financial assets 748 – – – 748 
shortterm investments 321 – – – 321 
cash and cash equivalents 3990 – – – 3990 
7378 241 91 21 7731 
at 31 december 2012 
unlisted noncurrent asset investments 6 – – – 6 
trade receivables and similar items 1470 132 43 17 1662 
other nonderivative financial assets 343 18 1 2 364 
derivative financial assets 707 – – – 707 
shortterm investments 11 – – – 11 
cash and cash equivalents 2585 – – – 2585 
5122 150 44 19 5335 
contractual maturity analysis of financial liabilities
gross values 
within
one year
£m
between
one and
two years
£m
between
two and
five years
£m
after
five years
£m
discounting
£m
carrying 
value
£m
at 31 december 2013 
borrowings 290 140 609 1894 562 2371
derivative financial liabilities 87 76 146 90 104 295
exercise prices of put options on nci 1858 – – – – 1858
financial rrsas 33 34 65 75 40 167
c shares 16 – – – – 16
trade payables and similar items 2972 17 – – – 2989
other nonderivative financial liabilities 751 28 16 11 – 806
6007 295 836 2070 706 8502
at 31 december 2012 
borrowings 210 257 403 778 265 1383
derivative financial liabilities 108 103 138 14 3 360
exercise price of put option on nci 167 – – – – 167
financial rrsas 35 32 75 100 49 193
c shares 10 – – – – 10
trade payables and similar items 2568 1 1 1 – 2571
other nonderivative financial liabilities 694 10 – – – 704
3792 403 617 893 317 5388 rollsroyce holdings plc annual report 2013 110 financial statements
notes to the consolidated financial statements
17 financial instruments continued
interest rate risk
in respect of incomeearning financial assets and interestbearing financial liabilities the following table indicates their effective interest 
rates and the periods in which they reprice the value shown is the carrying amount
period in which interest  
 rate reprices
2013
effective 
interest rate

total
£m
6 months
or less
£m
6–12 months
£m
shortterm investments
 1
321 318 3 
cash and cash equivalents
 2
3990 3990 – 
unsecured bank loans
other borrowings 10 5 –
interest rate swaps 53225 –5 –
£200m floating rate loan gbp libor  0267 200 200 –
£200m floating rate loan gbp libor  126 200 200 –
€125m fixed rate loan 26000 104 – –
€75m fixed rate loan 20600 63 – –
€50m fixed rate loan 23500 42 – –
unsecured bond issues
7
3
8 notes 2016 £200m 73750 200 – – 
655 notes 2015 us83m 65500 55 – – 
effect of interest rate swaps usd libor  124 – 55 – 
675 notes 2019 £500m 67500 535 – – 
effect of interest rate swaps gbp libor  29824 –535 – 
2125 notes 2021 €750m 21250 611 – – 
effect of interest rate swaps gbp libor  07005 –611 – 
3375 notes 2026 £375m 33750 350 – – 
effect of interest rate swaps gbp libor  08330 –350 – 
other secured
obligations under finance leases 50000 1 1 – 
1940 
period in which interest  
rate reprices
2012
effective 
interest rate

total
£m
6 months
or less
£m
6–12 months
£m
shortterm investments
 1
11 9 2 
cash and cash equivalents
 2
2585 2585 – 
unsecured bank loans
other borrowings 6 4
interest rate swaps 53225 – 7 – 
£200m floating rate loan gbp libor  0267 200 200 – 
£200m floating rate loan gbp libor  126 200 200 – 
unsecured bond issues
7
3
8 notes 2016 £200m 73750 200 – – 
638 notes 2013 us230m 63800 147 – –
effect of interest rate swaps usd libor  126 – 147 – 
655 notes 2015 us83m 65500 58 – – 
effect of interest rate swaps usd libor  124 – 58 – 
675 notes 2019 £500m 67500 571 – – 
effect of interest rate swaps gbp libor  29824 – 571 – 
other secured
obligations under finance leases 50000 1 – – 
1213 
1
 interest on the shortterm investments are at fixed rates
2
 cash and cash equivalents comprise bank balances and demand deposits and earn interest at rates based on daily deposit rates rollsroyce holdings plc annual report 2013 111
17 financial instruments continued
some of the group’s borrowings are subject to the group meeting certain obligations including customary financial covenants if the 
group fails to meet its obligations these arrangements give rights to the lenders upon agreement to accelerate repayment of the facilities 
there are no rating triggers contained in any of the group’s facilities that could require the group to accelerate or repay any facility for a 
given movement in the group’s credit rating 
in addition the group has undrawn committed borrowing facilities available as follows
2013 
£m
2012 
£m
expiring in one to two years – – 
expiring after two years 1250 1000 
1250 1000 
sensitivity analysis 
sensitivities at 31 december all other variables held constant – impact on profit after tax and equity 
2013 
£m
2012 
£m
sterling 10 weaker against the us dollar 1177 1073
sterling 10 stronger against the us dollar 963 878 
euro 10 weaker against the us dollar 128 146
euro 10 stronger against the us dollar 100 118 
sterling 10 weaker against the euro 95 –
sterling 10 stronger against the euro 78 –
commodity prices 10 lower 16 20
commodity prices 10 higher 16 20 
at 31 december 2013 the group had no material sensitivity to changes in interest rates on that date the main interest rate sensitivity for 
the group arises as a result of the gross up of net cash and this is mitigated as described under the interest rate risk management policies 
on page 106 
c shares and payments to shareholders
the company issues noncumulative redeemable preference shares c shares as an alternative to paying a cash dividend c shares in 
respect of a year are issued in the following year shareholders are able to redeem any number of their c shares for cash any c shares 
retained attract a dividend of 75 per cent of libor on the 01 pence nominal value of each share paid on a twiceyearly basis and have 
limited voting rights the company has the option to compulsorily redeem the c shares at any time if the aggregate number of c shares  
in issue is less than ten per cent of the aggregate number of c shares issued or on the acquisition or capital restructuring of the company
movements in the c shares during the year were as follows
2013 2012
millions
nominal value
£m millions
nominal value
£m
issued and fully paid 
at 1 january 10418 10 6371 6 
issued 366041 366 327643 328 
redeemed 360173 360 323596 324
at 31 december 16286 16 10418 10 
payments to shareholders in respect of the year represent the value of c shares to be issued in respect of the results for the year  
issues of c shares were declared as follows 
2013 2012
pence
per share £m
pence
per share £m
interim 86 162 76 142 
final 134 252 119 223 
220 414 195 365  18 provisions for liabilities and charges
at 
1 january
2013 
£m
exchange 
differences 
£m
acquisitions 
 of 
businesses 
£m
disposals 
 of 
businesses 
£m
unused 
amounts 
reversed 
£m
charged to 
income 
statement 
£m
utilised 
£m
at 
31 december
2013 
£m
warranty and guarantees 247 1 201 2 39 150
1
 139
1
419 
contract loss 54 – 27 – 13 24 25 67 
restructuring 4 – 4 9 6 17 3 25 
customer financing 82 – – – 11 23 21 73 
insurance 47 – – – 7 31 9 62 
other 27 1 48 – 11 48 26 87 
461 2 280 7 87 293 223 733 
current liabilities 220 348 
noncurrent liabilities 241 385 
1 
the amount of warranty and guarantee provision charged to the income statement and utilised by rrps was £86m and £78m respectively
provisions for warranties and guarantees primarily relate to products sold and generally cover a period of up to three years
provisions for contract loss and restructuring are generally expected to be utilised within two years 
in connection with the sale of its products the group will on some occasions provide financing support for its customers – generally in 
respect of civil aircraft the group’s commitments relating to these financing arrangements are spread over many years relate to a number 
of customers and a broad product portfolio and are generally secured on the asset subject to the financing customer financing provisions 
cover guarantees provided for asset value andor financing these guarantees the risks arising and the process used to assess the extent  
of the risk are described under the heading ‘customer financing’ in the chief financial officer’s review on page 13 it is estimated that the 
provision will be utilised as follows
2013 
£m
2012 
£m
potential claims with specific claim dates 
 in one year or less 29 30 
 in more than one year but less than five years 38 43 
 in more than five years 5 8 
potential claims that may arise at any time up to the date of expiry of the guarantee 
 up to one year 1  – 
 up to five years – 1 
73 82 
commitments on delivered aircraft in excess of the amounts provided are shown in the table below these are reported on a discounted 
basis at the group’s borrowing rate to reflect better the time span over which these exposures could arise these amounts do not represent 
values that are expected to crystallise the commitments are denominated in us dollars as the group does not generally adopt cash flow 
hedge accounting for future foreign exchange transactions this amount is reported together with the sterling equivalent at the reporting 
date spot rate the estimated values of aircraft providing security are based on advice from a specialist aircraft appraiser
£m
2013
m £m
2012 
m
gross commitments 356 589 569 925 
value of security
 1
217 360 381 620
indemnities 80 132 118 191
net commitments 59 97 70 114 
net commitments with security reduced by 20
 2
78 129 133 216 
1
 security includes unrestricted cash collateral of 50 83 64 104 
2
 although sensitivity calculations are complex the reduction of relevant security by 20 per cent illustrates the sensitivity to changes in this assumption
there are also commitments in respect of undelivered aircraft but it is not considered practicable to estimate these as deliveries can be 
many years in the future and the relevant financing will only be put in place at the appropriate time
the group’s captive insurance company retains a portion of the exposures it insures on behalf of the remainder of the group significant 
delays occur in the notification and settlement of claims and judgement is involved in assessing outstanding liabilities the ultimate cost 
and timing of which cannot be known with certainty at the balance sheet date the insurance provisions are based on information 
currently available however it is inherent in the nature of the business that ultimate liabilities may vary provisions for outstanding claims 
are established to cover the outstanding expected liability as well as claims incurred but not yet reported
other provisions comprise a number of liabilities with varying expected utilisation rates
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
112 financial statements 19 postretirement benefits
the group operates a number of defined benefit and defined contribution schemes
 uk defined benefit schemes are funded with the assets held in separate trustee administered funds employees are entitled to 
retirement benefits based on either their final or career average salaries and length of service and
 overseas defined benefit schemes are a mixture of funded and unfunded plans and provide benefits in line with local practice 
additionally in the us and to a lesser extent in some other countries the group’s employment practices include the provision of 
healthcare and life insurance benefits for retired employees these schemes are unfunded
the valuations of the defined benefit schemes are based on the most recent funding valuations where relevant updated by the scheme 
actuaries to 31 december 2013
the defined benefit schemes expose the group to actuarial risks such as longevity interest rate inflation and investment risks in the uk 
and in the principal us pension schemes the group has adopted an investment policy to mitigate some of these risks this involves 
investing a significant proportion of the scheme assets in liability driven investment ldi portfolios which hold investments designed to 
offset interest rate and inflation rate risks in addition in the uk the rollsroyce pension fund has invested in a longevity swap which is 
designed to offset longevity risks in respect of existing pensioners
the group has adopted amendments to ias 19 employee benefits with effect from 1 january 2013 the impact is described further below 
2012 figures have been restated to put them on a comparable basis
amounts recognised in the income statement 
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
defined benefit schemes 
current service cost and administrative expenses 153 55 208 129 42 171 
pastservice cost 66 5 71 2 – 2 
219 60 279 131 42 173 
defined contribution schemes 30 44 74 23 41 64 
operating cost 249 104 353 154 83 237 
net financing incomecharge in respect of defined benefit schemes 12 38 26 17 25 8 
total income statement charge 237 142 379 137 108 245 
the operating cost is charged as follows
defined benefit defined contribution total
2013 
£m
2012
£m
2013 
£m
2012
£m
2013 
£m
2012
£m
cost of sales – included in underlying profit 144 124 49 46 193 170 
commercial and administrative costs 106 38 15 14 121 52 
research and development 29 11 10 4 39 15 
279 173 74 64 353 237 
the group operates a paysave scheme in the uk this is a salary sacrifice scheme under which employees elect to stop making employee 
contributions and the group makes additional contributions in return for a reduction in gross contractual pay as a result there is a 
decrease in wages and salaries and a corresponding increase in pension costs of £37 million 2012 £36 million in the year 
net financing comprises
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
financing on scheme obligations 371 59 430 354 47 401
financing on scheme assets 431 21 452 444 22 466
financing on unrecognised surpluses and minimum 
funding liability 48 – 48 73 – 73
net financing incomecharge in respect of defined 
benefit schemes 12 38 26 17 25 8
financing income on scheme surpluses 16 1 17 26 – 26
financing costs on scheme deficits 439 43 925 34
rollsroyce holdings plc annual report 2013 113
strategic report financial statements directors’ report other information 19 postretirement benefits continued
amounts recognised in oci in respect of defined benefit schemes 
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
actuarial gains and losses arising from demographic assumptions 87 12 99 27 1 28
actuarial gains and losses arising from financial assumptions 200 116 84 639 104 743
actuarial gains and losses arising from experience adjustments 65 31 96 7 13 6
return on scheme assets excluding financing income 363 42 405 155 26 129
movement in unrecognised surplus and related finance cost 407  – 407 529  – 529 
movement in minimum funding liability and related finance cost 133  – 133 72  – 72 
45 93 48 213 92 305
amounts recognised in the balance sheet in respect of defined benefit schemes 
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
present value of funded obligations 9046 558 9604 8569 609 9178
fair value of scheme assets 9776 504 10280 9794 534 10328 
net assetliability on funded schemes 730 54 676 1225 75 1150 
present value of unfunded obligations  – 935 935 – 569 569
unrecognised surplus
 1
 488 – 488 853 – 853
minimum funding liability
 2
 46 – 46 173 – 173
net assetliability recognised in the balance sheet 196 989 793 199 644 445
postretirement scheme surpluses 242 6 248 336 12 348 
postretirement scheme deficits 46 995 1041 137 656 793
1
  where a surplus has arisen on a scheme in accordance with ias 19 and ifric 14 the surplus is recognised as an asset only if it represents an unconditional economic benefit available 
to the group in the future any surplus in excess of this benefit is not recognised in the balance sheet
2
 a minimum funding liability arises where the statutory funding requirements require future contributions in respect of past service that will result in a future unrecognisable surplus
overseas schemes are located in the following countries 
2013 2012
assets
£m
obligations
£m
net
£m
assets
£m
obligations
£m
net
£m
canada 135 181 46 139 200 61
germany  – 500 500 – 86 86
us pension schemes 347 420 73 369 449 80
