{ "document": { "title": "Rolls-Royce Holdings plc Annual Report 2025", "company": "Rolls-Royce Holdings plc", "report_year": 2025, "source_file": "2025-annual-report.pdf", "creator": "Adobe InDesign 20.5 (Macintosh)", "creation_date": "2026-03-04", "total_pdf_pages": 220, "page_size": "A4", "page_numbering_note": "printed_page = pdf_page - 2; cover and inside cover are unnumbered", "visual_data_note": "Pages carrying information only in graphic form (chart year-value pairings, dot matrices, icon mappings, diagram structures) include a visual_content field transcribed from rasterised page images. Entries marked approximate reflect charts printed without data labels." }, "table_of_contents": [ { "section": "Strategic Report", "subsection": "Group at a glance", "printed_page": 2 }, { "section": "Strategic Report", "subsection": "Chair's statement", "printed_page": 4 }, { "section": "Strategic Report", "subsection": "Chief Executive's review", "printed_page": 6 }, { "section": "Strategic Report", "subsection": "Our purpose, vision and behaviours", "printed_page": 10 }, { "section": "Strategic Report", "subsection": "Our strategy", "printed_page": 11 }, { "section": "Strategic Report", "subsection": "External environment", "printed_page": 13 }, { "section": "Strategic Report", "subsection": "Business model", "printed_page": 14 }, { "section": "Strategic Report", "subsection": "Key performance indicators", "printed_page": 16 }, { "section": "Strategic Report", "subsection": "Financial review", "printed_page": 19 }, { "section": "Strategic Report", "subsection": "Our divisions - Civil Aerospace", "printed_page": 25 }, { "section": "Strategic Report", "subsection": "Our divisions - Defence", "printed_page": 27 }, { "section": "Strategic Report", "subsection": "Our divisions - Power Systems", "printed_page": 29 }, { "section": "Strategic Report", "subsection": "People and culture", "printed_page": 31 }, { "section": "Strategic Report", "subsection": "Ethics and compliance", "printed_page": 37 }, { "section": "Strategic Report", "subsection": "Sustainability - Non-financial and sustainability information statement", "printed_page": 38 }, { "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "printed_page": 39 }, { "section": "Strategic Report", "subsection": "Principal risks", "printed_page": 48 }, { "section": "Strategic Report", "subsection": "Going concern and viability statements", "printed_page": 57 }, { "section": "Strategic Report", "subsection": "Section 172 statement", "printed_page": 59 }, { "section": "Strategic Report", "subsection": "Stakeholder engagement", "printed_page": 60 }, { "section": "Governance Report", "subsection": "Chair's introduction", "printed_page": 63 }, { "section": "Governance Report", "subsection": "Board of Directors", "printed_page": 64 }, { "section": "Governance Report", "subsection": "Compliance with the Code", "printed_page": 66 }, { "section": "Governance Report", "subsection": "Corporate governance", "printed_page": 67 }, { "section": "Governance Report", "subsection": "Executive Team", "printed_page": 74 }, { "section": "Governance Report", "subsection": "Committee reports - Nominations, Culture & Governance", "printed_page": 76 }, { "section": "Governance Report", "subsection": "Committee reports - Audit", "printed_page": 78 }, { "section": "Governance Report", "subsection": "Committee reports - Remuneration", "printed_page": 82 }, { "section": "Governance Report", "subsection": "Remuneration policy", "printed_page": 88 }, { "section": "Governance Report", "subsection": "Remuneration report", "printed_page": 100 }, { "section": "Governance Report", "subsection": "Committee reports - Safety, Energy Transition & Tech", "printed_page": 110 }, { "section": "Governance Report", "subsection": "Responsibility statements", "printed_page": 111 }, { "section": "Financial Statements", "subsection": "Consolidated financial statements", "printed_page": 113 }, { "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "printed_page": 121 }, { "section": "Financial Statements", "subsection": "Company financial statements", "printed_page": 182 }, { "section": "Financial Statements", "subsection": "Notes to the Company financial statements", "printed_page": 184 }, { "section": "Financial Statements", "subsection": "Subsidiaries", "printed_page": 187 }, { "section": "Financial Statements", "subsection": "Joint ventures and associates", "printed_page": 191 }, { "section": "Other Information", "subsection": "Independent auditors' report", "printed_page": 193 }, { "section": "Other Information", "subsection": "Independent limited assurance report", "printed_page": 202 }, { "section": "Other Information", "subsection": "Greenhouse gas emissions", "printed_page": 204 }, { "section": "Other Information", "subsection": "Other financial information", "printed_page": 206 }, { "section": "Other Information", "subsection": "Reconciliation of alternative performance measures", "printed_page": 208 }, { "section": "Other Information", "subsection": "Directors' report", "printed_page": 212 }, { "section": "Other Information", "subsection": "Shareholder information", "printed_page": 215 }, { "section": "Other Information", "subsection": "Glossary", "printed_page": 216 } ], "pages": [ { "pdf_page": 1, "printed_page": null, "section": "Cover", "subsection": null, "text": "ROLLS-ROYCE\nHOLDINGS\nPLC\nANNUAL\nREPORT\n2025\nANNUAL REPORT\n2025\nRolls-Royce Holdings plc", "char_count": 87, "tables": [ [ [ "ANNUAL REPORT 2025 Rolls-Royce Holdings plc", null, null, null, null ], [ null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025" ] }, { "pdf_page": 2, "printed_page": null, "section": "Cover", "subsection": null, "text": "A force for progress; powering,\nprotecting and connecting people\neverywhere\nCover image: The Trent 1000 XE,\nintroduced in 2025", "char_count": 126, "tables": [], "table_count": 0 }, { "pdf_page": 3, "printed_page": 1, "section": "Front matter", "subsection": null, "text": "2025 in summary\nOur transformation to\nCONTINUED STRATEGIC PROGRESS\nunlock our full potential is\nprogressing at pace as we\nPortfolio choices and partnerships Strategic initiatives\ncreate a high-performing,\ncompetitive, resilient and — Strategic investment by ČEZ Group — Growing Civil LTSA margins for\nin Rolls-Royce SMR in-production engines\ngrowing business.\n— MRO capacity expansion across — Time on wing targets raised to >100%\nthe network with more than half delivered\nOur strategic highlights\n— New platforms in business aviation — Further progress with shop visit\nfrom the past year are\n— G800 and Falcon 10X cost reductions\nsummarised opposite.\n— Power Systems investment in — Major defence contract wins including\nincreased capacity and new EJ200 and AE 2100\nengine development\n— Capturing strong growth in\n— Non-core asset disposals power generation (data centres)\nand governmental\nLower carbon and\nEfficiency and simplification digitally enabled businesses\n— £0.6bn of efficiency and simplification — Rolls-Royce SMR — continued\nbenefits delivered progress in the UK and Czech Republic\n— £1.2bn of third-party procurement — Strong battery energy storage\nsavings delivered systems (BESS) growth with\nbreakeven performance\n— Further improvement of TCC/GM\nratio to 0.36x — Successfully tested the first 100%\nmethanol high-speed marine engine\n— Next phase of efficiencies driven by\ndigital, and Group Business Services — New AI platform to support reduction\nscale up, and zero-based budgeting of shop visit turnaround times and\nshop visit costs\nContents\nSTRATEGIC REPORT GOVERNANCE REPORT Use of underlying performance\nmeasures in the Annual Report\nGroup at a glance 2 Chair’s introduction 63\nAll figures in the narrative of the Strategic\nChair’s statement 4 Board of Directors 64\nreport are underlying unless otherwise stated.\nChief Executive’s review 6 Compliance with the Code 66 We believe this is the most appropriate basis\nOur purpose, vision and behaviours 10 Corporate governance 67 to measure our in-year performance as this\nOur strategy 11 Executive Team 74 reflects the substance of trading activity,\nExternal environment 13 Committee reports including the impact of the Group’s foreign\nBusiness model 14 – Nominations, Culture & Governance 76 exchange forward contracts, which lock\nKey performance indicators 16 – Audit 78 in transactions at predetermined exchange\nrates. In addition, underlying results exclude\nFinancial review 19 – Remuneration 82\nthe accounting impact of business acquisitions\nOur divisions • Remuneration policy 88\nand disposals, certain impairment charges\n– Civil Aerospace 25 • Remuneration report 100 and exceptional items. A full definition of underlying\n– Defence 27 – Safety, Energy Transition & Tech 110 and the reconciliation to the statutory figures can be\n– Power Systems 29 Responsibility statements 111 found on pages 208 to 211. All references to organic\nPeople and culture 31 change are at constant translational currency.\nEthics and compliance 37 FINANCIAL STATEMENTS\nSustainability 38 Forward-looking statements\nConsolidated financial statements 113\n– Non-financial and sustainability This Annual Report contains forward-looking\nNotes to the consolidated financial statements. Any statements that express forecasts,\ninformation statement 38\nstatements 121 expectations and projections are not guarantees of\n– Energy transition and environment 39\nCompany financial statements 182 future performance and guidance may be updated\nPrincipal risks 48 Notes to the Company financial from time to time. This report is intended to provide\nGoing concern and viability statements 184 information to shareholders and is not designed to\nstatements 57 Subsidiaries 187 be relied upon by any other party or for any other\nSection 172 statement 59 purpose. The Company and its Directors accept\nJoint ventures and associates 191\nStakeholder engagement 60 no liability to any other person other than that\nrequired under English law. Latest information\nOTHER INFORMATION will be made available on the Group’s website.\nIndependent auditors’ report 193 By their nature, these statements involve risk\nIndependent limited assurance report 202 and uncertainty and a number of factors could\ncause material differences to the actual results\nGreenhouse gas emissions 204\nor developments.\nOther financial information 206\nReconciliation of alternative Throughout this Annual Report, the information\nperformance measures 208 we disclose is in accordance with our reporting\nDirectors’ report 212 obligations as a UK registered company listed\non the London Stock Exchange.\nShareholder information 215\nGlossary 216\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 1\nSTRATEGIC\nREPORT", "char_count": 4698, "tables": [ [ [ "CONTINUED STRATEGIC PROGRESS", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 4, "printed_page": 2, "section": "Strategic Report", "subsection": "Group at a glance", "text": "Group at a glance\nFINANCIAL HIGHLIGHTS OUR DIVISIONS\nCIVIL AEROSPACE\nUNDERLYING REVENUE 1 STATUTORY REVENUE 1\n£20,059m £21,207m\n2024: £17,848m 2024: £18,909m\nCivil Aerospace is a major manufacturer of\naero engines for the large commercial aircraft,\nFREE CASH FLOW 1 STATUTORY CASH FLOWS FROM\nregional jets and business aviation markets.\nOPERATING ACTIVITIES\nThe division uses its engineering expertise,\n£3,270m £4,565m in-depth knowledge and capabilities to provide\nthrough-life service solutions for its customers.\n2024: £2,425m 2024: £3,782m\nUNDERLYING OPERATING PROFIT 1 STATUTORY OPERATING PROFIT 1\n£3,462m £4,468m See page 25 for the Civil Aerospace\ndivisional review\n2024: £2,464m 2024: £2,906m\nUNDERLYING OPERATING MARGIN STATUTORY OPERATING MARGIN\nDEFENCE\n17.3% 21.1%\n2024: 13.8% 2024: 15.4%\nDefence is a market leader in aero engines\nUNDERLYING PROFIT BEFORE TAX 1 STATUTORY PROFIT BEFORE TAX 1\nfor military transport and patrol aircraft,\n£3,352m £6,935m with strong positions in combat applications.\nIt has significant scale in naval and also\n2024: £2,293m 2024: £2,234m\ndesigns, supplies and supports the nuclear\npropulsion plant for all of the UK Royal Navy’s\nTOTAL UNDERLYING CASH COSTS RETURN ON CAPITAL 1, 3, 4\nnuclear submarines.\nAS A PROPORTION OF UNDERLYING\nGROSS MARGIN 1, 2\n0.36 18.9%\nSee page 27 for the Defence\ndivisional review\n2024: 0.47 2024: 13.8%\nUNDERLYING EARNINGS STATUTORY EARNINGS\nPER SHARE 1, 4 PER SHARE\nPOWER SYSTEMS\n29.55p 69.41p\n2024: 20.29p 2024: 30.05p\nPower Systems, with its product and\nNET CASH LIQUIDITY 5\nsolutions brand mtu, is a global provider\n£1,895m £8.7bn of high-performance energy and propulsion\nsolutions for a wide range of applications in the\n2024: £475m 2024: £8.1bn\npower generation, governmental, maritime and\nindustrial sectors.\nORDER BACKLOG ⁶ GROSS R&D EXPENDITURE ⁷\n£88.1bn £1.4bn\nSee page 29 for the Power Systems\n2024: £82.1bn 2024: £1.5bn\ndivisional review\n1 A reconciliation of alternative performance measures 4 Underlying profit after tax has been adjusted for the See note 2 on page 136 for a reconciliation\nto their statutory equivalent is provided on pages 208 one-off non-cash impact of £277m (2024: £346m) related between underlying and statutory results\nto 211 to the recognition of deferred tax assets on UK tax losses.\n2 Total underlying cash costs as a proportion of See note 5, on page 145 for further details\nunderlying gross margin is defined on page 211 and 5 Liquidity is defined as cash and cash equivalents plus any\nis abbreviated to TCC/GM undrawn facilities, as listed on page 57\n3 Adjusted return on capital is defined on page 211 and 6 See note 2 on page 139\nis abbreviated to return on capital 7 See note 3 on page 141 for a reconciliation of gross R&D\nexpenditure to total R&D expenditure\n2 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2824, "tables": [ [ [ "CIVIL AEROSPACE", null ] ], [ [ "DEFENCE", null ] ], [ [ "POWER SYSTEMS", null ] ] ], "table_count": 3 }, { "pdf_page": 5, "printed_page": 3, "section": "Strategic Report", "subsection": "Group at a glance", "text": "GROUP AT A GLANCE\nCIVIL AEROSPACE UNDERLYING OPERATING PROFIT\nUNDERLYING REVENUE\n£2,130m\n2024: £1,505m\nLarge engines – 76%\nBusiness aviation – 19%\n£10,382m\nRegional – 2% UNDERLYING OPERATING MARGIN\nV2500 – 3% 2024: £9,040m 20.5%\n2024: 16.6%\nDEFENCE UNDERLYING OPERATING PROFIT\nUNDERLYING REVENUE £689m\n2024: £644m\nTransport – 31%\nCombat – 30%\n£4,772m\nSubmarines – 28% UNDERLYING OPERATING MARGIN\nNaval 1 – 7% 2024: £4,522m 14.4%\nHelicopters – 4%\n2024: 14.2%\nPOWER SYSTEMS UNDERLYING OPERATING PROFIT\nUNDERLYING REVENUE £852m\n2024: £560m\nPower generation – 54%\nGovernmental – 25%\n£4,892m\nMarine – 10% UNDERLYING OPERATING MARGIN\nIndustrial – 9% 2024: £4,271m 17.4%\nBESS – 2%\n2024: 13.1%\n1 On 18 September 2024, the Group signed a sale and\ndisposal agreement for its naval propulsors & handling\nbusiness with Fairbanks Morse Defense. On 1 July 2025\nthe sale of the naval propulsors business completed,\nwith the sale of the naval handling business anticipated\nin 2026\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 3\nSTRATEGIC\nREPORT", "char_count": 1027, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 6, "printed_page": 4, "section": "Strategic Report", "subsection": "Chair's statement", "text": "Chair’s statement\nReflecting the growing strength of our\nDame Anita Frew financial performance and balance sheet,\nChair we have announced a final cash dividend\nfor 2025 of 5.0p per share to be paid in June\nsubject to shareholder approval at our AGM\non 30 April 2026. This brings the full year\ndividend for 2025 to 9.5p per share and is in\nline with the payout ratio we announced as\npart of our capital framework in 2024. We\nhave also announced a multi-year share\nbuyback programme across 2026 to 2028 of\n£7.0bn to £9.0bn. Of this, £2.5bn is expected\nto be completed in 2026, including £200m\ncompleted between 2 January 2026 and the\ndate of this report.\nIn tandem with these shareholder\ndistributions, we continue to make significant\ninvestments in our products, our operations\nand our people. Tufan talks more about these\ninvestments in his review from page 6.\nOur strategy\nThroughout 2025, the Board continued\nto monitor progress against our strategic\ninitiatives, as outlined at our Capital Markets\nDay in November 2023. We are pleased that\nthe strength of our performance this year\nin executing our strategy has allowed us to\nprovide 2026 guidance of £4.0bn to £4.2bn\nunderlying operating profit, and £3.6bn\nto £3.8bn free cash flow. We have also\nupgraded our mid-term targets to £4.9bn to\nThe Board is pleased with the progress we £5.2bn underlying operating profit, 18% to\n20% operating margin, £5.0bn to £5.3bn free\nhave made in 2025 to transform Rolls-Royce into a cash flow, and 23% to 26% return on capital\nbased on a 2028 timeframe.\nhigh-performing, competitive, resilient and growing\nbusiness for the benefit of all our stakeholders. We During the year, the Board held a\nstrategy session in which we looked at the\nrecognise that ensuring the sustainable long-term opportunities for, and drivers of, growth\nin our current portfolio and market sectors\ngrowth of this great organisation is a multi-year journey.\nbeyond the mid-term. As we continue\nour transformation journey, the Board\nis focused on ensuring that Rolls-Royce\nis well-positioned to fully exploit these\nfuture opportunities.\nIt gives me great pleasure to introduce During the year, I have had the opportunity\nIn addition to our regular updates on\nour Annual Report. In my introduction to engage with many of our stakeholders,\nstrategic progress, the Board held a\nlast year, I spoke about the major including institutional shareholders,\ndeep dive session with our Civil Aerospace\ntransformation which Tufan and all our customers and governments and I thank\nleadership team to learn how our strategic\ncolleagues at Rolls-Royce embarked upon them for their continued trust and support.\ninitiatives are delivering value in this, our\nin 2023. I said that while our transformation Our vision is to transform Rolls-Royce into a\nlargest business division. This session\njourney is not complete, robust foundations high-performing, competitive, resilient and\nenabled us to understand in more detail\nhad been put in place to support sustainable growing business for the benefit of all our\nhow we optimise our portfolio of large engine\nlong-term growth. Our strong performance stakeholders. My Board colleagues and I are\nprogrammes to meet growing demand in the\nin 2025, builds further confidence pleased with the strong progress we have\nwidebody aircraft market, and the steps we\nin those foundations, in the power of made in 2025 towards realising this ambition.\nare taking to deliver operational excellence\nour transformation, the potential of our We recognise that ensuring sustainable\nin our manufacturing and aftermarket\nstrategy and the commitment of our people. long-term growth is a multi-year journey and\noperations. We also focused on the safety of\nTufan sets out in more detail from page 6 our\nour people and products, and learnt how we\nOn behalf of the Board, I want to thank our levers of growth to fully realise the potential\nare nurturing talent and developing future\npeople worldwide for their passion, focus and of this great organisation.\nleaders in the Civil Aerospace business.\ndedication to Rolls-Royce.\nFinancial strength and shareholder\nOn many of our site visits we were also\ndistributions\nable to see for ourselves how our strategic\nLast year, the Board was pleased to announce\ninitiatives are cascaded through the\na return to shareholder distributions in the\norganisation right down to the shop floor.\nform of cash dividends and a £1bn share\nIn this way, our people can see how their\nbuyback which was completed during 2025.\nday-to-day efforts directly impact the\nAt the end of 2025, we announced an interim\nperformance of Rolls-Royce.\nshare buyback of £200m which commenced\nin January and concluded in February 2026.\n4 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4751, "tables": [ [ [ "Dame Anita Frew Chair", null, null, null, null ], [ null, null, null, null, null ], [ null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 7, "printed_page": 5, "section": "Strategic Report", "subsection": "Chair's statement", "text": "CHAIR’S STATEMENT\nEmbedding cultural change representatives of local governments and durability of our products, to reduce\nDuring the year, my fellow Directors and authorities at all times, and particularly as their impact on the environment or to meet\nI were pleased to see how the organisation we plan capacity expansion to meet future the needs of our customers and society as\nis embracing the cultural change that is growth opportunities. Where we do not the global demand for power, connection\nat the heart of our transformation and interact directly with, for example, our and protection increases (see the Chief\nwithout which our strong financial commercial customers and suppliers, we Executive’s review from page 6 and\nperformance would not be possible. hear regularly from Tufan and members of Sustainability from page 38).\nFor me, cultural change means moving the Executive Team about their engagement\nwith pace, a focus on optimisation and a with and feedback from these stakeholders. Board\nmindset of continuous improvement. These In 2025 we were particularly pleased to During 2025, we initiated a process\nbehaviours are evident, for example, in our learn that the actions which the management to appoint successors to Bev Goulet and\nimproving safety metrics, in the remediation team have taken to enhance durability in the Nick Luff as they near the end of their terms\nof long-standing engineering challenges, Trent 1000 fleet and to mitigate supply chain as Non-Executive Directors on our Board.\nin better operational execution and in the challenges have been making a meaningful Our Nominations, Culture & Governance\nagility with which we assessed, and took steps difference to our customers, not least in the Committee aims to conclude these searches\nto mitigate, the potential impact of tariffs. reduction of our aircraft on ground number. during the course of this year.\nPlease see Stakeholder engagement on\nThe Board recognises the paramount page 60 for more information. Once again, we conducted an internally\nimportance of safety for our people and facilitated review of the effectiveness of our\nall our stakeholders, and therefore, we are As you will read in our Remuneration Board and its Committees in 2025. These\nparticularly pleased to see the focus and report from page 82, my colleague reviews were positive while also identifying\nprogress on our safety performance. I Lord Jitesh Gadhia, Chair of our areas for new or continued focus in 2026,\nknow my colleagues on the Safety, Energy Remuneration Committee, engaged which are discussed further on page 73.\nTransition & Tech Committee were impressed extensively in the autumn with our major\nwith the new Safety Experience initiative institutional investors about proposed Looking forward\nwhich you can read more about on page 35. changes to our remuneration policy. As a 2025 marks a third successive year of\nBoard we are committed to ensuring that record performance. This demonstrates\nThrough our site visits and Meet the Board our remuneration arrangements enable us that our transformation programme,\nevents my Board colleagues and I have to recruit and retain the best talent over the focus on operational excellence and the\nexperienced for ourselves how the long-term, while also ensuring continued enthusiasm of our people is starting to\ntransformation journey is energising our alignment of management interests with generate sustained performance and is\npeople. In 2025, we had the opportunity shareholder interests. The proposed changes leading to the transformation of Rolls-Royce\nto engage with employees during visits to to our remuneration policy are outlined in into a high-performing, competitive, resilient\nour business aviation facilities at Dahlewitz, more detail from page 83. and growing business.\nGermany; our Defence site in Bristol, UK; and\nat our Civil Aerospace facilities in Derby, UK. Engineering for the future While there are many challenges in\nIn addition to our site visits, our Employee In my Chair’s statement last year, I talked the external environment, there are\nChampions, Bev Goulet and Wendy Mars, about building on the iconic strengths also opportunities. Through robust\nshared insights and feedback with the Board of our engineering heritage. In 2025, we operational execution of our strategy\nfrom their visits to our sites in Washington, celebrated a number of milestones which by our three divisions, Civil Aerospace,\nUK; Inchinnan in Scotland, UK; and at our speak to the depth and breadth of our Defence, and Power Systems together with\nNuclear Skills Academy in Derby, UK. engineering skill. The Trent 700 engine our joint venture for small modular reactors,\nmarked 30 years since entry into service Rolls-Royce is well-positioned to seize the\nAs I reflect on 2025, it is clear that we are with over 75 million flying hours since opportunities for growth across our portfolio\nbuilding a culture of high performance and its launch. Our Dahlewitz, Germany site and our geographies, in and beyond the\nresilience and that, year-on-year, it reaches delivered its 9,000th jet engine for the mid-term. Inspired by our purpose and\ndeeper into the organisation. You can read business aviation market and more than empowered by the cultural change that\nmore about our People and culture from 20 years since the Eurofighter Typhoon is driving our transformation, the Board is\npage 31. aircraft was first flown, we continue to receive confident that our leaders, and our people\norders for our EJ200 engine. Our expertise worldwide, are well equipped to navigate\nEngaging with stakeholders in nuclear propulsion for the UK Royal Navy’s any headwinds while forging a path to\nIn addition to engaging with our people, nuclear submarines is the foundation for greater innovation, resilience and growth.\nmy Board colleagues and I had opportunities Rolls-Royce SMR’s small modular reactor\nto engage with shareholders, institutional technology, which was selected by Dame Anita Frew\ninvestors and governments during the year. Great British Energy – Nuclear, following Chair\nIn parts of our home countries, Rolls-Royce a competitive tender process. But, as\nis a major employer and contributor to the Tufan explains in more detail in his Chief\nlocal economy. Therefore, we value our Executive’s review, we continue to invest in\nengagement with, and support from, new technology, whether to enhance the\nIt is clear that we are building a culture\nof high performance and resilience and\nthat, year-on-year, it reaches deeper into\nthe organisation.”\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 5\nSTRATEGIC\nREPORT", "char_count": 6613, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 8, "printed_page": 6, "section": "Strategic Report", "subsection": "Chief Executive's review", "text": "Chief Executive’s review\nThe momentum we built in 2024 has\nTufan Erginbilgic continued through 2025. We have\nChief Executive expanded the potential of the existing\nbusiness while also seeking to assure\nour strategic ambitions. Underpinning\nour significantly improved performance is\nour strong operational execution which has\nincreased operating margin and expanded\nprofit and cash generation. One year ago,\nwe set a mid-term operating margin target\nof 15% to 17%. We exceeded that range in\n2025, three years earlier than planned. This,\ncombined with our distinctive performance\nculture, is setting our business apart in terms\nof safety and day-to-day delivery, allowing us\nto exploit fully our advantaged technologies.\nThe external environment in which\nwe operate has remained complex.\nAlongside industry-wide supply chain\nchallenges there have been uncertainties\nintroduced by tariffs and other geopolitical\ntensions. The resilience and agility we have\nestablished in the organisation has allowed\nus to deliver continued high-performance\ndespite these headwinds.\nI believe we have extensive growth\nopportunities beyond the mid-term,\nin our existing businesses and via our\nstrategic investments as set out below.\nOur disciplined performance culture is\nensuring a stable foundation for our future\nbusiness performance.\nThis year, we have further embedded the\ncultural change that is driving our transformation, Having reinstated dividends last year for\nthe first time since 2019, we are very pleased\nwith strong results produced across the Group. to continue shareholder distributions with\na final dividend of 5.0p per share in respect\nThrough our transformation activities we have\nof the 2025 full year. This brings the full\ncreated unmatched growth and expanded the year dividend for 2025 to 9.5p per share.\nIn November 2025, we completed the £1bn\npotential of the business. Our people are aligned, share buyback announced with our 2024\nresults. We commenced an interim buyback\nenergised and mobilised. They are driven by a clear\nat the start of 2026 to the value of £200m,\npurpose which is moving us to a place where we can which was completed in February 2026.\nGiven the strength of our balance sheet and\ndo things today that we could not previously do. cash generation potential, we can commit to\na multi-year buyback in the range of £7.0bn\nto £9.0bn over the next three years, with\n£2.5bn (inclusive of the interim buyback\nOur delivery in 2025 received a demonstration of this immersive of £200m already completed) allocated\nSafety is the single most important priority experience. A speak up culture is central to for 2026. This longer-term commitment\nfor everyone at Rolls-Royce, be it product, safety, enabling proactive identification is a sign of our belief in the business and\npeople or process safety. In all aspects we and resolution of potential issues. We have our confidence is mirrored by the rating\nhave continued to make strong progress. improved on all people safety measures agencies, with all three, Fitch, Moody’s and\nOur product safety risk is at the lowest level over the last three years and are determined S&P rating us at investment grade.\nfor a generation, with all divisions resolving to build on that in 2026. Our mission\nissues and further enhancing our portfolio never changes on safety. We will always We expect 2026 to be another strong year.\nto the levels we and our customers expect. strive for zero safety events and continue to Our 2026 guidance raises our operating\nDuring the year, we launched a facilitator-led enhance the safety of our products, systems profit to £4.0bn to £4.2bn and our free\nSafety Experience, available to all employees and services. cash flow to £3.6bn to £3.8bn. This guidance\nin which we step through key aspects of our sees us delivering our previous mid-term\nsafety system, the part we each play and In 2025, we had another strong year. operating profit target two years earlier\nhow we are all responsible for safety. Operating profit of £3.5bn was 38% higher than planned.\nOver 13,000 of our people had completed than 2024, and free cash flow of £3.3bn\nthis activity by the end of 2025 including was 35% above 2024. To all of our employees\nmembers of the Executive Team. The Safety, around the world who made this happen\nEnergy Transition & Tech Committee also – thank you. Thanks to your efforts, we are\nsecuring our position as a high-performing,\ncompetitive, resilient and growing business.\n6 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4508, "tables": [ [ [ "Tufan Erginbilgic Chief Executive", null, null, null, null ], [ null, null, null, null, null ], [ null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 9, "printed_page": 7, "section": "Strategic Report", "subsection": "Chief Executive's review", "text": "CHIEF EXECUTIVE’S REVIEW\nOur transformation they believe has demonstrated one of our The Trent XWB engines remain incredibly\nI am frequently asked to describe the behaviours. Since its launch in October, there popular. As the most successful large\ntransformation we have undertaken at have been over 10,000 unique recognition engine in our history, the Trent XWB-84’s\nRolls-Royce. My first point is to reiterate records from around the world. That so performance and time on wing continues\nthat we are not pursuing a turnaround many people see their colleagues making to improve, with additional benefits being\nor restructuring, rather a fundamental a difference correlates with our overall delivered through 2026. Improving on\ntransformation of the business. When people business performance. We now have the most efficient large aero engine in\nthink of a turnaround, the outcome is a return an organisation that is driven by a clear service, the Trent XWB-84 EP (Enhanced\nto a point in the past and past performance. purpose, and which thrives on making a Performance) entered service in 2025.\nOur transformation is about taking the difference. Further information on Power Operators of this engine have seen\nbusiness from point A to point B, where at of You and our approach to employee improvements in fuel burn of over 1% in\npoint B the business is capable of things it recognition can be found in People service. In addition, we completed materials,\ncould not even conceive at point A. Because and culture from page 31. component and engine testing on the Trent\nof our differentiated mindset, capability XWB-97 developments, progressing our\nand financial strength we are well on the Sustained transformation depends on leaders durability package on that engine.\nway to point B. What we are learning is that who both run and evolve the business, not\nas we get closer, we see more opportunity, as separate roles, but as one integrated Additive manufacturing offers enormous\nexpand further and point B evolves. responsibility. We have standardised and potential and is set to be used in many of\nOur transformation is an overarching embedded our leadership expectations our products across the portfolio. In an\nprogramme that brings together our into the systems that shape performance, important breakthrough, Power Systems has\nstrategy, our purpose and our behaviours succession and everyday decision-making. redesigned, optimised, printed and tested\nto align delivery as One Rolls-Royce. This performance framework ensures that numerous highly stressed core components\nthese expectations translate into consistent in our Series 2000 engine. The team took\nIn our 2024 Annual Report, I said that 2025 behaviour and accountability. The impact of advantage of the design freedom and\nwould be a significant year in which we our leaders is amplified through our Change new possibilities offered by the additive\nsecure the foundations that underpin Maker network. This community continues to manufacturing techniques to deliver a lighter\nour distinctive performance culture. At grow across the whole Group, with more than component, with geometries that could not\nRolls-Royce, culture is a product of how we 1,300 employees participating. They have be achieved with traditional manufacturing\nrun the business, it is not a separate agenda. matured from advocacy to active facilitation, processes. The potential for this technology\nIt is embedded in our systems, leadership and working alongside people leaders to embed is vast, enabling faster manufacture for\ndaily decisions. We continue to pursue our behaviours into daily habits and tangible development, production and spare parts.\ntransformation supported by our four key outcomes. Active sponsorship from leaders\npillars: empowered leadership; granular empowers Change Makers to remove Another sign of our differentiated\nstrategy; performance culture; and intensity, barriers, recognise progress and increase the technologies aligning with our granular\npace and rigour. Our leaders are trusted and impact of our transformation on our culture. strategy is the selection by Great British\ngrounded in belief, clarity of direction and As I visit our sites across the globe, it Energy – Nuclear of Rolls-Royce SMR to\naccountability. Our strategy is clear for all is heartening to see this performance build three small modular reactor (SMR)\nemployees, who know their role and the framework forming the foundations of a units in the UK following a competitive\ncritical contribution they make. Our strategic sustainable transformation. tender process. This is a boost to UK\ninitiatives advance the business through economic growth and exports that will create\nclear expectations and targets, proactive Leadership changes significant long-term value for Rolls-Royce.\ninterventions and continuous feedback. Our During the year, we created a new role on\nperformance culture is rooted in developing the Executive Team of Chief Procurement The combination of these activities across\nand attracting the best talent. Through the and Supply Chain Officer. This role our divisions and strategic investments is\nyear, there were many times where swift recognises the importance of these further evidence of our transformation into\naction was required to respond to changing areas and the need to continue driving a high-performing, competitive, resilient and\ncontext, dynamics and new constraints. Our improvements in our supply chain. It growing business that can invest in its future\nteams demonstrated a high level of maturity, underscores our commitment to address growth for the benefit of all stakeholders.\nconsistently operating with speed and depth these issues for the benefit of our customers\nwhen it mattered most, proving that our and other stakeholders. I look forward to Strategic Initiatives\nculture is supporting a completely different working with Martin Thomsen when he takes Civil Aerospace\nlevel of resilience. up this role in March. I also look forward to Our momentum in Civil Aerospace\nwelcoming Maria Varsellona who joins us as continued in 2025 with growth in orders\nOur behaviours Chief Legal Officer and I thank Mark Gregory across our widebody portfolio. We received\nIn 2024, we introduced our new behaviours: for his 20 years of service to Rolls-Royce, the multiple commitments for the Trent XWB-97\nput safety first; do the right thing; keep it last ten of which as General Counsel, and wish powered A350 freighter and we expect to\nsimple; and make a difference. These have him well for the future. see continued momentum through 2026 with\ngalvanised our organisation and have swiftly this aircraft. The Trent XWB family and the\nbecome our language. They are simple and Progress on our strategic framework Trent 7000 remain popular choices, offering\nstraightforward, with genuine substance, airlines versatile solutions.\nPortfolio choices and partnerships\nand I believe they have been instrumental in\nWe continue to invest heavily in our\nour success. As part of our engagement and\nproducts, infrastructure and capabilities.\nrecognition activities, we launched a portal,\nA significant investment has been made\nPower of You, that allows any employee to\nin our Civil Aerospace engine portfolio, with\ndirectly recognise someone or a team that\n£1bn allocated to enhance attributes and\nincrease time on wing, on which we are\nmaking good progress.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 7\nSTRATEGIC\nREPORT", "char_count": 7467, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 10, "printed_page": 8, "section": "Strategic Report", "subsection": "Chief Executive's review", "text": "CHIEF EXECUTIVE’S REVIEW\nOUR STRATEGIC FRAMEWORK\nPortfolio choices and Strategic initiatives Efficiency and simplification Lower carbon and digitally\npartnerships How we will create a competitive The importance of a Group-wide enabled businesses\nThe markets we have chosen to business, expand our earnings focus to drive synergies that will Our commitment to the energy\noperate in, businesses we want potential and sustainably improve enable us to be more competitive transition and capturing the benefits\nto invest in and the partnerships our performance. and simplify the way we operate. of becoming digitally enabled.\nthat will help create truly\nwinning positions.\nThe Trent 1000 is also a beneficiary of Rolls-Royce continues to set the standard Another benefit of our granular strategy is\ncontinued investment. In 2025, the improved in the business aviation market. In 2025, our focus on battery energy storage systems\nPhase 1 High Pressure Turbine (HPT) blade we delivered the 9,000th engine from (BESS), designed for grid-scale performance,\nwas fully certified for the Trent 1000 TEN, our Dahlewitz site in Germany. We saw long term reliability and seamless integration\nand began to be incorporated into the strong demand for the Pearl 15-powered with renewable power. The business achieved\nexisting fleet at shop visits. The first new Bombardier Global 5500 and 6500 as well as break-even in 2025. We have now delivered\nproduction engines entered into service for the Pearl 700-powered Gulfstream G700 battery storage solutions for over 200\nwith Lufthansa. We took the opportunity and the G800, that also entered into service projects worldwide.\nto acknowledge this major step forward last year. The Pearl 10X continues to make\nin durability and doubling of time on wing strong progress towards engine certification. Looking ahead\nby introducing this enhanced engine as\nthe Trent 1000 XE. This recognises the Defence Mid-term growth\nsignificant investment, reliability and Our Defence division had notable orders In our 2025 half year results, we upgraded\ndurability improvements and the completely and product development achievements in our 2025 guidance based on the strong\nrefreshed standard our operators will 2025. The EJ200 captured significant order start to the year and confidence in\nreceive. The improvements are also being intake from the Typhoon partner nations and our performance. Planning completed\nincorporated in shop visits. We have very secured major export success with Türkiye during 2025 shows that we expect our\nhigh confidence in the benefits of these with commitments for 20 Typhoon aircraft strong performance to continue in the\nimprovements. In December, the Phase 2 HPT with an option for more in the future. These mid-term. Accordingly, we have upgraded\nblade was certified and, during 2026, will orders mean we have visibility of EJ200 our mid-term targets to £4.9bn to £5.2bn\nbe fitted to new engines and at shop visits, production into the 2030s. underlying operating profit, 18% to 20%\nfurther increasing the time on wing of operating margin, £5.0bn to £5.3bn free cash\nthe engine. Our work continues with the Defence flow, and 23% to 26% return on capital based\non a 2028 timeframe.\nResearch and Development Organisation\nA major focus through 2025 has been (DRDO) in India on the UK-India Jet Engine\noperational execution, specifically improving Advance Core Technologies (JEACT) All our divisions are expected to\nnew engine production and aftermarket shop programme to advance an indigenous continue to contribute in 2026 and beyond.\nvisit output, for the benefit of our customers. combat engine design. Operating profit growth in Civil Aerospace\nWe were delighted to win a Supplier Award will be driven by several factors, including\nfrom Airbus, recognising our actions on new Over the past decade we have invested stronger aftermarket performance,\nengine delivery and specifically for “Ramp more than $1bn in technology enhancements, improved widebody OE profitability,\nup and Operational Excellence”. This is the facility upgrades and test capabilities at our improved business aviation performance,\nfirst time an engine manufacturer has been Indianapolis, US site. We have made excellent and higher profitability on spare engines.\nnominated for this award and is evidence of progress with our F130 testing for the B52 By the mid-term, we expect rising widebody\nour strategy and transformation in action. re-engining programme. We started AE 1107 deliveries and Trent XWB installed engine\ndeliveries to be break-even or positive,\nengine testing to support prototype delivery\nWe have improved performance in, and for the U.S. Army MV-75 Future Long Range thanks to our commercial optimisation\ncontinued to expand, our maintenance, Assault Aircraft (FLRAA) programme. Each and efficiency actions. Over the last three\nrepair and overhaul (MRO) facilities including MV-75 FLRAA will be equipped with two years, we have captured more than 50% of\nin Derby, UK and Dahlewitz, Germany. In the advanced Rolls-Royce AE 1107 engines, widebody deliveries. This has driven up our\nwider MRO network Beijing Aero Engine featuring world-class power density, share of the installed fleet from 34% to 38%.\nServices Limited (BAESL), our joint-venture cyber-compliant controls and\nfacility with Air China opened on plan and survivability technology.\ninducted its first Trent 700 engine. Air France\nIndustries KLM Engineering & Maintenance Power Systems\ncentre inducted the first Trent XWB-84 Momentum in our Power Systems division\nengine, and we announced Turkish Technic continued in 2025 with significant growth\nand Emirates as the newest members of our in power generation, where data centre\nMRO network. demand soared, as well as in governmental.\nConsequently, we committed to significant\nA significant milestone occurred in 2025 with investment at both our Mankato, Minnesota\nthe marking of 30 years since the entry into facility and our Aiken, South Carolina plant in\nservice of the Trent 700. Since launch, this the US.\nengine has completed over 75 million flying\nhours. This is a significant achievement with\nfurther potential as approximately 40% of\nthe programme’s total flight hours are still\nto come.\n8 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6285, "tables": [ [ [ "OUR STRATEGIC FRAMEWORK", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 11, "printed_page": 9, "section": "Strategic Report", "subsection": "Chief Executive's review", "text": "CHIEF EXECUTIVE’S REVIEW\nPower generation revenues are now resulting We see a growing trend toward autonomous A further growth opportunity is in\nin higher and improving margins, as we platforms in defence. This is a significant narrowbody. Our UltraFan technology,\ncontinue to enhance the business model. market opportunity, which we are well which we are developing for both\nData centre demand remains very strong placed to capitalise on given our capabilities. widebody and narrowbody platforms,\nand a significant portion of our growth to Rolls-Royce will power the U.S. Navy MQ 25A, positions us strongly for the next generation\nthe mid-term is already underpinned by firm the first autonomous aerial refueller in aviation of narrowbody aircraft. The market is large\norders. In governmental, our strong market history. We are investing further to position and would offer meaningful synergies with\npositions and increased global defence Rolls-Royce for future autonomous our existing widebody and business aviation\nspending give us improved visibility of orders opportunities, including our Orpheus engine activities. To progress this opportunity,\nin the mid-term. Marine, BESS and services demonstrator, an affordable, versatile small we are building a narrowbody sized\nrevenues are all expected to grow in engine architecture that can be adapted for demonstrator with up to 30,000 pounds\nthis period. multiple applications. of thrust, which is planned for ground testing\nin 2028. We expect UltraFan technology\nIn Defence, highly competitive Power Systems to deliver a significant improvement in\nperformance in the mid-term will In Power Systems, long-term growth is fuel-burn versus existing narrowbody\nbe driven by our self-help measures, expected to be driven primarily by power engines. We have already made significant\ncoupled with demand growth, productivity generation and governmental. We anticipate investments in UltraFan and will continue to\nimprovements and capacity expansions. sustained power generation growth driven do so as we look to re-enter the narrowbody\nWe see significant growth beyond the by data centres. We are uniquely positioned market in partnership.\nmid-term as new programmes ramp up. to help the hyperscalers with their future\ndata centre power demands, including The business we are creating\nLong-term growth – existing business backup power, prime power and with SMRs. We are delivering on our proposition\nCivil Aerospace Our next generation Series 4000 engine, to transform Rolls-Royce into a high-\nIn Civil Aerospace, we hold leading positions which will be released in 2028, targets the performing, competitive, resilient, and\nin widebody and business aviation. In ever-increasing power demands of AI data growing business. We have achieved a\nwidebody, we see growth in deliveries to centres with a 20% higher power density. step-change in financial performance\nthe mid-term and beyond. We are continuing In governmental markets, rising defence over the past three years and we expect\nto improve our long-term service agreement spending supports both land and naval further strong progress in 2026. We have\nmargins beyond the mid-term. This is a applications, where we are the incumbent set new, upgraded mid-term targets for 2028.\nsustainable benefit as more contracts come supplier on the main European\nin with higher margins. Our time on wing NATO platforms. We are transforming Rolls-Royce into a\ninitiatives are expected to result in a highly sustainably distinctive company for the\ncompetitive engine portfolio. Taken together, our existing businesses are benefit of all our stakeholders. We have\nwell-positioned to deliver significant growth, advantaged products and technologies,\nOur Pearl family of business aviation engines with rising operating margins and growing significantly improved safety and operational\nleads the long range and ultra-long range cash flows well beyond the mid-term. This capabilities and excellence in customer\nsegment, with strong positions on the latest growth will be driven by a combination of service. We have a differentiated mindset\nlarge cabin jets. Deliveries of these platforms market growth and self-help. and distinctive performance culture. These,\nare ramping up and will remain in production combined with a strong balance sheet and\nfor many years. Based on our actions, we Long-term growth – new opportunities best-in-class efficiency, will unlock significant\nexpect to generate positive OE margins We see the potential for long-term growth growth from our existing businesses, and\nand as the fleet expands, we see potential to arising from new opportunities, leveraging our new opportunities. I am very proud of the\ngenerate growing aftermarket revenues with differentiated and advantaged technologies Rolls-Royce team and what we have delivered\nincreasing margins and cash flows. and capabilities. For example, our unique so far, and I am even more excited about what\ncapability in nuclear positions us extremely we will deliver together in the future.\nDefence well in this fast-growing market. We are\nBeyond the mid-term, growth opportunities already the leading SMR player in Europe, Tufan Erginbilgic\naccelerate as several major programmes following success in the UK and the Czech Chief Executive\nramp up. We hold a significant share in the Republic, and have started the regulatory\nGCAP programme, which we believe will be process in the US. We see a total addressable\na leading combat aircraft programme with market of more than 400 SMRs by 2050.\nsignificant export opportunity potentially In addition to SMRs, we see an adjacent\nlarger than Eurofighter. GCAP production is opportunity in Advanced Modular Reactors\nexpected to ramp up in the mid-2030s. The (AMRs); AMRs are smaller, more flexible\nMV-75 aircraft programme will also begin to powerplants with potential applications in\nramp up from 2028, with a life of more than defence and commercial power.\n30 years including both OE and aftermarket.\nSafety is the single most important priority\nfor everyone at Rolls-Royce.”\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 9\nSTRATEGIC\nREPORT", "char_count": 6138, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 12, "printed_page": 10, "section": "Strategic Report", "subsection": "Our purpose, vision and behaviours", "text": "Our purpose, vision and behaviours\nWe are proud to be a business that has truly helped to shape the modern world\nand our ambition is to continue in this role for the long term. Our purpose statement\nencapsulates that commitment to the future and reflects why we exist as a business.\nOUR PURPOSE\nA force for progress; powering, protecting and connecting people everywhere\nOUR VISION\nTransforming Rolls-Royce into a high-performing, competitive, resilient and growing business\nOUR STRATEGY\nA strategic framework to build a sustainably distinctive and leading business\n1 Portfolio choices 2 Strategic initiatives 3 Efficiency and 4 Lower carbon and\nand partnerships simplification digitally enabled\nbusinesses\nOUR BEHAVIOURS\nPut safety first Do the right thing Keep it simple Make a difference\nPrioritising the safety of Supporting a culture of caring Working together to share Thinking about the business\nour people and products and belonging where we listen and execute ideas and impact of our choices and\nand supporting each other first, embrace feedback and staying adaptable to the business outcomes of\nto speak up act with integrity new ideas and solutions our decisions and challenging\nourselves to deliver excellence\nand efficiency every day on the\nthings that matter\nFor more information, see the Chief Executive’s\nreview from page 6\nF or more information, see People and culture\nfrom page 31\n10 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1445, "tables": [ [ [ "OUR PURPOSE A force for progress; powering, protecting and connecting people everywhere", null, null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null, null ], [ "OUR VISION Transforming Rolls-Royce into a high-performing, competitive, resilient and growing business", null, null, null, null, null, null, null, null, null, null, null, null ], [ "OUR STRATEGY A strategic framework to build a sustainably distinctive and leading business 1 Portfolio choices 2 Strategic initiatives 3 Efficiency and 4 Lower carbon and and partnerships simplification digitally enabled businesses", null, null, null, null, null, null, null, null, null, null, null, null ], [ "OUR BEHAVIOURS Put safety first Do the right thing Keep it simple Make a difference Prioritising the safety of Supporting a culture of caring Working together to share Thinking about the business our people and products and belonging where we listen and execute ideas and impact of our choices and and supporting each other first, embrace feedback and staying adaptable to the business outcomes of to speak up act with integrity new ideas and solutions our decisions and challenging ourselves to deliver excellence and efficiency every day on the things that matter", null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ null ], [ "Put safety first Prioritising the safety of our people and products and supporting each other to speak up" ] ], [ [ null ], [ "Do the right thing Supporting a culture of caring and belonging where we listen first, embrace feedback and act with integrity" ] ], [ [ null ], [ "Keep it simple Working together to share and execute ideas and staying adaptable to new ideas and solutions" ] ], [ [ null ], [ "Make a difference Thinking about the business impact of our choices and the business outcomes of our decisions and challenging ourselves to deliver excellence and efficiency every day on the things that matter" ] ] ], "table_count": 5 }, { "pdf_page": 13, "printed_page": 11, "section": "Strategic Report", "subsection": "Our strategy", "text": "Our strategy\nIn 2025, significant progress was made in delivering our clear strategy.\nBuilding a high-performing, competitive, resilient and growing business is\nunderpinned by our transformation and a differentiated performance culture.\nRolls-Royce has been at the forefront of The Rolls-Royce proposition To implement our strategy, we are being\ninnovation for over a century. We set the disciplined, agile and systematic. We will\nstandard for engineering excellence, 1. Become a high-performing, continue to have a tight focus on priorities,\nproviding mission-critical products and competitive and resilient business. improve commercial discipline and\nservices to customers around the globe. seek efficiency in every step, while never\n2. Grow sustainable free cash flow.\ncompromising on integrity or safety. We\nWe have built a world-class product portfolio 3. Build a strong balance sheet and have put the business on a stronger financial\nand deep customer relationships in attractive grow shareholder returns. footing with sustainable improvements in\nmarkets. Our focus now is to translate our working capital, higher operating margins\ntechnical and market success into strong Delivering the Rolls-Royce proposition and improved operational performance.\nfinancial results. is making us a stronger partner, to the\nbenefit of all our stakeholders, as they Improving profitability will give us more\nThe strong progress made in 2025 gives us face future challenges and opportunities. options to grow the business and enhance\nconfidence in the delivery of our strategy. We are unlocking our full potential by shareholder returns. This performance shift\nWe are accelerating financial delivery and turning engineering excellence into is also crucial to creating more opportunities\nare moving at pace to achieve our mid-term strong financial performance. for our people to be part of an energising,\ntargets, a key milestone towards unlocking rewarding and world-leading company.\nour growth potential. This has enabled us to\nupgrade our mid-term targets to £4.9bn to\n£5.2bn underlying operating profit, 18% to\n20% operating margin, £5.0bn to £5.3bn free\ncash flow, and 23% to 26% return on capital\nbased on a 2028 timeframe.\nOUR TRANSFORMATION\nSTRATEGIC FRAMEWORK\nA HIGH-PERFORMING, COMPETITIVE\n— P ortfolio choices and partnerships\nAND RESILIENT BUSINESS WITH\n— Strategic initiatives PROFITABLE GROWTH\n— Efficiency and simplification\n— L ower carbon and digitally enabled businesses\nGROWING SUSTAINABLE FREE CASH FLOW\nDELIVER AS ONE ROLLS-ROYCE\n— Embrace new ways of working and mindset\n— Establish a differentiated performance culture\n— Execute with strategic clarity\nSTRONG BALANCE SHEET AND GROWING\n— Externally focused and benchmarking SHAREHOLDER RETURNS\n— Simplified organisation and strengthened capabilities\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 11\nSTRATEGIC\nREPORT", "char_count": 2873, "tables": [ [ [ "OUR TRANSFORMATION", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "STRATEGIC FRAMEWORK" ], [ "— P ortfolio choices and partnerships — Strategic initiatives — Efficiency and simplification — L ower carbon and digitally enabled businesses" ] ], [ [ "DELIVER AS ONE ROLLS-ROYCE" ], [ "— Embrace new ways of working and mindset — Establish a differentiated performance culture — Execute with strategic clarity — Externally focused and benchmarking — Simplified organisation and strengthened capabilities" ] ] ], "table_count": 3, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 14, "printed_page": 12, "section": "Strategic Report", "subsection": "Our strategy", "text": "OUR STRATEGY\nOUR STRATEGIC FRAMEWORK: DELIVERING SUSTAINABLE GROWTH THROUGH TRANSFORMATION\n1 We have made choices about the markets in which we operate, where to invest and the partnerships that B C D E\nwill help create winning positions, based on clear criteria. We only invest where the market is attractive and\ngrowing, where we can build an advantaged position, differentiated through strong customer relationships and F G H I\ncompetitive technology, and where there are high barriers to entry. This allows us to allocate resources more M\neffectively and drive profitable growth.\nPortfolio choices\nand partnerships\nIn Civil Aerospace, we announced a partnership with Turkish Technic to establish a state of the art maintenance, 1 2 3 4\nrepair and overhaul centre. In Defence, we announced an expansion of our partnership with Avio Aero (Italy)\n5 6 7 8\nand IHI (Japan) to accelerate the development of the power and propulsion system for the next-generation\nfighter aircraft being developed through the Global Combat Air Programme (GCAP) and we completed the 9 10 11\nsale of our naval propulsors business to Fairbanks Morse Defense. In nuclear, we are deepening our partnership\nwith ČEZ Group (ČEZ), now a shareholder in Rolls-Royce SMR.\n2 Enhancing our competitiveness, expanding our earnings potential and sustainably improving our performance A B C D\nrelies on the successful implementation of our strategic initiatives. The initiatives are owned by our teams and\nthe process we have put in place ensures that every employee knows their role in delivering against the targets, E F G H\ncreating complete alignment with the Rolls-Royce strategy. I K L M\nStrategic initiatives\nIn Civil Aerospace, we continue to make progress in improving time on wing, reducing operating costs and\nimproving asset utilisation. In Business Aviation, our Pearl 800 engine entered service with Gulfstream and 1 3 4 5\nwe completed certification testing on the Pearl 10X engine for Dassault. In Defence, we made significant\n6 7 8 9\nprogress on our strategy to grow our combat business by securing new exports for the EJ200 with Türkiye\nand demonstrating next generation technologies ahead of detailed design and development of GCAP’s next 10 11\ngeneration power and propulsion system. In Power Systems, we announced an investment in our Mankato,\nMinnesota, US plant to increase the production capacity of back-up power generation systems for the rapidly\ngrowing data centre market.\n3 Our Group-wide focus to drive synergies is making us more competitive by delivering significant and recurring A B C D\noperating cost reductions. Key levers include a more efficient and simplified operating model, a refreshed\norganisational design, changed ways of working and improved investment discipline, as well as more focused E F G H\nmanagement of third-party costs. We have delivered cumulative savings of over £600m by the end of 2025, I J K L\nachieving the target set out during our Strategic Review in 2023.\nEfficiency and M\nsimplification\nA significant achievement contributing to our efficiency and simplification agenda is the scaling up of benefits\nin our Group Business Services function. We have expanded our Group Business Services operations in India\n1 2 3 4\nand opened a new centre in Poland. These centres will provide effective and efficient support, as well as an\nimproved customer experience. 5 6 7 8\n9 10 11\n4 We are committed to reaching net zero by the end of 2050, with an interim target of reducing Scope 1 + 2 B C D E\nemissions by 46% by the end of 2030 against a 2019 baseline. Our commitment to sustainability extends to\nsupporting our customers in realising their environmental goals through improving the efficiency of our F G H I\nproducts – products that serve some of the hardest sectors to decarbonise. K L M\nLower carbon and\nIn Civil Aerospace, we are making progress on maturing our next-generation, high-efficiency engine architecture,\ndigitally enabled\nUltraFan, by preparing for ground testing of a demonstrator in the narrowbody thrust class. This initiative will 2 3 4 5\nbusinesses demonstrate the potential of UltraFan technologies within a new market segment and reduce risk ahead of future\n6 7 8 9\nflight testing of a larger, widebody engine .\n10 11\nWithin our Defence division, we showcased the environmental and security of supply advantages through\nan innovative recycling initiative, Tornado 2 Tempest. This pioneering project demonstrated how retired\nRAF Tornado aircraft components can be turned into metal powder and subsequently reused to 3D print\nnew parts for the Orpheus small engine concept.\nOur Power Systems division released a position paper with Microsoft highlighting the potential of\nHydrotreated Vegetable Oil (HVO) as a sustainable transitional fuel for backup power in data centres.\nThe use of HVO can reduce lifecycle CO₂ emissions by up to 90% compared to fossil diesel and is compatible\nwith existing generator infrastructure.\nRolls-Royce SMR made significant advances in 2025, having been chosen as the preferred technology in\nthe Great British Energy – Nuclear small modular reactor competition. In Sweden, following a comprehensive\nevaluation process, we are collaborating with Vattenfall as we move towards final technology selection of an\ninitial opportunity for three SMRs.\nLink to KPIs\nA Order backlog F TCC/GM K Total reportable injuries rate F or more information, see the\nB Underlying revenue G Return on capital L Employee engagement Chief Executive’s review from\npage 6\nC Underlying operating profit H Gross R&D expenditure M Sustainability\nD Underlying operating margin I Gross capital expenditure F or more information, see\nOur divisions from page 25\nE Free cash flow J Safety index\nF or more information, see\nLink to risk Sustainability from page 38\n1 Safety 5 Business interruption 9 Political\n2 Compliance 6 Energy transition 10 Talent & capability\n3 Strategy 7 Information & data 11 Technology\n4 Execution 8 Market & financial shock\n12 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6033, "tables": [ [ [ "OUR STRATEGIC FRAMEWORK: DELIVERING SUSTAINABLE GROWTH THROUGH TRANSFORMATION", null ] ], [ [ "1 Portfolio choices and partnerships", "We have made choices about the markets in which we operate, where to invest and the partnerships that will help create winning positions, based on clear criteria. We only invest where the market is attractive and growing, where we can build an advantaged position, differentiated through strong customer relationships and competitive technology, and where there are high barriers to entry. This allows us to allocate resources more effectively and drive profitable growth. In Civil Aerospace, we announced a partnership with Turkish Technic to establish a state of the art maintenance, repair and overhaul centre. In Defence, we announced an expansion of our partnership with Avio Aero (Italy) and IHI (Japan) to accelerate the development of the power and propulsion system for the next-generation fighter aircraft being developed through the Global Combat Air Programme (GCAP) and we completed the sale of our naval propulsors business to Fairbanks Morse Defense. In nuclear, we are deepening our partnership with ČEZ Group (ČEZ), now a shareholder in Rolls-Royce SMR.", "B C D E F G H I M 1 2 3 4 5 6 7 8 9 10 11" ] ], [ [ "2 Strategic initiatives", "Enhancing our competitiveness, expanding our earnings potential and sustainably improving our performance relies on the successful implementation of our strategic initiatives. The initiatives are owned by our teams and the process we have put in place ensures that every employee knows their role in delivering against the targets, creating complete alignment with the Rolls-Royce strategy. In Civil Aerospace, we continue to make progress in improving time on wing, reducing operating costs and improving asset utilisation. In Business Aviation, our Pearl 800 engine entered service with Gulfstream and we completed certification testing on the Pearl 10X engine for Dassault. In Defence, we made significant progress on our strategy to grow our combat business by securing new exports for the EJ200 with Türkiye and demonstrating next generation technologies ahead of detailed design and development of GCAP’s next generation power and propulsion system. In Power Systems, we announced an investment in our Mankato, Minnesota, US plant to increase the production capacity of back-up power generation systems for the rapidly growing data centre market.", "A B C D E F G H I K L M 1 3 4 5 6 7 8 9 10 11" ] ], [ [ "3 Efficiency and simplification", "Our Group-wide focus to drive synergies is making us more competitive by delivering significant and recurring operating cost reductions. Key levers include a more efficient and simplified operating model, a refreshed organisational design, changed ways of working and improved investment discipline, as well as more focused management of third-party costs. We have delivered cumulative savings of over £600m by the end of 2025, achieving the target set out during our Strategic Review in 2023. A significant achievement contributing to our efficiency and simplification agenda is the scaling up of benefits in our Group Business Services function. We have expanded our Group Business Services operations in India and opened a new centre in Poland. These centres will provide effective and efficient support, as well as an improved customer experience.", "A B C D E F G H I J K L M 1 2 3 4 5 6 7 8 9 10 11" ] ], [ [ "4 Lower carbon and digitally enabled businesses", "We are committed to reaching net zero by the end of 2050, with an interim target of reducing Scope 1 + 2 emissions by 46% by the end of 2030 against a 2019 baseline. Our commitment to sustainability extends to supporting our customers in realising their environmental goals through improving the efficiency of our products – products that serve some of the hardest sectors to decarbonise. In Civil Aerospace, we are making progress on maturing our next-generation, high-efficiency engine architecture, UltraFan, by preparing for ground testing of a demonstrator in the narrowbody thrust class. This initiative will demonstrate the potential of UltraFan technologies within a new market segment and reduce risk ahead of future flight testing of a larger, widebody engine . Within our Defence division, we showcased the environmental and security of supply advantages through an innovative recycling initiative, Tornado 2 Tempest. This pioneering project demonstrated how retired RAF Tornado aircraft components can be turned into metal powder and subsequently reused to 3D print new parts for the Orpheus small engine concept. Our Power Systems division released a position paper with Microsoft highlighting the potential of Hydrotreated Vegetable Oil (HVO) as a sustainable transitional fuel for backup power in data centres. The use of HVO can reduce lifecycle CO₂ emissions by up to 90% compared to fossil diesel and is compatible with existing generator infrastructure. Rolls-Royce SMR made significant advances in 2025, having been chosen as the preferred technology in the Great British Energy – Nuclear small modular reactor competition. In Sweden, following a comprehensive evaluation process, we are collaborating with Vattenfall as we move towards final technology selection of an initial opportunity for three SMRs.", "B C D E F G H I K L M 2 3 4 5 6 7 8 9 10 11" ] ], [ [ "A" ], [ "B" ], [ "C" ], [ "D" ], [ "E" ] ], [ [ "F" ], [ "G" ], [ "H" ], [ "I" ], [ "J" ] ], [ [ "K" ], [ "L" ], [ "M" ] ], [ [ "1" ], [ "2" ], [ "3" ], [ "4" ] ], [ [ "5" ], [ "6" ], [ "7" ], [ "8" ] ], [ [ "9" ], [ "10" ], [ "11" ] ] ], "table_count": 11, "visual_content": [ { "type": "linkage_diagram", "title": "Strategic framework: links from each pillar to KPIs and principal risks", "kpi_key": { "A": "Order backlog", "B": "Underlying revenue", "C": "Underlying operating profit", "D": "Underlying operating margin", "E": "Free cash flow", "F": "TCC/GM", "G": "Return on capital", "H": "Gross R&D expenditure", "I": "Gross capital expenditure", "J": "Safety index", "K": "Total reportable injuries rate", "L": "Employee engagement", "M": "Sustainability" }, "risk_key": { "1": "Safety", "2": "Compliance", "3": "Strategy", "4": "Execution", "5": "Business interruption", "6": "Energy transition", "7": "Information & data", "8": "Market & financial shock", "9": "Political", "10": "Talent & capability", "11": "Technology" }, "links": [ { "pillar": "1. Portfolio choices and partnerships", "kpis": [ "B", "C", "D", "E", "F", "G", "H", "I", "M" ], "risks": [ "1", "2", "3", "4", "5", "6", "7", "8", "9", "10", "11" ] }, { "pillar": "2. Strategic initiatives", "kpis": [ "A", "B", "C", "D", "E", "F", "G", "H", "I", "K", "L", "M" ], "risks": [ "1", "3", "4", "5", "6", "7", "8", "9", "10", "11" ] }, { "pillar": "3. Efficiency and simplification", "kpis": [ "A", "B", "C", "D", "E", "F", "G", "H", "I", "J", "K", "L", "M" ], "risks": [ "1", "2", "3", "4", "5", "6", "7", "8", "9", "10", "11" ] }, { "pillar": "4. Lower carbon and digitally enabled businesses", "kpis": [ "B", "C", "D", "E", "F", "G", "H", "I", "K", "L", "M" ], "risks": [ "2", "3", "4", "5", "6", "7", "8", "9", "10", "11" ] } ] } ] }, { "pdf_page": 15, "printed_page": 13, "section": "Strategic Report", "subsection": "External environment", "text": "External environment\nGeopolitical tension and protectionism Our response\nGeopolitical tension and protectionism have risen sharply in the Rolls-Royce addresses geopolitical uncertainty by closely monitoring\npast year, with US tariffs hitting their highest point in a century. trends and regularly reviewing risks to our strategy.\nCountries have responded with new trade agreements or reciprocal\ntariffs, reshaping global trade and slowing economic growth. This Our diversified portfolio and multiple revenue streams strengthen\nuncertainty has increased supply chain pressures, commodity price our resilience and minimise reliance on individual markets, while our\nvolatility, and delayed investment. broad international presence enables us to respond effectively to\nprotectionist policies.\nWe were quick to respond to the impact of tariffs, where we were able\nto fully mitigate their direct impact across the Group.\nContinuing supply chain challenges Our response\nIn 2025, the global supply chain remained challenging: shortages Closer integration between procurement and supplier management,\nin raw materials, labour issues, geopolitical conflicts, and a complex upskilling procurement teams with advanced digital tools and\ninternational climate, have contributed to uncertainty across various embedding employees in some of our key suppliers has enabled\nindustries resulting in increased costs, extended lead times, and shifts improved supply chain management and efficiency.\nin supply chain dynamics worldwide.\nThe Executive Team has been enhanced by the addition of a Group\nStrong growth in Civil Aerospace has strained an aviation supply Chief Procurement and Supply Chain Officer. Commencing in March\nchain that has yet to fully recover from the pandemic, and the and reporting directly to the Chief Executive, this appointment will\npressure has been exacerbated by the introduction of tariffs. These further enhance efforts to improve resilience and competitiveness.\nfactors continue to pose challenges for aircraft deliveries and the\navailability of spare parts.\nA weakening consensus on environmental action Our response\nOver the last few years, we have seen a move towards more flexible, Minimising the environmental impact of our operations is essential,\nand sometimes weaker, environmental regulations. Reversals in and Rolls-Royce remains well positioned to sustain and selectively\nregulation in the US and concerns around competitiveness and advance our decarbonisation roadmap. As society’s need for\nthe cost of the energy transition in Europe, together with selective affordable, reliable, and sustainable energy continues to grow,\npolicy easing in other regions, has created an uncertain and uneven the evolving energy landscape creates substantial new business\nlandscape that could slow progress on decarbonisation. opportunities across our portfolio.\nDisagreements over trade and energy at COP30 prevented the The growing adoption of AI is contributing to increased data centre\ntranslation of earlier pledges to phase out fossil fuels into concrete size, capacity, and power requirements, resulting in robust demand\nactions, emphasising a shift towards voluntary national within our Power Systems business.\nimplementation plans.\nThe SMR programme developed by Rolls-Royce SMR has advanced\nOngoing energy security concerns will keep fossil fuel markets from concept to preferred-bidder status in multiple jurisdictions,\nvolatile, while policy support, lower costs, and financial innovation providing our customers with a differentiated, capital-light route into\nwill boost clean energy. Geopolitical and technological shifts are new nuclear capacity.\nexpected to channel investment towards assets that build supply\nresilience and speed decarbonisation.\nEuropean calls for sovereign capability in defence Our response\nDriven by the conflict in Ukraine, shifting US focus, and a growing As the leading provider in Europe of defence power and propulsion\nrecognition of the need for strategic autonomy, Europe is increasing capability across land, sea and air, Rolls-Royce is well placed to\ninvestment in defence. support Europe’s determination to secure sovereign capabilities\nover the coming decade and beyond.\nEurope enters 2026 with political will, financing capacity, and industrial\nmomentum to build sovereign, interoperable defence capabilities. The EJ200 is the leading European combat engine, in service\nwith the UK, German, Italian and Spanish armed forces. Our Power\nNATO’s updated guidelines call for members to invest a minimum of Systems engines power Europe’s leading main battle tank and most\n3.5% of GDP to defence, with at least 20% dedicated to equipment of the navies in Europe.\nprocurement. Frontline countries such as Poland already meet or\nsurpass this. Higher utilisation and intensified readiness will drive increased\nservice revenues in the short term. New programme opportunities\nIn 2025 the UK committed to a sustained uplift in defence spending will support investment in technology in the longer term.\nover the next decade. Germany plans to spend more than €150 billion\nper year on defence by 2029 in order to meet its 3.5% target.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 13\nSTRATEGIC\nREPORT", "char_count": 5238, "tables": [ [ [ "Geopolitical tension and protectionism", null, null, "Our response" ] ], [ [ "Continuing supply chain challenges", null, null, "Our response" ] ], [ [ "A weakening consensus on environmental action", null, null, "Our response" ] ], [ [ "European calls for sovereign capability in defence", null, null, "Our response" ] ] ], "table_count": 4, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 16, "printed_page": 14, "section": "Strategic Report", "subsection": "Business model", "text": "Business model\nOUR COMMON DRIVERS\nFOR SUCCESS\nONE ROLLS-ROYCE\nAdvantaged businesses with strong positions\nin attractive and growing markets\nOUR DIVISIONS\nCIVIL AEROSPACE\nOUR ROLE\nConnect\nIN SOCIETY\nWe make it possible for people to travel safely, reliably, PASSENGERS WHO FLEW\nefficiently, and affordably around the world. ON A ROLLS-ROYCE\nPOWERED AIRCRAFT\nWe create social and economic value by enabling unique\nexperiences and in-person connections – bringing together IN 2025\npeople and cultures, businesses and families.\n>390m\nLink to risk\n1 3 4 6 9 11\nOUR BUSINESS\nDifferentiated services\nMODEL DRIVERS\nWe design, develop, manufacture and support NEW DELIVERY\nhigh-performance gas turbines for commercial and BUSINESS\nbusiness aviation. AVIATION ENGINES\nWe pioneered long-term service agreements, a model that ENROLLED IN\naligns our interests with those of our customers and rewards CORPORATE\nus for improving reliability, availability and cost efficiency. CARE ENHANCED\nThrough data-driven insights and focused customer support,\nLink to risk >70%\nwe deliver value to airlines and set the benchmark for\n1 2 3 4 5 6 customer service in business aviation.\n7 8 9 10 11\nOUR UNIQUENESS\nTrusted partner\nWe work closely with our aircraft manufacturer and airline IN PRODUCTION\ncustomers to understand their needs and co-create solutions. WIDEBODY AIRCRAFT\nWITH A ROLLS-ROYCE\nWe have long-standing partnerships with airlines to support\ntheir operations, including through joint maintenance, repair ENGINE OPTION\nand overhaul (MRO) facilities.\nWe partner with our supply chain to access specialised 4 out of 5\ncapabilities, maximising market coverage and minimising\nLink to risk investment required, and share risk and reward.\n1 3 5 6 7 10 11\nWHAT WE\nWILL ACHIEVE A HIGH-PERFORMING, COMPETITIVE,\nRESILIENT AND GROWING BUSINESS\nLink to risk\n1 Safety 2 Compliance 3 Strategy 4 Execution 5 Business interruption 6 Energy transition\n7 Information & data 8 Market & financial shock 9 Political 10 Talent & capability 11 Technology\n14 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2067, "tables": [ [ [ "Connect" ], [ "We make it possible for people to travel safely, reliably, PASSENGERS WHO FLEW efficiently, and affordably around the world. ON A ROLLS-ROYCE POWERED AIRCRAFT We create social and economic value by enabling unique experiences and in-person connections – bringing together IN 2025 people and cultures, businesses and families. >390m" ] ], [ [ "1", "3", "4", "6", "9", "11" ] ], [ [ "Differentiated services" ], [ "We design, develop, manufacture and support NEW DELIVERY high-performance gas turbines for commercial and BUSINESS business aviation. AVIATION ENGINES We pioneered long-term service agreements, a model that ENROLLED IN aligns our interests with those of our customers and rewards CORPORATE us for improving reliability, availability and cost efficiency. CARE ENHANCED Through data-driven insights and focused customer support, >70% we deliver value to airlines and set the benchmark for customer service in business aviation." ] ], [ [ "1", "2", "3", "4", "5", "6" ] ], [ [ "7", "8", "9", "10", "11" ] ], [ [ "Trusted partner" ], [ "We work closely with our aircraft manufacturer and airline IN PRODUCTION customers to understand their needs and co-create solutions. WIDEBODY AIRCRAFT WITH A ROLLS-ROYCE We have long-standing partnerships with airlines to support their operations, including through joint maintenance, repair ENGINE OPTION and overhaul (MRO) facilities. We partner with our supply chain to access specialised 4 out of 5 capabilities, maximising market coverage and minimising investment required, and share risk and reward." ] ], [ [ "1", "3", "5", "6", "7", "10", "11" ] ] ], "table_count": 7 }, { "pdf_page": 17, "printed_page": 15, "section": "Strategic Report", "subsection": "Business model", "text": "BUSINESS MODEL\nOUR COMMON DRIVERS\nFOR SUCCESS\nONE ROLLS-ROYCE\nDifferentiated by deep customer relationships; market leading\nproducts and technology; engineering and commercial excellence\nOUR DIVISIONS\nDEFENCE POWER SYSTEMS\nOUR ROLE\nProtect Power\nIN SOCIETY\nWe provide mission-critical power and propulsion YEARS OF We provide solutions to the challenges created EXPECTED ANNUAL\nin the air, at sea and on land. PROVIDING by society’s rapidly growing demand for energy GROWTH RATE\nNUCLEAR and mobility. IN THE DATA\nWe enable operational independence and\nstrategic and tactical advantage, helping PROPULSION We deliver high-performance, reliable and CENTRE MARKET\nnations keep their citizens safe at home, protect POWER TO THE sustainable power that supports economic\ntheir interests abroad, and respond rapidly to UK’S ROYAL NAVY growth and development.\nhumanitarian emergencies.\n>20%\n63\nOUR BUSINESS\nCustomer-funded growth One core solution addressing multiple markets\nMODEL DRIVERS\nWe design, develop, manufacture and support DIFFERENT We design, develop, manufacture and support NUMBER OF S4000\nhigh-performance aero and naval gas turbines and APPLICATIONS high-performance reciprocating engines and ENGINES SOLD\nnuclear power and propulsion systems. OF THE AE ENGINE integrated system solutions for use on land and ACROSS DIVERSE\nWe turn technology into differentiated products FAMILY ACROSS at sea. MARKETS\nthat give customers unique capabilities and remain DEFENCE AND We invent once and use many times, creating\nin service for decades. CIVIL MARKETS product families that serve multiple applications 70,000\nacross diverse markets. This approach delivers\nWe create value and resilience for the Group\n>15 proven solutions for our customers and maximises\nby balancing the volatility of commercial markets\nreturns on investment for our shareholders.\nand leveraging synergies across technology,\ninfrastructure, supply chain and product families.\nOUR UNIQUENESS\nGlobal access, local presence Structural advantage\nWe proudly support over 160 customers in over COUNTRIES WHERE We deliver unmatched power, reliability and MARKET SHARE\n100 countries. ROLLS-ROYCE HAS efficiency, providing premium performance and IN NAVAL BUSINESS\nSOVEREIGN WHOLE value for our customers.\nWith full engine design capability in the UK, US\nand available in Germany, we ensure sovereign ENGINE DESIGN Recognised as the engine provider of choice\nindependence and freedom to operate. CAPABILITY where the mission matters, we support critical >30%\ninfrastructure with high-integrity back-up power\nWe strengthen our global reach through close\n3 for hospitals, airports and data centres; and provide\npartnerships with allied nations including Japan,\nhigh-performance power and propulsion for naval\nItaly, Australia, the Kingdom of Saudi Arabia, India,\nvessels, military vehicles and yachts.\nthe Republic of Korea, Spain, and France.\nWHAT WE\nWILL ACHIEVE DRIVEN BY COMMITTED EMPOWERED PEOPLE UNDERPINNED BY OUR\nOPERATING IN A PERFORMANCE CULTURE PURPOSE AND BEHAVIOURS\nR ead more about R ead more about R ead more about our\nOur strategy from page 11 our KPIs from page 16 principal risks from page 48\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 15\nSTRATEGIC\nREPORT", "char_count": 3233, "tables": [ [ [ "Protect" ], [ "We provide mission-critical power and propulsion YEARS OF in the air, at sea and on land. PROVIDING NUCLEAR We enable operational independence and strategic and tactical advantage, helping PROPULSION nations keep their citizens safe at home, protect POWER TO THE their interests abroad, and respond rapidly to UK’S ROYAL NAVY humanitarian emergencies. 63" ] ], [ [ "Power" ], [ "We provide solutions to the challenges created EXPECTED ANNUAL by society’s rapidly growing demand for energy GROWTH RATE and mobility. IN THE DATA We deliver high-performance, reliable and CENTRE MARKET sustainable power that supports economic growth and development. >20%" ] ], [ [ "Customer-funded growth" ], [ "We design, develop, manufacture and support DIFFERENT high-performance aero and naval gas turbines and APPLICATIONS nuclear power and propulsion systems. OF THE AE ENGINE We turn technology into differentiated products FAMILY ACROSS that give customers unique capabilities and remain DEFENCE AND in service for decades. CIVIL MARKETS We create value and resilience for the Group >15 by balancing the volatility of commercial markets and leveraging synergies across technology, infrastructure, supply chain and product families." ] ], [ [ "One core solution addressing multiple markets" ], [ "We design, develop, manufacture and support NUMBER OF S4000 high-performance reciprocating engines and ENGINES SOLD integrated system solutions for use on land and ACROSS DIVERSE at sea. MARKETS We invent once and use many times, creating product families that serve multiple applications 70,000 across diverse markets. This approach delivers proven solutions for our customers and maximises returns on investment for our shareholders." ] ], [ [ "Global access, local presence" ], [ "We proudly support over 160 customers in over COUNTRIES WHERE 100 countries. ROLLS-ROYCE HAS SOVEREIGN WHOLE With full engine design capability in the UK, US and available in Germany, we ensure sovereign ENGINE DESIGN independence and freedom to operate. CAPABILITY We strengthen our global reach through close 3 partnerships with allied nations including Japan, Italy, Australia, the Kingdom of Saudi Arabia, India, the Republic of Korea, Spain, and France." ] ], [ [ "Structural advantage" ], [ "We deliver unmatched power, reliability and MARKET SHARE efficiency, providing premium performance and IN NAVAL BUSINESS value for our customers. Recognised as the engine provider of choice where the mission matters, we support critical >30% infrastructure with high-integrity back-up power for hospitals, airports and data centres; and provide high-performance power and propulsion for naval vessels, military vehicles and yachts." ] ] ], "table_count": 6, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 18, "printed_page": 16, "section": "Strategic Report", "subsection": "Key performance indicators", "text": "Key performance indicators\nFINANCIAL PERFORMANCE INDICATORS\nOrder backlog (£bn)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n88.1\nTotal value of firm orders placed by Order backlog provides visibility of Customer orders drive future revenue\n82.1\ncustomers for delivery of products future business activity. growth which, in turn, enables profit\nand services where there is no right and cash flow growth. Profit and free\n68.5 to cancel. This KPI is the same as cash flow performance are key financial\nthe statutory measure for order metrics in the Annual Incentive Plan.