us healthcare schemes  – 352 352 – 399 399
other 22 40 18 26 44 18
net assetliability recognised in the balance sheet 504 1493 989 534 1178 644
defined benefit schemes
assumptions 
significant actuarial assumptions for uk schemes weighted average by size of the obligation used at the balance sheet date were 
as follows
2013 2012
discount rate 44 44
inflation assumption
 1
 35 30
rate of increase in salaries 45 41
male life expectancy – current pensioner 225 226
   – future pensioner currently aged 45 242 244
1
 for the uk schemes this is the assumption for the retail price index the consumer price index is assumed to be one per cent lower 
discount rates are determined by reference to the market yields on aa rated corporate bonds the rate is determined by using the profile  
of forecast benefit payments to derive a weighted average discount rate from the yield curve
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
114 financial statements 19 postretirement benefits continued
the inflation assumption is determined by the market implied assumption based on the yields on longterm indexed linked government 
securities and increases in salaries are based on actual experience allowing for promotion of the real increase above inflation
the mortality assumptions adopted for the uk pension schemes are derived from the sap actuarial tables with future improvements 
in line with the cmi 2013 core projections and longterm improvements of 125 per cent where appropriate these are adjusted to take 
account of the relevant scheme’s actual experience 
other assumptions have been set on advice from the relevant actuary having regard to the latest trends in scheme experience and the 
assumptions used in the most recent funding valuation the rate of increase of pensions in payment is based on the rules of the relevant 
scheme combined with the inflation assumption where the increase is capped 
assumptions for overseas schemes are less significant and are based on advice from local actuaries the principal assumptions are the 
discount rate 45 per cent 2012 39 per cent and inflation 23 per cent 2012 24 per cent
changes in present value of defined benefit obligations
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
at 1 january as previously reported 7713 1052 8765
effect of amendments to ias 19 17 1 16 
at 1 january as restated 8569 1178 9747 7696 1053 8749
exchange differences  – 16 16 – 42 42 
current service cost 147 53 200 122 40 162
pastservice cost 66 4 70 2 – 2
finance cost 371 59 430 354 47 401
contributions by employees 4 4 8 4 2 6
benefits paid out 334 63 397 322 38 360 
acquisition of businesses 1 402 403 54 – 54
actuarial lossesgains 222 134 88 659 118 777
settlementcurtailment ––– – 2 2 
other movements – 6 6
at 31 december 9046 1493 10539 8569 1178 9747
funded schemes 9046 558 9604 8569 609 9178
unfunded schemes  – 935 935 – 569 569
   
the defined benefit obligations are in respect of 
active plan participants 3492 849 4341 3129 915 4044
deferred plan participants 1647 74 1721 1583 15 1598
pensioners 3907 570 4477 3857 248 4105
weighted average duration of obligations 16 13 16 
changes in fair value of scheme assets 
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
at 1 january 9794 534 10328 9519 497 10016 
exchange differences  – 19 19 – 18 18
administrative expenses 6 2 8 7 2 9
financing 431 21 452 444 22 466 
return on plan assets excluding financing 363 42 405 155 26 129
contributions by employer 249 66 315 252 47 299 
contributions by employees 4 4 8 4 2 6 
benefits paid out 334 63 397 322 38 360
acquisition of businesses 1 5 6 59  – 59 
settlementscurtailment ––– – 2 2
at 31 december 9776 504 10280 9794 534 10328 
total return on scheme assets 68 21 47 289 48 337 
rollsroyce holdings plc annual report 2013 115
strategic report financial statements directors’ report other information 19 postretirement benefits continued
fair value of scheme assets at 31 december 
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
sovereign debt 5929 231 6160 6088  – 6088 
derivatives on sovereign debt 987 2 985 1225 – 1225
corporate debt instruments 1045 190 1235 969  – 969 
interest rate swaps 1361  – 1361 1922  – 1922 
inflation swaps 13 – 13 289 – 289
cash and similar instruments 257 44 301 429  – 429 
liability driven investment ldi portfolios
 1
 7592 467 8059 7894  – 7894 
longevity swap
 2
 3  – 3 126 – 126
listed equities 994 3 997 1126 119 1245 
unlisted equities 172  – 172  –  –  – 
sovereign debt 215 4 219 245 313 558 
corporate debt instruments 540 4 544 334 74 408 
cash 253 4 257  –  –  – 
other 7 22 29 321 28 349 
9776 504 10280 9794 534 10328 
1
  a portfolio of gilt and swap contracts backed by libor generating assets that is designed to hedge the majority of the interest rate and inflation risks associated with the 
schemes’ obligations
2
  under the longevity swap the rollsroyce pension fund rrpf has agreed an average life expectancy of pensioners with a counterparty if pensioners live longer than expected the 
counterparty will make payments to the rrpf to offset the additional cost of paying pensioners if the reverse applies the cost of paying pensioners will be reduced but the scheme  
will be required to make payments to the counterparty following the adoption of the amendments to ias 19 and the interaction with ifrs 13 from 2013 the longevity swap has been 
valued on an external fair market basis rather than using the same assumptions as used for the valuation of the scheme’s liabilities as the surplus on the rrpf is restricted this has 
had no impact on the net surplusdeficit recognised in the balance sheet had the longevity swap been valued on the same basis as 2012 its value would have been a liability of £156m 
the movement since 2012 largely reflecting the changes in mortality and discount rate assumptions the valuation is based on an estimate of the assumptions that a hypothetical third 
party would use for the future mortality and premium 
the scheme assets do not include any of the group’s own financial instruments nor any property occupied by or other assets used by  
the group the longevity swap is valued by the scheme actuaries based on the difference between the agreed longevity assumptions at 
inception and actual longevity experience all other fair values are provided by the fund managers where available the fair values are quoted 
prices eg listed equity sovereign debt and corporate bonds unlisted investments private equity are included at values provided by the fund 
manager in accordance with relevant guidance other significant assets are valued based on observable inputs such as yield curves
movements in unrecognised surplus and minimum liability 
2013 2012
uk
schemes
£m
overseas
schemes
£m
total 
£m
uk
schemes
£m
overseas
schemes
£m
total 
£m
at 1 january as previously reported 1554 94 1648
effect of amendments to ias 19 – 94 94 
at 1 january as restated 1026 – 1026 1554 – 1554
movements in unrecognised surplus through oci 407  – 407 529  – 529 
movements in minimum funding liability through oci 133  – 133 72  – 72 
related finance costs 48 – 48 73 – 73
at 31 december 534 – 534 1026 – 1026
future contributions 
the group expects to contribute approximately £325 million to its defined benefit schemes in 2014
in the uk the funding is set on the basis of a triennial funding valuation by the actuaries for which the assumptions may differ from those 
above in particular the discount rate used to value the obligations takes account of the investment strategy rather than being based on 
market yields of aa corporate bonds as a result of these valuations the group and the scheme trustees agree a schedule of contributions 
soc which sets out the required contributions from the employer and employees for current service where the scheme is in deficit the 
soc also includes required contributions from the employer to eliminate the deficit the most recent agreed triennial valuations for the 
principal schemes are
obligations at
 31 december
 2013
£m
valuation
 date 
rollsroyce pension fund 6543 31 march 2012
rollsroyce group pension scheme 1540 5 april 2013
vickers group pension scheme 637 31 march 2013
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
116 financial statements 19 postretirement benefits continued
sensitivities
the calculations of the defined benefit obligations are sensitive to the assumptions set out on page 114 the following table summarises  
the estimated impact of a change in the assumption on the uk defined benefit obligation at 31 december 2013 while holding all other 
assumptions constant this sensitivity analysis may not be representative of the actual change in the defined benefit obligation as it is 
unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated
for the most significant funded schemes the investment strategies are designed to hedge the risks from interest rates inflation on an 
economic basis and in the rollsroyce pension fund in the uk the longevity of pensioners where appropriate the table also includes the 
corresponding movement in the value of the plan assets
£m
reduction in the discount rate of 025
 1
 obligations 412
plan assets ldi portfolio 465 
increase in inflation of 025 obligations 201
plan assets ldi portfolio 185 
increase in real increase in salaries of 025 obligations 88
one year increase in life expectancy obligations 212
plan assets longevity swap 86 
1
  the difference arises largely due to differences in the methods used to value the obligations for accounting and economic purposes on an economic basis the correlation is 
approximately 97 per cent
amendments to ias 19 
prior period figures have been restated to reflect the adoption of the amendments to ias 19 consequential tax effects have been reflected 
in deferred tax 
as previously reported amendments as restated 
notes
uk
£m
overseas
£m
total
£m
uk
£m
overseas
£m
total
£m
uk
£m
overseas
£m
total
£m
at 1 january 2012 a 252 649 397 17 93 110 269 556 287
exchange adjustments  – 24 24  –  –  –  – 24 24 
current service cost and administrative expenses b 123 38 161 6 4 10 129 42 171
pastservice cost a 2 12 10  – 12 12 2 – 2
net financing c 41 23 64 58 2 56 17 25 8
contributions by employer 250 47 297 2  – 2 252 47 299 
acquisition of business 5  – 5  –  –  – 5  – 5 
actuarial losses c 659 118 777 –  –  – 659 118 777
return on plan assets excluding financing c 30 20 10 125 6 119 155 26 129
movement in unrecognised surplus c 465  – 465 64  – 64 529  – 529 
movement on minimum funding liability c 63  – 63 9  – 9 72  – 72 
at 31 december 2012 180 725 545 19 81 100 199 644 445
postretirement scheme surpluses 317 12 329 336 12 348 
postretirement scheme deficits 137 737 874 137 656 793
a  an unrecognised pastservice credit related to the restructuring of certain overseas healthcare schemes in 2011 this has now been recognised in full at 1 january 2012 as a 
consequence the amortisation of this pastservice credit in 2012 is eliminated in addition an adjustment has been made in the calculation of the defined benefit obligation on one  
of the uk schemes to put it on a consistent basis with the other schemes
b  previously all administrative costs were offset against the expected return on scheme assets the amendments only allow this in respect of the costs of managing scheme assets other 
administrative expenses are now included in the current service cost
c  previously net financing comprised the actual expected return on scheme assets based on the underlying assets and a financing charge on scheme liabilities calculated using a ‘aa’ 
corporate bond rate the amendments require net financing to be calculated on the net asset or liability recognised on the balance sheet using an aa corporate bond rate this has a 
consequential impact on amounts recognised in oci i the change in assumed return on scheme assets affects the related actuarial gains or losses and ii implicit financing on 
movements in the unrecognised surplus and the minimum funding liability is not included in the income statement
rollsroyce holdings plc annual report 2013 117
strategic report financial statements directors’ report other information 20 share capital
nonequity equity
special
share
of £1
nominal
value
£m
ordinary
 shares of 
20p each
millions
nominal
value
£m
issued and fully paid 
at 1 january 2012 1– 1872 374
proceeds from shares issued for share option schemes ––
at 31 december 2012 1– 1872 374
proceeds from shares issued for share option schemes 8 2 
at 31 december 2013 1 – 1880 376 
the rights attaching to each class of share are set out on page 70
during 2013 the group also received £30 million from participants in sharesave schemes shares to satisfy these options were issued from 
those already held by the group for this purpose as described on page 79 
in accordance with ias 32 financial instruments presentation the company’s noncumulative redeemable preference shares c shares are 
classified as financial liabilities accordingly movements in c shares are included in note 17
21 sharebased payments
effect of sharebased payment transactions on the group’s results and financial position
2013 
£m
2012 
£m
total expense recognised for equitysettled sharebased payments transactions 61 49 
total expense recognised for cashsettled sharebased payments transactions 18 6 
sharebased payments recognised in the consolidated income statement 79 55 
liability for cashsettled sharebased payment transactions 19 18 
a description of the sharebased payment plans is included in the remuneration report on pages 57 to 58 
movements in the group’s sharebased payment plans during the year
sharesave esop psp apra
number
millions
weighted
 average
 exercise price
pence
number
millions
weighted
 average
 exercise price
pence
number
millions
number
millions
outstanding at 1 january 2012 275 447 05 100 195 33 
granted – – – – 43 20 
additional entitlements arising from tsr performance – – – – 28 – 
forfeited 06 446 – – 08 01
exercised 01 409 04 103 118 12
outstanding at 1 january 2013 268 447 01 77 140 40 
granted 100 961 –  – 28 16 
additional entitlements arising from tsr performance –  –  –  – 06  – 
additional shares accrued from reinvestment of c shares –  –  –  –  – 01 
forfeited 06 483  –  – 06 01
exercised 102 404 01 77 48 25
outstanding at 31 december 2013 160 660  –  – 120 31 
exercisable at 31 december 2013 –  –  –  –  –  – 
exercisable at 31 december 2012 – – 01 77 –  – 
as share options are exercised throughout the year the weighted average share price during the year of 1123 pence 2012 836 pence is 
representative of the weighted average share price at the date of exercise the closing price at 31 december 2013 was 1275 pence 
2012 8735 pence
there were no exercisable options as at 31 december 2013 the average remaining contractual life of the exercisable options as at  
31 december 2012 was 02 years
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
118 financial statements 21 sharebased payments continued
fair values of sharebased payment plans
the weighted average fair value per share of equitysettled sharebased payment plans granted during the year estimated at the date of 
grant are as follows
2013 2012 
psp – 25 tsr uplift 1128p 885p 
psp – 50 tsr uplift 1254p 985p 
sharesave – three year grant 287p na 
sharesave – five year grant 349p na 
apra 1027p 809p 
psp 
the fair value of shares awarded under the psp is calculated using a pricing model that takes account of the nonentitlement to dividends 
or equivalent during the vesting period and the marketbased performance condition based on expectations about volatility and the 
correlation of share price returns in the group of ftse 100 companies and which incorporates into the valuation the interdependency 
between share price performance and tsr vesting this adjustment increases the fair value of the award relative to the share price at the 
date of grant
sharesave
the fair value of the options granted under the sharesave plan is calculated using a binomial pricing model that assumes that participants 