\n60.2 backlog. See note 2 on page 139\nfor more information.\n50.6\n21 22 23 24 25\nUnderlying revenue (£m)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n20,059\nRevenue generated from operations Underlying revenue provides Underlying revenue growth enables\n17,848 at the average exchange rate achieved a measure of business growth profit and cash flow growth, both of\non effective settled derivative contracts and activity. which are key financial metrics in the\n15,409 in the period that the cash flow Annual Incentive Plan.\noccurs. See note 2 on page 134\n12,691 for more information.\n10,947\n21 22 23 24 25\nUnderlying operating profit (£m)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n3,462\nOperating profit generated from Underlying operating profit indicates Profit is a key financial performance\noperations at the average exchange how the effect of growing revenue measure for our Annual Incentive Plan.\n2,464\nrate achieved on effective settled and control of our costs delivers value\nderivative contracts in the period that for our shareholders.\n1,590 the cash flow occurs. It excludes M&A,\nexceptional items and certain other\nitems outside of normal operating\n652\n414 activities. See note 2 on page 134\nfor more information.\n21 22 23 24 25\nUnderlying operating margin (%)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n17.3\nUnderlying operating profit (as Underlying operating margin Profit is a key financial performance\n13.8 defined above) as a percentage indicates how effective the business measure for our Annual Incentive Plan\nof underlying revenue (as defined is at converting revenue to profit. and LTIP.\n10.3 above). It indicates how much profit A higher margin is an indicator of\nthe business makes for every one increased value for our shareholders,\npound sterling of revenue generated. as it demonstrates a higher\n5.1\n3.8 conversion of revenue to profit.\n21 22 23 24 25\nFree cash flow (£m)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n3,270\nFree cash flow is cash flows from Free cash flow is a key metric used Free cash flow is a key financial metric\n2,425\noperating activities, adjusted to include to measure the performance of our in the Annual Incentive Plan and LTIP.\ncapital expenditure and movements in business and how effectively we are\n1,285 investments, capital elements of lease creating value for our shareholders.\npayments, interest paid, cash received It enables the business to fund\n505\non maturity of share-based payment growth, reduce debt and make\n(1,485)\nschemes and amounts paid relating to shareholder distributions.\nthe settlement of excess derivatives.\nIt excludes amounts spent/received\n21 22 23 24 25 on business acquisitions/disposals, and\nother material exceptional or one-off cash\nflows. Cash flows from operating activities\nis our statutory equivalent. See note 30\non page 181 for more information.\nA reconciliation from the alternative performance measure to its\nstatutory equivalent can be found from page 208\n16 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3633, "tables": [ [ [ "FINANCIAL PERFORMANCE INDICATORS", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "visual_content": [ { "type": "bar_chart_series", "title": "Financial performance indicators, five-year series (2021-2025)", "series": { "Order backlog (GBP bn)": { "2021": 50.6, "2022": 60.2, "2023": 68.5, "2024": 82.1, "2025": 88.1 }, "Underlying revenue (GBP m)": { "2021": 10947, "2022": 12691, "2023": 15409, "2024": 17848, "2025": 20059 }, "Underlying operating profit (GBP m)": { "2021": 414, "2022": 652, "2023": 1590, "2024": 2464, "2025": 3462 }, "Underlying operating margin (%)": { "2021": 3.8, "2022": 5.1, "2023": 10.3, "2024": 13.8, "2025": 17.3 }, "Free cash flow (GBP m)": { "2021": -1485, "2022": 505, "2023": 1285, "2024": 2425, "2025": 3270 } } } ] }, { "pdf_page": 19, "printed_page": 17, "section": "Strategic Report", "subsection": "Key performance indicators", "text": "KEY PERFORMANCE INDICATORS\nFINANCIAL PERFORMANCE INDICATORS CONTINUED\nTCC/GM (ratio)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n0.86\n0.80\nTCC is defined as total underlying This measure provides an indicator Profit is a key financial performance\ncash costs during the year of total cash costs relative to gross measure for our Annual Incentive Plan.\n0.59 (represented by underlying R&D profit (the percentage of the Group’s\n0.47 and underlying C&A) as a proportion overheads that are covered by gross\nof underlying gross profit. profit). A reduction in total cash costs\n0.36\nrelative to gross profit indicates how\neffective the business is at managing\nand/or reducing its costs.\n21 22 23 24 25\nReturn on capital (%) 1\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n18.9\nReturn on capital is defined as Return on capital assesses our Profit is a key financial performance\nnet operating profit after tax efficiency in allocating capital to measure for our LTIP.\n13.8\n(NOPAT) as a percentage of average profitable investments. The more\n11.3 invested capital. NOPAT is defined efficient we are as a business in\nas underlying net profit excluding allocating capital to profitable\nnet finance costs and the tax shield investments, the more profitable\n4.9 on net finance costs. Invested capital we will be.\n3.2 is defined as current and non-current\nassets less current liabilities. It excludes\n21 22 23 24 25 pension assets, cash and cash\nequivalents and borrowings and lease\nliabilities. See page 211 for more detail\non how we calculate return on capital.\nGross R&D expenditure (£m) ²\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n1,475\nIn-year gross cash expenditure on This measure demonstrates the Disciplined control and allocation\n1,417\n1,390 R&D excludes contributions and balance between long-term strategic of R&D expenditure optimises in-year\nfees, amortisation and impairment investments and delivering short-term profit and cash flow performance\nof capitalised costs and amounts shareholder returns. without compromising long-term\n1,287 capitalised during the year. growth through innovation. Both our\nAnnual Incentive Plan and our LTIP\nreward strong financial performance,\n1,179\nwith the LTIP incorporating a Total\nShareholder Return (TSR) metric,\n21 22 23 24 25 which is a holistic metric for assessing\nperformance, incorporating investor\nexpectations about the Company\nperformance and future value creation.\nGross capital expenditure (£m)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n621\nIn-year gross cash expenditure This measure demonstrates the Disciplined control and allocation\non capital excluding depreciation, balance between long-term strategic of capital expenditure optimises\n519 impairments and write-offs during investments and delivering short-term in-year profit and cash flow\nthe year. shareholder returns. performance without compromising\nlong-term capital requirements. Both\n429\nour Annual Incentive Plan and our LTIP\nreward strong financial performance,\n345 with the LTIP incorporating a Total\n304 Shareholder Return (TSR) metric,\n21 22 23 24 25 which is a holistic metric for assessing\nperformance, incorporating investor\nexpectations about the Company\nperformance and future value creation.\n1 Return on capital has been adjusted for the one-off non-cash impact of £277m\n(2024: £346m) related to the recognition of deferred tax assets on UK tax losses.\nSee note 5 on page 142 for more details\n2 The £58m decrease in gross R&D in 2025 compared with 2024 is driven by the Group’s\nexit of its advanced air mobility activities in 2024, and the deconsolidation of Rolls-Royce\nSMR Limited in 2025, which contributed a £189m decrease. Adjusting for this, gross R&D A reconciliation from the alternative performance measure to its\nincreased by £131m statutory equivalent can be found from page 208\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 17\nSTRATEGIC\nREPORT", "char_count": 3933, "tables": [ [ [ "FINANCIAL PERFORMANCE INDICATORS CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "visual_content": [ { "type": "bar_chart_series", "title": "Financial performance indicators continued, five-year series (2021-2025)", "series": { "TCC/GM (ratio)": { "2021": 0.86, "2022": 0.8, "2023": 0.59, "2024": 0.47, "2025": 0.36 }, "Return on capital (%)": { "2021": 3.2, "2022": 4.9, "2023": 11.3, "2024": 13.8, "2025": 18.9 }, "Gross R&D expenditure (GBP m)": { "2021": 1179, "2022": 1287, "2023": 1390, "2024": 1475, "2025": 1417 }, "Gross capital expenditure (GBP m)": { "2021": 304, "2022": 345, "2023": 429, "2024": 519, "2025": 621 } } } ], "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 20, "printed_page": 18, "section": "Strategic Report", "subsection": "Key performance indicators", "text": "NON-FINANCIAL PERFORMANCE INDICATORS\nSafety index (%)\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n98\n96\n94\nThe safety index provides a composite With measures that mature This metric accounts for 2.5% of the\n85 score of five leading indicators: senior year-on-year, the safety index Group and division elements of the\nleadership safety walks; safety case facilitates the continuous Annual Incentive Plan.\nimprovement activity; HSE alert improvement of our safety culture.\n74\nresponse, non-conformance close-out\nand accountable person engagement.\nTogether, these measures reinforce\nproactive safety behaviours that\nimprove the effectiveness of\n21 22 23 24 25 our controls.\nTotal reportable injuries rate 1\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n0.43\n0.41 This is a measure of total reportable This is a standard measure of actual This metric accounts for 2.5% of the\ninjuries (TRI) rate per 100 employees. safety experience which allows us to Group and division elements of the\nbenchmark our performance against Annual Incentive Plan.\nexternal peers and to measure\n0.32 progress against our ambition to zero\nharm. TRI events are shared widely to\n0.29 0.29\nstrengthen controls and reinforce a\nculture in which colleagues feel safe\nto speak up.\n21 22 23 24 25\nEmployee engagement (%) 1\n81 HOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\n78 Our Voices: Big Picture has evolved Our people are crucial to delivering This metric accounts for 5% of the\nover the past year and is now a core our strategy. Our Voices: Big Picture Annual Incentive Plan.\nsource for listening to our colleagues is a key part of our listening strategy,\nand taking action. Our Voices delivers providing a clear picture of our\ninsights on engagement, inclusion and cultural progress, while also making\nemployee experience relative to our clear where we must act with urgency.\ntargeted behaviours.\n24 25\nScope 1 + 2 greenhouse gas emissions 1\n236\n131\n206\n146 133\n19 25 30\nTEGRAT\nKEY PERFORMANCE INDICATORS\nHOW WE DEFINE IT WHY IT IS IMPORTANT LINK TO REMUNERATION\nOperations\nand facility Total Scope 1 + 2 greenhouse gas The Group is committed to achieving This metric accounts for 10% of the\nProduct test emissions from facilities, operations net zero by 2050 and we support our 2025 LTIP award, and is a cumulative\nand testing, measured in kilotonnes of customers to do the same. Playing target which will measure the progress\ncarbon dioxide equivalent (ktCO e). our part in the energy transition made against our sustainability 2\nmeans reducing energy consumption commitments (to reduce Scope 1 + 2\nand decarbonising operations and emissions by 46% by the end of 2030,\nproduct testing. This will help ensure against a 2019 baseline) over 2025,\nour facilities and internal supply 2026 and 2027.\nchains remain resilient in a changing\nexternal environment.\nFor more information on For more information\nour strategic framework, on Scope 1 + 2 emissions,\nsee page 12 see from page 38\nFor more information on\n1 External assurance provided by DNV. See from page 202 for their the Our Voices survey,\nassurance statement see page 32\n18 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3183, "tables": [ [ [ "NON-FINANCIAL PERFORMANCE INDICATORS", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "236" ], [ "146" ] ], [ [ "131" ], [ "133" ] ] ], "table_count": 3, "visual_content": [ { "type": "bar_chart_series", "title": "Non-financial performance indicators", "series": { "Safety index (%)": { "2021": 74, "2022": 85, "2023": 94, "2024": 96, "2025": 98 }, "Total reportable injuries rate (per 100 employees)": { "2021": 0.43, "2022": 0.41, "2023": 0.32, "2024": 0.29, "2025": 0.29 }, "Employee engagement (%)": { "2024": 78, "2025": 81 }, "Scope 1+2 GHG emissions (ktCO2e)": { "2019_baseline": { "operations_and_facility": 236, "product_test": 146 }, "2025": { "operations_and_facility": 131, "product_test": 133 }, "2030_target_total": 206 } } } ], "rotated_text": [ "TARGET" ] }, { "pdf_page": 21, "printed_page": 19, "section": "Strategic Report", "subsection": "Financial review", "text": "Financial review\n1. Integrated performance management\nHelen McCabe Our approach to integrated performance\nChief Financial Officer management remains at the heart of what\nwe do. It is distinctive and embedded\nthroughout all levels of the organisation.\nWe aim for everyone in Rolls-Royce to\nunderstand how they contribute to strategic\nand financial delivery. Everyone has clear\ntargets, which are linked to our strategic\ninitiatives. Rigorous and dynamic\nperformance management ensures that the\ndelivery of these strategic initiatives drives\nin-year, mid-term and longer-term delivery.\nWe continue to invest in and improve our\nperformance management processes. A\nstep-change improvement in management\ninformation, supported by the use of\ndigitisation tools, such as dashboards used\nthroughout all levels of the organisation,\ndrives deeper analysis and insight into\nkey business drivers. All of which help drive\npace, intensity and better insight for more\nproactive and timely interventions.\n2. Commercial and cost optimisation\nAs part of our transformation, we have\nembedded a new commercial mindset\nand cost-conscious culture across\nthe organisation.\nCommercial optimisation remains a key area\nof focus as we adopt a value-based pricing\n2025 was another strong year of delivery for approach across the Group. This has been\na significant driver of improved performance\nRolls-Royce and marked the third successful in all three divisions. For example, in Civil\nAerospace where we are driving higher\nyear of our transformation programme as\naftermarket margins, we have now\nwe become a high-performing, competitive, renegotiated all our original equipment (OE)\ncontracts. Strong progress has also been\nresilient and growing business. made with onerous aftermarket contracts,\nthe most significant of which have been\nrenegotiated with the balance to be\nconcluded in 2026.\n2025 marked another strong year for The progress we have made is due to a\nRolls-Royce in both strategic and financial One Rolls-Royce mindset and team effort. Improved commercial acumen is also making\ndelivery. Key strategic and financial metrics It could not have happened without the us more agile. For example, we were quick\nimproved significantly, as did operational expertise, commitment and hard work of to respond to the impact of tariffs, where we\nexecution. All three of our divisions, and our the teams across the Group. I continue were able to fully mitigate their direct impact.\ngrowing nuclear business, contributed to the to be impressed by the commitment and We are transforming Rolls-Royce into a more\nGroup’s continued progress. enthusiasm of our talented people. Having commercially proactive and agile business.\nvisited many of our sites around the globe,\nOur strong performance, despite a challenging including in the UK, US, India, Poland, and Our cost efficiency initiatives are also\nenvironment, also enabled us to reward Germany, energy levels amongst our people continuing to deliver as we continue to\nshareholders with £1.9bn of distributions last are higher than ever. Teams across the embed a cost-conscious mindset across\nyear, and at full year 2025 results, announce organisation are delivering to an ever- the Group. At the end of 2025, our total\nour first multi-year share buyback. increasing standard as we transform cash costs to gross margin ratio, a measure\nRolls-Royce into a high-performing, of operational efficiency and resilience,\nWe delivered all of this while continuing competitive, resilient and growing stood at 0.36x, a best-in-class ratio. Our\nto invest in future growth for decades to business. Thank you to all colleagues. efficiency and simplification programme\ncome. Key investments included: UltraFan has delivered benefits of £0.6bn, exceeding\nin Civil Aerospace, which will position us Our transformation has already delivered our target of £0.5bn by the end of 2025.\nfor future success on both widebody and class-leading performance, and we know A number of workstreams underpin our\nnarrowbody platforms; the next-generation there is more we need and want to do, to activities in this area. For example, zero-\nengine in Power Systems, which will be enable us to unlock further potential across based budgeting which has been rolled out\nthe most compact and powerful engine in the Group. That work is already underway. across the organisation, driving discipline in\nits category in the market; and in Defence, spending and providing efficiency benefits.\ncontinued investment across our many I previously shared my four key areas We have also expanded our Group Business\nmulti-decade platforms. of focus: integrated performance Services operations in India and opened\nmanagement, commercial and cost a new centre in Poland. These centres will\noptimisation, working capital optimisation, provide effective and efficient support, as\nand capital framework. We continue to make well as an improved customer experience.\ngood progress across all four as part of our\ntransformation journey.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 19\nSTRATEGIC\nREPORT", "char_count": 5065, "tables": [ [ [ "Helen McCabe Chief Financial Officer", null, null, null, null ], [ null, null, null, null, null ], [ null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 22, "printed_page": 20, "section": "Strategic Report", "subsection": "Financial review", "text": "FINANCIAL REVIEW\n3. Working capital optimisation Taken together with our commitment to regular Building resilience: Net cash stood at\nWorking capital optimisation remains and growing dividends, this represents a £1.9bn at 31 December 2025 compared\na key priority as we focus on delivering return to shareholders of over 75% of free with £475m at the end of 2024, supported\nsustainable and growing free cash flow, cash flow between 2026 to 2028, based on by continued strong cash flow delivery.\nmaintaining our resilience and increasing our upgraded mid-term targets. This is our Gross debt reduced to £2.8bn (2024: £3.6bn),\nour return on capital. first multi-year share buyback. Another key as we repaid a $1bn bond in October from\nmilestone in our transformation journey. available cash, and lease liabilities stood at\nIn the three years of our transformation £1.5bn (2024: £1.6bn). Liquidity remained\nwe have materially strengthened working As our transformation programme continues, robust at £8.7bn (2024: £8.1bn), which\ncapital management, with significant I look forward to making further progress in included cash and cash equivalents of £6.2bn\nimprovements across inventory days these four key priorities in 2026. We have so (2024: £5.6bn). Total underlying cash costs\nand days sales outstanding, as well as much more potential, and I am excited about as a proportion of underlying gross margin\noverdue debt. All of this we have done in a the journey ahead. (TCC/GM) further improved to 0.36x (2024:\nchallenged supply chain environment, and 0.47x), reflecting further cost discipline and\nas we supported business growth. Working 2025 financial performance operational efficiency. We are building a\ncapital culture and discipline across the 2025 has been another year of strong more resilient company with a less volatile\nGroup is becoming much stronger. strategic and financial delivery with a free cash flow.\nsignificant improvement across all financial\nWe worked closely with key suppliers, metrics. Over the past three years, our Growing shareholder returns: Reflecting\nincluding embedding Rolls-Royce employees transformation programme has delivered strong strategic and financial progress and in\ninto their organisations, to support them a step-change in performance, with higher line with our capital framework, we reinstated\nas they navigated supply chain challenges. operating profit and free cash flow delivered regular shareholder dividends in 2025\nalongside a doubling of capital expenditure, and completed a £1.0bn share buyback\nWe are also investing in improved sales, as we continue to transform Rolls-Royce into programme. This represented the first\ninventory and operational planning a high-performing, competitive, resilient, and time that Rolls-Royce has paid a dividend\nsystems and processes. A new material growing business. Our actions have driven in more than five years and the first buyback\nGroup-wide programme was launched stronger financial performance despite for 10 years. The final dividend for 2025 is\nto drive further operational and working an external environment that remains 5.0p per share, taking the total dividend for\ncapital improvements. challenging, including supply chain 2025 to 9.5p, which represents a 32% payout\nconstraints which we are actively managing. ratio of underlying profit after tax. The final\n4. Capital framework dividend will be paid subject to shareholder\nSignificantly, 2025 was the first time in more Significant operating profit and margin approval at our Annual General Meeting on\nthan five years that we paid a dividend and growth: Underlying operating profit 30 April 2026 1. Our strong balance sheet\nthe first time in ten years that we executed increased to £3.5bn in 2025 compared with position, alongside our upgraded mid-term\na share buyback, returning a combined total £2.5bn in 2024, with an operating margin targets for operating profit and free cash\nof £1.9bn to our shareholders in the year. of 17.3% (2024: 13.8%). Civil Aerospace flow, gives us confidence to announce our\nOur approach to dividends is to pay an delivered an underlying operating margin first multi-year buyback programme, totalling\ninterim and a final cash dividend each year, of 20.5% (2024: 16.6%), driven by stronger £7.0bn–£9.0bn across 2026 to 2028, of which\nwith full year dividends based on a pay-out large engine aftermarket performance, £2.5bn will be completed in 2026, which\nratio of between 30% to 40% of underlying contractual margin improvements and higher includes the £200m that was completed\nprofit after tax. The final dividend for 2025 spare engine profitability. Defence reported between 2 January and 20 February 2026.\nof 5.0p per share, will be paid subject to an underlying operating margin of 14.4%\nshareholder approval at our Annual General (2024: 14.2%), which reflects stronger 2026 outlook\nMeeting to be held on 30 April 2026. It takes performance across transport and We expect significant further progress\nthe total dividend for 2025 to 9.5p, which combat, and the absence of a one-off in 2026. Our forecast for 2026 underlying\nrepresents a 32% payout ratio of underlying benefit in submarines in the prior year. operating profit is £4.0bn–£4.2bn and free cash\nprofit after tax. Power Systems delivered an operating flow between £3.6bn–£3.8bn. Our free cash\nmargin of 17.4% (2024: 13.1%), driven by flow guidance for full year 2026 includes a\nWe further strengthened our balance sheet, power generation, where we continue to £150m–£200m cash impact related to the\nenabled by a growing cash delivery, and capture profitable growth in data centres, supply chain, and is based on Civil Aerospace\nended 2025 with a net cash position. We also and governmental. Across the Group, net LTSA balance growth broadly similar to\nrepaid a $1bn bond that matured in October. improved profitability was supported the prior year (2025: £0.6bn).\nby our ongoing efficiency and\nOur efforts continue to be recognised simplification programme. Upgraded mid-term targets\nby the credit rating agencies, who now Our strong delivery in 2025 and our actions\nall hold us at strong investment grade. In Sustainable free cash flow growth: Free cash to expand earnings and free cash flow gives\n2025, both Fitch and S&P Global upgraded flow of £3.3bn (2024: £2.4bn) was driven by us confidence to upgrade our mid-term\nRolls-Royce to BBB+ and Moody’s upgraded strong operating profit, continued long-term targets. The increase in our mid-term\nRolls-Royce to Baa1. service agreement (LTSA) balance growth, and operating profit and margin guidance is\na strong working capital performance offset by primarily driven by higher LTSA and time\nWe continued to make strategic, disciplined net investments. Civil Aerospace LTSA balance and materials profit in Civil Aerospace and\ninvestments in 2025, while staying focused growth net of risk and revenue sharing stronger performance in power generation\non the safety of our products, processes and arrangements (RRSAs) was £0.6bn (2024: and governmental in Power Systems.\npeople. Our £1bn multi-year time on wing £0.7bn), this was supported by 8% growth\ninvestment is progressing to plan and will in large engine flying hours (EFH) and an Underlying operating profit is expected\nhelp extend the time between shop visits for improved EFH rate, partly offset by a higher to increase from £3.5bn in 2025 to\nour customers, as well as creating additional number of shop visits and supply chain costs. £4.9bn–£5.2bn in the mid-term and underlying\ncapacity in our maintenance, repair and Working capital was an inflow of £421m operating margin from 17.3% in 2025 to\noverhaul (MRO) facilities. (2024: £280m), reflecting the continued 18%–20%; a strong delivery with highly\nbenefits of our working capital initiatives. competitive margins across all divisions.\nOur strong progress and confidence in our Net investments of £257m (2024: £282m)\nfuture plans enabled us to announce a £7.0bn supported maintenance repair and overhaul 1 The dividend will be paid on 3 June 2026 to ordinary\nshareholders on the register on 24 April 2026. In addition\nto £9.0bn share buyback across 2026 to (MRO) capacity growth in Civil Aerospace to the cash dividend, shareholders will be offered a\n2028, with £2.5bn to be returned in 2026. and additional capacity in Power Systems. dividend reinvestment plan. For further details see\nnote 7, page 146\n20 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 8457, "tables": [], "table_count": 0 }, { "pdf_page": 23, "printed_page": 21, "section": "Strategic Report", "subsection": "Financial review", "text": "FINANCIAL REVIEW\nCivil Aerospace: we now target a mid-term — Stronger performance across all end These targets are significantly underpinned\nmargin of 21%–23% compared to 20.5% in markets, with higher aftermarket profit by our strategic initiatives and the actions\n2025. We expect large EFH growth to be alongside increased OE volumes. that we have taken across the Group, and\n130% to 140% of 2019 levels, alongside will be supported by further efficiencies\n— Continued self-help actions.\n650–750 total OE deliveries and 1,300–1,400 to drive disciplined growth, including\ntotal shop visits in 2028. Higher operating — Productivity improvements due to expanding our digital and GBS capabilities,\nprofit growth will be driven by: capacity expansion. as well as zero-based budgeting activities,\nall of which will drive a further improvement\n— Stronger widebody aftermarket Power Systems: we now target a mid-term in our TCC/GM ratio.\nperformance across LTSA and time margin of 18%–20% compared to 17.4%\nand materials. in 2025. Higher operating profit will be Free cash flow of £5.0bn–£5.3bn in the\ndriven by: mid-term compares to £3.3bn in 2025.\n— Improved widebody OE profitability as\nFree cash flow will be driven by operating\nTrent XWB installed engine deliveries\n— Power generation OE revenue growth profit alongside continued growth of the\nbecome breakeven or positive by\nof around 20% per annum driven by data Civil Aerospace net LTSA balance in the\nthe mid-term due to commercial\ncentres, with higher margins reflecting an £0.8bn–£1.2bn range. LTSA balance growth\noptimisation and efficiency actions.\nimproved product mix and efficiencies. reflects large EFH growth to 130% to 140%\n— A further increase in business of 2019 levels, a higher average normalised\n— Governmental OE revenue growth\naviation performance across both EFH rate, the benefits of our time on wing\nof around 20% per annum (previously\nOE and aftermarket. initiatives with shop visits falling to 1,300–\n12–14%) reflecting increased global\n1,400 in the mid-term, alongside continued\n— Higher spare engine profitability reflecting defence spending.\nbusiness aviation growth. Our mid-term\ncommercial optimisation and mix.\n— Marine OE revenue growth of 5–7% targets assume a forecast achieved foreign\n— A reduced contribution from contractual per annum. exchange rate of $1.33/£ and the absence of\nmargin improvements. a cash impact related to the supply chain.\n— BESS: double-digit OE revenue growth.\nDefence: we continue to target a 14%–16% — Strong growth in service revenues Helen McCabe\nmargin in the mid-term compared to 14.4% will support margin improvements Chief Financial Officer\nin 2025. Higher operating profit will be to the mid-term.\nprimarily driven by:\nGROUP MID-TERM TARGETS\nOperating profit (£bn) Operating margin (%) Free cash flow (£bn) Return on capital (%)\n4.9–5.2 18–20 5.0–5.3 23–26\n17.3\n18.9\n3.5 13.8\n3.3\n2.5 10.3 2.4 11.3 13.8\n1.6\n5.1 1.3\n4.9\n0.65 0.5\n22 23 24 25 Mid-term 22 23 24 25 Mid-term 22 23 24 25 Mid-term 22 23 24 25 Mid-term\ntarget target target target\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 21\nSTRATEGIC\nREPORT", "char_count": 3121, "tables": [ [ [ "GROUP MID-TERM TARGETS", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 24, "printed_page": 22, "section": "Strategic Report", "subsection": "Financial review", "text": "FINANCIAL REVIEW\nStatutory and underlying Group financial performance\n2025 2024\nImpact of\nother\nImpact of Impact of non-\nhedge acquisition underlying\n£ million Statutory book 1 accounting items Underlying Underlying\nRevenue 21,207 (1,148) – – 20,059 17,848\nGross profit 6,175 (799) 14 (264) 5,126 4,091\nOperating profit 4,468 (797) 16 (225) 3,462 2,464\nGain arising on disposal of businesses 2 809 – – (809) – –\nProfit before financing and taxation 5,277 (797) 16 (1,034) 3,462 2,464\nNet financing income/(costs) 1,658 (1,823) – 55 (110) (171)\nProfit before taxation 6,935 (2,620) 16 (979) 3,352 2,293\nTaxation 3 (1,099) 660 (3) (151) (593) (282)\nProfit for the year 5,836 (1,960) 13 (1,130) 2,759 2,011\nBasic earnings per share (pence) 3 69.41 29.55 20.29\n1 Reflecting the impact of measuring revenue and costs at the average exchange rate during the year and the valuation of assets and liabilities using the year end exchange rate rather\nthan the rate achieved on settled foreign exchange contracts in the year or the rate expected to be achieved by the use of the hedge book\n2 For further information, see note 29, page 180\n3 In 2025, the underlying profit attributable to ordinary shareholders has been adjusted for the one-off non-cash impact of £277m related to the recognition of deferred tax assets on\nUK tax losses (2024: £346m), see note 5, page 145 for further details\nAll underlying income statement commentary reflected stronger performance across Taxation: Underlying tax charge of £(593)m\nis provided on an organic basis unless transport and combat, partly offset by the (2024: £(282)m) reflects an overall tax charge\notherwise stated. absence of a one-off benefit in submarines. on profits of Group companies and includes\nStatutory operating profit of £4.5bn a £277m tax credit relating to the recognition\nRevenue: Underlying revenue of £20.1bn compares to underlying profit of £3.5bn. of previously unrecognised deferred tax\nwas higher by 14%, with strong growth The £(1)bn difference between statutory asset on underlying UK tax losses and a\nacross all divisions. Statutory revenue and underlying operating profit comprises £31m tax credit relating to the utilisation of\nof £21.2bn was 12% higher compared with a £(797)m negative impact from currency previously unrecognised UK tax loss deferred\n2024. The difference between statutory and hedges in the underlying results alongside tax asset against underlying profits in the\nunderlying revenue is driven by statutory a net £(209)m of other adjustments to year. These are reflected in the statutory\nrevenue being measured at average underlying operating profit. The £(209)m is tax charge of £(1.1)bn (2024: tax credit of\nprevailing exchange rates (2025: GBP:USD made up of: impairment reversal of £(179)m £250m) which also includes a further £286m\n1.32; 2024: GBP:USD 1.28) and underlying related to a Civil Aerospace programme tax credit on the recognition of previously\nrevenue being measured at the hedge asset impairment previously recorded, unrecognised deferred tax asset on\nbook achieved rate during the year (2025: £(83)m onerous provision release, £(6)m non-underlying UK tax losses, offset by a\nGBP:USD 1.44; 2024: GBP:USD 1.48). pension past service credit, £(1)m other tax charge of £(660)m related to unrealised\ncredits, £44m of charges relating to gains on foreign exchange derivatives, a\nOperating profit: Underlying operating profit transformation and restructuring costs and £(44)m tax charge related to programme\nof £3.5bn (17.3% margin) compared to £2.5bn £16m amortisation of intangible assets arising asset impairment reversals, a tax charge\n(13.8% margin) in the prior year. Underlying on previous acquisitions. of £(58)m relating to the reduction in the\noperating profit was higher in all three core substantively enacted tax rate in Germany\ndivisions, driven by our strategic initiatives, Profit before taxation: Underlying profit and a £(30)m tax charge relating to other\nincluding commercial optimisation and cost before taxation of £3.4bn included £(110)m non-underlying items.\nefficiency benefits. The largest increase net financing costs comprising £265m\nin underlying operating profit was in Civil interest receivable, £(240)m interest payable\nAerospace, driven by stronger large engine and £(135)m of other financing charges and\naftermarket performance, contractual margin costs of undrawn facilities. Statutory profit\nimprovements and spare engine profitability. before tax of £6.9bn included £1.3bn net fair\nPower Systems also delivered a significant value gains on derivative contracts, £(31)m\nincrease in underlying operating profit, net interest payable, net foreign exchange\ndriven by continued profitable growth in gains of £499m and £(134)m other financing\npower generation, notably in data centres, charges and costs of undrawn facilities.\nand governmental. Higher Defence profit\n22 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4935, "tables": [ [ [ "21,207", "(1,148)", "–", "–", "20,059" ], [ "6,175", "(799)", "14", "(264)", "5,126" ], [ "4,468", "(797)", "16", "(225)", "3,462" ], [ "809", "–", "–", "(809)", "–" ], [ "5,277", "(797)", "16", "(1,034)", "3,462" ], [ "1,658", "(1,823)", "–", "55", "(110)" ], [ "6,935", "(2,620)", "16", "(979)", "3,352" ], [ "(1,099)", "660", "(3)", "(151)", "(593)" ], [ "5,836", "(1,960)", "13", "(1,130)", "2,759" ], [ "69.41", null, null, null, "29.55" ] ] ], "table_count": 1 }, { "pdf_page": 25, "printed_page": 23, "section": "Strategic Report", "subsection": "Financial review", "text": "FINANCIAL REVIEW\nFree cash flow\n2025 2024\nImpact of\nImpact of Impact of other non-\nhedge acquisition underlying\n£ million Cash flow book accounting items Funds flow Funds flow\nOperating profit 4,468 (797) 16 (225) 3,462 2,464\nDepreciation, amortisation and impairment 737 – (16) 179 900 853\nMovement in provisions (486) 78 – 118 (290) (167)\nMovement in Civil Aerospace LTSA balance 123 378 – – 501 910\nMovement in RRSA prepayments for parts 90 (19) – – 71 (219)\nMovement in cost to obtain contracts (44) – – – (44) (18)\nSettlement of excess derivatives (148) – – – (148) (146)\nInterest received 270 – – – 270 269\nOther operating cash flows 1 110 – – 5 115 43\nOperating cash flow before working capital and income tax 5,120 (360) – 77 4,837 3,989\nWorking capital 2 613 (195) – 3 421 280\nCash flows on other financial assets and liabilities held\nfor operating purposes (578) 532 – – (46) (24)\nIncome tax (590) – – 35 (555) (381)\nCash from operating activities 4,565 (23) – 115 4,657 3,864\nCapital element of lease payments (232) 23 – – (209) (275)\nCapital expenditure (978) – – – (978) (876)\nCash received on maturity of share based payment schemes 40 – – – 40 –\nInvestments (7) – – 37 30 16\nInterest paid (262) – – – (262) (298)\nOther 144 – – (152) (8) (6)\nFree cash flow 3,270 – – – 3,270 2,425\n1 Other operating cash flows includes profit/(loss) on disposal, share of results and dividends received from joint ventures and associates, flows relating to our defined benefit post-\nretirement schemes, and share based payments\n2 Working capital includes inventory, trade and other receivables and payables, and contract assets and liabilities (excluding Civil Aerospace LTSA balances, prepayment to RRSAs and\ncosts to obtain contracts)\nFree cash flow in the year was £3.3bn, £845m Working capital inflow of £421m, compared\nhigher than the prior year driven by: to an inflow of £280m in the prior year.\nThis reflected the continued benefits of our\nUnderlying operating profit of £3.5bn working capital initiatives, partly offset by\nwas £1.0bn higher than the prior year. investment to support growth across the\nThis reflects higher underlying operating Group. A net £1.1bn inflow from receivables,\nprofit and margins in all three core divisions, payables and contract liabilities, was partly\nnotably Civil Aerospace. offset by a £(685)m increase in inventory.\nMovement in provisions of £(290)m Income tax of £(555)m was higher than the\nwas primarily driven by a net release of prior year of £(381)m due to increased profits\nonerous provisions. and timing of payments.\nMovement in Civil Aerospace LTSA balance Capital expenditure of £(978)m includes\nwas £501m (2024: £910m), driven by £(621)m of property, plant and equipment\ncontinued EFH growth and a higher additions and £(364)m of intangibles\nnormalised EFH rate due to our commercial additions. The combined additions were\nactions, offset by an increased number of higher than the prior year as a result of\nshop visits. Catch-ups were £(279)m in 2025 investment across the Group to support\ncompared with £(311)m in the prior year. strategic growth and safety.\nMovement in RRSA prepayments for parts of\n£71m (2024: £(219)m) is driven by growth in\nincome received from customers (based on\nEFH flown) where the partner receives a\nshare in advance of them providing goods\nand services to the Group.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 23\nSTRATEGIC\nREPORT", "char_count": 3409, "tables": [ [ [ "4,468", "(797)", "16", "(225)", "3,462" ], [ "737", "–", "(16)", "179", "900" ], [ "(486)", "78", "–", "118", "(290)" ], [ "123", "378", "–", "–", "501" ], [ "90", "(19)", "–", "–", "71" ], [ "(44)", "–", "–", "–", "(44)" ], [ "(148)", "–", "–", "–", "(148)" ], [ "270", "–", "–", "–", "270" ], [ "110", "–", "–", "5", "115" ], [ "5,120", "(360)", "–", "77", "4,837" ], [ "613", "(195)", "–", "3", "421" ], [ "(578)", "532", "–", "–", "(46)" ], [ "(590)", "–", "–", "35", "(555)" ], [ "4,565", "(23)", "–", "115", "4,657" ], [ "(232)", "23", "–", "–", "(209)" ], [ "(978)", "–", "–", "–", "(978)" ], [ "40", "–", "–", "–", "40" ], [ "(7)", "–", "–", "37", "30" ], [ "(262)", "–", "–", "–", "(262)" ], [ "144", "–", "–", "(152)", "(8)" ], [ "3,270", "–", "–", "–", "3,270" ] ] ], "table_count": 1, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 26, "printed_page": 24, "section": "Strategic Report", "subsection": "Financial review", "text": "FINANCIAL REVIEW\nBalance sheet\n£ million 2025 2024 Change\nIntangible assets 4,598 4,402 196\nProperty, plant and equipment 4,013 3,724 289\nRight-of-use assets 759 761 (2)\nJoint ventures and associates 1,285 592 693\nCivil Aerospace LTSA 1 (10,397) (10,184) (213)\nRRSA prepayments for parts 1 1,771 1,668 103\nCosts to obtain contracts 1 178 135 43\nWorking capital 1 (2,216) (1,731) (485)\nProvisions (1,557) (1,994) 437\nNet cash 2 1,895 475 1,420\nNet financial assets and liabilities 2 (38) (1,980) 1,942\nNet post-retirement scheme deficits (606) (191) (415)\nTaxation 3,068 3,383 (315)\nAssets and liabilities held for sale 3 (4) 53 (57)\nOther net assets and liabilities 4 6 (2)\nNet liabilities/(liabilities) 2,753 (881) 3,634\nUS$ hedge book (US$bn) 21 19\n1 The total of these lines represent inventory, trade receivables and payables, contract assets and liabilities and other assets and liabilities in the statutory balance sheet\n2 Net cash includes £(77)m (2024: £33m) of the fair value of derivatives included in fair value hedges and the element of fair value relating to exchange differences on the underlying\nprincipal of derivatives in cash flow hedges\n3 Assets and liabilities held for sale relate to the sale of the naval handling business. During the year, the Group disposed of the naval propulsors business to Fairbanks Morse Defence\n(FMD) that was held for sale in 2024\nKey drivers of balance sheet Provisions: The £437m net reduction in Taxation: The net tax asset decrease of\nmovements were: provisions was due to onerous provision £(315)m was driven by a £130m decrease\nreversals and utilisation being greater in deferred tax liabilities (primarily due\nJoint ventures and associates: The £693m than onerous provision charges in the to a reduction in the UK defined benefit\nincrease was largely a result of Rolls-Royce year, supported by continued efforts pension surplus) which was more than\nSMR being recognised at its fair value as an to renegotiate our most significant offset by a £(245)m increase in net current\nequity-accounted investment following the onerous contracts. tax liabilities (driven by timing of payments)\nstrategic investment by ČEZ Group (ČEZ) in and a net reduction in the deferred tax asset\nRolls-Royce SMR during the year. Net cash: Increased to £1.9bn from of £(200)m. The reduction in the deferred\n£475m driven by a free cash inflow of tax asset was a result of a £(504)m reduction\nCivil Aerospace LTSA: The £(213)m movement £3.3bn. Our liquidity position is strong in deferred tax related to foreign exchange\nin the net liability balance was mainly driven with £8.7bn of liquidity including cash and derivatives, which moved from a net financial\nby an increase in invoiced LTSA receipts cash equivalents of £6.2bn and undrawn liability to a net financial asset position,\nexceeding revenue recognised in the year. facilities of £2.5bn. During the year, the a £(178)m reduction in other deferred tax\nThis is especially prevalent on new contracts Group repaid a $1.0bn bond in line with its assets driven by a reactivation of previously\nwhere the first shop visits do not occur for maturity date. Net cash included £(1.5)bn of disallowed interest in the UK and asset\nsome time after the engine is delivered. lease liabilities (2024: £(1.6)bn). impairment reversals, and other movements\non UK tax losses of £(81)m. These were\nRRSA prepayments for parts: The £103m Net financial assets and liabilities: A £1.9bn partly offset by the recognition of a £563m\nincrease corresponds to the increase seen increase in the net financial assets primarily deferred tax asset relating to UK tax losses\nin the Civil Aerospace LTSA balance above. driven by fair value gains on foreign previously not recognised.\nRRSA prepayments typically move in line exchange and commodity contracts due\nwith the Civil Aerospace LTSA balance as the to the impact on the movement in GBP:USD\nRRSA prepayment represents amounts that exchange rates.\nwe have paid to Risk and Revenue Share\nPartners for the parts that they will ultimately Net post-retirement scheme deficits:\nprovide in support of our contracts. Increased £415m largely due to the\nRolls-Royce UK Pension Fund entering into\nWorking capital: The £(2.2)bn net working a Buy-in transaction in 2025, the Buy-in was\ncapital position increased by £(485)m done in anticipation of entering into a full\ncompared to the prior year. The movement Buy-out during 2026.\ncomprised an increase in net contract\nliabilities of £(541)m and £(580)m increase\nin net payables due to changes in operational\nvolumes and timing of supplier payments.\nThis was partly offset by a £636m increase\nin inventory reflecting higher sales volumes.\n24 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4726, "tables": [ [ [ "4,598" ], [ "4,013" ], [ "759" ], [ "1,285" ], [ "(10,397)" ], [ "1,771" ], [ "178" ], [ "(2,216)" ], [ "(1,557)" ], [ "1,895" ], [ "(38)" ], [ "(606)" ], [ "3,068" ], [ "(4)" ], [ "4" ], [ "2,753" ], [ "21" ] ] ], "table_count": 1 }, { "pdf_page": 27, "printed_page": 25, "section": "Strategic Report", "subsection": "Our divisions - Civil Aerospace", "text": "Our divisions\nCIVIL AEROSPACE\nCivil Aerospace is a major manufacturer\nof aero engines for the large commercial\naircraft, regional jets and business aviation\nmarkets. The division uses its engineering\nexpertise, in-depth knowledge and\ncapabilities to provide through-life\nservice solutions for its customers.\nUNDERLYING REVENUE MIX PIONEERING With its market-leading technology and cutting-edge\nconnectivity, our Pearl family is the engine family of\nTHE INTELLIGENT\nchoice in the very long-range and ultra long-range\nENGINE business aviation market.\nMarket overview engine fleet. Business aviation and regional\nCivil Aerospace has two main areas of focus engine flying hours were broadly unchanged\nOE – 31% – large engine production, based in Derby, compared to 2024.\nServices – 69% UK and business aviation, headquartered\nin Dahlewitz, Germany. We have 14,263 In 2025, we saw higher shop visit volumes,\nin-service engines and power four out of five as expected, despite continued supply chain\nin-production widebody aircraft. A majority challenges which we are actively managing.\nof our engines are covered under long-term These shop visits are required to maintain\nUNDERLYING REVENUE MIX BY SECTOR\nservice agreements, and are supported and repair our growing installed engine fleet.\nby our global MRO network spanning\n12 locations in 10 countries. We have invested to grow capacity in\nDerby, UK, Dahlewitz, Germany, and\nIn 2025, we saw a strong intake of orders Singapore. This has allowed us to deliver\nand as such our large engine order book more new engines, and at the end of 2025,\nincreased by 20% to 2,207 engines at the end support a more than 50% increase in large\nof the year. A total of 638 large engines were engine shop visits over the past three years.\nordered with a gross book-to-bill ratio of\n2.5x. Significant new orders included Riyadh Financial performance\nAir, IndiGo, and IAG. Deliveries of 259 large Underlying revenue of £10.4bn increased\nLarge engines – 76%\nengines during 2025 (2024: 278) were aligned 15%, driven by a higher number of shop visits\nBusiness aviation – 19%\nto airframer production schedules, reflecting and commercial optimisation. Underlying OE\nRegional – 2%\nthe impact of industry-wide supply chain revenue grew by 3% in the year to £3.2bn and\nV2500 – 3%\nissues, and included a slightly lower number services revenue grew by 21% to £7.2bn. LTSA\nof spare engine deliveries. revenue catch-ups were £279m (2024: £311m).\nOur market share of the installed widebody Underlying operating profit was £2.1bn\nUNDERLYING REVENUE base has grown from 34% at the end of 2022 (20.5% margin) versus £1.5bn in 2024\nto 38% at the end of 2025, supported by (16.6% margin). The increase in operating\n£10,382m our market share of more than 50% of new profit was driven by stronger large engine\nengine deliveries over the past three years. aftermarket performance across LTSA and\n2024: £9,040m time and materials, a larger contribution\nBusiness aviation engine deliveries were from contractual margin improvements,\nUNDERLYING OPERATING PROFIT 224 in 2025 (2024: 251), of which a majority and improved spare engine profitability.\nwere Pearl engines, which saw a 26%\n£2,130m increase year-on-year, offset by lower Our work on commercial optimisation and\ndeliveries of legacy BR engines. At present, cost reduction across large engine and\n2024: £1,505m there are over 7,500 in-service Rolls-Royce business aviation contracts supported gross\nbusiness aviation engines across our Pearl, contractual margin improvements of £553m\nTay, BR710, BR725 and AE 3007 families, (2024: £617m). These were primarily driven\nUNDERLYING OPERATING MARGIN\nwhich provide power to a range of platforms, by the continued successful renegotiation of\n20.5% including the Gulfstream and the Bombardier onerous contracts in the year, alongside the\naircraft. There are over 1,600 BR725 and achievement of key time on wing milestones\nPearl engines in service, which power the on the Trent XWB-84. These benefits were\n2024: 16.6%\nGulfstream G650/G650ER/G700 and the partially offset by £161m (2024: £382m)\nBombardier Global jets 5500/6500. of additional charges associated with\nORDER BACKLOG 1 the impact of prolonged supply chain\nLarge engine flying hours rose by 8% challenges, which were booked across\n£64.6bn\ncompared to the prior year to 111% of 2019 onerous provisions and contract catch-ups.\nlevels, driven by continued strong demand As a result, net contractual margin\n2024: £59.9bn for travel and our growing installed large improvements were £392m (2024: £235m),\n1 See note 2 on page 139\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 25\nSTRATEGIC\nREPORT", "char_count": 4650, "tables": [ [ [ null, "CIVIL AEROSPACE" ] ], [ [ "PIONEERING THE INTELLIGENT ENGINE", "With its market-leading technology and cutting-edge connectivity, our Pearl family is the engine family of choice in the very long-range and ultra long-range business aviation market." ] ] ], "table_count": 2, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 28, "printed_page": 26, "section": "Strategic Report", "subsection": "Our divisions - Civil Aerospace", "text": "OUR DIVISIONS\nFinancial overview\nOrganic Organic\n£ million 2025 change 1 M&A FX 2024 Change change 1\nUnderlying revenue 10,382 1,326 – 16 9,040 1,342 15%\nUnderlying OE revenue 3,217 101 – 11 3,105 112 3%\nUnderlying services revenue 7,165 1,225 – 5 5,935 1,230 21%\nUnderlying gross profit 2,675 679 – 6 1,990 685 34%\nGross margin % 25.8% 22.0% +3.7pt\nCommercial and administrative costs (432) (37) – 1 (396) (36) 9%\nResearch and development costs (267) (15) – – (252) (15) 6%\nJoint ventures and associates 154 (6) – (3) 163 (9) (4)%\nUnderlying operating profit 2,130 621 – 4 1,505 625 41%\nUnderlying operating margin % 20.5% 16.6% +3.9pt\n2025 2024 Change\nTrading cash flow 2,512 2,030 482\nKey operational metrics 2025 2024 Change\nLarge engine deliveries 259 278 (7)%\nBusiness aviation engine deliveries 224 251 (11)%\nTotal engine deliveries 483 529 (9)%\nLarge engine LTSA flying hours (million) 17.0 15.8 8%\nLarge engine LTSA major refurbs 517 430 20%\nLarge engine LTSA check & repair 562 473 19%\nTotal large engine LTSA shop visits 1,079 903 19%\n1 Organic change is the measure of change at constant translational currency applying full year 2024 average rates to 2025 and excludes M&A and business closures. All underlying\nincome statement commentary is provided on an organic basis unless otherwise stated\ncomprising contract catch-ups of £226m We have continued to enact and embed a The transition to lower-carbon energy and\n(2024: £290m) and net onerous provision value-based pricing framework and have made the reduction of emissions in our markets is\nreleases of £166m (2024: charges of £55m). further progress on re-structuring onerous important. Ensuring the maximum efficiency\ncontracts, driving improvements in LTSA of our current fleet is a vital first step, as\nTrading cash flow of £2.5bn was 24% higher\nmargins. Alongside our time on wing many of these engines will remain in service for\nthan the prior year (2024: £2.0bn). The\nimprovements and cost initiatives, our efforts decades to come. All of our in-production civil\nincrease in trading cash flow was primarily\nhave significantly improved contract margins of aero engines have been proven to be 100%\ndriven by higher operating profit, partly\nin-production engines over the past three years. compatible with sustainable aviation fuels.\noffset by slightly lower year-on-year LTSA\nIn May, the new Trent XWB-84EP engine\nbalance growth. LTSA balance growth During 2025, we continued to make\nvariant entered into service delivering a\nnet of RRSAs was £0.6bn (2024: £0.7bn), progress in expanding our MRO capacity\n1% fuel efficiency improvement, as well as\nsupported by continued EFH growth, a across the network. We celebrated the official\nimproved durability, reduced CO emissions,\nhigher normalised EFH rate due to our opening of BAESL, our MRO joint venture with 2\nand further time on wing benefits.\ncommercial actions, with LTSA invoiced Air China in Beijing, China, to support up to\nflying hour receipts of £6.0bn (2024: £5.5bn), 250 shop visits per year by the mid-2030s. Outlook\noffset by a higher number of shop visits. We announced plans with Turkish Technic to We expect 2026 large EFH will grow to\nestablish a world-leading aero engine facility 115%–120% of 2019 levels, alongside 550–600\nOperational and strategic progress\nin İstanbul, Republic of Türkiye, targeted to be total OE deliveries and 1,480–1,550 total shop\nWe have made continued progress on our six\noperational by the end of 2027 to support up visits. We now target a mid-term margin of\nlevers to unlock value within Civil Aerospace:\nto 200 shop visits per year. 21%–23% compared to 20.5% in 2025. We\nextend time on wing; lower shop visit costs;\nexpect large EFH growth to be 130%–140%\nreduce product costs; keep engines earning In business aviation, the first Pearl 700\nof 2019 levels, alongside 650–750 total OE\nfor longer; implement value-based pricing; powered Gulfstream G800 entered service\ndeliveries and 1,300–1,400 total shop visits in\nand drive contractual rigour. in August. Certification for the Pearl 10X\n2028. Higher operating profit to the mid-term\nengine, which powers the Dassault Falcon 10X,\nOur time on wing programme to improve will be driven by: stronger widebody aftermarket\nis underway, with all engine certification tests\nthe durability across our in-production performance; improved widebody OE\nsuccessfully completed in 2025. The ongoing\nTrent engines now targets more than a profitability as Trent XWB installed engine\nfinalisation of the certification reports for EASA\n100% increase. More than half of this deliveries become breakeven or positive;\nis progressing to plan.\nimprovement is now delivered. On the Trent a further increase in business aviation\nXWB-84, we have refined and accelerated We continue to progress our work performance; higher spare engine profitability;\nour programme to extend critical part lives. on the UltraFan technology programme, a reduced contribution from contractual\nFor the Trent 1000 XE engine, the improved which spans the development of the margin improvements.\nphase one HPT blade was certified in June next-generation, ducted engine solution for\nBeyond the mid-term, we see continued\nand has been fitted to new production widebody and narrowbody aircraft. Where\ninstalled engine growth with our young and\nengines and engines in shop visits. In applicable, we will utilise technologies and\ngrowing widebody fleet. Higher LTSA margins\naddition, the phase two HPT blade was learnings from the programme to enhance\nand continued LTSA balance growth will be\ncertified for the Trent 1000 XE and Trent existing Trent engines by improving time\nsupported by the full benefit of our strategic\n7000 engines in December and will be on wing, increasing fuel efficiency, reducing\ninitiatives which drive a proportionately lower\nincorporated into production engines emissions and engine noise.\nnumber of shop visits, and a continued benefit\nand existing engines commencing in 2026.\nfrom contracts coming through on better\nterms. We also expect improving OE profitability,\nalongside further growth in business aviation.\n26 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6154, "tables": [ [ [ "10,382" ], [ "3,217" ], [ "7,165" ], [ "2,675" ], [ "25.8%" ], [ "(432)" ], [ "(267)" ], [ "154" ], [ "2,130" ], [ "20.5%" ] ], [ [ "259" ], [ "224" ], [ "483" ], [ "17.0" ], [ "517" ], [ "562" ], [ "1,079" ] ] ], "table_count": 2 }, { "pdf_page": 29, "printed_page": 27, "section": "Strategic Report", "subsection": "Our divisions - Defence", "text": "OUR DIVISIONS\nDEFENCE\nDefence is a market leader in aero engines\nfor military transport and patrol aircraft,\nwith strong positions in combat applications.\nIt has significant scale in naval and also\ndesigns, supplies and supports the nuclear\npropulsion plant for all of the UK Royal Navy’s\nnuclear submarines.\nUNDERLYING REVENUE MIX GCAP: SECURING SOVEREIGN As a lead partner in GCAP, Rolls-Royce is driving\nthe development of advanced power and propulsion\nCAPABILITY AND DRIVING\nsystems. This investment secures thousands of highly\nHIGH-VALUE INDUSTRIAL skilled engineering roles and anchors a strong national\nGROWTH supply chain, ensuring long-term economic growth and\nindustrial resilience.\nMarket overview Financial performance\nOur Defence business supports five distinct Underlying revenue grew by 8% to £4.8bn\nOE – 47% end markets: transport, where we are the (2024: £4.5bn), with 20% growth in transport,\nServices – 53% market leader; combat, where we have full 7% growth in combat, and 11% growth in\npower and propulsion capability; submarines, naval, partly offset by 1% lower submarines\nwhere we have unique nuclear propulsion revenue. Total OE revenue growth was 18%\ncapability; naval, where our high power and services revenue growth was 1%.\ndensity engines bring real advantage; and Excluding the impact of a one-off benefit in\nUNDERLYING REVENUE MIX BY SECTOR\nhelicopters, where we have accumulated submarines revenue in the prior year, 2 total\nsignificant experience in military and revenue growth was 14%, services revenue\ncivil programmes. growth was 11% and submarines revenue\ngrowth was 17%.\nOrder intake in Defence was £5.5bn in\nthe year with a book-to-bill ratio of 1.1x. Key milestones in the year included\nOur order backlog at the year end stood the announcement by the international\nat £17.4bn, equivalent to more than three GCAP consortium of a major expansion\nyears of revenue, with order cover of around of their partnership to accelerate the\n90% for 2026. development of power and propulsion\nsystems, the first MV-75 engine entering\nTransport – 31%\nIn light of ongoing security concerns development testing, continued testing of\nCombat – 30%\naround the world, governments have the F-130 engine for the B-52, and the first\nSubmarines – 28%\nincreased their commitment to defence engine delivery for the MQ-25 unmanned\nNaval – 7%\nbudgets. We have been selected as refuelling aircraft programme.\nHelicopters – 4%\nlong-term partners in the development,\nmanufacture and maintenance of defence Underlying operating profit was\npower for critical military missions to deter £689m (14.4% margin) compared to\nUNDERLYING REVENUE threats, preserve life and maintain peace. £644m (14.2% margin) in the prior year.\nThe year-on-year improvement reflected\n£4,772m We provide power for our global defence stronger performance in transport OE,\ncustomers. We are a trusted supplier driven by increased volumes and a more\n2024: £4,522m chosen for our unrivalled engineering and favourable mix including improved margins\ntechnological capabilities, as we push the from international sales. Combat OE profit\nUNDERLYING OPERATING PROFIT boundaries of what is possible and provide was also higher. This was partly offset by the\nour customers with a strategic advantage. absence of a one-off benefit in submarines\n£689m Rolls-Royce does not provide or manufacture in the prior year.\nweapons for our customers.\n2024: £644m Trading cash flow was £745m compared to\nOur Defence market remains resilient £591m in the prior year, driven by higher\nand our customers continue to invest in operating profit and a stronger working\nUNDERLYING OPERATING MARGIN\ncapability in our core markets. £45bn of new capital performance.\n14.4% programmes will come online by 2050 within\nthe transport and patrol market, creating Operational and strategic progress\nsubstantial opportunities for us. We are well In Defence, demand for our products\n2024: 14.2%\npositioned to capture a significant portion remains robust and we secured major\nof these emerging opportunities as well as orders this year.\nORDER BACKLOG 1 benefit from the growing combat market,\nincluding autonomous platforms. In the first half, we agreed key aftermarket\n£17.4bn\ncontracts worth more than £1.5bn with the\nUK MoD and the US DoW for the EJ200 and\n2024: £17.4bn\nAE 2100 engines.\n2 Defence revenues in 2024 included a c.£220m benefit of\n1 See note 2 on page 139 a one-off capital and lease transaction.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 27\nSTRATEGIC\nREPORT", "char_count": 4517, "tables": [ [ [ null, "DEFENCE" ] ], [ [ "GCAP: SECURING SOVEREIGN CAPABILITY AND DRIVING HIGH-VALUE INDUSTRIAL GROWTH", "As a lead partner in GCAP, Rolls-Royce is driving the development of advanced power and propulsion systems. This investment secures thousands of highly skilled engineering roles and anchors a strong national supply chain, ensuring long-term economic growth and industrial resilience." ] ] ], "table_count": 2, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 30, "printed_page": 28, "section": "Strategic Report", "subsection": "Our divisions - Defence", "text": "OUR DIVISIONS\nFinancial overview\nOrganic Organic\n£ million 2025 change 1 M&A 2 FX 2024 Change change 1\nUnderlying revenue 4,772 369 (48) (71) 4,522 250 8%\nUnderlying OE revenue 2,228 336 (24) (27) 1,943 285 18%\nUnderlying services revenue 2,544 33 (24) (44) 2,579 (35) 1%\nUnderlying gross profit 933 40 (3) (12) 908 25 4%\nGross margin % 19.6% 20.1% (0.8)pt\nCommercial and administrative costs (201) 10 (1) 2 (212) 11 (5)%\nResearch and development costs (45) 9 – 1 (55) 10 (16)%\nJoint ventures and associates 2 (1) – – 3 (1) (33)%\nUnderlying operating profit 689 58 (4) (9) 644 45 9%\nUnderlying operating margin % 14.4% 14.2% 0.1pt\n2025 2024 Change\nTrading cash flow 745 591 154\n1 Organic change is the measure of change at constant translational currency applying full year 2024 average rates to 2025 and excludes M&A and business closures. All underlying\nincome statement commentary is provided on an organic basis unless otherwise stated\n2 On 1 July 2025 the sale of the naval propulsors business completed. As a result, organic change excludes the naval propulsors results from 2025 and 2024\nIn the second half of the year, the Republic We also carried out altitude testing and Outlook\nof Türkiye and the UK signed an agreement released controls software for the next We continue to target a 14%–16% margin\nto export 20 British-built Eurofighter phase of integration testing of our F130 in the mid-term compared to 14.4% in 2025.\nTyphoon aircraft, with an option for more engine for the B-52 re-engine programme. Higher operating profit will be primarily\nin the future. The ramp-up of the MV-75 and B-52 driven by:\nprogrammes is supported by significant\nFurthermore, Italy, Germany and Spain have investments that we have already made — Stronger performance across all end\nplaced orders this year for EJ200 engines. in Indianapolis, US, where we have invested markets, with higher aftermarket profit\nCoupled with the recent commitment from around $1bn over the last decade to increase alongside increased OE volumes.\nthe Republic of Türkiye, this now provides our production capacity, modernising and\n— Continued self-help actions.\nvisibility of our EJ200 original equipment improving our facilities and supporting\nproduction into the 2030s. thousands of local jobs. This investment — Productivity improvements due to\nreflects our belief in American capability capacity expansion.\nDuring the year, we also made important and our commitment to being in the US for\nprogress on the development of key future the long term. Beyond the mid-term, we have growing\nprogrammes. On GCAP, the international visibility of future demand, we anticipate\nconsortium announced a major expansion of During the year, Rolls-Royce submarines prolonged demand for our existing portfolio\ntheir partnership to accelerate development alongside Assystem, AtkinsRéalis and of profitable products including EJ200 and\nof the power and propulsion system for the Frazer-Nash, formed the Capability Assured our AE engine family alongside the ramp up\nnext-generation fighter aircraft. As leaders of Strategic Partnership, which brings together of new platforms. These new platforms will\nthe GCAP power and propulsion workstream, nuclear capability in the UK to support the remain in service for decades to come and\nwe successfully tested a combustor Royal Navy’s submarines programme and include AUKUS, B-52, GCAP, MV-75, and\ndeveloped with enhanced additive layer the wider Defence Nuclear Enterprise. We MQ-25, alongside a growing opportunity\nmanufacturing techniques that will result in also signed a memorandum of understanding from autonomous platforms.\nan improved design and higher performance. with the State of Victoria, Australia, outlining\na commitment to collaborate on developing\nIn addition, we began AE 1107 engine their defence industry skills, supply chain,\ntesting to support the prototype delivery and innovation ecosystem. This follows\nfor the U.S. Army MV-75 Future Long Range similar agreements signed with Western\nAssault Aircraft (FLRAA) programme. At the and South Australian governments in 2025\nheart of this next-generation platform are and highlights the unique nuclear expertise\nRolls-Royce engines, the latest evolution Rolls-Royce brings to the AUKUS agreement.\nof a powerplant trusted by the U.S. military Furthermore, to meet the growing demand\nfor decades. Each MV-75 FLRAA will be from the Royal Navy and as part of our\nequipped with two advanced Rolls-Royce commitment to AUKUS, we announced our\nAE 1107F engines, featuring world-class fissile construction partner in the expansion\npower density, cyber-compliant controls of our submarines site in Derby, UK.\nand survivability technology.\nAs part of our continued transformation\nprogramme, Rolls-Royce completed the\nsale of our naval propulsors business to\nFairbanks Morse Defense in July.\n28 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4892, "tables": [ [ [ "4,772" ], [ "2,228" ], [ "2,544" ], [ "933" ], [ "19.6%" ], [ "(201)" ], [ "(45)" ], [ "2" ], [ "689" ], [ "14.4%" ] ] ], "table_count": 1 }, { "pdf_page": 31, "printed_page": 29, "section": "Strategic Report", "subsection": "Our divisions - Power Systems", "text": "OUR DIVISIONS\nPOWER SYSTEMS\nPower Systems, with its product and\nsolutions brand mtu, is a global provider of\nhigh-performance energy and propulsion\nsolutions for a wide range of applications\nin the power generation, governmental,\nmaritime and industrial sectors.\nUNDERLYING REVENUE MIX THE BACKBONE OF Power Systems delivers the trusted power infrastructure\nof choice for hyperscale and high availability data centres\nTHE DIGITAL WORLD\nworldwide. Its advanced efficiency, connectivity and\nrapid response capabilities ensure maximum uptime,\nrobust protection against grid instability and a secure\nfoundation for the world’s increasingly digital operations.\nMarket overview Financial performance\nOur Power Systems business serves five Underlying revenue was £4.9bn, an\nOE – 70% distinct end markets. increase of 19% versus the prior year.\nServices – 30% Power generation revenue growth was\nIn power generation, we offer dependable 30%, including data centre revenue growth\ndiesel and gas power solutions for mission- of 35%. Governmental revenue growth was\ncritical to everyday back-up and continuous 14%, driven by both land and naval defence.\npower needs. We have a market share of Underlying OE revenue grew by 23% to\nUNDERLYING REVENUE MIX BY SECTOR\n20% to 25% in our key markets of data £3.4bn. Underlying services revenue grew\ncentres and mission-critical back-up systems. by 12% to £1.5bn.\nData centres now represent more than 80%\nof power generation revenue. Underlying operating profit grew by 60%\nto £852m. Underlying operating margin rose\nIn governmental, we provide peak- by 4.5pts to 17.4% (2024: 13.1%). The increase\nperformance diesel engines and propulsion in operating profit was driven by significant\nsystems with outstanding power density and profitable growth in power generation OE,\npower-to-weight ratios. We have a market stronger governmental services growth\nshare of 30% in our key markets of land and our young and growing BESS business,\ndefence and naval. which is now breakeven. Power generation\nPower generation – 54%\ngrowth was driven by data centres, where\nGovernmental – 25%\nIn marine, we deliver integrated diesel, gas we continued to capture the benefits of\nMarine – 10%\nand hybrid propulsion systems, including volume, mix and commercial optimisation.\nIndustrial – 9%\nautomation and control systems, which\nBESS – 2%\nare renowned for their reliability and Trading cash flow was £658m compared to\nperformance. We have a market share of 15% £452m last year. The increase in trading cash\nto 20% and our key markets are commercial flow was mainly due to stronger operating\nUNDERLYING REVENUE marine and yacht. profit, partly offset by higher investments\nand working capital to support disciplined\n£4,892m In industrial, we offer a broad range of highly business growth.\nreliable industrial diesel and hybrid solutions\n2024: £4,271m for a diverse range of requirements. We have\na market share of 15% to 20% and our key\nUNDERLYING OPERATING PROFIT markets are rail and mining.\n£852m Our fast-growing battery energy storage\nsystems business (BESS), which achieved a\n2024: £560m breakeven performance in 2025, provides\ngrid stability to harness renewable power.\nUNDERLYING OPERATING MARGIN\nIn 2025, order intake in Power Systems\n17.4% was £6.1bn, up 21% versus the prior year,\nwith a book-to-bill ratio of 1.2x. OE order\ncoverage for 2026 is 79%. Order intake grew\n2024: 13.1%\n31% year-on-year in power generation, and\nin governmental order intake grew 15%.\nORDER BACKLOG 1\n£6.1bn\n2024: £4.8bn\n1 See note 2 on page 139\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 29\nSTRATEGIC\nREPORT", "char_count": 3606, "tables": [ [ [ null, "POWER SYSTEMS" ] ], [ [ "THE BACKBONE OF THE DIGITAL WORLD", "Power Systems delivers the trusted power infrastructure of choice for hyperscale and high availability data centres worldwide. Its advanced efficiency, connectivity and rapid response capabilities ensure maximum uptime, robust protection against grid instability and a secure foundation for the world’s increasingly digital operations." ] ] ], "table_count": 2, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 32, "printed_page": 30, "section": "Strategic Report", "subsection": "Our divisions - Power Systems", "text": "OUR DIVISIONS\nFinancial overview\nOrganic Organic\n£ million 2025 change 1 M&A2 FX 2024 Change change 1\nUnderlying revenue 4,892 794 (113) (60) 4,271 621 19%\nUnderlying OE revenue 3,433 641 (104) (46) 2,942 491 23%\nUnderlying services revenue 1,459 153 (9) (14) 1,329 130 12%\nUnderlying gross profit 1,522 356 (23) (10) 1,199 323 30%\nGross margin % 31.1% 28.1% +2.6pt\nCommercial and administrative costs (518) (38) 3 – (483) (35) 8%\nResearch and development costs (164) 3 – (2) (165) 1 (2)%\nJoint ventures and associates 12 4 – (1) 9 3 44%\nUnderlying operating profit 852 325 (20) (13) 560 292 60%\nUnderlying operating margin % 17.4% 13.1% +4.5pt\n2025 2024 Change\nTrading cash flow 658 452 206\n1 Organic change is the measure of change at constant translational currency applying full year 2024 average rates to 2025 and excludes M&A and business closures. All underlying\nincome statement commentary is provided on an organic basis unless otherwise stated\n2 On 31 July 2024 the sale of the lower power range engines business completed. As a result, organic change excludes the power range engines results from 2024\nOperational and strategic progress In BESS, we have seen strong growth with Outlook\nWe have seen growing demand for our improved profitability. We have won a large We now target a mid-term margin of\nback-up power solutions for data centres, order with the Ignitis Group in Lithuania. 18%–20% compared to 17.4% in 2025. Higher\ndriven by global trends in cloud computing, operating profit will be driven by:\ndata processing and AI. Our order intake In marine, we advanced our yacht\nin power generation grew 31% in 2025 propulsion portfolio with the new mtu — Power generation OE revenue growth\nand we are now taking orders for 2027 and 12V2000Z engine delivering 2,222 hp, of around 20% per annum driven by data\n2028. We have significantly expanded our representing the next development step in centres, with higher margins reflecting\nproduction capacity worldwide, including our high-performance Series 2000 platform. an improved product mix and efficiencies.\nin our US production network, in Aiken We continue to execute our integrated\n— Governmental OE revenue growth of\nand Mankato, to support this growing data ‘Bridge to Propeller’ strategy, combining\naround 20% per annum (previously\ncentre demand. propulsion, POD drives and mtu NautIQ\n12–14%) reflecting increased global\nbridge systems into fully integrated\ndefence spending.\nIn October, we announced a new product yacht solutions from a single source.\nto support the power generation market, We have successfully tested the — Marine OE revenue growth of 5–7%\na fast-start gas genset. This will offer prime world’s first high-speed marine engine per annum.\npower to data centre customers who are powered exclusively by methanol in\n— BESS: double-digit OE revenue growth.\nawaiting grid connection and can later Friedrichshafen, Germany.\nbe switched to back-up power generation — Strong growth in service revenues\nonce the data centre is connected to the grid. The development of our next-generation will support margin improvements to\nThere has been strong interest in this product Series 4000 engine is progressing to plan, the mid-term.\nfrom our customers. with product launch on track for 2028. Our\nfirst sample engine has been commissioned Beyond the mid-term, growth will\nIn governmental, we hold a market-leading in Aiken, US. In product testing the engine has mainly be driven by power generation\nposition and are well positioned to capture delivered to all targeted technical parameters. and governmental. We anticipate sustained\nincreased defence spending by governments power generation growth driven by data\nthrough our propulsion systems placed into We have also conducted single-cylinder centres, where our strong market position\nmilitary vehicle platforms and naval vessels. testing of advanced and optimised will be supported by the introduction of our\nIn December, we received a major order to components for future generation engines. more power-dense next generation engine.\nsupply more than 300 mtu engines to power These components are developed using In governmental, rising defence spending\nLeopard 2 tanks. We are also developing cutting-edge additive manufacturing supports both land and naval applications,\nnew, 8-, 10-, and 12-cylinder S199 engines. technology, a significant milestone in where we are the incumbent supplier on\nThe development project is progressing to our technological innovation efforts. the main European NATO platforms, and we\nplan and we are planning to make the first remain well positioned to support US growth.\ndeliveries in 2026. We also see opportunities for profitable\ngrowth in marine, rail, mining, and BESS.\n30 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4781, "tables": [ [ [ "4,892" ], [ "3,433" ], [ "1,459" ], [ "1,522" ], [ "31.1%" ], [ "(518)" ], [ "(164)" ], [ "12" ], [ "852" ], [ "17.4%" ] ] ], "table_count": 1 }, { "pdf_page": 33, "printed_page": 31, "section": "Strategic Report", "subsection": "People and culture", "text": "“The power lies in each person being clear on how they contribute, understanding\nwhat is expected, and believing they can make a real difference. When we achieve this,\nwe become known for high-performing teams and a relentless pursuit of excellence –\nwhere every individual’s potential is unlocked, safety and integrity are never compromised,\nand our collective ambition shapes the future of our industry and the world.”\nTufan Erginbilgic\nChief Executive\nAdvancing our transformation Company through Your Shares: Gifted\nthrough people and culture and strengthened how we listen and\nWe want to win and achieve future respond to employee feedback through Engagement &\nsuccess through our interconnected Our Voices, which evolved our approach recognition\npillars of transformation and laser to listening to our employees. ENGAGEMENT\nfocus on performance culture. This is & REWCeO aGrNe IcToIOmNmitted to engaging and\na fundamental reset moment. We are In 2025, we launched our People Deal recognising our employees – placing\nmanaging the business differently and (see below) to clarify our employee safety at the centre of how we work.\nexpect more from our employees. Our proposition and drive cultural change. Through our listening channels, we regularly\ncultural transformation and focus on It clearly articulates what we promise to listen and invite employees to have a voice\nhigh performance is not only enabling employees, and what we expect in return, in shaping our culture, influencing decisions,\nour immediate transformation priorities linking our purpose, leadership expectations and driving meaningful change. This is\nbut also strengthening the foundations for and behaviours to the everyday experience supporting us to build a workplace where\nlong-term, sustainable success. We reinforce at work. For the first time, we have one everyone can thrive and belong.\nour performance expectations every day forward-looking narrative, helping us\nthrough our people and talent systems, change our culture, further reinforcing Our Change Maker network established\nleadership and strategy. three essential mindset shifts: in 2023 has matured and turned intention\ninto sustained action during 2025. The\nIt is critical that each person is clear on — Performance culture: focusing on relative network is made up of self-nominated\nhow they contribute, understanding what strategic business impact and employees across the Group who help\nis expected, and believing they can make differentiated outcomes embed, develop, showcase and sustain our\na real difference. When we achieve this, we — Talent first: building strategic capability purpose and behaviours in their business\nbecome known for high-performing teams and differentiated development areas. Now more than 1,300 employees\nand a relentless pursuit of excellence – where strong, Change Makers have evolved from\nsafety and integrity are never compromised, — Continuous learning: encouraging advocacy to active facilitation, working\nevery individual’s potential is unlocked, and curiosity to grow and adapt alongside people leaders to embed\nour collective ambition shapes the future of behaviours into daily habits and deliver\nour industry and the world. Our People Deal tangible outcomes from Safety Experience\nThe People Deal will guide how we attract, events to Winning Together (transformation)\nThis year, we continued to build on the develop, support and reward our employees, sessions. Where leaders actively sponsor and\nfoundations set in 2024 when we launched enabling sustained high performance and empower Change Makers, removing barriers,\nour new purpose, vision and behaviours, supporting our vision for a high-performing, and recognising progress, the cultural impact\nincreased employee ownership in the competitive, resilient and growing business. is significantly higher.\nOur Employee Voice Network, an all-\nemployee network, launched in September\nOur People Deal comprises six tenets and is open to all employees globally. It\nbrings diverse perspectives into decision-\nmaking, strengthens fair and equitable\nchange, and reinforces a shared culture.\nTogether with our other listening channels,\nthe Network forms a continuous listening\nand response system that connects employee\ninsight to visible organisational change. It\nWE PROMISE WE PROMISE WE PROMISE is led by 12 senior leaders globally (UK, US,\nTo listen, value your voice and To support you to perform at your Inspiring leaders who role-model Germany and India) and sponsored by three\nrecognise your impact. best with regular feedback. our Leadership Expectations. executive leadership group members (UK,\nWE EXPECT WE EXPECT WE EXPECT US and Germany).\nYou engage respectfully, recognise You strive for excellence and raise You take ownership regardless of\nothers and live our behaviours. the bar for yourself and others. where you sit in the organisation.\nWe know that employees who receive\nmeaningful recognition are five times more\nlikely to feel connected to their culture and\nengaged in their work. The results of our\nemployee survey indicate that recognition\nmust improve, with just 67% feeling\nappreciated for their contributions. We\nWE PROMISE WE PROMISE WE PROMISE launched our Group-wide recognition\nContinuous learning opportunities An opportunity rich climate with a An attractive total reward\nto help future proof your skills. diverse range of career opportunities. package that goes beyond pay. strategy, Power of You, in October. Power\nWE EXPECT WE EXPECT WE EXPECT of You provides a consistent, high-impact\nYour curiosity and drive for new You’re the architect of your career Focus on impact and finding way to reinforce our purpose and behaviours.\nlearning opportunities. to unleash your potential. ways to make a difference. It is enabled through a world-class digital\nand AI solution and launched simultaneously\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 31\nSTRATEGIC\nREPORT\nPeople and culture", "char_count": 5934, "tables": [], "table_count": 0, "supplemental_text": [ "focus on performance culture. This is We are committed to engaging and & RECOGNITION" ], "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 34, "printed_page": 32, "section": "Strategic Report", "subsection": "People and culture", "text": "PEOPLE AND CULTURE\nacross all 47 countries. We will now embed to ensure appropriate action and sustained\nrecognition as an everyday leadership habit, improvement. Examples of targeted\nensuring appreciation is timely, equitable cultural interventions include compliance-\nand clearly linked to strategic outcomes led listening sessions, speak up process Talent\nmost important to us. refresh sessions within the HR community TALENT\nand site-led communication and awareness As we enter a phase of accelerated growth\nOur wellness programme, LiveWell, has as required. it is critical to have a strategic pipeline\ncontinued to empower employees to take of talent with the right skills to enhance\npersonal responsibility for their health and Beyond these formal measurements of business critical capabilities.\nwellbeing while supporting others to do the our culture, we continue to draw insight\nsame at a local level. In 2025, 51 sites moved from a broader set of cultural indicators, Our Emerging Talent portfolio, spans\nup an accreditation level, now representing including retention data, belonging apprenticeship and graduate schemes across\n88 workplaces and 21 countries. metrics, and qualitative feedback through nuclear, procurement, commercial, project\nour listening channels. These give us a richer, management, digital and IT, finance, Global\nOne year on, Our Voices, our approach more human picture of how employees are Business Services, manufacturing operations\nto employee listening, has evolved from a experiencing the organisation and allow us and software engineering. There are over\nstandalone survey into a core Group-wide to identify where alignment with our purpose, 2,000 employees on the programme globally.\nmulti-channel mechanism for listening to vision and behaviours is strong, and where Significant investment continues in early-\nour employees and turning insight into additional focus is required. career and apprenticeship pathways. In the\naction. In our annual survey we had UK, our apprentices achieve results above\nparticipation from 32,862 employees the industry benchmark at 92%.\nrepresenting 79% of our global workforce.\nThis confirms strong momentum across Elevating our work experience offering has\nengagement, safety and trust, while also been central to building early engagement\nPerformance\nhighlighting where we must act with urgency. PERFORMANCE at the start of our talent pipeline. Discover:\nOn Demand, our new, free virtual work\nA key lever for driving a high-performance\nConfidence in our strategy and leadership experience and careers platform launched\nculture is our performance management\ncommunication continues to grow, with in October and was designed to open the\nstrategy which holistically integrates business\n82% saying our strategy is clear and 88% world of science, technology, engineering\nand employee performance. We know\nconfirming receipt of regular business and business to young people aged 14 to 18.\nthat companies that focus on their people’s\nupdates, representing significant year-on- The target is to engage 8,000 students\nperformance are 4.2 times more likely to\nyear improvements. in the first six months, so far we have\noutperform their peers, realising an average\nenrolled 5,200 students, with 80%\n30% higher revenue growth, on top of reaping\nThe survey also highlights critical gaps, starting an experience and 70% completing\ndividends in culture, collaboration, innovation\nwith only 64% of employees feeling well an experience. We have also seen 84%\nand sustained competitive performance. Key\nequipped with the tools they need to do engage with Future Ready Skills modules.\nbenefits include:\ntheir jobs, and just 51% are confident that The average time in a first engagement is\nmeaningful action will follow the survey, — improved employee performance and 56 minutes.\nboth are below external benchmarks. discretionary effort;\nGraduate engagement has evolved this\n— higher workforce performance and\nTo equip our people with the tools year, with the launch of the Enterprise\nengagement; and\nthey need to do their jobs, over the Skills Accelerator programme, designed for\nnext five years, we will invest in digital — better perceptions of fairness and early career professionals. The first cohort\ncapability to strengthen how our decision quality. welcomed 16 individuals and is designed to\npeople work, collaborate and perform across accelerate the development of commercially\nengineering, manufacturing, services, and We have an established foundation and astute, generalist future leaders.\ncompany systems. Workforce digitisation rhythm of performance management\nis equipping employees with refreshed through the organisation, which we can Together, targeted actions ensure we are\nlaptops, upgraded collaboration tools, and now build on to unlock greater potential building a resilient, future-ready workforce\nmodernised shop-floor technology, removing and performance in our teams. We support with depth of capability required to sustain\nfriction from daily work and enabling faster, employees to perform at their best and performance and execute our strategy\nbetter decisions. AI workforce readiness create high impact through strategically at pace.\nis also underway, building confidence aligned goals, regular real-time feedback\nin data-driven decision-making and and coaching, and strong performance To sustain a high-performance culture\naccelerating responsiveness across differentiation to reflect business impact. over the long term, we have continued to\nthe business. We drive strong differentiation across strengthen the depth, quality and readiness\nthe workforce based on relative business of our talent and capability. We remained\nBelonging scores remain stable year-on-year impact and achievement of strategic steadfast in removing bias from our Group-\nwith 75% of colleagues feeling they belong business outcomes. Our focus is on wide talent system, ensuring a progressive\nat work. A further indicator of our cultural empowering employees to perform at their and standardised approach to how we\ntransformation is the continued strength best, upgrading people leader capability, source, attract, develop and retain the very\nof our speak up culture (see Ethics and building a rhythm of regular, candid best people. Our global belonging framework\ncompliance on page 37). While overall feedback and continuing to optimise the embeds fairness, respect and meritocracy\ncontent trends remain stable, the increase process so that it drives high performance. across the entire talent system, from\nof speak up reports has enabled earlier This is not about working harder, it is about onboarding through to exit. See our fair\nidentification of risk and more timely making a difference. working practices on page 36.\nintervention. This has prompted deeper\ncollaboration between HR and Compliance We have made substantial progress across\nour talent and capability strategy. We\nstrengthened our workforce planning\ncapability through extensive forecasting\nto map critical skills, assess the impact of AI,\nunderstand geographical talent supply and\n32 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 7156, "tables": [], "table_count": 0 }, { "pdf_page": 35, "printed_page": 33, "section": "Strategic Report", "subsection": "People and culture", "text": "shape future workforce requirements. This — Rapid High Potential Programme: piloted In addition, 77% of the annual promotions\nenabled a targeted uplift in business-critical during 2024 targeted the development represented employees progressing to their\ncapability through both external hires and of senior leadership successors. The initial first leadership role, demonstrating strong\naccelerated internal upskilling. pilot proved highly successful, resulting in upward mobility at the early leadership stages\nleaders progressing into bigger and more and reinforcing our focus on building future\nOur approach recognises that organisational complex roles in 2025. leaders from within.\ncapability extends beyond technical skills; it\n— Career Acceleration Programme (CAP):\nis the combination of knowledge, behaviours, Our transition to a new talent acquisition\nlaunched this year, targeting mid-career\nculture, mindset and leadership required to partner has delivered measurable results,\nleaders viewed as having progression\nturn strategy into results. Strategic workforce including material improvements in hiring\ncapacity to grow into bigger and more\ncapabilities are therefore defined, measured efficiency and annualised savings. For example,\ncomplex roles in the future. Executive\nand developed deliberately, with investment offer acceptance time reduced from 87 to 68\nleaders are involved in co-facilitating\nfocused on value-driving roles rather than days, with time-to-start improving across the\nvarious elements of the programme.\nuniformly across the organisation. UK, US and Germany.\nThe Global Talent Exchange forum launched\nExtensive research has been undertaken to\nthis year and has proactively encouraged\nidentify key skills across all critical capability\ninternal talent mobility of high-potential\nareas to better understand the impact of AI\nindividuals, giving us better ability to implement\non roles, as well as the geographical supply\ncross-divisional internal moves and promotions. Capability & skills\nof the best talent and to ensure a progressive,\nInternal mobility continues to be a powerful CAPABILITY\nconsistent and aligned approach to strategic\nworkforce planning so that we are making\ndriver of transformation. 2,378 internal moves W& eS eKnILcLoSur age our employees to keep learning\nwere made in 2025 which is clear evidence of to future-proof their skills. Learning has been\nprogress in shaping the workforce for\nour commitment to developing and advancing transformed this year, through digital and\nthe future.\ntalent across the organisation. AI-enabled tools, delivering 991,196 learning\nhours and embedding learning into the flow\nA high-potential development strategy is\nof work. The expansion of MyLeatro, our\nin place to ensure holistic development of\nAI learning platform, has reduced the cycle\nsuccessors with strategic initiatives launched\ntime from identifying a skill gap to applying\nto strengthen our talent supply chain of\nnew learning from months to days, significantly\nfuture-ready leaders:\nincreasing responsiveness and agility.\nLeadership capability continues to strengthen,\nwith 93% of leaders in our flagship programmes\nassessed as high or strong performers. These\nimprovements are translating into materially\nreduced capability risk across Finance,\nProcurement & Supply Chain, Global Business\nServices and Enterprise Leadership.\nAll employees complete annual mandatory\nlearning on topics that are fundamental to\nhow we work and how we must live up to\nour Code of Conduct and Group policies.\nIn 2025, mandatory learning was completed\nby over 98% of our employees and 100% of\nour leaders.\nLooking ahead, we will continue to build\nfuture-critical skills through partnerships and\nacademies. We want to ensure our employees\nkeep learning new skills that remain relevant\nfor the future. Pushing themselves out of\ntheir comfort zone and remaining open\nto new learning and work experiences\nacross different divisions and functions will\ncontribute to the organisation becoming\nfully connected as One Rolls-Royce.\nEmpowering colleague-led culture change\nChange Makers were introduced in 2024 Progress and shifts in role over 12 months:\nas part of our broader transformation\n— Co-facilitated 80+ Safety Experience Extraordinary leadership\njourney, activating the organisation\nevents (over 13,000 employees).\naround our purpose, vision, strategy, and\nWe want to inspire and provide stretch\nbehaviours. Now comprising more than — 250+ Winning Together sessions.\nopportunities for our employees with\n1,300 employees, the network has moved\n— 50+ habit-building tools created. extraordinary leaders who exemplify\nfrom advocacy to active facilitation.\nour Leadership Expectations (Perform &\n— 40+ wellbeing integration sessions. Transform). Transformation depends on\n— Direct support to the Transformation leaders who both run and evolve the\nOffice on decision-making, behaviours business. Over the past year, we have\nand habit formation. embedded our Leadership Expectations\ninto the systems that shape performance,\nsuccession, and everyday decision-making.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 33\nSTRATEGIC\nREPORT\nPEOPLE AND CULTURE", "char_count": 5166, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 36, "printed_page": 34, "section": "Strategic Report", "subsection": "People and culture", "text": "PEOPLE AND CULTURE\nSpanning six domains, the Perform & Looking forward\nTransform framework anchors how leaders OUR COMMITMENT TO STEM\nshow up and drive outcomes. It is now fully Sustaining pace, intensity and\nintegrated into performance assessment, ACROSS GLOBAL COMMUNITIES cultural reinforcement\nsuccession planning and leadership Our priority is to sustain and deepen\nstorytelling, ensuring that expectations We have maintained our commitment to our current momentum: strengthening\ntranslate into consistent behaviour increasing access to quality education leadership accountability, building\nand accountability. and supporting young people in STEM, future-critical skills through targeted\nhelping them build the skills, confidence and purposeful partnerships, accelerating\nThe immediate data points indicate that and opportunities needed to realise decision clarity, embedding performance\nour investments are driving tangible their aspirations and overcome barriers culture into every corner of the organisation\nimprovements in leadership effectiveness. to success. and leveraging digital systems to reinforce\nAcross our top leadership development simplicity and execution excellence.\nprogrammes, we are seeing some good Our commitment is to: Together, these actions ensure that progress\nlearning and business impact – over 90% is not only achieved but sustained.\nof leaders confirmed that they are applying — increase opportunities for our\ntheir learning directly and delivering people to contribute their time, Our People Deal will continue to guide how\nvisible impact. skills and expertise to social we attract, develop, support and reward our\nimpact initiatives reinforcing our people, creating the conditions for consistent\nOur coaching partnership with Better Up commitment to making a difference high performance and enabling us to achieve\ncontinues to scale. This year leaders have our vision of a high-performing, competitive,\n— cultivate robust partnerships in\ncompleted over 5,000 coaching hours; resilient and growing company.\nour communities to address shared\n90% of coaching participants report that\nbusiness and social challenges\ncoaching has made them more effective Since setting our ambitious 2025\nat work, with the largest self-reported — co-create impactful community representation targets in 2020, we have\nimprovements linked directly to our programmes, and partnerships delivered meaningful progress across\nleadership expectations. that deliver real shared value leadership and workforce representation.\nWe achieved gender parity at Board level\nThis confirms that we are building a — focus our charitable giving and and made sustained improvements across\nleadership ecosystem that consistently sponsorships on initiatives that senior leadership and employee populations,\nreinforces the behaviours and capabilities align with our purpose and drive reflecting the impact of consistent focus\nrequired for sustained high performance. social progress and targeted action. While not all of our\nWe also expanded the use of short-term, ambitions were fully realised within the\nproject-based opportunities (known as ‘gigs’) For detail on our contribution to social original timeframe, the progress made\nto enhance capability and embed agile ways impact initiatives see page 38. reinforces the long-term nature of building\nof working. This resulted in over 2,000 gigs diverse pipelines, particularly for senior and\ncreated on our internal talent marketplace, This year, we intentionally refocused specialist roles. We have more to do, and will\nenabling mobility, stretch and career growth. our partnerships to deliver greater continue to leverage our enterprise talent\nimpact through deeper STEM system to broaden access to opportunity,\nengagement. As a result, 83% of our ensure merit-based hiring and progression,\ntotal STEM reach actively engaged and remove barriers so that everyone has an\nparticipants (2024: 75%), reflecting an equal opportunity to participate and succeed.\nincrease in high-quality interactions.\nReward While we continue to make progress Future approach to workforce\ntoward our target, our focus on\nREWARD representation targets\nOur promise is to deliver an attractive impact-driven programmes is We are shifting from fixed demographic\ntotal reward package that goes beyond pay. expected to result in lower overall targets toward strengthened leadership\nWe focus on impact, high performance, reach numbers going forward. We accountability, transparent pipelines,\nand delivery. continue to monitor and review our objective assessment and measurable\nmetrics, and associated targets to\ncultural outcomes. We will:\nIn 2025, we continued to connect business ensure we measure real social impact\nsuccess with reward, with differentiated and maximise the value we create for — continue to meet recommended guidance\noutcomes for those delivering the greatest our business, and all our stakeholders. across all jurisdictions we operate within,\nimpact. Our global incentive arrangements for example, FTSE Women Leaders and the\nhelp us to drive alignment throughout the Parker Review;\norganisation with a strong cascade of targets — avoid fixed demographic and\nthroughout the Group from Executive to all representation targets;\nlevels and ensure employees benefit from\nour performance. — focus on pipeline strength, sponsorship,\nsuccession transparency, and culture; and\nWe continued to invest in developing\n— increase internal and external\na culture of shared ownership. Building\ntransparency of progress and leadership\non the issue of the 150 free shares to all\naccountability.\nemployees in September 2024, we launched\na new share plan, Your Shares: Matched in all For information about our people and\nmajor locations. 97% of our global population diversity see page 36.\nare eligible to join, with an average take-up\nrate globally of 66%. This is a real example of\nPeople, health and safety\nhow we are Winning Together, and how our\nWe will continue to focus on people,\ntransformation programme has enabled\nhealth and safety in 2026, as set out on\nthis investment in our people.\npage 35.\n34 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6164, "tables": [], "table_count": 0 }, { "pdf_page": 37, "printed_page": 35, "section": "Strategic Report", "subsection": "People and culture", "text": "People, health and safety culture. As 2025 marks the final year of\nAs we continue to accelerate our our five-year safety index plan, we have\ntransformation, putting safety first remains reviewed the metric to ensure it continues\nnon-negotiable. Across all safety, health to drive the right behaviours, supports our\nand wellbeing activity, leadership visibility journey towards zero harm and increases\nand employee voice are central. Safety the focus on proactive risk management\nwalks, wellbeing conversations and local and process safety.\ninterventions ensure concerns are heard\nearly, while our integrated systems provide The proposed safety index for 2026\nthe tools and support needed to act includes three existing measures; senior\neffectively. Together, these approaches leadership safety walks, HSE alert response\nensure our people remain safe, healthy and non-conformance close-out, and three\nand ready to perform, enabling our new measures; completion of leadership\norganisation to sustain high-performance training, closure of process safety risk\nover the long term. assessment actions and closure of actions\nfrom investigations. The introduction of the\nOver 13,000 employees took part new measures has required a re-baselining\nin our Safety Experience events in 2025, of the safety index. The proposed Group\nrepresenting more than a quarter of the safety index target for 2026 is 87%. Had we\nGroup. Endorsed and attended by the been operating these measures in 2025, we\nExecutive Team, these two-hour, in-person would have scored 78%, hence this moves\nsessions reinforce the importance of us to a more robust scorecard and sets a\nkeeping our people, our products and the challenging requirement.\npeople who use them safe, strengthening\nownership of personal responsibility and The full year Group safety index score for\nempowering employees to act and make 2025 was 98%, slightly above the target\na difference. of 97%.\nSafety performance In 2025, the Total Reportable Injury (TRI)\nOur safety index provides a composite rate was 0.29, which is the same as in 2024.\nscore of five leading safety indicators: There were 128 TRIs in 2025, this is an\nsenior leadership safety walks, safety increase from 126 in 2024. TRI events are\ncase improvement activity, HSE alert shared widely to strengthen controls and\nresponse, non-conformance close-out reinforce a culture in which employees feel\nand accountable person engagement. safe to speak up. See page 18 for further\nTogether, these measures reinforce information on our safety index key\nproactive safety behaviours that improve performance indicator.\nthe effectiveness of our controls. The\nmeasures mature year-on-year to facilitate TRI RATE (PER 100 EMPLOYEES) 1\nthe continuous improvement of our safety\n0.43\n0.41\n0.35\n0.32\n0.29 0.29\n0.25\n20 21 22 23 24 25 25\nENILESAB\nTEGRAT\nPrevention and early intervention\nWe continued to strengthen musculoskeletal\nprevention and ‘health as safety’ practices.\nIn 2025, almost 1,000 employees accessed\nphysiotherapy through an expanded\nself-referral programme. Athletic trainers\nin Indianapolis, US delivered activities\nincluding ergonomics coaching and\nwarm-up programmes supporting\napproximately 2,000 employees. ‘Health\nby design’ interventions have been adopted,\nreducing ergonomic risk at source.\nIn the UK, health surveillance compliance\n(legally required medicals) improved by\n63% in 2025, driven by better outreach,\nincreased onsite provision and closer\noperational engagement.\nMental health as safety\nFollowing an ISO 45003 gap analysis,\nwe continued to embed mental health\ntraining within our safety-first strategy\nand align it with the People Deal.\nMore than 13,000 employees have now\ncompleted the Brain as a Safety Tool\nelement of the Safety Experience and,\nin the six months since its launch, over\n500 people leaders have completed the\nupdated Mental Health Safety for Leaders\nprogramme. Additionally, we strengthened\nour Global Mental Health Champion\nnetwork to 400 champions and launched\nMental Health Foundations for Everyone to\nbuild organisation-wide literacy.\nTo shift from reactive response to proactive\nprevention, we introduced new Group-\nwide tools, focused on psychosocial risk.\nOur first globally valid and reliable\npsychological risk assessment tool will\nlaunch with seven UK pilots in early 2026,\nproviding leaders with evidence-based\ninsight into psychological risk. A peer-\nsupport pilot and new internal resources\nWe put safety first to\nfurther strengthen early intervention and\nemployee connection. help us all avoid physical,\nTogether, these actions strengthen our\nmental or workplace\nalignment with ISO 45003 and emerging\nhealth issues. Like physical global legal expectations, reduce risk\nand ensure mental health is designed into\n1 O ur TRI rate shows the Group TRI performance\nsafety, our mental health (absolute and rate). External assurance over the the way work is planned and delivered.\nTRI data is provided by DNV (see page 202) Embedding mental health within safety\nshould be a priority every first is now a core driver of performance\nHealth as safety – supporting better judgement, reducing\nday – it plays a vital role Health remains integral to both safety error and sustaining high performance\nand performance. UK occupational operations, while ensuring our people\nin people, product, health referrals remained steady remain safe, healthy and ready to perform.\nthis year, with mental health-related\nand safety and how we absence representing over 35% of cases.\nIn response, we approved and updated\nperform and transform.\nour mid-term plan focused on mental\nhealth interventions, improved access\nto support and strengthened leader\nSarah Armstrong\ncapability – embedding health as safety\nChief People Officer and health by design.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 35\nSTRATEGIC\nREPORT\nPEOPLE AND CULTURE", "char_count": 5850, "tables": [], "table_count": 0, "visual_content": [ { "type": "bar_chart_series", "title": "TRI rate (per 100 employees)", "series": { "TRI rate": { "2020_baseline": 0.35, "2021": 0.43, "2022": 0.41, "2023": 0.32, "2024": 0.29, "2025": 0.29, "2025_target": 0.25 } } } ], "rotated_text": [ "BASELINE", "TARGET", "STRATEGIC REPORT" ] }, { "pdf_page": 38, "printed_page": 36, "section": "Strategic Report", "subsection": "People and culture", "text": "PEOPLE AND CULTURE\nPeople metrics Our diversity metrics at 31 December 2025 3\n42,600 EMPLOYEES TOTAL (MONTHLY AVERAGE) 1 Female diversity percentage tracking and 2025 targets\n2025\nCorporate\n2025 2024 target\nThe Board 4 50% 50% 50%\nExecutive Team (ET) 30% 30% 33%\nEnterprise Leadership Group (ELG) 31% 26% 35%\nSenior leaders 5 31% 25% 30%\nAll employees 19% 19% 25%\nEthnic diversity percentage tracking and 2025 targets for UK and US 6\nCivil Aerospace – 19,400\n2025\nDefence – 12,800 2025 2024 target\nPower Systems – 10,000 UK ethnicity 13% 12% 14%\nAll Other Businesses – 200 US ethnicity 18% 17% 20%\nCorporate – 200\nGender diversity\nEMPLOYEES IN 47 COUNTRIES (MONTHLY AVERAGE) 2\nFemale Male Total Female %\nThe Board 6 6 12 50%\nExecutive Team (ET) 3 7 10 30%\nET, Chief Governance O fficer and direct r eports 25 58 83 30%\nELG 26 59 85 31%\nSenior leaders 5 29 66 95 31%\nAll employees 8,235 34,927 43,162 19%\n1 Segments are defined in note 2 on page 134\n2 Employee headcount data represents permanent employees and excludes contractors\nUK – 22,100\n3 The data for diversity information is showing permanent employee year-end actuals\nGermany – 9,900 4 The Board Composition policy aims for gender parity\nUS & Canada – 6,000 5 Senior leaders are defined in the Companies Act 2006 (those who have responsibility for planning and directing\nor controlling the activities of the entity or a strategically significant part of it). We do not include all subsidiary\nItaly – 1,000 directors in the definition of senior leaders as this would not accurately reflect the leadership pipeline. We have a\nSingapore – 700 large number of small and dormant subsidiaries and the composition of these boards reflects their level of activity.\nAccordingly, senior leaders refers to the Executive Team and the ELG\nIndia – 700 6 For ethnicity information, we are only able to monitor and track this in the UK and US and, therefore, this only\nRest of world – 2,200 includes businesses in these locations. The population is only those who have chosen to disclose this information\nThroughout this Annual Report, the information we disclose is in accordance with our reporting obligations as a\nUK-registered company listed on the London Stock Exchange. We continue to keep our policies, procedures and\ntargets under review to ensure compliance with the laws and regulations of the jurisdictions in which we operate.\nGender pay reporting\nIn accordance with The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, we publish our UK gender pay gap on our\nwebsite at www.rolls-royce.com.\nMEDIAN GENDER PAY GAP ACROSS ALL EMPLOYEES IN THE UK MEAN GENDER PAY GAP ACROSS ALL EMPLOYEES IN THE UK\n2025 3.6% 2025 2.3%\n2024 4.4% 2024 1.6%\nFair hiring and pay practices\nWe remain committed to fair hiring practices and provide additional support to candidates who declare a disability or require\nadjustments during the recruitment process. We actively support employees who become disabled while working with us, ensuring the\nnecessary adjustments are made to enable their continued contribution and success.\nWe remain committed to fair pay globally, conforming to all national pay laws and progressing our work on living wage standards in line\nwith the Corporate Sustainability Reporting Directive (CSRD). In the UK, we pay above Living Wage Foundation standards and require\nsuppliers to meet minimum/fair wage commitments via our Global Supplier Code of Conduct.\n36 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3478, "tables": [ [ [ "People metrics Our diversity metrics at 31 December 2025 3 42,600 EMPLOYEES TOTAL (MONTHLY AVERAGE) 1 Female diversity percentage tracking and 2025 targets 2025 Corporate 2025 2024 target The Board 4 50% 50% 50% Executive Team (ET) 30% 30% 33% Enterprise Leadership Group (ELG) 31% 26% 35% Senior leaders 5 31% 25% 30% All employees 19% 19% 25% Ethnic diversity percentage tracking and 2025 targets for UK and US 6 Civil Aerospace – 19,400 2025 Defence – 12,800 2025 2024 target Power Systems – 10,000 UK ethnicity 13% 12% 14% All Other Businesses – 200 US ethnicity 18% 17% 20% Corporate – 200 Gender diversity EMPLOYEES IN 47 COUNTRIES (MONTHLY AVERAGE) 2 Female Male Total Female % The Board 6 6 12 50% Executive Team (ET) 3 7 10 30% ET, Chief Governance O fficer and direct r eports 25 58 83 30% ELG 26 59 85 31% Senior leaders 5 29 66 95 31% All employees 8,235 34,927 43,162 19% 1 Segments are defined in note 2 on page 134 2 Employee headcount data represents permanent employees and excludes contractors UK – 22,100 3 The data for diversity information is showing permanent employee year-end actuals Germany – 9,900 4 The Board Composition policy aims for gender parity US & Canada – 6,000 5 Senior leaders are defined in the Companies Act 2006 (those who have responsibility for planning and directing or controlling the activities of the entity or a strategically significant part of it). We do not include all subsidiary Italy – 1,000 directors in the definition of senior leaders as this would not accurately reflect the leadership pipeline. We have a Singapore – 700 large number of small and dormant subsidiaries and the composition of these boards reflects their level of activity. Accordingly, senior leaders refers to the Executive Team and the ELG India – 700 6 For ethnicity information, we are only able to monitor and track this in the UK and US and, therefore, this only Rest of world – 2,200 includes businesses in these locations. The population is only those who have chosen to disclose this information Throughout this Annual Report, the information we disclose is in accordance with our reporting obligations as a UK-registered company listed on the London Stock Exchange. We continue to keep our policies, procedures and targets under review to ensure compliance with the laws and regulations of the jurisdictions in which we operate." ], [ "Gender pay reporting In accordance with The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, we publish our UK gender pay gap on our website at www.rolls-royce.com. MEDIAN GENDER PAY GAP ACROSS ALL EMPLOYEES IN THE UK MEAN GENDER PAY GAP ACROSS ALL EMPLOYEES IN THE UK 2025 3.6% 2025 2.3% 2024 4.4% 2024 1.6%" ], [ "Fair hiring and pay practices We remain committed to fair hiring practices and provide additional support to candidates who declare a disability or require adjustments during the recruitment process. We actively support employees who become disabled while working with us, ensuring the necessary adjustments are made to enable their continued contribution and success. We remain committed to fair pay globally, conforming to all national pay laws and progressing our work on living wage standards in line with the Corporate Sustainability Reporting Directive (CSRD). In the UK, we pay above Living Wage Foundation standards and require suppliers to meet minimum/fair wage commitments via our Global Supplier Code of Conduct." ] ], [ [ "13%" ], [ "18%" ] ], [ [ "6", "6", "12", "50%" ], [ "3", "7", "10", "30%" ], [ "25", "58", "83", "30%" ], [ "26", "59", "85", "31%" ], [ "29", "66", "95", "31%" ], [ "8,235", "34,927", "43,162", "19%" ] ], [ [ null, "3.6%" ] ], [ [ null, "2.3%" ] ], [ [ null, "4.4%" ] ], [ [ null, "1.6%" ] ] ], "table_count": 7 }, { "pdf_page": 39, "printed_page": 37, "section": "Strategic Report", "subsection": "Ethics and compliance", "text": "Ethics and compliance\nWe are committed to ensuring that all our employees Remediations from the July 2024 Board\nreview of anti-bribery and corruption\ndo the right thing and to creating a working\nrisks (detailed in last year’s report) have\nbeen completed. A holistic Group-wide\nenvironment where everyone can be at their best.\nprogramme has commenced to cover\ngovernance of remote sites and subsidiaries\nwith monthly reporting to the Chief\nOUR PROGRESS IN 2025 Financial Officer, General Counsel and\nChief Transformation Officer.\n— Delivered senior leadership economic crime refresher learning in light of the introduction\nof the new offence of failure to prevent fraud under the Economic Crime and Corporate Human rights and anti-slavery\nTransparency Act 2023 Rolls-Royce is committed to protecting and\npreserving all recognised human rights of\n— Continued focus on economic crime risk assessment and incident management our employees and contract workers; those\nemployed by our suppliers; and communities\n— Launch of an improved, integrated third-party risk management system affected by our operations and supply\nchain operations. This includes upholding\nthe principles set out in our global Human\nWe are committed to upholding high ethical Enforcing Our Code Rights Policy to ensure that we act in a\nstandards to create a working environment We do not tolerate misconduct of any socially responsible manner, complying\nwhere everyone at Rolls-Royce and those we kind and will take disciplinary action, as with all applicable laws and regulations in\nwork with can be at their best. Our code of appropriate, including dismissal, in the the countries where we operate.\nconduct (Our Code) and associated Group event of a breach of Our Code. In 2025, 82\npolicies guide our actions and decisions employees (2024: 132) left the business for During 2025, we took steps to further\nto ensure we can be proud of the way we reasons related to breaches of Our Code. strengthen our human rights risk framework,\nbehave and the way we do business. While the number is lower than previous including by updating our global Human\nyears, which may be due to a number Rights Policy and selecting a specialist\nProgress in 2025 of factors (including transformation and consultancy to refresh our assessment of\nIn 2025, we continued to embed our increased compliance), we continue to salient human rights issues and carry out a\npurpose and behaviours which includes demonstrate our commitment to enforcement benchmarking analysis of our human rights\nthe behaviour, do the right thing. We are of Our Code. processes and procedures, which will take\nengaging with our employees across our place in 2026. When that assessment has\nglobal footprint on the important role they Supply chain due diligence concluded, we will implement recommended\nplay in maintaining our high standards of Our Supplier Code sets out the behaviours, changes with a view to further enhancing\nethics and compliance. In addition, as part practices and standards we expect our our risk framework. We expect our suppliers,\nof our 2025 annual mandatory learning suppliers to demonstrate and comply with, contractors, joint ventures and other\nprogramme, our core compliance learnings all of which are based on Our Code, policies partners to protect and preserve human\nincluded our fraud, data privacy and export and standards. Selected suppliers are rights in their activities and operations,\ncontrol policies. We require all our leaders contractually required to adhere to this or a and to always adhere to high standards\nto certify annually their understanding mutually agreed alternative. Partnering with of ethically, environmentally and socially\nof Our Code. specialist third-party providers, we conduct responsible behaviour. In 2025, we had no\nsustainability screening and assessments to known, formally-reported events in our own\nSpeak up understand the inherent sustainability risks operations or our supply chain that would\nWe strive to create an environment within our supply chain and take appropriate qualify as severe human rights impacts. Any\nwhere everyone feels valued and actively mitigating actions where required. Prioritised potential human rights risks were identified,\nencouraged to speak up about questions suppliers are requested to complete a escalated, addressed and mitigated in line\nor concerns without fear of negative comprehensive assessment of their with our risk framework.\nconsequences. This is a vital part of sustainability risk management.\nenhancing our culture of belonging. Our Modern Slavery Statement, which is\nEveryone can use our speak up channels, Where risks are identified, suppliers are published annually, sets out the actions\nwhether or not they are an employee. We asked to put in place improvement plans and we have taken to review and strengthen\nprovide multiple ways to raise a concern, offered support and resources to help with how modern slavery-related risks, including\nincluding the Rolls-Royce speak up line, this, including via our third-party partners forced labour, child labour and human\nwhich enables concerns to be raised where appropriate. trafficking, are identified, assessed and\nanonymously and confidentially in multiple mitigated in our own operations and in our\nlanguages. A speak up report highlighting Anti-bribery and corruption supply chain.\nkey statistics is made available to employees We do not tolerate bribery and\nat regular intervals to remind them of corruption in any form. This is set out F ind more information on our Human Rights\nthe importance of speaking up and our in Our Code and associated anti-bribery Policy and Modern Slavery Statement, see the\nSustainability page at www.rolls-royce.com\nannual speak up report is published on and corruption policy. We routinely\nwww.rolls-royce.com check and test the effectiveness of our F or more information on our ethics approach\nview Sustaining our culture of integrity document\nanti-bribery and corruption programme\navailable at www.rolls-royce.com\nto manage proactively the associated risks\n(see page 52). In 2025, we continued to\nmonitor our controls through compliance-\nspecific assurance activities, site visits and\nreviews of financial and operational data.\nThese activities are overseen by the\nNominations, Culture & Governance\nCommittee (see page 76).\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 37\nSTRATEGIC\nREPORT", "char_count": 6402, "tables": [ [ [ "OUR PROGRESS IN 2025", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 40, "printed_page": 38, "section": "Strategic Report", "subsection": "Sustainability - Non-financial and sustainability information statement", "text": "Sustainability\nRolls-Royce is a force for progress, committed to playing our part in the\nenergy transition for a more sustainable world.\nNON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT\nThe following table summarises where you can find further information on each of the key areas of disclosure required by sections 414CA and\n414CB of the Companies Act. The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 amend these sections\nof the Companies Act 2006, placing requirements on the Group to incorporate climate disclosures in the Annual Report. We believe these\nhave been addressed within the climate-related disclosures from page 39 and as such we have referenced the location of these within our\nstatement on TCFD on page 40.\nRELATED GROUP RELEVANT\nAREA OVERVIEW POLICIES & GUIDANCE PRINCIPAL RISKS PAGE\nEnvironmental We have an important role to play in the global energy transition and it continues 1. Health, safety & — Safety 39–47\nmatters and to be a strategic priority. During 2025, we made progress against our Scope 1 + 2 environment policy — Energy\ntargets as well as successfully achieving our 2025 environmental targets for transition\nclimate-\nenergy consumption, waste and recycling. We continue to make preparations for\nrelated\nnew incoming reporting standards in the UK and EU. We enhanced our climate\ndisclosures risk scenario analysis to cover the full period to 2050.\nEmployees In 2025, we strengthened our people strategy to reinforce a high-performing 1. Our Code — Safety 31–36\nand resilient culture, embedding safety, wellbeing, leadership accountability 2. Security & — Talent &\nand capability development across the Group. Significant investment in resilience policy capability\nleadership, learning, workforce readiness and health by design initiatives 3. People policies\nimproved organisational effectiveness, reduced risk, and supported long-term 4. Speak up policy\nvalue creation. We continued to prioritise colleague voice, engagement 5. Our life-saving\nand recognition while advancing people and culture across our operations. rules\nTogether, these actions ensure our workforce remains safe, skilled, motivated, 6. Global Equal\nand aligned to delivering sustainable business performance. Employment\nOpportunity Policy\nSocial Our people remain at the heart of all our programmes and contributed 72,163 1. Charitable — Political 34\nmatters hours to community investment and education outreach programmes in 2025. contributions — Talent &\nOur global charitable contributions and community investment totalled £5.4m, and social capability\nincluding £600,000 from a share forfeiture programme carried out in earlier sponsorships\nyears. We reached 823,797 people through STEM in 2025 and are now 49%\ntowards our goal of inspiring 25 million young innovators by 2030. In 2025,\nwe intentionally refocused partnerships to deliver impact-focused STEM\nengagements, resulting in higher quality but lower overall reach as we\ndrive towards programmes with greater value for business and society.\nHuman We are committed to protecting and preserving all recognised human rights 1. People policies — Compliance 37\nrights of our employees and contract workers; those employed by our suppliers; 2. Global Equal\nand communities affected by our operations and supply chain operations. Employment\nThis includes upholding the principles set out in our global Human Rights Opportunity Policy\nPolicy to ensure that we act in a socially responsible manner, complying 3. Human rights\nwith all applicable laws and regulations in the countries where we operate. policy\nIn 2025, we updated our global Human Rights Policy and took steps to further 4. Data privacy policy\nstrengthen our human rights risk management framework to ensure that we 5. Modern Slavery\ntake appropriate action to identify and mitigate human rights-related risks Statement\nand, where necessary, remedy human rights impacts.\nAnti-bribery We do not tolerate bribery and corruption in any form, as set out in Our Code 1. Anti-bribery and — Compliance 37\nand and associated Anti-Bribery and Corruption Policy. We routinely check and corruption policy\ntest the effectiveness of our anti-bribery and corruption programme to\ncorruption\nmanage proactively the associated risks (see page 52).\nRelevant information\nFor a description of our business For a description of our F or details of the Group’s principal F urther information on Group\nmodel, see pages 14 and 15 non-financial KPIs, see page 18 risks, see pages 48 to 56 policies can be found at\nwww.rolls-royce.com\nROLLS-ROYCE IS A FORCE FOR PROGRESS\nWE ARE COMMITTED TO READ MORE UN SDG ALIGNMENT\nEnergy Helping the world do things tomorrow that cannot be done today and Pages 39–40\ntransition and playing our part in the energy transition for a more sustainable world.\nenvironment\nPeople and Being socially and ethically responsible: creating lasting social value Pages 31–36\nculture for our people and stakeholders.\n38 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5028, "tables": [ [ [ "NON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT", null, null, null, null, null, null, null, null ] ], [ [ "Environmental matters and climate- related disclosures", null, "We have an important role to play in the global energy transition and it continues to be a strategic priority. During 2025, we made progress against our Scope 1 + 2 targets as well as successfully achieving our 2025 environmental targets for energy consumption, waste and recycling. We continue to make preparations for new incoming reporting standards in the UK and EU. We enhanced our climate risk scenario analysis to cover the full period to 2050.", "1. He env", "alth, safety & — Sa ironment policy — En tra", "fety ergy nsition", "39–47" ], [ "Employees", null, "In 2025, we strengthened our people strategy to reinforce a high-performing and resilient culture, embedding safety, wellbeing, leadership accountability and capability development across the Group. Significant investment in leadership, learning, workforce readiness and health by design initiatives improved organisational effectiveness, reduced risk, and supported long-term value creation. We continued to prioritise colleague voice, engagement and recognition while advancing people and culture across our operations. Together, these actions ensure our workforce remains safe, skilled, motivated, and aligned to delivering sustainable business performance.", "1. Ou 2. Sec res 3. Pe 4. Sp 5. Ou rul 6. Glo Em Op", "r Code — Sa urity & — Tal ilience policy ca ople policies eak up policy r life-saving es bal Equal ployment portunity Policy", "fety ent & pability", "31–36" ], [ "Social matters", null, "Our people remain at the heart of all our programmes and contributed 72,163 hours to community investment and education outreach programmes in 2025. Our global charitable contributions and community investment totalled £5.4m, including £600,000 from a share forfeiture programme carried out in earlier years. We reached 823,797 people through STEM in 2025 and are now 49% towards our goal of inspiring 25 million young innovators by 2030. In 2025, we intentionally refocused partnerships to deliver impact-focused STEM engagements, resulting in higher quality but lower overall reach as we drive towards programmes with greater value for business and society.", "1. Ch co and spo", "aritable — Po ntributions — Tal social ca nsorships", "litical ent & pability", "34" ], [ "Human rights", null, "We are committed to protecting and preserving all recognised human rights of our employees and contract workers; those employed by our suppliers; and communities affected by our operations and supply chain operations. This includes upholding the principles set out in our global Human Rights Policy to ensure that we act in a socially responsible manner, complying with all applicable laws and regulations in the countries where we operate. In 2025, we updated our global Human Rights Policy and took steps to further strengthen our human rights risk management framework to ensure that we take appropriate action to identify and mitigate human rights-related risks and, where necessary, remedy human rights impacts.", "1. Pe 2. Glo Em Op 3. Hu pol 4. Dat 5. Mo Sta", "ople policies — Co bal Equal ployment portunity Policy man rights icy a privacy policy dern Slavery tement", "mpliance", "37" ], [ "Anti-bribery and corruption", null, "We do not tolerate bribery and corruption in any form, as set out in Our Code and associated Anti-Bribery and Corruption Policy. We routinely check and test the effectiveness of our anti-bribery and corruption programme to manage proactively the associated risks (see page 52).", "1. Ant cor", "i-bribery and — Co ruption policy", "mpliance", "37" ] ], [ [ "ROLLS-ROYCE IS A FORCE FOR PROGRESS", null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "Energy transition and environment", null, "Helping the world do things tomorrow that cannot be done today and playing our part in the energy transition for a more sustainable world.", null, "Pages", "39–40", null ], [ "People and culture", null, "Being socially and ethically responsible: creating lasting social value for our people and stakeholders.", null, "Pages", "31–36", null ] ] ], "table_count": 4, "visual_content": [ { "type": "icon_mapping", "title": "Rolls-Royce is a force for progress: UN Sustainable Development Goal alignment (shown as SDG icons)", "mappings": [ { "commitment": "Energy transition and environment", "un_sdgs": [ 7, 12, 13 ], "sdg_names": [ "Affordable and clean energy", "Responsible consumption and production", "Climate action" ] }, { "commitment": "People and culture", "un_sdgs": [ 3, 4, 5, 8, 16 ], "sdg_names": [ "Good health and wellbeing", "Quality education", "Gender equality", "Decent work and economic growth", "Peace, justice and strong institutions" ] } ] } ] }, { "pdf_page": 41, "printed_page": 39, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "Energy transition and environment\nWe are committed to reaching net zero by 2050\nAMBITION\nTo become a lower carbon and digitally enabled business we are embracing the energy transition, participating in growing markets\nwhere we have capability to win and where our skills can make a genuine impact to the pursuit of a low-carbon world. We are committed\nto reaching net zero by the end of 2050. We will measure our progress against the following interim and long-term targets:\n— reduce Scope 1 + 2 emissions by 46% by the end of 2030 against a 2019 baseline;\n— reduce Scope 1 + 2 emissions to net zero by the end of 2050;\n— demonstrate that all our products are compatible with net zero operations by the end of 2050; and\n— support the achievement of industry net zero (Rolls-Royce Scope 3, category 11 (use of sold products)) greenhouse gas emissions by the\nend of 2050 in line with a science-based trajectory.\nOPTIMISE OUR OPERATIONS ENABLE OUR CUSTOMERS ENGAGE AND COLLABORATE\nDeliver low-carbon operations, improve Deliver innovative products and Partner with customers, suppliers,\nresource efficiency and drive value solutions which accelerate the industry and policymakers\nenergy transition\nRISKS 1\n— Changes to our costs due to the — Financial impact from changes — Changes to our costs due to the\nassumed application of carbon pricing to revenue and/or costs due to assumed application of carbon pricing\nmeasures on our Scope 1 + 2 activities customers responding to changing measures on our Scope 1 + 2 activities\nand the application of carbon pricing market conditions. and the application of carbon pricing\nto the activities of our suppliers that to the activities of our suppliers that\n— Changes to investment required, for\nare passed through to us in the form of are passed through to us in the form\nexample, R&D and capital expenditure\nhigher part costs. of higher part costs.\ndue to a need to respond to changing\n— Changes to our commodity costs customer demand. — Changes to our costs due to variation\ndue to variation in market supply and in market supply and demand and/or\n— Financial exposure resulting in\ndemand and/or costs passed through costs passed through from suppliers.\na deviation in expected product\nfrom suppliers.\nperformance. — Financial impact from changes\n— Financial exposure resulting from a to revenue and/or costs due to\n— Failure to attract, retain and develop\ntemporary (up to 12 months) disruption customers responding to changing\nthe critical talent, skills and capabilities\nto a Rolls-Royce facility and/or our market conditions.\nrequired to deliver our strategic\nsupply chain due to a climate-related\npriorities could threaten our ability — Changes to investment required\nevent (for example, flood or fire).\nto be a high-performing, competitive, due to a need to respond to changing\nresilient and growing business. customer demand.\nDEPENDENCIES 1\n— Availability of low-carbon energy — Sustainable fuel infrastructure — Availability of external funding.\ninfrastructure. and availability.\n— Long-term government commitments\n— Sustainable fuel infrastructure — Skills and capabilities (see People and and timely government decisions.\nand availability to support our culture from page 31).\n— Skills and capabilities (see People and\nproduct testing.\n— Long-term government commitments culture from page 31).\nand timely government decisions.\nPOLICIES\n— Health, Safety and Environment Policy — Health, Safety and Environment Policy — Anti-Bribery and Corruption Policy\n— Procurement Policy — Product Safety Policy — Competition and Anti-trust Policy\n— Global Supplier Code of Conduct — Quality Policy — Conflicts of Interest Policy\n— Intellectual Property Policy — Gifts and Hospitality Policy\n— Global Supplier Code of Conduct — Political Activity and Trade\nAssociation Policy\n— Sponsorships and Donations Policy\n— Know Your Partner Policy\n1 For further quantification of the risks and their relationship to dependencies, see the climate risk scenario analysis on page 47\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 39\nSTRATEGIC\nREPORT\nSUSTAINABILITY", "char_count": 4086, "tables": [ [ [ "AMBITION", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ], [ "To become a lower carbon and digitally enabled business we are embracing the energy transition, participating in growing markets where we have capability to win and where our skills can make a genuine impact to the pursuit of a low-carbon world. We are committed to reaching net zero by the end of 2050. We will measure our progress against the following interim and long-term targets: — reduce Scope 1 + 2 emissions by 46% by the end of 2030 against a 2019 baseline; — reduce Scope 1 + 2 emissions to net zero by the end of 2050; — demonstrate that all our products are compatible with net zero operations by the end of 2050; and — support the achievement of industry net zero (Rolls-Royce Scope 3, category 11 (use of sold products)) greenhouse gas emissions by the end of 2050 in line with a science-based trajectory.", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "OPTIMISE OUR OPERATIONS", null, null, "ENABLE OUR CUSTOMERS Deliver innovative products and solutions which accelerate the energy transition", "ENGAGE AND COLLABORATE Partner with customers, suppliers, industry and policymakers" ], [ "Deliver low-carbon operations, improve resource efficiency and drive value", null, null, null, null ], [ null, null, null, null, null ], [ "RISKS 1", null, null, null, null ], [ "— Changes to our costs due to the assumed application of carbon pricing measures on our Scope 1 + 2 activities and the application of carbon pricing to the activities of our suppliers that are passed through to us in the form of higher part costs. — Changes to our commodity costs due to variation in market supply and demand and/or costs passed through from suppliers. — Financial exposure resulting from a temporary (up to 12 months) disruption to a Rolls-Royce facility and/or our supply chain due to a climate-related event (for example, flood or fire).", null, null, "— Financial impact from changes to revenue and/or costs due to customers responding to changing market conditions. — Changes to investment required, for example, R&D and capital expenditure due to a need to respond to changing customer demand. — Financial exposure resulting in a deviation in expected product performance. — Failure to attract, retain and develop the critical talent, skills and capabilities required to deliver our strategic priorities could threaten our ability to be a high-performing, competitive, resilient and growing business.", "— Changes to our costs due to the assumed application of carbon pricing measures on our Scope 1 + 2 activities and the application of carbon pricing to the activities of our suppliers that are passed through to us in the form of higher part costs. — Changes to our costs due to variation in market supply and demand and/or costs passed through from suppliers. — Financial impact from changes to revenue and/or costs due to customers responding to changing market conditions. — Changes to investment required due to a need to respond to changing customer demand." ], [ "DEPENDENCIES 1", null, null, null, null ], [ "— Availability of low-carbon energy infrastructure. — Sustainable fuel infrastructure and availability to support our product testing.", null, null, "— Sustainable fuel infrastructure and availability. — Skills and capabilities (see People and culture from page 31). — Long-term government commitments and timely government decisions.", "— Availability of external funding. — Long-term government commitments and timely government decisions. — Skills and capabilities (see People and culture from page 31)." ], [ "POLICIES", null, null, null, null ], [ "— Health, Safety and Environment Policy — Procurement Policy — Global Supplier Code of Conduct", null, null, "— Health, Safety and Environment Policy — Product Safety Policy — Quality Policy — Intellectual Property Policy — Global Supplier Code of Conduct", "— Anti-Bribery and Corruption Policy — Competition and Anti-trust Policy — Conflicts of Interest Policy — Gifts and Hospitality Policy — Political Activity and Trade Association Policy — Sponsorships and Donations Policy — Know Your Partner Policy" ] ] ], "table_count": 2, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 42, "printed_page": 40, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "SUSTAINABILITY\nGreenhouse gas emission footprint The emissions in our supply chain (Scope 3,\nTOTAL EMISSIONS FOOTPRINT PERCENTAGE SPLIT 1 (%)\nIn 2025, our total emission footprint was category 1, purchased goods and services)\n73.3 MtCO e; this was an overall reduction account for approximately 3.7% of our total\n2\nagainst 2024 of 75.6 MtCO e. This was driven emissions and, as such, are our second\n2\nby a reduction in our use of sold product largest emission category. Therefore, we can\n(Scope 3, category 11 emissions (see page 44 make a significant contribution by supporting\nfor further details). our supply chain to reduce their emissions. 73.3\nMtCO e\n2\nEmissions associated with the use of As part of our ongoing activities to better\nsold products (Scope 3, category 11), are understand our total greenhouse gas (GHG)\napproximately 95.2% of our emissions and footprint we plan to complete a review of\ndominate our emissions footprint. Therefore, all our other Scope 3 emissions in 2026 to\nthe biggest contribution that Rolls-Royce enable us to update our baseline position\ncan make to the global energy transition is from 2019. We do not expect the review to Use of sold products on a fossil fuel-based\nto support the sectors we operate in to be materially affect our understanding of our pathway (with weight-based adjustment) – 95.2%\ncompatible with net zero carbon emissions. GHG emissions. However, we see it as good\nPurchased goods and services – 3.7%\npractice to keep our assumptions under\nOperations, facility and test – <0.4%\nconstant review and update them on a\nOther 2 – <0.8%\nperiodic basis.\n1 Data has been reported in accordance with our basis of\nreporting, available at www.rolls-royce.com/sustainability\n2 Other emissions calculated based on Scope 3 estimations\nfrom 2019\nTask Force on Climate-related Financial Disclosures statement\nWe continue to build our understanding of climate-related risks and opportunities to ensure we are strategically prepared for a climate-impacted\nfuture and are able to seize commercial opportunities that arise from the energy transition. These activities in turn help to support our Task Force\non Climate-related Financial Disclosures (TCFD) reporting. For 2025, we confirm a continued position of consistency with all 11 recommendations.\nTCFD recommendations\nRECOMMENDATION CONSISTENCY PAGE CA S414CB3\nGovernance\nA Board oversight of climate-related risks and opportunities 45 2(a)\nManagement’s role in assessing and managing climate-related risks\nB 46 2(a)\nand opportunities\nStrategy The organisation’s identification of climate risks and opportunities\nA 39 2(d)\nit faces over the short, medium and long term\nConsideration of the impact of climate risks and opportunities\nB 39 2(e)\non the organisation’s business, strategy and financial planning\nResilience of the organisation’s strategy, taking into consideration\nC 39 2(f)\ndifferent climate-related scenarios\nRisk Presence of the organisation’s processes for identifying\nA 46–47 2(b)\nmanagement and assessing climate-related risks\nProcesses for managing climate-related risks including\nB 46–47 2(b)\nprioritisation methods\nProcesses for identifying, assessing and managing climate-related\nC 46–47 2(c)\nrisks are integrated into overall risk management\nMetrics and Disclosure of metrics used to assess climate risks and opportunities\nA 39 2(h)\ntargets in line with strategy and risk management processes\nDisclosure of material greenhouse gas emissions and the\nB 39–40 –\nassociated risks\nPresence of targets used to manage climate-related risks\nC 39 2(g)\nand opportunities and performance against such targets\n3 Companies Act 2006, s414CB(2a)-(2h)\n40 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3700, "tables": [ [ [ "Governance" ], [ "Strategy" ], [ "Risk management" ], [ "Metrics and targets" ] ] ], "table_count": 1 }, { "pdf_page": 43, "printed_page": 41, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "SUSTAINABILITY\nTransition plan\nWe support the increasing expectation for companies to develop and disclose a detailed transition plan outlining the steps they are taking\nto align with a low and net zero global economy. Below is a 2025 baselined plan aimed at achieving our net zero ambitions.\nSHORT TERM MEDIUM TERM LONG TERM\n2025–2029 2030–2034 2035–2040 2041–2045 2046–2050\nCut carbon\nemissions and 2030 2050\nimprove resource\nefficiency across 46% reduction in Scope 1 + 2 emissions Net zero operations\nour operations\nand facilities\nContinuous reduction of energy consumption\nContinued use of sustainable fuels in our product testing\nFocus of decarbonising Decarbonisation of complex process heat, decarbonisation of generation\nelectricity and heating assets and securing long-term supply of zero-carbon electricity\nDeliver innovative\nproducts and 2050\nsolutions to\naccelerate the\nAll products are compatible with\nglobal energy net zero operation by 2050\ntransition\nsustainably\nContinuous product efficiency improvements (new product development and existing product upgrades)\nContinued product compatibility with sustainable fuels\nRolls-Royce Rolls-Royce SMR design\nRolls-Royce SMR ramp up volumes\nSMR first orders manufacture and build first units\nNew Power Next-gen Civil New nuclear New Defence\nSystems products Aerospace engines products products\nDevelop low/zero-carbon solutions such as battery storage systems, hydrogen reciprocating engines and microreactors\nCollaborate, engage\nand partner with Engagement/advocacy with relevant governments, policymakers and stakeholders on the energy transition\npolicymakers and\nindustry to achieve\nFurther expansion of\ncollective energy\nsustainability topics\ntransition and\nenvironment goals\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 41\nSTRATEGIC\nREPORT", "char_count": 1803, "tables": [ [ [ null, "2025–2029", null, null, null, "2030–2034", null, null, null, "2035–2040", "2041–2045", "2046–2050" ], [ "Cut carbon emissions and improve resource efficiency across our operations and facilities", null, null, null, null, "2030", null, null, null, "2050", null, null ], [ null, "Continuous reduction of energy consum Continued use of sustainable fuels in our Focus of decarbonising electricity and heating", null, null, null, "46% reduction in Scope 1 + 2 emissions", null, null, null, "Net zero operations ecarbonisation of generation o-carbon electricity", null, null ], [ null, null, "Continuous reduction of energy consum", null, "pti", "on", null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null ], [ null, null, "Continued use of sustainable fuels in our", null, "pr", "oduct testing", null, null, null, null, null, null ], [ null, null, null, null, null, "Decarbonisation of complex process heat assets and securing long-term supply of z", null, null, null, null, null, null ], [ null, null, null, null, null, null, "Decarbonisation of complex process heat assets and securing long-term supply of z", null, ", d er", null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null ], [ "Deliver innovative products and solutions to accelerate the global energy transition sustainably", null, null, null, null, null, null, null, null, "2050", null, null ], [ null, "Continuous product efficiency improvem Continued product compatibility with sus Rolls-Royce Rolls-Royce SMR SMR first orders manufacture and b Develop low/zero-carbon solutions such", null, null, null, null, null, null, null, "All products are compatible with net zero operation by 2050 duct upgrades) up volumes Next-gen Civil New nuclear New Defence Aerospace engines products products ing engines and microreactors", null, null ], [ null, null, "Continuous product efficiency improvem", null, "en", "ts (new product development and existing p", null, null, "ro", null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null ], [ null, null, "Continued product compatibility with sus", null, "ta", "inable fuels", null, null, null, null, null, null ], [ null, null, null, null, null, "sign Rolls-Royce SMR ram ld first units New Power Systems products", null, null, null, null, null, null ], [ null, null, null, "Rolls-Royce SMR manufacture and b", "de ui", null, null, "Rolls-Royce SMR ram", "p", null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null ], [ null, null, "Develop low/zero-carbon solutions such", null, "as", "battery storage systems, hydrogen reciproc", null, null, "at", null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null ], [ "Collaborate, engage and partner with policymakers and industry to achieve collective energy transition and environment goals", "Engagement/advocacy with relevant gov Further expansion of sustainability topics", null, null, null, null, null, null, null, "energy transition", null, null ], [ null, null, "Engagement/advocacy with relevant gov", null, "er", "nments, policymakers and stakeholders on t", null, null, "he", null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "visual_content": [ { "type": "timeline_diagram", "title": "Transition plan to net zero: activity placement by time horizon", "horizons": { "short_term": "2025-2029", "medium_term": "2030-2034", "long_term": "2035-2050" }, "workstreams": [ { "workstream": "Cut carbon emissions and improve resource efficiency across our operations and facilities", "milestones": [ { "year": 2030, "milestone": "46% reduction in Scope 1+2 emissions" }, { "year": 2050, "milestone": "Net zero operations" } ], "activities": [ { "activity": "Continuous reduction of energy consumption", "span": "2025-2050" }, { "activity": "Continued use of sustainable fuels in our product testing", "span": "2025-2050" }, { "activity": "Focus of decarbonising electricity and heating", "span": "2025-2029" }, { "activity": "Decarbonisation of complex process heat, decarbonisation of generation assets and securing long-term supply of zero-carbon electricity", "span": "2030-2050" } ] }, { "workstream": "Deliver innovative products and solutions to accelerate the global energy transition sustainably", "milestones": [ { "year": 2050, "milestone": "All products are compatible with net zero operation by 2050" } ], "activities": [ { "activity": "Continuous product efficiency improvements (new product development and existing product upgrades)", "span": "2025-2050" }, { "activity": "Continued product compatibility with sustainable fuels", "span": "2025-2050" }, { "activity": "Rolls-Royce SMR first orders", "span": "2025-2029 (early)" }, { "activity": "Rolls-Royce SMR design manufacture and build first units", "span": "2025-2034" }, { "activity": "Rolls-Royce SMR ramp up volumes", "span": "2030s-2050" }, { "activity": "New Power Systems products", "span": "from ~2030-2034" }, { "activity": "Next-gen Civil Aerospace engines", "span": "from ~2035-2040" }, { "activity": "New nuclear products", "span": "from ~2041-2045" }, { "activity": "New Defence products", "span": "from ~2046-2050" }, { "activity": "Develop low/zero-carbon solutions such as battery storage systems, hydrogen reciprocating engines and microreactors", "span": "2025-2050" } ] }, { "workstream": "Collaborate, engage and partner with policymakers and industry to achieve collective energy transition and environment goals", "milestones": [], "activities": [ { "activity": "Engagement/advocacy with relevant governments, policymakers and stakeholders on the energy transition", "span": "2025-2050" }, { "activity": "Further expansion of sustainability topics", "span": "2025-2029" } ] } ] } ], "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 44, "printed_page": 42, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "Deliver low-carbon operations, improve The largest contribution to our emissions facilities and operations and 133 ktCO e from\n2\nresource efficiency and drive value reduction will come through a move to testing activity. We continued to reduce our\nrenewable and low-carbon electricity operational emissions by a further 12 ktCO e,\n2\nFocus sources. Our strategic priority in this area an 8% improvement compared with 2024.\nPlaying our part in the energy transition is onsite generation, supplemented by a The overall decrease in total Scope 1 + 2\nmeans: decarbonising our operations and multi-year Energy Attribute Certificate (EAC) emissions was driven by a planned decrease\nproduct testing; reducing consumption and strategy. This strategy includes multi-year in product development testing, 22 ktCO e.\n2\nreducing waste. This will help ensure our options to secure compliant EACs including\nfacilities and internal supply chains remain private wire Power Purchase Agreements OPERATIONS, FACILITY, AND PRODUCT TEST\nresilient in a changing external environment. (PPAs), Sleeved PPAs, Virtual Power Purchase EMISSIONS (ktCO\n2\ne) 1, 2\nAgreements (VPPAs) and bundled contracts.\nMetrics and targets By 2030, we plan to be powered by 100%\nTo track progress against these focus areas renewable and low-carbon electricity sources 236\nwe have the following targets: with a few geographical exclusions where this\n— reduce Scope 1 + 2 emissions by 46% by is not technically feasible. 174 175 143\nthe end of 2030 against a 2019 baseline; 148 131 206\nTo help us meet our Scope 1 + 2 targets and\n— r p e o d s u it c io e n S b c y o p th e e 1 e + n 2 d e o m f i 2 s 0 si 5 o 0 ns ; to a net zero m in a tr k o e d t u h c e i n r g ig a h t s i h n a v d e o s w tm c e a n r t b d o e n c p is r i i o c n e s a w s e p a w r i t ll o b f e 146 130 130 103 155 133\nour investment decisions from 2026 onwards.\n— reduce total energy consumption,\nnormalised by revenue, by 50% by 2025 19 3 21 22 23 24 25 30\nTo reduce test emissions we will continue to\nagainst a 2014 baseline;\nuse sustainable fuels and as greater volumes\n— reduce total solid and liquid waste become available we will gradually increase\nproduction, normalised by revenue, by the volume of the fuels used at a rate that\n25% by 2025 against a 2014 baseline; and does not impact the validity of the testing.\nWe are always looking at ways to improve the — increase the recycling and recovery rate to\nefficiency of testing through the deployment\n56.4% by 2025.\nof new technology and methods. We will\ncontinue to do this to reduce the time on test,\nFor 2025 progress see below.\nthereby reducing fuel burn, while maintaining\nthe high standards and credibility of the\nThe targets above help us monitor our\ntesting itself. The ancillary electricity\nexposure to risks identified in our climate risk\nemissions allocated to testing will be\nscenario analysis (see page 47). They allow\ndecarbonised in line with the electricity\nus to assess our exposure to carbon and\nstrategy above.\ncommodity pricing.\nThe incentive for circularity is deeply\nSafety is our number one priority. Product\nembedded in our business model given\ntesting is a critical part of our product safety\nthe significant aftermarket and maintenance\nassurance approach as well as a core part\nrequirements of our products. We are\nof the engine certification programmes that\nfocused on the remanufacturing and reuse\nhelp us to deliver more efficient and lower\nof components and pay particular attention\nemissions products. We recognise the\nto the responsible use of chemicals, waste\npotential for these activities to increase our\nand water. Our commitment to consume\nemissions in the short term but they do not\nresponsibly is built on the principles of the\naffect our commitment and our ambition to\nconsumption and waste hierarchies.\nbe net zero by 2050.\n2025 progress\nPlan\nWe continue to make progress in\nTo achieve our aims, we have a costed plan\ndecarbonising our global operations.\nfor the period to 2030 that includes:\nOur total annual Scope 1 + 2 GHG emissions\n— decarbonising electricity; (market-based), those associated with our\noperations, facilities, testing and business\n— decarbonising heating;\nactivities, comprised 264 ktCO e in 2025,\n2\n— improved operational efficiency; a 34 ktCO e decrease compared to 2024.\n2\nThese emissions included 131 ktCO e from\n— reducing test emissions; and 2\n— decarbonising transport.\nTEGRAT\nOperations and facility\nProduct test\n1 External assurance over Scope 1 + 2 data is provided\nby DNV. See page 202 for their sustainability\nassurance statement\n2 Data has been reported in accordance with our basis of\nreporting, available at www.rolls-royce.com/sustainability\n3 Baseline year is 2019\nTo support our electricity decarbonisation,\nRolls-Royce has reached a long-term power\npurchase agreement with Stadtwerke Ulm/\nNeu-Ulm (SWU) for the annual purchase of\naround 20,000 MWh of CO e-free electrical\n2\nenergy. This equates to a carbon emissions\nreduction of around 7 ktCO e every year.\n2\nWe continue to use sustainable aviation fuel\n(SAF) blends across our Civil Aerospace and\nDefence testing activities to help mitigate\nsome of these emissions. Throughout 2025\ngenset testing in Power Systems used 14.9%\nhydrotreated vegetable oil (HVO) fuel (2024:\n3.4%). The increase was driven by the use of\nHVO for the whole year rather than just the\nlast few months of the year.\nIn Friedrichshafen, Germany two bench\ntests for the engine Series 2000 and\nSeries 4000 were equipped with power\nrecuperation technology replacing water\nbrakes, reducing water and fuel consumption.\nModernisation of further test benches is\nplanned for 2026.\nTo allow us to focus on our most\nmaterial GHG emissions we first started\nreporting Scope 3, category 1 (goods and\nservices) in 2024. Our Scope 3, category 1\nOPERATIONS, FACILITY AND TEST EMISSIONS REDUCTION PLAN TO 2030 (ktCO e)\n2 emissions (the spend-based method) were\nestimated as 2.69 MtCO e in 2025. This was\n2\nReduce by 46% an increase of 0.51 MtCO e with respect\n2\n382 to our 2024 emissions, 2.18 MtCO 2 e. We\ncontinue to use a largely spend-based\n304 305 298 method for Scope 3, category 1 emissions.\n251 264 The increase was driven by an increased\n206 spend, particularly in emissions-\nintensive commodities.\nENILESAB\nTEGRAT\n19 21 22 23 24 25 30\nENILESAB\nTEGRAT\nSUSTAINABILITY\nDecarbonising electricity\nDecarbonising heating\nOperational efficiency\nTest emission reduction\nDecarbonising transport\n42 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6522, "tables": [ [ [ "236" ], [ "146" ] ], [ [ "174" ], [ "130" ] ], [ [ "175" ], [ "130" ] ], [ [ "143" ], [ "155" ] ], [ [ "148" ], [ "103" ] ], [ [ "131" ], [ "133" ] ] ], "table_count": 6, "visual_content": [ { "type": "bar_chart_series", "title": "Operations, facility, and product test emissions (ktCO2e)", "series": { "emissions_by_year": { "2019_baseline": { "operations_and_facility": 236, "product_test": 146 }, "2021": { "operations_and_facility": 174, "product_test": 130 }, "2022": { "operations_and_facility": 175, "product_test": 130 }, "2023": { "operations_and_facility": 148, "product_test": 103 }, "2024": { "operations_and_facility": 143, "product_test": 155 }, "2025": { "operations_and_facility": 131, "product_test": 133 }, "2030_target_total": 206 } } }, { "type": "bar_chart_series", "title": "Operations, facility and test emissions reduction plan to 2030 (ktCO2e), reduce by 46%", "series": { "total_emissions": { "2019_baseline": 382, "2021": 304, "2022": 305, "2023": 251, "2024": 298, "2025": 264, "2030_target": 206 } }, "note": "Accompanying donut shows the qualitative mix of reduction levers: decarbonising electricity, decarbonising heating, operational efficiency, test emission reduction, decarbonising transport (no values printed)" } ], "supplemental_text": [ "position by the end of 2050; introducing a shadow carbon price as part of 130 130 133 E", "—reduce Scope 1 + 2 emissions to a net zero make the right investment decisions we will be 155", "position by the end of 2050; introducing a shadow carbon price as part of 103 G E" ], "rotated_text": [ "BASELINE", "BASELINE", "TARGET", "TARGET", "TARGET" ] }, { "pdf_page": 45, "printed_page": 43, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "SCOPE 3, CATEGORY 1: GOODS AND SERVICES (MTCO e) 1\n2\n2.69\n2.18\n24 25\n1 Scope 3, category 1 calculated using the\nspend-based method\nReducing our energy demand is integral to\nour success in delivering our decarbonisation\ngoals and reducing our exposure to\nenergy-related risk. Our normalised energy\nconsumption in 2025 was 46 MWh/£m. The\ntotal amount of facility energy consumed in\nthe year was 983,979 MWh. This represents a\nreduction of 393,674 MWh (29%) since 2014.\nRenewable energy sources provided 41% of\nthe energy, including 1% generated from our\nown onsite clean energy installations.\nENERGY CONSUMPTION (MWH/£M)\n117\n87\n78\n58 59\n50 46\n14 21 22 23 24 25\nENILESAB\nTEGRAT\n25\nIn support of our continued energy\nconsumption reduction our German sites:\nAugsburg, Dahlewitz, Friedrichshafen,\nOberursel and Ruhstorf achieved\ncertification for their energy management\nsystems (ISO 50001).\nIn 2025, our total normalised solid and\nliquid waste was 2.57 tonnes/£m, a 32%\nreduction since 2014. The total amount\nof solid and liquid waste generated in\noperations was 54.7 kilotonnes, compared\nto 44.7 2 kilotonnes in 2014. This includes\n21.9 kilotonnes of hazardous, primarily\nchemical, waste.\nTOTAL SOLID AND LIQUID WASTE (T/£M) 2\n3.78 3.69\n3.29\n3.11\n2.91 2.83 2.57\nENILESAB TEGRAT\nThe overall increase in the volume of waste\nproduced has been driven by increases in\nproduction and in liquid wastewater that\nwould normally be treated onsite. We\ncontinue to pursue opportunities to prevent\nor reduce waste.\nIn 2025, within logistics, our packaging\noptimisation programme continued to focus\non opportunities to reduce cost, waste and\nCO e emissions. 2\nOur recycling and recovery rate for\n2025 was 65.7%; this represents a 14.6%\nimprovement against the restated ³ 2019\nbaseline. Our Power Systems division\nhas a recycling and recovery rate of\napproximately 90%. We decreased the\namount of non-hazardous waste sent to\nlandfill by 86% since 2014, with 324 tonnes\nsent to landfill in 2025. This was achieved\nthrough the success of our previous zero\nnon-hazardous waste to landfill programmes\nand subsequent improvements in local waste\ntreatment options.\nIn 2025, a number of innovations in\nengineering have focused on reducing the\nnet shape of components to help reduce\nwaste as well as the carbon footprint of these\ncomponents. This included Metal Injection\nMolding (MIM) as an alternative to casting\nand Metal Binder Jetting (MJB) processing\nin Civil Aerospace.\nRECYCLING AND RECOVERY RATE (%) 3\n65.7\n56.4\n51.1\n14 21 22 23 24 25 25\n2 Our 2014 waste data baseline has been restated following\nthe divestment of our US naval business\nENILESAB\nTEGRAT\nWe understand that although these are\nimportant milestones and markers for\nprogress, they are not the end of the\njourney. As such, we are currently\nundergoing a strategic review of our\nresponsible consumption plans with the\naim to develop appropriate ambitions for\nthe coming years.\nDeliver innovative products\nand solutions which accelerate\nthe energy transition\nFocus\nWe are committed to working with our\ncustomers to enable them to operate\ntheir products in a way that is compatible\nwith net zero emissions. Beyond mitigating\nemissions associated with existing products\nand markets, we continue to develop\ntechnologies that can support the acceleration\nof the energy transition. Through the provision\nof low-carbon and net zero technologies,\nwe can help support national and international\nclimate policy goals.\nTargets\nTo track progress we have the following targets:\n— to demonstrate that all our products are\ncompatible with net zero operations by\nthe end of 2050; and\n— to support the achievement of industry\nnet zero Scope 3, category 11 (use of sold\nproducts) GHG by the end of 2050 in line\nwith a science-based trajectory.\nThe targets above help us monitor our\nexposure to risks identified in our climate risk\nscenario analysis (see page 47). They allow\nus to assess our ability to manage changes in\ncustomer demand and changing investment\nneed by demonstrating that our products are\naligned to the energy transition as well as our\nability to attract the right talent and capability\nwho want to help support the energy transition.\n19 25 25 Plan\nTo enable our customers to operate their\ncurrent products in a low-carbon or net zero\n3 Baseline and target restated to align with current\noperation footprint and the sale of naval propulsors way, we are focusing on improving product\n& handling business. Our operational footprint has efficiency to burn less fuel and continuing\nchanged significantly since 2019, most recently with the\nsale of the naval propulsors & handling business in 2024. to prove that our products are compatible with\nThis has had a significant impact on our baseline number sustainable fuels. As a force for progress we\nand so this and the related target have been recalculated are working to accelerate the global energy\nand restated to align with our current operation footprint.\nThe target has been restated as the equivalent recycling transition through the development of a future\nand recovery rate (%) improvement as before product portfolio. The future portfolio will\nmaintain the current social value it provides\n2025 marked an excellent milestone in by powering, connecting and protecting\nthe Group’s commitment to consume people everywhere while being consistent with\nmore responsibly. We achieved all our a net zero energy transition. UltraFan, Battery\ntargets set out for 2025 with respect to Energy Storage Systems (BESS) and nuclear\nenergy, waste and recycling. technology are in-flight technology and\nproduct programmes that will diversify our\nWe met our energy consumption target portfolio and accelerate the global energy\nin 2024 and continued to deliver further transition. In addition to these programmes,\nsavings in 2025 resulting in an overall we are exploring alternative fuels, including\nrevenue normalised reduction of 61% hydrogen and methanol, to expand the\n(target 50%) against a 2014 baseline. capabilities of existing combustion technology.\nWe continue to invest in novel technologies\nWe managed to reduce total solid and liquid\nand applications, such as microreactors, to\nwaste production, normalised by revenue, provide even greater social value to the world\nby 32% (target 25%) against a 2014 baseline.\nwhile limiting the negative environmental\nimpacts. All new product decisions will be We increased our recycling and recovery\nsubject to strategic fit and investment criteria.\nrate to 65.7% (target 56.4%).\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 43\nSTRATEGIC\nREPORT\nSUSTAINABILITY", "char_count": 6581, "tables": [], "table_count": 0, "visual_content": [ { "type": "bar_chart_series", "title": "Environmental metrics charts", "series": { "Scope 3 category 1 goods and services (MtCO2e, spend-based)": { "2024": 2.18, "2025": 2.69 }, "Energy consumption (MWh/GBP m)": { "2014_baseline": 117, "2021": 87, "2022": 78, "2023": 58, "2024": 50, "2025": 46, "2025_target": 59 }, "Total solid and liquid waste (t/GBP m)": { "2014_baseline": 3.78, "2021": 3.69, "2022": 3.29, "2023": 3.11, "2024": 2.91, "2025": 2.57, "2025_target": 2.83 }, "Recycling and recovery rate (%)": { "2019_baseline": 51.1, "2025": 65.7, "2025_target": 56.4 } } } ], "rotated_text": [ "BASELINEBASELINE", "TARGETTARGET", "BASELINE", "TARGET", "STRATEGIC REPORT" ] }, { "pdf_page": 46, "printed_page": 44, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "SUSTAINABILITY\n2025 progress Power Systems has developed and published Partner with customers, suppliers,\nWe continue to see a reduction in Scope 3, third-party verified Environmental Product industry and policymakers\ncategory 11 emissions intensity driven by Declarations (EPD) for mtu emergency power\nthe sale of more efficient products and a shift in generator sets. These reports enable Power Focus\nthe Power Systems portfolio to lower-emission Systems to demonstrate the environmental Our ability to deliver our strategy and to\napplications. To deliver the sustainable fuels footprint of mtu emergency power systems support our customers and government\npathway (shown below) it is critical that the of the mtu 16V4000 DS2500 type and of the partners to meet their own climate goals\navailability of sustainable fuels significantly 10V1600. The EPDs take into account the is highly dependent upon a supportive\nincreases between now and 2050. entire life cycle of the product, from raw external environment.\nmaterial extraction and manufacturing to — availability of low-carbon energy\nUSE OF SOLD PRODUCTS EMISSIONS use and end-of-life recycling. infrastructure\nINTENSITY WITH WEIGHT-BASED ADJUSTMENT\n(ktCO e/£M OE REVENUE) 1, 2, 3 As part of our portfolio transition, Rolls-Royce — sustainable fuel availability and\n2\nhas now delivered mtu battery storage infrastructure\nsolutions for over 200 projects worldwide.\n13.2 — availability of appropriate funding; and\nThis year, Lithuanian energy supplier Ignitis\n11.1 10.6 Group selected Rolls-Royce to supply — timely government decisions and\n9.1 large-scale battery storage systems. The long-term commitments\n8.3 7.9\n6.8 order comprises systems with a total storage\n5.8 capacity of 582 megawatt hours and a total Plan\noutput of 291 megawatts. This is the largest We will actively engage policy makers,\nbattery order ever received by Rolls-Royce regulators and others to advocate for the\nPower Systems. necessary policy and economic support we\n19 23 24 25 have identified. We are a member of trade\nRolls-Royce and Duisburger Hafen AG associations and industry bodies that\nhave opened a CO -neutral and self- represent our sector and group interests and\nScope 3, category 11 100% fossil fuel pathway 2\nsufficient energy system for the new we inform their work to help shape the most\nScope 3, category 11 100% sustainable fuels\nDuisburg Gateway Terminal, located in the attractive environment in which to operate\npathway Rhine-Ruhr industrial region of Germany. our business.\nThe core components are two mtu combined\n1 Absolute Scope 3, category 11 emissions are available heat and power units designed for operation 2025 progress\non page 205 with 100% hydrogen, which are being used In 2025, we held over 200 trade association\n2 Data has been reported in accordance with our basis\nof reporting, available at www.rolls-royce.com/ here for the first time worldwide. and corporate memberships. Our memberships\nsustainability are concentrated in the countries in which\n3 Data has been reset due to the divestment of the lower The new 67-metre German customs vessel, we have a significant footprint and reflect the\npower range engine business in 2024\nRügen, was officially put into operation. It range of business interests we are pursuing.\nis powered by four 16-cylinder mtu Series We will continue to review these memberships\nA significant step forward in Civil\n4000 gas engines. Reliability and low to ensure we are maximising for best value and\nAerospace was the entry into service of\nemissions were key factors in the choice strategic fit.\nthe Trent XWB-84 EP with improved fuel\nof the mtu engines.\nconsumption of more than 1%. For Power\nWe supported activities across the aviation\nSystems a significant step was the successful\nWe are enabling the energy transition sector, including updates to aviation\ntest of the world’s first high-speed marine\nthrough our customers by providing potential roadmaps to net zero through\nengine powered exclusively by methanol on\nemergency power to Norfolk Offshore ASD (Destination 2050) and ATAG (Waypoint\nits test bench in Friedrichshafen, Germany.\nWind Farm on the east coast of the UK that 2050). Through membership of UK Jet Zero\nTogether with our partners in the meOHmare\nwill generate electricity to satisfy demand Taskforce expert groups we co-authored a\nresearch project, this is an important\nfrom more than four million households. number of reports. Rolls-Royce contributed\nmilestone on the road to climate-neutral and\nEureka Pumps AS has placed an order for to shaping the future funding landscape in\nenvironmentally friendly propulsion solutions\nfour engines from the mtu Series 4000 Clean Aviation and as part of Project ARIS\nfor shipping.\nto provide emergency power for two and continued to share our expertise\nconverter platforms. through ICAO and CAEP forums.\nAcross Civil Aerospace we continued to look\nat both complex and simple innovations and\nRolls-Royce has been awarded a contract Rolls-Royce has released a position paper\nimprovements that help reduce our emissions\nby Polat Enerji, one of Türkiye’s leading with Microsoft highlighting the potential\nand wider environmental impact. In business\ninvestors in the renewable energy sector, to of HVO as a sustainable fuel for back-up\naviation a simple idea not to paint the bypass\nsupply a large-scale battery energy storage power in data centres in Singapore. The\nduct on Pearl 15 engines resulted not only in\nsystem with a capacity of 132 MWh. The mtu paper outlines the opportunities and\na cost saving but also about a 1.9 kg weight\nQG EnergyPack will be integrated into the regulatory conditions necessary to\nsaving. Phase 3 of the Trent XWB-97 testing\nGöktepe Wind Power Plant near Yalova in establish HVO and other low-carbon fuels\nprogramme started to build on the previous\nnorthwestern Türkiye and will ensure that as alternatives to fossil diesel in critical\nphases of time on wing improvements; and\nelectricity from renewable sources can be digital infrastructure.\nwe published a paper on better modelling of\nfed into the grid without interruption.