will exercise their options at the beginning of the sixmonth window if the share price is greater than the exercise price otherwise it 
assumes that options are held until the expiration of their contractual term this results in an expected life that falls somewhere between 
the start and end of the exercise window
apra
the fair value of shares awarded under apra is calculated as the share price on the date of the award excluding expected dividends
22 operating leases
leases as lessee
2013 
£m
2012
£m 
rentals paid – hire of plant and machinery 134 94 
   – hire of other assets 55 34 
noncancellable operating lease rentals are payable as follows
within one year 179 147 
between one and five years 545 490 
after five years 507 526 
1231 1163 
leases as lessor
2013
£m
2012
£m
rentals received – credited within revenue from aftermarket services 56 30 
noncancellable operating lease rentals are receivable as follows
within one year 19 2 
between one and five years 48 7 
after five years 23 1 
90 10 
the group acts as lessee and lessor for both land and buildings and gas turbine engines and acts as lessee for some plant and equipment
 sublease payments of £1 million 2012 £4 million and sublease receipts of £27 million 2012 £17 million were recognised in the income 
statement in the year
 purchase options exist on aero engines land and buildings and plant and equipment with the period to the purchase option date varying 
from one to eight years
 renewal options exist on aero engines land and buildings and plant and equipment with the period to the renewal option varying 
between one to 28 years at terms to be negotiated upon renewal
 escalation clauses exist on some leases and are linked to libor
 the total future minimum sublease payments expected to be made is £8 million 2012 £10 million and sublease receipts expected to be 
received is £42 million 2012 £9 million
rollsroyce holdings plc annual report 2013 119
strategic report financial statements directors’ report other information 23 contingent liabilities
on 6 december 2012 the company announced that it had passed information to the sfo relating to concerns in overseas markets  
since that date the company has continued its investigations and is engaging with the sfo and other authorities in the uk the usa  
and elsewhere  
 
in december 2013 the company announced that it had been informed by the sfo that it had commenced a formal investigation the 
consequence of these disclosures will be decided by the regulatory authorities it remains too early to predict the outcomes but these could 
include the prosecution of individuals and of the group accordingly the potential for fines penalties or other consequences including 
debarment from government contracts suspension of export privileges and reputational damage cannot currently be assessed as the 
investigation is ongoing it is not yet possible to identify the timescale in which these issues might be resolved 
 
contingent liabilities exist in respect of guarantees provided by the group in the ordinary course of business for product delivery 
performance and reliability the group has in the normal course of business entered into arrangements in respect of export finance 
performance bonds countertrade obligations and minor miscellaneous items various group undertakings are parties to legal actions 
and claims which arise in the ordinary course of business some of which are for substantial amounts as a consequence of the insolvency 
of an insurer as previously reported the group is no longer fully insured against known and potential claims from employees who worked 
for certain of the group’s ukbased businesses for a period prior to the acquisition of those businesses by the group while the outcome of 
some of these matters cannot precisely be foreseen the directors do not expect any of these arrangements legal actions or claims after 
allowing for provisions already made to result in significant loss to the group the group’s share of equityaccounted entities’ contingent 
liabilities is £13 million 2012 £48 million 
 
contingent liabilities in respect of customer financing commitments are described in note 18
24 related party transactions
2013 
£m
2012 
£m
sales of goods and services to joint ventures and associates 3149 2937 
purchases of goods and services from joint ventures and associates 3269 3082
operating lease payments to joint ventures and associates 69 57
guarantees of joint ventures’ and associates’ borrowings 7 12 
dividends received from joint ventures and associates 99 129 
rrsa receipts from joint ventures and associates 4 13 
other income received from joint ventures and associates 1 2 
the aggregated balances with joint ventures are shown in notes 13 and 16 transactions with group pension schemes are shown in 
note 19
in the course of normal operations related party transactions entered into by the group have been contracted on an armslength basis
key management personnel are deemed to be the directors and the members of the elt as set out on page 38 remuneration for key 
management personnel is shown below
2013 
£m
2012 
£m
salaries and shortterm benefits 11 15 
postretirement schemes 1 1 
sharebased payments 7 8 
19 24 
more detailed information regarding the directors’ remuneration shareholdings pension entitlements share options and other longterm 
incentive plans is shown in the remuneration report on pages 53 to 69
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
120 financial statements 25 acquisitions and disposals 
acquisitions
rollsroyce power systems ag rrps – formerly tognum ag
from 25 august 2011 to 31 december 2012 the group’s interest in rrps was classified as a joint venture and equity accounted on 
1 january 2013 conditions were fulfilled which gave the group certain rights that result in rrps being classified as a subsidiary and 
consolidated accordingly the group’s joint venture interest in rollsroyce power systems holding gmbh rrpsh has been reclassified 
as a subsidiary the fair values of the identifiable assets and liabilities assumed are £1339 million giving rise to goodwill of £773 million as 
set out in the table below rollsroyce and daimler ag daimler each hold 50 per cent of the shares of rrpsh which itself held over 
99 per cent of the shares of rrps during 2013 rrpsh acquired the remaining 1 per cent of shares of rrps rrps is a premium supplier  
of engines propulsion systems and components for marine energy defence and other industrial applications often described as ‘off
highway’ applications 
other
on 30 april 2013 the group acquired 100 per cent of the issued share capital of hypertherm hightemperature composites inc a 
producer of stateoftheart composite materials including ceramic matrix composites engineered coatings and thermalstructural 
components  
 
on 15 august 2013 the group acquired 100 per cent of smartmotor as a leading specialist in the development of permanent  
magnet technology 
on 24 december 2013 the group acquired the remaining 49 per cent of shares not held in composite technology and applications limited 
a business engaged in the development of composite fan blades and containment cases for the next generation of advanced turbofan 
engines
for each of the other acquisitions noted the acquisition cost net of cash and borrowings acquired has been allocated to identifiable assets 
and liabilities – principally technology patents and licences customer relationships trademark order backlog and other intangible assets
recognised amounts of identifiable assets acquired and liabilities assumed
rrps 
£m
other
£m
total
£m
intangible assets 1192 35 1227
property plant and equipment 545 1 546 
investments in joint ventures associates and other unlisted investments 50  – 50 
inventory 737  – 737 
trade and other receivables 487 2 489 
taxation recoverable 48  – 48 
cash and cash equivalents 240 5 245 
trade and other payables 693 3 696
current tax payables 77 – 77
borrowings 203 1 204
other financial assets and liabilities 27 – 27
deferred tax 283 1 282
provisions 280 – 280
postretirement schemes 397 – 397
total identifiable assets and liabilities 1339 40 1379 
goodwill arising 773  – 773 
total consideration 2112 40 2152 
exercise price of put option on nci 1432 – 1432
680 40 720 
consideration satisfied by
cash consideration – 37 37 
existing shareholding 1443 3 1446 
nci 669  – 669 
2112 40 2152 
rollsroyce holdings plc annual report 2013 121
strategic report financial statements directors’ report other information 25 acquisitions and disposals continued
rrps 
£m
other
£m
total
£m
net cash outflow arising on acquisition
cash consideration – 37 37 
less cash and cash equivalents acquired 240 5 245
cash inflowoutflow per cash flow statement 240 32 208
identifiable intangible assets comprise
technology patents and licences 420 35 455 
customer relationships 433  – 433
trademark 105  – 105 
order backlog 94  – 94 
inprocess development 53  – 53
other 87  – 87 
1192 35 1227 
in accordance with the provisions of ifrs 3 business combinations the group has opted not to recognise goodwill in respect of the non
controlling interest in rrps the previous joint venture investment holding in rrpsh of £1328 million was revalued giving rise to a gain  
of £115 million 
as part of the rrpsh shareholders’ agreement daimler ag has the option to sell its shares in rrpsh to rollsroyce for a period of six years  
from 1 january 2013 the initial fair value of the exercise price of this option in respect of rrps has been recognised as a liability  
£1432 million which has been charged to nci and retained earnings
the goodwill arising on the acquisition of rrps amounting to £773 million which is not tax deductible consists of anticipated synergies  
and the assembled workforce the anticipated synergies principally arise from
 increases in revenue from the combination of the routes to market and
 cost savings from the combination of the supply chain and central functions 
the gross contractual value of trade receivables acquired is £446 million at the acquisition date it was estimated that contractual cash 
flows of £24 million would not be collected
the acquisition of the controlling interest in rrps contributed £2593 million of revenue and profit before tax of £10 million including 
amortisation of intangible assets arising on acquisition to the group’s results for the year
disposals
on 29 january 2013 alstom acquired tidal generation limited
on 2 september 2013 turbomeca a safran company acquired the group’s 50 per cent shareholding and interest in the rtm322 helicopter 
engine programme for which it has received a cash consideration of €293 million rollsroyce will progressively transfer its operational 
responsibilities in the engine programme to turbomeca over a multiyear period
assets and liabilities disposed
rtm322 
£m
tidal
generation
£m
total
£m
intangible assets – goodwill – 3 3 
investment in joint venture 2  – 2 
cash and cash equivalents – 2 2 
trade and other payables – 2 2
provisions for liabilities and charges 2 – 2
net assets – 3 3 
profit on disposal of businesses 194 22 216 
disposal costs 3  – 3 
proceeds deferred in respect of transitional services and retained obligations 53  – 53 
disposal proceeds 250 25 275 
cash and cash equivalents disposed – 2 2
cash inflow per cash flow statement 250 23 273 
rollsroyce holdings plc annual report 2013
notes to the consolidated financial statements
122 financial statements 25 acquisitions and disposals continued 
during 2012 the group acquired
 on 19 june 2012 superstructure capital limited a business engaged in marketing and sale of safety and risk management software  
to the aerospace industry
 on 13 july 2012 pfw aerospace uk a business engaged in the manufacture of precision components for the aerospace industry
 on 13 december 2012 rollsroyce goodrich engine control systems limited acquisition of 50 per cent not already held a business 
engaged in the development and manufacture of aeroengine controls and
 27 december 2012 pkmj technical services inc a nuclear engineering services business in the us
and disposed of
 on 27 june 2012 rollsroyce fuel cell systems inc dilution of existing shareholding to 49 per cent and
 on 29 june 2012 for us15 billion the equity programme share and related goodwill of iae international aero engines ag which gave 
rise to a profit before tax of £699 million 
26 segmental analysis from 1 january 2014
as described in the chief financial officer’s review on page 13 the management structure of the business has been revised and the 
internal reporting structure has been developed to reflect this these changes will be reflected in the segmental analysis with effect from  
1 january 2014 had they been in place during 2013 the segmental analysis shown in note 2 would be as follows
aerospace mips
civil defence total marine
power
systems
nuclear
 energy
intra
segment total
inter
segment
total
reportable
segments
£m £m £m £m £m £m £m £m £m £m
year ended 31 december 2013  
underlying revenue from sale of original equipment 3035 1385 4420 1236 2004 617 72 3785  – 8205 
underlying revenue from aftermarket services 3620 1206 4826 801 827 921 75 2474  – 7300 
total underlying revenue 6655 2591 9246 2037 2831 1538 147 6259  – 15505 
underlying operating profit excluding share of results  
of joint ventures and associates 708 424 1132 233 296 63 2 594  – 1726 
share of results of joint ventures and associates 136 14 150 – 2 11 – 9  – 159 
underlying profit before financing and taxation 844 438 1282 233 294 74 2 603  – 1885 
segment assets 9587 1437 11024 1701 3927 1616 10 7234 734 17524 
investments in joint ventures and associates 495 17 512 5 29 55  – 89  – 601 
segment liabilities 6243 1660 7903 985 3034 1015 – 5034 733 12204
net assets 3839 206 3633 721 922 656 10 2289  1 5921 
investment in intangible assets property plant  
and equipment and joint ventures and associates 891 103 994 23 142 80  – 245 1239 
depreciation amortisation and impairment 349 53 402 63 272 63  – 398 800 
rollsroyce holdings plc annual report 2013 123
strategic report financial statements directors’ report other information notes
2013 
£m
2012 
£m
fixed assets 
investments – subsidiary undertakings 2 12000 11954 
creditors – amounts falling due within one year 
financial liabilities 3 16 10
amounts owed to subsidiary undertakings due within one year 995 595
net current liabilities 1011 605
total assets less current liabilities 10989 11349 
capital and reserves 
calledup share capital 4 376 374 
share premium account 5 80 – 
merger reserve 5 8203 8569 
capital redemption reserve 5 857 497 
other reserve 5 109 63 
profit and loss account 5 1364 1846 
equity shareholders’ funds 10989 11349 
the financial statements on pages 124 to 126 were approved by the board on 12 february 2014 and signed on its behalf by
ian davis chairman      mark morris chief financial officer
 
company’s registered number 7524813
reconciliation of movements in shareholders’ funds
for the year ended 31 december 2013
£m
at 1 january 2013 11349 
profit for the year 1
arising on issue of ordinary shares 82 
issue of c shares 366
sharebased payments – direct to equity 75
at 31 december 2013 10989 
rollsroyce holdings plc annual report 2013 124 financial statements
company balance sheet
at 31 december 2013   1 accounting policies
basis of accounting
the financial statements have been prepared in accordance with applicable uk accounting standards on the historical cost basis
as permitted by section 408 of the companies act 2006 a separate profit and loss account for the company has not been included in 
these financial statements as permitted by the audit fee disclosure regulations disclosure of nonaudit fees information is not included 
in respect of the company as permitted by frs 1 cash flow statements no cash flow statement for the company has been included as 
permitted by frs 8 related party disclosures no related party disclosures in respect of transactions between the company and its wholly 
owned subsidiaries have been included
investments in subsidiary undertakings
investments in subsidiary undertakings are reported at cost less any amounts written off
sharebased payments
as described in the remuneration report on pages 53 to 69 the company grants awards of its own shares to employees of its subsidiary 
undertakings see note 21 of the consolidated financial statements the costs of sharebased payments in respect of these awards are 
accounted for by the company as an additional investment in its subsidiary undertakings the costs are determined in accordance with 
frs 20 sharebased payment any payments made by the subsidiary undertakings in respect of these arrangements are treated as a return 
of this investment
financial instruments
in accordance with frs 25 financial instruments presentation the company’s c shares are classified as financial liabilities and held at 
amortised cost from the date of issue until redeemed
2 investments – subsidiary undertakings
£m
cost
at 1 january 2013 11954
cost of sharebased payments in respect of employees of subsidiary undertakings 
less receipts from subsidiaries in respect of those payments 46 
at 31 december 2013 12000 
3 financial liabilities
c shares
movements in c shares during the year were as follows 
c shares 
of 01p
millions
nominal 
value
£m
issued and fully paid 
at 1 january 2013 10418 10 
shares issued 366041 366 
shares redeemed 360173 360
at 31 december 2013 16286 16 
the rights attaching to c shares are set out on page 70
rollsroyce holdings plc annual report 2013 125
strategic report financial statements directors’ report other information
notes to the company financial statements 4 share capital
nonequity equity
special
share
of £1
preference
 shares of 
£1 each
nominal
value
£m
ordinary
shares of
20p each
millions
nominal
value
£m
issued and fully paid 
at 1 january 2013 1 – – 1872 374 
proceeds from shares issued for share options schemes – – – 8 2 
at 31 december 2013 1 – – 1880 376 
the rights attaching to each class of share are set out on page 70
in accordance with frs 25 financial instruments presentation the company’s noncumulative redeemable preference shares c shares are 
classified as financial liabilities accordingly movements in c shares are included in note 3
5 movements in capital and reserves 
nondistributable reserves
share
capital 
£m
share 
premium
merger 
reserve 
£m
capital
redemption
reserve 
£m
other
reserve
1
£m
profit
and loss
account
£m
total 
£m
at 1 january 2013 374 – 8569 497 63 1846 11349 
profit for the year – – – – – 1 1
proceeds from shares issued for share option schemes – – – – – – –
shares issued to share trust 2 80 – – – – 82
issue of c shares – – 366 – – – 366 
redemption of c shares – – – 360 – 360 –
sharebased payments – direct to equity – – – – 46 121 75 
at 31 december 2013 376 80 8203 857 109 1364 10989 
1
 the ‘other reserve’ represents the value of sharebased payments in respect of employees of subsidiary undertakings for which payment has not been received
6 contingent liabilities
where the company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group the 
company considers these to be insurance arrangements and accounts for them as such in this respect the company treats the guarantee 
contract as a contingent liability until such time as it becomes probable that the company will be required to make a payment under  
the guarantee
at 31 december 2013 these guarantees amounted to £1 billion 2012 £nil
7 other information 
emoluments of directors
the remuneration of the directors of the company is shown in the directors’ remuneration report on pages 62 to 69
employees
the company had no employees in 2013
sharebased payments
shares in the company have been granted to employees of the group as part of sharebased payment plans and are charged in the 
employing company
rollsroyce holdings plc annual report 2013 126 financial statements
notes to the company financial statements subsidiaries incorporated within the uk – directly held
rollsroyce group plc holding company
subsidiaries incorporated within the uk – indirectly held
composite technology and applications limited development of aero engine fan blades and fan cases
mtu uk limited sales and service of offhighway diesel engines 50
optimized systems and solutions limited equipment health management and advanced data management services
rollsroyce controls and data services limited development and manufacture of aero engine controls
rollsroyce international limited international support and commercial information services
rollsroyce leasing limited engine leasing
rollsroyce marine electrical systems limited marine electrical systems
rollsroyce marine power operations limited nuclear submarine propulsion systems
rollsroyce plc principal trading company
rollsroyce power development limited generation of electricity from independent power projects
rollsroyce power engineering plc energy and marine systems
rollsroyce total care services limited aero engine aftermarket support services
vinters engineering limited production repair and overhaul of power generation transmission and conversion 
equipment for military and commercial activities
the above companies operate principally in the uk and the effective group interest is 100 per cent unless otherwise stated
subsidiaries incorporated overseas – indirectly held
brazil rollsroyce brasil limitada industrial gas turbines and aero engine repair and overhaul energy and marine aftermarket 
support services
canada rollsroyce canada limited industrial gas turbines and aero engine sales service and overhaul
china mtu engineering suzhou company limited service centre and spare parts 50
china rollsroyce marine manufacturing  
shanghai limited
manufacture and supply of marine equipment and marine aftermarket  
support services
finland rollsroyce oy ab manufacture of marine winches and propeller systems
france rollsroyce civil nuclear sas instrumentation and control systems and lifecycle management for nuclear power plants 
france rollsroyce technical support sarl aero engine project support
germany l’orange gmbh development and production of highpressure injection systems for diesel engines 50
germany mtu friedrichshafen gmbh development production and distribution of gas turbines and engines 50
germany mtu onsite energy gmbh sales and service of gas engines 50
germany rollsroyce deutschland ltd  co kg aero engine design development and manufacture
germany rollsroyce power systems ag supplier of engines and power trains for marine propulsion distributed power generation 
and industrial offhighway sectors 50
guernsey nightingale insurance limited insurance services
hong kong mtu hong kong limited distributor for offhighway products and aftersales service 50
india rollsroyce india private limited diesel engine project management and customer support
india rollsroyce marine india private limited provision of marine support services
india rollsroyce operations india private limited engineering support services
italy europea microfusioni aerospaziali spa manufacture of gas turbine engine castings
italy mtu italia srl distributor for all offhighway applications and aftersales service 50
netherlands mtu benelux bv sales and aftersales support for diesel engines 50
norway rollsroyce marine as design and manufacture of ship equipment
norway bergen engines as design and manufacture of mediumspeed diesel engines 50
singapore rollsroyce singapore pte limited aero engine parts manufacturing and engine assembly energy and marine aftermarket 
support services
singapore tognum asia pte limited distributor of diesel engines and spare parts 50
spain mtu ibérica propulsión y energía sl sales and service of transmission equipment with diesel and gas engines 50
sweden rollsroyce ab manufacture of marine propeller systems
turkey mtu motor türbin sanayi ve tic as production of diesel engines and manufacturer of control systems 50
rollsroyce holdings plc annual report 2013 127
strategic report financial statements directors’ report other information
subsidiaries jointly controlled entities and associates
at 31 december 2013 us data systems  solutions llc instrumentation and control systems and lifecycle management for nuclear power plants
us optimized systems and solutions inc equipment health management and advanced data management services
us pkmj technical services inc nuclear engineering services and software solutions 
us r brooks associates inc specialist civil nuclear reactor services
us rollsroyce corporation design development and manufacture of gas turbine engines
us rollsroyce crosspointe llc manufacturing facility for aero engine parts
us rollsroyce energy systems inc energy turbine generator packages 
us rollsroyce engine services – oakland inc aero engine repair and overhaul 
us rollsroyce defense services inc aero engine repair and overhaul
us rollsroyce high temperature composites inc production of stateoftheart composite materials
us rollsroyce marine north america inc design and manufacture of marine equipment and marine aftermarket support services
us mtu america inc sales and service of engines and systems 50
the companies above and on page 127 operate principally in the country of their incorporation and the effective group interest  
is 100 per cent unless otherwise stated
jointly controlled entities and associates incorporated within the uk – indirectly held
class
 of 
class held
 of 
equity held
airtanker holdings limited 
strategic tanker aircraft pfi project
ordinary 20 20
airtanker services limited
provision of aftermarket services for strategic tanker aircraft
ordinary 22 22
alpha partners leasing limited
aero engine leasing
a ordinary
b ordinary
100
–
50
genistics holdings limited
trailermounted field mobile generator sets
a ordinary
b ordinary
100
–
50
rollsroyce snecma limited uk  france 
aero engine collaboration
a shares
b shares
–
100
50
rolls wood group repair and overhauls limited 
industrial gas turbine repair and overhaul
a ordinary
b ordinary
100
–
50
trt limited
aero engine turbine blade repair services
a ordinary
b ordinary
–
100
495
turbine surface technologies limited
aero engine turbine surface coatings
a ordinary
b ordinary
–
100
50
turbounion limited uk germany and italy
rb199 engine collaboration
ordinary
a shares
40
375 40
the above companies are incorporated and operate in the uk unless otherwise stated
subsidiaries incorporated overseas – indirectly held continued
rollsroyce holdings plc annual report 2013 128 other information
subsidiaries jointly controlled entities and associates jointly controlled entities and associates incorporated overseas – indirectly held
class
 of 
class held
 of 
equity held
australia mtu detroit diesel australia pty limited effective interest 25
sales and servicing of diesel engines
ordinary 50 50
china xian xr aero components co limited
manufacturing facility for aero engine parts
ordinary 49 49
china shanxi north mtu diesel co ltd effective interest 245
manufacture and sale of mtu engines 
ordinary 49 49
germany epi europrop international gmbh effective interest 355
a400m engine collaboration
ordinary 28 28
germany eurojet turbo gmbh uk germany italy  spain effective interest 39
ej200 engine collaboration
ordinary 33 33
germany mtu turbomeca rollsroyce gmbh uk france  germany
mtr390 engine collaboration
ordinary 333 333
germany mtu onsite energy systems gmbh effective interest 375
manufacturing and distribution of dieselpowered generating sets
ordinary 751 751
germany n3 engine overhaul services gmbh  co kg
aero engine repair and overhaul
ordinary 50 50
hong kong hong kong aero engine services limited
aero engine repair and overhaul
ordinary 45 45
india international aerospace manufacturing private limited
manufacture of compressor shrouds compressor rings turbine blades and nozzle 
guide vanes
ordinary 50 50
israel techjet aerofoils limited
manufacture of compressor aerofoils for gas turbines
a ordinary
b ordinary
50
50
50
malaysia advanced gas turbine solutions sdn bhd
industrial gas turbine aftermarket services
ordinary 49 49
singapore international engine component overhaul pte limited
aero engine repair and overhaul
ordinary 50 50
singapore singapore aero engine services private limited effective interest 39
aero engine repair and overhaul
ordinary 30 30
spain industria de turbo propulsores sa
aero engine component manufacture and maintenance
ordinary 469 469
us alpha leasing us llc alpha leasing us no2 llc alpha leasing us no4 llc  
alpha leasing us no5 llc alpha leasing us no6 llc alpha leasing us no7  
llc alpha leasing us no8 llc rollsroyce  partners finance us llc  
rollsroyce  partners finance us no2 llc
aero engine leasing
partnerships 50 –
us exostar llc
business to business internet exchange
partnership 185 –
us lg fuel cell systems inc
development of fuel cells
common stock 399 399
us texas aero engine services llc
aero engine repair and overhaul
partnership 50 –
unincorporated overseas – indirectly held
us light helicopter turbine engine company lhtec
rollsroyce corporation has a 50 interest in this unincorporated partnership which was formed to develop and market jointly  
the t800 engine
the above companies operate principally in the country of their incorporation the countries of principal operations are stated in brackets 
after the name of the company if not the country of their incorporation
in accordance with section 410 of the companies act 2006 the subsidiaries jointly controlled entities and associates listed on pages 127  
to 129 is of those whose results or financial position in the opinion of the directors principally affect the financial statements a list of all 
related undertakings will be included in the company’s annual return to companies house
rollsroyce holdings plc annual report 2013 129
strategic report financial statements directors’ report other information opinions and conclusions arising from our audit
1 our opinion on the financial statements is unmodified
we have audited the financial statements of rollsroyce holdings plc 
for the year ended 31 december 2013 set out on pages 75 to 129  
in our opinion 
 the financial statements give a true and fair view of the state of 
the group’s and of the parent company’s affairs as at 31 december 
2013 and of the group’s profit for the year then ended 
 the group financial statements have been properly prepared in 
accordance with international financial reporting standards as 
adopted by the european union adopted ifrs 
 the parent company financial statements have been properly 
prepared in accordance with uk accounting standards and 
 the financial statements have been prepared in accordance with 
the requirements of the companies act 2006 and as regards the 
group financial statements article 4 of the ias regulation 
2 our assessment of risks
in arriving at our opinions set out in this report the risks that had 
the greatest effect on our audit and the key procedures we applied 
to address them are set out below those procedures were designed 
in the context of the financial statements as a whole and 
consequently where we set out findings we do not express any 
opinion on these individual risks 
the basis of accounting for revenue and profit in the civil 
aerospace business 
refer to page 81 key areas of judgement – longterm aftermarket 
contracts page 83 significant accounting policies – revenue 
recognition and page 44 audit committee report – financial reporting
 the risk the amount of revenue and profit recognised in a year 
on the sale of engines and aftermarket services is dependent 
inter alia on the appropriate assessment of whether or not each 
longterm aftermarket contract for services is linked to or separate 
from the contract for sale of the related engines as the 
commercial arrangements can be complex significant judgement 
is applied in selecting the accounting basis in each case the most 
significant risk is that the group might inappropriately account for 