\naero engine soot formations that will improve\nIn addition to supporting the shaping of\nthe way we predict and reduce overall engine\nRolls-Royce SMR has been selected policy and sharing expertise, we continue\nenvironmental impact.\nby Great British Energy - Nuclear (GBE-N) to engage in energy transition aligned\nto build three SMR units in the UK. The partnerships. This includes the launch\nfirst of these was announced to be Wylfa of project QRITOS: with funding from the\non Ynys Môn (Anglesey), North Wales. ATI, and in partnership with British Airways,\nIn addition, Rolls-Royce SMR has been Imperial College London and Heathrow.\nselected by Vattenfall as one of only QRITOS will examine smarter ways of using\ntwo companies to reach the final stage in SAF with an aim to better understand how\nthe process to identify Sweden’s nuclear best to target SAF towards the very small\ntechnology partner. proportion of flights that drive the majority\nof climate impact. Rolls-Royce has been\n44 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 7141, "tables": [], "table_count": 0 }, { "pdf_page": 47, "printed_page": 45, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "selected by the European Union’s Rolls-Royce and INERATEC, a leading deployment of ISSB standards as well as the\nClean Aviation programme to lead the manufacturer of Power-to-X plants and first Group Double Materiality Assessment\nUltra Novel and Innovative Fully Integrated climate-neutral e-fuels, have formed a (DMA). The Committee reviewed progress\nEngine Demonstrations (UNIFIED), one of strategic partnership to decarbonise back-up against the Scope 1 + 2 delivery plans and the\n12 ground-breaking new projects aiming power for data centres. The goal is to replace energy transition principal risk.\nto decarbonise aviation. This project fossil diesel in emergency power systems\ncontains key industrial, academic and with synthetic fuels produced from The Audit Committee is responsible for\nresearch partners across France, Germany, renewable hydrogen and CO . reviewing and approving the content of our\n2\nthe Netherlands, Norway, Spain and the TCFD recommendations and noted progress\nUK. Subject to successful completion Governance as preparations were being made for the\nof grant preparation, the project will enable Sustainability and climate are embedded disclosures in this report. The Committee\nground testing of an UltraFan technology within our Group governance framework, also ensures that, where material, the impact\ndemonstrator at a short to medium-range risk management system and operating model. of climate change is reflected in the financial\nthrust class for future narrowbody aircraft We monitor the reporting landscape that is statements and disclosed appropriately.\nand also enable the preparation of key and will be applicable to Rolls-Royce over\nactivities towards future flight test of the the coming years and have identified the In 2025, the Audit Committee reviewed TCFD\nUltraFan architecture. UK deployment of International Sustainability disclosures, the principal risk relating to\nStandards Board (ISSB) Sustainability Reporting energy transition and preparations for CSRD.\nRolls-Royce, together with German energy Standards (SRS) S1 and S2 as applicable\nsupplier Avacon, is driving forward the to Rolls-Royce and also the EU Corporate The Remuneration Committee determines\nintegration of battery storage into the power Sustainability Reporting Directive (CSRD). our remuneration policy, and in 2025\ngrid as part of a research project. Based on We have a programme of work to prepare reviewed progress against the 2025 LTIP\na field test, the aim is to show how energy Rolls-Royce for these standards that we expect linked to delivering progress to the 2030\ncommunities, photovoltaic systems and mtu to apply to our full year 2027 reporting. reduction target for Scope 1 + 2 emissions.\nbattery storage can be intelligently linked to\ncontribute to an efficient energy supply and In 2025, we enhanced our operational The Nominations, Culture & Governance\nto stabilise the energy system. programme governance and escalation Committee reviews the Board’s skills and\ncriteria for the delivery of our Scope 1 + 2 oversees membership of each of the Board\nRolls-Royce and the Singapore Institute of decarbonisation programme. Committees and terms of reference, ensuring\nTechnology entered into a collaboration to that the Board’s governance and oversight of\ndevelop innovative technologies for hybrid Board ESG matters, including climate, is appropriate.\nand autonomous ships and harbour crafts. The Board has oversight of sustainability,\nThis will support future reductions of CO 2 including climate-related risks and Management\nemissions and support our customers opportunities impacting the Group. The Executive Team is responsible for the\nwith digital systems. All Board Committees include an aspect delivery of our climate strategy, including\nof sustainability within their remit. Some associated targets and transition plan,\nPower Systems successfully tested the first specific elements of those oversight and for ensuring the assessment of and\nhigh-speed single-fuel methanol engine responsibilities are delegated to Committees appropriate response to climate-related risks\nwith 2,000 kw, proving that CO 2 -neutral of the Board. After each Committee meeting, and opportunities throughout our business\nmarine propulsion with combustion engines the Committee chair reports back to the model and activities.\nis possible. The engine is being developed Board on topics discussed.\nas part of the meOHmare research project The energy transition & tech committee,\nfunded by the German Federal Ministry The Safety, Energy Transition & Tech (SETT) which meets four times a year, is a sub-\nfor Economic Affairs and Energy. At Power Committee oversees the Group’s sustainability committee of the Executive Team and\nSystems, dual-fuel solutions are also being strategy, priorities and progress and has is responsible for formulating and overseeing\ntested as a useful bridging technology. delegated responsibility to review the the Group’s response to climate change\nprincipal risk relating to energy transition. and the energy transition and its technology\nRolls-Royce, Landmark and ASCO have It receives reports from the sustainability portfolio. The committee also reviews\nteamed up to commission a 10-megawatt team and is updated on the discussions held investment decisions and projects where\ngas engine power plant with a carbon at the executive-level energy transition & they relate to the energy transition or\ncapture system in the UK, ensuring stable technology committee. have an impact on mitigating Scope 1 + 2 or\nenergy supply while reducing CO emissions Scope 3 emissions. The committee is chaired\n2\nthrough circularity, enabling captured In 2025, the SETT Committee oversaw by the Chief Executive and all members of\ncarbon use in food products, synthetic the preparations for incoming regulation the Executive Team are invited to participate.\nfuels and SAF. including the EU CSRD and the UK\nSustainability governance structure\nBoard Nominations, Culture & Remuneration Safety, Energy Transition\nAudit Committee\noversight Governance Committee Committee & Tech Committee\nEnergy transition & tech committee People committee Executive audit committee\nExecutive Team\ngovernance\nSustainability steering committee\nOperational and\nSustainability strategy and Sustainability data governance\nprogramme Sustainability risk review\nimplementation review and reporting review\ngovernance\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 45\nSTRATEGIC\nREPORT\nSUSTAINABILITY", "char_count": 6484, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 48, "printed_page": 46, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "SUSTAINABILITY\nThe committee regularly reports to the demand; cost exposure, for instance carbon We have identified seven key climate-related\nSETT Committee. The energy transition & pricing; and physical impact of climate risks and opportunities that are relevant\ntech committee receives regular updates change on operations, including to our business. These are consistent with\nfrom our sustainability steering committee, site-based impacts. our 2024 assessments. Of these, four are\nwhich specifically oversees progress against transition risks and opportunities resulting\nour sustainability programme, including From this primary question, the questions from the shift towards a low-carbon future\nclimate targets. assessed under each scenario include: and three are physical risks relating to the\nphysical impact of climatic events.\n— how does the scenario impact the life\nIn 2025, the energy transition & tech\nor risk exposure of assets?\ncommittee reviewed investment decisions Energy transition is our principal risk that\nand projects where they relate to the energy — how does the scenario impact future specifically refers to the potential impacts\ntransition or have an impact on mitigating revenue projections? on future revenues as a result of a potential\nScope 1 + 2 or Scope 3 emissions. The failure to transition to an inherently lower\n— how does the scenario impact future\ncommittee reviewed and agreed the five-year carbon product portfolio (see page 54).\nprofitability projections?\nplan inputs required to deliver against the Recognising climate change includes both\n2030 Scope 1 + 2 target. The outputs from — what additional costs or revenues may transition and physical risks; the physical\nthe energy transition risk deep dive were also occur under each scenario? aspect of the risk is considered as part of\nreviewed by the committee. the business interruption principal risk.\nThe outputs of this exercise inform our This split reduces duplication and places risk\nThe sustainability steering committee climate-related risk management process. management in the appropriate responsible\ncomprises core functional and capability business areas. We have explored a number\nrepresentatives from the Executive Team, In 2025, we have followed a three-step of climate-related opportunities. These\nincluding the Chief Transformation Officer, process: include the high demand for sustainable\nGeneral Counsel, Chief Financial Officer, fuel-compatible products across our sectors\n1. identify, review and confirm key and\nChief People Officer and Group Director and low-carbon energy systems for local and\nemerging risks and opportunities;\nof Engineering, Technology and Safety. back-up applications.\nThe committee meets quarterly as a 2. confirm key scenarios and assumptions;\nminimum, or more regularly to meet business and Climate scenarios assessment 1, 2\nneeds. It provides regular steering and In 2025, we used the same updated climate\n3. model the potential impact of each risk.\noversight of the sustainability strategy and base case and three climate scenarios as in\nprogress made against our sustainability 2024. To bookend the base case we assess\nstrategy implementation and goals. In 2025 Climate-related risks and opportunities a high and low-temperature scenario and\nthe steering committee reviewed all of the The identification, assessment and we use an additional scenario to explore a\ncontent that was submitted to the Board management of climate-related risks and delayed disruptive transition. We extended\nand also approved the implementation of opportunities is undertaken as part of our the range of our quantitative assessment\na shadow carbon price for 2026 onwards. enterprise risk management framework in from 10 years to 25 years to cover the full\nline with the TCFD recommendations (see page period to 2050 to align with our net zero\nAssessing strategic resilience 40). One of the ways climate-related risks and commitments. We updated our assessment to\nWe assess our resilience over three time opportunities are identified is through the align with the latest Group long-term plans.\nemerging risk process (see page 50). The\nhorizons: short term (less than five years),\nmedium term (five to ten years) and longer Group regulatory horizon scanning process The scenarios we use are based on\nterm (ten years plus). In 2025, we focused on also helps us prepare to comply with independent external climate scenarios\ndeveloping a quantitative assessment for all incoming changes in environmental, social and are consistent with representative\nthree time horizons including the long term, and corporate governance practices and concentration pathways (RCPs). We\nwhich had previously been qualitative. disclosure requirements. use additional supplementary data from\nthird-party sources, such as carbon pricing,\nWe use climate scenarios to test our strategic Once a risk is identified, the framework to support our modelling and financial\nplanning. We test against our business includes a requirement for risk owners to impact assessments.\ndecide on and document their response\nplanning baseline to assess potential risks\nto an identified risk. Although there are some\nto our financial performance and to identify Modelling the potential impact\nexamples where the risk can be transferred,\nways to mitigate our exposure to these risks. Cross-functional teams within each business,\nin most cases risks are accepted and require\nThe output of these assessments helps inform including representatives from strategy,\nmitigation, such as effective controls and/or\nour wider business planning and decision- finance and risk, collectively assess the\na plan of action. These are monitored through\nmaking, including our technology portfolio potential impact of each key risk on the\nour risk management effectiveness reviews\nand investment decisions, as well as our business under each of these three\n(see page 48) with a focus on control\nrelated engagement activities. scenarios. This includes calculating a\neffectiveness. The determination of risk\nrevenue, cost and profit impact for each\nmateriality is based on gross and current\nThree potential futures have been scenario across the timescales defined. As\n(i.e. net) risk assessments, using Group-wide\nconsidered, (see page 41), based on part of our 2025 activity, we have quantified\nscoring criteria for impact and likelihood.\nindependent external climate scenarios that short (five years to 2030), medium-term (ten\nThese criteria are used for divisional and\npresent plausible levels of global temperature years to 2035), and long-term (25 years to\nfunctional key risks as well as principal risks,\nrise and associated policy responses. These 2050) risks consistent with our five year-plan\nwith the expectation that the basis of the\nscenarios are not predictions or forecasts and long term strategic planning. At this\nestimate is clear, consistent and with key\nbut future possibilities which enable us to time we have not identified any impact on\nassumptions documented.\nexplore the physical and transition risks and demand, cost or competitive position that we\nopportunities associated with climate change would not be able to detect and respond to.\nAligning with our overarching enterprise\nthat may manifest over short, medium and\nlonger-term horizons. risk framework and using common 1 Under each scenario our modelling considers both\nassessment criteria for all risk categories physical and transition-related elements\nensures that risks can be compared across 2 Based on the Oxford Economics, Global Climate Service\nThe primary question our assessment and Databank and other external sources, including the\nconsiders is to what extent do the climate the Group, supporting prioritisation and ‘Working Together for Better Climate Action: Carbon\nproviding a mechanism for monitoring how Pricing, Policy Spillovers, and Global Climate Goals’\nscenarios manifest as risks and opportunities\neffectively we are managing these risks. report issued by the World Trade Organization,\nto the business? This includes assessment of International Monetary Fund, the Organisation for\npotential impacts on market dynamics and Economic Co-operation and Development, United\nNations Trade and Development, and the World Bank\n46 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 8315, "tables": [], "table_count": 0 }, { "pdf_page": 49, "printed_page": 47, "section": "Strategic Report", "subsection": "Sustainability - Energy transition and environment", "text": "CLIMATE RISK SCENARIO ANALYSIS\nThe following table summarises the potential net impact assessments of each of our identified climate-related risks under the three scenarios\n(see our basis of reporting available at www.rolls-royce.com). These are presented as potential ranges that depict an estimated financial impact\nand timeframe. We have concluded that none of these risks have a material financial impact in the short term. For more information about how\nthese have been considered in the financial statements, see note 1 of the Financial statements on pages 121 to 123.\nPERCENTAGE IMPACT ON GROUP OPERATING PROFIT BY SCENARIO\n(CUMULATIVE 2025 TO 2050)\nNET ZERO <1.5 °C HIGH TEMP 4.6 °C DISRUPTIVE 1.7 ° C TIMING OF\nHIGHEST\nCA D PS CA D PS CA D PS EXPOSURE\nChanging customer demand (0.1) 0.6 (4.7) (1.7) (0.9) (3.6) (0.6) 0.1 (2.3) 10yrs+\nChange in costs due to carbon pricing (0.5) 1.5 (0.2) (0.1) 0.0 (0.1) (0.2) 1.2 (0.2) 5–10yrs\nChange in costs due to commodity pricing 0.3 0.0 0.1 (0.1) 0.1 (1.4) 0.1 0.0 (1.5) 10yrs+\nChanging investment requirement 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10yrs+\nFacility disruption (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) 10yrs+\nSupply chain disruption (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) 10yrs+\nImpact on product performance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10yrs+\nDivisional totals (0.6) 1.9 (5.0) (2.2) (1.0) (5.3) (1.0) 1.1 (4.2)\nKey: Opportunity Risk CA = Civil Aerospace D = Defence PS = Power Systems\nTransition risks and opportunities\nChanging In the long term, we see a deterioration in operating profit across all scenarios for our current portfolio in the markets\ncustomer we serve. This is driven primarily by the impact of a slowing GDP growth rate in the medium-term compared to the\ndemand baseline and customer responses in some scenarios favouring a product mix with a lower overall profit margin. The\nhigh-temperature scenario shows the greatest impact as GDP growth nears zero in the long-term. We expect demand\nin Civil Aerospace to remain reasonably strong, driven by clear demographic trends and enabled by a continued\nfocus on efficiency and the introduction of sustainable fuels. We would expect climate stress in the high-temperature\nscenario to create opportunities in Defence, both in security and humanitarian response; however this is tempered by\nreduced customer demand for microreactors.\nChange in Guided by our Scope 1 + 2 targets based on science, we are taking steps to reduce our exposure to carbon pricing in\ncosts due to the long-term by decarbonising our own operations and encouraging our suppliers to do the same.\ncarbon pricing\nChange in Our markets can sustain the commodity price changes assumed in each scenario. There is long-term risk in the\ncosts due high-temperature scenario, particularly in Power Systems where higher costs for key commodities such as industrial\nto commodity metals slows the rate of customer pass through. Future contracts with both suppliers and customers need to minimise\npricing and mitigate our potential exposure.\nChanging Our investment strategies and plans are well aligned to the net zero scenario, and will continue to be robust across the\ninvestment other scenarios. In both Defence and Civil Aerospace markets, new products are expected in the mid 2030s and early\nrequirement 2040s. High-carbon pricing could increase the level of technology required but would also delay new programme\nlaunch, allowing resources to be reallocated and presenting an upside opportunity for current product lines. In Power\nSystems the net zero and delayed transition scenarios would require an acceleration of investment in new technologies,\nbut the overall investment would remain consistent. Longer-term, we see demand continuing for fuel efficiencies,\ncompatibility with sustainable fuels and low and zero-emission solutions.\nPhysical risks\nFacility Quantification of potential impact is based on business continuity analysis. Future site strategy, investment in existing\ndisruption facilities and development of new footprint options, need to continue considering climate risk. Longer term the\ngreatest risk is in the high-temperature scenario where climate adaptation could be required in some locations.\nOur business resilience activity will consider physical climate risk as a driver.\nSupply chain Quantification of potential impact is based on business continuity analysis. Future supply chain decisions, including\ndisruption the need for dual sourcing, need to continue considering climate risk. Longer term, the greatest risk is in the high-\ntemperature scenario where climate adaptation could be required in some locations. Our supply chain resilience\nactivity will consider physical climate risk as a driver both directly to our suppliers’ facilities and key logistics routes.\nImpact on Out to 2050 the risk is relatively stable in the net zero and disruptive scenarios. The greatest increase is in the high\nproduct temperature scenario with Civil Aerospace seeing a low percentage increase in shop visits and costs and Power\nperformance Systems seeing customer de-ratings and/or additional cooling needs across the portfolio.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 47\nSTRATEGIC\nREPORT\nSUSTAINABILITY", "char_count": 5251, "tables": [ [ [ "CLIMATE RISK SCENARIO ANALYSIS", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "Changing customer demand", null, "(0.1)", "0.6", "(4.7)", null, "(1.7)", "(0.9) (3", ".6) 0.1) .4) .0 0.1) 0.1) .0 5.3)", "(0.6)", "0.1", "(2.3)", null, "10yrs+" ], [ "Change in costs due to carbon pricing", null, "(0.5)", "1.5", "(0.2)", null, "(0.1)", "0.0 (", null, "(0.2)", "1.2", "(0.2)", null, "5–10yrs" ], [ "Change in costs due to commodity pricing", null, "0.3", "0.0", "0.1", null, "(0.1)", "0.1 (1", null, "0.1", "0.0", "(1.5)", null, "10yrs+" ], [ "Changing investment requirement", null, "0.0", "0.0", "0.0", null, "0.0", "0.0 0", null, "0.0", "0.0", "0.0", null, "10yrs+" ], [ "Facility disruption", null, "(0.1)", "(0.1)", "(0.1)", null, "(0.1)", "(0.1) (", null, "(0.1)", "(0.1)", "(0.1)", null, "10yrs+" ], [ "Supply chain disruption", null, "(0.2)", "(0.1)", "(0.1)", null, "(0.2)", "(0.1) (", null, "(0.2)", "(0.1)", "(0.1)", null, "10yrs+" ], [ "Impact on product performance", null, "0.0", "0.0", "0.0", null, "0.0", "0.0 0", null, "0.0", "0.0", "0.0", null, "10yrs+" ], [ "Divisional totals", null, "(0.6)", "1.9", "(5.0)", null, "(2.2)", "(1.0) (", null, "(1.0)", "1.1", "(4.2)", null, null ] ], [ [ "Changing customer demand" ], [ "Change in costs due to carbon pricing" ], [ "Change in costs due to commodity pricing" ], [ "Changing investment requirement" ] ], [ [ "Facility disruption" ], [ "Supply chain disruption" ], [ "Impact on product performance" ] ] ], "table_count": 4, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 50, "printed_page": 48, "section": "Strategic Report", "subsection": "Principal risks", "text": "Our approach to risk management and Our risk management and internal — how effective the framework is at\nthe improvements we have made during the control framework managing the principal risks;\nyear are outlined below. We explain how we We have an established framework, shown\n— the input from assurance providers listed\nidentify principal and emerging risks, how in the diagram below, to support the delivery\nin the principal risk tables from page 51, as\nthese are mitigated in line with our risk of effective risk management. It enables us to\nwell as the internal audit team. Risk-related\nappetite, and how they have changed manage risks in an integrated, consistent way\nfindings are taken into account when\nin 2025. across the Group and is refreshed annually.\nconsidering how well risks are being\nmanaged; and\nOur approach relies on an organisation The framework aligns with international\nand culture where individuals at all standards for managing risk and sets out — the Group’s internal financial controls\nlevels (starting with the Executive Team) requirements across the Group for all types (by the Audit Committee) with financial\ndemonstrate the principles of good risk of risk, including climate, finance, legal, reporting controls being subject to periodic\nmanagement and the capabilities to deliver operations, technical and programmes. review by the internal controls team.\non these.\nThe Board is ultimately responsible for our The Board confirms that it has monitored\napproach to risk management and internal the effectiveness of risk management and\ncontrols, from endorsing the framework each internal controls throughout the year, in\nyear, to assessing: accordance with the 2024 UK Corporate\nGovernance Code excluding provision 29\nwhich is effective for Rolls-Royce from\n1 January 2026.\nThe risk management framework\nRisk governance Risk process Risk toolkit\nEstablish context and objectives\nPolicy Guidance\nIdentify\nTools &\nStandard\nQuantify technology\nEvaluate\nRisk appetite Training\nDesign and deploy controls\nRisk oversight Templates\nAssure control Manage\neffectiveness incidents\nMitigating actions\nOrganisation and culture\netalacse\n,troper\n,weiver\n,rotinoM\nContinuous\nimprovement\nPrincipal risks\nRisk management is increasingly an integral part of our ways of working, enhancing\nour ability to successfully execute our strategy in a predictable, repeatable manner.\nWhat and why How Support\nAssess risk\nManage risk\n48 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2480, "tables": [ [ [ "Quantify" ], [ "Evaluate" ] ] ], "table_count": 1, "visual_content": [ { "type": "process_diagram", "title": "The risk management framework", "structure": { "Risk governance (What and why)": [ "Policy", "Standard", "Risk appetite", "Risk oversight" ], "Risk process (How)": { "entry": "Establish context and objectives", "Assess risk": [ "Identify", "Quantify", "Evaluate" ], "Manage risk": [ "Design and deploy controls", "Assure control effectiveness", "Manage incidents", "Mitigating actions" ], "surrounding_loops": [ "Monitor, review, report, escalate", "Continuous improvement" ] }, "Risk toolkit (Support)": [ "Guidance", "Tools & technology", "Training", "Templates" ], "foundation": "Organisation and culture" } } ], "rotated_text": [ "Monitor, review, report, escalate", "Continuous improvement" ] }, { "pdf_page": 51, "printed_page": 49, "section": "Strategic Report", "subsection": "Principal risks", "text": "How we use the framework to manage risk\nRisk governance\nRisk governance sets out the roles and responsibilities, as well as the what and the why, of risk management through the policy and standard.\nThe Board’s responsibilities relating to principal risks and risk management are primarily discharged by ensuring that we have an effective risk\nmanagement framework in place. In addition, the Board evaluates how well our principal risks are being managed as part of their review of:\n— individual principal risk reports from the executive risk owner throughout the year at the Board or appropriate Board Committee (with a\nfocus on current risk status, controls in place to manage the risk, and mitigating actions). See from page 66 to 72 for a detailed list of reviews\nthat took place this year; and\n— a portfolio principal risk report, shared with the Board by the Head of Enterprise Risk Management, summarising our overall risk position at\nthe end of the year. This report highlights changes in risk status and includes an effectiveness review of the risk management framework as\nwell as an assessment of risk maturity.\nRisk appetite for principal risks is also included as part of the Board’s annual risk framework review. There are three possible threat risk appetite\nlevels – low, moderate and high. These statements are used as guidance to help risk owners determine an acceptable current risk position as\nwell as set a target position if they consider the risk to be out of appetite.\nBelow Board level, the Executive Team reviews portfolio and individual principal risk reports throughout the year, with divisional level risk\ninformation also being considered at the executive audit committee and as an input into the five-year planning process. These reports\ncontain the risk status including whether this is within our risk appetite, control effectiveness and details of improvement actions to mitigate\nany control gaps.\nRisk process\nRisk owners are accountable for the execution of the risk process, to ensure that our threats and opportunities are identified, assessed,\nmanaged and assured. It applies to all levels and types of risks.\nIdentify Risks can be identified by anyone across the Group. The risk process focuses on scanning the internal and external\nenvironment to monitor emerging trends (such as those identified as part of the emerging risks described on page 50),\nto identify and document what could hinder or accelerate the achievement of our strategic, operational and compliance\nobjectives, or impact the sustainability of our business model (described on pages 14 and 15).\nQuantify and Risk owners quantify the likelihood of a risk materialising and the potential impact if it does, considering current effective\nevaluate controls, and then deciding on a course of action to manage the risk.\nControl and Most risks are managed through the implementation of controls designed to prevent, detect or react to either the causes\nassure or impacts of a risk, which are then anchored in our processes. Risk owners must satisfy themselves that the controls are\neffective and that their opinion rests on assurance findings.\nAct Where a controls gap has been identified, or a risk is otherwise not currently within risk appetite, risk owners are responsible\nfor implementing remediating action plans to reduce the current risk level. Any costs of remediation plans should be\nproportionate to the benefit provided.\nMonitor, Risk owners report their assessment of current and target risk scores to local leadership as well as other review forums\nreview and (including the Board and its Committees and the Executive Team) as needed depending on the level of the risk, for support,\nreport challenge, escalation and oversight.\nRisk toolkit\nThe above are underpinned by a toolkit of guidance, templates, tools and training and an independent enterprise risk management team\nsupports the divisions and functions in their effective management of risk. Continuous improvement in 2025 has focused on streamlining the\nsupporting toolkit across the Group and moving everyone to one enterprise-wide risk tool.\nFor some principal risks, such as cyber-security, safety and compliance, there is mandatory training in place, linked to performance\nmanagement and remuneration, which all our people are required to complete and comply with. See page 33 for further details.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 49\nSTRATEGIC\nREPORT\nPRINCIPAL RISKS", "char_count": 4452, "tables": [ [ [ "Identify" ], [ "Quantify and evaluate" ], [ "Control and assure" ], [ "Act" ], [ "Monitor, review and report" ] ] ], "table_count": 1, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 52, "printed_page": 50, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS\nEmerging risks\nWe have processes in place to identify The remainder of our emerging risk watch list Changes to the principal risks profile\nemerging risks, which we define as is consistent with last year. in 2025\nuncertainties that could become a principal risk Throughout the year, we continued to\nof the future. As part of this, we analyse external Of the three newly identified emerging monitor our principal risks portfolio to\ndata as well as horizon scan for changes in risks we reported last year, one remains ensure that it remains current and dynamic.\nthe external environment relating to: an emerging risk (demands on fuel stocks)\nand two are now being actively managed: The overall risk level within our portfolio has\n— resilience; alternative fuel sources as an input into the remained stable in 2025, with an increase in\n— regulatory and compliance; and technology principal risk, and the impact of probability for both political and business\nsocietal polarisation as part of our business- Interruption because of the increasing\n— disruptive new technologies. as-usual activities. volatility in the external environment.\nHowever, we continue to develop controls\nOutputs are assessed by subject matter In 2025, timeframes for several emerging and mitigation programmes to keep pace.\nexperts and, where we identify any potential risks shortened while others identified\nnew impacts on us, we take one of the through the year are now being actively Details of these changes can be found in the\nfollowing actions: managed and are no longer considered to be tables starting on the following page, which\n— record a new risk; emerging risks, such as potential shortages outline the current principal risks together\nof raw materials (now part of business with how we manage and assure them\n— amend an existing risk and manage this interruption risk). in addition to internal audit and the oversight\nin accordance with our framework as provided by the Board and its Committees.\ndescribed on page 48; or Principal risks\n— add the emerging risks to our watch list Each principal risk is owned by one or Board confirmation\nfor investigation and monitoring. more members of the Executive Team and The Board confirms that it has assessed\nis subject to a review at the appropriate and monitored the Group’s principal risks\nThe Board considers a summary of emerging executive committee at least once each throughout the year, in accordance with\nrisks and responses annually. This year it year, ahead of a review by the Board or the 2024 UK Corporate Governance Code\nconcluded that many of the external areas of relevant Board Committee. Risks are excluding provision 29 which is effective for\nfocus (geopolitical tensions, extreme weather managed in relation to achieving our target Rolls-Royce from 1 January 2026.\nrisk appetite or better. The actions needed to\nevents and supply chain disruption) are\nachieve or maintain these target positions are\nalready captured as causes in our existing\nalso monitored.\nprincipal risks.\nPROVISION 29 OF THE 2024 UK CORPORATE GOVERNANCE CODE\nProvision 29 of the 2024 Code, which The material controls identified to date — identified any gaps arising or\napplies to Rolls-Royce for the financial year primarily relate to our principal risks enhancements needed to meet\nbeginning on 1 January 2026, requires an described in the tables starting on page 51, the requirements of the Code.\nexplicit declaration by the Board as to the with additional material controls over\neffectiveness of material controls as at financial and non-financial reporting. We will continue to monitor progress\nthe balance sheet date. on additional improvement actions, such\nAs part of this work and in line with as the development of new controls or\nWhile our risk management framework guidance relating to the 2024 Code, we strengthening our assurance coverage\nalready includes the requirement to deploy continue to challenge ourselves on both for a specific risk throughout 2026 as\nand assure controls to manage risk, in 2025 our control materiality assessment and part of our existing executive, Board and/or\nwe enhanced our framework by: the fitness for purpose of our assurance Board Committee risk agenda items.\nprocesses. To prepare for the declaration\n— defining the criteria for identifying\nin the Annual Report 2026, we have:\nmaterial controls, covering financial,\noperational, reporting and — set out our approach to assurance\ncompliance risks; and to confirm the effectiveness of\nmaterial controls;\n— identifying our material controls and\nensuring that they are documented to — mapped the assurance process\na specified standard. (covering first, second and third line\naccountabilities) which is already, or\nwill need to be, in place for the Board\nto have confidence in effectiveness\nconclusions and to support the\ndeclaration; and\n50 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4910, "tables": [], "table_count": 0 }, { "pdf_page": 53, "printed_page": 51, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS\nChange in risk level: Increased Static Decreased\nSafety\nPRINCIPAL RISK DESCRIPTION CONTROLS\nPeople and process: Failure to create a place to work People and process:\nwhich minimises the risk of harm to our people, those — Our HSE management and governance framework includes controls designed\nwho work with us, and the environment, would adversely to reduce our safety risks as far as is reasonably practicable and to meet or\naffect our reputation and long-term sustainability. exceed relevant Group, legal, regulatory and industry requirements\n— We have nuclear site licensing\nProduct: Failure to meet the expectations of our\ncustomers to provide safe products which also meet Product:\nthe relevant regulations. — Our product safety management system includes controls designed to\nreduce our safety risks as far as is reasonably practicable and to meet or exceed\nrelevant Group, legal, regulatory and industry requirements. As part of this we:\n• verify and approve product design;\n• test adherence to quality standards during manufacturing;\n• validate conformance to specification for our own products and those of\nour suppliers;\n• mandate safety awareness training; and\n• use engine health monitoring to provide early warning of product issues.\nOur controls are underpinned by a strong safety culture, as detailed on page 35.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\nPeople and process — Safety, Energy Transition & Tech — Our role in society\n— Safety case interventions Committee — Our business model drivers\n— HSE audit team — Executive Team — Our uniqueness\nProduct\n— Product safety assurance board\n— Product safety assurance team\n— Technical product lifecycle audits\nWHAT HAS CHANGED IN 2025?\nThe level of safety risk has decreased during 2025, due to the strengthening of controls, with safety a focus for all colleagues, and\nwe continue to prioritise action plans to improve people, process and product safety. People safety metrics, including the reported\nimprovement in the safety index, along with further detail on the actions being taken to reduce these risks, can be found on page 35.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 51\nSTRATEGIC\nREPORT\nPRINCIPAL RISKS", "char_count": 2222, "tables": [ [ [ "PRINCIPAL RISKS", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "People and process — Safety case interventions — HSE audit team Product — Product safety assurance board — Product safety assurance team — Technical product lifecycle audits", "— Safety, Energy Transition & Tech Committee — Executive Team", "— Our role in society — Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "The level of safety risk has decreased during 2025, due to the strengthening of controls, with safety a focus for all colleagues, and we continue to prioritise action plans to improve people, process and product safety. People safety metrics, including the reported improvement in the safety index, along with further detail on the actions being taken to reduce these risks, can be found on page 35.", null, null ] ] ], "table_count": 2, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 54, "printed_page": 52, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS\nPRINCIPAL RISKS – CONTINUED\nChange in risk level: Increased Static Decreased\nCompliance\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to comply with legislation and/or other — Compliance risk framework which comprises:\nregulatory requirements in the heavily regulated\n• a comprehensive suite of mandatory policies and processes and controls;\nenvironment in which we operate (e.g. export\n• third-party due diligence;\ncontrols; data privacy; use of controlled chemicals and\n• investigations into potential regulatory matters;\nsubstances; anti-bribery and corruption; human rights;\n• digital screening and IT compliance tools;\nand tax and customs legislation). This could affect our\n• data classification to meet internal and external requirements and\nability to conduct business in certain jurisdictions and\nstandards; and\nwould potentially expose us to: reputational damage;\n• export control framework.\nfinancial penalties; debarment from government\ncontracts for a period of time; and/or suspension of — Speak up line and investigation of speak up cases\nexport privileges (including export credit financing),\neach of which could have a material adverse effect.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Compliance teams — Audit Committee — Our business model drivers\n— Financial controls team — Board\n— Nominations, Culture & Governance\nCommittee\n— Executive audit committee\n— Disclosure Committee\nWHAT HAS CHANGED IN 2025?\nOur compliance risk has remained stable in 2025 due to the ongoing effectiveness of our controls to manage the risks as well as our agility\nin responding to a changing regulatory landscape. Mitigating actions focused on the overarching compliance framework as well as specific\nkey risk areas including, but not limited to, new export control requirements, failure to prevent fraud, human rights and modern slavery,\ncompetition, money laundering and data privacy. Read more about ethics and compliance on page 37, which covers supply chain due\ndiligence, anti-bribery and corruption, and human rights and anti-slavery in more detail.\nStrategy\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to develop an optimal strategy and continuously — Long-term planning including portfolio reviews\nevolve it, investing in key areas for performance — Strategic performance reviews\nimprovement and growth (taking into account risk — Integrated performance management\n– reward), making difficult decisions for competitive\nTo support these controls, we benchmark our capabilities and performance\nadvantage and the right portfolio and partnership\nagainst our competitors, the market and other external metrics as well as horizon\nchoices, could result in us underperforming against\nscan for competitive threats and opportunities, including patent searches.\nour competitors and significantly reduce our ability\nto build a high-performing, competitive, resilient and\ngrowing business.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Challenge from external advisers — Board — Our role in society\n— Executive Team — Our business model drivers\n— Investment committee — Our uniqueness\nWHAT HAS CHANGED IN 2025?\nOverall, this risk remained stable in 2025. We continued to iterate detailed strategies, including for other principal risks, such as energy\ntransition and technology. Robust controls operate over our decision-making processes and integrated performance management also\ndrives strategic priorities (such as through the five-year planning process).\n52 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3569, "tables": [ [ [ "PRINCIPAL RISKS – CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Compliance teams — Financial controls team", "— Audit Committee — Board — Nominations, Culture & Governance Committee — Executive audit committee — Disclosure Committee", "— Our business model drivers" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "Our compliance risk has remained stable in 2025 due to the ongoing effectiveness of our controls to manage the risks as well as our agility in responding to a changing regulatory landscape. Mitigating actions focused on the overarching compliance framework as well as specific key risk areas including, but not limited to, new export control requirements, failure to prevent fraud, human rights and modern slavery, competition, money laundering and data privacy. Read more about ethics and compliance on page 37, which covers supply chain due diligence, anti-bribery and corruption, and human rights and anti-slavery in more detail.", null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Challenge from external advisers", "— Board — Executive Team — Investment committee", "— Our role in society — Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "Overall, this risk remained stable in 2025. We continued to iterate detailed strategies, including for other principal risks, such as energy transition and technology. Robust controls operate over our decision-making processes and integrated performance management also drives strategic priorities (such as through the five-year planning process).", null, null ] ] ], "table_count": 3 }, { "pdf_page": 55, "printed_page": 53, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS – CONTINUED\nChange in risk level: Increased Static Decreased\nExecution\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to deliver as One Rolls-Royce on short to — Strategic performance reviews\nmedium-term financial plans, including efficient and — Integrated performance management, including forecasting, budgeting,\neffective delivery of quality products, services and financial planning, and monitoring performance against plans\nprogrammes, and/or falling significantly short of — Investment committee\ncustomer expectations.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Business reviews — Board — Our role in society\n— Programme introduction and lifecycle — Executive Team — Our business model drivers\nmanagement and the project assurance — Investment committee\nreview process\nWHAT HAS CHANGED IN 2025?\nOverall, this risk remained stable in 2025. The potential impact of this risk materialising is high with a complex and competitive operating\nenvironment. However, we have focused on embedding strong performance management, including the effectiveness of our controls,\nto manage this risk, as well as robust Executive Team oversight. The outcome is reflected in our financial results (see pages 19 to 24),\nas well as enabling ongoing transformation and putting in place the foundations and sustainable change required to take advantage of\nfuture opportunities.\nBusiness interruption\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to prevent a major disruption of our operations — Clarity of which products, services and/or customers to prioritise following\nand ability to deliver our products, services and a disruption\nprogrammes could have an adverse impact on our — Strategic decision-making on product and suppliers, including:\npeople, internal facilities and/or external supply chain,\n• supplier due diligence;\nwhich could result in failure to meet agreed customer\n• dual sourcing of critical suppliers;\ncommitments and damage our prospects of winning\n• identification of alternate suppliers;\nfuture orders.\n• investment in capacity, equipment and facilities and in researching alternative\nDisruption could be caused by a range of events, materials; and\nfor example extreme weather or natural hazards • holding surplus stock to offset future shortages.\n(such as earthquakes or floods) which could increase\n— Investment committee\nin severity or frequency given the impact of climate\n— Business continuity policy, including crisis management exercises\nchange; political events; financial insolvency of a critical\n— Relevant and appropriate insurance in place\nsupplier; scarcity of materials; loss of data; fire; pandemic\nor other infectious disease.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Supplier monitoring tools — Audit Committee — Our business model drivers\n— Security and resilience team — Executive audit committee — Our uniqueness\n— External property risk assessments\nWHAT HAS CHANGED IN 2025?\nThe probability of this risk materialising has increased in 2025 as the external environment remains uncertain, increasing the likelihood\nof external events which could disrupt our ability to deliver the business model. However, we continue to develop controls and mitigation\nprogrammes to keep pace and manage any potential impacts.\nRead more about how we are managing uncertainty in our supply chain on page 13.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 53\nSTRATEGIC\nREPORT\nPRINCIPAL RISKS", "char_count": 3468, "tables": [ [ [ "PRINCIPAL RISKS – CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Business reviews — Programme introduction and lifecycle management and the project assurance review process", "— Board — Executive Team — Investment committee", "— Our role in society — Our business model drivers" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "Overall, this risk remained stable in 2025. The potential impact of this risk materialising is high with a complex and competitive operating environment. However, we have focused on embedding strong performance management, including the effectiveness of our controls, to manage this risk, as well as robust Executive Team oversight. The outcome is reflected in our financial results (see pages 19 to 24), as well as enabling ongoing transformation and putting in place the foundations and sustainable change required to take advantage of future opportunities.", null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Supplier monitoring tools — Security and resilience team — External property risk assessments", "— Audit Committee — Executive audit committee", "— Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "The probability of this risk materialising has increased in 2025 as the external environment remains uncertain, increasing the likelihood of external events which could disrupt our ability to deliver the business model. However, we continue to develop controls and mitigation programmes to keep pace and manage any potential impacts. Read more about how we are managing uncertainty in our supply chain on page 13.", null, null ] ] ], "table_count": 3, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 56, "printed_page": 54, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS\nPRINCIPAL RISKS – CONTINUED\nChange in risk level: Increased Static Decreased\nEnergy transition\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to reach net zero by 2050, and failure to leverage — Sustainability governance framework which encompasses:\ntechnology to transition from carbon-intensive products\n• inclusion of sustainability criteria in our Investment committee decision-\nand services at pace could impact our ability to win\nmaking process to reduce the carbon impact of existing products; and\nfuture business; achieve operating results; attract and\nreplace our existing products with zero-carbon technologies;\nretain talent; secure access to funding; realise future\n• energy transition & technology committee;\ngrowth opportunities; and/or force government\n• sustainability steering committee which considers climate scenario modelling,\nintervention to limit emissions.\nphysical risk impact assessments and emerging risk identification;\n• global supplier code of conduct; and\n• commercial agreements.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Sustainability team — Board — Our role in society\n— External verification of data and — Audit Committee — Our business model drivers\ncalculations — Safety, Energy Transition & — Our uniqueness\nTech Committee\n— Executive audit committee\n— Executive energy, transition & technology\ncommittee\nWHAT HAS CHANGED IN 2025?\nThere has been no overall change in risk status. The likelihood of this risk materialising is driven by macro-economic, geopolitical and social\nfactors, with our controls focused on mitigating their impact. Our focus for 2026 will include continued review of our sustainability strategy,\nthe management of Scope 1 + 2 decarbonisation, a review of responsible consumption targets and product portfolio alignment. See pages\n38 to 47 for more on sustainability and related key risks.\nInformation & data (including cyber-security)\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to protect the integrity, confidentiality and — The information security management system deploys multiple layers of\navailability of data, both physical and digital, systems, controls, such as web and email gateways, intrusion detection, behavioural\nservices or products from attempts to cause us and/or analytics and data loss prevention\nour customers harm, which could hinder data-driven — Extensive maintenance and testing of hardware and software and systems\ndecision-making, disrupt internal business operations — Access controls (employees and third parties) to our locations, infrastructure,\nand services for customers, or result in a data breach or systems, software and data\nnon-compliance to regulatory requirements, all of which — Control of the use of our systems\ncould damage our reputation, reduce resilience, and — Application of our incidence response framework to govern our response to\ncause financial loss. potential cyber-security incidents and significant IT disruption\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Cyber-security team — Safety, Energy Transition & Tech — Our business model drivers\n— Security and resilience team Committee — Our uniqueness\n— Executive audit committee\nWHAT HAS CHANGED IN 2025?\nThe risk level has reduced in 2025 due to the progress of our mitigation programmes putting in place additional effective controls. For\nexample, we have put in place improvements in controls to address externally facing vulnerabilities and enhancements to other controls.\nHowever, the risk remains high due to external factors including the ongoing speed of evolution of cyber-security threats, with increasing\nsophistication and technological advancement of the threat actor groups. We continue to monitor the evolving external threat landscape,\nundertaking additional mitigating activities where needed.\n54 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3894, "tables": [ [ [ "PRINCIPAL RISKS – CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Sustainability team — External verification of data and calculations", "— Board — Audit Committee — Safety, Energy Transition & Tech Committee — Executive audit committee — Executive energy, transition & technology committee", "— Our role in society — Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "There has been no overall change in risk status. The likelihood of this risk materialising is driven by macro-economic, geopolitical and social factors, with our controls focused on mitigating their impact. Our focus for 2026 will include continued review of our sustainability strategy, the management of Scope 1 + 2 decarbonisation, a review of responsible consumption targets and product portfolio alignment. See pages 38 to 47 for more on sustainability and related key risks.", null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Cyber-security team — Security and resilience team", "— Safety, Energy Transition & Tech Committee — Executive audit committee", "— Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "The risk level has reduced in 2025 due to the progress of our mitigation programmes putting in place additional effective controls. For example, we have put in place improvements in controls to address externally facing vulnerabilities and enhancements to other controls. However, the risk remains high due to external factors including the ongoing speed of evolution of cyber-security threats, with increasing sophistication and technological advancement of the threat actor groups. We continue to monitor the evolving external threat landscape, undertaking additional mitigating activities where needed.", null, null ] ] ], "table_count": 3 }, { "pdf_page": 57, "printed_page": 55, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS – CONTINUED\nChange in risk level: Increased Static Decreased\nMarket & financial shock\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to minimise our exposure to market and — Monitoring of trends, market demand and future market forecasts,\nfinancial risks, some of which are of a macro-economic adjusting business plans accordingly\nnature (e.g. economic growth rates, foreign currency, oil — Investment committee to ensure capital investments are in line with our strategy\nprice, interest rates) and some of which are more specific — Diverse and balanced portfolio\nto us (e.g. cyclical aviation industry, reduction in air — Financial risk committee which monitors financial risks and compliance with\ntravel or defence spending, disruption to other customer relevant policies including:\noperations, liquidity, and credit risks). This could affect\n• group liquidity policy;\ndemand for our products and services.\n• credit risk policy;\nSignificant extraneous market events could also • policies designed to hedge residual risks using financial derivatives covering\nmaterially damage our competitiveness and/or foreign exchange, interest rates and commodity price risk; and\ncreditworthiness and our ability to access funding. • maintaining strong access to debt and equity markets as a strategic lever to\nThis would affect operational results or the outcomes manage financial risk and safeguard capital resilience.\nof financial transactions.\n— Treasury operates a system of confirmations, mandates, system access controls,\nsegregation of duties, dual controls and checks to prevent and detect fraud\nand errors\nIn addition, controls in place to manage business interruption and political risk,\nalso address market shock risk.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Strategy reviews — Board — Our business model drivers\n— Group investments team — Audit Committee\n— Treasury team — Executive audit committee\nWHAT HAS CHANGED IN 2025?\nThe robust control environment we have in place has kept this risk stable in 2025. Uncertainty around external market volatility and\nsignificant shocks (such as global conflict or the repeat of a pandemic) is offset by our increasing ability to withstand these events through\nour greater business resilience. The Board has continued to approve policies to manage financial risks, the Group’s £2.5bn revolving credit\nfacility was renewed in December 2025, and the control environment is underpinned by systemised segregation of duties and management\nreview of controls.\nPolitical\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to respond strategically and tactically to — Geopolitical insights capability, which includes:\ngeopolitical developments and events, such as\n• development of Group and country strategies and maintaining our\nadverse changes in key political relationships,\nunderstanding of associated dependencies;\ntrade protectionism and conflicts, deteriorating tax or\n• horizon scanning processes;\nregulatory regimes, and armed conflict, would lead to an\n• Group crisis and incident management policy; and\nunfavourable business climate which could impact our\n• diversification considerations built into our investment and\nshort and/or long-term execution commitments.\nprocurement choices.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Government relations teams — Board — Our role in society\n— Country councils — Executive audit committee — Our business model drivers\n— Input from external advisers\nWHAT HAS CHANGED IN 2025?\nThe probability of this risk arising has increased due to ongoing uncertainty in the external environment. The likelihood of emerging risks\nnow materialising due to political developments globally, such as intensifying trade conflict and rising protectionism (see page 13) is higher\nthan before.\nHowever, our ability to respond to geopolitical risks, such as tariffs, has kept pace with the external environment. We continue to build on\nour insights capabilities to further improve our adaptability.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 55\nSTRATEGIC\nREPORT\nPRINCIPAL RISKS", "char_count": 4107, "tables": [ [ [ "PRINCIPAL RISKS – CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Strategy reviews — Group investments team — Treasury team", "— Board — Audit Committee — Executive audit committee", "— Our business model drivers" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "The robust control environment we have in place has kept this risk stable in 2025. Uncertainty around external market volatility and significant shocks (such as global conflict or the repeat of a pandemic) is offset by our increasing ability to withstand these events through our greater business resilience. The Board has continued to approve policies to manage financial risks, the Group’s £2.5bn revolving credit facility was renewed in December 2025, and the control environment is underpinned by systemised segregation of duties and management review of controls.", null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Government relations teams — Country councils — Input from external advisers", "— Board — Executive audit committee", "— Our role in society — Our business model drivers" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "The probability of this risk arising has increased due to ongoing uncertainty in the external environment. The likelihood of emerging risks now materialising due to political developments globally, such as intensifying trade conflict and rising protectionism (see page 13) is higher than before. However, our ability to respond to geopolitical risks, such as tariffs, has kept pace with the external environment. We continue to build on our insights capabilities to further improve our adaptability.", null, null ] ] ], "table_count": 3, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 58, "printed_page": 56, "section": "Strategic Report", "subsection": "Principal risks", "text": "PRINCIPAL RISKS\nPRINCIPAL RISKS – CONTINUED\nChange in risk level: Increased Static Decreased\nTalent & capability\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to attract, retain and develop the critical talent, — The People System includes controls to:\nskills and capabilities required to deliver our strategic\n• anticipate future requirements, strategically shaping future workforce\npriorities could threaten our ability to be a high-\ncomposition and a differentiated workforce strategy;\nperforming, competitive, resilient and growing business.\n• attract and develop the best talent to increase talent density and bench strength;\n• drive high performance through a culture of regular and candid feedback and\nstrong relative differentiation;\n• operate a differentiated and fair reward proposition to reflect strategic\nbusiness impact and critical positions and difficult-to-hire capabilities;\n• improve future readiness of workforce through targeted learning,\nintegrating learning into the flow of work through digital including\ndelivering mandatory learning;\n• increase relevant talent supply through fit-for-purpose emerging talent\nprogrammes; and\n• embed and monitor a culture of belonging through defined standards,\nleadership accountability, and regular employee listening, ensuring equitable\naccess to opportunity, equity in decision-making, and psychological safety.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— People leadership team — Nominations, Culture & Governance — Our business model drivers\n— Leaders across Rolls-Royce Committee — Our uniqueness\n— Employee opinion survey — People committee\n— External remuneration audits\nWHAT HAS CHANGED IN 2025?\nThe level of risk has remained steady this year through controls operating as part of the People System launched in 2024, with a focus in 2025\non performance management, employee engagement, reward, capability and skills, talent management and development, which you can read\nmore about on pages 31 to 36, as well as more information on people-related initiatives, such as the People Deal and Change Makers.\nTechnology\nPRINCIPAL RISK DESCRIPTION CONTROLS\nFailure to ensure products and services are based — Horizon scanning process for emerging technology threats and opportunities,\non competitive technology, leveraging substantial which includes the identification of business opportunities, providing\nengineering and scientific challenges, adopting digital technology intelligence, and performing early-stage technical assessments\ntools (such as AI) and/or new ways of working, could — The outputs are used to inform strategy and technology roadmaps as well as\nhinder our ability to accelerate product design and how we prioritise the research and technology portfolio\ndeliver a competitive offer that ensures superior\nperformance; enhances the customer experience; drives\nthe transition to lower carbon; improves productivity\nand reduces costs. This will negatively impact our\ncompetitiveness and market share.\nASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL\n— Technical assurance team — Safety, Energy Transition & Tech — Our role in society\n— Programme introduction and Committee — Our business model drivers\nlifecycle management to prioritise — Executive energy transition & tech — Our uniqueness\ninvestments and uphold uniform committee\nproject management standards\nWHAT HAS CHANGED IN 2025?\nThis risk has remained stable in 2025 due to the ongoing mitigating actions to manage this risk, including detailed technology roadmaps,\nrobust horizon scanning and the work of the Group-wide research and technology organisation. New technologies are matured and vetted\nfor industrialisation and customer interest during development and before integration into our systems.\nTo further mitigate the impact of potential technological disruptions and align with broader strategy needs, we will continue to invest in\nemerging technology evaluation, accelerate innovation through data-driven approaches, and prioritise technology integration.\n56 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4094, "tables": [ [ [ "PRINCIPAL RISKS – CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— People leadership team — Leaders across Rolls-Royce — Employee opinion survey — External remuneration audits", "— Nominations, Culture & Governance Committee — People committee", "— Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "The level of risk has remained steady this year through controls operating as part of the People System launched in 2024, with a focus in 2025 on performance management, employee engagement, reward, capability and skills, talent management and development, which you can read more about on pages 31 to 36, as well as more information on people-related initiatives, such as the People Deal and Change Makers.", null, null ] ], [ [ "ASSURANCE ACTIVITIES AND PROVIDERS", "OVERSIGHT FORUM(S)", "BUSINESS MODEL" ], [ "— Technical assurance team — Programme introduction and lifecycle management to prioritise investments and uphold uniform project management standards", "— Safety, Energy Transition & Tech Committee — Executive energy transition & tech committee", "— Our role in society — Our business model drivers — Our uniqueness" ], [ "WHAT HAS CHANGED IN 2025?", null, null ], [ "This risk has remained stable in 2025 due to the ongoing mitigating actions to manage this risk, including detailed technology roadmaps, robust horizon scanning and the work of the Group-wide research and technology organisation. New technologies are matured and vetted for industrialisation and customer interest during development and before integration into our systems. To further mitigate the impact of potential technological disruptions and align with broader strategy needs, we will continue to invest in emerging technology evaluation, accelerate innovation through data-driven approaches, and prioritise technology integration.", null, null ] ] ], "table_count": 3 }, { "pdf_page": 59, "printed_page": 57, "section": "Strategic Report", "subsection": "Going concern and viability statements", "text": "Going concern statement The downside forecast assumes Civil includes the repayment of a €750m bond\nAerospace large engine flying hours that matured in February 2026 and a £375m\nOverview remain at average fourth quarter 2025 bond that is due to mature in June 2026.\nIn accordance with the requirements of levels throughout the going concern period, Given the Group’s cash and liquidity position\nthe 2024 UK Corporate Governance Code, reflecting slower GDP growth in this forecast over the going concern period, the bond\nthe Directors have assessed the prospects when compared with the base case. It also maturities in 2026 have been assumed to be\nof the Group, taking into account its current assumes a more pessimistic view of general repaid from cash, should the Group wish to\nposition, the Group’s principal risks which inflation at around 2%–3% higher than not refinance.\nare described on pages 51 to 56, and the base case covering a broad range of\nthe Group’s mid-term forecasts together costs including product costs, energy, Based on borrowing facilities available at\nwith factors that could affect its future commodities and jet fuel. Wage inflation in the date of this report the Group’s committed\ndevelopment, performance and position, the downside forecast is 1%–2% higher than borrowing facilities at 31 December 2025\nas set out in the Strategic report on the base case and interest rates are 1%–2% and 30 June 2027 are set out below. None\npages 2 to 61. higher. These macro-economic pressures of the facilities are subject to any financial\nhave been modelled across the whole going covenants or rating triggers which could\nThe Financial review on pages 19 to 24 concern period. The downside forecast also accelerate repayment.\nsets out the financial position of the Group, considers lower demand as a result of slower\nits cash flows, liquidity position and the market growth, and potential output risks\nGroup’s capital framework. The notes to the associated with increasing volumes and £m 31 Decem 20 b 2 e 5 r 30 2 Ju 0 n 2 e 7\naccounts include the objectives, policies and possible ongoing supply chain challenges. Issued bond notes 1 2,859 1,806\nprocedures over financial risk management\nincluding financial instruments and hedging On 26 February 2026, the Group announced Revolving credit\nactivities, exposure to credit risk, liquidity a multi-year share buyback programme facility (undrawn) 2 2,500 2,500\nrisk, interest rate risk and commodity across 2026–2028 of £7.0bn to £9.0bn. Total committed\nprice risk. Of this, £2.5bn is expected to be completed borrowing facilities 5,359 4,306\nin 2026, including the £200m completed\nIn adopting the going concern basis for between 2 January 2026 and the date of this 1 T d h e e ri v v a a t lu iv e e s o f o i n s s r u e e p d a y b m o e n n d t n s o o t f e t s h r e e p fl r e in ct c s i p th al e a i m m o p u ac n t t o o f f\npreparing the consolidated and Company report. The share buybacks expected to be debt. The bonds mature by May 2028\nfinancial statements, the Directors have completed during the going concern period 2 The £2.5bn revolving credit facility matures in\nDecember 2030\nundertaken a review of the Group’s cash have been included in the going concern\nflow forecasts and available liquidity, along assessment in both the base case and Taking into account the maturity of these\nwith consideration of possible risks and downside forecast. borrowing facilities, the Group has committed\nuncertainties over an 18-month period from\nfacilities of at least £4.3bn available throughout\nthe balance sheet date to June 2027. The In reviewing the Group’s cash flow the period to 30 June 2027.\nDirectors have determined that the period to forecasts and available liquidity, the\nJune 2027 (‘the going concern period’) is an Directors have considered the current Conclusion\nappropriate timeframe over which to assess volatility in macroeconomic variables\nAfter reviewing the current liquidity position\ngoing concern as it considers the Group’s and an external environment that remains\nand the cash flows modelled under both\nshort to medium-term cash flow forecasts challenging, including geopolitical tensions,\nthe base case and downside forecasts, the\nand available liquidity. the uncertainty introduced by tariffs and\nDirectors consider that the Group has sufficient\nsupply chain challenges. The Directors\nliquidity to continue in operational existence\nForecasts continue to actively manage the potential\nover the going concern period to 30 June 2027\nRecognising the challenges of reliably impact of these factors on the Group’s cash\nand are therefore satisfied that it is appropriate\nestimating and forecasting the impact flow forecasts and available liquidity.\nto adopt the going concern basis of accounting\nof external factors on the Group, the\nin preparing the financial statements.\nDirectors have considered two forecasts In modelling both the base case and\nin their assessment of going concern, downside forecast, the repayment of a\nViability statement\nalong with a likelihood assessment of €750m bond that matured in February 2026\nThe viability assessment considers liquidity\nthese forecasts. The base case forecast and a £375m bond that is due to mature in\nover a longer period than the going concern\nreflects the Directors current expectations June 2026 have been assumed to be repaid\nassessment. Consistent with previous years,\nof future trading. A downside forecast has from cash in both the base case and\nwe evaluate viability over a five-year period,\nalso been modelled which envisages severe downside forecast.\nin line with the Group’s five-year planning\nbut plausible downside risks. Both forecasts\nprocess. We continue to believe that\nhave been modelled over the going The future impact of climate change on the\nthis is the most appropriate as, inevitably,\nconcern period. Group has been considered through climate\nthe degree of certainty reduces over any\nscenarios. The climate scenarios modelled do\nlonger timespan.\nThe Group’s base case forecast reflects the not have a material impact on either the base\nDirectors’ best estimation of how the business case or downside forecast over the going\nWe have created severe but plausible\nplans to perform over the going concern concern period. Further detail on these\nscenarios that estimate the potential impact\nperiod. Macro-economic assumptions have climate scenarios is set out on page 47.\nfrom certain principal risks arising over\nbeen modelled using externally available\nthe assessment period. Descriptions of our\ndata based on the most likely forecasts with Liquidity and borrowings principal risks and the controls in place to\ngeneral inflation at around 2%–3%, wage During 2025, the Group repaid a $1bn mitigate them can be found on pages 51 to 56.\ninflation at an average of 3%–4%, interest bond at its maturity in October. The Group\nrates at around 2%–4% and GDP growth at also repaid a €750m bond that matured Given our increased liquidity levels and\naround 2%–4%. in February 2026. The £2.5bn undrawn consistency in conclusions reached each\nrevolving credit facility was refinanced in year, we targeted those principal risks\nDecember 2025, extending the revolving that could have the most material impact\ncredit facility maturity to December 2030. on liquidity over the next five years and\nconfirmed these with relevant subject\nAt 31 December 2025, the Group had matter experts. The risks chosen and\nliquidity of £8.7bn including cash and scenarios used are as shown in the table\ncash equivalents of £6.2bn and undrawn on the following page.\nfacilities of £2.5bn. The going concern period\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 57\nSTRATEGIC\nREPORT\nGoing concern and viability statements", "char_count": 7741, "tables": [], "table_count": 0, "supplemental_text": [ "In adopting the going concern basis for 1 The value of issued bond notes reflects the impact of", "between 2 January 2026 and the date of this derivatives on repayments of the principal amount of" ], "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 60, "printed_page": 58, "section": "Strategic Report", "subsection": "Going concern and viability statements", "text": "GOING CONCERN AND VIABILITY STATEMENTS\nThe cash flow impacts of these scenarios 1. The Group is able to refinance maturing 4. That in the event of one or more risks\nwere overlaid on the five-year plan to assess debt facilities and draw down existing occurring which have a particularly\nhow the Group’s liquidity would be affected. available facilities as required. Debt severe effect on the Group’s liquidity,\nmaturities over the assessment period are all potential actions would be taken on\nThe scenarios assume an appropriate, £5.4bn (including the undrawn revolving a timely basis. These include, but are not\neffective management response to the credit facility of £2.5bn maturing by limited to, restricting capital and other\nspecific event and also considered specific December 2030), with new bonds expenditure to only committed and\nactivities to improve liquidity. These activities assumed to be issued as planned; essential levels, reducing or eliminating\ninclude raising additional funds, reducing discretionary spend, implementing pay\n2. The Group has access to global debt\nexpenditure and divesting parts of deferrals, raising additional funds through\nmarkets and expects to be able to\nour business. debt or equity raises, executing disposals,\nrefinance these debt facilities on\nundertaking further restructuring and\ncommercially acceptable terms;\nReverse stress testing was also performed pausing distributions.\nto assess the severity of scenarios that would 3. That implausible scenarios do not occur.\nhave to occur to exceed liquidity headroom. Implausible scenarios include either The Group believes it has the early\nThe outcomes of the stress tests were not multiple risks impacting at the same time warning mechanisms to identify the need\nconsidered plausible. or where management actions do not for such actions and, as demonstrated by\nmitigate an individual risk to the degree our decisive actions during and following\nBased on their assessment of prospects and assumed; and the pandemic, can implement them on a\nviability above, the Board confirms that it has timely basis if necessary.\na reasonable expectation that the Group will\nbe able to continue its operations and meet\nits liabilities as they fall due over the next five\nyears. In making this statement, the Directors\nhave made the following key assumptions:\nPRINCIPAL RISK SCENARIO ASSUMPTIONS AND IMPACTS\nSafety (product) Civil Aerospace product safety event resulting in aircraft being grounded, lower engine flying hour (EFH) revenues,\ncommercial penalties and additional costs (for example, unplanned shop visits). The grounding time and number of\nshop visits required to exceed headroom are considered remote.\nCompliance A compliance breach, including non-compliance to sovereign state requirements, resulting in fines and loss of sales\nwith governments and state-owned companies. The probability of triggering the size of fine required to exceed\nheadroom is considered remote.\nBusiness a) T he loss of a key element of our supply chain resulting in an inability to fulfil Civil Aerospace large engine orders\ninterruption for 12 months.\nb) A test bed event that disrupts US Defence deliveries.\nc) A n event in our Power Systems business that results in no deliveries over a period of time.\nThe extent of time over which orders cannot be fulfilled that would breach headroom is not considered plausible.\nBusiness A pandemic with similar impact to the COVID-19 pandemic with significant engine flying hour reduction in Civil\ninterruption Aerospace that require multiple years to recover to pre-pandemic levels and also impact on sales volumes especially\n– pandemic in Civil Aerospace and the Power Generation businesses. The extent of time over which orders cannot be fulfilled that\nwould breach headroom is not considered plausible.\nInformation & A cyber-attack resulting in loss and corruption of data and resulting in business disruption, loss of EFHs, compliance\ndata (cyber- concerns due to disclosure of data and potentially triggering debarment from government contracts. Our mitigating\nsecurity) actions were found to be sufficient to prevent a breach of headroom.\nPolitical Sanctions imposed, for example as a result of conflict between major trading blocs, resulting in supply chain\ndisruption and a loss of sales in impacted markets. Our mitigating actions were found to be sufficient to prevent a\nbreach of headroom.\n58 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4455, "tables": [], "table_count": 0 }, { "pdf_page": 61, "printed_page": 59, "section": "Strategic Report", "subsection": "Section 172 statement", "text": "Stakeholder considerations are integral to the Board’s discussions and our decisions\naim to promote our long-term success.\nOur section 172(1) statement (s172 statement) below sets out how the Directors have had regard to stakeholders in discharging their s172 duty.\nWe recognise that consideration of the broad range of our stakeholders during decision-making is essential for the long-term success of our\nbusiness and we aim to create value for our stakeholders and wider society by maintaining levels of business conduct that are aligned to our\npurpose, vision and behaviours. There may be situations in which the interests of certain stakeholders may be prioritised over others and we\nacknowledge that not all decisions will result in a positive outcome for all stakeholders. By having a consistent and purposeful process in place\nto consider a broad range of stakeholders, and the different interests and factors to be assessed, we aim to ensure that our decisions promote\nour long-term success.\nThis section should be read in conjunction with our Stakeholder engagement section from page 60 and Board focus, which contains\ninformation on the principal decisions made by the Board during 2025 and related outcomes, from page 71.\nSECTION 172 DUTY RELEVANT DISCLOSURE AND PAGE REFERENCE SECTION 172 DUTY RELEVANT DISCLOSURE AND PAGE REFERENCE\nThe likely Any decisions taken by the Board are expected The impact of our The Board recognises that any decisions taken must\nconsequences of to influence the Group’s long-term performance, operations on the give due consideration to how operations affect the\nBoard decision- resilience and ability to create sustainable value community and the wider community and the environment.\nmaking in the for shareholders and wider stakeholders. environment\nChief Executive’s review 6\nlong-term\nGroup at a glance 2 Our purpose, vision and behaviours 10\nChair’s statement 4 Our strategy 11\nChief Executive’s review 6 External environment 13\nOur purpose, vision and behaviours 10 Key performance indicators 16\nOur strategy 11 People and culture 31\nExternal environment 13 Sustainability 38\nBusiness model 14 Principal risks 48\nKey performance indicators 16 Safety, Energy Transition &\nFinancial review 19 Tech Committee report 110\nPrincipal risks 48\nGoing concern and viability statements 57 The desirability The Group is committed to doing business in\nChair’s introduction 63 of maintaining a the right way. When promoting the success of the\nRemuneration Committee report 82 reputation for high Group the Directors have regard to the desirability\nstandards of business of maintaining a reputation for high standards of\nThe interests of The Directors recognise that the success of our conduct business conduct.\nour employees business depends on attracting, retaining and\nOur Code, Group policies and Supplier Code of\nmotivating talented people. To that end, the\nConduct seek to ensure high standards are applied\nDirectors consider and assess the implications of\nacross our own operations and supply chain, and\ndecisions on our people where relevant and feasible.\ncan be found at www.rolls-royce.com\nOur people and product safety\nGroup at a glance 2\nperformance remains a high priority,\nChair’s statement 4\nalongside employee engagement.\nChief Executive’s review 6\nGroup at a glance 2 Our purpose, vision and behaviours 10\nChair’s statement 4 Our strategy 11\nChief Executive’s review 6 External environment 13\nOur purpose, vision and behaviours 10 Business model 14\nOur strategy 11 Key performance indicators 16\nKey performance indicators 16 Ethics and compliance 37\nPeople and culture 31 Non-financial and sustainability\nStakeholder engagement 60 information statement 38\nChair’s introduction 63 Principal risks 48\nRemuneration Committee report 82 Going concern and viability statements 57\nSafety, Energy Transition & Stakeholder engagement 60\nTech Committee report 110 Chair’s introduction 63\nBoard of Directors 64\nThe need to Delivering our strategy requires a strong,\nCorporate Governance 67\nfoster our business mutual and beneficial relationship with suppliers,\nNominations, Culture & Governance\nrelationships with customers and governments.\nCommittee report 76\nsuppliers, customers\nGroup at a glance 2 Audit Committee report 78\nand others\nChief Executive’s review 6 Remuneration Committee report 82\nOur purpose, vision and behaviours 10\nThe need to act After weighing up all relevant factors, the\nOur strategy 11\nfairly between Directors consider which course of action\nExternal environment 13\nshareholders best enables delivery of our strategy over the\nBusiness model 14\nlong term, taking into consideration the effect\nKey performance indicators 16\non the Group’s stakeholders.\nFinancial review 19\nEthics and compliance 37 Stakeholder engagement 60\nSustainability 38 Chair’s introduction 63\nPrincipal risks 48 Audit Committee report 78\nGoing concern and viability statements 57\nStakeholder engagement 60\nChair’s introduction 63\nRemuneration Committee report 82\nSafety, Energy Transition &\nTech Committee report 110\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 59\nSTRATEGIC\nREPORT\nSection 172 statement", "char_count": 5140, "tables": [], "table_count": 0, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 62, "printed_page": 60, "section": "Strategic Report", "subsection": "Stakeholder engagement", "text": "Stakeholder engagement\nConsistent communication with stakeholders is a priority for the Board and the Executive Team, who maintain regular touchpoints with\nstakeholders to keep apprised of their views and interests. The matters identified through this engagement influence Board decision-making\nin the short and medium-term and our long-term strategy. This section should be considered together with the s172 statement on page 59\nand Board focus from page 71.\nOUR PEOPLE CUSTOMERS\nWhy they matter Why they matter\nAt the heart of our business is the unrivalled dedication and technical The quality of the Group’s customer relationships, based on mutual trust\nexpertise of our people. With over 42,000 colleagues in varied roles worldwide, as well as our engineering expertise, are critical to the Group’s long-term\nengagement needs to be far reaching and accessible in order to ensure that our success. While our customers provide a sustainable revenue for the business,\npurpose, vision and behaviours are embedded in our culture. they also support our journey to becoming a lower-carbon business which is\nfirmly embedded in our strategy. By using our unique skills and expertise to\nHow we engaged\ndevelop innovative solutions we are helping the world do things tomorrow that\nIn 2025, employees were again given the opportunity to share their perspectives we cannot do today. We remain steadfast in delivering the technical solutions\non how the Group lives up to our behaviours, our strategy, performance and required to reduce the carbon emissions of the air transportation sector\nleadership via our annual survey – Our Voices: Big Picture. The results are through our work in developing advanced aircraft and propulsion technologies\nanonymised to encourage an open conversation, and people leaders receive that enable net zero carbon emissions while maintaining the safety and quality\nteam results to enable Winning Together conversations to make a difference. standards of our industry. This commitment underpins our strategy and ensures\nA further pulse survey – Our Voices: In Focus, is used to check on how it feels to that our innovation aligns with the evolving needs of the markets in which\nwork at Rolls-Royce and whether there is clarity to deliver the strategy. The output we operate.