sales of engines and long term service agreements as a single 
arrangement for accounting purposes as this would usually lead 
to revenue and profit being recognised too early because the 
margin in the long term service agreement is usually higher than 
the margin in the engine sale agreement
 our response we made our own independent assessment with 
reference to the relevant accounting standards of the accounting 
basis that should be applied to each longterm aftermarket 
contract entered into during the year and compared this to the 
accounting basis applied by the group
 our findings we found that the group has developed a framework 
for selecting the accounting basis to be used which is consistent 
with accounting standards and has applied this consistently  
for almost all the agreements entered into during this year it  
was clear which accounting basis should apply where there was 
room for interpretation we found the group’s judgement to have 
been balanced  
the measurement of revenue and profit in the civil 
aerospace business 
refer to page 81 key areas of judgement – longterm aftermarket 
contracts page 83 significant accounting policies – revenue 
recognition and page 44 audit committee report – financial 
reporting 
 the risk the amount of revenue and profit recognised in a year  
on the sale of engines and aftermarket services is dependent  
inter alia on the assessment of the percentage of completion  
of longterm aftermarket contracts and the forecast cost profile  
of each arrangement as longterm aftermarket contracts can 
extend over significant periods and the profitability of these 
arrangements typically assumes significant lifecycle cost 
improvement over the term of the contracts the estimated 
outturn requires significant judgement to be applied in assessing 
engine flying hours time on wing and other operating parameters 
the pattern of future maintenance activity and the costs to be 
incurred the inherent nature of these estimates means that their 
continual refinement can have an impact on the profits of the civil 
aerospace business that can be significant in an individual 
financial year the assessment of the estimated outturn for each 
arrangement involves detailed calculations using large and 
complex databases with a significant level of manual intervention 
 our response we tested the controls designed and applied by the 
group to provide assurance that the estimates used in assessing 
revenue and cost profiles are appropriate and that the resulting 
estimated cumulative profit on such contracts is accurately 
reflected in the financial statements these controls operated over 
both the inputs and the outputs of the calculations we challenged 
the appropriateness of these estimates for each programme and 
assessed whether or not the estimates showed any evidence 
of management bias our challenge was based on our assessment 
of the historical accuracy of the group’s estimates in previous 
periods identification and analysis of changes in assumptions 
from prior periods and an assessment of the consistency of 
assumptions across programmes detailed discussions and 
assessments of the achievability of the group’s plans to reduce 
lifecycle costs and an analysis of the impact of these plans on 
forecast cost profiles taking account of contingencies and analysis 
of the impact of known technical issues on cost forecasts our 
analysis considered each significant airframe that is powered  
by the group’s engines and was based on our own experience 
supplemented by discussions with an aircraft valuation specialist 
engaged by the group we assessed whether the valuer was 
objective and suitably qualified we also checked 
the mathematical accuracy of the revenue and profit for each 
arrangement and considered the implications of identified errors 
and changes in estimates 
 our findings our testing identified weaknesses in the design and 
operation of controls in response to this we assessed the 
effectiveness of the group’s plans for addressing these weaknesses 
and we increased the scope and depth of our detailed testing and 
analysis from that originally planned we found no significant 
errors in calculation overall our assessment is that the 
assumptions and resulting estimates including appropriate 
contingencies resulted in mildly cautious profit recognition
rollsroyce holdings plc annual report 2013 130 other information
independent auditor’s report 
to the members of rollsroyce holdings plc only recoverability of intangible assets certification costs and 
participation fees development expenditure and recoverable 
engine costs and amounts recoverable on contracts primarily 
in the civil aerospace business 
refer to page 82 key sources of estimation uncertainty – forecasts 
and discount rates pages 86 and 87 significant accounting policies – 
certification costs and participation fees research and development 
recoverable engine costs and impairment of noncurrent assets  
page 99 note 9 to the financial statements – intangible assets and 
page 44 audit committee report – financial reporting 
 the risk the recovery of these assets depends on a combination of 
achieving sufficiently profitable business in the future as well as 
the ability of customers to pay amounts due under contracts often 
over a long period of time assets relating to a particular engine 
programme are more prone to the risk of impairment in the early 
years of a programme as the engine’s market position is 
established in addition the pricing of business with launch 
customers makes assets relating to these engines more prone 
to the risk of impairment 
 our response we tested the controls designed and applied by the 
group to provide assurance that the assumptions are regularly 
updated that changes are monitored scrutinised and approved 
by appropriate personnel and that the final assumptions used in 
impairment testing have been appropriately approved we 
challenged the appropriateness of the key assumptions in the 
impairment test including market size market share pricing 
engine and aftermarket unit costs individual programme 
assumptions price and cost escalation discount rate and 
exchange rates  focusing particularly on those assets with 
a higher risk of impairment those relating to the trent 900 
programme and launch customers on the trent 900 and 1000 
programmes our challenge was based on our assessment of the 
historical accuracy of the group’s estimates in previous periods 
our understanding of the commercial prospects of key engine 
programmes identification and analysis of changes in 
assumptions from prior periods and an assessment of the 
consistency of assumptions across programmes and customers 
and comparison of assumptions with publicly available data 
where this was available we considered the appropriateness 
of the related disclosures in note 9 to the financial statements 
 our findings our testing did not identify any deviation in the 
operation of controls which would have required us to amend the 
nature or scope of our planned detailed test work we found that 
the assumptions and resulting estimates were balanced and that 
the disclosures in note 9 appropriately describe the inherent 
degree of subjectivity in the estimates and the potential impact 
on future periods of revisions to these estimates we found no 
errors in calculations
accounting for the consolidation of rollsroyce power systems 
holding gmbh and valuation of daimler ag’s put option 
refer to page 81 key areas of judgement – rollsroyce power systems 
holding gmbh page 82 key sources of estimation uncertainty – 
intangible assets arising on consolidation of rollsroyce power systems 
ag and put option on rollsroyce power systems holding gmbh 
page 83 accounting policies – basis of consolidation and page 44 
audit committee report – financial reporting 
control of rollsroyce power systems holding gmbh
 the risk rollsroyce power systems holding gmbh a special 
purpose vehicle owned equally by the group and daimler ag 
rrpsh acquired a controlling interest in rollsroyce power 
systems ag rrps on 25 august 2011 from that date the group 
equity accounted for its joint venture interest in rrpsh as control 
was shared with daimler ag on 1 january 2013 conditions were 
fulfilled which the group considered gave it control over rrpsh 
and from that date the group’s 50 per cent interest has been 
classified as a subsidiary and rrpsh has been consolidated in the 
group financial statements assessing whether or not the group 
controls rrpsh is a critical accounting judgement the rights of 
the group and daimler ag are encapsulated in shareholder 
agreements and assessing whether the group’s rights are 
sufficient to give it control over rrpsh requires detailed 
consideration of the relevant provisions and a commercial 
assessment as to which rights are most important 
 our response we analysed the shareholder agreements with 
particular reference to rights relating to key matters including the 
existence of a casting vote in respect of key matters described on 
page 81 at the shareholders meeting and shareholders’ committee 
of rrpsh 
 our findings we found that the terms of the agreements provide 
the group with the power to establish key operating and capital 
decisions of rrpsh and to appoint remove and set the 
remuneration of key management personnel the agreements 
also provide daimler ag with rights in particular over matters 
that would significantly change the scale scope and financing 
of rrpsh’s business certain significant supplier relationships  
and changes to contractual arrangements between rrpsh with 
rollsroyce which we have determined provide protection to 
daimler ag over its interest in rrpsh but are not sufficient  
to prevent the group from controlling rrpsh on that basis  
we consider that it is appropriate that rrpsh and hence rrps  
has been consolidated from 1 january 2013
rollsroyce holdings plc annual report 2013 131
strategic report financial statements directors’ report other information consolidation of rollsroyce power systems holding gmbh
 the risk estimating the fair value of intangible assets of rrps  
at the date of consolidation involved the use of complex valuation 
techniques and the estimation of future cash flows over a 
considerable period of time to the extent that greater or  
lesser value is attributed to intangibles which are subject to 
amortisation lesser or greater value is attributed to goodwill 
which is not
 our response we evaluated the basis upon which the directors 
identified and assessed the fair value of each significant asset 
liability and contingent liability of rrps and its subsidiaries having 
regard to the relevant accounting standards for the intangible 
assets we assessed whether the measurement basis and 
assumptions underlying the estimate of the fair values were 
reasonable taking account of our experience of similar assets in 
other comparable situations and of the work performed by a 
valuer engaged by the group we assessed whether the valuer 
was objective and suitably qualified had been appropriately 
instructed and had been provided with complete accurate data 
on which to base its evaluation we also assessed whether or not 
the estimates showed any evidence of management bias with 
a focus on whether there was any indication of value being 
inappropriately attributed to goodwill rather than 
depreciable assets 
 our findings we found that the intangible assets identified were 
typical for acquisitions of similar businesses and that the valuation 
bases used were in accordance with accounting standards we 
have no concerns with the basis on which the valuer had been 
instructed by the group and found that i the valuer was objective 
and competent ii the estimates used in the valuations were 
balanced and did not result in either too much or too little 
goodwill being recognised and iii the valuations arrived at by  
the valuer had been adopted by the group without adjustment
valuation of daimler ag’s put option 
 the risk as part of the shareholder agreements for a period of six 
years from 1 january 2013 daimler ag has the option to require 
the group to purchase its 50 per cent interest in rrpsh the 
estimated amount of the purchase price of this option has been 
recognised as a financial liability on the group balance sheet the 
purchase price is based on averaging three valuations which are 
based on both internal and external metrics at the date the 
option is exercised the external metrics include priceearnings 
ratios for comparable companies and those implicit in comparable 
transactions there is judgement involved in choosing appropriate 
comparable companies and transactions and in predicting what 
these might be at a future date 
 our response we analysed the shareholder agreements and tested 
the reasonableness of the estimate of the purchase price of the 
option including assessing whether the group’s judgement as to 
which external metrics should be used was appropriate and the 
accuracy of its calculation we also assessed whether or not the 
estimates showed any evidence of management bias with a 
particular focus on the risk that the liability might be understated 
given its visibility 
 our findings we found that the resulting estimate was acceptable 
but mildly optimistic resulting in a somewhat lower liability being 
recorded than might otherwise have been the case 
liabilities arising from sales financing arrangements 
refer to page 82 key areas of judgement – financing support page 
88 significant accounting policies – sales financing support page 112 
note 18 to the financial statements – provisions for liabilities and 
charges and page 44 audit committee report – financial reporting 
 the risk the group has contingent liabilities in respect of 
financing and asset value support provided to customers this 
support typically takes the form of either a guarantee with respect 
to the value of an aircraft at a future date or a guarantee of a 
customer’s future payments under an aircraft financing 
arrangement judgement is required to assess the likelihood of 
these liabilities crystallising in order to assess whether a provision 
should be recognised and if so the amount of that provision the 
total potential liability is significant and can be affected by the 
assessment of the residual value of the aircraft and the 
creditworthiness of the customers 
 our response we analysed the terms of guarantees on aircraft 
delivered during the year in detail and obtained aircraft values 
from and held discussions with aircraft valuation specialists 
engaged by the group we assessed whether the valuer was 
objective and suitably qualified had been appropriately 
instructed and had been provided with complete accurate data 
on which to base its evaluation for all contracts on delivered 
aircraft we assessed the commercial factors relevant to the 
likelihood of the guarantees being called including the credit 
ratings and recent financial performance of the relevant 
customers and their fleet plans and critically assessed the group’s 
estimate of the required provisions for those liabilities we 
considered movements in aircraft values and potential changes  
in the assessed probability of a liability crystallising since the 
previous year end and considered whether the evidence supported 
the group’s assessment as to whether or not a liability needs to be 
recognised and the amount of the liability recognised or 
contingent liability disclosed we considered the appropriateness 
of the related disclosure in note 18 to the financial statements
 our findings we found that the assumptions and estimates were 
balanced and that note 18 appropriately discloses the potential 
liability in excess of the amount provided for in the financial 
statements for delivered aircraft and highlights the significant 
but unquantifiable contingent liability in respect of aircraft 
which will be delivered in the future
rollsroyce holdings plc annual report 2013 132 other information
independent auditor’s report accounting for risk and revenue sharing arrangements
refer to page 81 key areas of judgement – risk and revenue sharing 
arrangements page 84 significant accounting policies – risk and 
revenue sharing arrangements page 11 chief financial officer’s 
review and page 44 audit committee report – financial reporting 
 the risk the group receives nonrefundable cash payments under 
risk and revenue sharing arrangements which are referred to as 
entry fees the assessment of when these entry fees should be 
recognised in the income statement involves analysis of their 
commercial substance in the context of the agreement as a whole 
as there is no single accounting standard that directly addresses 
these types of agreements management has to apply very 
significant judgement in deciding how to apply the various 
provisions of accounting standards that are relevant to different 
aspects of the agreements these arrangements are complex and 
have features that could be indicative of a collaboration 
agreement including sharing of risk and cost in a development 
programme a longterm supply agreement sharing of 
intellectual property or a combination of these
 our response we independently analysed the agreements under 
which significant entry fees have been received to establish the 
range of possible accounting treatments that could be adopted 
and to assess which of these would in our view most appropriately 
reflect the requirements of accounting standards the most 
significant accounting standards considered were 
ias 8 accounting policies changes in accounting estimates and 
errors ias 18 revenue ifrs 11 joint arrangements in terms of the 
timing of recognition of the entry fees and ias 1 presentation of 
financial statements in respect of their presentation as an offset 
against the expenditure to which they relate we also had regard 
to the definitions of assets liabilities income and expenses in the 
ifrs framework and to the extent they did not conflict with 
adopted ifrs to pronouncements of other standardsetting 
bodies that more explicitly address accounting for payments from 
suppliers and collaborative arrangements we examined 
correspondence between the group and the financial reporting 
council and attended meetings between them we sought to 
identify the accounting applied in similar circumstances by other 
companies including the group’s direct competitors and compare 
these to the approach adopted by the group and the requirements 
of adopted ifrs we assessed whether the change to the 
accounting policy made in the year was appropriate and 
recalculated the resulting amounts in the financial statements 
we considered the appropriateness of the related disclosures 
 our findings our analysis indicated that in substance from the 
point of view of both the group and the risk and revenue sharing 
workshare partners the entry fees represent the reimbursement 
of expenditure incurred by the group as part of an engine 
development programme and that this represented a significant 
transfer of development risk from the group to the partners that 
should be reflected in the income statement at the time the 
reimbursed expenditure is recognised on that basis we found 
that the revised accounting policy most appropriately reflects the 
commercial substance of the entry fees so far as it was possible to 
tell we found that the accounting applied by the group was 
similar to the approach taken by others we found that the change 
to the accounting policy made by the group was appropriate given 
the incidence of entry fees in the year and the costs capitalised on 
the programmes to which these entry fees relate we found that 
the disclosures in the financial statements properly describe the 
accounting treatment adopted by the group and the directors’ 
basis for applying that treatment
bribery and corruption 
refer to page 120 note 23 to the financial statements – contingent 
liabilities and page 44 audit committee report – financial reporting 
 the risk a large part of the group’s business is characterised by 
competition for individually significant contracts with customers 
which are often directly or indirectly associated with governments 
and the award of individually significant contracts to suppliers  
the procurement processes associated with these activities are 
highly susceptible to the risk of corruption in addition the group 
operates in a number of territories where the use of commercial 
intermediaries is either required by the government or is normal 
practice the group is currently under investigation by law 
enforcement agencies primarily the serious fraud office in the uk 
and the us department of justice breaches of laws and regulations 
in this area can lead to fines penalties criminal prosecution 
commercial litigation and restrictions on future business
 our response we evaluated and tested the group’s policies 
procedures and controls over the selection and renewal of 
intermediaries contracting arrangements ongoing management 
payments and responses to suspected breaches of policy we 
sought to identify and tested payments made to intermediaries 
during the year made enquiries of appropriate personnel and 
evaluated the tone set by the board and the executive leadership 
team and the group’s approach to managing this risk having 
enquired of management the audit committee and the board as 
to whether the group is in compliance with laws and regulations 
relating to bribery and corruption we made written enquiries  
of the group’s legal advisers to corroborate the results of those 
enquiries and maintained a high level of vigilance to possible 
indications of significant noncompliance with laws and 
regulations relating to bribery and corruption whilst carrying out 
our other audit procedures we discussed the areas of potential or 
suspected breaches of law including the ongoing investigation 
with the audit committee and the board of directors as well as the 
group’s legal advisers and assessed related documentation we 
assessed whether the financial effects of potential or suspected 
breaches of law or regulation have been properly disclosed in 
note 23 to the financial statements 
 our findings we found that the disclosures in note 23 to the 
financial statements reflect appropriately the matters required  
to be disclosed by accounting standards and highlighted that as  
the investigation is at too early a stage to assess the consequences 
if any including in particular the size of any possible fines no 
provision can be made at year end
 
rollsroyce holdings plc annual report 2013 133
strategic report financial statements directors’ report other information the presentation of ‘underlying’ profit 
refer to page 10 chief financial officer’s review page 89 note 2 to 
the financial statements – segmental analysis and page 44 audit 
committee report – financial reporting 
 the risk in addition to its adopted ifrs financial statements the 
group presents an alternative income statement on an 
‘underlying’ basis the directors believe the ‘underlying’ income 
statement reflects better the group’s trading performance during 
the year the basis of adjusting between the adopted ifrs and 
‘underlying’ income statements and a full reconciliation between 
them is set out in note 2 to the financial statements on pages 89 
and 91 a significant recurring adjustment between the adopted 
ifrs income statement and the ‘underlying’ income statement 
relates to the foreign exchange rate used to translate foreign 
currency transactions the group uses forward foreign exchange 
contracts to manage the cash flow exposures of forecast 
transactions denominated in foreign currencies but does not 
generally apply hedge accounting in its adopted ifrs income 
statement the ‘underlying’ income statement translates these 
amounts at the achieved foreign exchange rate on forward foreign 
exchange contracts settled in the period retranslates assets and 
liabilities at exchange rates forecast to be achieved from future 
settlement of such contracts and excludes unrealised gains and 
losses on such contracts which are included in the adopted ifrs 
income statement in addition adjustments are made to exclude 
oneoff pastservice credits on postretirement schemes and the 
effect of acquisition accounting and a number of other items
  alternative performance measures can provide investors with 
appropriate additional information if properly used and presented 
in such cases measures such as these can assist investors in gaining 
a better understanding of a company’s financial performance and 
strategy however when improperly used and presented these 
kinds of measures might mislead investors by hiding the real 
financial position and results or by making the profitability of the 
reporting entity seem more attractive
 our response we assessed the appropriateness of the basis for  
the adjustments between the adopted ifrs income statement 
and the ‘underlying’ income statement and recalculated the 
adjustments with a particular focus on the impact of the foreign 
exchange rate used to translate foreign currency amounts in the 
‘underlying’ income statement as the group has discretion over 
which forward foreign exchange contracts are settled in each 
financial year which could impact the achieved rate both for the 
period and in the future we assessed whether or not this showed 
any evidence of management bias we also assessed i the extent 
to which the prominence given to the ‘underlying’ financial 
information and related commentary in the annual report 
compared to the adopted ifrs financial information and related 
commentary could be misleading ii whether the adopted ifrs 
and ‘underlying’ financial information are reconciled with 
sufficient prominence given to that reconciliation iii whether 
the basis of the ‘underlying’ financial information is clearly and 
accurately described and consistently applied and iv whether  
the ‘underlying’ financial information is not otherwise misleading 
in the form and context in which it appears in the annual report 
 our findings we have no concerns regarding the basis of the 
‘underlying’ financial information or its calculation and found 
no indication of management bias in the way the group managed 
forward foreign exchange contracts during the year we consider 
that there is sufficient appropriate disclosure of the nature and 
amounts of the adjustments to allow shareholders to understand 
the implications of the two bases on the financial measures being 
presented we consider that the ‘underlying’ financial information 
is useful to shareholders as an adjunct to the adopted ifrs 
financial information particularly in the context of isolating 
trends resulting from trading performance from trends that 
result from other factors we found the presentation of the 
‘underlying’ financial information to be balanced
in addition to these key audit risks we also focused on the 
recognition of revenue and profit on other longterm contracts 
the implementation of a new consolidation system warranties 
and guarantees valuation of derivative contracts valuation of 
postretirement scheme liabilities and the recoverability of tax 
assets and the adequacy of provisions for tax contingencies
3 our application of materiality and an overview of the scope  
of our audit
the materiality for the group financial statements as a whole was 
set at £86 million this has been calculated with reference to a 
benchmark of profit before taxation representing 49 of reported 
and ‘underlying’ profit before taxation which we consider to be one 
of the principal considerations for members of the company in 
assessing the financial performance of the group
we agreed with the audit committee to report to it the following 
misstatements that we identified through our audit i all material 
corrected misstatements ii uncorrected misstatements with 
a value in excess of £4 million for income statement items 
or £8 million for balance sheet reclassifications and iii other 
misstatements below that threshold that we believe warranted 
reporting on qualitative grounds
in order to gain appropriate audit coverage of the risks described 
above and of each individually significant reporting component
a audits for group reporting purposes were carried out at 13 key 
reporting components located in the following countries united 
kingdom 9 key reporting components usa 1 germany 2 and 
norway 1 in addition audits for group reporting purposes were 
performed at a further 20 reporting components together these 
covered 90 per cent of revenue 87 per cent of underlying profit 
before taxation and 85 per cent of total assets and 
b specified reporting procedures were carried out over key risk 
areas at a further 12 reporting components none of which are 
considered to be key 
in total our procedures covered 98 per cent of revenue 99 per cent 
of underlying profit before taxation and 94 per cent of total assets
rollsroyce holdings plc annual report 2013 134 other information
independent auditor’s report detailed audit instructions were sent to the auditors of all these 
reporting components these instructions covered the significant 
audit areas that should be covered by these audits which included 
the relevant risks of material misstatement detailed above and set 
out the information required to be reported back to the group audit 
team the group audit team visited the following locations united 
kingdom usa germany norway and singapore telephone 
meetings were also held with the auditors at these locations and  
the majority of the other locations that were not physically visited
the audits undertaken for group reporting purposes at the 
reporting components were all performed to materiality levels set 
by or agreed with the group audit team these materiality levels 
were set individually for each such component and ranged from 
£05 million to £50 million 
4 our opinion on other matters prescribed by the companies 
act 2006 is unmodified
in our opinion 
 the part of the directors’ remuneration report to be audited has 
been properly prepared in accordance with the companies act 
2006 and 
 the information given in the strategic report and directors’  
report for the financial year for which the financial statements  
are prepared is consistent with the financial statements 
5 we have nothing to report in respect of the matters on which 
we are required to report by exception 
under isa uk and ireland we are required to report to you if based 
on the knowledge we acquired during our audit we have identified 
other information in the annual report that contains a material 
inconsistency with either that knowledge or the financial 
statements a material misstatement of fact or that is otherwise 
misleading in particular we are required to report to you if 
 we have identified material inconsistencies between the 
knowledge we acquired during our audit and the directors’ 
statement that they consider that the annual report and financial 
statements taken as a whole is fair balanced and understandable 
and provides the information necessary for shareholders to assess 
the group’s performance business model and strategy or
 the audit committee report does not appropriately address 
matters communicated by us to the audit committee
under the companies act 2006 we are required to report to you if  
in our opinion 
 adequate accounting records have not been kept by the parent 
company or returns adequate for our audit have not been 
received from branches not visited by us or 
 the parent company financial statements and the part of the 
directors’ remuneration report to be audited are not in agreement 
with the accounting records and returns or 
 certain disclosures of directors’ remuneration specified by law  
are not made or 