\nof the survey supports the formation of focus groups to explore high-impact topics\nHow we engaged\nand big themes, enabling a better understanding of perspectives.\nThroughout the year, the Chief Executive and Executive Team continued to\nOur Executive Team regularly host live events in the form of townhalls engage directly with customers at major industry events and strategic forums,\nand ‘ET Teams Talks’ where all colleagues can hear about our progress and including at the premier aerospace event of 2025, the Paris Air Show. These\nhave open, honest conversations about topics that matter most. This was discussions focused on opportunities to re-enter the narrowbody market,\nan opportunity to communicate directly with the Chief Executive and the improvements to time on wing and overall operational efficiency.\nExecutive Team, part of our commitment to engage, listen and act on feedback.\nTo ensure we deliver with urgency to armed forces around the world, our\nDuring 2025, our Employee Champions, Bev Goulet and Wendy Mars, Defence team engages regularly with our global Defence customers, including\ncontinued to represent the voice of our people in the boardroom. The at events like the Association of the United States Army (AUSA) Annual Meeting\nEmployee Champions, supported by our Employee Stakeholder Engagement & Exposition in North America and Defence and Security Equipment\nGroup, provide regular feedback to the Board on topics of interest and/or International (DSEI) in the UK.\nconcern. This provides a valuable link between our people and our Directors.\nAt every meeting, the Board receives operational updates, including feedback\nWe believe that these methods of engagement with our people are effective in\non customer interactions, across all the divisions. This greatly influences the\nbuilding and maintaining trust and communication while providing colleagues\nBoard’s deliberations and its support for the Executive Team when considering\nwith a forum to influence change in relation to matters that affect them.\nopportunities and risks and our strategy.\nSite visits remain an important opportunity for Board members to gain a deeper\nEngagement outcomes\nunderstanding of how the different divisions operate, and to meet individuals\nfrom those divisions. More information about the Board’s site visits can be found Customer insights and operational updates significantly influence the Chief\non page 70. Executive and Executive Team’s deliberations on the execution of our strategy.\nThese engagements strengthen partnerships, guide investment priorities, and\nEngagement outcomes ensure alignment with our sustainability and growth objectives.\nWe believe that when we feel we belong, we are at our best for each other, our\nS ee from page 6\nbusiness and our customers, and this starts with how we treat each other every Chief Executive’s review\nday. Building on the 2024 launch of our new purpose, vision and behaviours, in\n2025, we introduced three new ways to make belonging a lived reality for our S ee from page 25\nemployees. These include: Our divisions\n— a Global Equal Employment Opportunity Policy, which outlines how we expect\npeople to behave towards each other, how we make people decisions and SUPPLIERS\nour zero-tolerance approach to discrimination. The principles of our Policy\napply not only to employees, but also to our visitors, customers, suppliers and AND PARTNERS\nformer employees;\n— the Global Belonging Forum is sponsored by our people committee and\nWhy they matter\nchaired by our Chief People Officer. This senior leadership forum is dedicated\nto embedding a culture of belonging across the Group; and Maintaining healthy, long-term relationships with our suppliers helps us to\nprotect business continuity and achieve our environmental ambitions. Strong\n— the Employee Voice Network is open to all colleagues to bring individual supplier relationships ensure sustainable high-quality delivery for the benefit\nperspectives, passions and personalities together to connect, discuss and of all stakeholders.\nproblem solve.\nHow we engaged\nMany of our people are also our shareholders and we encourage their The interests of both our suppliers and partners are a high priority for the\nparticipation in a variety of share plans. Following the gift to all colleagues Group and inform discussions and decisions on our manufacturing strategy\nof 150 Rolls-Royce shares (or cash equivalent where share allotment was not and when reviewing specific projects. The Board supports our Executive\npermitted) in 2024, these gifted shares vested for colleagues in the Global Team, who work collaboratively with our suppliers and partners, to continue\nEmployee Share Purchase Plan (GESPP) in September 2025. Additionally, we to improve operational performance through various means.\nsuccessfully launched Your Shares: Matched in 2025, a new global all-employee\nshare purchase and match plan, where all participants receive a 1:1 match on their Engagement outcomes\ninvestment up to a maximum of £50 per month. The Board received updates from the business on supplier performance and\ncontinued supply chain challenges. During 2025, discussions took place on\nS ee from page 6\nChief Executive’s review how we are mitigating supply chain risks by helping our suppliers across the\naerospace supply chain.\nS ee from page 31\nPeople and culture We are supporting our partners in several ways, including with a dedicated and\nresourced taskforce which is focused on supply chain challenges impacting the\nSee from page 76 Trent 1000 engine.\nNominations, Culture & Governance Committee report\nS ee from page 6\nSee from page 82 Chief Executive’s review\nRemuneration Committee report\nSee from page 25\nOur divisions\n60 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 8060, "tables": [ [ [ "OUR PEOPLE", null ], [ "Why they matter At the heart of our business is the unrivalled dedication and technical expertise of our people. With over 42,000 colleagues in varied roles worldwide, engagement needs to be far reaching and accessible in order to ensure that our purpose, vision and behaviours are embedded in our culture. How we engaged In 2025, employees were again given the opportunity to share their perspectives on how the Group lives up to our behaviours, our strategy, performance and leadership via our annual survey – Our Voices: Big Picture. The results are anonymised to encourage an open conversation, and people leaders receive team results to enable Winning Together conversations to make a difference. A further pulse survey – Our Voices: In Focus, is used to check on how it feels to work at Rolls-Royce and whether there is clarity to deliver the strategy. The output of the survey supports the formation of focus groups to explore high-impact topics and big themes, enabling a better understanding of perspectives. Our Executive Team regularly host live events in the form of townhalls and ‘ET Teams Talks’ where all colleagues can hear about our progress and have open, honest conversations about topics that matter most. This was an opportunity to communicate directly with the Chief Executive and the Executive Team, part of our commitment to engage, listen and act on feedback. During 2025, our Employee Champions, Bev Goulet and Wendy Mars, continued to represent the voice of our people in the boardroom. The Employee Champions, supported by our Employee Stakeholder Engagement Group, provide regular feedback to the Board on topics of interest and/or concern. This provides a valuable link between our people and our Directors. We believe that these methods of engagement with our people are effective in building and maintaining trust and communication while providing colleagues with a forum to influence change in relation to matters that affect them. Site visits remain an important opportunity for Board members to gain a deeper understanding of how the different divisions operate, and to meet individuals from those divisions. More information about the Board’s site visits can be found on page 70. Engagement outcomes We believe that when we feel we belong, we are at our best for each other, our business and our customers, and this starts with how we treat each other every day. Building on the 2024 launch of our new purpose, vision and behaviours, in 2025, we introduced three new ways to make belonging a lived reality for our employees. These include: — a Global Equal Employment Opportunity Policy, which outlines how we expect people to behave towards each other, how we make people decisions and our zero-tolerance approach to discrimination. The principles of our Policy apply not only to employees, but also to our visitors, customers, suppliers and former employees; — the Global Belonging Forum is sponsored by our people committee and chaired by our Chief People Officer. This senior leadership forum is dedicated to embedding a culture of belonging across the Group; and — the Employee Voice Network is open to all colleagues to bring individual perspectives, passions and personalities together to connect, discuss and problem solve. Many of our people are also our shareholders and we encourage their participation in a variety of share plans. Following the gift to all colleagues of 150 Rolls-Royce shares (or cash equivalent where share allotment was not permitted) in 2024, these gifted shares vested for colleagues in the Global Employee Share Purchase Plan (GESPP) in September 2025. Additionally, we successfully launched Your Shares: Matched in 2025, a new global all-employee share purchase and match plan, where all participants receive a 1:1 match on their investment up to a maximum of £50 per month. S ee from page 6 Chief Executive’s review S ee from page 31 People and culture See from page 76 Nominations, Culture & Governance Committee report See from page 82 Remuneration Committee report", null ], [ null, null ] ], [ [ "CUSTOMERS", null ], [ "Why they matter The quality of the Group’s customer relationships, based on mutual trust as well as our engineering expertise, are critical to the Group’s long-term success. While our customers provide a sustainable revenue for the business, they also support our journey to becoming a lower-carbon business which is firmly embedded in our strategy. By using our unique skills and expertise to develop innovative solutions we are helping the world do things tomorrow that we cannot do today. We remain steadfast in delivering the technical solutions required to reduce the carbon emissions of the air transportation sector through our work in developing advanced aircraft and propulsion technologies that enable net zero carbon emissions while maintaining the safety and quality standards of our industry. This commitment underpins our strategy and ensures that our innovation aligns with the evolving needs of the markets in which we operate. How we engaged Throughout the year, the Chief Executive and Executive Team continued to engage directly with customers at major industry events and strategic forums, including at the premier aerospace event of 2025, the Paris Air Show. These discussions focused on opportunities to re-enter the narrowbody market, improvements to time on wing and overall operational efficiency. To ensure we deliver with urgency to armed forces around the world, our Defence team engages regularly with our global Defence customers, including at events like the Association of the United States Army (AUSA) Annual Meeting & Exposition in North America and Defence and Security Equipment International (DSEI) in the UK. At every meeting, the Board receives operational updates, including feedback on customer interactions, across all the divisions. This greatly influences the Board’s deliberations and its support for the Executive Team when considering opportunities and risks and our strategy. Engagement outcomes Customer insights and operational updates significantly influence the Chief Executive and Executive Team’s deliberations on the execution of our strategy. These engagements strengthen partnerships, guide investment priorities, and ensure alignment with our sustainability and growth objectives. S ee from page 6 Chief Executive’s review S ee from page 25 Our divisions", null ] ], [ [ "SUPPLIERS AND PARTNERS", null ] ] ], "table_count": 3 }, { "pdf_page": 63, "printed_page": 61, "section": "Strategic Report", "subsection": "Stakeholder engagement", "text": "STAKEHOLDER ENGAGEMENT\nCOMMUNITIES INVESTORS\nWhy they matter Why they matter\nWe believe that thriving communities are a foundation of our long-term A resilient investor base and ongoing access to capital are essential to the\nsuccess. Our commitment goes beyond business. We are dedicated to forging Group’s long-term success. This relies on us providing existing and prospective\nstrong, progressive relationships with the communities where we operate. shareholders with a clear and comprehensive understanding of our business,\nWe understand that our success is closely linked to the economic prosperity including our strategy, growth opportunities, risks and overall performance,\nand wellbeing of our local communities. That is why we invest in powerful to support informed investment decisions.\npartnerships and local initiatives that create meaningful, measurable impact\nHow we engaged\nwhere it matters most.\nThe investor relations team is the key interface between the investment\nHow we engaged community and the Board, providing frequent dialogue and feedback. The Chair\nWe take a proactive approach to community engagement, driven by open and members of the Board make themselves available to meet with institutional\ndialogue, active listening, and genuine collaboration. By working closely with investors and seek to understand the issues that matter most to them. In addition,\ncommunity leaders, social partners, and local organisations, we ensure our the Chief Executive and Chief Financial Officer, supported by members of the\nefforts are aligned with the unique needs and aspirations of each location. Executive Team and the investor relations team, interact regularly with investors,\nOur investments in education and skills outreach, charitable sponsorships principally after our financial results, and at conferences.\nand donations, and encouragement of employee volunteering are designed\nOur engagement with institutional investors has continued throughout the\nto create lasting value and promote sustainable development. We empower\nyear, including meeting with investors on post-results roadshows across\nour people to make a difference, enabling them to share their expertise, learn\nLondon, UK and Boston, New York and Los Angeles, US. Key investor\nfrom others, and drive positive change both within our business and in the\nconferences during the year included the Bank of America Global Industrials\ncommunities around us. Together, we define objectives and develop initiatives\nConference (UK), the Jefferies Industrials Conference (US) and the Goldman\nthat deliver tangible benefits for both our communities and our Group.\nSachs Industrials Conference (UK).\nEngagement outcomes\nThe AGM held at the Rolls-Royce Learning and Development Centre in Derby,\nOur people are the driving force behind our community programmes, UK, in May provided retail shareholders with the opportunity to engage directly\ncontributing 72,163 hours (2024: 58,785) to community investment and with Board members.\neducation outreach in 2025, a testament to our growing impact. Our global\nSTEM ambassador network continues to inspire the next generation, with During 2025, the Chair of the Remuneration Committee, members of\naround 1,700 accredited ambassadors in the UK alone this year, igniting management and the Chief Governance Officer engaged with shareholders\ncuriosity and ambition in young people worldwide. We continue to expand and proxy advisers to seek support for our remuneration policy proposals.\nour global STEM ambassador network.\nEngagement outcomes\nSee from page 31\nPeople and culture Our largest shareholders have remained broadly consistent over the past\nyear, reinforcing our view that our investors continue to be supportive of\nSee from page 38 our transformation programme and strategy. Furthermore, our strong growth\nSustainability prospects to the mid-term and beyond continue to attract new investors.\nSee from page 11\nOur strategy\nGOVERNING BODIES\nSee from page 82\nAND REGULATORS Remuneration Committee report\nWhy they matter\nThe Board recognises the importance of governments and regulators as key\nstakeholders, customers, funders and supporters of our global trading activity.\nHow we engaged\nDuring 2025, the Chair and Chief Executive held meetings with country\nleaders, ministers and senior officials from governments around the world.\nAreas of engagement included civil and defence nuclear via SMR and AUKUS,\ncivil and combat air capability including civil aero engine development and\nexports, sales of the EJ200 engine and the Global Combat Air Programme\n(GCAP), and our power-generation solutions for existing and fast-growing\nmarkets including data centres. These engagements help strengthen our\nrelationships with key markets including but not limited to the UK, US, EU\nand member states, India, and the Kingdom of Saudi Arabia.\nThe General Counsel provides regular updates to the Board on\ncompliance with regulation impacting our licence to operate. The\nBoard is updated on engagement with tax authorities and the related\nregulatory landscape.\nEngagement outcomes\nEngagement has focused on delivering the Group priorities and strategic\ninitiatives, including growing our defence offer in and with countries around\nthe world, keeping our civil engines earning with existing and new customers,\nstrengthening our global MRO capability, and seeking to secure new markets\nacross all our core businesses and through Rolls-Royce SMR.\nStrategic Report signed on behalf of the Board\nSee from page 25\nOur divisions\nTufan Erginbilgic\nSee page 37 Chief Executive\nEthics and compliance\n26 February 2026\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 61\nSTRATEGIC\nREPORT", "char_count": 5678, "tables": [ [ [ "COMMUNITIES", null ] ], [ [ "INVESTORS", null ], [ "Why they matter A resilient investor base and ongoing access to capital are essential to the Group’s long-term success. This relies on us providing existing and prospective shareholders with a clear and comprehensive understanding of our business, including our strategy, growth opportunities, risks and overall performance, to support informed investment decisions. How we engaged The investor relations team is the key interface between the investment community and the Board, providing frequent dialogue and feedback. The Chair and members of the Board make themselves available to meet with institutional investors and seek to understand the issues that matter most to them. In addition, the Chief Executive and Chief Financial Officer, supported by members of the Executive Team and the investor relations team, interact regularly with investors, principally after our financial results, and at conferences. Our engagement with institutional investors has continued throughout the year, including meeting with investors on post-results roadshows across London, UK and Boston, New York and Los Angeles, US. Key investor conferences during the year included the Bank of America Global Industrials Conference (UK), the Jefferies Industrials Conference (US) and the Goldman Sachs Industrials Conference (UK). The AGM held at the Rolls-Royce Learning and Development Centre in Derby, UK, in May provided retail shareholders with the opportunity to engage directly with Board members. During 2025, the Chair of the Remuneration Committee, members of management and the Chief Governance Officer engaged with shareholders and proxy advisers to seek support for our remuneration policy proposals. Engagement outcomes Our largest shareholders have remained broadly consistent over the past year, reinforcing our view that our investors continue to be supportive of our transformation programme and strategy. Furthermore, our strong growth prospects to the mid-term and beyond continue to attract new investors. See from page 11 Our strategy See from page 82 Remuneration Committee report", null ] ], [ [ "GOVERNING BODIES AND REGULATORS", null ], [ "Why they matter The Board recognises the importance of governments and regulators as key stakeholders, customers, funders and supporters of our global trading activity. How we engaged During 2025, the Chair and Chief Executive held meetings with country leaders, ministers and senior officials from governments around the world. Areas of engagement included civil and defence nuclear via SMR and AUKUS, civil and combat air capability including civil aero engine development and exports, sales of the EJ200 engine and the Global Combat Air Programme (GCAP), and our power-generation solutions for existing and fast-growing markets including data centres. These engagements help strengthen our relationships with key markets including but not limited to the UK, US, EU and member states, India, and the Kingdom of Saudi Arabia. The General Counsel provides regular updates to the Board on compliance with regulation impacting our licence to operate. The Board is updated on engagement with tax authorities and the related regulatory landscape. Engagement outcomes Engagement has focused on delivering the Group priorities and strategic initiatives, including growing our defence offer in and with countries around the world, keeping our civil engines earning with existing and new customers, strengthening our global MRO capability, and seeking to secure new markets across all our core businesses and through Rolls-Royce SMR. See from page 25 Our divisions See page 37 Ethics and compliance", null ] ] ], "table_count": 3, "rotated_text": [ "STRATEGIC REPORT" ] }, { "pdf_page": 64, "printed_page": 62, "section": "Strategic Report", "subsection": "Stakeholder engagement", "text": "GOVERNANCE\nREPORT\nChair’s introduction 63\nBoard of Directors 64\nCompliance with the Code 66\nCorporate governance 67\nExecutive Team 74\nCommittee reports 76\n• Nominations, Culture & Governance 76\n• Audit 78\n• Remuneration 82\n• Remuneration policy 88\n• Remuneration report 100\n• Safety, Energy Transition & Tech 110\nResponsibility statements 111\n62 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 389, "tables": [], "table_count": 0 }, { "pdf_page": 65, "printed_page": 63, "section": "Governance Report", "subsection": "Chair's introduction", "text": "Chair’s introduction\n— first, the Meet the Board events which, in\n2025, were held in Derby, UK in May and\nDame Anita Frew\nin Dahlewitz, Germany in October. These\nChair\nevents allow our people across the business\nto engage directly with the Board Directors,\nencouraging open dialogue on issues\nthat matter to them. They also provide an\nopportunity for my Board colleagues to\nshare their personal reflections with our\npeople and to recognise the commitment\nand contribution which our people make\nevery day to the success of Rolls-Royce; and\n— second, our Employee Champions, Bev\nGoulet and Wendy Mars, play a critical role\nin reaching out to our people. Through site\nvisits and engagement forums, they gather\nfeedback and ensure that any concerns\nare raised with management and in the\nboardroom. Read more about the work of\nour Employee Champions on page 77.\nMembers of the SETT Committee also\nengaged with our people on a visit to our\nDefence site at Bristol, UK in September\n(see page 70 for more information).\nIn 2025, we introduced our new People Deal\nIn 2025, our governance framework, including our which is described in more detail in People\nand culture from page 31. During 2026, my\napproach to leadership, oversight and accountability, Board colleagues and I look forward to meeting\nmany more of our people and supporting\nenabled the Board to continue to guide the successful\nthem in their understanding of how we\ntransformation of the Group. work together to enable a high-performance\nculture which supports the delivery of our\nstrategy for all our stakeholders.\nOur shareholders\nAs Chair of the Board, I am pleased to The Remuneration Committee retained its During the year, I met with several of our\nintroduce our Governance report for 2025. At focus on ensuring that our remuneration major institutional investors to understand\nRolls-Royce, we believe that good governance arrangements are appropriate in the context of their views of Rolls-Royce.\nis the foundation of sustainable success. our business performance. A full report of the\nIn the autumn, Lord Jitesh, Chair of the\nRemuneration Committee’s activities during\nRemuneration Committee, engaged with\nAs a Board, we are committed to ensuring that the year can be found from page 82.\nmany of our major shareholders on the\nour governance framework evolves to meet\nchanges proposed to our remuneration\nthe regulatory requirements and to uphold the Board effectiveness\npolicy. See page 88 for more information\nhighest possible standards of transparency and We have undertaken a review of the\nabout these proposals.\nstewardship relevant to the Group. performance of the Board and its Committees\nin 2025 to enable us to continuously improve as In May, we held our 2025 AGM. Our fully hybrid\nOur focus in 2025 a Board. Areas for focus in 2026 were identified format allowed shareholders to participate\nIn 2025, the Safety, Energy Transition & Tech for the Board and its Committees. You can read virtually or in person. This approach reflects\n(SETT) Committee expanded its remit to include about these on page 73 and in the individual our commitment to leverage technology\ncyber-security and held a deep dive into our Committee reports. to strengthen engagement and create\ncyber-security maturity and preparedness opportunities for shareholders to connect\nwhich was attended by all Board members. A Engaging with our stakeholders directly with the Board. We will use this hybrid\nfull report of the SETT Committee’s activities We take every opportunity to engage format again for our 2026 AGM to be held on\nduring the year is set out on page 110. with our stakeholders where appropriate to 30 April 2026. I look forward to engaging with\nremain updated on their views and interests. our shareholders at this time. Details of the\nAt the Nominations, Culture & Governance Once again, our engagement has influenced AGM will be available to our shareholders in\nCommittee, we are regularly updated on the Board over the course of the year in our mid-March 2026.\nthe succession pipeline and associated discussions and decision-making. During\nLooking forward\ndevelopment initiatives for our senior leaders. In 2025, there were many opportunities for my\nThe Board’s focus for 2026 will again include\n2025, this included insights from our enterprise- Board colleagues to engage with our people\nsuccession planning for those Non-Executive\nwide talent and leadership system. A full report and our shareholders, which I have described\nDirectors who are due to retire in the near term.\nof the Nominations, Culture & Governance below. Our stakeholder engagement report\nWe will also focus on talent and development\nCommittee can be found from page 76. from page 60 provides more detail.\nmore broadly within the organisation in support\nof our strategy.\nDuring the year, the Audit Committee Our people\nconsidered regular reports on our preparations My fellow Directors and I particularly I would like to thank my fellow Directors\nfor the introduction of provision 29 of the 2024 enjoy the opportunities we have to visit our for their strong commitment and thoughtful\nUK Corporate Governance Code. A full report facilities and to engage with and hear directly counsel as we navigated the challenges and\nof the Audit Committee’s activities during the from our people across the Group. We have opportunities of 2025, and I look forward to\nyear can be found from page 78. two dedicated initiatives which support the working with them as the transformation of\nBoard’s understanding of the experience of Rolls-Royce continues in 2026.\nour employees:\nDame Anita Frew\nChair\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 63\nGOVERNANCE\nREPORT", "char_count": 5671, "tables": [ [ [ "Dame Anita Frew Chair", null, null, null, null ], [ null, null, null, null, null ], [ null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 66, "printed_page": 64, "section": "Governance Report", "subsection": "Board of Directors", "text": "Board of Directors\nPosition Board skills and competencies Key external appointments\nDAME ANITA FREW Dame Anita brings a wealth of extensive leadership Past\nChair of the Board and global experience from more than two decades of — Industrial strategy advisory\nboard appointments, both in the UK and internationally. council (UK Government),\nN Together, with her skills and reputation with investors member\nand government institutions, her broad knowledge — Croda International plc, Chair\nof strategic management across a range of sectors\nis invaluable to the Board and the Group as a whole.\nAppointed to the Board\non 1 July 2021 and as Chair\non 1 October 2021\nTUFAN ERGINBILGIC Tufan is a proven leader of winning teams within Current\nChief Executive complex multinational organisations, with over six — Iveco Group NV, NED\nyears as CEO of BP’s downstream business. He drives Past\na high-performance culture and delivers results for — UK Prime Minister’s 2024\ninvestors. He has extensive strategic and operational Business Council\nexperience and a firm understanding of safety critical — Global Infrastructure Partners,\nindustries as well as the challenges and commercial Partner & senior adviser\nAppointed to the Board\nopportunities presented by the drive for low-carbon — BP p.l.c., various executive roles\non 1 January 2023\ntechnologies. Tufan has a strong track record for — DCC plc, NED\nexecution, delivery and the creation of significant — Türkiye Petrol Rafinerileri A.S,\nvalue and an ambition to deliver the full potential of NED\nour market positions. — GKN plc, NED\nHELEN MCCABE Helen has a track record of promoting rigorous Past\nChief Financial Officer financial discipline and her experience of delivering — BP p.l.c., various leadership\neffective performance management within complex roles\nmultinational engineering organisations is invaluable\nas the Group moves, at pace, to transform Rolls-Royce.\nHelen brings extensive experience and in-depth financial\nunderstanding to the Executive Team and the Board.\nAppointed to the Board\non 4 August 2023\nGEORGE CULMER George has a strong track record as a senior finance Current\nSenior Independent professional with significant experience gained in — Aviva plc, Chair\nNon-Executive Director large, international, highly regulated groups with high Past\ncyber-threat profiles and has proven business leadership — Lloyds Banking Group plc,\nN A R credentials. With this experience, together with his Chief Financial Officer\nstrengths in change leadership and transformation — RSA Insurance Group plc,\ngained from within complex groups, George makes Chief Financial Officer\nAppointed to the Board\na significant contribution to the Board.\non 2 January 2020\nBIRGIT BEHRENDT Birgit brings deep experience across global procurement Current\nIndependent and supply chain management to the Board. Alongside — Umicore SA, NED\nNon-Executive Director this, she has significant insight into the development and — Thyssenkrupp AG, NED\nmanagement of international joint ventures (JVs), having — KION Group AG, NED\nN S led Ford’s key European JVs. She also has a strong track — Infinium Holdings, Inc., NED\nrecord and an ongoing interest in developing, mentoring — Stulz Verwaltungs-GmbH & Co.\nand coaching key talent and encouraging women in KG, adviser\nAppointed to the Board\nparticular to consider a career in STEM. She has worked Past\non 11 May 2023\nin the US and Germany and brings deep experience of — Ford, various executive roles\nworking with unions and works councils. — Ford-Werke GmbH, NED\nSTUART BRADIE Stuart brings to the Board a reputation for Current\nIndependent building strong relationships and successfully — KBR, Inc., Chair, President &\nNon-Executive Director driving comprehensive organisational transformation. Chief Executive\nOver the past 11 years, Stuart has guided KBR’s\nN R S evolution, prioritising a focus on people alongside\nstrong commercial discipline. KBR delivers disruptive\ntechnologies and digital solutions that address areas\nAppointed to the Board\nof global importance. Stuart has used a safety and ESG\non 11 May 2023\nfocus to deliver cultural change and helped make KBR\nthe number one in its peer group in delivering against\nits ESG agenda.\nCommittee membership\nN Nominations, Culture & Governance A Audit R Remuneration S Safety, Energy Transition & Tech Denotes Chair\n64 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4392, "tables": [], "table_count": 0 }, { "pdf_page": 67, "printed_page": 65, "section": "Governance Report", "subsection": "Board of Directors", "text": "BOARD OF DIRECTORS\nPosition Board skills and competencies Key external appointments\nLORD JITESH GADHIA Lord Jitesh brings a wealth of complex advisory and Current\nIndependent transactional experience to the Board, having spent nearly — Taylor Wimpey plc, SID\nNon-Executive Director 25 years in the banking and private equity sector. He has — Intas Pharmaceuticals, NED\nextensive remuneration experience, earned from listed — Court of Directors of the\nR N A companies, UK Government Investments and UK Financial Bank of England, NED\nInvestments, where he played a key role in compensation Past\ndiscussions about the Government’s investments in some — Compare the Market Limited,\nAppointed to the Board\nof the UK’s biggest companies. This, together with his NED\non 1 April 2022\nbroad industry experience, is an asset to the Board and — UK Government Investments,\nits Committees. NED\n— Blackstone Group,\nSenior MD\nBEVERLY GOULET Having spent many years in the airline industry, Bev brings Current\nIndependent valuable knowledge and operational experience to the — Xenia Hotels & Resorts, Inc.,\nNon-Executive Director Board. The Board benefits from her deep understanding NED\nRolls-Royce North America of the aerospace industry and strategic focus. — Answer ALS Foundation,\nHoldings Inc., board member Foundation Board Chair\nLead Employee Champion In addition, Bev’s position as a board member of Past\nRolls-Royce North America Holdings Inc., continues to — American Airlines, Inc.,\nN A R provide an invaluable link for the Board to our operations various executive roles\nin the US. — American Airlines Federal\nAppointed to the Board Credit Union, Chair\non 3 July 2017 — Atlas Air Worldwide Holdings,\nInc., NED\nNICK LUFF Nick is an experienced finance executive having been Current\nIndependent chief financial officer of a number of listed companies — RELX plc, Chief Financial\nNon-Executive Director across a variety of industries. He has broad financial skills Officer\nand a track record of driving business performance. His Past\nA N extensive non-executive and audit committee experience, — Centrica plc, Chief Financial\ntogether with both financial and accounting expertise and Officer\na passion for engineering, is crucial in his role as Chair of — Lloyds Banking Group plc,\nAppointed to the Board\nthe Audit Committee and is invaluable to the Board. NED\non 3 May 2018\n— QinetiQ Group plc, NED\nWENDY MARS As a leader, Wendy has overseen diverse teams across Past\nIndependent sales, engineering and innovation in 123 countries. She brings — Cisco Systems, Inc., President\nNon-Executive Director experience and insight across hardware, software and services Europe, Middle East and\nEmployee Champion with a deep understanding of technological transformation Africa region\nof complex global organisations. Wendy’s knowledge of — ThruPoint, Inc., various\nS N R both the technical steps needed to foster innovation in a executive roles\ntechnology company as well as the challenging realities of\nits implementation in organisations at different stages of their\ntransformation journey is invaluable to the Board and the Group\nAppointed to the Board as a whole. Technology can play a significant role in helping\non 8 December 2021 businesses to achieve their sustainability objectives; Wendy\nbrings this experience to the Board.\nPAULO CESAR SILVA Paulo has deep expertise in the aerospace industry, Current\nIndependent a broad international mindset and an appetite for growth, — Electra.Aero, adviser\nNon-Executive Director change and innovation. Alongside this, he brings a wealth Past\nof strategic, commercial and operational experience to — Embraer S.A., President &\nN A S the Board’s discussions. He also has considerable finance Chief Executive Officer\nexperience having spent his early career in senior — Cemig, NED\nfinance roles. — Grupo Aguia Branca SA,\nAppointed to the Board\nBoard member\non 1 September 2023\n— Petrobas SA, NED\nDAME ANGELA STRANK Dame Angela brings a wealth of corporate business Current\nIndependent experience to the Board and a proven track record in — Mondi plc, NED\nNon-Executive Director managing engineering operations and driving technology, — SSE plc, NED\nscience and engineering research programmes. Having — Rio Tinto, innovation advisory\nN S actively worked in climate research, the low carbon transition, committee\nand pioneering women in STEM careers, sustainability and Past\ncorporate ethics are key areas of interest. As a member of the — Severn Trent plc, NED\nAppointed to the Board\nSafety, Energy Transition & Tech Committee, Dame Angela — BP p.l.c., various executive\non 1 May 2020\nbrings invaluable expertise to the Group’s development of its roles\nsafety and sustainability strategy, drawing on her experience\nfrom chairing the sustainability and safety committees of\nthree other FTSE 100 companies.\nCommittee membership\nN Nominations, Culture & Governance A Audit R Remuneration S Safety, Energy Transition & Tech Denotes Chair\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 65\nGOVERNANCE\nREPORT", "char_count": 5031, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 68, "printed_page": 66, "section": "Governance Report", "subsection": "Compliance with the Code", "text": "Compliance with the Code\nCOMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE\nThe Company is subject to the principles and provisions of the 2024 UK Corporate Governance Code (excluding provision 29 which is\napplicable for accounting periods beginning on or after 1 January 2026) (the Code), and provision 29 of the 2018 UK Corporate Governance\nCode (the 2018 Code, together, the Codes). Copies of the Codes are available at www.frc.org.uk. For the year ended 31 December 2025, the\nBoard considers that it has applied the principles and complied in full with the provisions of the Codes applicable for 2025. Further information\non our preparation for the application of provision 29 of the 2024 UK Corporate Governance Code is available on page 50.\nBoard leadership — Our Board comprises a diverse group of skilled and experienced individuals who, See page 10\nand company through a programme of regular meetings and site visits, promote the long-term Our purpose,\nvision and\npurpose sustainable success of the Group through the decisions they take behaviours\n— Our Governance report from page 63 provides examples of our leadership and our See from page 60\nstakeholder engagement report from page 60 sets out how we have engaged with our Stakeholder\nkey stakeholders engagement\nSee from page 64\n— Throughout the year, the Board has provided oversight of the ongoing Group-wide\nBoard of Directors\ntransformation programme\nSee from page 71\nBoard focus\nDivision of — We clearly define the roles of the Chair and the Chief Executive and fully support the See from page 64\nresponsibilities separation of the two roles Board of Directors\nSee from page 76\n— The Board believes it operates effectively with the appropriate balance of independent\nNominations,\nNon-Executive Directors and Executive Directors Culture &\nGovernance\n— The Board regularly considers the time commitments of our Non-Executive Directors Committee report\n— Prior Board approval is required for any Director’s external appointments to ensure\nthere is no conflict or compromise on their time\n— The quality of information and resources available to the Board has enabled us to\noperate effectively and efficiently throughout the year\nComposition, — Our Board comprises a combination of broad skills, experience and knowledge See from page 64\nBoard of Directors\nsuccession\n— We have a clear process when considering appointments to the Board and maintain\nand evaluation See page 69\neffective succession planning\nComposition of\nthe Board\n— For 2025, we carried out an internal evaluation of the Board and its Committees,\nsupported by Independent Audit Ltd. The methodology and outcomes can be found See page 73 Board\non page 73 effectiveness\nAudit, risk and — We recognise the importance and benefits of ensuring the internal audit function and See from page 48\ninternal control the external auditors remain independent Principal risks\nSee from page 78\n— The Board presents a fair, balanced and understandable assessment of the Group’s\nAudit Committee\nposition and its prospects report\n— Our risk and control environment is reviewed by the Audit Committee. The Board See page 110\nconsidered both emerging and principal risks during the year Safety, Energy\nTransition & Tech\n— The Audit Committee looked at preparations for provision 29 of the 2024 UK Corporate Committee report\nGovernance Code See page 111\nResponsibility\n— The Safety, Energy Transition & Tech Committee considered the information and data statements\nprincipal risk, which forms part of the Committee’s review of business interruption and\ncyber-security\nRemuneration — The Remuneration Committee, comprising only Non-Executive Directors, is responsible See from page 82\nfor developing the remuneration policy and determining executive and senior Remuneration\nCommittee report\nmanagement remuneration\n— The Remuneration Committee carried out a review in July 2025 of the performance of\nWTW as the independent adviser to the Committee.\n— No Director is involved in deciding their own remuneration outcome\n— The Remuneration Committee Chair and members of management engaged with\ninvestors in the autumn of 2025 on the new remuneration policy proposed in this\nAnnual Report for approval by shareholders at the 2026 AGM\n66 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4285, "tables": [ [ [ "COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 69, "printed_page": 67, "section": "Governance Report", "subsection": "Corporate governance", "text": "Corporate governance\nChair\nNominations, Culture & Remuneration Committee\nGovernance Committee\nBoard\nSafety, Energy Transition\nAudit Committee & Tech Committee\nChief Executive\nExecutive Team\nTHE ROLE OF THE BOARD\nThe Board is ultimately responsible to shareholders for the In addition to the Board’s principal Committees, it has established\nleadership, direction, performance and long-term sustainable a sub-Committee of Directors who each hold an appropriate level\nsuccess of the Group. It sets the Group’s strategy and objectives of UK national security clearance for the purpose of receiving and\nand oversees and monitors internal controls, risk management, considering, on behalf of the Board, any UK classified information\nprincipal risks, governance and viability of the Group. In doing so, relating to the Group’s programmes and activities.\nthe Directors discharge their duties under s172 of the Companies\nAct 2006 (see page 59 for further information). Bev Goulet, an independent Non-Executive Director and a\nUS national, also sits on the board of Rolls-Royce North America\nThe Board has established certain principal Committees to assist Holdings Inc. to create a link between the Board and the Group’s\nit in fulfilling its oversight responsibilities, providing dedicated North American governance structure.\nfocus on particular areas (see page 68). The Chair of each\nCommittee reports to the Board on the Committee’s activities\nafter each meeting.\nRoles and responsibilities Disclosure Committee\nThe roles of the Chair and Chief Executive are clearly defined The Board has established a Disclosure Committee to assist it with\nand the Board supports the separation of the two roles. The Chair implementing the procedures and controls for the disclosure of\nis responsible for the leadership and effectiveness of the Board. information to meet the legal and regulatory requirements set out\nThe Chief Executive is responsible for the day-to-day management in the FCA’s Listing Rules and Disclosure Guidance & Transparency\nof the Group’s business and leads the Executive Team which comes Rules and the UK Market Abuse Regulation. The committee is\ntogether to review, agree and communicate issues and actions of comprised of any two of the Chair, the Chief Executive, the Chief\nGroup-wide significance. Financial Officer, the General Counsel and the Chief Governance\nOfficer, with all members of the committee expected to attend\nNon-Executive Directors support the Chair and provide objective meetings wherever possible.\nand constructive challenge to management. The Senior Independent\nDirector (SID) provides a sounding board for the Chair and serves Key matters reserved for the Board\nas an intermediary for the Chief Executive, other Directors and\nshareholders when required. — The Group’s long-term objectives, strategy and risk appetite\n— The Group’s organisation and capability\nThe Chief Governance Officer ensures that appropriate and timely\ninformation is provided to the Board and its Committees and is — Overall corporate governance arrangements, including Board\nresponsible for advising and supporting the Chair and the Board and Committee composition, Committee terms of reference,\non all governance matters. All Directors have access to the Chief Director independence and conflicts of interest\nGovernance Officer and may take independent professional advice\nat the Group’s expense in conducting their duties. — Internal controls, governance and risk management frameworks\n— Changes to the corporate or capital structure of the Company\nDirector independence\nPotential conflicts of interest that each Director may have are — The Annual Report and financial and regulatory announcements\nmonitored and assessed and recommendations made to the Board — Significant changes in accounting policies or practices\nas to whether these should be authorised and if any conditions should\nbe attached to such authorisations to consider whether each of them — Annual plan and financial expenditure and commitments above\ncontinues to be independent. The Directors are regularly reminded levels set by the Board\nof their continuing obligations in relation to conflicts and are required — Overview of the speak up programme and cases reported through\nto review and confirm their external interests at least annually. the speak up line\nFollowing due consideration, the Board determined that all — The Group’s digital, IT and AI strategy\nNon-Executive Directors continued to be independent in both\ncharacter and judgement. In accordance with the Code, the Chair Principal risks: strategy; execution; and political\nwas deemed to be independent on her appointment.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 67\nGOVERNANCE\nREPORT", "char_count": 4722, "tables": [ [ [ "THE ROLE OF THE BOARD", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 70, "printed_page": 68, "section": "Governance Report", "subsection": "Corporate governance", "text": "CORPORATE GOVERNANCE\nTHE ROLE OF EACH COMMITTEE\nNominations, Culture & Governance Audit\nLead the process for appointments to the Board; ensure Assist the Board in monitoring the integrity of the Group and\nplans are in place for orderly succession to the Board and Company financial statements and any formal announcements\nsenior executive positions relating to financial performance\nOversee the development of a diverse pipeline for succession Review the internal financial controls, the risk management and\ninternal control systems and review any concerns relating to\nEnsure the composition of the Board is appropriate and relevant financial fraud\nso that the Board is in the best position to oversee financial and\noperational performance and drive the Group’s strategy Review and provide recommendations to the Board regarding\nfinancial reporting, focusing on accounting policies, judgements\nAssess and monitor culture to ensure alignment with the Group’s and estimates; disclosures; compliance with regulations; and\npolicies, practices and behaviours recommendation to the Board that the Annual Report is fair,\nbalanced and understandable\nOversee the Group’s Global Equal Opportunity Policy and\nits implementation Monitor and review the effectiveness of the internal audit function\nand oversee the Company’s relations with the external auditor and\nKeep the Board’s corporate governance arrangements under approve their terms of engagement and fees\nreview and ensure these are consistent with best corporate\ngovernance standards Principal risks: compliance; business interruption; market &\nfinancial shock\nReceive reports on issues raised through the speak up line and review\nS ee from page 78 for the\nthe results of investigations into ethical and/or compliance breaches\nAudit Committee report\nand allegations of misconduct\nPrincipal risks: compliance; talent & capability\nS ee from page 76 for the Nominations,\nCulture & Governance Committee report\nRemuneration Safety, Energy Transition & Tech\nDetermine a policy for Executive Director remuneration capable of Provide oversight of responsibilities in respect of product safety,\nattracting and retaining individuals necessary for business success people safety (occupational health and safety, process safety, the\nmaintenance of facilities, asset integrity and personnel security),\nSet remuneration for the Chair of the Board, Executive Directors and environment and energy transition, including progress and delivery,\nsenior management with measurements against agreed metrics, targets and objectives\nand technology (including cyber-security)\nDetermine the design, conditions and coverage of incentives for\nsenior executives and approve total and individual payments under Monitor the operation of the Group’s product safety governance\nthe plans frameworks, scrutinising the development and implementation of\nchanges in process and practice\nDetermine targets for any performance-related pay plans and the\nissue and terms of all-employee share plans Review, challenge and support the Group’s energy transition\nstrategy, track progress and review the environmental impacts\nOversee any major changes in remuneration of products and operations. Provide oversight and assurance\nof the Group’s scientific and technological strategy, processes\nReview workforce remuneration and related policy and the alignment and investments\nof incentives and rewards with culture, taking these into account\nwhen setting the policy for Executive Director remuneration Principal risks: safety; energy transition; information & data including\ncyber-security; technology\nS ee from page 82 for the S ee page 110 for the Safety, Energy\nRemuneration Committee report Transition & Tech Committee report\nF ind more information on the Terms of Reference for each Board Committee at\nwww.rolls-royce.com\n68 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3872, "tables": [ [ [ "THE ROLE OF EACH COMMITTEE", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 71, "printed_page": 69, "section": "Governance Report", "subsection": "Corporate governance", "text": "CORPORATE GOVERNANCE\nCOMPOSITION OF THE BOARD AT 26 FEBRUARY 2026\nBALANCE OF THE BOARD NON-EXECUTIVE DIRECTORS’ TENURE BOARD MEMBERS BY GENDER\nNon-Executive 0–3 years – 3 Male – 6\nDirectors – 10 3–6 years – 4 Female – 6\nExecutive 6–9 years – 3\nDirectors – 2\nBOARD MEMBERS BY NATIONALITY 1 BOARD MEMBERS BY ETHNICITY\nBritish – 9 White – 11\nAmerican – 1 British-Asian – 1\nGerman – 1\nBrazilian – 1\n1 According to the Company’s Articles, more than\n50% of our Directors must be British citizens\nNon-Executive Directors’ skills and experience at 26 February 2026\nDame Lord Paulo Dame\nAnita Birgit Stuart George Jitesh Beverly Nick Wendy Cesar Angela\nFrew Behrendt Bradie Culmer Gadhia Goulet Luff Mars Silva Strank\nBusiness experience\nPeople & product safety\nCyber & digital\nClimate change & sustainability\nEngineering, science & technology\nCompany leadership\nFinance\nAudit & risk management\nRemuneration\nTransformation\nLegal & regulation\nSector specific\nGeopolitics\nGlobal experience\nEurope\nAmericas\nAsia, Middle East & Africa\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 69\nGOVERNANCE\nREPORT", "char_count": 1086, "tables": [ [ [ "COMPOSITION OF THE BOARD AT 26 FEBRUARY 2026", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ null, "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Nick Luff", "Wendy Mars", "Paulo Cesar Silva", "Dame Angela Strank" ], [ "Business experience", null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ "Global experience", null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ], [ null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 2, "visual_content": [ { "type": "matrix", "title": "Non-Executive Directors' skills and experience at 26 February 2026 (dot matrix)", "directors": [ "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Nick Luff", "Wendy Mars", "Paulo Cesar Silva", "Dame Angela Strank" ], "skills": { "Business experience": { "People & product safety": [ "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "Paulo Cesar Silva", "Dame Angela Strank" ], "Cyber & digital": [ "Stuart Bradie", "George Culmer", "Wendy Mars" ], "Climate change & sustainability": [ "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "Nick Luff", "Wendy Mars", "Dame Angela Strank" ], "Engineering, science & technology": [ "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "Wendy Mars", "Paulo Cesar Silva", "Dame Angela Strank" ], "Company leadership": [ "Dame Anita Frew", "Stuart Bradie", "George Culmer", "Nick Luff", "Paulo Cesar Silva" ], "Finance": [ "Dame Anita Frew", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Nick Luff", "Paulo Cesar Silva" ], "Audit & risk management": [ "Dame Anita Frew", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Nick Luff", "Paulo Cesar Silva" ], "Remuneration": [ "Dame Anita Frew", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Dame Angela Strank" ], "Transformation": [ "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Nick Luff", "Wendy Mars", "Paulo Cesar Silva", "Dame Angela Strank" ], "Legal & regulation": [ "Dame Anita Frew", "George Culmer", "Lord Jitesh Gadhia", "Beverly Goulet", "Nick Luff" ], "Sector specific": [ "Stuart Bradie", "Beverly Goulet", "Paulo Cesar Silva" ], "Geopolitics": [ "Dame Anita Frew", "Birgit Behrendt", "Lord Jitesh Gadhia" ] }, "Global experience": { "Europe": [ "Dame Anita Frew", "Birgit Behrendt", "Stuart Bradie", "George Culmer", "Lord Jitesh Gadhia", "Nick Luff", "Wendy Mars", "Paulo Cesar Silva", "Dame Angela Strank" ], "Americas": [ "Birgit Behrendt", "Stuart Bradie", "Beverly Goulet", "Nick Luff", "Paulo Cesar Silva", "Dame Angela Strank" ], "Asia, Middle East & Africa": [ "Birgit Behrendt", "Stuart Bradie", "Lord Jitesh Gadhia", "Wendy Mars", "Paulo Cesar Silva", "Dame Angela Strank" ] } } } ], "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 72, "printed_page": 70, "section": "Governance Report", "subsection": "Corporate governance", "text": "CORPORATE GOVERNANCE\nBoard and Committee attendance in 2025\nNominations,\nCulture & Safety, Energy\nBoard Governance Audit Remuneration Transition & Tech\n8 meetings 3 meetings 5 meetings 4 meetings 3 meetings\nDame Anita Frew 8/8 3/3 – – –\nTufan Erginbilgic 8/8 – – – –\nHelen McCabe 8/8 – – – –\nBirgit Behrendt 8/8 3/3 – – 3/3\nStuart Bradie 1 7/8 3/3 – 0/1 3/3\nGeorge Culmer 7/8 3/3 5/5 4/4 –\nLord Jitesh Gadhia 8/8 3/3 5/5 4/4 –\nBeverly Goulet 8/8 3/3 5/5 4/4 –\nNick Luff 8/8 3/3 5/5 – –\nWendy Mars 8/8 3/3 – 4/4 3/3\nPaulo Cesar Silva 2 8/8 3/3 1/1 – 3/3\nDame Angela Strank 8/8 3/3 – – 3/3\n1 Joined the Remuneration Committee on 1 August 2025\n2 Joined the Audit Committee on 1 August 2025\nAttendance Where legislation and regulation has — In September, the Safety, Energy Transition\nThe table above sets out the Directors’ changed that impacts directors’ duties, & Tech Committee members met with the\nattendance at Board and Committee we provide in-depth training as part of Defence leadership team in Bristol, UK.\nmeetings throughout 2025. our Nominations, Culture & Governance The site tour covered the Operations\nCommittee programme. In addition, annually Facility and Innovation Suite, and included\nBoard members’ attendance was once we provide training on specific topics discussion on site safety, site improvement\nagain high in 2025. However, Directors are capable of impacting the Group. and capacity expansion. The Committee\nsometimes unable to participate in certain In December, our General Counsel and members interacted with and received\nBoard and Committee meetings. George members of the Legal, Ethics & Compliance presentations from management and\nCulmer was not able to attend the February teams provided an overview of competition engineers. There was also an opportunity\n2025 Board meeting and Stuart Bradie was and anti-trust law. to meet with employees in a less formal\nnot able to attend the November Board capacity over lunch.\nmeeting or the December Remuneration Site visits\n— A second Meet the Board event took place\nCommittee meeting due to prior business To further support the work of the Board\nin Dahlewitz, Germany in October. The visit\ncommitments. However, the Directors and its Committees, we arrange site visits to\nincluded an extensive tour of the site and\nprovided feedback on the matters under different areas of the business throughout\nwas followed by a session with colleagues\nconsideration to the Chair of the Board and the year so that Board members are able\nwho were given the opportunity to\nthe Committee Chair, as appropriate. to gain a deeper understanding of how the\nask questions directly to the Board.\ndifferent divisions operate. During such site\nEmployees were able to gain insights from\nMost scheduled meetings end with a visits the Board meet our people including\nBoard members who reflected on their\nprivate discussion of the Non-Executive key personnel within the divisions, receive\nimpression of the facilities and the strong\nDirectors led by the Chair of the Board or tours of facilities and attend meetings which\nculture of safety at the Dahlewitz site.\nCommittee, without the Executive Directors focus on specific areas of interest for each of\nor members of the Executive Team or the businesses. — Our Employee Champions, Bev Goulet and\nmanagement present. Wendy Mars, visited our sites in Inchinnan\n— In May, we held a Meet the Board event. and Washington, UK. See page 77 of\nIn support of the Board and Committees’ This took place at the Learning and the Nominations, Culture & Governance\nwork, where there is a requirement for Development Centre in Derby, UK and Committee report for more information\ngreater, in-depth discussion, we hold deep provided a number of our employees at about these visits.\ndives into specific areas of focus outside various levels of seniority the opportunity\nthe meeting schedule. In 2025, the Safety, to talk to the Board in an informal setting.\nEnergy Transition & Tech Committee held The afternoon consisted of breakout\na deep dive relating to cyber-security. All sessions where Board members could\nmembers of the Board are invited to join talk about their experiences and career\nthese sessions and all members of the Board progression, while the employees were\ndid join the cyber-security deep dive. given the opportunity to ask the Board\nmembers questions on a variety of topics\nThe Remuneration Committee held three relating to Rolls-Royce.\nadditional sessions during 2025 to consider\nthe proposal for changes to the remuneration\npolicy and to discuss shareholder feedback\non these proposals.\n70 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4634, "tables": [], "table_count": 0 }, { "pdf_page": 73, "printed_page": 71, "section": "Governance Report", "subsection": "Corporate governance", "text": "CORPORATE GOVERNANCE\nBOARD FOCUS\nIn 2025, the activities of the Board followed a detailed programme focused on priorities which support our vision of becoming a high-performing,\ncompetitive, resilient and growing business. From considering the long-term strategy of the Group to shaping the culture, the Board ensures the\ninterests of our stakeholders are considered throughout the decision-making process.\nThis section should be read in conjunction with our s172 statement on page 59 and Stakeholder engagement section from page 60.\nThe Board considers a number of standing items at each meeting, including:\n— a report on current operational matters from the Chief Executive;\n— a report on year-to-date financial performance including budgets and financial plans from the Chief Financial Officer;\n— reports from the Chairs of the Committees on matters considered at the respective Committee meetings; and\n— reports on governance matters from the Chief Governance Officer and legal updates from the General Counsel.\nThe key matters, decisions considered and outcomes determined by the Board during the year are set out below. The Board recognises that\noutcomes may not crystallise as expected, or may change over time. Not all decisions will have immediately observable outcomes.\nDecisions Outcomes Stakeholders\nStrategy and transformation\nThe Board has been focused on the delivery of the — Continued to track progress made against our\ninitiatives within our strategic framework, namely: strategic initiatives\nportfolio choices and partnerships; strategic initiatives; — Received a deep dive on the Civil Aerospace\nefficiency and simplification, and lower-carbon and division to review strategy beyond the mid-term and\ndigitally enabled businesses. implementation of the transformation programme\n— Approved capital investment in Power Systems\nThe ongoing transformation programme has supported\n— Considered aspects of a successful bid submission by\nour strong strategic delivery and underpinned our actions,\nRolls-Royce SMR to Great British Energy – Nuclear to\ninvestments, and performance improvements across\nbuild three SMR units in the UK\nthe Group.\n— Considered the transaction between the trustee of the\nThis has delivered strong financial performance and Rolls-Royce UK Pension Fund and Pension Insurance\nsustainable growth which has enabled the Board to look Corporation for a £4.3bn bulk annuity insurance ‘Buy-in’\nahead to the mid-term and beyond the mid-term. for the scheme\nS ee from page 11\nOur strategy\nOperational excellence\nThe success of our strategic delivery is predicated on our — Endorsed new Civil Aerospace value stream operating\ncommitment to operational excellence. The Board’s review model aligned to strategic KPIs\nand decisions focused on the progress of our strategic — Tracked growth in aftermarket operations and adoption\ninitiatives to drive a step-change in operational performance of MRO transformation framework\nand optimisation. — Approved investment and deployment of a refreshed\nGroup Business Service (GBS) strategy, which involves\nS ee from page 11\nOur strategy scaling up GBS operations and efficiencies. We have\nopened a new GBS centre in Poland and are expanding\nour centre in India\n— Monitored technological updates throughout the\nyear, including initiatives to improve durability and time\non wing\n— Endorsed implementation of governance and mitigation\nstrategies to enhance supply chain resilience\nFinancial\nFinancial performance is closely monitored by the Audit — Approved the 2025 annual budget and five-year plan\nCommittee and the Board which consider the position and — Approved the 2024 full year results announcement,\nprospects of Rolls-Royce. 2024 Annual Report and Accounts, 2025 half-year\nresults announcement and the trading updates issued\nS ee from page 19\nFinancial review during the year\n— Reviewed financial position, going concern and viability\nof the Group\n— Assessed the impact of announced tariffs and the\nmitigating actions taken\nKey stakeholders\nPeople Customers Suppliers and partners Communities Governing bodies and regulators Investors\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 71\nGOVERNANCE\nREPORT", "char_count": 4170, "tables": [ [ [ "BOARD FOCUS", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "The Board has been focused on the delivery of the initiatives within our strategic framework, namely: portfolio choices and partnerships; strategic initiatives; efficiency and simplification, and lower-carbon and digitally enabled businesses. The ongoing transformation programme has supported our strong strategic delivery and underpinned our actions, investments, and performance improvements across the Group. This has delivered strong financial performance and sustainable growth which has enabled the Board to look ahead to the mid-term and beyond the mid-term. S ee from page 11 Our strategy", "— Continued to track progress made against our strategic initiatives — Received a deep dive on the Civil Aerospace division to review strategy beyond the mid-term and implementation of the transformation programme — Approved capital investment in Power Systems — Considered aspects of a successful bid submission by Rolls-Royce SMR to Great British Energy – Nuclear to build three SMR units in the UK — Considered the transaction between the trustee of the Rolls-Royce UK Pension Fund and Pension Insurance Corporation for a £4.3bn bulk annuity insurance ‘Buy-in’ for the scheme" ] ], [ [ "The success of our strategic delivery is predicated on our commitment to operational excellence. The Board’s review and decisions focused on the progress of our strategic initiatives to drive a step-change in operational performance and optimisation. S ee from page 11 Our strategy", "— Endorsed new Civil Aerospace value stream operating model aligned to strategic KPIs — Tracked growth in aftermarket operations and adoption of MRO transformation framework — Approved investment and deployment of a refreshed Group Business Service (GBS) strategy, which involves scaling up GBS operations and efficiencies. We have opened a new GBS centre in Poland and are expanding our centre in India — Monitored technological updates throughout the year, including initiatives to improve durability and time on wing — Endorsed implementation of governance and mitigation strategies to enhance supply chain resilience" ] ], [ [ "Financial performance is closely monitored by the Audit Committee and the Board which consider the position and prospects of Rolls-Royce. S ee from page 19 Financial review", "— Approved the 2025 annual budget and five-year plan — Approved the 2024 full year results announcement, 2024 Annual Report and Accounts, 2025 half-year results announcement and the trading updates issued during the year — Reviewed financial position, going concern and viability of the Group — Assessed the impact of announced tariffs and the mitigating actions taken" ] ] ], "table_count": 4, "visual_content": [ { "type": "icon_mapping", "title": "Board focus: stakeholder groups considered per topic (shown as icons)", "mappings": [ { "topic": "Strategy and transformation", "stakeholders": [ "People", "Customers", "Suppliers and partners", "Communities", "Governing bodies and regulators", "Investors" ] }, { "topic": "Operational excellence", "stakeholders": [ "People", "Customers", "Suppliers and partners", "Investors" ] }, { "topic": "Financial", "stakeholders": [ "Customers", "Suppliers and partners", "Investors" ] } ] } ], "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 74, "printed_page": 72, "section": "Governance Report", "subsection": "Corporate governance", "text": "CORPORATE GOVERNANCE\nBOARD FOCUS CONTINUED\nDecisions Outcomes Stakeholders\nShareholder distributions and capital framework\nRolls-Royce has achieved strong financial performance — Approved the reinstatement of shareholder dividends,\nin 2025, with significant year-on-year improvement across returning £0.9bn of dividends to shareholders in 2025\nall key financial metrics, due to another period of strong comprising a 6p dividend per share in respect of the\nstrategic delivery. full year 2024 results and the interim dividend of 4.5p\nper share in respect of the 2025 half-year results\nThe significant growth in operating profit and sustainable\n— Approved a £1bn share buyback programme through\nfree cash flow growth in 2024 strengthened the balance\n2025 and a £200m interim share buyback programme\nsheet and enabled the Board to reinstate shareholder\nwhich ran from 2 January 2026 to the date of this report\ndistributions in 2025 and to reassess the Group’s\n— Repaid in cash a $1bn bond that matured in October and\ncapital framework.\nrenewed our revolving credit facility\nS ee from page 19\nFinancial review\nPeople and culture\nIn 2024, Rolls-Royce launched its new purpose, vision — Reviewed the implementation of our purpose, vision\nand behaviours to align our culture with our strategy. and behaviours and endorsed the launch of our new\nOur behaviours are: put safety first; do the right thing; leadership expectations to perform and transform\nkeep it simple; and make a difference. — Reviewed the results of the annual Our Voices employee\nengagement survey\nIn 2025, the Board has been focused on oversight of\n— Considered the results from our speak up line\nmanagement initiatives to embed the desired culture\nprogramme\nrequired to support the delivery of our strategy. Our\n— Approved updates to Our Code and Group policies to\nbehaviours complement our strategic framework and are\nreflect our behaviours\nkey to delivery of our transformation into a high-performing,\n— Endorsed key Group-wide HSE activities and\ncompetitive, resilient and growing business.\nprogrammes including updates on our journey to\nS ee from page 31 zero harm\nPeople and culture — Tracked key HSE performance KPIs to monitor progress\nRisk and internal control\nThe approach to risk management and internal control — Approved compliance framework and endorsed\nat Rolls-Royce supports the delivery of our key strategic approach to compliance risk management\nobjectives. The Board and its Committees consider the — Reviewed principal risks and approach to risk\nnature and extent of the principal risks to Rolls-Royce, management\nwhich informs discussions ranging from strategic delivery — Considered our cyber-security framework and maturity\nto financial performance. assessment\n— Monitored preparedness for the changes to the 2024\nS ee from page 48\nPrincipal risks Code effective from 1 January 2026, related to the review\nof the effectiveness of the Company’s risk management\nand internal control framework\n— Considered supply chain performance risks and\nmitigations, including our business interruption\nframework and emerging risks\nGovernance\nGovernance arrangements at Rolls-Royce provide the — Considered succession at the most senior levels of\noverarching structure for accountability and decision- the business\nmaking needed to achieve our strategic objectives. — Appointed Paulo Cesar Silva as a member of the\nAudit Committee\nS ee from page 67\nGovernance report — Appointed Stuart Bradie as a member of the\nRemuneration Committee\n— Reviewed and updated the Board governance\ndocuments which included the terms of reference for\neach Committee, and Matters Reserved for the Board\nKey stakeholders\nPeople Customers Suppliers and partners Communities Governing bodies and regulators Investors\n72 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3808, "tables": [ [ [ "BOARD FOCUS CONTINUED", null, null, null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ "Rolls-Royce has achieved strong financial performance in 2025, with significant year-on-year improvement across all key financial metrics, due to another period of strong strategic delivery. The significant growth in operating profit and sustainable free cash flow growth in 2024 strengthened the balance sheet and enabled the Board to reinstate shareholder distributions in 2025 and to reassess the Group’s capital framework. S ee from page 19 Financial review", "— Approved the reinstatement of shareholder dividends, returning £0.9bn of dividends to shareholders in 2025 comprising a 6p dividend per share in respect of the full year 2024 results and the interim dividend of 4.5p per share in respect of the 2025 half-year results — Approved a £1bn share buyback programme through 2025 and a £200m interim share buyback programme which ran from 2 January 2026 to the date of this report — Repaid in cash a $1bn bond that matured in October and renewed our revolving credit facility" ] ], [ [ "In 2024, Rolls-Royce launched its new purpose, vision and behaviours to align our culture with our strategy. Our behaviours are: put safety first; do the right thing; keep it simple; and make a difference. In 2025, the Board has been focused on oversight of management initiatives to embed the desired culture required to support the delivery of our strategy. Our behaviours complement our strategic framework and are key to delivery of our transformation into a high-performing, competitive, resilient and growing business. S ee from page 31 People and culture", "— Reviewed the implementation of our purpose, vision and behaviours and endorsed the launch of our new leadership expectations to perform and transform — Reviewed the results of the annual Our Voices employee engagement survey — Considered the results from our speak up line programme — Approved updates to Our Code and Group policies to reflect our behaviours — Endorsed key Group-wide HSE activities and programmes including updates on our journey to zero harm — Tracked key HSE performance KPIs to monitor progress" ] ], [ [ "The approach to risk management and internal control at Rolls-Royce supports the delivery of our key strategic objectives. The Board and its Committees consider the nature and extent of the principal risks to Rolls-Royce, which informs discussions ranging from strategic delivery to financial performance. S ee from page 48 Principal risks", "— Approved compliance framework and endorsed approach to compliance risk management — Reviewed principal risks and approach to risk management — Considered our cyber-security framework and maturity assessment — Monitored preparedness for the changes to the 2024 Code effective from 1 January 2026, related to the review of the effectiveness of the Company’s risk management and internal control framework — Considered supply chain performance risks and mitigations, including our business interruption framework and emerging risks" ] ], [ [ "Governance arrangements at Rolls-Royce provide the overarching structure for accountability and decision- making needed to achieve our strategic objectives. S ee from page 67 Governance report", "— Considered succession at the most senior levels of the business — Appointed Paulo Cesar Silva as a member of the Audit Committee — Appointed Stuart Bradie as a member of the Remuneration Committee — Reviewed and updated the Board governance documents which included the terms of reference for each Committee, and Matters Reserved for the Board" ] ] ], "table_count": 5, "visual_content": [ { "type": "icon_mapping", "title": "Board focus continued: stakeholder groups considered per topic (shown as icons)", "mappings": [ { "topic": "Shareholder distributions and capital framework", "stakeholders": [ "Investors" ] }, { "topic": "People and culture", "stakeholders": [ "People", "Suppliers and partners", "Communities", "Governing bodies and regulators" ] }, { "topic": "Risk and internal control", "stakeholders": [ "People", "Customers", "Suppliers and partners", "Governing bodies and regulators", "Investors" ] }, { "topic": "Governance", "stakeholders": [ "People", "Customers", "Suppliers and partners", "Communities", "Governing bodies and regulators", "Investors" ] } ] } ] }, { "pdf_page": 75, "printed_page": 73, "section": "Governance Report", "subsection": "Corporate governance", "text": "CORPORATE GOVERNANCE\nBOARD EFFECTIVENESS\nReview of the Board and Committees The Nominations, Culture & Governance Committee has an\nIn January 2026, we carried out an internal review of our Board’s item at the end of each agenda without any management present\neffectiveness in 2025, supported by Independent Audit Ltd. and, during these sessions, they discuss the performance of the\nThe questionnaire-based approach was wide-ranging and again Chief Executive throughout the year. The Chair also conducted the\nincluded a focus on Board composition and dynamics; the Board’s Chief Executive’s annual performance review having sought feedback\nrole; and the Board at work. on his performance from the Board. These meetings concluded that\nboth the Chair and the Chief Executive were effective and feedback\nThe review took the form of an online questionnaire and the was shared with each of them. In addition, the Chair met with each\nscope was agreed with the Chair and Chief Governance Officer in of the Non-Executive Directors separately to discuss their individual\nadvance. Independent Audit Ltd provided an anonymised report performance and gather feedback on the Board and Committee\nand the Chair and Chief Governance Officer, in discussion with evaluation. Having undertaken an externally facilitated Board\nthe Board, have agreed an action plan for 2026. Each Committee effectiveness review in 2023 and mindful of the Code’s provision,\nchair considers feedback for the Committees for which they are the Board intends to carry out an externally facilitated performance\nresponsible. In addition to this review, during a private meeting of review in 2026.\nthe Non-Executive Directors, the Senior Independent Director led\na review of the Chair’s performance without the Chair present.\nAREAS OF FOCUS\n2025 FOCUS PROGRESS IN 2025 FOCUS IN 2026\nBoard composition and dynamics The Nominations, Culture & Governance Committee and Conclude succession planning for\nSuccession planning for the Board the Board considered succession at the most senior levels Nick Luff and Beverly Goulet as\nand Executive Team of the business. they are due to retire from the Board\nin 2027.\nPaulo Cesar Silva was appointed to the Audit Committee\nin August 2025. Paulo brings relevant financial and Continue to review our approach to\nsector experience to the Audit Committee. In addition, building talent and capability across\nStuart Bradie joined the Remuneration Committee in the organisation with a particular\nAugust 2025. Stuart brings broad insights as a global focus on the development of, and\nbusiness leader. As a member of the Safety, Energy succession planning for, the senior\nTransition & Tech Committee (the SETT Committee), leadership population.\nStuart provides insight on our non-financial key\nperformance metrics.\nThe Board’s role The Board considered the long-term prospects of Continued focus on strategic\nContinued focus on strategic the Company’s business divisions beyond the mid-term of progress, ambitions and future\nprogress, ambitions and future 2028. This included a deep dive session on Civil Aerospace. growth opportunities\ngrowth opportunities\nThere has been a continued focus on emerging Focus on emerging technologies\nFocus on emerging technologies technologies, including digital and AI. In April, the including digital and AI and their\nincluding digital and AI and their SETT Committee considered the approach to digital and associated risks and opportunities\nassociated risks and opportunities data assets, including AI. This was followed by a deep dive\nsession in December 2025, attended by all members of the Continue to focus on areas of risk\nContinue to focus on areas of risk Board, on our cyber-security risk and maturity. and challenge to the business,\nand challenge to the business, for example, supply chain and\nfor example, supply chain and In December, the Audit Committee considered business cyber-security\ncyber-security interruption, with particular focus on incident management\nand our supply chain, at which all members of the Board\nwere present.\nThe Board at work The Board met with our people throughout the year. In addition to the areas set out\nBoard site visits and deep dives for This included site visits as a Board to Derby, UK and above, the Board, SETT Committee\nopportunities to meet with our people Dahlewitz, Germany. Members of the Board visited sites and Employee Champions will\nand observe how our new purpose including Washington and Inchinnan, UK. The Board also engage with our people on site visits.\nand behaviours are being received in received reports from the Employee Champions who meet In doing so, Board members will pay\nthe business with the employee stakeholder group. See page 70 for particular attention to how our new\nfurther information. People Deal and continued focus\non our ‘safety first’ behaviour is\nThe SETT Committee visited the Defence team in Bristol, UK. resonating with colleagues.\nMore information on this can be found on page 70.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 73\nGOVERNANCE\nREPORT", "char_count": 5057, "tables": [ [ [ "BOARD EFFECTIVENESS", null, null, null, null, null, null ] ], [ [ "AREAS OF FOCUS", null, null, null, null, null, null, null ], [ "2025 FOCUS", null, "PROGRESS IN 2025", null, null, null, null, "FOCUS IN 2026" ], [ "Board composition and dynamics Succession planning for the Board and Executive Team", null, "The Nominations, Culture & Governance Committe the Board considered succession at the most senio of the business. Paulo Cesar Silva was appointed to the Audit Com in August 2025. Paulo brings relevant financial and sector experience to the Audit Committee. In addi Stuart Bradie joined the Remuneration Committee August 2025. Stuart brings broad insights as a glo business leader. As a member of the Safety, Energy Transition & Tech Committee (the SETT Committee Stuart provides insight on our non-financial key performance metrics.", null, null, null, "e and r levels mittee tion, in bal ),", "Conclude succession planning for Nick Luff and Beverly Goulet as they are due to retire from the Board in 2027. Continue to review our approach to building talent and capability across the organisation with a particular focus on the development of, and succession planning for, the senior leadership population." ], [ null, null, null, null, null, null, null, null ], [ "The Board’s role Continued focus on strategic progress, ambitions and future growth opportunities Focus on emerging technologies including digital and AI and their associated risks and opportunities Continue to focus on areas of risk and challenge to the business, for example, supply chain and cyber-security", null, "The Board considered the long-term prospects of the Company’s business divisions beyond the mid- 2028. This included a deep dive session on Civil Ae There has been a continued focus on emerging technologies, including digital and AI. In April, the SETT Committee considered the approach to digit data assets, including AI. This was followed by a de session in December 2025, attended by all membe Board, on our cyber-security risk and maturity. In December, the Audit Committee considered bus interruption, with particular focus on incident man and our supply chain, at which all members of the were present.", null, null, null, "term of rospace. al and ep dive rs of the iness agement Board", "Continued focus on strategic progress, ambitions and future growth opportunities Focus on emerging technologies including digital and AI and their associated risks and opportunities Continue to focus on areas of risk and challenge to the business, for example, supply chain and cyber-security" ], [ null, null, null, null, null, null, null, null ], [ "The Board at work Board site visits and deep dives for opportunities to meet with our people and observe how our new purpose and behaviours are being received in the business", null, "The Board met with our people throughout the ye This included site visits as a Board to Derby, UK an Dahlewitz, Germany. Members of the Board visited including Washington and Inchinnan, UK. The Boa received reports from the Employee Champions w with the employee stakeholder group. See page 70 further information. The SETT Committee visited the Defence team in B More information on this can be found on page 70", null, null, null, "ar. d sites rd also ho meet for ristol, UK. .", "In addition to the areas set out above, the Board, SETT Committee and Employee Champions will engage with our people on site visits. In doing so, Board members will pay particular attention to how our new People Deal and continued focus on our ‘safety first’ behaviour is resonating with colleagues." ], [ null, null, null, null, null, null, null, null ] ] ], "table_count": 2, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 76, "printed_page": 74, "section": "Governance Report", "subsection": "Executive Team", "text": "Executive Team\n1 2 3 4 5 6 7 8 9 10\n1. DR JÖRG STRATMANN 5. CHRIS CHOLERTON 9. ADAM RIDDLE\nCEO – Rolls-Royce Power Systems AG Group President President – Defence\nChairman & CEO – Rolls-Royce North America\n2. NICOLA GRADY-SMITH 6. TUFAN ERGINBILGIC 10. SIMON BURR MBE\nChief Transformation Officer Chief Executive Group Director of Engineering,\nTechnology & Safety\n3. DR ROB WATSON 7. SARAH ARMSTRONG\nPresident – Civil Aerospace Chief People Officer\n4. HELEN MCCABE 8. MARK GREGORY\nChief Financial Officer General Counsel\nOn 1 March 2026, Maria Varsellona will join the Executive Team as Chief Legal Officer. Mark Gregory will leave the business on 31 March 2026.\nOn 9 March 2026, Martin Thomsen will join the Executive Team as Chief Procurement and Supply Chain Officer.