 we have not received all the information and explanations we 
require for our audit 
under the listing rules we are required to review 
 the directors’ statement set out on page 72 in relation to going 
concern and
 the part of the corporate governance report on page 39 relating  
to the company’s compliance with the nine provisions of the uk 
corporate governance code 2010 specified for our review
we have nothing to report in respect of the above responsibilities
scope of report and responsibilities
as explained more fully in the directors’ responsibilities statement 
set out on pages 72 and 73 the directors are responsible for the 
preparation of the financial statements and for being satisfied that 
they give a true and fair view a description of the scope of an audit  
of accounts is provided on the financial reporting council’s website 
at wwwfrcorgukauditscopeukprivate this report is made solely  
to the company’s members as a body and is subject to important 
explanations and disclaimers regarding our responsibilities published 
on our website at wwwkpmgcomukauditscopeukco2013a which 
are incorporated into this report as if set out in full and should be 
read to provide an understanding of the purpose of this report  
the work we have undertaken and the basis of our opinions
jimmy daboo senior statutory auditor 
for and on behalf of kpmg audit plc statutory auditor 
chartered accountants 
15 canada square
london
e14 5gl 
12 february 2014 
rollsroyce holdings plc annual report 2013 135
strategic report financial statements directors’ report other information income statement
2013
£m
restated
2012
£m
2011
£m
2010
£m
2009
£m
revenue 15513 12161 11124 11085 10414 
profit before net research and development and share of results of joint ventures 
and associates 2393 2435 1536 1463 1458 
research and development net
 1
 683 531 463 422 379
share of results of joint ventures and associates 160 173 116 93 93 
profit before financing 1870 2077 1189 1134 1172 
net financing 111 689 84 432 1785 
profit before taxation
 2
 1759 2766 1105 702 2957 
taxation 380 431 257 159 740
profit for the year 1379 2335 848 543 2217 
attributable to
equity shareholders of the parent 1367 2321 850 539 2221 
noncontrolling interests 12 14 2 4 4
profit for the year 1379 2335 848 543 2217 
1
 research and development gross 1118 919 908 923 864
2
 underlying profit before taxation 1759 1434 1157 955 915 
earnings per ordinary share
underlying 6559p 5959p 4854p 3873p 3967p 
basic 7326p 12538p 4595p 2920p 12038p 
payments to shareholders per ordinary share 2200p 1950p 1750p 1600p 1500p 
balance sheet
2013
£m
restated
2012
£m 
2011
£m 
2010
£m 
2009
£m 
assets 23063 18146 16423 16234 15422 
liabilities 16760 12150 11904 12255 11640
6303 5996 4519 3979 3782 
calledup share capital 376 374 374 374 371 
reserves 5229 5605 4144 3601 3411 
equity attributable to equity holders of the parent 5605 5979 4518 3975 3782 
noncontrolling interests 698 17 1 4 – 
6303 5996 4519 3979 3782 
cash flow
2013
£m
2012
£m
2011
£m
2010
£m
2009
£m
cash inflow from operating activities 2040 1255 1306 1378 859 
cash outflowinflow from investing activities 740 424 2207 759 606
cash inflowoutflow from financing activities 136 331 655 743 384 
increasedecrease in cash and cash equivalents 1436 1348 1556 124 637 
net funds 1939 1317 223 1533 1275 
  restated for the adoption of the amendments to ias 19 employee benefits on 1 january 2013 and the change to the accounting policy for rrsas – see note 1 it is not practicable to 
restate prior years on a comparable basis
rollsroyce holdings plc annual report 2013 136 other information
group fiveyear review
for the years ended 31 december foreign exchange
foreign exchange rate movements influence the reported income 
statement the cash flow and closing net cash balance the average 
and spot rates for the principal trading currencies of the group are 
shown in the table below
2013 2012 change
usd per gbp
year end spot rate 165 163 1
average spot rate 156 159 2
eur per gbp
year end spot rate 120 123 2
average spot rate 118 123 4
the group’s approach to managing its tax affairs 
the board is involved in setting the group’s tax policies which 
govern the way its tax affairs are managed in summary this means
i  the group manages its tax costs through maximising the tax 
efficiency of business transactions this includes taking 
advantage of available tax incentives and exemptions
ii  this must be done in a way which is aligned with the group’s 
commercial objectives and meets its legal obligations and 
ethical standards
iii  the group also has regard for the intention of the legislation 
concerned rather than just the wording itself
iv  the group is committed to building constructive working 
relationships with tax authorities based on a policy of full 
disclosure in order to remove uncertainty in its business 
transactions and to allow the authorities to review possible risks
v  where appropriate and possible the group enters into 
consultation with tax authorities to help shape proposed 
legislation and future tax policy and
vi  the group seeks to price transactions between group companies 
as if they were between unrelated parties in compliance with 
the oecd transfer pricing guidelines and the laws of the 
relevant jurisdictions
the group’s global corporate income tax contribution
over 95 per cent of the group’s underlying profit before tax 
excluding joint ventures is generated in the united kingdom united 
states of america germany norway finland and singapore the 
remaining profits are generated across more than 40 other countries 
this reflects the fact that the majority of the group’s business is 
undertaken and employees are based in the above countries 
in common with most multinational groups the total of all profits  
in respect of which corporate tax is paid is not the same as the 
consolidated profit before tax reported on page 75 the main 
reasons for this are
i  the consolidated income statement is prepared under ifrs 
whereas tax is paid on the profits of each group company which 
are determined by local accounting rules
ii  accounting rules require certain income and costs relating to  
our commercial activities to be eliminated from or added to  
the aggregate of all the profits of the group companies when 
preparing the consolidated income statement ‘consolidation 
adjustments’ and
iii  specific tax rules including exemptions or incentives as 
determined by the tax laws in each country
the group’s total corporation tax payments in 2013 were 
£238 million the level of tax paid in each country is impacted by  
the above in most cases i and ii are only a matter of timing and 
therefore tax will be paid in an earlier or later year as a result they 
only have a negligible impact on the group’s underlying tax rate 
which excluding joint ventures would be 271 per cent the 
underlying tax rate including joint ventures can be found on 
page 12 this is due to deferred tax accounting details of which can 
be found in note 5 to the financial statements the impact of iii will 
often be permanent depending on the relevant tax law
investments and capital expenditure
the group subjects all major investments and capital expenditure 
to a rigorous examination of risks and future cash flows to ensure 
that they create shareholder value all major investments require 
board approval
the group has a portfolio of projects at different stages of their  
life cycles discounted cash flow analysis of the remaining life of 
projects is performed on a regular basis
sales of engines in production are assessed against criteria in  
the original development programme to ensure that overall value  
is enhanced
financial risk management
the board has established a structured approach to financial risk 
management the financial risk committee frc is accountable for 
managing reporting and mitigating the group’s financial risks and 
exposures these risks include the group’s principal counterparty 
currency interest rate commodity price liquidity and credit rating 
risks outlined in more depth in note 17 the frc is chaired by the 
chief financial officer the group has a comprehensive financial risk 
policy that advocates the use of financial instruments to manage 
and hedge business operations risks that arise from movements  
in financial commodities credit or money markets the group’s 
policy is not to engage in speculative financial transactions the  
frc sits quarterly to review and assess the key risks and agree any 
mitigating actions required
rollsroyce holdings plc annual report 2013 137
strategic report financial statements directors’ report other information
additional financial information capital structure
£ million 2013
restated
2012 
total equity 6303 5996
cash flow hedges 68 63
group capital 6371 6059
net funds 1939 1317
operations are funded through various shareholders’ funds bank 
borrowings bonds and notes the capital structure of the group 
reflects the judgement of the board as to the appropriate balance  
of funding required
funding is secured by the group’s continued access to the global 
debt markets borrowings are funded in various currencies using 
derivatives where appropriate to achieve a required currency and 
interest rate profile the board’s objective is to retain sufficient 
financial investments and undrawn facilities to ensure that the 
group can both meet its mediumterm operational commitments 
and cope with unforeseen obligations and opportunities
the group holds cash and shortterm investments which together 
with the undrawn committed facilities enable it to manage its 
liquidity risk
during the year the group issued €750 million 2125 notes 
maturing in 2021 and £375 million 3375 notes maturing in 2026
at year end the group retained aggregate liquidity of £56 billion this 
liquidity comprised net funds of £19 billion and aggregate borrowing 
facilities of £36 billion of which £12 billion remained undrawn
the maturity profile of the borrowing facilities is regularly reviewed 
to ensure that refinancing levels are manageable in the context  
of the business and market conditions the only facility to mature  
in 2014 is a £200 million eib loan there are no rating triggers in any 
borrowing facility that would require the facility to be accelerated  
or repaid due to an adverse movement in the group’s credit rating
the group conducts some of its business through a number of joint 
ventures a major proportion of the debt of these joint ventures is 
secured on the assets of the respective companies and is non
recourse to the group this debt is further outlined in note 11
credit rating
rating outlook grade
moody’s investors service a3 stable investment
standard  poor’s a stable investment
the group subscribes to both moody’s investors service and 
standard  poor’s for independent longterm credit ratings  
at 31 december 2013 the group maintained investment grade 
ratings from both agencies
as a capitalintensive business making longterm commitments  
to our customers the group attaches significant importance  
to maintaining or improving the current investment grade  
credit ratings
accounting and regulatory
the consolidated financial statements have been prepared in 
accordance with international financial reporting standards  
ifrs as adopted by the eu
in 2013 the group has adopted amendments to ias 19 employee 
benefits there were no other revisions to ifrs that became 
applicable in 2013 which had a significant impact on the group’s 
financial statements
a summary of changes which have not been adopted in 2013  
is included within the accounting policies in note 1
as explained in the chief financial officer’s review on page 11 
following discussions with the conduct committee of the frc  
the group has reassessed its policy for the recognition of entry  
fees received under rrsas 
governments and regulators around the world continue to 
implement reforms to the financial markets with the aim of 
improving transparency and reducing systemic risk although the 
reforms are predominantly directed at financial institutions they 
will also affect nonfinancial institutions such as the group
the primary concern was the reform of the overthecounter otc 
derivatives market and in particular a proposal in the eu european 
market infrastructure regulation emir that parties to future otc 
derivative transactions would be required to use an exchange to 
clear the transactions and post cash collateral to reduce counterparty 
risk the proposal could have adversely affected the group’s future 
funding requirements and made cash flow more volatile
the final emir rules have now been released which exempt 
nonfinancial institutions engaged in hedging activity from  
this requirement
share price
during the year the share price increased by 46 per cent from 
8735 pence to 1275 pence compared to a 38 per cent increase in  
the ftse aerospace and defence sector and 14 per cent increase  
in the ftse 100 the company’s share price ranged from 8735 pence 
in january to 1275 pence in december
rollsroyce holdings plc annual report 2013 138 other information
additional financial information managing your shareholding
your shareholding is managed by computershare investor 
services plc the registrar when making contact with the 
registrar please quote your shareholder reference number srn 
an 11digit number that can be found on the righthand side of 
your share certificate or in any other shareholder correspondence 
it is very important that you keep your shareholding account 
details up to date by notifying the registrar of any changes in 
your circumstances
you can manage your shareholding at wwwinvestorcentrecouk 
speak to the registrar on 44 0870 703 0162 830am to 530pm 
monday to friday or you can write to them at computershare 
investor services plc the pavilions bridgwater road 
bristol bs13 8ae
payments to shareholders
the company makes payments to shareholders by issuing 
redeemable c shares of 01 pence each you can still receive cash 
or additional ordinary shares from the company providing you 
complete a payment instruction form which is available from the 
registrar once you have submitted your payment instruction form 
you will receive cash or additional ordinary shares each time the 
company issues c shares if you choose to receive cash we 
recommend that you include your bank details on the payment 
instruction form and have payments credited directly to your bank 
account this removes the risk of a cheque going astray in the post 
and means that cleared payments will be credited to your bank 
account on the payment date 
share dealing
the registrar offers existing shareholders an internet dealing 
service at wwwukcomputersharecominvestorsharedealingasp 
and a telephone dealing service 44 0870 703 0084 the service is 
available during market hours 800am to 430pm monday to friday 
excluding bank holidays the fee for internet dealing is 1 per cent of 
the transaction value subject to a minimum fee of £30 the fee for 
telephone dealing is 1 per cent of the transaction plus £35 please 
note that in addition to dealing fees stamp duty of 05 per cent is 
payable on all purchases other share dealing facilities are available 
but we recommend that you only use a firm regulated by the 
financial conduct authority fca you can check the fca register at 
wwwfcaorgukregister
your share certificate
if you sell or transfer your shares you must ensure that you have a 
valid share certificate in the name of rollsroyce holdings plc
if you place an instruction to sell your shares and cannot provide a 
valid share certificate the transaction cannot be completed and you 
will be liable for any costs incurred by the broker share certificates 
previously issued by either rollsroyce group plc or rollsroyce plc 
are invalid and should be destroyed if you are unable to locate your 
share certificates please inform the registrar immediately 
american depositary receipts adr
adr holders should contact the depositary the bank of new york 
mellon by calling 1 888 269 2377 toll free within the us or 
emailing shrrelationscpushareownerservicescom
apr
2014
jun
2014
aug
2014
oct
2014
dec
2014
feb
2015
may
2014
jul
2014
sep
2014
nov
2014
jan
2015
financial calendar 20142015
23 october 
exentitlement to 
c shares
24 october 
record date for 
entitlement to 
c shares
february 
preliminary 
announcement –
2014 full year results
march
annual report 
published
23 april
exentitlement 
to c shares
25 april 
record date for 
entitlement to 
c shares
2 june 500pm 
deadline for 
receipt of c share 
elections
2 june 
record date for 
c share dividend
1 december 500pm
deadline for receipt 
of c share elections
31 december 
financial year end
1 may 1100am 
agm 
qeii conference 
centre london
1 july payment of c share dividend
1 july allotment of c shares
3 july payment of c share redemption monies
11 july purchase of ordinary shares for crip 
participants at the latest 
31 july announcement of interim results
14 november record date 
for c share dividend
2 january payment of 
c share dividend
2 january allotment of 
c shares
6 january payment of 
c share redemption monies
13 january purchase of ordinary 
sh ares for crip participants 
at the latest 
rollsroyce holdings plc annual report 2013 139
strategic report financial statements directors’ report other information
shareholder information warning to shareholders – boiler room fraud
we are aware that some shareholders might have received 
unsolicited phone calls or correspondence concerning investment 
matters these are typically from overseas based ‘brokers’ who offer 
to sell them what often turn out to be worthless or high risk shares 
in us or uk investments such operations are known as ‘boiler 
rooms’ and these ‘brokers’ can be very persistent and extremely 
persuasive you should always check that any firm calling you about 
investment opportunities is properly authorised by the fca using 
the following web link wwwfcaorgukregister or by calling their 
consumer helpline on 0800 111 6768 overseas callers dial 
44 20 7066 1000 if you deal with an unauthorised firm you will 
not be eligible to receive payment under the financial services 
compensation scheme you will find lots of useful advice and 
information about protecting yourself from investment scams 
on the fca website wwwfcaorgukconsumers
remember the golden rule – if it sounds too good to be true 
it probably is 
dividends paid on c shares held
c share calculation period c share dividend rate 
record date for 
c share dividend payment date
1 july 2013 – 31 december 2013 0225 15 november 2013 2 january 2014
1 january 2013 – 30 june 2013 025 3 june 2013 3 july 2013
previous c share issues
apportionment values cgt apportionment
issue date
no of 
c shares issued
per ordinary
share
record date
for
entitlement
to c shares
latest date
for receipt of
payment
instruction
forms by
registrar
price of
ordinary
shares on first
day of trading
 p
value of 
c share issues
per ordinary
shares p
ordinary
shares  c shares 
date of
redemption
of c shares
crip
purchase
date
crip
purchase
price p
2 january
2014 86
25 october
 2013
2 december
2013 126550 86 9933 067
6 january
2014
7 january
2014 12873621
2 july
2013 119
24 april 
2013
3 june
2013 115150 119 9898 102
3 july
2013
9 july
2013 11927275
for earlier c share issues please refer to the group’s website
analysis of ordinary shareholders at 31 december 2013
type of holder
number of 
shareholders
 of total 
shareholders
number 
of shares
 of total 
shares
individuals 197937 9654 101503370 540
institutional and other investors 7101 346 1778798284 9460
total 205038 10000 1880301654 10000
size of holding
1 – 150 64735 3157 6216673 033
151 – 500 103476 5047 27720381 147
501 – 10000 34806 1698 56638725 301
10001 – 100000 1344 065 36159598 192
100001 – 1000000 464 023 158602026 844
1000001 and over 213 010 1594964251 8483
total 205038 10000 1880301654 10000
visit rollsroyce online
visit wwwrollsroycecominvestors to find out more about the 
latest financial results the share price payments to shareholders 
the financial calendar and shareholder services
keeping up to date
you can sign up to receive the latest news to your phone or inbox 
you can also download the rollsroyce investor relations ipad app 
which provides the latest media and financial information
available as a free 
download from 
the app store for 
ipad users
rollsroyce holdings plc annual report 2013 140 other information
shareholder information abc antibribery and corruption
acare advisory council for aviation research and  
innovation in europe
agm annual general meeting
apra annual performance related award plan
c shares noncumulative redeemable preference shares
co2 carbon dioxide
company rollsroyce holdings plc
cps cash flow per share
crip c share reinvestment plan
easa european aviation safety agency
elt executive leadership team
eps earnings per ordinary share
eu european union
faa federal aviation administration
fca financial conduct authority
frc financial reporting council
gbp great british pound or pound sterling
gc 100 association of general counsel and company secretaries  
of ftse 100 companies
ghg greenhouse gas
global code global code of conduct
group rollsroyce holdings plc and its subsidiaries
hmrc hm revenue  customs
hse health safety and environment
ic instrumentation and control
iab international advisory board
iae iae international aero engines ag
iag international airlines group parent company of  
british airways
ias international accounting standards
ifric international financial reporting interpretations committee
ifrs international financial reporting standards
jal japan airlines
kpi key performance indicator
libor london interbank offered rate
ltsa longterm service agreement
lng liquefied natural gas
mod uk ministry of defence
nci noncontrolling interest
oci other comprehensive income
oe original equipment
oecd organisation for economic cooperation and development
psp performance share plan
rd research and development
reach registration evaluation and authorisation of chemicals
rec recoverable engine cost
registrar computershare investor services plc
rrpsh rollsroyce power systems holding gmbh
rrps rollsroyce power systems ag previously named tognum ag
rrsas risk and revenue sharing arrangements 
rsus restricted stock units
sfo serious fraud office
sip share incentive plan
srn shareholder reference number
stem science technology engineering and mathematics
stovl short takeoff and vertical landing
tri total reportable injuries
tsr total shareholder return
uav unmanned aerial vehicle
uk gaap uk generally accepted accounting practices
usd united states dollar
rollsroyce holdings plc annual report 2013 141
strategic report financial statements directors’ report other information
glossary
designed and produced by  
con r an des i gn group
the paper used in the report contains 75 recycled 
content of which 75 is deinked postconsumer 
all of the pulp is bleached using an elemental chlorine  
free process ecf
printed in the uk by pureprint using their   
and  environmental printing technology using 
vegetable inks throughout pureprint is a carbonneutral® 
company both the paper manufacturing mill and the printer 
are registered to the environmental management system  
iso 14001 and are forest stewardship council® fsc  
chainofcustody certified © rollsroyce plc 2014
rollsroyce holdings plc 
registered office  
65 buckingham gate 
london 
sw1e 6at
t 44 020 7222 9020 
wwwrollsroycecom
company number 7524813


Summary:
 this is my first chairman’s review before i 
joined rollsroyce i sensed that it would be an 
extraordinary privilege to serve such a great 
company with such a rich history so it has 
proved to be in the past nine months i have 
travelled widely and met a broad cross
section of colleagues customers suppliers 
and investors all have been free with their 
time and open with their perspectives 
i have two dominant initial impressions  
the first is of the pride that people across  
the world have in the activities and 
achievements of the group we have a team 
that really does aspire to be ‘trusted to 
deliver excellence’ in everything it does yet is 
under no illusions about what this will take 
there is pride but no sense of complacency
the second impression is of opportunity 
some of our business segments face strong 
headwinds and there will be some inevitable 
volatility but overall rollsroyce competes in 
markets characterised by longterm demand 
growth and the opportunity to add value 
this is as true of the services we provide as  
it is of our products these opportunities are 
increasingly global in nature rollsroyce has 
a great british history but its future has to 
be as a great global company
in 2013 rollsroyce delivered another year  
of growth in revenues profits and order book 
this performance was achieved against a 
background of significant global economic 
and political uncertainty the 13 per cent of 
increase in the payment to shareholders to 
220 pence reflects the confidence that the 
board has in the fundamentals of the 
business as well as in its future prospects
the increase in the payment to shareholders 
also recognises the importance that many of 
our investors place on annual cash returns 
nevertheless a key characteristic of  
rollsroyce is that it is a longterm business 
with technologies that take years to develop 
this creates the necessity of a longterm 
view and for longterm investment together 
with a commensurate attitude and mindset 
for risk
our strategy must be directed towards 
creating a sustainable business for  
rollsroyce that means driving profitable 
growth whilst achieving a positive economic 
social and environmental impact we will 
deliver better power to our customers use 
innovation to secure a better future and 
build on today’s achievements to develop  
a better business ready to meet the 
challenges ahead
research and development and innovation 
more broadly are crucial they will become 
more so as we strive to improve the quality 
and performance of our power systems and 
services the trent xwb for example has 
proved to be the most efficient large civil 
aero engine in the world design and 
development of that engine started in 2006 
in our marine business innovation and the 
development of liquefied natural gas lng 
power systems has led to the possibility  
of a 40 per cent reduction in a ship’s co 2 
emissions and the virtual elimination of 
sulphur and oxides of nitrogen emissions 
compared with conventional dieselpowered 
craft this presents a clear environmental 
and commercial opportunity these 
innovations have also taken years to develop
we are committed to both the shortterm 
performance and to the longterm health  
of the group it is a matter of ‘bothand’  
not ‘eitheror’ in my experience the most 
successful most enduring organisations 
invest equivalent resource and imagination 
in the longterm health of their business  
as they do in their short to mediumterm 
performance
chairman’s review
 
in 2013 rollsroyce 
delivered another year  
of growth in underlying 
revenues underlying 
profits and orders 
the board is proposing  
an increase in the final 
payment to shareholders  
of 134p bringing the full  
year payment to 220p
rollsroyce holdings plc annual report 2013 4 strategic report ian davis
chairman
dwelling on performance i am totally 
supportive of john rishton and the 
management team’s operational focus on 
the 4 cs – customer concentration cost and 
cash john describes the progress and the 
continuing opportunities of these 4 cs in 
this report i am particularly pleased at the 
progress in improving customer service and 
delivery reliability engineering and 
technology companies can have an inbuilt 
tendency to focus on product rather than  
on customer yet it is our customers who pay 
our bills and finance our investments it is  
of the highest strategic and commercial 
importance that we deliver on our product 
and service commitments to our customers 
over and above the continuing need for 
investment i would like to comment on  
a couple of themes relating to longterm 
health diversity and good governance 
i have remarked already on the need for 
rollsroyce to establish itself as an even 
more global group this will require us to 
become more diverse in our workforce and 
in our people development to achieve our 
aspirations we have to attract retain and 
develop the best talent everywhere we 
operate – commercial as much as 
engineering female as much as male 
we are making real progress our global 
apprenticeship programme enjoys world
wide renown our record graduate intake  
in 2013 includes 32 nationalities from 97 
universities around the world additionally 
we continue to broaden internationally our 
network of university technology centres 
which are so important to our future but 
more needs to be done 
we can and need to do more to attract and 
particularly retain exceptional women  
the engineering sector has not always been 
a favoured destination for wellqualified 
women and there may be cultural and 
historical reasons for this for a group  
like rollsroyce this should be as much  
an opportunity as a problem purposeful 
diversity is an important part of our  
longterm planning
fundamental to a healthy company are 
strong ethical standards and behaviours 
supported by good governance as john 
rishton has repeatedly made clear the  
group will not tolerate improper conduct 
we are striving to ensure that every single 
rollsroyce employee knows what is 
expected of them and understands the 
standards to be met the board and 
management are united in this endeavour 
in particular i will focus on ensuring that  
we have the appropriate governance 
arrangements and structures in place  
to reinforce the required conduct and 
behaviours wherever we operate
over recent years the board and 
management have been greatly assisted  
by the wise counsel of our international 
advisory board iab whose membership  
is described on page 38 the iab’s primary 
role is to provide context on political and 
economic developments around the world 
and to alert the group to possible longterm 
opportunities threats and risks they are 
also available to provide counsel and support 
in specific areas of expertise i am grateful  
to the iab members for their contributions 
i am also indebted to my fellow board 
directors for their hard work and remarkable 
commitment to our group as well as for 
their patience and good humour in dealing 
with the new chairman the board has been 
augmented in january 2014 by lee hsien 
yang and warren east both of whom bring  
a wealth of experience in global technology 
oriented industries further details of their 
careers are included on pages 36 and 37 i am 
delighted that they have joined the group
in the queen’s birthday honours michel 
dubarry rollsroyce international president 
– france head of europe and northern 
africa was awarded an obe in the new 
year’s honours hamid mughal director  
of manufacturing received an obe and my 
fellow board member warren east a cbe 
their recognition is well deserved and i 
congratulate each of them 
i would also like in closing to acknowledge 
sir simon robertson for his inspirational 
chairmanship and leadership of the board  
i am sure that over time i will forgive him 
for being such a hard act to follow 
i feel honoured to have the opportunity to 
serve as chairman of rollsroyce we have 
and will have challenges however i would 
be disappointed if this review does not 
convey my deep sense of opportunity to 
improve both shortterm performance and 
to build the longterm health of the group 
2013 was a good year for rollsroyce and i 
would like to thank my colleagues for their 
hard work and efforts in making this happen
ian davis
chairman
12 february 2014 
rollsroyce holdings plc annual report 2013 5
strategic report financial statements directors’ report other information