\nA ppointment details and career highlights\nof the members of the Executive Team are\navailable at www.rolls-royce.com\n74 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 933, "tables": [], "table_count": 0 }, { "pdf_page": 77, "printed_page": 75, "section": "Governance Report", "subsection": "Executive Team", "text": "EXECUTIVE TEAM\nExecutive Team\nExecutive audit People Energy transition Operating\ncommittee committee & tech committee committee\nFinancial and\nInvestment Business\noperating\ncommittee review\ndrivers review\nThe Chief Executive is responsible for the day-to-day management of the Group. He leads the Executive Team, which comes together\nto review, agree and communicate issues and actions of Group-wide significance and is supported by the governance framework and\nshown above, in the delivery of its remit. A summary of responsibilities is set out below:\nExecutive audit committee People committee\n— consider principal risks — ensure that Rolls-Royce has a Winning Team to deliver our\nstrategic priorities\n— review delivery of the in-year internal audit plan and finalise\nthe internal audit plan for the forthcoming year ahead of — keep under review talent and succession, performance and\nAudit Committee approval leadership, reward, purpose and experience\nEnergy transition & tech committee Operating committee\n— ensure the Group is playing a winning role in energy transition — improve Group-wide operational performance\nand future technologies\n— review supply chain performance\n— consider the rationale for and progress of investments in\n— oversee critical enablers of operational performance\nenergy transition\n— make capital allocation decisions on technologies that support\nenergy transition\n— assess strategic opportunities for future technology investments\nInvestment committee Financial and operating drivers review\n— make capital allocation decisions for all investments, acquisitions — review in-year financial performance and operational drivers\nand divestments in line with our strategy against plan\n— review performance of in-flight investments — agree interventions where required\nBusiness review\n— develop division pricing strategy and commercial capability\n— identify and deliver pricing actions and capability improvements\nto enable a step-change in performance\n— review performance by division, focusing on in-year and\nfive-year horizons\n— includes financial and operational performance, people and\ntalent, strategic initiatives, principal risks and engagement with\nour people\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 75\nGOVERNANCE\nREPORT", "char_count": 2256, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 78, "printed_page": 76, "section": "Governance Report", "subsection": "Committee reports - Nominations, Culture & Governance", "text": "Nominations, Culture & Governance Committee report\nMy fellow Directors and I also attend relevant\nKEY AREAS OF FOCUS IN 2025\nexternal seminars, conferences and training\nevents to keep up-to-date on developments\n— Succession planning for Non-Executive Directors in key areas. In December, we received\ntraining in relation to competition laws.\n— Reviewed our new Belonging Framework We learnt about the areas of focus for our\ncompetition law compliance activities across\n— Executive Team and key role succession planning our business divisions and the controls in\nplace to mitigate the risks associated with\na breach of these laws.\nBoard appointment, induction and\nDirectors’ conflicts of interest\ndevelopment\nAs required under the Code, the Board\nDuring 2025, the Committee initiated a\nmonitors and reviews any potential\nprocess to find a successor for Nick Luff,\nconflict of interest. Any additional external\nas Chair of the Audit Committee, which is\nappointments taken up by Directors during\nongoing. Nick is due to retire from the\nthe year are considered by the Committee\nBoard in 2027.\nand approved by the Board prior to the\nDirectors accepting such appointments. The\nPrior to making any new appointments to\nCommittee considers any conflicts that may\nthe Board, the Committee considers the skills\narise as a result of any external appointments\nand attributes required and agrees a profile.\ntaken up by the Directors and the Board\nThe Committee also provides input into a\nmonitors the extent of those interests\nshortlist of candidates and is involved in the\nand the time commitment required to fulfil\ninterview process for all appointments. The\nthem to ensure that effectiveness is not\nCommittee recommends the appointments\ncompromised. As part of the Committee’s\nto the Board for approval. All Non-Executive\ndiscussions, external appointments are\nDirectors are appointed to the Nominations,\nconsidered against the parameters set by ISS.\nCulture & Governance Committee and to\nThe Committee has found this to be a useful\nother Board Committees, depending on the\ngauge when discussing whether there is\nMembers All Non-Executive skills they bring.\npotentially any impact on Directors’ time\nDirectors are members\ncommitments when taking on additional\nof the Committee The Chief Governance Officer arranges\nexternal appointments. During 2025, none\na comprehensive, tailored induction\nof the Board members took on any additional\nRemit See page 68 programme for newly appointed Non-\nexternal appointments.\nExecutive Directors, which includes\ndedicated time with the Executive Team\nIn 2025, the Directors demonstrated a strong\nand senior management and scheduled\nI am pleased to present the 2025 report commitment to the Company, as shown by\ntrips to business operations. The programme\nof the Nominations, Culture & Governance their high levels of attendance at all our\nis tailored based on the experience and\nCommittee which provides an overview of meetings (see page 70).\nbackground of the individual and the\nour key areas of focus during 2025.\nrequirements of the role including the\nSuccession planning\nrole they will be taking up or the Board\nNominations The Committee considers the current skills,\nCommittees they will join. All Directors visit\nexperience and tenure of the Directors, both\nComposition of the Board and the Group’s main operating sites as part of\nExecutive and Non-Executive, and assesses\nits Committees their induction and are encouraged to make\nfuture needs against the longer-term strategy\nThe Committee is responsible for keeping at least one visit to other sites every year. Site\nof the Group. The skills and experience\nthe structure, size and composition of the visits are an important part of the induction\ncriteria for incoming directors is discussed\nBoard and its Committees under review. process, as well as for continuing education.\nand agreed before the recruitment\nIn 2025, there were no changes to the They help Directors understand the Group’s\nprocess commences.\ncomposition of the Board. During the activities through the direct experience of\nyear, the Committee considered the seeing our facilities and operations and by\nIn this way, the Committee plays a vital role\nre-appointment of Lord Jitesh, for a three- having discussions with a diverse group of\nin promoting effective Board and leadership\nyear term. As all Non-Executive Directors are our people. Information on our site visits\nsuccession, making sure it is fully aligned to\nappointed annually once they have served six during the year can be found on page 70.\nthe Group’s strategy. In July, the Committee\nyears on the Board, George Culmer, Nick Luff\ndiscussed Executive Team succession, which\nand Bev Goulet were each re-appointed for a It is important that the Directors continue to\nincluded a review of our succession pool for\nfurther one-year term. develop and refresh their understanding of\nthe most senior leaders.\nthe Group’s activities and, where necessary,\nIn anticipation of changes to the composition they will deep dive into specific areas (see\nPrincipal risk review\nof our Committees as Nick Luff and Bev page 70). Prior to joining their first Audit\nGoulet approach the end of their tenure on and Remuneration Committee meetings, The Committee considers the principal risk\nthe Board, Paulo Cesar Silva was appointed Paulo and Stuart met with key management of talent and capability as part of the regular\nto the Audit Committee and Stuart Bradie was personnel to deepen their understanding of discussion on succession planning. In 2025,\nappointed to the Remuneration Committee the matters considered by those Committees. we learnt about the key features of our\neach from 1 August. In addition to understanding the Group, it systemic approach to building business\nis equally important that Directors continue capabilities to drive a high-performance\nThe role of each Committee is set to update their skills and knowledge and culture. The development of our leaders\nout on page 68. The full terms of receive relevant training where necessary as is critical to ensuring the right culture and\nreference applicable to all Committees well as ensuring there is an appropriate focus behaviours are embedded Group-wide. We\ncan be found at www.rolls-royce.com. on the Group’s different stakeholders. The learnt about the many and varied strategic\nSee pages 64 and 65 for our current Board’s engagement with its stakeholders is programmes for building and developing our\nBoard Committee membership. Directors set out on pages 60 to 61. leaders of the future.\nbiographies are available from page 64.\n76 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6638, "tables": [ [ [ "KEY AREAS OF FOCUS IN 2025", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 79, "printed_page": 77, "section": "Governance Report", "subsection": "Committee reports - Nominations, Culture & Governance", "text": "NOMINATIONS, CULTURE & GOVERNANCE COMMITTEE REPORT\nCulture Employee voice Governance\nOur Employee Champions, Bev Goulet and\nPeople and culture Wendy Mars, enjoyed a number of engagement Human rights\nOur people and our culture are at the heart opportunities in 2025. In May, they visited The Committee reviewed and approved\nof the transformation of Rolls-Royce. During our Nuclear Skills Academy in Derby, UK changes to our Human Rights Policy. For\n2025, the Committee received updates on and met with staff and apprentices there. more information on human rights and\nhow our business management approach anti-slavery see page 37.\nis driving cultural change and how we are\nIn July, they visited our compressor\nembedding our purpose and behaviours manufacturing facilities in Washington and Corporate governance\ninto everyday work, particularly through Inchinnan, UK. At both sites, Bev and Wendy During 2025, the Audit Committee took steps\nour focus on our leaders and Change Makers. met with staff at all levels from apprentices to prepare for reporting under provision 29\nto site leadership, including trade union of the 2024 UK Corporate Governance Code\nCreating a high-performing merit-based representatives. They reported their against which we have to report next year.\norganisation, where everyone, regardless of impressions of both sites to the Board, noting We are pleased to report full compliance\ntheir identity, feels able to thrive and belong in particular the pride that staff have in their with the 2024 Code as it applies to the 2025\nis a priority. The Board recognises that this workplace and in Rolls-Royce. financial year.\nis an area subject to changing laws and\nregulations and that the policies and Extracts from the Group’s governance\nprocesses within Rolls-Royce must also framework, which is also applied to our\nevolve and adapt. The Committee was subsidiary companies and is our response\ntherefore pleased to consider our new During our visits to to the Wates principles, are available at\nGroup-wide Belonging framework. This www.rolls-royce.com\nframework focuses on fairness, access and\nWashington and Inchinnan\nmeritocracy and includes the launch in 2025 Evaluating the work of the Committee\nof our Employee Voice Network and our new in the UK, we were struck The work of the Committee in 2025 was\nGlobal Equal Employment Opportunities rated highly in our Committee evaluation\nPolicy, which was approved by the by the immense pride felt by report and I would like to thank my Board\nCommittee. This new policy reaffirms our colleagues for their support and counsel\ncommitment to non-discrimination and the staff for their workplace. during 2025. For more information on the\nmerit-based work. Board evaluation see page 73.\nThey shared their\nDuring 2025, we considered the results of the Our focus in 2026\nOur Voices survey. The 2025 survey results enthusiasm and optimism The evaluation clearly identified those\nindicate strong performance relative to the areas for ongoing focus in 2026. In\n2024 baseline with increases in the overall for the future of their sites particular, we will conclude our succession\nengagement index, and no change in the planning for Bev Goulet and Nick Luff, who\nand were excited by the\ninclusion metric ‘at work, I feel as if I belong’. will retire in 2027. We will also maintain our\nopportunity to play their focus on longer-term succession planning\nThe Board composition policy aims to for members of the Executive Team and to\nmaintain gender parity. As there were part in the ongoing monitoring progress across the organisation\nno changes to the Board during 2025, we towards sustaining and embedding the\ncontinued to meet the Board’s ambition in transformation of cultural change that will underpin our\nthis regard. With my position as Chair of the transformation over the long term.\nBoard and with Helen McCabe as our Chief Rolls-Royce.”\nFinancial Officer, we continue to exceed the I look forward to working with my fellow\nBoard’s intention that at least one senior Directors in 2026 on these and other\nBoard member will be a woman. In addition, Bev Goulet, important topics within the remit of\none of our Board members, Lord Jitesh, Independent Non-Executive the Committee.\nis from a non-white ethnic minority\nDirector and Lead Employee\nbackground. The Board composition\nDame Anita Frew\npolicy is available at www.rolls-royce.com Champion\nChair of the Nominations,\nCulture & Governance Committee\nRepresentation in our Executive Team Speak up programme\ncontinues to stand at 30% female, 70% male. During the year, the Committee\nreceived reports from our Chief\nDisclosures under UK Listing Rule 6.6.6 Compliance Officer – Group Strategy\ncan be found on page 214. Progress on and Policy on the operation of the speak up\nour 2025 diversity targets can be found line. The Committee considered reporting\non page 36. trends in 2025, and was pleased to note\nthat our speak up rate is in line with external\nbenchmarks and to learn about a number of\nimprovement activities relating to the speak\nup programme. Information on the speak up\nline can be found on page 37.\nFor more information about People and\nculture see from page 31.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 77\nGOVERNANCE\nREPORT", "char_count": 5246, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 80, "printed_page": 78, "section": "Governance Report", "subsection": "Committee reports - Audit", "text": "Audit Committee report\nFollowing an investment made by ČEZ Group\nAREAS OF FOCUS IN 2025\n(ČEZ), the Group relinquished control of\nRolls-Royce SMR Limited (Rolls-Royce SMR)\n— Assessed the impact on long-term contract accounting of contract renegotiations, in the first half of 2025. Alongside the\nsupply chain challenges and geopolitical uncertainty deconsolidation of Rolls-Royce SMR,\nthe Committee determined that the\n— Assisted the Board in its decision to reinstate shareholder distributions in 2025 through New Markets operating segment that was\nboth dividends and share buybacks previously reported at 31 December 2024\nwas no longer considered to meet the\n— Considered the accounting impact of changes to the UK defined benefit pension definition of an operating segment. The\nscheme, reviewed the changes in governance for Rolls-Royce SMR Limited leading to Group’s share of the financial results of\nits deconsolidation, and assessed the judgement to fully recognise the deferred tax asset Rolls-Royce SMR have been included in\nrelated to historical UK tax losses ‘All Other Businesses’. For further information\non this change, see note 2 of the Consolidated\nFinancial Statements on page 134.\ndisclosures. In our meetings, we continue\nThe Committee also considered changes\nto have robust conversations to ensure\nin the global macro-economic and political\nmanagement are challenged, to satisfy\nenvironment. Most notably the Committee\nourselves that the judgements taken are\ntested with management and supported the\nappropriate for the Group and the disclosures\nconclusion that the Group expected to fully\nmade are reflective of performance.\noffset the impact of announced direct tariffs\nDuring the year the Committee undertook on the Group through the mitigating actions\ndeep dives of the principal risks we oversee, that were taken.\nincluding our supply chain performance and\nmitigations, and a review of our incident We have ensured that the disclosures in\nmanagement framework, each an aspect of the respect of all key areas of judgement are\nbusiness interruption principal risk. We also appropriate and balanced. We assess and\nreviewed how we mitigate the risk of financial consider the sensitivity of the estimates\nshock under the financial & market shock to changes in key assumptions which are\nprincipal risk, and we considered financial summarised in note 1 of the Consolidated\nreporting risks and the management of tax and Financial Statements on page 124.\ncustoms risks. We approved our tax policy to\nensure it remains appropriate for the Group Climate change\nMembers Nick Luff (Chair) and considered the Group’s position in respect We have continued to support the Board in\nGeorge Culmer of its external tax disclosure obligations. its considerations of climate change risks and\nopportunities. The Committee has reviewed\nLord Jitesh Gadhia\nThe Committee continues to oversee the and approved the TCFD recommendations\nBeverly Goulet\nassurance activity conducted by internal (see page 40) and noted the progress\nPaulo Cesar Silva\naudit. The Committee monitored delivery during the year as the disclosures were\nof their 2025 internal audit plan, considered being prepared for this Annual Report. The\nRemit See page 68\nthe findings from internal audit reports and Committee has ensured it understands and\nreviewed the implementation of identified challenged the assumptions in the climate\nactions. We also approved the 2026 internal scenarios used by management including\nI am pleased to present the Audit Committee\naudit plan, confirming the focus on key risks the forecasts for the assessment of going\nreport for the year ended 31 December 2025,\nand adequate cover of all material operations concern and viability, long-term contract\nwhich provides an overview of our areas\nand appropriate geographical coverage. accounting, impairment testing and deferred\nof focus during the year, as well as the\ntax asset recognition. The impact of climate\nCommittee’s key activities and the During 2025, we have seen a material change, where material, is reflected in\nframework within which it operates. strengthening of the Group’s balance sheet, the financial statements and disclosed\nimproving from a net liabilities position in accordingly. See note 1 in the Consolidated\nGeorge Culmer, Bev Goulet and I have recent 2024 to a net assets position in 2025. This Financial Statements from page 121.\nand relevant financial experience. This strengthening has enabled the reinstatement\nis complemented by Lord Jitesh Gadhia’s of shareholder distributions in 2025 through The Committee has received updates on\ncomplex advisory and transactional both dividends and share buybacks, for which the development of non-financial reporting\nexperience. The appointment of Paulo Cesar the Committee supported the Board in its and assurance requirements in respect of\nSilva as a member of the Committee on deliberations and confirmed the sufficiency sustainability. This has included updates on\n1 August brings additional aerospace sector of the Company’s distributable reserves. climate disclosures under the existing TCFD\nknowledge to our deliberations. The Board\nrecommendations, our preparedness for\nremains confident that the Committee Financial reporting new EU reporting requirements set out\nmembers have the appropriate knowledge, The Group has complex long-term contract in the Corporate Sustainability Reporting\nskills and experience to fulfil the duties accounting and, as in prior years, the Committee Directive (CSRD), EU Taxonomy, Corporate\ndelegated to the Committee and that spent much of its time reviewing the accounting Sustainability Due Diligence Directive\nthe Committee, as a whole, has the policies and judgements implicit in the Group’s (CSDDD) and new UK reporting requirements\ncompetence relevant to the sectors in financial results. In 2025, we considered in the International Sustainability Standards\nwhich the Group operates. the implications of our assumptions and Board (ISSB).\nkey accounting judgements on the financial\nOur focus in 2025 performance of the Group. We assessed the The Committee also received updates on\nThis report sets out the work of the Committee implications of the renegotiation of the most the improving internal controls in relation to\nin 2025 with a focus on the issues relevant to significant onerous aftermarket contracts in process and data and considered progress\nthe Group’s financial reporting, considering Civil Aerospace on our long-term contract made with the Group’s reporting.\nhow business performance is reflected, accounting, as well as the impact of ongoing\nassessing key accounting judgements and supply chain challenges with a backdrop of\nensuring ongoing quality of the related continuing geopolitical uncertainty.\n78 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6820, "tables": [ [ [ "AREAS OF FOCUS IN 2025", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 81, "printed_page": 79, "section": "Governance Report", "subsection": "Committee reports - Audit", "text": "AUDIT COMMITTEE REPORT\nFair, balanced and understandable assessment\nAs in prior years, at the request of the Board, the Committee considered whether the Annual Report, taken as a whole, is fair, balanced and\nunderstandable and that it provides the information necessary for shareholders to assess the Company’s position, performance, business\nmodel and strategy. In so doing, the Committee considered the financial reporting procedures and internal controls in place in preparing\nthe report. The Committee is satisfied that there is a robust governance framework with well documented planning and procedures for the\npreparation of the report and a collaborative approach across all those who contribute to the report. The Committee concluded that the basis\nof preparation was consistent with financial reporting throughout the year and that all significant issues had been considered. The Committee\nwas satisfied that the process was effective and that the messaging was consistent, including the narrative reflecting the financials. It was\nconfirmed to the Board that, when taken as a whole, the Annual Report is fair, balanced and understandable. The Board’s confirmation is set out\non page 111.\nSignificant reporting matters relating to the 2025 financial statements:\nA summary of the significant matters we considered in respect of the 2025 Consolidated Financial Statements is set out below.\nAREA OF FOCUS CONSIDERATIONS\nLong-term contract The Committee considered the assessment of estimates of future revenue and costs on the Group’s\naccounting long-term contractual arrangements. This has continued to be a particular focus for the Committee due to\nthe complex nature of long-term contract accounting, ongoing geopolitical uncertainty and the potential\nimplications of this on future costs, as well as the ongoing supply chain challenges and the implications\nof this on forecasting future costs and capacity output. Onerous contracts are particularly sensitive to\nchanges in revenue as well as cost assumptions, therefore we also focused on the impact of renegotiated\nonerous aftermarket contracts. We reviewed contract catch-ups to understand the changes to revenue\nand the cost assumptions driving them. Further, we reviewed the disclosures and concluded these,\ntogether with the assessments, were appropriate. See note 1 in the Consolidated Financial Statements.\nTax accounting The Committee discussed the recoverability of deferred tax assets and the forecasts, assumptions and\nsensitivities applied in order to ascertain the recognition and recoverability of them. The Committee\ndiscussed the basis for the recognition and considered the judgements and estimates necessary to assess\ntheir recoverability. This was particularly important during the year as we moved back to full recognition\nof the deferred tax asset related to UK tax losses. We considered the recognition of the UK deferred tax\nassets in light of the requirements set out in IAS 12 Income Taxes to assess probable profits. We confirmed\nthe approach, which remained consistent with that taken in 2024, together with the disclosures set out in\nnotes 1 and 5 to the Consolidated Financial Statements on pages 121 and 142, respectively.\nDeconsolidation of The Committee discussed the deconsolidation of Rolls-Royce SMR Limited (Rolls-Royce SMR) arising\nRolls-Royce SMR Limited from the new equity investment by ČEZ Group in March 2025 and reflecting the terms of the revised\nshareholder agreement which resulted in the Group relinquishing control of Rolls-Royce SMR. The\nCommittee also considered the accounting treatment of the deconsolidation and recognition of its\ninvestment in Rolls-Royce SMR at its fair value, and the resulting gain on disposal recognised in the year.\nThe Committee concluded that it was appropriate to deconsolidate Rolls-Royce SMR during 2025 and\nrecognise this gain on disposal. Further detail on the deconsolidation and resulting gain on disposal can\nbe found in note 29 to the Consolidated Financial Statements on page 179.\nChanges to the UK defined The Committee considered the impact of the trustee of the Rolls-Royce UK Pension Fund entering into\nbenefit pension scheme a Buy-in transaction with Pension Insurance Corporation plc. The Committee paid particular attention to\nasset re-measurement loss that arose as a result of this transaction, and whether that asset re-measurement\nloss should be recognised through the income statement or through other comprehensive income and\nexpenses. The Committee concluded that it was appropriate to recognise the asset remeasurement loss\nthrough other comprehensive income and expenses. See note 24 to the Consolidated Financial Statements\non page 171.\nGoing concern and viability As in previous years, the Committee reviewed the information, underlying assumptions and downside\nrisks modelled and presented in support of the going concern and viability assessment. The Committee\nconcluded that the Group has a strong liquidity position over the going concern period and that there is a\nreasonable expectation that the Group will be able to continue in operation and meet its liabilities as they\nfall due over the next five years. The Going concern and viability statements are set out from page 57.\nAlternative performance The Committee reviewed the clarity of the definitions and the reconciliation of each APM to its statutory\nmeasures (APMs) equivalent. The Committee concluded that there was no undue prominence of the APMs in the Annual\nReport. See page 208 for a reconciliation of APMs to their statutory equivalents.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 79\nGOVERNANCE\nREPORT", "char_count": 5638, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 82, "printed_page": 80, "section": "Governance Report", "subsection": "Committee reports - Audit", "text": "AUDIT COMMITTEE REPORT\nRisk management and the internal Effectiveness of risk management — monitor assurance received from the\ncontrol environment and internal control systems Executive Team regarding compliance\nOur risk management and internal control The Committee has conducted a review with relevant policies;\nframework is described in the Principal of the effectiveness of the Group’s risk\n— monitor assurance received on the\nrisks section on page 48. During 2025, management and internal control systems,\neffectiveness of the Group’s internal\nthe Committee reviewed the effectiveness including those relating to the financial\ncontrol environment;\nof risk controls and their assurance, ensuring reporting process. We consider that our\nactions to mitigate where needed and to review of the risk management and internal — review reports from this Committee,\nmanage risks in relation to our appetite for control systems, in place throughout 2025 the internal audit function and the\ntaking risk as described from page 48. and up to the date of this report, satisfies external auditor;\nthe requirements of the Code, the DTR and\n— review the Group’s response to incidents\nWe satisfied ourselves that the processes the FRC’s guidance on risk management.\nand threats, including those related to\nfor identifying and managing risks remain To support this:\ncyber-security and safety; and\nappropriate and that all principal risks and\nmitigating actions had been subject, during — we monitor changes to regulatory — review information gathered from\nthe year, to a detailed review by the Board or requirements with respect to risk the Group’s formal whistleblowing\nan appropriate Board Committee. Based on management on an ongoing basis; process where issues relate to\nthis and on our other activities, including financial misconduct.\n— we review relevant policies and\nconsideration of the work of internal\nprocedures and update where necessary,\nand external audit and attendance at the Where opportunities for improvement\nin line with regulatory changes and our\nCommittee meetings by divisional and were identified, action plans have been\nperspective on effective approaches to\nfunctional risk owners, the Board confirmed put in place and progress is monitored by\nrisk management;\nthat a robust assessment of the principal risks the Committee.\nand emerging risks facing the Group had — our risk management team and relevant\nbeen undertaken. The Board has allocated assurance functions, such as internal audit, UK Corporate Governance Code\ncertain principal risks to the Committee and review key business processes, including – provision 29\nwe considered these in detail throughout long-term contract pack reviews and Provision 29 of the 2024 UK Corporate\nthe year, as described below. The Board the budgeting process with periodic Governance Code, which applies to\nreallocated the oversight of the Information reforecasting, identifying key risks and Rolls-Royce for the financial year\n& data principal risk, including cyber- opportunities; beginning on 1 January 2026, requires\nsecurity, from the Committee to the Safety, an explicit declaration by the Board as to\n— we assess and monitor management\nEnergy Transition & Tech (SETT) Committee the effectiveness of material controls as\nresponses to key audit findings, including\nin early 2025, reflecting the alignment with at the balance sheet date. During the year\nthe design of mitigations and\nits other principal responsibilities and its and with a view to making the required\ndevelopments to existing controls;\nmembers’ expertise. The SETT Committee declaration in the 2026 Annual Report,\nreport can be found on page 110. — a defined anti-bribery and corruption we continued to focus on strengthening\npolicy has been implemented; and our risk and control environment. We\nFrom our discussions, we are satisfied received reports on the Group’s progress\n— where necessary, we report to the Board\nthat the principal risks that the Committee in identifying and documenting material\nand its Committees on key risk and\noversees have received appropriate controls, and discussed the level of\nregulatory matters.\nmanagement attention during 2025: preparedness of the assurance processes\nfor assessing their effectiveness. Further\nDuring the course of the financial year,\n— Business interruption: the Committee information on our preparation for provision\nany control weaknesses identified through\nreceived updates on the status of the 29 can be found on page 50.\nthe operation of our risk management and\nGroup’s supply chain management,\ninternal control processes were subject to\nfocused primarily on civil aerospace, Going concern and viability statements\nmonitoring and resolution in line with our\nand considered our ability to react to, and During 2025, there has been a material\nnormal business operations. In 2025, no\nmanage crises, under the Group’s incident strengthening of the Group’s balance\nsignificant weaknesses were identified. To\nmanagement framework. sheet, improving from a net liabilities\nfurther support the enhancement of the\nposition in 2024 to a net assets position\n— Financial shock: the Committee existing internal control environment:\nin 2025. This strengthening enabled the\nconsidered the financial risks to which\nBoard to reinstate shareholder distributions\nthe Group is exposed including liquidity — risk management specialists have been\nthrough both dividends and share buybacks,\nrisk, credit risk, foreign exchange and assigned to review and monitor the\nand to repay from cash a $1bn bond that\ncommodity risk, interest rate risk and fraud implementation of actions, to ensure these\nmatured in October. Nevertheless, we\nrisk and the mitigations and controls that remain appropriate and aligned to the risks\ncontinued to pay particular attention to\nwe have in place. to which they relate;\nthe going concern and viability statement.\n— policies and procedures are subject to With consideration to the available\nThe Committee specifically reviews the\nreview and are updated to align with information, the Committee confirms it\nGroup’s internal controls over financial\nchanges in the underlying control maintains a reasonable expectation that the\nreporting (see page 48). During 2025, we\nenvironment; and Group is able to continue to meet its liabilities\nreceived an update on the risk assessment\nas these fall due, over the next five years.\nto identify the controls considered to be — risk owners are accountable for managing\nWe reviewed the processes and assumptions\nmaterial and in-scope from a financial these risks.\nunderlying the going concern and viability\nreporting perspective. We monitored\nstatements set out from page 57, considering\nprogress against the 2025 financial controls In addition, and on an ongoing basis, the\nin particular:\nprogramme to strengthen the financial Board reviews the effectiveness of the\nreporting and compliance controls, and Group’s risk management and internal\n— the Group’s forecast funding position over\nwe confirmed completion of identified key control system and continues to:\nthe next five years;\nactivities. We also considered the external\nauditor’s observations on the financial — monitor reports from the Executive Team, — the forecasts for material subsidiaries\ncontrol environment. relating to their assessment of risks and making up this position;\ninternal control systems;\n80 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 7431, "tables": [], "table_count": 0 }, { "pdf_page": 83, "printed_page": 81, "section": "Governance Report", "subsection": "Committee reports - Audit", "text": "AUDIT COMMITTEE REPORT\n— an analysis of impacts of severe but Audit tender Non-audit services\nplausible risk scenarios, ensuring that In line with UK legal requirements To safeguard the auditor’s independence and\nthese included relevant principal risks; regarding auditor tenure and audit objectivity, and in accordance with the FRC’s\ntendering, in December the Committee ethical standard, we do not engage PwC for\n— the impact of multiple risks occurring\ndetermined that the external audit contract any non-audit services, except where it is\nsimultaneously;\nwill be put out to tender in 2026 for the work that they must, or are clearly best suited\n— additional mitigating actions that could financial year commencing 1 January 2028. to, perform. Accordingly, our policy for the\nbe taken in extreme circumstances; and The Committee will lead the tender process engagement of the auditor to undertake\nand recommend its conclusions to the Board non-audit services broadly limit these to\n— the current borrowing facilities in place\nby the end of 2026. We believe that this audit-related services such as reporting\nand the availability of future facilities.\ntimetable will provide sufficient time for to lenders and grant providers, where\nconsideration of alternative firms and, if there there is a requirement by law or regulation\nAs a result, we are satisfied that the going\nis a change from PwC, allowing for a period for the auditors to perform the work. All\nconcern and viability statements have been\nof transition for a new audit firm to build up other non-audit services are considered\nprepared on an appropriate basis.\nsufficient knowledge and understanding of on a case-by-case basis in light of the\nthe Group. We will report the outcome of the requirements of the FRC’s ethical standards\nInternal audit\ntender, and detail on the process, in the 2026 and in compliance with our own policy.\nThe head of internal audit regularly attends\nAnnual Report.\nand reports to the Committee on internal\nFees paid to PwC are set out in note 8 to\naudit matters including:\nDuring 2025, the Group complied with the the Consolidated Financial Statements on\nrelevant provisions of The Statutory Audit page 147. All proposed services must be\n— identifying key trends and headline\nServices for Large Companies Market pre-approved in accordance with the policy\nfindings from internal audit reports issued\nInvestigation (Mandatory Use of Competitive which is reviewed and approved annually.\nin the period;\nTender Processes and Audit Committee Above defined levels, my approval is also\n— details of any specific significant findings Responsibilities) Order 2014, the FRC required before PwC is engaged. We also\nraised by internal audit that warrant the guidance on ‘Audit Committees and the review the non-audit fees charged by PwC\nCommittee’s attention; External Audit: Minimum Standard’ and on a quarterly basis. Our non-audit services\nthe 2024 UK Corporate Governance Code policy can be found at www.rolls-royce.com\n— status of agreed actions arising from\nand the Committee intends for the tender\ninternal audit work;\nprocess to be carried out in line with those Non-audit related fees paid to the auditor\n— progress against the current year’s internal obligations in 2026. during the year were £0.8m (2024: £0.8m),\naudit plan and any changes to the plan; and representing 6% (2024: 6%) of the audit fee.\n2025 audit This included £0.7m (2024: £0.7m) relating to\n— the plan of internal audit work for the\nPwC presented its audit plan to the the review of the half-year results. Our annual\nfollowing year.\nCommittee, providing its assessment of the review of the external auditor takes into\nkey audit risks and the proposed scope of account the nature and level of all services\nI meet with the head of internal audit on a\naudit work. Reflecting on findings from the provided. Based on our review of the\nregular basis, to discuss the function and\nhalf-year review and the developments in services provided by PwC and discussion\nunderstand its findings in more depth. We\nthe Group, we agreed the approach and with the lead audit partner, we concluded\ncontinue to focus on the nature of issues\nscope of work to be undertaken. Key risks that neither the nature nor the scale of\nraised by internal audit and the timescales\nand the audit approach to these risks are the non-audit services gave any concerns\nto complete the related actions. The future\ndiscussed in the Independent Auditor’s regarding the objectivity or independence\nwork plan is risk-based, including risks to\nReport from pages 193 to 203, which also of PwC.\nboth short- and longer-term objectives while\nhighlights the other risks that PwC drew to\nbalancing principal risk areas with business-\nour attention. As part of the reporting of the Looking forward\nas-usual transactional activity where controls\nhalf-year and full year results, in July 2025 This report provides an understanding of\nare understood to be mature and established.\nand February 2026 PwC reported to the the Committee’s work over the past year\nInternal audit also considers the activities\nCommittee on its assessment of the Group’s and I would like to thank my fellow colleagues\nof our second line assurance functions in\njudgements and estimates in respect of these on the Committee for their support during\ntheir approach. Annually, we review the\nrisks and the adequacy of the reporting. the year. Our evaluation noted that the\neffectiveness of the Group’s internal\nWhere effective to do so, PwC also reported Committee is operating well. In addition\naudit function. For 2025, this included\non its assessment of the Group’s controls. to the audit tender process, our focus in\nan assessment of the function’s resources,\nAs in prior years, I meet with the lead audit 2026 will continue to include oversight of\nmethodologies, plans, performance,\npartner regularly and the Committee has a the reporting environment and monitoring\nreporting and quality assurance. Based on\nprivate meeting with PwC at least once a the control framework to ensure compliance\nthe report received, we are satisfied that the\nyear. The Committee reviewed the quality of with provision 29 of the 2024 UK Corporate\nscope, extent and effectiveness of internal\nthe external audit throughout the year and Governance Code, applicable to the\naudit are appropriate for the Group and that\nconsidered the performance of PwC. To Company from 1 January 2026. The\nthere is a suitable plan in place to sustain this.\nsupport this, the Committee members and Committee will also monitor preparedness\nSpecific actions for further improvement\nsenior personnel who regularly interact with for the implementation of IFRS 18, which\nwere identified, the implementation of which\nthe external auditors undertake annually an provides a new presentation requirement\nwill be monitored during 2026.\ninternal evaluation, focusing on a range of for the statement of profit or loss, alongside\nfactors we consider relevant to audit quality. new definitions and disclosures related to\nExternal audit\nThe findings from the 2025 audit evaluation non-IFRS performance measures, effective\nPwC were appointed as the Group’s external\nand agreed actions were reviewed and from 1 January 2027.\nauditor for the financial year commencing\napproved by the Committee in February\non 1 January 2018, following a formal tender\n2026. Feedback was also received from the Nick Luff\nprocess in 2016. As required by audit partner\nauditors on their performance against their Chair of the Audit Committee\nrotation rules, Ian Morrison took over as lead\nown objectives.\naudit partner for the 2023 audit. Other than the\nservices detailed below, PwC have no other\nBased on this, the Committee recommended\nconnection with the Group or its Directors.\nto the Board that PwC be reappointed as\nexternal auditors at the 2026 AGM.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 81\nGOVERNANCE\nREPORT", "char_count": 7914, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 84, "printed_page": 82, "section": "Governance Report", "subsection": "Committee reports - Remuneration", "text": "Remuneration Committee report\nKEY AREAS OF FOCUS IN 2025 PERFORMANCE OF ROLLS-ROYCE OVER THE PAST THREE YEARS (UNAUDITED)\nGBp\n— Design of, and consultation with shareholders on, a new Price: 1,150\nremuneration policy 1,000 Tufan Erginbilgic\nappointed as\n— Delivery of our new global share plan for the wider workforce 800 Chief Executive\n600\n— Consideration of financial and non-financial performance metrics\n400\nto drive continued delivery of our transformation\n200\n31 Dec 31 Dec 31 Dec 31 Dec 31 Dec\n2021 2022 2023 2024 2025\nRemuneration decisions related to 2025\nThe current remuneration policy was approved by shareholders\nat our AGM in 2025. Key features of the policy and how it operated\nduring 2025 can be found on page 86.\nSalary\nAs disclosed last year, base pay awards of 5% were delivered to\nboth Tufan Erginbilgic and Helen McCabe effective 1 March 2025.\nAt the time, this was below the median increase for the broader UK\npopulation for 2025 of 5.5%.\nThe Committee undertook a benchmarking process during the\nsummer to inform our new policy proposals and this identified a\nmaterial gap between the current pay arrangements for Tufan and\nHelen and competitive levels of pay prevalent within our peer group.\nConsequently, the Committee decided to make further adjustments to\nthe base pay arrangements from 1 September as a proactive measure\nMembers Lord Jitesh Gadhia (Chair) to recognise the exceptional performance of the Executive Directors\nStuart Bradie and to mitigate the gap to market. Tufan’s base salary was increased\nGeorge Culmer by 15.6% and Helen’s base salary was increased by 17.7%. These\nBeverly Goulet adjustments result in base pay levels aligned to those typical in other\nWendy Mars FTSE 10 companies. No further increases to base salaries are planned\nuntil March 2027.\nRemit See page 68\nAnnual incentive outturn in respect of 2025\nUnsurprisingly, given the strength of performance, the annual\nincentive outturns for 2025 are significantly above target, aligning\nOn behalf of the Remuneration Committee, I am pleased to present\nwith the wider shareholder experience. The performance measures\nour Remuneration report for 2025. This letter outlines the key\nfor 2025 were weighted 80% towards Group performance and\ndecisions taken by the Committee during 2025 and new remuneration\n20% towards personal performance. At Group level, free cash\npolicy proposals for which we are seeking shareholder approval at the\nflow of £3,270m and operating profit of £3,462m were materially\n2026 AGM.\nahead of the original targets and maximum threshold for\nperformance, delivering maximum outturns for these elements.\nI am pleased to welcome Stuart Bradie, who joined the Committee\nThe scorecard included two strategic measures to incentivise\nin August. Stuart is also a member of our Safety, Energy Transition &\nquality of financial performance and the importance of delivery to\nTech Committee and will provide insights into our non-financial key\nour customers. Underlying operating margin performance of 17.3%\nperformance metrics in addition to his broader insights as a global\nwas ahead of the level required to trigger maximum payout, reflecting\nbusiness leader.\nvery significant year-on-year improvement. However, the customer\nmetric was behind target, primarily reflecting continued supply\nOn behalf of the Committee, I would like to thank our shareholders for\nchain challenges which management continue to address. As a result,\nthe strong levels of support that we received at our 2025 AGM and for\nthe customer metric vested at 22% of maximum. Other non-financial\nthe engagement received during our consultation in the year.\nperformance metrics counted for 10% of the 2025 scorecard and\nrelated to safety (5%) and people (5%). The safety metric measures\nBusiness context for 2025\na combination of the total reportable injuries (TRI) rate and a safety\n2025 marks a third successive record year of performance for\nindex, which places focus on proactive risk management and process\nRolls-Royce. Since Tufan Erginbilgic joined the organisation on\nsafety. The outturn was 39% of maximum, reflecting good progress on\n1 January 2023, over £88bn of shareholder value has been created\nthe safety index scores, counterbalanced by the fact that the TRI rate\nas at 31 December 2025. Dividends have been reinstated, a £1bn share\nremained the same as 2024 performance, missing the limit set for\nbuyback has been completed in the year, and investments within our\n2025. The people outturn, which is linked to colleague engagement\nbusiness have increased year-on-year. The exceptional share price return\nassessed via the Our Voices survey, was 100% of maximum, reflecting\nof over 1,100% during this period far exceeds the relative performance\nimpressive year-on-year improvement in employee engagement.\nof any of our industry peers and has been achieved despite a challenging\nTwenty percent of the overall weighting is linked to personal\nand uncertain external environment in most of our key markets.\nperformance of the Executive Directors. Page 102 sets out the\nCommittee’s assessment of this element of the incentive, which vested\nTufan and his leadership team have consistently exceeded the\nabove target at 100% of maximum for Tufan Erginbilgic and at 90% of\nexpectations of our stakeholders with bold mid-term guidance issued\nmaximum for Helen McCabe.\nin 2023 delivered two years early. Guidance has been beaten and\nraised consistently and our ambitious upgraded mid-term targets\n(based on a 2028 timeframe) are significantly underpinned by the\ntransformation actions that the leadership team are delivering.\n82 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5658, "tables": [ [ [ "KEY AREAS OF FOCUS IN 2025", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ], [ [ null, "Tufan Er", null, "ginbilgic", null, null ], [ null, null, "Tufan Er", "ginbilgic", null, null ], [ null, null, "appoin Chief Ex", "ted as ecutive", null, null ], [ null, null, null, null, null, null ], [ null, null, null, null, null, null ], [ null, null, null, null, null, null ], [ null, null, null, null, null, null ] ] ], "table_count": 2 }, { "pdf_page": 85, "printed_page": 83, "section": "Governance Report", "subsection": "Committee reports - Remuneration", "text": "In reviewing incentive outturns, the Committee considered the When required, it is important that the Board has the optionality\nexperience of internal and external stakeholder groups, in particular to recruit a sufficiently capable Chief Executive with experience\nour employees and shareholders. Our global incentive arrangements in the key North American market, but this would likely come at a\ninclude a strong cascade of targets throughout the Group, which significantly higher cost than our current policy permits. For example,\nmeans that our wider workforce also benefits from the excellent as at 1 January 2025, the total target direct compensation for Tufan\nperformance achieved. The positive experience for our shareholders Erginbilgic was 5% lower than a division leader of General Electric.\nhas already been highlighted above. In this context, the Committee is\npleased to recognise this excellent performance in an overall outturn Remuneration benchmarking peer group review\nof 94% of maximum for Tufan Erginbilgic and 92% of maximum An updated peer group for remuneration purposes was developed\nfor Helen McCabe. In line with the current policy, as Tufan and Helen by the Committee during the year and was approved in August based\nalready hold share interests in excess of twice their shareholding upon market conditions and reported public information at that time.\nrequirements, all of the 2025 annual incentive will be paid in cash in It incorporates similarly complex global businesses which operate in\nMarch 2026. similar markets to those of Rolls-Royce today, and in markets which\nrepresent our growth opportunities (i.e. narrowbody aerospace and\nLong-term incentive plan (LTIP) outturn nuclear). It also includes key talent markets with both traditional and\nUnder the current remuneration policy, we reinstated an LTIP emerging peers amongst UK-listed multinationals and international\nfor Executive Directors in May 2024. The performance period for engineering and industrial technology sectors. The companies\nthese awards will not conclude until 31 December 2026, when the were screened by a conventional market capitalisation size filter\nperformance conditions will be assessed. Therefore, there are no (e.g. selecting companies between 0.5x – 2.0x of the Company’s\nstandard LTIP awards vesting for the performance period ended market capitalisation) with adjustments to ensure critical talent\n31 December 2025. However, under the terms of the buy-out peers above and below this range were included to ensure the\nawards agreed for Helen McCabe upon joining Rolls-Royce, some output results in an appropriate forward-looking peer group.\nperformance shares were granted in place of performance shares We believe that the output of this benchmarking reflects our\nwith equivalent vesting terms which were forfeited upon her business reality with the resulting median well aligned to our\nresignation from her previous employer. The performance market capitalisation (see table below).\nconditions for these shares will deliver a vesting level of 100%\nbased upon financial performance over the period 1 January 2023 Comparison of Rolls-Royce market capitalisation to the\nto 31 December 2025. chosen peer group\nThree-month\nBackground to the proposed new average share price Closing share price\nMarket capitalisation to 4 Aug 2025 (£m) 4 Aug 2025 (£m)\nremuneration policy\nRolls-Royce Holdings plc 76,168 91,680\nOur current remuneration policy was developed in 2023 and was Peer Group upper quartile 116,357 122,688\nbaselined to a median FTSE 50 position, reflecting the Company’s\nPeer Group median 80,253 90,159\nsize and context at that time. Minor amendments to the policy\nPeer Group lower quartile 58,355 63,060\nwere approved by shareholders in May 2025 relating to incentive\ndeferral and shareholding requirements. Following the success\nof the transformation, as at 31 December 2025, Rolls-Royce had a Further details of the methodology adopted to select the peer group\nmarket capitalisation of £97bn and was the sixth largest company in are included on page 88.\nthe FTSE. Our Chief Executive and leadership team have driven an\nunprecedented step-change in performance, and we believe that Proposed new remuneration policy\naligning our pay arrangements to reflect our current circumstances\nis a strategic priority to enable continued business outperformance. We have conducted a thorough review of pay competitiveness\n(base salary, target bonus, expected value of long-term incentives)\nThe following factors have influenced our proposals: relative to our updated remuneration peer group and propose\na reset of total target direct compensation to better align to the\nmedian position. Both our Chief Executive and Chief Financial\nInternational competition for talent\nOfficer’s current target remuneration is below the lower quartile\nRetention of our peer group, and significantly below our main aerospace and\nThe Executive Directors have rightly attracted global attention for the defence competitors. Consequently, subject to shareholder approval,\npace and success of our ongoing transformation. Our executives are we propose increases to short and long-term incentive opportunities\nhighly sought after in the international talent market and competitive from 1 January 2026 to better align with market median levels.\nreward arrangements are essential to retaining our key talent. For\nthe avoidance of any doubt, the proposed adjustments to future The following table summarises the current and proposed changes\nremuneration arrangements are proactive measures initiated by the to incentive arrangements for our Chief Executive and Chief Financial\nCommittee and are not reactive measures. Officer, which will ensure that total target direct compensation levels\nare competitive.\nAttraction\nA large proportion of our talent pool for succession is US-based Proposed changes to incentives\nwhere the aerospace and defence sector is most heavily represented.\nChief Executive Chief Financial Officer\nWe are competing for talent at all levels with global industrial and\nCurrent Proposed Current Proposed\nengineering peers and other major US employers.\nPolicy Policy Policy Policy\nOn-target annual incentive No\nOur international talent pool is reflected in our operations. While\n% of base salary 100% 150% 100% change\nwe are listed in the UK, our businesses are global, with operations,\nMaximum annual incentive No\ncustomers and suppliers present in all continents. Less than 15% of\n% of base salary 200% 300% 200% change\nour 2025 revenue was derived from customers based in the UK.\nLTIP grant level\n% of base salary 375% 750% 275% 450%\nThe table overleaf sets out the impact of these changes relative to the\nupdated remuneration peer group.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 83\nGOVERNANCE\nREPORT\nREMUNERATION COMMITTEE REPORT", "char_count": 6839, "tables": [ [ [ "150%", "100%", "No change" ], [ "300%", "200%", "No change" ], [ "750%", "275%", "450%" ] ] ], "table_count": 1, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 86, "printed_page": 84, "section": "Governance Report", "subsection": "Committee reports - Remuneration", "text": "CHIEF EXECUTIVE TOTAL TARGET DIRECT COMPENSATION (TTDC) RELATIVE TO PEER GROUP (UNAUDITED)\n£30\nSch S n a e fr id a e n r S E A lectric S.E. A S B ie B m L e t n d s A A ir k b t u ie s n S g E esel B ls A c E h a S f y t ste ms U p n lc ileve R r i o P L T C into Group RELX PL B C riti B s P h A p. m l.c e . ri S c h an el l T p o l b c acco R p o . l l l . s c - . Ro G y S c K e p H lc oldings C p u lc m m A in st s r a In Z c e . ne R ca T X P L C C orporat 3 io M E n m Co er m so p H n a o T n E w r y a le m n c s e t D r t i i A c g e C m r o o G . sp ro a u c p e N I I n n E o c c a r t o . t o h r n p r o o C p r o a G r te p r d o u L r o m a c m t k io h a n n e e p C d lc o M rp a o r r ti a n t i C o T G n h o e e r n p B e o o r r a e a l t i n D io g y n n C a o m m ic p s a C ny orpo G r e a C n t a i e o t r e n a r l p E il l l e a c r t I r n ic c . Co mpany\nAlignment with shareholder interests “ Thank you very much for reaching out about this proposed change\nTo ensure continued alignment of management interests with in remuneration policy. I have reviewed the attached letter and we\nshareholder interests, the shareholding requirement for the Chief are very supportive of the changes – we have been impressed by\nExecutive will increase from 400% to 750% of base salary and for the the efforts Tufan and Helen have led in transforming the Company\nChief Financial Officer from 300% to 450% of base salary. This aligns and believe these remuneration changes continue to provide strong\nthe shareholding requirement with the new LTIP grant levels, and incentive and alignment to continue to drive strategic progress at\nincreases the number of shares our Executive Directors will be the Company.” – Investor\nrequired to hold for two years following cessation of employment.\nWe deeply appreciate the views of our shareholders and are pleased\nNo further changes to the remuneration policy are proposed. with the time given and engagement received during this process.\nWe are confident that we received a strong mandate to proceed\nConsultation process and shareholder feedback with the proposed changes outlined above.\nIn September, we consulted with our 24 largest shareholders, who\ncollectively hold over 50% of our share capital. We subsequently A small number of shareholders raised specific questions about\nheld 12 shareholder meetings and received nine written responses. the approach taken by the Committee in constructing the peer\nWe also met with three proxy advisers. We are pleased to confirm group, which we have clarified in a written response and in this\nthat there was consistent and positive support from shareholders, Remuneration report. We also received questions from some\nand a strong understanding of our rationale and approach from investors about the choice of performance metrics in the incentive\nproxy advisers. plans. We have reviewed the metrics to apply in 2026 onwards\nand have set out our rationale in this Remuneration report. We did\nA key consistent theme which emerged from the consultation process consider the choice of peer group to apply for the measurement of\nwas investor expectation that the Committee maintains a disciplined relative total shareholder return (TSR), which is a key metric within\napproach to target setting under the new policy. There was the long-term incentive plan (LTIP). Specifically, we considered if it\nwidespread support for an increase in performance-related pay would be appropriate to adopt the same remuneration peer group\nopportunity for the executives, but on the basis that remuneration for TSR purposes but have decided to treat these two peer groups\noutcomes continue to be underpinned by excellent performance separately. The TSR peer group is made up of organisations with\nlevels. Investors appreciated that the impact of the proposed whom Rolls-Royce competes for capital as opposed to talent. Also,\nincreases to incentive opportunity under the forward-looking policy the indices used for TSR measurement benefit from being dynamic\nwould only impact individuals if future performance conditions are to reflect regular movement of companies entering and leaving\nsatisfied. The following quote from one of our shareholders was one the indices for a range of reasons, updated on a daily basis.\nof many received along very similar lines: This level of dynamism is less relevant when benchmarking\nexecutive remuneration.\n)snoillim\n£(\nCDTT\nREMUNERATION COMMITTEE REPORT\n£25\n£20\n£15\n£10\n£5\n£0\nGroup Median TTDC\nEuropean industrial/aerospace and defence £4.67m\nGlobal-facing FTSEs £7.89m\nUS Industrials £14.1m\nUS Aerospace and Defence £16.77m\nRolls-Royce Holdings plc Chief Executive TTDC £5.8m\nRolls-Royce Holdings plc Chief Executive TTDC under proposed new policy £11.1m\n84 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4813, "tables": [], "table_count": 0, "visual_content": [ { "type": "scatter_chart", "title": "Chief Executive total target direct compensation (TTDC) relative to peer group (unaudited)", "y_axis": "TTDC (GBP millions)", "groups": [ { "group": "European industrial/aerospace and defence", "median_ttdc": "GBP 4.67m", "companies_in_ascending_ttdc_order": [ "Safran SA", "Schneider Electric S.E.", "ABB Ltd", "Airbus SE", "Siemens Aktiengesellschaft", "BAE Systems plc" ] }, { "group": "Global-facing FTSEs", "median_ttdc": "GBP 7.89m", "companies_in_ascending_ttdc_order": [ "Unilever PLC", "Rio Tinto Group", "RELX PLC", "BP p.l.c.", "Shell plc", "British American Tobacco p.l.c.", "GSK plc", "AstraZeneca PLC" ] }, { "group": "US Industrials", "median_ttdc": "GBP 14.1m", "companies_in_ascending_ttdc_order": [ "Cummins Inc.", "3M Company", "Emerson Electric Co.", "Eaton Corporation plc", "Caterpillar Inc." ] }, { "group": "US Aerospace and Defence", "median_ttdc": "GBP 16.77m", "companies_in_ascending_ttdc_order": [ "RTX Corporation", "Howmet Aerospace Inc.", "TransDigm Group Incorporated", "Northrop Grumman Corporation", "Lockheed Martin Corporation", "The Boeing Company", "General Dynamics Corporation", "General Electric Company" ] } ], "rolls_royce_markers": { "chief_executive_ttdc": "GBP 5.8m", "chief_executive_ttdc_under_proposed_new_policy": "GBP 11.1m" }, "note": "Exact TTDC values per peer company are not printed in the report; the chart conveys relative position only. Rolls-Royce plots between the European industrial/aerospace and defence group and the Global-facing FTSE group at current TTDC, and within the Global-facing FTSE/US Industrials range under the proposed policy. General Electric Company is the highest plotted at approximately GBP 27m." } ], "supplemental_text": [ "Safran Electric ABB Airbus ms Unilever RELX Shell GSK Holdings mins AstraZeneca Electric Aerospace Corporation Caterpillar", "Schneider BAE Rio Rolls-Royce Cu RTX 3 merson Group man Martin mics", "Safran Electric ABB Airbus ms Unilever RELX BP Shell Tobacco GSK Holdings mins AstraZeneca Electric Aerospace Corporation Caterpillar", "SA S.E. Ltd SE Aktiengesellschaft plc PLC Group PLC p.l.c. plc p.l.c. plc plc Inc. PLC Corporation mpany Co. Inc. Incorporated plc Corporation Corporation mpany Corporation Inc. mpany", "Sie British A TransDig Northrop General", "mens E How Gru m Lockheed The Dyna General", "Schneider BAE Rio Rolls-Royce RTX 3 merson Group man Martin mics", "Syste Unilever Tinto RELX BP Tobacco AstraZeneca Co Co Co", "Safran Electric ABB Airbus Syste ms Unilever RELX BP Shell Tobacco GSK Holdings mins AstraZeneca Electric Aerospace Corporation Caterpillar", "Syste Tinto m Co Co Co", "Electric ABB Syste ms Unilever RELX BP Shell Tobacco GSK Holdings mins AstraZeneca Electric Aerospace Corporation Caterpillar", "Sie British Northrop General", "Rio merican Rolls-Royce RTX met Group man Martin mics", "Schneider BAE Rio merican Rolls-Royce RTX 3 merson Group man Martin mics", "mens E How m Gru Lockheed The General", "Sie A TransDig Northrop General", "met Eaton m The Dyna", "mens E How Gru Lockheed The Dyna General", "mens E How m Gru Lockheed General", "Cu m M Boeing Electric" ], "rotated_text": [ "TTDC (£ millions)" ] }, { "pdf_page": 87, "printed_page": 85, "section": "Governance Report", "subsection": "Committee reports - Remuneration", "text": "Looking ahead – summary implementation of the In 2025, the median base pay increase in the UK was 5.5%. We\nremuneration policy in 2026 have agreed a multi-year pay deal with our main UK trade union-\nrepresented colleagues to cover the period up to 28 February 2027.\n2026 Annual incentive targets This includes an increase of 4.1% in 2026.\nThe 2026 annual incentive measures and weightings will be\nconsistent with 2025 and continue to reflect our strategic priorities. In 2025, incentive levels for all colleagues were reviewed to ensure\nThe measures are: free cash flow (40%); operating profit (30%); that they are attractive and competitive for our circumstances.\nstrategic objectives of customer delivery (5%) and operating profit Positive changes to on-target and maximum incentive opportunities\nmargin (15%); people (5%) which includes engagement and colleague are planned for the majority of the global workforce from 2026.\nexperience supporting the behaviours that we are seeking to embed\nin our organisation; and safety (5%) which is the number one priority Chair and Non-Executive Director fees\nfor all of our people. In parallel with the benchmarking activity undertaken during the\nyear for the Executive Directors, the Committee reviewed the fees\n2026 Long-term incentive plan (LTIP) targets paid to the Chair. The Chair, together with the Executive Directors,\nThe targets underpinning the 2026 LTIP are included in the also reviewed the fees paid to the Non-Executive Directors.\nRemuneration report. Subject to shareholder approval, the LTIP\naward will be 750% of salary for the Chief Executive and 450% Recognising the material change in market position of Rolls-Royce,\nof salary for the Chief Financial Officer. Following the three-year it was agreed to adjust fees to better align with levels typical of those\nperformance period ending 31 December 2028, any vesting will be for a FTSE 10 organisation. The adjustments approved are set out\nsubject to a mandatory two-year holding period. The LTIP measures on page 108 and took effect from 1 September 2025. A further\nhave been reviewed for 2026 and will be weighted equally between: adjustment to NED fees was made to take effect from 1 March 2026.\nfree cash flow (33.33%); operating profit margin (33.33%); and relative\nTSR (33.33%) assessed in equal parts against the FTSE 100 and the Remuneration Committee advisers\nS&P Global Industrials index constituents. During 2025, the Committee had access to advice from WTW. WTW\nwere appointed by the Committee following a formal tender process\nThe Committee is mindful that free cash flow and operating profit in 2021. Total fees for the advice provided to the Committee during\nmargin metrics feature in both the annual incentive and the LTIP and the year by WTW were £238,243 (2024: £99,850). Fees are based\nbelieves that this is appropriate to incentivise consistency and quality on a time and materials basis. WTW also provided human capital\nof financial performance over the medium term. and benefits services to the Group. No Directors have a connection\nto WTW.\nThe 2025 LTIP performance metrics included a 10% weighting\nagainst Scope 1 + 2 emission targets and the performance conditions The Committee requests that WTW attend meetings periodically\nof that plan will mature on 31 December 2027. We remain sensitive during the year. The Committee is exclusively responsible for\nto our environmental sustainability responsibilities and may consider reviewing, selecting and appointing its advisers and is satisfied\nreinstating an emissions target into the LTIP from that point to cover that the advice it has received has been objective and independent\nthe period from 1 January 2028 to 31 December 2030, aligned with and that there is no conflict of interest associated with any advice\nthe timeframe of our commitment to reduce Scope 1 + 2 emissions by provided. WTW is a member of the remuneration consulting group\n46% (against a 2019 baseline). and, as such, voluntarily operates under the code of conduct in\nrelation to executive remuneration consulting in the UK.\nWider workforce context\nIn 2025, our new share plan offering to the wider workforce In 2025, the Committee carried out a review of the performance\nvested for a large proportion of our people. We awarded all global of WTW. This focused on the strength of the WTW team, treatment\ncolleagues 150 free shares on 12 September 2024 when our share of sensitive topics and their awareness of Rolls-Royce and its\nprice was £4.93. These shares vested in all countries outside of stakeholders in the context of remuneration. The findings from\nthe UK on 12 September 2025, having benefited from a return of this review and agreed actions were approved by the Committee.\napproximately 130%. For colleagues in the UK, these shares will vest\nin 2027. Evaluating the work of the Committee\nThe work of the Committee in 2025 was rated highly and I would\nYour Shares: Gifted has been followed by Your Shares: Matched, a like to thank my colleagues on the Committee for their support\npurchase plan where with every share purchased by the participant, during 2025.\nRolls-Royce awards a matching share for free, up to a maximum\ninvestment each month. This plan was launched in phases in 2025 Summary\nin Germany, UK, US, Canada, China, Singapore, Italy and India,\nThe Committee is delighted with the progress that has been made\nenabling 97% of our global workforce to participate. We strongly\non the transformation programme and the impact that this is having\nbelieve in the importance of employee share ownership and\nfor shareholders and all stakeholders. We are particularly proud\nour colleagues have experienced first-hand the benefits of the\nof the level of alignment we have managed to achieve between\nsignificant share price growth seen in recent years – driven by\nshareholders, management and the wider workforce through\nour transformation. The launch of Your Shares: Matched has been\nour share plans and we are excited and determined to continue\nincredibly successful, with 67% of colleagues in Germany, 72% in\nto play a key role in embedding a distinctive performance culture\nthe UK, 50% in the US, 77% in China and 63% in Canada choosing\nwithin Rolls-Royce.\nto participate. This level of take-up is very high by any external\nstandards. It is driven by our colleagues’ belief in our future,\nWe welcome any feedback on this report and look forward to\nand active leadership engagement with colleagues and their\nreceiving your support for our new Remuneration Policy and\nrepresentatives on the value of employee share ownership.\nDirectors’ Remuneration report at our AGM on 30 April 2026.\nLord Jitesh Gadhia\nChair of the Remuneration Committee\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 85\nGOVERNANCE\nREPORT\nREMUNERATION COMMITTEE REPORT", "char_count": 6803, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 88, "printed_page": 86, "section": "Governance Report", "subsection": "Committee reports - Remuneration", "text": "REMUNERATION COMMITTEE REPORT\nRemuneration at a glance\nThis section provides a summary of the current remuneration policy and its implementation that was approved by a binding shareholder\nvote at the AGM on 1 May 2025 (see page 109). The full policy can be found in the corporate governance section at www.rolls-royce.com\nSummary of our current remuneration policy\nFixed pay Variable pay\nBase salary\nAnnual Incentive Long-term incentive plan\nBenefits 80% Group + 20% individual\nperformance performance\nRetirement Financial Non-financial 30% 30% 30% 10%\n— Cash — Safety free operating relative Scope 1 + 2\n— Profit — Engagement cash flow margin TSR GHG\n— Margin — Customer emission\ntargets 1\n50% deferral for three years (unless shareholding Three-year performance period plus\nthresholds are achieved) two-year holding period\n1 Scope 1 + 2 greenhouse gas emission targets were included in the 2025 LTIP. The 2024 LTIP included 10% Return on Invested Capital\nShareholding requirement – in line with the Rolls-Royce shareholding requirements policy, Executive Directors\nare required to establish and maintain a level of share ownership in proportion to a percentage of base salary. The\nshareholding requirement is 400% for the Chief Executive and 300% for the Chief Financial Officer. Executive Directors\nare also required to retain the lower of their shareholding requirement or their actual shareholding at the date of leaving\nfor 24 months after leaving. Subject to shareholder approval, this requirement will be further strengthened through the\nchanges proposed at the 2026 AGM.\nMalus and clawback – LTIP awards and mandatory deferral arrangements are subject to malus and clawback provisions\nwhere there has been: a material misstatement of audited results; serious financial irregularity; material financial downturn\nor an event causing a material negative impact on the value of the Group; material failure of risk management; a serious\nbreach of Our Code; individual misconduct or actions that materially damage, or are likely to materially damage, the\nGroup; acting in a way which has materially damaged the reputation of the Group or any member of the Group; a breach of\nor inadequate response to a significant HSE or other environmental issue; failure to adequately manage/supervise others\nwhich in turn led to one of the above triggers; and/or materially incorrect calculation of an award. The malus provisions\napply from the date of grant until the settlement date. The clawback period extends to six years from the date of grant.\nExecutive Directors: Summary policy and implementation table 2025\nBase salary\nPurpose and link To attract and retain individuals of the right calibre to develop and execute the business strategy.\nto strategy\nKey features of Salaries are reviewed annually but not necessarily increased. Decisions on salary are informed but not led by\ncurrent policy reference to companies of a similar size, complexity and international reach.\nImplementation in 2025 A salary increase of 5% was awarded to Tufan Erginbilgic and to Helen McCabe effective 1 March 2025.\nThis increase was below the median increase for the broader UK population for 2025 of 5.5%.\nFollowing an updated benchmarking process to support the proposed new policy, a further adjustment was made\nfor both Tufan Erginbilgic (15.6%) and Helen McCabe (17.7%) on 1 September 2025. No further adjustments are\nplanned before 1 March 2027.\nBenefits\nPurpose and link To attract and retain individuals of the right calibre to develop and execute the business strategy.\nto strategy\nKey features of Benefits may include car allowance and related costs, financial planning assistance, private medical insurance,\ncurrent policy life assurance and other appropriate benefits at the discretion of the Committee.\nImplementation in 2025 No changes to benefits.\n86 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3886, "tables": [ [ [ "Base salary" ], [ "Benefits" ], [ "Retirement" ] ], [ [ "Annual Incentive" ], [ "80% Group 20% individual + performance performance" ] ], [ [ "Long-term incentive plan", null, null, null, null, null, null ], [ "30% free cash flow", null, "30% operating margin", null, "30% relative TSR", null, "10% Scope 1 + 2 GHG emission targets 1" ], [ "Three-year performance period plus two-year holding period", null, null, null, null, null, null ] ] ], "table_count": 3 }, { "pdf_page": 89, "printed_page": 87, "section": "Governance Report", "subsection": "Committee reports - Remuneration", "text": "Executive Directors: Summary policy and implementation table 2025 continued\nRetirement\nPurpose and link To attract and retain individuals of the right calibre to develop and execute the business strategy.\nto strategy\nKey features of Executive Directors are offered membership of a defined contribution plan. A cash allowance may be payable in\ncurrent policy lieu of contributions to the defined contribution plan.\nThe maximum contribution is 12% of base salary, in line with the rate offered to the wider UK workforce.\nImplementation in 2025 Allowance of 12% of base salary, in line with the rate for the wider UK workforce.\nAnnual incentive\nPurpose and link We reward annual performance against stretching financial, strategic and individual targets aligned to delivery of\nto strategy the Group’s strategy.\nKey features of An annual award which may be based on a combination of financial, operational and individual performance\ncurrent policy measures aligned to the Group’s strategy. At least half the annual incentive awarded in any year will be deferred\ninto shares for Executive Directors who have not achieved the shareholding guideline. If the Executive Director\nhas exceeded their in-employment shareholding guideline, but has not achieved a level of double the shareholding\nguideline, the level of annual incentive deferral into shares reduces from 50% to 25% of salary. Should the\nExecutive Director achieve double the shareholding guideline then the annual incentive would pay out fully in\ncash. The deferral period will normally be for a period of three years. The Committee may apply discretion to adjust\nany formulaic outturn. Malus and clawback provisions apply.\nMaximum annual opportunity: 200% of base salary.\nImplementation in 2025 An outturn of 189% of target (94% of maximum) for Tufan Erginbilgic and 185% of target (92% of maximum) for\nHelen McCabe.\nLong-term incentive plan\nPurpose and link We incentivise the execution of strategy, driving long-term value creation and sustainable long-term returns\nto strategy to shareholders.\nKey features of Awards are subject to performance targets normally assessed over three financial years. The number of shares\ncurrent policy will be adjusted to reflect performance on the third anniversary of the grant. The shares will vest on the five-year\nanniversary of the grant, after a two-year holding period.\nThe Committee may apply discretion to adjust any formulaic outturn. Malus and clawback provisions apply.\nThe maximum long-term incentive award for Executive Directors is 375% of base salary.\nImplementation in 2025 Awards of 375% and 275% of base salary were made to the Chief Executive and Chief Financial Officer respectively,\non 26 March 2025 for the performance period ending 31 December 2027. If minimum performance levels are\nachieved the LTIP will vest at 20%. Further details of the performance metrics can be found on page 100 of the\n2024 Annual Report.\nNo standard LTIP awards vested during the year. However, 850,760 shares awarded to Helen McCabe under the\nterms of the buyout of awards forfeited from her previous employer vested in 2025. Full details of the buyout were\nincluded in the 2023 Annual Report.\nShareholding requirement\nPurpose and link To align the interests of Executive Directors to those of shareholders by requiring Executive Directors to build a\nto strategy high level of personal shareholding in the Company during their employment and for a specified post-employment\nholding period.\nKey features of The shareholding requirement is 400% of base salary for Tufan Erginbilgic and 300% of base salary for\ncurrent policy Helen McCabe.\nExecutive Directors are required to retain the lower of their shareholding requirement or their actual shareholding\nat the date of leaving for 24 months.\nImplementation in 2025 Shareholdings as a percentage of salary as at 31 December 2025 of the Chief Executive and Chief Financial Officer\nwere 3,729% and 1,179% respectively.\nThe information above reflects the current policy and does not include the proposed changes to incentive levels and shareholding\nrequirements which will be subject to shareholder approval on 30 April 2026.\nAlignment with shareholders\nThe policy ensures alignment with shareholders through a significant part of the overall reward package being delivered in shares with long\nholding periods. This alignment will be further strengthened if shareholders approve the proposed amendments to the current policy at the\n2026 AGM (see from page 88).\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 87\nGOVERNANCE\nREPORT\nREMUNERATION COMMITTEE REPORT", "char_count": 4593, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 90, "printed_page": 88, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Remuneration policy\nIntroduction\nThis policy will take effect immediately after the AGM to be held on 30 April 2026, subject to shareholder approval.\nBackground to the proposed new remuneration policy\nThe current policy was developed in 2023 and was baselined to a median FTSE 50 position, reflecting the Company’s size and context\nat that time. Minor amendments to the policy were approved by shareholders in May 2025 relating to incentive deferral and shareholding\nrequirements. Following the success of the ongoing transformation, as at 31 December 2025 Rolls-Royce had a market capitalisation of £97bn\nand was the sixth largest company in the FTSE.\nFor the purpose of benchmarking remuneration, an updated peer group has been developed by the Committee and was approved in\nAugust 2025 based upon market conditions and reported public information at that time. It incorporates similarly complex global businesses\nwhich operate in similar markets to those of Rolls-Royce, and in markets which represent our growth opportunities (e.g. narrowbody aerospace\nand nuclear). It also includes key talent markets with both traditional and emerging peers amongst UK-listed multinationals and international\nengineering and industrial technology sectors. The companies have been screened by a conventional market capitalisation size filter\n(e.g. selecting companies between 0.5x – 2.0x of the market capitalisation of Rolls-Royce) with adjustments to ensure critical talent peers above\nand below this range are included to ensure the output results in an appropriate forward-looking peer group. We believe that the output of this\nbenchmarking reflects our business reality, with the resulting total target direct compensation median well aligned to our market capitalisation.\nPeer group methodology in detail\nTRADITIONAL PEERS EMERGING PEERS\nAerospace & Defence Global-facing FTSEs Best in class engineering/ Rolls-Royce talent\nindustrial technology flow cross check\n1. Companies screened to provide a Companies screened to provide a 1. Companies screened to provide — Consolidated\nlist of potential peers based on: list of potential peers based on: a list of potential peers based on: peer group cross\nreferenced against\n— Listing location (US or Europe) — Within Rolls-Royce’s three-month — Listing location (US or Europe)\ncompanies from\n— Classified as ‘Aerospace and average market capitalisation of — Within Rolls-Royce’s three-month\nwhich Rolls-Royce\nDefence’ under the broader 0.5x–2.0x average market capitalisation of\nis increasingly\n‘industrials’ category — Financial Services companies 0.5x–2.0x\nrecruiting\n— Within Rolls-Royce’s three-month are excluded — Classified as ‘Industrials’ with\nsenior talent\naverage market capitalisation of — Companies whose operations are industry classification of ‘Electrical\n— The review revealed\n0.5x–2.0x weighted towards the domestic Components and Equipment’\nthat there was\nmarket are excluded (i.e. have or ‘Industrial Conglomerates’\nsignificant overlap,\nUK revenues of 50% or more) or ‘Construction Machinery and\nand no additional\nHeavy Transportation Equipment’\ncompanies were\nor ‘Heavy Electrical Equipment’\nadded\n2. Following stage 1 above, companies\nthat are above the 2.0x ceiling are 2. Following stage 1 above,\nsubject to a manual screen to assess companies that are above the 2.0x\nsuitability for inclusion market capitalisation ceiling are\nsubject to a manual screen to assess\nThere was one company (General\nsuitability for inclusion\nElectric Aerospace) above the 2.0x\nmarket capitalisation ceiling that There were no companies above the\ncould be considered for inclusion 2.0x market capitalisation ceiling that\nin the peer group could be considered for inclusion in\nthe peer group\nFollowing this review, peers in each group are aggregated together into a combined peer group and then reviewed in totality to ensure no critical peers\nare missing and that the Company’s size is comparable to that of the peer group. After this review, Cummins has been added to the peer group.\nResulting peer group\nAerospace & Defence Global-facing FTSEs Best-in-class engineering/\nindustrial technology\n— Airbus — Lockheed Martin — AstraZeneca — RELX — 3M — Eaton\n— BAE Systems — Northrop — BP — Rio Tinto — ABB — Emerson Electric\n— Boeing Grumman — British American — Shell — Caterpillar — Schneider Electric\n— General Dynamics — RTX Tobacco — Unilever — Cummins 2 — Siemens\n— General Electric 1 — Safran — GSK\n— Howmet Aerospace — TransDigm Group\n1 At the time of assessment, General Electric was the only peer with a market capitalisation in excess of 2.0x that of Rolls-Royce. General Electric is a direct peer of our core\nAerospace & Defence activity and is highly relevant as a competitor for talent\n2 At the time of assessment, Cummins’ market capitalisation was below 0.5x that of Rolls-Royce. Cummins is a relevant peer given the adjacency to our Power Systems business\nand our growing market presence in the US industrial power sector\n88 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5025, "tables": [ [ [ "Aerospace & Defence" ], [ "1. Companies screened to provide a list of potential peers based on: — Listing location (US or Europe) — Classified as ‘Aerospace and Defence’ under the broader ‘industrials’ category — Within Rolls-Royce’s three-month average market capitalisation of 0.5x–2.0x" ] ], [ [ "Global-facing FTSEs" ], [ "Companies screened to provide a list of potential peers based on: — Within Rolls-Royce’s three-month average market capitalisation of 0.5x–2.0x — Financial Services companies are excluded — Companies whose operations are weighted towards the domestic market are excluded (i.e. have UK revenues of 50% or more)" ] ], [ [ "Best in class engineering/ industrial technology" ], [ "1. Companies screened to provide a list of potential peers based on: — Listing location (US or Europe) — Within Rolls-Royce’s three-month average market capitalisation of 0.5x–2.0x — Classified as ‘Industrials’ with industry classification of ‘Electrical Components and Equipment’ or ‘Industrial Conglomerates’ or ‘Construction Machinery and Heavy Transportation Equipment’ or ‘Heavy Electrical Equipment’" ] ], [ [ "Rolls-Royce talent flow cross check" ], [ "— Consolidated peer group cross referenced against companies from which Rolls-Royce is increasingly recruiting senior talent — The review revealed that there was significant overlap, and no additional companies were added" ] ], [ [ "Aerospace & Defence", null, null ], [ "— Airbus — BAE Systems — Boeing — General Dynamics — General Electric 1 — Howmet Aerospace", null, "— Lockheed Martin — Northrop Grumman — RTX — Safran — TransDigm Group" ] ], [ [ "Global-facing FTSEs", null ], [ "— AstraZeneca — BP — British American Tobacco — GSK", "— RELX — Rio Tinto — Shell — Unilever" ] ], [ [ "Best-in-class engineering/ industrial technology", null, null ], [ "— 3M — ABB — Caterpillar — Cummins 2", null, "— Eaton — Emerson Electric — Schneider Electric — Siemens" ] ] ], "table_count": 7 }, { "pdf_page": 91, "printed_page": 89, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Proposed changes to policy design\n1. Incentive on-target and maximum levels\nThe table below summarises the current and proposed changes to incentive arrangements for our Chief Executive and Chief Financial Officer\nwhich will ensure that total target direct compensation levels are competitive relative to our chosen peer group.\nChief Executive Chief Financial Officer\nCurrent Policy Proposed Policy Current Policy Proposed Policy\nOn-target annual incentive 100% of base salary 150% of base salary 100% of base salary No change\nMaximum annual incentive 200% of base salary 300% of base salary 200% of base salary No change\nLong-term incentive plan grant level 375% of base salary 750% of base salary 275% of base salary 450% of base salary\nChief Executive and Chief Financial Officer total target direct compensation relative to peer group\nTarget bonus Target Target LTI 3 Total\nBase (% of base annual (% of base target direct\nRolls-Royce/Peer group salary salary) compensation salary) compensation 4\nTufan Rolls-Royce Chief Executive – before any changes 1 1,371,563 100% 2,743,126 225% 5,829,143\nErginbilgic Compa-ratio versus median 99% 83% 50%\nUpper quartile 1,440,000 175% 3,805,000 950% 15,495,000\nPeer group Median 1,385,000 150% 3,300,000 510% 11,730,000\nLower quartile 1,175,000 125% 3,090,000 285% 6,955,000\nProposals from 1 January 2026 – including base pay increase 2 1,586,000 150% 3,965,000 450% 11,102,000\nCompa-ratio versus median 115% 120% 95%\nHelen Rolls-Royce Chief Financial Officer – before any changes 1 795,506 100% 1,591,012 165% 2,903,597\nMcCabe Compa-Ratio versus median 99% 96% 63%\nUpper quartile 870,000 115% 1,870,000 515% 5,330,000\nPeer group Median 805,000 100% 1,650,000 315% 4,615,000\nLower quartile 730,000 100% 1,525,000 240% 3,760,000\nProposals from 1 January 2026 – including base pay increase 2 936,000 100% 1,872,000 270% 4,399,200\nCompa-ratio versus median 116% 113% 95%\n1 Figures shown before changes are based on salaries in place as at 1 March 2025\n2 Proposed changes include base pay adjustments effective from 1 September 2025\n3 Long-term incentive awards are delivered as grants of performance shares, with three-year performance conditions plus a two-year deferral period (i.e. five years in total). The target\nLTI percentages shown in the tables above assume LTIP grants of performance shares vest at 60% of maximum\n4 Target total direct compensation includes on-target levels of incentive payments. The Committee has also considered the relativity of the proposed changes assuming maximum potential\noutturns and the relative positioning of the proposed changes to the peer group would be broadly consistent to the on-target compa-ratio\n2. Shareholding requirement – aligning with shareholder interests\nTo ensure continued alignment of management interests with shareholder interests, the shareholding requirement for the Chief Executive will\nincrease from 400% to 750% of base salary and for the Chief Financial Officer from 300% to 450% of base salary. This aligns the shareholding\nrequirement with the new LTIP grant levels, and increases the number of shares our Executive Directors will be required to hold for two years\nfollowing cessation of employment.\nThere are no further changes proposed to the policy.\nNo Executive Director was present during discussion of their own remuneration package and they were not involved in the final approval of the\nnew remuneration policy design.\nConsideration of shareholder feedback\nDuring the policy review process we consulted with our 24 largest shareholders, who collectively hold over 50% of our share capital. We set\nout our proposals in writing and subsequently held twelve shareholder meetings and received nine written responses. We also met with three\nproxy advisers. We are pleased to confirm that there was consistent and positive support from shareholders, and a strong understanding of\nour rationale and approach from proxy advisers.\nThe Committee wholly believes that effective shareholder alignment requires appropriately stretching targets. Performance targets are\nset following a rigorous process including several internal and external reference points, including the business plan and analyst consensus\nestimates at the time the targets are set.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 89\nGOVERNANCE\nREPORT\nREMUNERATION POLICY", "char_count": 4340, "tables": [ [ [ "150% of base salary", "100% of base salary", "No change" ], [ "300% of base salary", "200% of base salary", "No change" ], [ "750% of base salary", "275% of base salary", "450% of base salary" ] ], [ [ "Peer group", "Upper quartile", "1,440,000", "175%", "3,805,000", "950%", "15,495,000" ], [ null, "Median", "1,385,000", "150%", "3,300,000", "510%", "11,730,000" ], [ null, "Lower quartile", "1,175,000", "125%", "3,090,000", "285%", "6,955,000" ] ], [ [ "Peer group", "Upper quartile", "870,000", "115%", "1,870,000", "515%", "5,330,000" ], [ null, "Median", "805,000", "100%", "1,650,000", "315%", "4,615,000" ], [ null, "Lower quartile", "730,000", "100%", "1,525,000", "240%", "3,760,000" ] ] ], "table_count": 3, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 92, "printed_page": 90, "section": "Governance Report", "subsection": "Remuneration policy", "text": "REMUNERATION POLICY\nRemuneration policy table\nThe table below sets out each element of the Executive Directors’ remuneration, which is subject to shareholder approval at the AGM to be held\nin April 2026.\nBase salary\nPurpose and link We provide competitive salaries to attract and retain individuals of the highest calibre to develop and execute the\nto strategy business strategy.\nOperation Salaries are reviewed annually but not necessarily increased. Decisions on salary are informed, but not led, by\nreference to:\n— size and scope of the role;\n— skills and experience of the individual;\n— market competitiveness of the broader remuneration package;\n— performance of the Group and individual;\n— wider market and economic conditions; and\n— increases made across the Group.\nThe Committee has the flexibility to set the salary of a new hire at a discount to the market and to realign it in\nsubsequent years as the individual gains experience in the role. In exceptional circumstances, the Committee may\nagree to pay above market levels to secure or retain an individual who is considered by the Committee to possess\nsignificant and relevant experience that is critical to the delivery of the Group’s strategy.\nNo recovery or withholding applies.\nMaximum opportunity There is no formal maximum. Any salary increases will be assessed annually and will not normally exceed average\nincreases for employees in other appropriate parts of the Group. Where the Committee considers it necessary\nor appropriate, larger increases may be awarded in individual circumstances, including but not limited to: where\nthere is a significant change in the scale, scope or responsibility of a role; where the organisation has undergone\nsignificant change; development within a role; and/or significant market movement.\nPerformance measures Not applicable, although overall individual and business performance is considered when setting and reviewing\nbase salary.\nBenefits\nPurpose and link We provide competitive benefits suitable to attract and retain individuals of the right calibre to develop and\nto strategy execute the business strategy and to support their wellbeing.\nOperation A range of benefits may be provided including, but not limited to, provision of a company car or car allowance;\nfinancial planning and tax assistance; private medical insurance; life assurance; and other appropriate benefits\nat the discretion of the Committee.\nRelocation support or support for accommodation and travel may be offered to executives where necessary.\nExecutive Directors may participate in the Group’s all-employee share plans.\nNo recovery or withholding applies.\nMaximum opportunity There is no formal maximum. The cost of benefits is not predetermined, reflecting the need to allow for increases\nassociated with the provision of benefits. Benefit costs are reviewed regularly to ensure they remain cost-effective.\nParticipation in any tax advantaged share schemes is capped at the same level as other participants, which is\ndetermined by the Group within the bounds of any applicable legislation which may change from time to time.\nPerformance measures Not applicable.\n90 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3193, "tables": [], "table_count": 0 }, { "pdf_page": 93, "printed_page": 91, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Remuneration policy table continued\nRetirement\nPurpose and link We provide a competitive retirement savings plan suitable to attract and retain individuals of the right calibre to\nto strategy develop and execute the business strategy.\nOperation Executive Directors are offered membership of a retirement savings plan. A cash allowance may be payable in lieu\nof contributions to the plan.\nIn certain jurisdictions it may be more appropriate to offer more bespoke retirement arrangements. The\nCommittee will give due consideration to local employment legislation, market practices and the cost of the plan.\nMaximum opportunity The maximum employer contribution for the Executive Directors is aligned with that made available to the wider\nworkforce, being 12% of base salary in the UK.\nPerformance measures Not applicable.\nAnnual incentive\nPurpose and link We reward annual performance against stretching financial, strategic and individual targets aligned to delivery of\nto strategy the Group’s strategy.\nDeferral reinforces retention and enhances alignment with shareholders by encouraging longer-term focus and\nsustainable performance.\nOperation The Group operates an Annual Incentive Plan which may be based on a combination of financial, operational and\nindividual performance measures aligned to the Group’s strategy.\nAt least half the annual incentive awarded in any year will be deferred into shares for Executive Directors who\nhave not achieved the shareholding guideline. If the Executive Director has exceeded their in-employment\nshareholding guideline, but has not achieved a level of double the shareholding guideline, the level of annual\nincentive deferral into shares reduces from 50% to 25% of salary. Should the Executive Director achieve double\nthe shareholding guideline then the annual incentive would pay out fully in cash. The deferral period will normally\nbe for a period of three years.\nThe Committee has discretion to permit a dividend equivalent amount to accrue on shares delivered under the\ndeferred annual incentive arrangement. Vesting of deferred shares is dependent on continued employment or\ngood leaver status, as described in the notes to the policy table from page 93.\nThe Committee retains the discretion, acting fairly and reasonably, to alter the annual incentive outcome in light of\nthe underlying performance of the Group, taking account of any factors it considers relevant.\nClawback will apply to any cash incentive paid for three years from the date of the cash payment being made, and\nmalus will apply to any deferred shares within the three year deferral period.\nMaximum opportunity The maximum annual incentive opportunity for Executive Directors is 300% of base salary.\nPerformance measures The incentive may be based on a combination of financial, operational and individual measures which the\nCommittee will review on an annual basis. The precise allocation between financial and non-financial measures,\nas well as weightings within these measures, will depend on the strategic focus of the Group from year to year.\nAt least 50% of the performance measures will be financial.\nUp to 25% of the maximum incentive opportunity is paid for achieving a threshold level of performance and the\nmaximum incentive is paid for delivering stretching levels of business performance and outstanding personal\nperformance. No incentive is payable if threshold levels of performance are not achieved.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 91\nGOVERNANCE\nREPORT\nREMUNERATION POLICY", "char_count": 3515, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 94, "printed_page": 92, "section": "Governance Report", "subsection": "Remuneration policy", "text": "REMUNERATION POLICY\nRemuneration policy table continued\nLong-term incentive plan\nPurpose and link We incentivise the execution of strategy and seek to drive long-term value creation and alignment with long-term\nto strategy returns to shareholders.\nOperation Awards under the LTIP are conditional rights to receive shares subject to continued employment or good leaver\nstatus and the achievement of any relevant performance conditions.\nAwards are subject to performance targets normally assessed over three financial years and subject to a two year\nholding period. The Committee has discretion to set different performance periods if it considers appropriate.\nThe Committee shall determine the extent to which the performance measures have been met. The Committee\nmay make adjustments to performance targets if an event occurs or circumstances arise which cause the\nCommittee to determine that performance conditions are no longer appropriate. The performance targets\nwill be at least as challenging as the ones originally set.\nThe Committee has discretion to permit a dividend equivalent amount to accrue on shares during the holding\nperiod under the LTIP.\nThe Committee has the ability to exercise discretion in adjusting the formulaic outcome of incentives to ensure the\noutcome is reflective of the performance of the Group and the individual over the performance period.\nMalus and clawback apply for six years from the date of grant (see page 94).\nMaximum opportunity The maximum long-term incentive award for Executive Directors is 750% of base salary.\nPerformance measures The Committee determines performance measures and weightings each year and will ensure that the targets are\nstretching and support value creation for shareholders while remaining motivational for management. The precise\nmeasures and weightings will be determined by the Committee on an annual basis and will depend on the strategic\nfocus of the Group year-to-year. A minimum of 90% of measures will be financial.\nMeasures for the 2025 award included: free cash flow (30%); operating margin percentage (30%); relative total\nshareholder return (30%); and Scope 1 + 2 greenhouse gas emission targets (10%). For 2026, the measures will\ninclude a one-third weighting to each of: free cash flow, operating margin and relative total shareholder return.\nFor each performance element, achievement of the threshold performance level will result in no more than 20%\nof the maximum award paying out. For achievement of the maximum performance level, 100% of the maximum\npays out. No amount is payable if threshold levels of performance are not achieved.\nThe Committee will review the measures each year, and will consider whether it is appropriate to change the\nmeasures to ensure continued alignment to strategic priorities.\nShare ownership\nPurpose and link Ensures alignment with shareholders’ interests.\nto strategy\nOperation Executive Directors are required to build a holding of share interests equivalent in value to a percentage of\ntheir base salary within five years from the date they become subject to the Policy. From 2026, the shareholding\nrequirement will increase to reflect the LTIP grant level, which for the Chief Executive is 750% of base salary, and\nfor the Chief Financial Officer and any other Executive Director is 450% of base salary. Where requirements are\nnot met, Executive Directors must retain at least one half of after-tax shares released from the deferred bonus\narrangements and the LTIP until this requirement is met.\nPost-cessation, Executive Directors are normally required to retain the lower of the shareholding requirement or\ntheir actual shareholding at leaving date for 24 months.\n92 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3733, "tables": [], "table_count": 0 }, { "pdf_page": 95, "printed_page": 93, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Remuneration policy – worked examples for 2026\nThe tables below provide an illustration of what could be received by each Executive Director for awards granted in, and remuneration for, the\n2026 performance year, assuming minimum, on-target and maximum levels of performance. The maximum with share price increase scenario\nshows the impact of 50% share price growth on the LTIP shares.\nTUFAN ERGINBILGIC HELEN MCCABE\nCHIEF EXECUTIVE CHIEF FINANCIAL OFFICER\n£’000 £’000\nMinimum 100% £1,806 Minimum 100% £1,078\nOn-target 16% 21% 63% £11,322 On-target 24% 20% 56% £4,542\nMaximum 10% 26% 64% £18,459 Maximum 15% 26% 59% £7,162\nMaximum 7% 20% 49% 24% £24,407 Maximum 12% 20% 45% 23% £9,268\nwith share with share\nprice increase price increase\nFixed pay Annual incentive LTIP Share price increase\nMinimum Fixed remuneration (salary, retirement, benefits)\nOn-target Fixed remuneration, on-target annual incentive (equivalent to 150% of salary for the Chief Executive and 100% of salary\nfor the Chief Financial Officer) and 60% vesting of the LTIP (equivalent to 450% for the Chief Executive and 270% for the\nChief Financial Officer)\nMaximum Fixed remuneration, maximum annual incentive (equivalent to 300% of salary for the Chief Executive and 200% of salary\nfor the Chief Financial Officer) and 100% vesting of the LTIP (equivalent to 750% for the Chief Executive and 450% for the\nChief Financial Officer)\nMaximum assuming 50% All elements are the same as the maximum but assumes a 50% increase in the share price from the date that the shares\nincrease in share price are granted\nAlignment with shareholders\nThe table below illustrates how the policy aligns the interests of Executive Directors with the long-term interests of shareholders. A significant\nportion of the total compensation package will be delivered in shares. 50% of the annual incentive will be deferred into shares for a period of\nthree years and the long-term incentive plan will have a three-year performance period followed by a two-year holding period.\nYear 1 Year 2 Year 3 Year 4 Year 5\nFixed pay\n(salary and benefits)\nOne-year performance 50% in shares deferred for three years. 1\nAnnual incentive\nperiod (50% in cash) No further performance conditions attached to the award\nLTIP Three-year performance period Two-year holding period\n1 Deferral of 50% of the annual incentive will apply unless an Executive Director has satisfied at least their minimum shareholding requirement. Twenty-five percent of the annual incentive\nwill be deferred if the shareholding requirement is met in full. No deferral will apply where an Executive Director holds over 200% of their shareholding requirement. Information on the\ncurrent shareholding requirements for the Executive Directors can be found on page 105.\nNotes to the Remuneration policy table\nPerformance measure selection and setting\nThe annual incentive measures are determined annually to reflect matters which the Committee considers to be areas of specific focus for the\nExecutive Directors over the short term. The Committee believes that using a number of measures provides a balanced incentive. The measures\nthemselves are aligned to, and are designed to support the delivery of, the Group’s strategic objectives.\nThe Committee sets performance conditions relating to the LTIP awards which are designed to align the interests of management and\nshareholders, incentivise management to deliver the Group’s strategic objectives and reward performance over the longer term.\nTargets for the annual incentive and performance measures for the LTIP awards are reviewed and set before the awards are made, based\non a number of internal and external reference points, including strategic plans and analyst consensus to reflect market expectations where\navailable. The Committee intends that the targets will be stretching and will align management’s interests with those of shareholders. The\nmeasurement of performance is at the Committee’s discretion, which may include appropriate adjustments to financial or non-financial\nelements and/or consideration of overall performance in the round. Adjustments may be either upwards or downwards.\nIn exceptional circumstances, performance conditions may also be replaced or varied if an event occurs or circumstances arise which cause\nthe Committee to determine that the performance conditions have ceased to be appropriate.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 93\nGOVERNANCE\nREPORT\nREMUNERATION POLICY", "char_count": 4460, "tables": [ [ [ null, "100% £1,806" ] ], [ [ "100%", "£1,078" ] ], [ [ "16%", "21%", "63%", "£11,322" ] ], [ [ "24%", "20%", "56%", "£4,542" ] ], [ [ "10%", "26%", "64%", "£18,459" ] ], [ [ "15%", "26%", "59%", "£7,162" ] ], [ [ "7%", "20%", "49%", "24%", "£24,407" ] ], [ [ "12%", "20%", "45%", "23%", "£9,268" ] ], [ [ null, null, null, null ], [ "One-year performance period (50% in cash)", "50% in shares deferred for three years. 1 No further performance conditions attached to the award", null, null ], [ "Three-year performance period", null, "Two-year holding period", null ] ] ], "table_count": 9, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 96, "printed_page": 94, "section": "Governance Report", "subsection": "Remuneration policy", "text": "REMUNERATION POLICY\nMalus and clawback provisions\nMalus and clawback apply to the annual incentive and the LTIP. Malus allows the Committee, in its absolute discretion, to determine at any time\nprior to the vesting of an award, to reduce or cancel the award. Clawback allows the Committee, in its absolute discretion, to claw back from\nindividuals some or all of the vested awards or paid annual incentives. Malus and clawback may apply in certain circumstances, including:\n— a material misstatement of audited results;\n— serious financial irregularity;\n— material financial downturn or an event causing a material negative impact on the value of the Group;\n— material failure of risk management;\n— a serious breach of Our Code;\n— individual misconduct or actions that materially damage, or are likely to materially damage, the Group;\n— acting in a way which has materially damaged the reputation of the Group or any member of the Group;\n— a breach of or inadequate response to a significant HSE or other environmental issue;\n— materially incorrect calculation of an award; and/or\n— failure to adequately manage/supervise others which in turn led to one of the above triggers and/or materially incorrect calculation of an award.\nPolicy on new appointments\nThe Board will appoint new Executive Directors with a reward package recommended by the Committee that is in line with the remuneration\npolicy. Base salary may be set at a higher or lower level than the previous incumbent. The maximum incentive opportunity on appointment\nwill be no higher than the maximum of the shareholder approved remuneration policy, which is 300% for the annual incentive and 750% for\nthe LTIP.\nRemuneration forfeited on resignation from a previous employer may be compensated. This will be considered on a case-by-case basis and may\ncomprise cash or shares. In general:\n— if such remuneration was in the form of shares, compensation will be in the Company’s shares;\n— if remuneration was subject to achievement of performance conditions, compensation will, where possible, be subject to performance\n(either Rolls-Royce performance conditions or actual/forecast performance outturns from the previous company); and\n— the timing of any compensation will, where practicable, match the vesting schedule of the remuneration forfeited.\nLegacy terms for internal appointments may be honoured, including any outstanding incentive awards. If an Executive Director is appointed\nfollowing a merger or an acquisition of a company by Rolls-Royce, legacy terms and conditions may be honoured.\nWhere an Executive Director is required to relocate from their home location to take up their role, the Committee may provide reasonable\nrelocation assistance and other allowances including expatriate assistance. Global relocation support and any associated costs or benefits\n(including but not limited to housing, school fees, tax preparation and filing assistance and flights back to the home country) may also be\nprovided if business needs require it. Should the Executive’s employment be terminated without cause by the Group, repatriation costs may\nbe met by the Group.\nThe Company may agree to pay the reasonable legal fees incurred by a new appointee for advice received in relation to their contract of\nemployment or service agreement.\n94 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3349, "tables": [], "table_count": 0 }, { "pdf_page": 97, "printed_page": 95, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Wider workforce considerations\nThe Committee has responsibility for overseeing pay arrangements of all our people and reviews broader workforce policies and practices\nin order to support decisions on executive pay. When setting remuneration for Executive Directors and senior management, the Committee\ncarefully considers wider remuneration across the Group, including salary increases, annual incentive awards, share plan participation and\npay ratios between Executive Directors and employees.\nPaying our people fairly relative to their role, skills, experience and contribution is central to our approach to remuneration. The Group’s\nreward framework and policies fundamentally support this. The remuneration policy for senior executives and other employees is determined\nbased on similar principles to Executive Directors. For roles below the Board, the exact structure and balance are tailored based on various\nfactors including the scale, scope or responsibility of the role, development within the role and local market practice.\nWe drive alignment through the organisation with our incentives and our all-employee share plans. The Annual Incentive Plan performance\nmeasures cascade from Executive Directors to the vast majority of our wider workforce and our LTIP plan cascades to over 5,000 global\nleaders as well as our key talent groups, totalling approximately 14% of our global workforce. This drives alignment of organisational and\nindividual objectives, ensuring that the wider workforce is driving the key metrics which will help us to continue to deliver a step-change in\nour performance and enable our strategy. Our reward arrangements are subject to regular consultation activity with leaders, employees and\ntheir representatives.\nThe Committee is committed to driving a culture of employee share ownership, with 2025 being a pivotal year on this journey. The all-employee\nshare plan transitioned from a Save As You Earn plan, which was cash settled outside of the UK and share settled in the UK, and saw the launch\nof a global purchase plan (Your Shares: Matched), where the Company matches personal investment up to a certain value each month, allowing\nall colleagues to become shareholders. The Committee is pleased with the level of engagement with the new plan, with 66% of eligible\ncolleagues choosing to participate.\nWe awarded all global colleagues 150 free shares on 12 September 2024 when our share price was £4.93, making the entire workforce\nshareholders. These shares vested in all countries outside of the UK on 12 September 2025, having benefited from a return of approximately\n130%. For colleagues in the UK, these shares will vest in 2027. The Committee firmly believes that share ownership drives engagement with both\nbusiness and share price performance, and reinforces the message that we all benefit if the business succeeds. Not only does employee share\nownership ensure greater alignment of financial interests, it provides our people with additional voice in corporate matters as a result.\nShare plans\nThe Committee retains a number of discretions consistent with the relevant share plan rules. For example, in the event of any variation in the\nshare capital of the Company, a demerger, special dividend, distribution or any other transaction which will materially affect the value of shares,\nthe Committee may make an adjustment to the number or class of shares subject to awards.\nThe treatment of leavers, including change of control provisions, in all of our share plans is covered by the respective plan rules.\nService contracts\nA summary of the key elements of the Executive Directors’ service agreements as they relate to remuneration are as follows:\nContract duration No fixed term.\nNotice period 12 months’ notice both to and from the Executive Director.\nPayment in lieu of Employment can be terminated with immediate effect by undertaking to make a PILON comprising base salary,\nnotice (PILON) retirement contributions or allowance, car allowance and a sum representing the cost of private medical insurance.\nThe Company may elect to provide private medical insurance and/or to allow an Executive Director to retain their\ncompany car through the notice period, or the balance of it, as an alternative to making cash payments.\nThe Company is entitled to make the PILON on a phased basis, subject to mitigation, so that any outstanding\npayment(s) would be reduced or stopped if alternative employment is obtained.\nChange of control The service agreements for Executive Directors do not contain change of control provisions. However, if\nthere is a change of control of the Company or other specified Company events, the relevant plan rules contain\ndetails on the impact for awards. In most cases, this is likely to result in the awards vesting early but subject to\nstill meeting any applicable performance conditions, as decided by the Committee, which may have regard\nto projected performance over the whole period, and applying time prorating. Alternatively, awards may be\nexchanged for new awards over shares in the acquiring company in some circumstances.\nOther entitlements There is no contractual entitlement to notice or any other payments in respect of the period after termination\non termination of employment if the individual is summarily dismissed.\nPlease see payments for loss of office over the page for a summary of other entitlements which may be due upon\ntermination and which relate to remuneration.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 95\nGOVERNANCE\nREPORT\nREMUNERATION POLICY", "char_count": 5550, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 98, "printed_page": 96, "section": "Governance Report", "subsection": "Remuneration policy", "text": "REMUNERATION POLICY\nPayments for loss of office\nThe Company’s policy on payments for loss of office is as follows.\nThe relevant share plan rules govern the treatment of in-flight share awards when an Executive Director leaves. The table below summarises\nleaver provisions for good leavers.\nGood leavers are those who have left the Group due to: death; ill-health, injury or disability; redundancy; retirement with the agreement of\nthe Group; the sale or transfer of the business in which the Executive Director is employed to a company which is not a member of the Group;\nthe participant’s employing company ceasing to be a member of the Group; and other such circumstances approved by the Committee.\nAll awards will normally lapse if an individual leaves the Company for any reason other than a good leaver reason. The Committee will not\nexercise discretion where a participant is dismissed for gross misconduct.\nThe Company may agree to pay the reasonable legal fees for the advice received in relation to the termination of employment.\nComponent Approach\nAnnual incentive Individuals who are determined by the Committee to be good leavers may be considered for an annual incentive in\nrelation to the year in which their active employment ceases.\nWhen deciding whether to exercise its discretion to allow a payment in respect of an annual incentive (and, if so,\nits amount and the terms on which it may be paid), the Committee will consider such factors as it considers to be\nappropriate, including performance against targets, the performance of the individual and the Group in general\nand the circumstances in which the individual is leaving office. Any payment to a good leaver in respect of\nan annual incentive will typically be made at the same time as annual incentives are paid to other employees.\nClawback will continue to apply to the cash element of any payment made in respect of an annual incentive.\nThe Committee will determine if it is appropriate in the particular circumstances to apply incentive deferral.\nDeferred shares allocated will vest in full on the vesting date if an individual is determined by the Committee to be a\ngood leaver unless the Committee, in its absolute discretion, determines that an award will vest on such earlier date\non or following the date of such cessation as it may specify. Otherwise, they will lapse on exit.\nLong-term If an individual is determined by the Committee to be a good leaver, LTIP awards will normally continue to vest on\nincentive plan the original vesting date and any holding period will normally still apply (subject to the satisfaction of performance\nconditions and unless the Committee exercised its discretion to waive time prorating, which will apply to reflect\nthe period worked). If an individual leaves during the holding period for any reason (except summary dismissal)\nthe award will not lapse or be prorated for time but the holding period will normally remain in force.\nGESPP and SIP Awards under all employee plans (Global Employee Share Purchase Plan and the Share Incentive Plan) are subject\nschemes to the same leaver provisions as all other participants, as prescribed by the rules of the relevant scheme or plan.\nLegacy commitments\nAny remuneration payments and/or payments for loss of office made under legacy arrangements prior to the approval of the remuneration\npolicy may be paid out subject to the terms of the remuneration policy in place at the time they were agreed. For these purposes, payments\ninclude satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment will be agreed at the time\nthe award is granted. Unvested Annual Incentive Plan awards issued under the previous policies, along with any salary that was deferred into\nshares, will vest on the usual vesting dates, consistent with the terms of that policy. LTIPs granted under previous policies remain in place,\nconsistent with the terms of those policies.\nMinor amendments\nThe Committee may make minor amendments to the policy (for regulatory, exchange control, tax or administrative purposes or to take account\nof a change in legislation) without obtaining shareholder approval.\n96 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4234, "tables": [ [ [ "Annual incentive" ], [ "Long-term incentive plan" ], [ "GESPP and SIP schemes" ] ] ], "table_count": 1 }, { "pdf_page": 99, "printed_page": 97, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Non-Executive Directors’ remuneration\nThe table below sets out the main elements of Non-Executive Directors’ remuneration.\nFees\nPurpose and link To reward individuals for fulfilling their role and attract individuals of the skills and calibre required.\nto strategy\nOperation The Committee makes recommendations to the Board on the Chair’s remuneration. The Chair and the Executive\nDirectors determine the remuneration of the Non-Executive Directors.\nThe fees for Non-Executive Directors are set at a level which is considered appropriate to attract individuals\nwith the necessary skills and experience. Fees are periodically reviewed to ensure they remain appropriate in\nthe context of: the role scope; company size; complexity and global breadth; and wider market conditions.\nThe Chair is normally paid a single fee which reflects the commitment, demands and responsibility of the role\nand may be paid in either cash or shares or a combination of both.\nOther Non-Executive Directors are normally paid a base fee and additional fees for Board Committee chairmanship\nand membership responsibilities. The Senior Independent Director, Employee Champions and the Rolls-Royce\nNorth America Board director receive an additional fee for these additional duties. Non-Executive Director fees\nmay be paid in either cash or shares or a combination of both.\nNon-Executive Directors are not eligible to participate in the annual incentive or LTIP.\nMaximum opportunity The current limit on the aggregate fees is set out in the Articles of Association which may be amended by a\nshareholder vote.\nPerformance measures Not applicable.\nBenefits\nPurpose and link To reimburse Non-Executive Directors for reasonable expenses incurred in fulfilling the duties of their role.\nto strategy\nOperation Reimbursement for expenses that may include, but are not limited to, travel, hotel and subsistence incurred when\nattending meetings. The Group may provide support with tax matters for Non-Executive Directors based outside\nthe UK. The Chair may have occasional use of chauffeur services. The Group may pay tax on benefits provided to\nNon-Executive Directors.\nMaximum opportunity Not applicable.\nPerformance measures Not applicable.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 97\nGOVERNANCE\nREPORT\nREMUNERATION POLICY", "char_count": 2291, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 100, "printed_page": 98, "section": "Governance Report", "subsection": "Remuneration policy", "text": "REMUNERATION POLICY\nImplementation of remuneration policy for 2026\nThe salaries for the Chief Executive and the Chief Financial Officer were reviewed in September 2025. No increase\nBase salary is proposed in 2026. Base salaries will next be reviewed in March 2027.\nThere will be no change to our approach to benefits in 2026, which includes car allowance, financial planning\nBenefits assistance, insurances and other benefits.\nThe cash allowance for Tufan Erginbilgic and Helen McCabe is 12% of salary, in line with the rate made available to\nRetirement the wider UK workforce.\nIn line with the proposed policy, the annual incentive for 2026 will be based on 80% Group performance and 20%\nAnnual incentive individual performance, with a maximum opportunity for Tufan Erginbilgic of 300% of salary and Helen McCabe of\n200% of salary. At least half of the annual incentive awarded in any year will be deferred into shares which will vest\nafter three years for Executive Directors who have not achieved the shareholding guideline.\nThe performance metrics continue to reflect the key strategic priorities for the Group, and remain unchanged for\n2026, with an 85% weighting to financial metrics, and 15% to non-financial (customer; safety and people) metrics.\nThe metrics and associated weightings will be:\nMetric Weighting Link to strategy\nFree cash flow 40% A fundamental KPI which helps to measure the level of value we are creating\nfor our shareholders. It enables the business to fund growth, reduce debt\nand make shareholder distributions.\nOperating profit 30% Indicates how the effect of growing revenue and control of our costs\ndelivers value for shareholders.\nStrategic objectives 20% Incentivises the delivery of key annual objectives linked to the transformation.\n(split 5% customer\nCustomer delivery and continuing focus on margin improvement are both\nand 15% operating\ncritical to increasing the quality and sustainability of financial returns.\nprofit margin)\nSafety 5% Safety is the Group’s licence to operate and is the number one priority for\nall of our people.\nPeople 5% Our Voices survey is an objective way of assessing how engaged our\nemployees are with the business, its leaders and our transformation.\nWhere targets are set with a one-year performance period and are considered to be commercially sensitive, they\nwill be disclosed following the end of the performance period, along with performance against targets and the\ndetails and context for the assessment of performance.\nThe Committee may make appropriate adjustments and use judgement in assessing performance outcomes.\nIt retains its overriding ability to apply discretion to adjust any formulaic outcome to ensure that the final outcome\nis fair and justified in the context of the overall performance of the business.\n98 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2841, "tables": [], "table_count": 0 }, { "pdf_page": 101, "printed_page": 99, "section": "Governance Report", "subsection": "Remuneration policy", "text": "Implementation of remuneration policy for 2026 continued\nThe long-term incentive has a three-year performance period and a two-year holding period, with a maximum\nLong-term incentive plan opportunity of 750% of salary for Tufan Erginbilgic and 450% for Helen McCabe.\nFor each performance element, achievement of threshold will result in no more than 20% of the maximum pay out\nand no amount payable for an element if the threshold is not met. Achievement of the maximum performance would\nresult in 100% of the maximum award paying out.\nSince we re-introduced a market-typical LTIP in 2024, the metrics have been updated each year to reflect our key\nstrategic priorities at the time. This is demonstrated in the table below. Cash, profit and relative share performance\nremain consistent metrics. Return on Capital in the 2024 LTIP and a Scope 1 + 2 related metric in the 2025 LTIP\ncontinue to drive long-term focus and action in these key areas. The Committee will continue to consider LTIP\nmetrics each year in light of our strategic priorities each year.\n2024 2025 2026 2027 2028\n30% free cash flow\n30% operating margin\n2024 LTIP\n30% relative TSR\n10% return on capital\n30% free cash flow\n30% operating margin\n2025 LTIP\n30% relative TSR\n10% Scope 1 + 2 emissions\n33.3% free cash flow\n2026 LTIP 33.3% operating margin\n33.3% relative TSR\n2026 metrics\nThreshold 1 Maximum 1\nMetrics Weighting (20% vesting) (100% vesting) Link to strategy\nFree cash flow (three-year cumulative) 33.3% £13.0bn £13.6bn A fundamental KPI which helps\nto measure the level of value we\nare creating for our shareholders.\nIt enables the business to fund\ngrowth, reduce debt and make\nshareholder distributions.\nOperating margin % (average over 33.3% 18.7% 19.5% Reflects the quality of performance\nthree-year performance period) and will encourage continued cost\nfocus across the Group.\nRelative TSR (50% versus the 33.3% Median Upper Closely aligns executive pay\nFTSE 100 constituents and 50% quartile outcomes with the shareholder\nversus the S&P global industrials experience, a measure favoured\nindex constituents) by a large proportion of our\nshareholder base.\n1 Outturn between threshold and maximum will be calculated on a straight-line sliding scale\nThe Committee may make appropriate adjustments and use judgement in assessing performance outcomes.\nIt retains its overriding ability to apply discretion to adjust any formulaic outcome to ensure that the final outcome\nis fair and justified in the context of the overall performance of the business.\nThe long-term incentive opportunities and time horizons will operate in accordance with the remuneration policy.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 99\nGOVERNANCE\nREPORT\nREMUNERATION POLICY", "char_count": 2725, "tables": [ [ [ "30% free cash flow 30% operating margin 30% relative TSR 10% return on capital", null, null, null, null ], [ null, "30% free cash flow 30% operating margin 30% relative TSR 10% Scope 1 + 2 emissions", null, null, null ], [ null, null, "33.3% free cash flow 33.3% operating margin 33.3% relative TSR", null, null ] ] ], "table_count": 1, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 102, "printed_page": 100, "section": "Governance Report", "subsection": "Remuneration report", "text": "Remuneration report\nExecutive Directors’ remuneration\nThe following pages show how we have applied our remuneration policy during 2025 and disclose all elements of remuneration received by our\nExecutive Directors.\nExecutive Directors’ single figure of remuneration (audited)\nTufan Erginbilgic Helen McCabe\n2025 2024 2025 2024\n£’000 £’000 £’000 £’000\nSalary (a) 1,432 1,136 836 690\nSalary as deferred shares – 160 – 62\nBenefits (b) 89 105 33 29\nAnnual Incentive Plan (c) 2,996 2,556 1,730 1,483\nLong-Term Incentive Plan – – – –\nRetirement allowance (d) 172 156 100 90\nPrevious employer buyouts (e) – – 1,104 888\nTotal remuneration 4,689 4,113 3,803 3,242\nTotal fixed remuneration 1,693 1,557 969 871\nTotal variable remuneration 2,996 2,556 2,834 2,371\na) Salary (audited)\nThe Company provides suitable competitive salaries to attract and retain individuals of the right calibre to develop and execute the\nbusiness strategy.\nAs disclosed last year, base pay awards of 5% were delivered to both Tufan Erginbilgic and Helen McCabe effective 1 March 2025. At\nthe time, this was below the median increase for the broader UK population for 2025 of 5.5%. The Committee subsequently undertook a\nbenchmarking process during the summer to inform our new policy proposals and this identified a material gap between the current pay\narrangements for Tufan and Helen and competitive levels of pay prevalent within our peer group. Consequently, the Committee decided to\nmake further adjustments to the base pay from 1 September as a proactive measure to recognise the exceptional performance of the Executive\nDirectors and to mitigate the gap to market. Tufan’s base salary was increased by 15.6% and Helen’s base salary was increased by 17.7%. These\nadjustments result in base pay levels aligned to those typical in other FTSE 10 companies. No further increases to base salaries are planned until\nMarch 2027.\nBase salary as at Base salary as at\n1 March 2026 (£) 1 March 2025 (£)\nTufan Erginbilgic 1,586,000 1,371,563\nHelen McCabe 936,000 795,506\nb) Benefits (audited)\nBenefits are provided to ensure that remuneration packages remain sufficiently competitive to attract and retain individuals of the right calibre\nto develop and execute the business strategy and to enable them to devote themselves fully to their roles. The value of all taxable benefits paid\nto Executive Directors is shown below.\nCar or car Medical Travel and Tax\nallowance insurance subsistence benefit Total\n£’000 £’000 £’000 £’000 £’000\n2025 2024 2025 2024 2025 2024 2025 2024 2025 2024\nTufan Erginbilgic 15 15 68 64 – 26 6 – 89 105\nHelen McCabe 15 15 2 2 4 11 12 1 33 29\nc) Annual Incentive Plan (audited)\nThe Annual Incentive Plan is designed to incentivise the execution of the business strategy, delivery of financial targets and the achievement\nof personal objectives. Awards are made in March each year, following the prior calendar year performance period. Half of the incentive is\ndeferred into shares for three years for Executive Directors who have not achieved their shareholding guideline. If the Executive Director has\nexceeded their shareholding guideline but not achieved a level of double the shareholding guideline, the level of annual incentive deferral into\nshares reduces from 50% to 25%. Should the Executive Director achieve double the shareholding guideline then the annual incentive would\nfully pay out as cash. Any deferred shares include the right to receive an amount equal in value to any shareholder distributions issued during\nthe deferral period. The shares are conditional on continued employment but do not have further performance conditions. In 2025, the\nmaximum opportunity under the Annual Incentive Plan for the Chief Executive and the Chief Financial Officer was 200% of base salary.\n— 80% of the award is based on Group performance; and\n— 20% of the award is based on individual performance.\n100 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3936, "tables": [ [ [ "2025 £’000", "2024 £’000", null, "2025 £’000", null ], [ "1,432", "1,136", null, "836", "690" ], [ "–", "160", null, "–", "62" ], [ "89", "105", null, "33", "29" ], [ "2,996", "2,556", null, "1,730", "1,483" ], [ "–", "–", null, "–", "–" ], [ "172", "156", null, "100", "90" ], [ "–", "–", null, "1,104", "888" ], [ "4,689", "4,113", null, "3,803", "3,242" ], [ "1,693", "1,557", null, "969", "871" ], [ "2,996", "2,556", null, "2,834", "2,371" ] ], [ [ "Base salary as at 1 March 2026 (£)", "Base salary as at 1 March 2025 (£)" ], [ "1,586,000", "1,371,563" ], [ "936,000", "795,506" ] ], [ [ "Car or car allowance £’000", "Medical insurance £’000", "Travel and subsistence £’000", "Tax benefit £’000", "Total £’000" ] ], [ [ "15", "15", "68", "64", "–", "26", "6", "–", "89" ], [ "15", "15", "2", "2", "4", "11", "12", "1", "33" ] ] ], "table_count": 4 }, { "pdf_page": 103, "printed_page": 101, "section": "Governance Report", "subsection": "Remuneration report", "text": "The Committee reviewed the 2025 outturn against the performance measures.\n2025 Annual Incentive performance outturns\nThreshold Target Maximum Performance Performance % of % of\nWeighting (50% outturn) 1 (100%) 1 (200%) 1 pre-adjustments post-adjustments target maximum\nAnnual targets:\nFree cash flow 2 40% £2,656m £2,856m £3,056 3,270 3,247 200% 100%\nActual £3,247m\nOperating profit 2 30% 2,657 2,857 3,057 3,462 3,438 200% 100%\nActual £3,438m\nPeople – Our Voices survey 5% 78% 79% 80% n/a n/a 200% 100%\nActual 81%\nSafety 5%\n– Safety index score 2.5% 95% 97% 99% n/a n/a 155% 77.5%\nActual 98.1%\n– Total Reported Injuries 2.5% 0.275% 0.25% 0.2% n/a n/a 0% 0%\nActual 0.29%\nKey strategic objectives 3\n– Operating profit margin 2 15% 13.8% 14.2% 15.2% 17.3% 17.1% 200% 100%\nActual 17.1%\n– Customer ⁴ 5% n/a n/a n/a n/a n/a 44.7% 22.3%\nActual 44.7%\nOutcome 186.1% 93.1%\n1 Payout between threshold and target and target and maximum is calculated on a straight line sliding scale\n2 Free cash flow and operating profit have been adjusted to account for foreign exchange changes during 2025 in order to ensure that targets and assessments are measured on a\nlike-for-like basis\n3 Key strategic objectives aligned to the broader transformation objectives were weighted 75% to operating profit margin and 25% to customer delivery metrics\n4 Each Division had one clear, simple and easily measurable delivery metric that our customers would support. Group outturn is the average of the three Divisions. Civil Aerospace and\nDefence missed their target, while Power Systems achieved 134%\n85% of the 2025 annual incentive scorecard was weighted to financial metrics and 15% weighted to non-financial metrics. The Committee\nconsidered adjustments to targets resulting from events which were not anticipated at the time the targets were set, to ensure that targets\nand assessments are measured on a like-for-like basis. No further adjustments were made.\nThe incentive plan outturns are 186.1% of target and 93.1% of maximum.\nTufan Erginbilgic Helen McCabe\nGroup performance (% of maximum) – weighting 80% 93.1% 93.1%\nIndividual performance (% of maximum) – weighting 20% 100% 90%\nActual award (% of maximum) 94% 92%\nActual award (% of salary) 189% 185%\nActual award (£’000) £2,996 £1,730\nAs the Chief Executive and the Chief Financial Officer hold more than double their required shareholding, all of the 2025 Annual Incentive will\nbe paid as cash.\nDefinitions used for performance measures:\nOperating profit – adjusted Group underlying operating profit before tax.\nFree cash flow – adjusted Group free cash flow.\nOperating profit margin – adjusted Group underlying operating profit margin.\nPeople – based on the results of the Our Voices survey.\nSafety – equally weighted between our two key internal safety measures (the safety index and total reported injury rates). The safety index is an\nestablished internal KPI used by all divisions and was included for the first time as an incentive metric for 2023.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 101\nGOVERNANCE\nREPORT\nREMUNERATION REPORT", "char_count": 3074, "tables": [ [ [ "Actual 98.1%", null ] ] ], "table_count": 1, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 104, "printed_page": 102, "section": "Governance Report", "subsection": "Remuneration report", "text": "REMUNERATION REPORT\nIndividual performance\nSubject to achievement of a minimum financial threshold, 20% of the annual incentive opportunity for the Executive Directors is based on\nthe achievement of their personal objectives. The financial threshold for 2025 was to deliver a Group free cash flow of a minimum of £1,530m.\nPersonal performance objectives are set at the beginning of the year and are aligned with the Group’s priorities.\nChief Executive: Tufan Erginbilgic\nObjective Measure Assessment against objective\nSafety Demonstrate year-on-year progress to Product safety risk reached its lowest level in a generation, with all\nreduce the number of Total Reported divisions resolving issues and enhancing portfolios.\nInjuries (TRI). Embed process safety\nSafety culture is consistently reinforced at every level in the\nreporting and performance management\norganisation and embedded in the new behaviours. More than\nacross the Group.\n13,000 employees completed the new facilitator-led\nSafety Experience, reinforcing understanding of safety systems\nand personal accountability.\nThe Our Voices survey results demonstrated safety is understood\nby all layers of the organisation as our number one priority.\nTRI rate stable year-on-year at 0.29, which is the lowest level\non record.\nOperational Drive improvements in product Proactive steps taken across the Group to improve supply chain\neffectiveness cost with the aim of outperforming efficiency and to continue to manage ongoing supply chain\nindustry benchmarks. challenges in the aviation supply chain. Engine production and\naftermarket throughput improved, which was recognised externally\nby Airbus through its Operational Excellence Award. Global MRO\nexpansion is restoring fleet performance, with progress on reducing\naircraft on ground.\nExcellent progress on all six levers to unlock value within Civil\nAerospace: extend time on wing, lower shop visits, reduce product\ncosts, keep engines earning for longer, value-based pricing and\ncontractual rigour to restructure onerous contracts.\nGroup Business Services (GBS) function scaled up with the\nexpansion of a Global Capability and Innovation Centre in India,\nwhich will include engineering, people, finance and procurement\nteams, as well as digital and data innovation teams to help accelerate\ndigital transformation.\nPerformance Deliver free cash flow of £2,800m; deliver Significant outperformance across all financial KPIs enabling updated\nmanagement operating profit of £2,900m; and deliver mid-term guidance to be delivered.\noperating margin of 14.2%.\n2025 free cash flow of £3,270m; operating profit of £3,462m; and\noperating margin of 17.3%.\nThe organisation has achieved its mid-term operating margin target\n(15%–17%) three years early. Based on 2026 guidance, we expect to\ndeliver profit targets two years earlier than planned.\nStrategic initiatives Embed a multi-year transformation The 17 strategic initiatives are all delivering and many over-achieving\ndelivery programme that will eliminate aircraft the targets, including net efficiency targets over-delivered.\non ground and deliver a step-change\nIn Civil Aerospace, excellent progress has been made to improve time\nin original equipment performance\non wing and in reducing aircraft on ground.\nand commercial capability across\nthe Group. In Defence, significant progress has been made to grow our\ncombat business.\nSecure strategic partnership for\nRolls-Royce SMR. In Power Systems, we are capturing profitable growth in the back-up\npower generation systems for the rapidly growing data centre market.\nRolls-Royce SMR was selected by Great British Energy – Nuclear to\ndeploy three SMRs in the UK. We deepened our partnership with\nČEZ Group, now a shareholder in Rolls-Royce SMR.\nBehaviours Maintain strong engagement scores Strong year-on-year progress reported in the Our Voices survey,\nmeasured by Our Voices in 2025. demonstrating our transformation continues to be reinforced by the\nfour behaviours introduced in 2024: put safety first; do the right thing;\nkeep it simple; and make a difference. These behaviours have become\npart of the organisation’s common language.\nThe Power of You recognition platform has generated over 10,000\nrecognitions since launch, with strong adoption across all regions.\nOverall personal performance assessment: 200%\n102 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4367, "tables": [], "table_count": 0 }, { "pdf_page": 105, "printed_page": 103, "section": "Governance Report", "subsection": "Remuneration report", "text": "Chief Financial Officer: Helen McCabe\nObjective Measure Assessment against objective\nSafety Continue to build a culture that puts Consistent and effective advocate driving safety culture.\nsafety at the heart of everything we\nInternal controls and compliance processes and culture demonstrably\ndo. Ensure robust compliance and\nstrengthened across the Group underpinned by greater use of digital\ncontrols environment.\nand automation.\nOperational effectiveness Finalise and start to execute an IT & Digital Comprehensive IT & Digital strategy approved to address safety,\nstrategy; Execute GBS strategy in line compliance and strategic delivery. Launch of AI platform, AiRR,\nwith plan; Execute new Sales, Inventory & with AI capabilities being deployed across engineering, MRO and\nOperating Planning (SIOP) process. supply chain.\nContinued focus to maintain and strengthen cyber compliance\nand security.\nIntegrated performance management robustly embedded.\nExcellent GBS progress: established new centre in Poland and\nexpanded centre in India, including approximately 200 colleague\ntransfers whilst maintaining ‘silent running’; accelerated business\ncases approved and progressed; governance in place, with\nhigh confidence of achieving efficiency, effectiveness and\nexperience commitments.\nNew Group-wide SIOP process tracking very well with high visibility\nand confidence of optimisation benefits with cycle times reduced,\nprocesses being optimised and insights improved.\nPerformance management Deliver free cash flow of £2,800m; deliver Significant outperformance across all financial KPIs enabling updated\noperating profit of £2,900m; and deliver mid-term guidance to be delivered.\noperating margin of 14.2%.\n2025 free cash flow of £3,270m; operating profit of £3,462m; and\noperating margin of 17.3%. The organisation has achieved its mid-term\noperating margin target (15%–17%) three years early. Based on 2026\nguidance, we expect to deliver profit targets two years earlier\nthan planned.\nStrategic initiatives Execute the capital framework Balance sheet resilience restored.\ndelivery strategically, commercially and\nUpgrades to strong investment grade ratings from all three credit\nrobustly. Deliver targeted investor\nrating agencies.\nupdates successfully.\nReturn to shareholder distributions in the form of first cash\ndividends in more than five years and first share buyback programme\nin ten years.\nPurposeful and effective investor engagement on capital frame.\nBehaviours Implement new organisational design Demonstrable progress in strengthening key talent areas.\nacross Finance, GBS, IT & Digital functions.\nGroup-wide focus to achieve synergies and deliver significant and\nStrengthen talent pipeline for critical roles.\nrecurring operating cost reductions.\nDrive engagement and our behaviours with\nvisible leadership. More efficient and simplified operating model with greater investment\ndiscipline and more focused management of third-party costs.\nCumulative efficiency and simplification savings of over £600m\ndelivered by the end of 2025, overachieving the targets set out in the\nStrategic Review in 2023.\nStrong year-on-year progress reported in the Our Voices survey.\nColleague engagement and impact of behaviours all above\nGroup average.\nOverall personal performance assessment: 180%\nd) Retirement (audited)\nExecutive Directors are offered membership of a defined contribution plan with a maximum employer contribution of 12% of salary (or cash\nallowance of equivalent value) in line with the rate available to the wider UK workforce.\nIn 2025, Tufan Erginbilgic and Helen McCabe received a cash allowance in lieu of employer contributions.\ne) Compensation for remuneration forfeited from previous employment (audited)\nChief Financial Officer\nHelen McCabe has been compensated for remuneration forfeited from previous employment which included shares. A number of these shares\nwere subject to performance conditions set for the wider Group in 2022 and 2023. Details of these awards, the performance conditions and\ntargets were first reported in the 2023 Annual Report.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 103\nGOVERNANCE\nREPORT\nREMUNERATION REPORT", "char_count": 4165, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 106, "printed_page": 104, "section": "Governance Report", "subsection": "Remuneration report", "text": "REMUNERATION REPORT\ne) Compensation for remuneration forfeited from previous employment (audited) continued\nThe first tranche of performance shares vested in March 2025 and were subject to performance conditions set in 2022 covering the\nperformance period 1 January 2022 to 31 December 2024. The performance conditions included a free cash flow target (45% weighting,\nthreshold target of £874m and maximum target of £2,674m); a cumulative operating profit target (45% weighting, threshold target of £1,705m\nand maximum target of £2,905m); and a CO sustainability target (10% weighting, calculated as the average achievement of CO sustainability\n2 2\nmilestones across the divisions, subject mainly to product compatibility with sustainable fuels). This award vested at 98%, with free cash\nflow and operating profit above the maximum target and the CO sustainability milestone vested at 80%. The value of this award has been\n2\ncalculated and restated using the actual share price at vest of £7.67. The figure of £888,000 includes share price appreciation over the\nperformance period of £705,000.\nThe second tranche of performance shares were subject to performance conditions set in 2023 covering the performance period 1 January 2023\nto 31 December 2025, and will vest in March 2026. The performance conditions were equally weighted to operating profit (threshold target of\n£4.4bn, maximum of £5.4bn) and free cash flow (threshold target of £4bn, maximum of £5.3bn). This award will vest at 100%, with free cash flow\nand operating profit above the maximum target. The value of this award has been calculated using the average share price for the month ended\n31 December 2025 of £11.13. The figure of £1,104,000 includes share price appreciation over the performance period of £951,000.\nPayments to past Directors (audited)\nJasmin Staiblin stepped down as a Non-Executive Director from the Board on 13 May 2021. Jasmin was appointed as a member of the\nsupervisory board of Rolls-Royce Power Systems AG on 10 June 2021 and as chair of their supervisory board, executive committee, audit\ncommittee and mediation committee on 11 June 2021. Payments of £275,636 have been made to Jasmin in 2025 in relation to her appointment\n(2024: £259,905). No other payments have been made to past Directors during the year.\nPayments for loss of office (audited)\nThere were no payments for loss of office in 2025.\nExecutive Directors’ shareholdings and share interests\n2025 Annual Incentive Plan – Deferred shares\nThe following table summarises the Annual Incentive Plan awards made to Executive Directors in March 2025. Awards were made in the form\nof shares representing 50% of the annual incentive in respect of the 2024 financial year. These conditional awards are subject to continuous\nemployment. Further details about the 2024 Annual Incentive Plan can be found in the 2024 Annual Report.\nValue of award Market price\nNumber of at grant at grant 1\nshares granted £’000 Vesting date GBp\nTufan Erginbilgic 161,710 1,278 26/03/2028 790.33\nHelen McCabe 93,792 741 26/03/2028 790.33\n2025 LTIP\nThe following table summarises the LTIP awards made to the Executive Directors on 26 March 2025 for the performance period ending\n31 December 2027. For further information see page 87.\nValue of award End of Market price\nNumber of at grant performance at grant 1\nshares granted £’000 period Vesting date GBp\nTufan Erginbilgic 650,787 5,143 31/12/2027 26/03/2030 790.33\nHelen McCabe 276,802 2,187 31/12/2027 26/03/2030 790.33\n1 Based on 15-day average share price prior to the date of grant\nExecutive Directors’ share awards (audited)\nThe tables below provide details of the Executive Directors’ overall interests in ordinary shares under the Company’s share plans. The Executive\nDirectors do not have share options.\nBalance as of During the year Balance as of\n31 December 31 December\nAward Type Date of grant 2024 Granted Vested Lapsed 2025 Date of vest\nTufan Erginbilgic\nLTIP (Buyout) 1 08/03/2023 4,128,138 – – – 4,128,138 08/03/2027\n08/03/2023 4,128,138 – – – 4,128,138 08/03/2028\nLTIP 2 24/05/2024 1,129,193 – – – 1,129,193 24/05/2029\n26/03/2025 – 650,787 – – 650,787 26/03/2030\nExecutive Incentive Plan 1, 3, 4 01/03/2024 511,390 – – – 511,390 01/03/2027\n01/03/2024 767,086 – – – 767,086 01/03/2028\nAnnual Incentive Plan 1, 3 26/03/2025 – 161,710 – – 161,710 26/03/2028\nSalary Deferred Shares 1, 3 27/01/2023 – 27/01/2025 –\n28/05/2024 259,584 – 217,547 – 42,037 28/05/2026\nTotal 10,923,529 812,497 217,547 – 11,518,479\n1 Shares are not subject to performance conditions\n2 Shares are subject to performance conditions\n3 Shares will accrue additional shares at vest as a result of the reinvestment of dividend equivalents during the vesting periods\n4 These awards were issued under the legacy hybrid Executive Incentive Plan which operated over 1 January 2021 to 31 December 2023\n104 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4904, "tables": [ [ [ "Number of shares granted", "Value of award at grant £’000", "Vesting date", "Market price at grant 1 GBp" ] ], [ [ "Number of shares granted", "Value of award at grant £’000", "End of performance period", "Vesting date", "Market price at grant 1 GBp" ] ], [ [ "Date of grant", "Balance as of 31 December 2024", "During the year", null, null, "Balance as of 31 December 2025", "Date of vest" ], [ null, null, "Granted", "Vested", "Lapsed", null, null ], [ null, null, null, null, null, null, null ], [ null, null, null, null, null, "4,128,138", null ], [ null, null, null, null, null, "4,128,138", null ], [ null, null, null, null, null, "1,129,193", null ], [ null, null, null, null, null, "650,787", null ], [ null, null, null, null, null, "511,390", null ], [ null, null, null, null, null, "767,086", null ], [ null, null, null, null, null, "161,710", null ], [ null, null, null, null, null, "42,037", null ], [ null, null, null, null, null, "11,518,479", null ] ] ], "table_count": 3 }, { "pdf_page": 107, "printed_page": 105, "section": "Governance Report", "subsection": "Remuneration report", "text": "Balance as of During the year Balance as of\n31 December 31 December\nAward Type Date of grant 2024 Granted Vested Lapsed 2025 Date of vest\nHelen McCabe\nLTIP (Buyout) 29/11/2023 536,966 1 – 536,966 – – 08/03/2025\n29/11/2023 198,002 1 – 198,002 – – 08/03/2025\n29/11/2023 118,156 2 – 115,792 2,364 – 08/03/2025\n29/11/2023 99,212 2 – – – 99,212 23/03/2026\n29/11/2023 162,337 1 – – – 162,337 23/03/2026\nLTIP 2 24/05/2024 480,284 – – – 480,284 24/05/2029\n26/03/2025 – 276,802 – – 276,802 26/03/2030\nExecutive Incentive Plan 1, 3, 4 01/03/2024 99,175 – – – 99,175 01/03/2027\n01/03/2024 148,763 – – – 148,763 01/03/2028\nAnnual Incentive Plan 1, 3 26/03/2025 – 93,792 – – 93,792 26/03/2028\nSalary Deferred Shares 1, 3 26/08/2023 – 26/08/2025 –\n26/05/2024 42,801 26,548 – 16,253 26/05/2026\nTotal 1,885,696 370,594 877,308 2,364 1,376,618\n1 Shares are not subject to performance conditions\n2 Shares are subject to performance conditions\n3 Shares will accrue additional shares at vest as a result of the reinvestment of dividend equivalents during the vesting periods\n4 These awards were issued under the legacy hybrid Executive Incentive Plan which operated over 1 January 2021 to 31 December 2023\nExecutive Directors’ share interests as at 31 December 2025 (audited)\nThe table below provides details of the total shareholding and share interests of the Executive Directors (including the interests of their\nconnected persons) in ordinary shares as at 31 December 2025.\nScheme Interests\nConditional shares Conditional shares\nnot subject to subject to\nShares performance performance Salary deferred Total scheme Shareholding % of 2025\nbeneficially held conditions conditions shares interests requirement (%) base salary ²\nTufan Erginbilgic 115,883 9,696,462 1,779,980 42,037 3 11,518,479 3 400 3,729\nHelen McCabe 709,248 ¹ 504,067 856,298 16,253 3 1,376,618 3 300 1,179\n1 Shares beneficially held by Helen McCabe include 617 shares through the employee share purchase plan\n2 Calculated by reference to the three-month average share price to 31 December 2025\n3 Shares will accrue additional shares at vest as a result of the reinvestment of dividend equivalents during the vesting periods\nDuring the period between 1 January 2026 to 26 February 2026, the following changes in interests have occurred:\n— On 26 January 2026, 10,195 salary deferred shares vested for Tufan Erginbilgic and 3,942 salary deferred shares vested for Helen McCabe\n— Helen McCabe acquired 15 shares on 7 January 2026 and 16 shares on 9 February 2026 under the Your Shares: Matched employee\nshare scheme\nNo other changes in Executive Director share interests occurred in the period.\nExecutive Directors’ shareholding requirements (audited)\nIn line with our shareholding requirements policy, Executive Directors are required to establish and maintain a level of share ownership\nin proportion to a percentage of base salary. The shareholding requirement is 400% for the Chief Executive and 300% for the Chief\nFinancial Officer. Share interests that are included in the shareholding requirements are as follows: shares vested from Company share\nplans; shares held in the individual’s own name or by a nominee; shares held by a person closely associated (PCA) (as defined by the UK Market\nAbuse Regulation) where the PCA has given express permission; shares held as part of Your Shares: Matched; and, the estimated net-of-tax\nshares held in trust as part of unvested awards under the incentive plans where the awards are not subject to any performance conditions.\nIndividuals are expected to meet the shareholding requirement within five years of being subject to the policy. Where the shareholding\nrequirements are not met, individuals may only dispose of shares in the following circumstances: to cover taxation and other costs associated\nwith the vesting or exercise of a share award; in connection with the operation of the malus and clawback policy; or where the Committee\ndetermines there are exceptional circumstances.\nAt 31 December 2025, Tufan Erginbilgic’s shareholding represented 3,729% of his base salary and Helen McCabe’s shareholding represented\n1,179% of her base salary. They have been subject to the policy since January and August 2023 respectively. These percentages have been\ncalculated by reference to the three-month average share price to 31 December 2025, being the last working day of the year.\nThe Executive Directors are required to retain the lower of their shareholding requirement or their actual shareholding at the date of leaving\nfor two years post-cessation of employment.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 105\nGOVERNANCE\nREPORT\nREMUNERATION REPORT", "char_count": 4649, "tables": [ [ [ "Date of grant", "Balance as of 31 December 2024", "During the year", null, null, "Balance as of 31 December 2025", "Date of vest" ], [ null, null, "Granted", "Vested", "Lapsed", null, null ], [ null, null, null, null, null, null, null ], [ null, null, null, null, null, "–", null ], [ null, null, null, null, null, "–", null ], [ null, null, null, null, null, "–", null ], [ null, null, null, null, null, "99,212", null ], [ null, null, null, null, null, "162,337", null ], [ null, null, null, null, null, "480,284", null ], [ null, null, null, null, null, "276,802", null ], [ null, null, null, null, null, "99,175", null ], [ null, null, null, null, null, "148,763", null ], [ null, null, null, null, null, "93,792", null ], [ null, null, null, null, null, "16,253", null ], [ null, null, null, null, null, "1,376,618", null ] ], [ [ null, null, null, null, "Shareholding requirement (%)", "% of 2025 base salary ²" ], [ "Conditional shares not subject to performance conditions", "Conditional shares subject to performance conditions", "Salary deferred shares", "Total scheme interests", null, null ], [ null, null, null, "11,518,479 3", null, null ], [ null, null, null, "1,376,618 3", null, null ] ] ], "table_count": 2, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 108, "printed_page": 106, "section": "Governance Report", "subsection": "Remuneration report", "text": "REMUNERATION REPORT\nExecutive Directors’ contractual arrangements\nEach Executive Director has a service agreement that sets out their contract with the Company.\nEffective date of contract Notice period from Company Notice period from individual\nTufan Erginbilgic 1 January 2023 12 months 12 months\nHelen McCabe 4 August 2023 12 months 12 months\nPay across the organisation\nThis section of the report enables our remuneration arrangements to be seen in context by providing:\n— a comparison of the percentage change in our Directors’ remuneration with the change in our UK employees’ average remuneration over two years;\n— a ten-year history of our Chief Executive’s remuneration;\n— our TSR performance over the same period;\n— an indication of the ratio between our Chief Executive’s remuneration and the remuneration of employees; and\n— a year-on-year comparison of the total amount spent on employment costs across the Group and shareholder payments.\nPercentage change in Directors’ remuneration\nThe following table compares the percentage change in each of the Director’s salary/fees, benefits and annual incentive to the average\npercentage change in salary, benefits and incentive for all UK employees for the past five years. This is reported only for Directors who\nhave served two full years. UK employees were chosen as a comparator group in order to avoid the impact of exchange rate movements\nover the year. UK employees including apprentices, graduates and interns make up 50% of the total employee population and are employed\nby Rolls-Royce plc or its relevant subsidiaries. Rolls-Royce Holdings plc has no employees. Details of the adjustments made to Chair and\nNon-Executive Director fees are set out on page 108.\n2024–2025 2023–2024 2022–2023 2021–2022 2020–2021\nAnnual Annual Annual Annual Annual\nSalary/ Incentive Salary/ Incentive Salary/ Incentive Salary/ Incentive Salary/ Incentive\nfees Benefits award fees Benefits award fees Benefits award fees Benefits award fees Benefits award\n% % % % % % % % % % % % % % %\nDame Anita Frew 22.80 46.24 n/a 16.73 40.00 n/a n/a (61.54) n/a n/a n/a n/a n/a n/a n/a\nTufan Erginbilgic 1 26.07 (14.90) 17.21 3.68 262.07 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a\nHelen McCabe 1 21.16 13.37 16.66 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a\nBirgit Behrendt 1 34.40 78.38 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a\nStuart Bradie 1, 2 45.12 (62.31) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a\nGeorge Culmer 3 41.96 (20.68) n/a 48.24 (60.00) n/a n/a 6.25 n/a 14.29 150 n/a n/a n/a n/a\nLord Jitesh Gadhia 4 34.59 19.08 n/a 32.22 – n/a 38.46 (50) n/a n/a n/a n/a n/a n/a n/a\nBeverly Goulet 5 43.29 15.47 n/a 48.24 (26.87) n/a 6.25 28.85 n/a 14.29 1,633.33 n/a 7.69 – n/a\nNick Luff 6 25.18 – n/a 18.95 – n/a n/a – n/a 5.56 – n/a 38.46 – n/a\nWendy Mars 7 38.44 20.55 n/a 54.22 (37.50) n/a 18.57 60 n/a n/a n/a n/a n/a n/a n/a\nPaulo Cesar Silva 1, 8 45.12 147.24 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a\nDame Angela Strank 9 38.44 75.82 n/a 16.88 (50.00) n/a (14.44) (50) n/a 8.43 300 n/a n/a n/a n/a\nUK employees average 10, 11 3.36 (0.31) 1.23 4.69 (9.80) (2.75) 5.77 (1.87) 25.42 5.71 3.80 3 1.03 (9.13) 1,435\nChief Executive pay\nSingle figure of\ntotal remuneration Incentive award as LTIP as a % of\nYear Chief Executive £000 a % of maximum maximum\n2025 Tufan Erginbilgic 4,689 94 –\n2024 Tufan Erginbilgic 4,113 97 –\n2023 Tufan Erginbilgic 13,610 97 –\n2022 Warren East 3,835 74 –\n2021 Warren East 3,950 79.7 –\n2020 Warren East 1,110 – –\n2019 Warren East 2,528 52 53\n2018 Warren East 4,075 60 100\n2017 Warren East 2,331 68 –\n2016 Warren East 2,089 55 –\nTufan Erginbilgic was appointed as Chief Executive on 1 January 2023 and received compensation for remuneration forfeited from previous\nemployment in 2023.\n106 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3824, "tables": [ [ [ "22.80", "46.24", "n/a" ], [ "26.07", "(14.90)", "17.21" ], [ "21.16", "13.37", "16.66" ], [ "34.40", "78.38", "n/a" ], [ "45.12", "(62.31)", "n/a" ], [ "41.96", "(20.68)", "n/a" ], [ "34.59", "19.08", "n/a" ], [ "43.29", "15.47", "n/a" ], [ "25.18", "–", "n/a" ], [ "38.44", "20.55", "n/a" ], [ "45.12", "147.24", "n/a" ], [ "38.44", "75.82", "n/a" ], [ "3.36", "(0.31)", "1.23" ] ] ], "table_count": 1 }, { "pdf_page": 109, "printed_page": 107, "section": "Governance Report", "subsection": "Remuneration report", "text": "FTSE 100 TSR\nRolls Royce TSR\nTSR performance\nThe Company’s TSR performance over the previous ten years compared to a broad equity market index is shown in the graph below. The\nFTSE 100 has been chosen as the comparator because it contains a broad range of other UK-listed companies. The graph shows the change\nin value of a hypothetical £100 holding in the Company’s ordinary shares over ten years (prior years adjusted for the rights issue), relative to\nthe FTSE 100 index.\n700\nRolls-Royce\n600 FTSE 100\n500\n400\n£\n300\n200\n100\n0\n2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025\nChief Executive pay ratio\nThe Committee is mindful of the relationship between the remuneration of the Chief Executive and the wider employee population.\nThis is the eighth year that we have published our Chief Executive pay ratio and we have continued to use option A. We believe that this is\nthe most accurate and robust methodology because it relies on calculating actual full time equivalent remuneration for all relevant employees\nrather than rely on data collected for other purposes. We have used the full time equivalent total remuneration of all UK employees at\n31 December 2025.\nYear Method 25th percentile Median 75th percentile\n2025 Option A 82:1 69:1 56:1\n2024 Option A 74:1 64:1 54:1\n2023 1 Option A 254:1 219:1 185:1\n2022 Option A 75:1 64:1 55:1\n2021 Option A 88.1 76.1 63.1\n2020 Option A 26:1 22:1 19:1\n2019 Option A 66:1 56:1 48:1\n2018 Option A 92:1 77:1 66:1\nFor 2025, the salary and total remuneration for the three employees identified at the 25th, median and 75th percentiles are as follows:\nYear 25th percentile Median 75th percentile\nSalary 2 £46,577 £55,992 £66,828\nTotal remuneration £57,164 £67,584 £83,291\n1 The 2023 pay ratio was elevated primarily by the award of shares valued at £7.5m at the time of grant to the Chief Executive as compensation for remuneration forfeited from previous\nemployment. If this value was removed from the calculation the median pay ratio would have been 98:1\n2 Calculated using base pay as at 31 December 2025\nThere is strong alignment between the reward structure for the Chief Executive and that of the wider workforce, with the majority of\nemployees participating in an incentive plan with aligned financial metrics. We also encourage all eligible employees to join our all-employee\nshare plans, with over 99% of our global population receiving an award of shares in 2024 under our Your Shares: Gifted plan. In 2025, we\nlaunched Your Shares: Matched, a global purchase plan structured to offer matching free shares for every share purchased up to a maximum\nmonthly limit. This aligns to our broader strategy to increase employee share ownership and links directly to the transformation programme.\nFurther information can be found in the strategy section on the transformation programme from page 11.\nRelative importance of spend on pay\nThe following chart sets out the percentage change in shareholder distributions from dividends and share buybacks and overall expenditure\non pay across the Group.\nSHAREHOLDER DISTRIBUTIONS (£M) GROUP EMPLOYMENT COSTS (£M)\n(Consolidated cash flow statement) (Note 9, employee information – see page 147)\n2025 1,893 (100%) 2025 4,051 (2.61%)\n2024 0 (0%) 2024 3,948 (4.78%)\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 107\nGOVERNANCE\nREPORT\nREMUNERATION REPORT", "char_count": 3337, "tables": [ [ [ null, "1,893 (100%)" ], [ "0 (0%)", null ] ], [ [ null, "4,051 (2.61%)", null ], [ null, null, "3,948 (4.78%)" ] ] ], "table_count": 2, "visual_content": [ { "type": "line_chart", "title": "TSR performance: value of a hypothetical GBP 100 holding over ten years (2015-2025), Rolls-Royce vs FTSE 100", "description": "Both lines track near GBP 100-150 from 2015 to 2019. Rolls-Royce falls below the FTSE 100 from 2020 to 2022, bottoming near GBP 50 in 2020-2022, then rises steeply from 2023 to approximately GBP 650 by 2025. The FTSE 100 rises gradually to approximately GBP 230 by 2025.", "approximate_end_values_2025": { "Rolls-Royce": "approx GBP 650", "FTSE 100": "approx GBP 230" }, "data_precision": "approximate, read from chart; no data labels printed in the report" } ], "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 110, "printed_page": 108, "section": "Governance Report", "subsection": "Remuneration report", "text": "REMUNERATION REPORT\nNon-Executive Directors’ remuneration\nNon-Executive Directors’ single figure of remuneration (audited)\nFees Benefits Total remuneration\n(£’000) (£’000) (£’000)\n2025 2024 2025 2024 2025 2024\nDame Anita Frew 702 572 10 7 712 579\nBirgit Behrendt 121 90 9 5 130 95\nStuart Bradie 1 131 90 1 3 132 93\nGeorge Culmer 179 126 2 2 181 128\nLord Jitesh Gadhia 160 119 1 1 161 120\nBeverly Goulet 181 126 57 49 238 175\nNick Luff 141 113 – – 141 113\nWendy Mars 177 128 6 5 183 133\nPaulo Cesar Silva 2 131 90 12 5 143 95\nDame Angela Strank 121 90 2 1 123 91\nTotal 2,044 1,544 100 78 2,144 1,622\n1 Stuart Bradie was appointed as a member of the Remuneration Committee on 1 August 2025\n2 Paulo Cesar Silva was appointed as a member of the Audit Committee on 1 August 2025\nNon-Executive Directors’ fees\nThe Chair’s fee is reviewed by the Board as a whole on the recommendation of the Committee. The review of the other Non-Executive Directors’\nbase fees is reviewed by the Chair and Executive Directors. No individual may be involved in setting their own fee. Fees were reviewed in 2025\nand changes were approved effective 1 March 2025, as set out below, representing a 5% increase in line with the awards to our Executive\nDirectors in March 2025 (see page 82).\nIn parallel with the benchmarking activity undertaken during the year for the Executive Directors, the Committee reviewed the fees paid\nto the Chair. The Chair, together with the Executive Directors, also reviewed the fees paid to the Non-Executive Directors. Recognising\nthe material change in market position of Rolls-Royce, it was agreed to apply an adjustment to fees to align with levels typical of those for a\nFTSE 10 organisation, which took effect from 1 September 2025. A further adjustment of 4% to Non-Executive Director fees has been made\neffective 1 March 2026 to maintain a market competitive position.\n1 March 2026 1 September 2025 1 March 2025 2024\n£’000 £’000 £’000 £’000\nChair 832 800 662 630\nOther Non-Executive Director base fee 125 120 95 90\nChair of the Audit Committee 47 45 37 35\nChair of the Remuneration Committee 47 45 37 35\nChair of the Safety, Energy Transition & Tech Committee 47 45 37 35\nCommittee member 26 25 16 15\nSenior Independent Director 47 45 37 35\nLead Employee Champion 26 25 21 20\nUK Employee Champion 21 20 16 15\nNorth American board member 26 25 16 15\nNon-Executive Directors’ benefits (audited)\nThe benefits for Non-Executive Directors relate predominantly to travel, hotel and subsistence incurred in attending meetings and site visits.\nThese figures have been grossed up for tax purposes where applicable.\nFor Non-Executive Directors based outside the UK, the Company may also pay towards tax advice and the cost of making tax filings.\n108 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2794, "tables": [ [ [ "Fees (£’000)", "Benefits (£’000)", "Total remuneration (£’000)" ] ], [ [ "702", "572", "10", "7", "712" ], [ "121", "90", "9", "5", "130" ], [ "131", "90", "1", "3", "132" ], [ "179", "126", "2", "2", "181" ], [ "160", "119", "1", "1", "161" ], [ "181", "126", "57", "49", "238" ], [ "141", "113", "–", "–", "141" ], [ "177", "128", "6", "5", "183" ], [ "131", "90", "12", "5", "143" ], [ "121", "90", "2", "1", "123" ], [ "2,044", "1,544", "100", "78", "2,144" ] ], [ [ "832", "800", "662" ], [ "125", "120", "95" ], [ "47", "45", "37" ], [ "47", "45", "37" ], [ "47", "45", "37" ], [ "26", "25", "16" ], [ "47", "45", "37" ], [ "26", "25", "21" ], [ "21", "20", "16" ], [ "26", "25", "16" ] ] ], "table_count": 3 }, { "pdf_page": 111, "printed_page": 109, "section": "Governance Report", "subsection": "Remuneration report", "text": "Non-Executive Directors’ share interests (audited)\nThe Non-Executive Directors are not eligible to participate in any of the Group’s share schemes, incentive arrangements or pension schemes.\nA facility is in place which enables Non-Executive Directors, who reside in a permitted dealing territory, to use some or all of their fees, after\nthe appropriate statutory deductions, to make market purchases of shares in the Company on a monthly basis. Wendy Mars and Birgit Behrendt\nuse this facility.\nThe Non-Executive Directors and their connected persons hold the following interests in the ordinary shares of the Company:\n31 December 2025 31 December 2024\nDame Anita Frew 350,000 350,000\nBirgit Behrendt 5,051 3,441\nStuart Bradie 95,437 95,437\nGeorge Culmer 37,960 37,960\nLord Jitesh Gadhia 50,000 50,000\nBeverly Goulet 41,405 40,972\nNick Luff 120,000 120,000\nWendy Mars 51,049 48,318\nPaulo Cesar Silva 41,780 –\nDame Angela Strank 85,506 70,653\nDuring the period between 1 January 2026 to 26 February 2026, the following changes in interests have occurred:\n— Birgit Behrendt acquired 88 shares on 7 January 2026 and 89 shares on 9 February 2026 under a share purchase plan for Non-Executive\nDirectors; and\n— Wendy Mars acquired 146 shares on 7 January 2026 and 147 shares on 9 February 2026 under a share purchase plan for Non-Executive Directors.\nNo other changes in Non-Executive Directors’ share interests have occurred in the period.\nNon-Executive Directors’ letters of appointment\nNon-Executive Directors are subject to letters of appointment and are required to be re-elected at each AGM.\nShareholder voting\nThe remuneration policy and remuneration report were last approved by shareholders at our 2025 AGM held on 1 May 2025. Details of voting\nare shown in the table below. Withheld votes are not counted towards the total percentage of votes cast.\nFor % For Against % Against Withheld\nApproval of the remuneration policy 5,264,406,289 99.55 23,709,234 0.45 2,041,090\nApproval of the remuneration report 5,263,080,768 99.53 25,023,003 0.47 2,046,299\nStatutory requirements\nThe Committee’s composition, responsibilities and operation comply with the principles of good governance, as set out in the Code, the UK\nListing Rules (of the Financial Conduct Authority) and the Companies Act 2006. The Directors’ Remuneration Report has been prepared on the\nbasis prescribed in the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.\nThe Remuneration Report, comprising the Remuneration Committee\nreport, the remuneration policy and the 2025 Remuneration report,\nhas been approved by the Board and signed on its behalf by:\nLord Jitesh Gadhia\nChair of the Remuneration Committee\n26 February 2026\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 109\nGOVERNANCE\nREPORT\nREMUNERATION REPORT", "char_count": 2822, "tables": [ [ [ "350,000" ], [ "5,051" ], [ "95,437" ], [ "37,960" ], [ "50,000" ], [ "41,405" ], [ "120,000" ], [ "51,049" ], [ "41,780" ], [ "85,506" ] ] ], "table_count": 1, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 112, "printed_page": 110, "section": "Governance Report", "subsection": "Committee reports - Safety, Energy Transition & Tech", "text": "Safety, Energy Transition & Tech Committee report\nEnergy Transition\nKEY AREAS OF FOCUS IN 2025\nAn area of focus for the Committee is to\nprovide oversight of the Group’s energy\n— Review of Group-wide improvement programmes for people and product safety\ntransition strategy and to receive progress\nreports against policies, strategies, KPIs,\n— Principal risk reviews and a deep dive into cyber, including IT and operational technology\nplans, capability, process and systems.\nDuring the year, we reviewed progress made\n— Site visit to Bristol, UK, focused on people and product safety and technology in 2025 against our Scope 1 + 2 emissions\nreduction plans and the Scope 3, category 11\n— Monitoring progress against our sustainability targets and review of the sustainability (use of sold products) emissions reporting\nreport for recommendation to the Board (see page 42). The Committee reviewed the\nprogress against the sustainability strategy\n— Keeping a strong focus on technology including AI which was approved in 2024 and, together\nwith the Audit Committee, assessed the\nGroup’s readiness for compliance reporting\nwith new regulations. At our meeting in\nThe Committee met three times in 2025,\nFebruary 2026, as part of our year-end\nwith the February meeting focused on\nreporting, the Committee reviewed the\nreporting only. After each meeting, the\nSustainability report set out on pages 38\nCommittee meets without management\nto 47 and recommended it to the Board\npresent. A summary of the Committee’s\nfor approval.\nremit can be found on page 68.\nTechnology\nSafety\nTechnology is a principal risk for the Group,\nSafety, in respect of our people, processes\nbut also an area of opportunity. Accordingly,\nand products, remains the highest priority\nthe Committee’s review of technology during\nfor the Group and the Committee takes a\nthe year has focused on both understanding\ngreat interest in understanding the progress\nthe technology principal risk and how the\nof our improvement programmes and how\nGroup mitigates this, and how our strategic\nwe are developing a safety-first culture.\ndecisions are translated into research\nIn depth updates were received at the\nand technology (R&T) portfolio priorities.\ntwo main meetings, including a summary\nThe Committee received updates on the\nof performance in 2025 and the associated\ntechnology and product roadmapping\naction plans for 2026 across all programmes\nprocess by which the Group manages\nto ensure continuous improvement towards\nits R&T. We considered how horizon\nMembers Wendy Mars (Chair) embedding Group-wide standards and\nscanning operates to help identify and\nBirgit Behrendt policies. Updates around people and\nquantify emerging technology threats\nStuart Bradie process safety covered TRI rate reporting\nand opportunities by ensuring that novel\nPaulo Cesar Silva and our progress against our safety index\ntechnology pathways are recognised\nDame Angela Strank scorecard, alongside initiatives that we\nearly, their potential is explored, and\nare taking around occupational health.\neventual risks of disruption are mitigated.\nRemit See page 68 We reviewed and considered in detail\nThe Committee also considered the\nthe product safety principal risk including\nsignificant value opportunity for AI,\nour performance against key safety metrics\nthe systematic approach to deliver that\nand the enhancement of culture through\nI am pleased to present the 2025 report opportunity and the guardrails and policies\nrevised communications.\nof the Safety, Energy Transition & Tech in place to ensure responsible adoption.\nCommittee. The Committee focuses on\nDuring the year, the Committee visited our\npeople and product safety and the energy Following the reallocation of cyber-\nsite in Bristol, UK, where we met with the\ntransition agenda. It also provides oversight security responsibilities to the Committee,\nDefence leadership team. The visit provided\nand assurance of the Group’s research we received a number of updates on\nan opportunity for the Committee to learn\nand technological strategy, processes cyber and IT to understand our existing\nabout the operations at the site and to\nand investments. During the year, following approach and environment. At our\nengage with local management, engineers\na reallocation of accountabilities by the December meeting, we undertook a\nand high potential employees. During our\nBoard, the Committee additionally took on deep dive into cyber encompassing IT and\nvisit, we discussed both people and product\nresponsibility for cyber-security from the operational technology (OT) that the whole\nsafety and experienced, at shop floor level,\nAudit Committee. Board attended. The meeting focused on our\nhow these two priorities are embedded in\nprogramme of IT and OT maturity alongside\nthe processes and practices of the site. In\nThe Committee comprises solely Non- hearing about detection, defence, and\naddition, we heard about how productivity\nExecutive Directors, and each member recovery response against cyber threats.\nand time gains had been achieved from\nbrings deep experience in the Committee’s\nthe adoption of an agile approach for key\nareas of focus which they have gained technology advancement programmes, Looking forward\nin their various external executive roles.\nand the development of technology for In 2026, the Committee will continue to\nOur Committee evaluation noted that this\nnext-generation power and propulsion focus on its principal responsibilities with\nCommittee is performing well and I would like\nproducts such as GCAP. The Committee a particular focus on people and process\nto thank my fellow Committee members for\nmembers were pleased to receive a safety, our readiness for sustainability\ntheir invaluable insights for the work of the\ndemonstration of the Safety Experience, an reporting, and the risks and opportunities\nCommittee during the year.\nimpactful, interactive, facilitator-led event related to AI and how these impact the future\nwhich has been attended face-to-face by of our technologies. We will continue to\nover 13,000 employees in 2025. monitor our response to the ever-evolving\ncyber-security landscape.\nWendy Mars\nChair of the Safety, Energy Transition &\nTech Committee\n110 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6239, "tables": [ [ [ "KEY AREAS OF FOCUS IN 2025", null, null, null, null, null, null, null, null, null, null, null, null, null, null ] ] ], "table_count": 1 }, { "pdf_page": 113, "printed_page": 111, "section": "Governance Report", "subsection": "Responsibility statements", "text": "Responsibility statements\nStatement of Directors’ responsibilities The Directors are responsible for Each of the Directors, whose names and\nin respect of the financial statements safeguarding the assets of the Group functions are listed in the Directors’ Report\nThe Directors are responsible for preparing and the Company and hence for taking confirm that, to the best of their knowledge:\nthe Annual Report and the financial reasonable steps for the prevention and\n— the Group financial statements, which\nstatements in accordance with applicable detection of fraud and other irregularities.\nhave been prepared in accordance with\nlaw and regulation.\nUK-adopted international accounting\nThe Directors are also responsible for\nstandards, give a true and fair view of the\nCompany law requires the Directors keeping adequate accounting records that\nassets, liabilities, financial position and\nto prepare financial statements for are sufficient to show and explain the Group’s\nprofit of the Group;\neach financial year. Under that law, and the Company’s transactions and disclose\nthe Directors have prepared the Group with reasonable accuracy at any time the — the Company financial statements, which\nFinancial Statements in accordance with financial position of the Group and the have been prepared in accordance with\nUK-adopted international accounting Company and enable them to ensure that United Kingdom Accounting Standards,\nstandards and the Company Financial the financial statements and the Directors’ comprising FRS 101, give a true and fair\nStatements in accordance with United Remuneration Report comply with the view of the assets, liabilities and financial\nKingdom Generally Accepted Accounting Companies Act 2006. position of the Company; and\nPractice (United Kingdom Accounting\n— the Strategic Report includes a fair review\nStandards, comprising FRS 101 Reduced The Directors are responsible for the\nof the development and performance\nDisclosure Framework and applicable law). maintenance and integrity of the Company’s\nof the business and the position of the\nwebsite. Legislation in the United Kingdom\nGroup and the Company, together with\nUnder company law, Directors must not governing the preparation and dissemination\na description of the principal risks and\napprove the Financial Statements unless of financial statements may differ from\nuncertainties that it faces.\nthey are satisfied that they give a true and legislation in other jurisdictions.\nfair view of the state of affairs of the Group\nIn the case of each Director in office at the\nand Company and of the profit or loss of Directors’ confirmations\ndate the Directors’ Report is approved:\nthe Group for that period. In preparing The Directors consider that the Annual\nthe financial statements, the Directors are Report and Accounts, taken as a whole, is fair, — so far as the Director is aware, there is\nrequired to: balanced and understandable and provides no relevant audit information of which the\nthe information necessary for shareholders Group’s and the Company’s auditors are\n— select suitable accounting policies and\nto assess the Group’s and the Company’s unaware; and\nthen apply them consistently;\nposition and performance, business model\n— they have taken all the steps that they\n— state whether applicable UK-adopted and strategy.\nought to have taken as a Director in order\ninternational accounting standards\nto make themselves aware of any relevant\nhave been followed for the Group\naudit information and to establish that the\nfinancial statements and United Kingdom\nGroup’s and the Company’s auditors are\nAccounting Standards, comprising FRS 101\naware of that information.\nhave been followed for the Company\nfinancial statements, subject to any\nBy order of the Board\nmaterial departures disclosed and\nexplained in the financial statements;\nClaire-Marie O’Grady\n— make judgements and accounting Chief Governance Officer\nestimates that are reasonable and 26 February 2026\nprudent; and\n— prepare the financial statements on\nthe going concern basis unless it is\ninappropriate to presume that the Group\nand Company will continue in business.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 111\nGOVERNANCE\nREPORT", "char_count": 4187, "tables": [], "table_count": 0, "rotated_text": [ "GOVERNANCE REPORT" ] }, { "pdf_page": 114, "printed_page": 112, "section": "Governance Report", "subsection": "Responsibility statements", "text": "FINANCIAL\nSTATEMENTS\nConsolidated Financial Statements 12 Property, plant and equipment 151 Company Financial Statements\nPrimary statements 13 Right-of-use assets 152 Primary statements\nConsolidated income statement 113 14 Investments 153 Company balance sheet 182\nConsolidated statement of 15 Inventories 155 Company statement of changes\ncomprehensive income 114 16 Trade receivables and other assets 155 in equity 183\nConsolidated balance sheet 115 17 Contract assets and liabilities 156\nConsolidated cash flow statement 116 18 Cash and cash equivalents 157 Notes to the Company Financial\nConsolidated statement of changes 19 Borrowings and lease liabilities 157 Statements\nin equity 119 20 Leases 158 1 Accounting policies 184\n21 Trade payables and other liabilities 159 2 Investments – subsidiary\nNotes to the Consolidated Financial 22 Financial instruments 160 undertakings 185\nStatements 23 Provisions for liabilities and 3 Trade payables and other liabilities 185\n1 Accounting policies 121 charges 170 4 Financial liabilities 185\n2 Segmental analysis 134 24 Post-retirement benefits 171 5 Share capital 186\n3 Research and development 141 25 Share capital 176 6 Contingent liabilities 186\n4 Net financing 141 26 Share-based payments 177 7 Other information 186\n5 Taxation 142 27 Contingent liabilities 178\n6 Earnings per ordinary share 146 28 Related party transactions 179 Subsidiaries 187\n7 Dividends 146 29 B usiness disposals and businesses Joint ventures and associates 191\n8 Auditors’ remuneration 147 held for sale 179\n9 Employee information 147 30 Derivation of summary funds\n10 Goodwill 148 flow statement 181\n11 Intangible assets 149\n112 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1697, "tables": [], "table_count": 0 }, { "pdf_page": 115, "printed_page": 113, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "Consolidated income statement\nYear ended 31 December 2025\n2025 2024\nNotes £m £m\nRevenue 2 21,207 18,909\nCost of sales 1,2 (15,032) (14,688)\nGross profit 2 6,175 4,221\nCommercial and administrative costs 2 (1,268) (1,284)\nResearch and development costs 2 2, 3 (495) (203)\nShare of results of joint ventures and associates 14 56 172\nOperating profit 4,468 2,906\nGain arising on disposal of businesses 3 29 809 16\nProfit before financing and taxation 5,277 2,922\nFinancing income 4 2,137 536\nFinancing costs 4 (479) (1,224)\nNet financing income/(costs) 4 1,658 (688)\nProfit before taxation 6,935 2,234\nTaxation 5 (1,099) 250\nProfit for the year 5,836 2,484\nAttributable to:\nOrdinary shareholders 5,841 2,521\nNon-controlling interests (NCI) (5) (37)\nProfit for the year 5,836 2,484\nOther comprehensive (expense)/income (OCI) (545) 50\nTotal comprehensive income for the year 5,291 2,534\nEarnings per ordinary share attributable to ordinary shareholders: 6\nBasic 69.41p 30.05p\nDiluted 69.14p 29.87p\n1 Cost of sales includes a net charge for expected credit losses (ECLs) of £28m (2024: £14m). Further detail can be found in note 16\n2 In the year ended 31 December 2025, the impact of an exceptional impairment reversal was included within both cost of sales, £179m (2024: £132m), and research and development, £6m\n(2024: £413m). Further details can be found in notes 2, 10 and 11\n3 In the year ended 31 December 2025, the Group completed the sale of the naval propulsors business and also recognised an exceptional gain on disposal as a result of the\ndeconsolidation of Rolls-Royce SMR Limited during the year. Further details can be found in note 29\n4 Included within net financing are fair value changes on derivative contracts. Further details can be found in notes 2, 4 and 22\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 113\nFINANCIAL\nSTATEMENTS\nCONSOLIDATED FINANCIAL STATEMENTS", "char_count": 1877, "tables": [ [ [ "21,207" ], [ "(15,032)" ], [ "6,175" ], [ "(1,268)" ], [ "(495)" ], [ "56" ], [ "4,468" ], [ "809" ], [ "5,277" ] ], [ [ "2,137" ], [ "(479)" ], [ "1,658" ] ], [ [ "6,935" ], [ "(1,099)" ], [ "5,836" ] ], [ [ "5,841" ], [ "(5)" ], [ "5,836" ], [ "(545)" ], [ "5,291" ] ], [ [ "69.41p" ], [ "69.14p" ] ] ], "table_count": 5, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 116, "printed_page": 114, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "CONSOLIDATED FINANCIAL STATEMENTS\nConsolidated statement of comprehensive income\nYear ended 31 December 2025\n2025 2024\nNotes £m £m\nProfit for the year 5,836 2,484\nOther comprehensive (expense)/income (OCI)\nActuarial movements on post-retirement schemes 1 24 (444) 22\nRevaluation to fair value of other investments 14 (1) (2)\nShare of OCI of joint ventures and associates (1) (1)\nRelated tax movements 5 115 61\nItems that will not be reclassified to profit or loss (331) 80\nForeign exchange translation differences on foreign operations (169) (29)\nForeign exchange translation differences reclassified to income statement on disposal of businesses (18) –\nNCI disposed through disposal of business 29 (23) –\nMovement on fair values charged to cash flow hedge reserve (38) (17)\nReclassified to income statement from cash flow hedge reserve 27 22\nShare of OCI of joint ventures and associates 2 (3)\nRelated tax movements 5 5 (3)\nItems that will be reclassified to profit or loss (214) (30)\nTotal other comprehensive (expense)/income (545) 50\nTotal comprehensive income for the year 5,291 2,534\nAttributable to:\nOrdinary shareholders 5,319 2,571\nNCI (28) (37)\nTotal comprehensive income for the year 5,291 2,534\n1 This movement includes a charge of around £450m as a result of the agreement to transfer the future pension obligations in the UK scheme to Pension Insurance Corporation plc.\nSee note 24 for further information\n114 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1467, "tables": [ [ [ "(444)" ], [ "(1)" ], [ "(1)" ], [ "115" ], [ "(331)" ] ], [ [ "(169)" ], [ "(18)" ], [ "(23)" ], [ "(38)" ], [ "27" ], [ "2" ], [ "5" ], [ "(214)" ] ], [ [ "5,319" ], [ "(28)" ], [ "5,291" ] ] ], "table_count": 3 }, { "pdf_page": 117, "printed_page": 115, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "Consolidated balance sheet\nAt 31 December 2025\n2025 2024\nNotes £m £m\nASSETS\nGoodwill ¹ 10 1,028 1,009\nIntangible assets ¹ 11 3,570 3,393\nProperty, plant and equipment 12 4,013 3,724\nRight-of-use assets 13 759 761\nInvestments 2 14 1,289 597\nOther financial assets 22 523 126\nDeferred tax assets 5 3,460 3,660\nPost-retirement scheme surpluses 24 286 790\nNon-current assets 14,928 14,060\nInventories 15 5,728 5,092\nTrade receivables and other assets 16 8,946 8,713\nContract assets 17 1,897 1,813\nTaxation recoverable 75 71\nOther financial assets 22 282 209\nCash and cash equivalents 18 6,244 5,575\nCurrent assets 23,172 21,473\nAssets held for sale 29 15 153\nTOTAL ASSETS 38,115 35,686\nLIABILITIES\nBorrowings and lease liabilities 19 (1,426) (1,097)\nOther financial liabilities 22 (293) (642)\nTrade payables and other liabilities 21 (8,863) (8,009)\nContract liabilities 17 (7,832) (6,309)\nCurrent tax liabilities (366) (117)\nProvisions for liabilities and charges 23 (507) (589)\nCurrent liabilities (19,287) (16,763)\nBorrowings and lease liabilities 19 (2,846) (4,035)\nOther financial liabilities 22 (627) (1,640)\nTrade payables and other liabilities 21 (1,778) (1,965)\nContract liabilities 17 (8,762) (9,447)\nDeferred tax liabilities 5 (101) (231)\nProvisions for liabilities and charges 23 (1,050) (1,405)\nPost-retirement scheme deficits 24 (892) (981)\nNon-current liabilities (16,056) (19,704)\nLiabilities associated with assets held for sale 29 (19) (100)\nTOTAL LIABILITIES (35,362) (36,567)\nNET ASSETS/(LIABILITIES) 2,753 (881)\nEQUITY\nCalled-up share capital 3 25 1,689 1,701\nShare premium 3 – 1,012\nCapital redemption reserve 3 5 168\nCash flow hedge reserve 7 13\nTranslation reserve 418 603\nRetained earnings / (Accumulated losses) 3 607 (4,409)\nEquity attributable to ordinary shareholders 2,726 (912)\nNon-controlling interest (NCI) 27 31\nTOTAL EQUITY 2,753 (881)\n1 Goodwill has been disclosed separately from other intangible assets at 31 December 2025 (and its comparative represented) as such presentation is deemed relevant to an understanding\nof the Group’s financial position\n2 An equity-accounted investment was recognised at fair value on the balance sheet as a result of the deconsolidation of Rolls-Royce SMR Limited during the year. Further details can be\nfound in note 29\n3 On 1 May 2025 Rolls-Royce Holdings plc performed a bonus issue of one share from its merger reserve for £6,962m, the merger reserve is eliminated within the consolidated balance\nsheet and therefore is not shown above. The Company subsequently performed a capital reduction against share capital, share premium, and capital redemption reserve\nThe Financial Statements on pages 113 to 181 were approved by the Board on 26 February 2026 and signed on its behalf by:\nTufan Erginbilgic Helen McCabe\nChief Executive Chief Financial Officer\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 115\nFINANCIAL\nSTATEMENTS\nCONSOLIDATED FINANCIAL STATEMENTS", "char_count": 2924, "tables": [ [ [ "1,028" ], [ "3,570" ], [ "4,013" ], [ "759" ], [ "1,289" ], [ "523" ], [ "3,460" ], [ "286" ], [ "14,928" ], [ "5,728" ], [ "8,946" ], [ "1,897" ], [ "75" ], [ "282" ], [ "6,244" ], [ "23,172" ], [ "15" ], [ "38,115" ] ], [ [ "(1,426)" ], [ "(293)" ], [ "(8,863)" ], [ "(7,832)" ], [ "(366)" ], [ "(507)" ], [ "(19,287)" ], [ "(2,846)" ], [ "(627)" ], [ "(1,778)" ], [ "(8,762)" ], [ "(101)" ], [ "(1,050)" ], [ "(892)" ], [ "(16,056)" ], [ "(19)" ], [ "(35,362)" ] ], [ [ "1,689" ], [ "–" ], [ "5" ], [ "7" ], [ "418" ], [ "607" ], [ "2,726" ], [ "27" ], [ "2,753" ] ] ], "table_count": 3, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 118, "printed_page": 116, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "CONSOLIDATED FINANCIAL STATEMENTS\nConsolidated cash flow statement\nYear ended 31 December 2025\n2025 2024\nNotes £m £m\nReconciliation of cash flows from operating activities\nOperating profit 4,468 2,906\nLoss on disposal of property, plant and equipment 18 32\n(Profit)/loss on disposal of intangible assets (2) 6\nShare of results of joint ventures and associates 14 (56) (172)\nDividends received from joint ventures and associates 14 88 77\nImpairment of goodwill 10 – 13\nAmortisation and impairment of intangible assets 11 241 (133)\nDepreciation and impairment of property, plant and equipment 12 338 400\nDepreciation and impairment of right-of-use assets 13 158 265\nAdjustment of amounts payable under residual value guarantees within lease liabilities – (6)\nImpairment of and other movements on investments – 4\nDecrease in provisions (486) (56)\nIncrease in inventories (685) (323)\nMovement in trade receivables/payables and other assets/liabilities 763 833\nMovement in contract assets/liabilities 704 752\nCash flows on other financial assets and liabilities held for operating purposes 1 (578) (676)\nCash flows on settlement of excess derivative contracts 2 (148) (146)\nInterest received 270 269\nNet defined benefit post-retirement cost recognised in profit before financing 24 42 56\nCash funding of defined benefit post-retirement schemes 24 (84) (74)\nShare-based payments 26 104 136\nNet cash inflow from operating activities before taxation 5,155 4,163\nTaxation paid (590) (381)\nNet cash inflow from operating activities 4,565 3,782\nCash flows from investing activities\nAdditions of intangible assets 11 (364) (367)\nDisposals of intangible assets 5 5\nPurchases of property, plant and equipment (621) (519)\nDisposals of property, plant and equipment 2 5\nDisposal of businesses (including cash flows on disposals in prior periods) 29 80 62\nMovement in investments in joint ventures and associates 14 (41) (17)\nNet cash outflow from investing activities (939) (831)\nCash flows from financing activities\nRepayment of loans (927) (475)\nSettlement of swaps hedging fixed rate borrowings 93 (11)\nProceeds from increase in loans 177 7\nCapital element of lease payments (232) (299)\nNet cash flow from decrease in borrowings and lease liabilities (889) (778)\nInterest paid (180) (200)\nInterest element of lease payments (74) (83)\nFees paid on undrawn facilities (8) (15)\nCash received on maturity of share based payment schemes 40 –\nTransactions with NCI 3 34 33\nDividends to NCI (1) (3)\nRedemption of C Shares (2) (1)\nShare buyback (1,008) –\nDividends paid 7 (885) –\nNet cash outflow from financing activities (2,973) (1,047)\n116 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2665, "tables": [ [ [ "4,468" ], [ "18" ], [ "(2)" ], [ "(56)" ], [ "88" ], [ "–" ], [ "241" ], [ "338" ], [ "158" ], [ "–" ], [ "–" ], [ "(486)" ], [ "(685)" ], [ "763" ], [ "704" ], [ "(578)" ], [ "(148)" ], [ "270" ], [ "42" ], [ "(84)" ], [ "104" ], [ "5,155" ], [ "(590)" ], [ "4,565" ] ], [ [ "(364)" ], [ "5" ], [ "(621)" ], [ "2" ], [ "80" ], [ "(41)" ], [ "(939)" ] ], [ [ "(927)" ], [ "93" ], [ "177" ], [ "(232)" ], [ "(889)" ], [ "(180)" ], [ "(74)" ], [ "(8)" ], [ "40" ], [ "34" ], [ "(1)" ], [ "(2)" ], [ "(1,008)" ], [ "(885)" ], [ "(2,973)" ] ] ], "table_count": 3 }, { "pdf_page": 119, "printed_page": 117, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "Consolidated cash flow statement continued\nYear ended 31 December 2025\n2025 2024\nNotes £m £m\nChange in cash and cash equivalents 653 1,904\nCash and cash equivalents at 1 January 5,573 3,731\nExchange gains/(losses) on cash and cash equivalents 15 (62)\nCash and cash equivalents at 31 December 4 6,241 5,573\n1 Predominantly relates to cash settled on derivative contracts held for operating purposes\n2 In 2020, the Group took action to reduce the size of the USD hedge book by $11.8bn across 2020–2026 to reflect the fact that at that time, future operating cash flows were no\nlonger forecast to materialise. To achieve the necessary reduction in the hedge book, a separate and distinct set of foreign exchange derivative instruments were entered into to buy\n$11.8bn which had the impact of fixing the fair value of the over-hedged position and provided certainty over when the cash flows to settle the position would occur in future periods.\nThe associated cash outflow of these transactions is £1,674m and occurs over the period 2020–2026. During the year, the Group incurred a cash outflow of £148m (2024: £146m) and\nestimates that future cash outflows of £27m will be incurred during 2026\n3 Relates to NCI investment received in the year in respect of Rolls-Royce SMR Limited\n4 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\nof the cash flow statement\nIn deriving the consolidated cash flow statement, movement in balance sheet items have been adjusted for non-cash items. The cash flow in the\nyear includes the sale of goods and services to joint ventures and associates – see note 28.\n2025 2024\n£m £m\nReconciliation of movements in cash and cash equivalents to movements in net cash\nChange in cash and cash equivalents 653 1,904\nCash flow from decrease in borrowings and lease liabilities 889 778\nLess: settlement of related derivatives included in fair value of swaps below 93 (11)\nChange in net cash resulting from cash flows 1,635 2,671\nLease additions, modifications and other non-cash adjustments on borrowings and lease liabilities (232) (193)\nExchange gains/(losses) on net cash/(debt) 118 (50)\nNet debt disposed of on disposal of businesses 1 –\nFair value adjustments 8 (11)\nMovement in net cash 1,530 2,417\nNet cash/(debt) at 1 January excluding the fair value of swaps 442 (1,975)\nNet cash at 31 December excluding the fair value of swaps 1,972 442\nFair value of swaps hedging fixed rate borrowings (77) 33\nNet cash at 31 December 1,895 475\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 117\nFINANCIAL\nSTATEMENTS\nCONSOLIDATED FINANCIAL STATEMENTS", "char_count": 2689, "tables": [ [ [ "653" ], [ "5,573" ], [ "15" ], [ "6,241" ] ], [ [ "653" ], [ "889" ], [ "93" ], [ "1,635" ], [ "(232)" ], [ "118" ], [ "1" ], [ "8" ], [ "1,530" ], [ "442" ], [ "1,972" ], [ "(77)" ], [ "1,895" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 120, "printed_page": 118, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "CONSOLIDATED FINANCIAL STATEMENTS\nConsolidated cash flow statement continued\nYear ended 31 December 2025\nThe movement in net cash/(debt) (defined by the Group as including the items shown below) is as follows:\nNet funds on\nFunds disposal of Exchange Fair value Reclassi- Other At\nAt 1 January flow business differences adjustments fications movements 31 December\n£m £m £m £m £m £m £m £m\n2025\nCash at bank and in hand 714 182 – (7) – – – 889\nMoney market funds 1,900 484 – 40 – – – 2,424\nShort-term deposits 2,961 (12) – (18) – – – 2,931\nCash and cash equivalents (per balance sheet) 5,575 654 – 15 – – – 6,244\nOverdrafts (2) (1) – – – – – (3)\nCash and cash equivalents (per cash flow statement) 5,573 653 – 15 – – – 6,241\nOther current borrowings (799) 750 – (32) 40 (988) (2) (1,031)\nNon-current borrowings (2,776) – – 54 (32) 988 (2) (1,768)\nLease liabilities (1,555) 232 – 81 – – (228) (1,470)\nLease liabilities included within liabilities held for sale (1) – 1 – – – – –\nFinancial liabilities (5,131) 982 1 103 8 – (232) (4,269)\nNet cash/(debt) excluding the fair value of swaps 442 1,635 1 118 8 – (232) 1,972\nFair value of swaps hedging fixed rate borrowings 1 33 (93) – (22) 5 – – (77)\nNet cash/(debt) 475 1,542 1 96 13 – (232) 1,895\n2024\nCash at bank and in hand 739 (15) – (10) – – – 714\nMoney market funds 1,077 841 – (18) – – – 1,900\nShort-term deposits 1,968 1,027 – (34) – – – 2,961\nCash and cash equivalents (per balance sheet) 3,784 1,853 – (62) – – – 5,575\nOverdrafts (53) 51 – – – – – (2)\nCash and cash equivalents (per cash flow statement) 3,731 1,904 – (62) – – – 5,573\nOther current borrowings (478) 471 – – (18) (774) – (799)\nNon-current borrowings (3,568) (3) – 19 7 774 (5) (2,776)\nBorrowings included within liabilities held for sale – – – – – – – –\nLease liabilities (1,660) 299 – (7) – 1 (188) (1,555)\nLease liabilities included within liabilities held for sale – – – – – (1) – (1)\nFinancial liabilities (5,706) 767 – 12 (11) – (193) (5,131)\nNet cash/(debt) excluding the fair value of swaps (1,975) 2,671 – (50) (11) – (193) 442\nFair value of swaps hedging fixed rate borrowings 1 23 11 – (18) 17 – – 33\nNet cash/(debt) (1,952) 2,682 – (68) 6 – (193) 475\n1 Fair value of swaps hedging fixed rate borrowings reflects the impact of derivatives on repayments of the principal amount of debt. Net cash/(debt) therefore includes the fair value of\nderivatives included in fair value hedges (2025: £(26)m, 2024: £62m) and the element of fair value relating to exchange differences on the underlying principal of derivatives in cash flow\nhedges (2025: £(51)m, 2024: £(29)m)\n118 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2640, "tables": [ [ [ "714", "182", "–", "(7)", "–", "–", "–", "889" ], [ "1,900", "484", "–", "40", "–", "–", "–", "2,424" ], [ "2,961", "(12)", "–", "(18)", "–", "–", "–", "2,931" ], [ "5,575", "654", "–", "15", "–", "–", "–", "6,244" ], [ "(2)", "(1)", "–", "–", "–", "–", "–", "(3)" ], [ "5,573", "653", "–", "15", "–", "–", "–", "6,241" ], [ "(799)", "750", "–", "(32)", "40", "(988)", "(2)", "(1,031)" ], [ "(2,776)", "–", "–", "54", "(32)", "988", "(2)", "(1,768)" ], [ "(1,555)", "232", "–", "81", "–", "–", "(228)", "(1,470)" ], [ "(1)", "–", "1", "–", "–", "–", "–", "–" ], [ "(5,131)", "982", "1", "103", "8", "–", "(232)", "(4,269)" ], [ "442", "1,635", "1", "118", "8", "–", "(232)", "1,972" ], [ "33", "(93)", "–", "(22)", "5", "–", "–", "(77)" ], [ "475", "1,542", "1", "96", "13", "–", "(232)", "1,895" ] ] ], "table_count": 1 }, { "pdf_page": 121, "printed_page": 119, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "Consolidated statement of changes in equity\nYear ended 31 December 2025\nThe following describes the nature and purpose of each reserve within equity:\nShare capital – The nominal value of ordinary shares of 20p each in issue.\nShare premium – Proceeds received in excess of the nominal value of ordinary shares issued, less the costs of issue.\nCapital redemption reserve – Amounts transferred from accumulated losses on the repurchase of ordinary shares, the redemption of\nC Shares and the nominal value of ordinary shares cancelled as a part of the share buyback programme. In Rolls-Royce Holdings plc’s\nown Financial Statements, C Shares were issued from the merger reserve. This reserve was created by a scheme of arrangement in 2011.\nAs this reserve was eliminated on consolidation in the Consolidated Financial Statements, the C Shares were shown as being issued from\nthe capital redemption reserve.\nHedging reserves – Cumulative gains and losses on hedging instruments deemed effective in cash flow hedges and cost of hedging reserve.\nTranslation reserve – Gains and losses arising on retranslating the net assets of overseas operations into sterling.\nRetained earnings / accumulated losses – All other net gains and losses and transactions with owners not recognised elsewhere and ordinary\nshares held for the purpose of share-based payment plans.\nNon-controlling interests – The share of net assets or liabilities of subsidiaries held by third parties.\nAttributable to ordinary shareholders\nRetained\nCapital Cash flow earnings /\nShare Share redemption hedging Translation (accumulated Total\ncapital premium reserve reserve reserve losses) 1 Total NCI equity\nNotes £m £m £m £m £m £m £m £m £m\nAt 1 January 2025 1,701 1,012 168 13 603 (4,409) (912) 31 (881)\nProfit/(loss) for the year – – – – – 5,841 5,841 (5) 5,836\nForeign exchange translation\ndifferences on foreign operations – – – – (169) – (169) – (169)\nForeign exchange translation\ndifferences reclassified to income\nstatement on disposal of businesses 29 – – – – (18) – (18) – (18)\nNCI disposed of on disposal of business 29 – – – – – – – (23) (23)\nActuarial movements on post-retirement\nschemes 2 24 – – – – – (444) (444) – (444)\nFair value movement on cash flow\nhedges – – – (38) – – (38) – (38)\nReclassified to income statement from\ncash flow hedge reserve – – – 27 – – 27 – 27\nRevaluation to fair value of other\ninvestments 14 – – – – – (1) (1) – (1)\nOCI of joint ventures and associates 14 – – – 2 – (1) 1 – 1\nRelated tax movements 5 – – – 3 2 115 120 – 120\nTotal comprehensive income/(expense) for\nthe year – – – (6) (185) 5,510 5,319 (28) 5,291\nBonus issue 3 6,962 – – – – (6,962) – – –\nCapital reduction 3 (6,962) (1,012) (177) – – 8,151 – – –\nShare buyback programme 4 (12) – 12 – – (1,019) (1,019) – (1,019)\nRedemption of C Shares 22 – – 2 – – (2) – – –\nShare-based payments –\ndirect to equity 5 – – – – – 138 138 – 138\nDividends paid – – – – – (885) (885) – (885)\nDividends to NCI – – – – – – – (1) (1)\nTransactions with NCI – – – – – 9 9 25 34\nRelated tax movements 5 – – – – – 76 76 – 76\nOther changes in equity in the year (12) (1,012) (163) – – (494) (1,681) 24 (1,657)\nAt 31 December 2025 1,689 – 5 7 418 607 2,726 27 2,753\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 119\nFINANCIAL\nSTATEMENTS\nCONSOLIDATED FINANCIAL STATEMENTS", "char_count": 3303, "tables": [ [ [ "1,701", "1,012", "168", "13", "603", "(4,409)", "(912)", "31", "(881)" ], [ "–", "–", "–", "–", "–", "5,841", "5,841", "(5)", "5,836" ], [ "–", "–", "–", "–", "(169)", "–", "(169)", "–", "(169)" ], [ "–", "–", "–", "–", "(18)", "–", "(18)", "–", "(18)" ], [ "–", "–", "–", "–", "–", "–", "–", "(23)", "(23)" ], [ "–", "–", "–", "–", "–", "(444)", "(444)", "–", "(444)" ], [ "–", "–", "–", "(38)", "–", "–", "(38)", "–", "(38)" ], [ "–", "–", "–", "27", "–", "–", "27", "–", "27" ], [ "–", "–", "–", "–", "–", "(1)", "(1)", "–", "(1)" ], [ "–", "–", "–", "2", "–", "(1)", "1", "–", "1" ], [ "–", "–", "–", "3", "2", "115", "120", "–", "120" ], [ "–", "–", "–", "(6)", "(185)", "5,510", "5,319", "(28)", "5,291" ], [ "6,962", "–", "–", "–", "–", "(6,962)", "–", "–", "–" ], [ "(6,962)", "(1,012)", "(177)", "–", "–", "8,151", "–", "–", "–" ], [ "(12)", "–", "12", "–", "–", "(1,019)", "(1,019)", "–", "(1,019)" ], [ "–", "–", "2", "–", "–", "(2)", "–", "–", "–" ], [ "–", "–", "–", "–", "–", "138", "138", "–", "138" ], [ "–", "–", "–", "–", "–", "(885)", "(885)", "–", "(885)" ], [ "–", "–", "–", "–", "–", "–", "–", "(1)", "(1)" ], [ "–", "–", "–", "–", "–", "9", "9", "25", "34" ], [ "–", "–", "–", "–", "–", "76", "76", "–", "76" ], [ "(12)", "(1,012)", "(163)", "–", "–", "(494)", "(1,681)", "24", "(1,657)" ], [ "1,689", "–", "5", "7", "418", "607", "2,726", "27", "2,753" ] ] ], "table_count": 1, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 122, "printed_page": 120, "section": "Financial Statements", "subsection": "Consolidated financial statements", "text": "CONSOLIDATED FINANCIAL STATEMENTS\nConsolidated statement of changes in equity continued\nAttributable to ordinary shareholders\nCapital Cash flow\nShare Share redemption hedging Translation Accumulated Total\ncapital premium reserve reserve reserve losses 1 Total NCI equity\nNotes £m £m £m £m £m £m £m £m £m\nAt 1 January 2024 1,684 1,012 167 12 634 (7,190) (3,681) 52 (3,629)\nProfit/(loss) for the year – – – – – 2,521 2,521 (37) 2,484\nForeign exchange translation\ndifferences on foreign operations – – – – (29) – (29) – (29)\nActuarial movements on post-retirement\nschemes 24 – – – – – 22 22 – 22\nFair value movement on cash flow\nhedges – – – (17) – – (17) – (17)\nReclassified to income statement from\ncash flow hedge reserve – – – 22 – – 22 – 22\nRevaluation to fair value of other\ninvestments 14 – – – – – (2) (2) – (2)\nOCI of joint ventures and associates 14 – – – (3) – (1) (4) – (4)\nRelated tax movements 5 – – – (1) (2) 61 58 – 58\nTotal comprehensive income/(expense) for\nthe year – – – 1 (31) 2,601 2,571 (37) 2,534\nIssue of ordinary shares 17 – – – – – 17 – 17\nRedemption of C Shares 22 – – 1 – – (1) – – –\nOrdinary shares purchased – – – – – – – – –\nShares issued to employee share trust – – – – – (17) (17) – (17)\nShare-based payments – direct\nto equity 5 – – – – – 95 95 – 95\nDividends to NCI – – – – – – – (3) (3)\nTransactions with NCI – – – – – 32 32 19 51\nRelated tax movements 5 – – – – – 71 71 – 71\nOther changes in equity in the year 17 – 1 – – 180 198 16 214\nAt 31 December 2024 1,701 1,012 168 13 603 (4,409) (912) 31 (881)\n1 At 31 December 2025, 69,290,662 ordinary shares with an aggregate value of £503m were held for the purpose of share-based payment plans and included in retained earnings /\n(accumulated losses) (2024: 106,066,831 ordinary shares with an aggregate value of £26m). During the year:\n– 81,979,149 ordinary shares with an aggregate value of £22m vested in share-based payment plans (2024: 35,117,065 ordinary shares with an aggregate value of £14m);\n– the Company issued nil new ordinary shares to the Group’s share trust for its employee share-based payment plans with an aggregate value of £nil (2024: 88,200,000 ordinary shares\nwith an aggregate value of £17m);\n– the Company, through the Employee Benefit Trust, acquired none (2024: none) of its ordinary shares via reinvestment of dividends received on its own shares and purchased none\n(2024: 71,490) of its ordinary shares through purchases on the London Stock Exchange; and\n– the Employee Benefit Trust purchased 3,719,489 (2024: nil) ordinary shares with an aggregate value of £40m from the Company, the Company purchased these shares through the\nshare buyback scheme and held them as Treasury shares\n2 This movement includes a charge of around £450m as a result of the agreement to transfer the future pension obligations in the UK scheme to Pension Insurance Corporation plc.\nSee note 24 for further information\n3 On 1 May 2025 Rolls-Royce Holdings plc performed a bonus issue of one share from its merger reserve for £6,962m, the merger reserve is eliminated within the consolidated statement\nof changes in equity and therefore is not shown in the movement table above. The Company subsequently performed a capital reduction against share capital, share premium, and capital\nredemption reserve\n4 F ollowing the announcement of the £1bn share buyback on 27 February 2025, during the year the Company purchased with cash 106,291,417 (2024: none) of its ordinary shares at a cost\nof £1bn. The Company also separately paid costs of £8m in relation to the programme. Of these ordinary shares purchased by the Company, 61,088,437 shares at a cost of £500m were\ncancelled during the year. As detailed above 3,719,489 shares at a cost of £40m were sold to the Employee Benefit Trust for consideration of £40m and in December 2025 the Company\ngifted the remaining 41,483,491 ordinary shares at a cost of £460m to the Employee Benefit Trust\n5 Share-based payments – direct to equity is the share-based payment charge for the year less actual cost of vesting excluding those vesting from own shares and cash received on\nshare-based schemes\n120 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4172, "tables": [], "table_count": 0 }, { "pdf_page": 123, "printed_page": 121, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies\nThe Company and the Group\nRolls-Royce Holdings plc (the ‘Company’) is a public company limited by shares incorporated under the Companies Act 2006 and domiciled\nin England in the United Kingdom. The Consolidated Financial Statements of the Company for the year ended 31 December 2025 consist of\nthe audited consolidation of the Financial Statements of the Company and its subsidiaries (together referred to as the Group) together with\nthe Group’s interest in jointly controlled and associated entities.\nBasis of preparation and statement of compliance\nThe Company has elected to prepare its individual Company Financial Statements under FRS 101 Reduced Disclosure Framework. They are set\nout on pages 182 to 186 with the associated accounting policies from page 184.\nThe Consolidated Financial Statements have been prepared in accordance with UK adopted International Accounting Standards (IAS) in\nconformity with the requirements of the Companies Act 2006 and interpretations issued by the IFRS Interpretations Committee applicable to\ncompanies reporting under UK-adopted IFRS.\nThe Consolidated Financial Statements have been prepared on a going concern basis as described on page 57. The historical cost basis\nhas been used except where IFRS require the revaluation of financial instruments to fair value and certain other assets and liabilities on an\nalternative basis, most significantly post-retirement scheme obligations are valued on the basis required by IAS 19 Employee Benefits.\nThe Consolidated Financial Statements are presented in sterling which is the Company’s functional currency.\nThe preparation of the Consolidated Financial Statements requires management to make judgements and estimates that affect the statutory\namounts of assets and liabilities at the date of the Consolidated Financial Statements and the statutory amounts of revenue and expenses\nduring the reporting period. Actual future outcomes could differ from those estimates.\nGoing concern\nThe Directors have undertaken a comprehensive going concern review. In adopting the going concern basis for preparing these Consolidated\nand Company Financial Statements, the Directors have undertaken a review of the Group’s cash flow forecasts and available liquidity, along\nwith consideration of possible risks and uncertainties over an 18-month period from the balance sheet date to June 2027. The Directors have\ndetermined that the period to 30 June 2027 (‘the going concern period’) is an appropriate timeframe over which to assess going concern as it\nconsiders the Group’s short- to medium-term cash flow forecasts and available liquidity. Recognising the challenges of reliably estimating and\nforecasting the impact of external factors on the Group, the Directors have considered two forecasts in the assessment of going concern, along\nwith a likelihood assessment of these forecasts, being:\n— base case, which reflects the Directors’ current expectations of future trading; and\n— a downside forecast, which envisages severe but plausible downside risks.\nFurther details are given in the going concern review on page 57. After reviewing the current liquidity position and the cash flow forecasts\nmodelled under both the base case and downside forecast, the Directors consider that the Group has sufficient liquidity to continue in\noperational existence over the going concern period to 30 June 2027 and are therefore satisfied that it is appropriate to adopt the going\nconcern basis of accounting in preparing the Consolidated Financial Statements.\nClimate change\nIn preparing the Consolidated Financial Statements the Directors have considered the potential impact of climate change, particularly\nin the context of the disclosures included in the Strategic Report that set out climate-related commitments, targets and the pillars of the\nRolls-Royce energy transition strategy which are:\n— optimising our operations, including decarbonising operations, facilities, product testing and business activities. This will be met through\na combination of procuring clean energy, reducing overall energy demand, and clean power generation. An estimate of the investment\nrequired to meet Scope 1 + 2 emission improvements is included in the forecasts that support these Consolidated Financial Statements;\n— enabling our customers, by delivering innovative products and solutions that can accelerate the global energy transition. This includes the\ndevelopment and deployment of a future portfolio that includes the UltraFan engine in Civil Aerospace, Battery Energy Storage Systems in\nPower Systems and small modular reactors. An estimate of the investment required to deliver these technologies is included in the forecasts\nthat support the Consolidated Financial Statements; and\n— engaging and collaborating with customers, suppliers, industry and policymakers supporting the necessary enabling environment to achieve\ncollective energy transition and climate goals.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 121\nFINANCIAL\nSTATEMENTS", "char_count": 5073, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 124, "printed_page": 122, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nClimate change continued\nThe climate change scenarios previously prepared to assess the viability of our business strategy, decarbonisation plans and approach\nto managing climate-related risk have continued to develop over the last year as set out in the Strategic Report. The scenarios are used to help\nassess the Group’s strategic resilience to climate change and the energy transition. Consideration is made of how each of them impacts: the life\nof assets; future revenue projections; future profitability; and whether additional costs may occur. There remains inherent uncertainty around\nhow the scenarios will impact the Group. The Directors assess the assumptions on a regular basis to ensure that they are consistent with the risk\nmanagement activities and the commitments made to investors and other stakeholders.\nBased on the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations, the Group assesses the potential impact of\nclimate-related risks which cover transition and physical risks and opportunities. The Group has identified four key transition risks (relating to\nchanging customer demand, changes in cost due to carbon pricing, changes in cost due to commodity price changes and change in investment\nrequirements) and three key physical risks (relating to facility disruption, supply chain disruption and impact on product performance) which\nmay arise from the energy transition. The transition risks are the most likely to have an impact on the Consolidated Financial Statements, as\nexposure to physical risks will be greater in the longer term.\nThe key sources of estimation uncertainty at the balance sheet date are set out on page 124 and the Directors have considered the impact\nof climate change on those estimates. The key assumptions used in this assessment are consistent with those used in the climate scenarios\npresented in the Strategic Review. A summary of the assessment is set out below.\nRisk How reflected in the Financial Statements Impact on Civil Aerospace LTSAs\nChanging The most likely assumptions are used in the estimates Forecast EFH are based on customer and market data\ncustomer demand implicit in the preparation of the Financial Statements. and therefore already include the latest expectation of\nThe use of sensitivity analysis ensures that any impact the impact of climate change on demand. A sensitivity\nof climate change on demand is immaterial. disclosing the impact of a 1% change in EFH forecasts\nover the remaining term of Civil LTSA contracts is\ndisclosed on page 127.\nChanges in costs The potential impact of carbon pricing has been The increase in the cost base of the current Civil LTSA\ndue to carbon estimated by applying carbon prices to the forecast contracts due to carbon and commodity prices\npricing 1 and emissions generated by the Group and its supply is estimated to be around 1% (2024: 1%) with the\ncommodity price chain. This impact, together with that from estimated incremental cost included in the cost to complete\nchanges 2 commodity prices under each scenario, have estimates that drive revenue recognition. Changes in\nbeen added/deducted to forecast costs in the estimates have not had a material impact on revenue\nbase forecasts. catch-ups or contract loss provisions in the year (2024:\nnot material).\nThe analysis reflects that: decarbonisation activities\nwill occur in both the Group and its supply chain; A sensitivity disclosing the impact of a 2% change in\nand that some supplier contracts offer protection shop visit costs over the remaining term of Civil LTSA\nfrom cost increases in the short to medium term where contracts is disclosed on page 127.\npricing is fixed or subject to capped escalation clauses.\nChange in Changing investment requirements may arise due to No impact to existing LTSAs.\ninvestment the introduction/acceleration of new technologies.\nrequired\nResearch is expensed and development costs\ncapitalised as incurred.\n1 Based on the Oxford Economic Global Climate Service and Databank, with rates of $145 per tonne of carbon in 2025 increasing to c. $300 in 2030. Beyond 2030, the Group has\nconsidered a range of carbon pricing data sources with an assumed increase (in outturn economics) of c. 2% per annum to c. $475 per tonne by 2050\n2 Commodity prices from the Oxford Economics, Global Climate Service and Databank\nItems that may be impacted by climate-related risks, but which are not considered to be key areas of judgement or sources of estimation\nuncertainty in the current financial year are outlined below.\nCarrying value of goodwill – The recoverable amount used in impairment testing is based on the cash flow projections of the CGUs to which\nthe goodwill balances relate. The projections include assumptions that are based on past experience and external sources of information\nin relation to sales volumes, product costs and the required level of investment that could all be impacted by climate change. The climate\nscenarios prepared do not show a significant deterioration of demand for Civil Aerospace (including Rolls-Royce Deutschland) programmes\ngiven that all commercial aero engines are compatible with sustainable fuels, similarly the majority of the portfolio in Power Systems is\ncompatible with alternative and more sustainable fuels. The scenarios reflect the impact of a broad range of potential costs imposed by policy\nor regulatory interventions (through carbon pricing) and the investment required to ensure new products will be compatible with net zero\noperation, and to achieve net zero Scope 1 + 2 GHG emission commitments. The scenarios do not indicate the need for an impairment charge\nand the Directors do not consider that any reasonably possible changes in the climate related assumptions would cause the value in use of the\ngoodwill to fall below its carrying value.\nRecoverability of programme intangible assets – The recoverable amount used in impairment testing is based on the cash flow projections\nof the individual programmes. The projections include assumptions in relation to sales volumes and product costs that could be impacted\nby climate change. Given the level of headroom in the programme intangible assets, with most engines being compatible with alternative or\nmore sustainable fuels, and with cost estimates including an allowance for the impact of carbon pricing, there is no indication of any potential\nimpairment as a result of climate change.\n122 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6550, "tables": [], "table_count": 0 }, { "pdf_page": 125, "printed_page": 123, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nUseful lives of assets – The useful lives of property, plant and equipment and right-of-use assets could be reduced by climate-related\nmatters, for example, as a result of physical risks, obsolescence or legal restrictions. The change in useful lives would have a direct impact\non the amount of depreciation or amortisation recognised each year from the date of reassessment. The Directors’ review of useful lives has\ntaken into consideration the impacts of the Group’s decarbonisation strategy and has not had a material impact on the results for the year.\nThe Directors have also considered the remaining useful economic lives of material intangible assets, including the £1,993m and £814m\ncapitalised development spend associated with the Trent and business aviation programmes disclosed in note 11. Given the measures the\nGroup is taking, including demonstration that all the commercial aero-engines and majority of the portfolio in Power Systems are compatible\nwith alternative and sustainable fuels, the Directors judge that no adjustment is required to the useful economic lives.\nInventory valuation – Climate-related matters may affect the value of inventories as a result of a decline in selling prices or could become\nobsolete due to a reduction in demand. After consideration of the typical stock-turns of the inventory in relation to the rate of change in the\nmarket the Directors consider that inventory is appropriately valued.\nRecoverability of trade receivables and contract assets – The impact of climate-related matters could have an impact on the Group’s customers\nin the future, especially those customers in the Civil Aerospace business. No material climate-related issues have arisen during the year that\nhave impacted the assessment of the recoverability of receivables. The Group’s expected credit loss (ECL) provision uses credit ratings which\ninherently will include the market’s assessment of the climate change impact on credit risk of the counter parties. Given the maturity time of\ntrade receivables and the majority of contract assets, climate change is unlikely to cause a material increase on counter party credit risk in\nthat time.\nRecoverability of deferred tax assets on UK tax losses – Deferred tax assets are recognised to the extent it is probable that future taxable\nprofits will be available against which the assets can be utilised. The deferred tax asset on UK tax losses primarily arises in Rolls-Royce plc and\nhas been recognised based on the expectation that the business will generate taxable profits and tax liabilities in the future against which the\nlosses and deductible temporary differences can be utilised. Recognising the longer term over which these assets will be recovered, the Group\nconsiders climate change scenarios that could impact future taxable profits through changes in demand for our products or their cost. The\nvariability in taxable profits that could arise from changes in such estimates is not considered to be of sufficient magnitude that it would impact\nour judgement that there will be sufficient future taxable profits available against which the assets can be utilised.\nShare-based payments – The Group is committed to achieving net zero by 2050. The Group has committed to reduce the total Scope 1 + 2\ngreenhouse gas emissions from its facilities, operations and testing by 46% by the end of 2030 (against a baseline of 2019). This metric accounts\nfor 10% of the long-term incentive plan for awards granted in 2025, with performance measured against three-year cumulative targets.\nDefined benefit pension plans – Having assessed the risks and opportunities of climate change and considered the nature of the assets of\nthe fund, climate change is unlikely to have a material impact on the position in the Consolidated Financial Statements\nGoing concern – Given the short-term nature of the Group’s going concern assessment, the impact of climate change does not have a\nsignificant impact. The Directors have considered the level of liquidity available, and the potential impact of the climate change risks,\nin making their assessment.\nPresentation of underlying results\nThe Group measures financial performance on an underlying basis and discloses this information as an alternative performance measure (APM).\nThis is consistent with the way that financial performance is measured by the Directors and reported to the Board in accordance with IFRS 8\nOperating Segments. The Group believes this is the most appropriate basis to measure the in-year performance, as underlying results reflect\nthe substance of trading activity, including the impact of the Group’s foreign exchange forward contracts, which economically hedge net\nforeign currency cash flows at predetermined exchange rates. In addition, underlying results exclude the accounting impact of acquisition\naccounting and business disposals, impairment charges where the reasons are outside of normal operating activities, exceptional items, and\ncertain other items which are market driven and outside of the control of management. Further details are given in note 2. A reconciliation of\nAPMs to the statutory equivalent is provided on pages 208 to 211.\nRevisions to IFRS applicable in 2025\nThere are no new standards or interpretations issued by the International Accounting Standards Board (IASB) that had a significant impact on\nthese Consolidated Financial Statements.\nRevisions to IFRS not applicable in 2025\nStandards and interpretations issued by the IASB are only applicable if endorsed by the UK. Other than IFRS 18 Presentation and Disclosure\nin Financial Statements described below, the Group does not consider that any other standards, amendments or interpretations issued by the\nIASB, but not yet applicable will have a significant impact on the Consolidated Financial Statements.\nIFRS 18 Presentation and Disclosure in Financial Statements\nThe IASB issued a new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, on 9 April 2025 that will replace IAS 1\nPresentation of Financial Statements. The purpose of the new standard is to provide more consistent presentation of financial information\nacross preparers as it is acknowledged that existing standards have given flexibility to present information in different ways. IFRS 18\nPresentation and Disclosure in Financial Statements will not impact the recognition or measurement of items in the financial statements.\nMany of the existing presentation principles in IAS 1 Presentation of Financial Statements are retained, but there are some more specific\nrequirements that will require the Group to make some changes in its future Annual Reports and Interim Financial Statements.\nThe new Standard was endorsed by the UK Endorsement Board (UKEB) and will be applicable for reporting periods beginning on or after\n1 January 2027. The Group does not anticipate its early adoption of the new Standard. Comparative information for 2026 will need to be\nrestated when subsequent financial statements are published. The Group has continued its implementation activities and expects the most\nsignificant changes post 2027 to be in relation to the presentation of items within the Statutory Consolidated Income Statement. The changes are\nexpected to include: ‘share of results of joint ventures and associates’ being presented in the new investing category and included when arriving\nat a new subtotal ‘operating profit including share of results of joint ventures and associates’; interest income will be reclassified from net\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 123\nFINANCIAL\nSTATEMENTS", "char_count": 7681, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 126, "printed_page": 124, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nfinancing into the new investing category; the majority of foreign exchange differences will be reclassified from net financing into the\noperating category; and fair value gains/(losses) related to foreign currency contracts and commodity contracts will be reclassified from net\nfinancing into the operating category. The process of assessing the financial impact on the Consolidated Financial Statements will continue\nduring 2026.\nKey areas of judgement and sources of estimation uncertainty\nThe determination of the Group’s accounting policies requires judgement. The subsequent application of these policies requires estimates,\nand the actual outcome may differ from that calculated. The key judgements and key sources of estimation uncertainty at the balance sheet\ndate, that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year,\nare summarised below. Further details, together with sensitivities for key sources of estimation uncertainty where appropriate and practicable,\nare included within the significant accounting policies section of this note.\nArea Key judgements Key sources of estimation uncertainty Page ref\nRevenue — Whether Civil Aerospace OE and aftermarket — Estimates of future revenue, including customer 126\nrecognition and contracts should be combined. pricing, and costs of long-term contractual\ncontract assets — How performance on long-term aftermarket contracts arrangements, including the impact of\nand liabilities should be measured. climate change.\n— Whether long-term aftermarket contracts contain a\nsignificant financing component.\n— Whether any costs should be treated as wastage.\n— Whether the Civil Aerospace LTSA contracts are\nwarranty style contracts entered into in connection\nwith OE sales and therefore can be accounted\nfor under IFRS 15 Revenue from Contracts\nwith Customers.\n— Whether sales of spare engines to joint ventures are\nat fair value.\n— When revenue should be recognised in relation to\nspare engine sales.\nRisk and — Determination of the nature of entry fees received. 127\nrevenue sharing\narrangements\n(RRSAs)\nResearch and — Determination of the point in time where costs 130\ndevelopment incurred on an internal programme development meet\nthe criteria for capitalisation.\n— Determination of the basis for amortising capitalised\ndevelopment costs.\nLeases — Determination of the lease term. 131\nImpairment of — Determination of cash-generating units for assessing 131\nnon-current impairment of goodwill.\nassets\nProvisions — Whether any costs should be treated as wastage. — Estimates of the time and cost to incorporate 132\nrequired modified parts into the fleet to resolve\ntechnical issues on certain programmes (which\ncould be exacerbated by prolonged supply chain\nchallenges) and the implications of this on forecast\nfuture costs when assessing onerous contracts.\n— Estimates of the future revenues and costs to fulfil\nonerous contracts.\n— Assumptions implicit within the calculation of\ndiscount rate.\nPost-retirement — Estimates of the assumptions for valuing the net 133\nbenefits defined benefit obligation.\nMaterial accounting policies\nThe Group’s significant accounting policies are set out on pages 124 to 133. These accounting policies have been applied consistently to all\nperiods presented in these Consolidated Financial Statements.\nBasis of consolidation\nThe Consolidated Financial Statements include the Company Financial Statements and its subsidiary undertakings, together with the Group’s\nshare of the results of joint arrangements and associates up to 31 December.\nA subsidiary is an entity controlled by the Company. Control exists when the Company has power over an entity, exposure to variable\nreturns from its involvement with an entity and the ability to use its power over an entity so as to affect the Company’s returns. Subsidiaries\nare consolidated in accordance with IFRS 10 Consolidated Financial Statements.\nA joint arrangement is an entity in which the Group holds a long-term interest and which is jointly controlled by the Group and one or more\nother investors under a contractual arrangement. Joint arrangements may be either joint ventures or joint operations. Joint ventures are\naccounted for using the equity method of accounting and joint operations are accounted for using proportionate accounting.\n124 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4497, "tables": [], "table_count": 0 }, { "pdf_page": 127, "printed_page": 125, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nBasis of consolidation continued\nAn associate is an entity that is neither a subsidiary nor a joint arrangement, in which the Group holds a long-term interest and where the Group\nhas a significant influence. The results of associates are accounted for using the equity method of accounting.\nAll intra-group transactions, balances, income and expenses are eliminated on consolidation. Adjustments are made to eliminate the profit\nor loss arising on transactions with joint arrangements and associates to the extent of the Group’s interest in the entity. Transactions with\nnon-controlling interests are recorded directly in equity.\nAny subsidiary undertaking, joint arrangement or associate sold or acquired during the year are included up to, or from, the date of change of\ncontrol. Details of transactions in the year are set out in note 29.\nRevenue recognition and contract assets and liabilities\nRevenue recognised comprises sales to the Group’s customers after discounts and amounts payable to customers. Revenue excludes value\nadded taxes. The transaction price of a contract is typically clearly stated within the contract, although the absolute amount may be dependent\non escalation indices and long-term contracts that require the key estimates highlighted below to be made. Refund liabilities, where sales are\nmade with a right of return, are not typical in the Group’s contracts. Where they do exist, and consideration has been received, a portion based\non an assessment of the expected refund liability is recognised within other payables. The Group has elected to use the practical expedient not\nto adjust revenue for the effect of financing components where the expectation is that the period between the transfer of goods and services\nto customers and the receipt of payment is less than a year. Consideration is received in the form of deposits and payments for completion of\nmilestones or performance obligations. LTSA cash receipts are typically received based on EFHs.\nSales of standard OE, spare parts and time and material (T&M) overhaul services are generally recognised on transfer of control to the\ncustomer. This is generally on delivery to the customer, unless the specific contractual terms indicate a different point. The Directors consider\nwhether there is a need to constrain the amount of revenue to be recognised on delivery based on the contractual position and any relevant\nfacts, however, this is not typically required.\nSales of OE and services that are specifically designed for the contract (most significantly in the Defence business) are recognised by reference\nto the progress towards completion of the performance obligation, using the cost method described in the key judgements, provided the\noutcome of contracts can be assessed with reasonable certainty.\nThe Group generates a significant portion of its revenue on aftermarket arrangements arising from the installed OE fleet. As a consequence,\nin particular in the Civil Aerospace large engine business, the Group will often agree contractual prices for OE deliveries that take into account\nthe anticipated aftermarket arrangements. Sometimes this may result in losses being incurred on OE. As described in the key judgements, these\ncontracts are not combined. The consideration in the OE contract is therefore allocated to OE performance obligations and the consideration\nin the aftermarket contract to aftermarket performance obligations.\nKey areas of the accounting policy are:\n— Future variable revenue from long-term contracts is constrained to take account of the risk of non-recovery of resulting contract balances\nfrom reduced utilisation e.g. EFHs, based on historical forecasting experience and the risk of aircraft being parked by the customer.\n— A significant amount of revenue and cost related to long-term contract accounting is denominated in currencies other than that of the\nrelevant Group undertaking, most significantly USD transactions in sterling and euro denominated undertakings. These are translated at\nestimated long-term exchange rates.\n— The assessment of stage of completion is generally measured for each contract. However, in certain cases, such as for CorporateCare\nagreements, where there are many contracts covering aftermarket services each for a small number of engines, the Group accounts for a\nportfolio of contracts together, as the effect on the Consolidated Financial Statements would not differ materially from applying the standard\nto the individual contracts in the portfolio. When accounting for a portfolio of LTSAs, the Group uses estimates and assumptions that reflect\nthe size and composition of the portfolio.\n— A contract asset/liability is recognised where payment is received in arrears/advance of the revenue recognised in meeting\nperformance obligations.\n— Contract modifications of LTSAs can be accounted for as separate contracts, termination of the existing contract and the creation of a\nnew contract, or as part of the existing contract. The treatment is dependent on whether the change in scope is because of the addition\nof promised goods or services that are distinct and whether the price increases by an amount that reflects their standalone selling prices.\n— Where material, wastage costs (see key judgements on page 126) are recorded as an expense and excluded from the measure of progress\nof LTSA contracts.\n— The Group recognises a liability for their obligation to repurchase parts it has sold to the maintenance, repair and overhaul bases who\noverhaul the Group’s customers’ engines.\nIf the expected costs to fulfil a contract exceed the expected revenue, a contract loss provision is recognised for the excess costs.\nThe Group pays participation fees to airframe manufacturers, its customers for OE, on certain programmes. Amounts paid are initially treated as\ncontract assets and subsequently charged as a reduction to the OE revenue when the engines are transferred to the customer.\nThe Group has elected to use the practical expedient to expense as incurred any incremental costs of obtaining or fulfilling a contract if the\namortisation period of an asset created would have been one year or less. Where costs to obtain a contract are recognised in the balance\nsheet, they are amortised over the performance of the related contract (eight to 15 years).\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 125\nFINANCIAL\nSTATEMENTS", "char_count": 6469, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 128, "printed_page": 126, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nKey judgement – Whether Civil Aerospace OE and aftermarket contracts should be combined\nIn the Civil Aerospace business, OE contracts for the sale of engines to be installed on new aircraft are with the airframers, while\nthe contracts to provide spare engines and aftermarket goods and services are with the aircraft operators, although there may be\ninterdependencies between them. IFRS 15 Revenue from Contracts with Customers includes guidance on the combination of contracts,\nin particular that contracts with unrelated parties should not be combined. Notwithstanding the interdependencies, the Directors\nconsider that the engine contract should be considered separately from the aftermarket contract. In making this judgement, they also\ntook account of industry practice.\nKey judgement – How performance on long-term aftermarket contracts should be measured\nThe Group generates a significant proportion of its revenue from aftermarket arrangements. These aftermarket contracts, such as\nTotalCare and CorporateCare agreements in the Civil Aerospace business, cover a range of services and generally have contractual terms\ncovering more than one year. Under these contracts, the Group’s primary obligation is to maintain customers’ engines in an operational\ncondition. This is achieved by undertaking various activities, such as maintenance, repair and overhaul, and engine monitoring over the\nperiod of the contract. Revenue on these contracts is recognised over the period of the contract and the basis for measuring progress\nis a matter of judgement. The Directors consider that the stage of completion of the contract is best measured by using the actual costs\nincurred to date compared to the estimated costs to complete the performance obligations, as this reflects the extent of completion of the\nactivities to be performed.\nKey judgement – Whether long-term aftermarket contracts contain a significant financing component\nLong-term aftermarket contracts typically cover a period of eight to 15 years. Their pricing is the subject of negotiation with individual\ncustomers under competitive circumstances. It is the Directors’ judgement that the consideration received approximates to the cash\nselling price and any timing difference between consideration being received and the supply of goods and services is typical of the\nindustry and arises for reasons other than to provide financing. The customers typically pay on an ‘as used’ basis (e.g. USD/EFH) which\nreflects the wear and tear of the engine as it flies and aligns to the customer’s own revenue streams. An adjustment to the transaction price\nis therefore not required.\nKey judgement – Whether any costs should be treated as wastage\nIn rare circumstances, the Group may incur costs of wasted material, labour or other resources to fulfil a contract where the level of\ncost was not reflected in the contract price. The identification of such costs is a matter of judgement and would only be expected to arise\nwhere there has been a series of abnormal events which give rise to a significant level of cost of a nature that the Group would not expect\nto incur and hence is not reflected in the contract price. Examples include technical issues that: require resolution to meet regulatory\nrequirements; have a wide-ranging impact across a product type; and cause significant operational disruption to customers. Similarly, in\nthese rare circumstances, significant disruption costs to support customers resulting from the actual performance of a delivered good or\nservice may be treated as a wastage cost. Provision is made for any costs identified as wastage when the obligation to incur them arises\n– see note 23.\nKey judgement – Whether the Civil Aerospace LTSA contracts are warranty style contracts entered into in connection with OE sales and\ntherefore can be accounted for under IFRS 15 Revenue from Contracts with Customers\nThe Group has considered whether these arrangements are insurance contracts as defined in IFRS 17 Insurance Contracts. While they\nmay transfer an element of insurance risk, they relate to warranty and service type agreements that are entered into in connection with\nthe Group’s sales of its goods or services and therefore continue to be accounted for under the existing revenue and provisions standards.\nThe Directors have judged that such arrangements entered into after the original equipment sale remain sufficiently related to the sale of\nthe Group’s goods and services to allow the contracts to continue to be measured under IFRS 15 Revenue from Contracts with Customers\nand IAS 37 Provisions, Contingent Liabilities and Contingent Assets.\nKey judgement – Whether sales of spare engines to joint ventures are at fair value\nThe Civil Aerospace business maintains a pool of spare engines to support its customers. Some of these engines are sold to, and held by,\njoint venture companies. The assessment of whether the sales price reflects fair value is a key judgement. The Group considers that based\nupon the terms and conditions of the sales, and by comparison to the sales price of spare engines to other third parties, the sales made to\njoint ventures reflect the fair value of the goods sold. See note 28 for the value of sales to joint ventures during the year.\nKey judgement – When revenue should be recognised in relation to spare engine sales\nRevenue is recognised at the point in time when a customer obtains control of a spare engine. The customer could be a related party,\nan external operator or a spare engine service provider. Depending on the contractual arrangements, judgement is required on when\nthe Group relinquishes control of spare engines and, therefore, when the revenue is recognised. The point of control passing has been\nconcluded to correspond to the point of legal sale, even for instances where the customer is contracted to provide some future spare\nengine capacity to the Group to support its installed engine base. In such cases, the customer has responsibility for generating revenue\nfrom the engines and exposure to periods of non-utilisation; exposure to risk of damage or loss, risk from residual value movements, and\nwill determine if and when profits will be made from disposal. The spare engine capacity that will be made available to the Group in the\nfuture does not consist of identified assets and the provider retains a substantive right to substitute the asset through the Group’s period\nof use. It is, therefore, appropriate to recognise revenue from the sale of the spare engines at the point that title transfers. During 2025,\nof the total 52 (2024: 57) large spare engine sales delivered, 5 (2024: 20) engines were sold to customers where contractual arrangement\nallows for some future spare engine capacity to be used by the Group. These sales contributed £94m (2024: £399m) to revenue for\nthe year.\n126 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6976, "tables": [], "table_count": 0 }, { "pdf_page": 129, "printed_page": 127, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nKey estimate – Estimates of future revenue, including customer pricing, and costs of long-term contractual arrangements, including the\nimpact of climate change\nThe Group has long-term contracts that fall into different accounting periods and which can extend over significant periods (generally\nup to 25 years), the most significant of these are LTSAs in the Civil Aerospace business, with contracts typically covering a period of eight\nto 15 years. The estimated revenue and costs are inherently imprecise and significant estimates are required to assess: EFHs, time on wing\nand other operating parameters; the pattern of future maintenance activity and the costs to be incurred; lifecycle cost improvements over\nthe term of the contracts; and escalation of revenue and costs (that includes the impact of inflation). Many of the revenues and costs are\ndenominated in currencies other than that of the relevant group undertaking, these are translated at an estimated long-term exchange\nrate, based on historical trends and economic forecasts.\nThe impact of climate change on EFHs and costs is also considered when making these estimates. Industry and customer data on expected\nlevels of utilisation is included in the forecasts used. Across the length of the current Civil Aerospace LTSA contracts, allowance has been\nmade for around a 1% (2024:1%) projected cost increase resulting from carbon pricing and commodity price changes.\nDuring the year, changes to the estimate in relation to the Civil Aerospace long term contracts resulted in favourable catch-up adjustments\nto revenue of £253m (2024: favourable catch-up adjustments of £311m).\nThe sensitivities below demonstrate how changes in assumptions (including as a result of climate change) could impact the level of revenue\nrecognised were assumptions to change. The Directors believe that the estimates used to prepare the Consolidated Financial Statements\ntake account of the inherent uncertainties, constraining the expected level of revenue as appropriate. Based upon the stage of completion\nof all LTSA contracts within Civil Aerospace as at 31 December 2025, the following reasonably possible changes in estimates would result in\ncatch-up adjustments being recognised in the period in which the estimates change (at underlying rates):\n— A change in forecast EFHs of 1% over the remaining term of the contracts would impact LTSA income and to a lesser extent costs,\nresulting in an in-year impact of around £20m. This would be expected to be seen as a catch-up change in revenue or, to the extent it\nimpacts onerous contracts, within cost of sales.\n— A 2% increase or decrease in our pricing to customers over the life of the contracts would lead to a revenue catch-up adjustment in the\nnext 12 months of around £400m.\n— A 2% increase or decrease in shop visit costs over the life of the contracts would lead to a revenue catch-up adjustment in the next\n12 months of around £120m.\nRisk and revenue sharing arrangements (RRSAs)\nCash entry fees received are initially deferred on the balance sheet as deferred receipts from RRSA workshare partners within trade payables\nand other liabilities. The cash entry fee is a transaction with a supplier and is recognised as a reduction in cost of sales incurred. Individual\nprogramme amounts are allocated pro rata to the estimated number of units to be produced. Amortisation commences as each unit is delivered\nand then recognised on a 15-year straight-line basis.\nThe payments to suppliers of their shares of the programme cash flows for their production components are charged to cost of sales when\nOE sales are recognised or as LTSA costs are incurred. These prepayments are initially recognised within trade receivables and other assets.\nThe Group also has arrangements with third parties who invest in a programme and receive a return based on its performance, but do\nnot undertake development work or supply parts. Such arrangements (financial RRSAs) are financial instruments as defined by IAS 32\nFinancial Instruments: Presentation and are accounted for using the amortised cost method.\nKey judgement – Determination of the nature of entry fees received\nRRSAs with key suppliers (workshare partners) are a feature of the civil aviation industry. Under these contractual arrangements, the key\ncommercial objectives are that: (i) during the development phase the workshare partner shares in the risks of developing an engine by\nperforming its own development work, providing development parts, and paying a non-refundable cash entry fee; and (ii) during the\nproduction phase the workshare partner supplies components in return for a share of the programme cash flows as a ‘life of type’ supplier\n(i.e. as long as the engine remains in service).\nThe non-refundable cash entry fee is considered to be one element of a long-term supply agreement. These receipts are deferred on the\nbalance sheet and recognised against the cost of sales over the estimated number of units to be delivered on a similar basis to the\namortisation of development costs – see page 129.\nGovernment grants\nGovernment grants received are varied in nature and are recognised in the income statement so as to match them with the related expenses\nthat they are intended to compensate. Where grants are received in advance of the related expenses, they are initially recognised as liabilities\nwithin trade payables and other liabilities and released to match the related expenditure. Non-monetary grants are recognised at fair value.\nInterest\nInterest receivable/payable is credited/charged to the income statement using the effective interest method. Where borrowing costs are\nattributable to the acquisition, construction or production of a qualifying asset, such costs are capitalised as part of the specific asset.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 127\nFINANCIAL\nSTATEMENTS", "char_count": 5944, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 130, "printed_page": 128, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nTaxation\nThe tax charge/credit on the profit or loss for the year comprises current and deferred tax:\n— Current tax is the expected tax payable for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any\nadjustment to tax payable in respect of previous years; and\n— Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts\nof the assets and liabilities for financial reporting purposes and the amounts used for tax purposes and is calculated using the enacted or\nsubstantively enacted rates that are expected to apply when the asset or liability is settled. In the UK, the deferred tax liability on the pension\nscheme surplus is recognised consistently with the basis for recognising the surplus i.e. at the rate applicable to refunds from a trust.\nTax is charged or credited to the income statement or OCI as appropriate, except when it relates to items credited or charged directly to equity\nin which case the tax is also dealt with in equity.\nDeferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint arrangements, except\nwhere the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse\nin the foreseeable future. Deferred tax is not recognised on taxable temporary differences arising on the initial recognition of goodwill or for\ntemporary differences arising from the initial recognition of assets and liabilities in a transaction that is not a business combination and that\naffects neither accounting nor taxable profit.\nDeferred tax assets are recognised only to the extent that it is probable that future taxable profits, which include the reversal of taxable\ntemporary differences, will be available against which the assets can be utilised. Further details on the Group’s tax position can be found on\npages 142 to 145.\nForeign currency translation\nTransactions denominated in currencies other than the functional currency of the transacting group undertaking are translated into the\nfunctional currency at the average monthly exchange rate when the transaction occurs. Monetary assets and liabilities denominated in foreign\ncurrencies are translated into the relevant functional currency at the rate prevailing at the year end. Exchange differences arising on foreign\nexchange transactions and the retranslation of monetary assets and liabilities into functional currencies at the rate prevailing at the year end\nare included in profit/(loss) before taxation.\nThe trading results of Group undertakings are translated into sterling at the average exchange rates for the year. The assets and liabilities of\noverseas undertakings, including goodwill and fair value adjustments arising on acquisition, are translated at the exchange rates prevailing at\nthe year end. Exchange adjustments arising from the retranslation of the opening net assets, and from the translation of the profits or losses at\naverage rates, are recognised in OCI.\nDiscontinued operations and business disposals\nA discontinued operation is defined in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations as a component of an entity that\nhas been disposed of or is classified as held for sale, represents a separate major line of business or geographical area of operations, is part\nof a single co-ordinated plan to dispose of such a line of business or is a subsidiary acquired exclusively with a view to resale. The results of\ndiscontinued operations are required to be presented separately in the income statement.\nAssets and businesses are classified as held for sale when their carrying amounts will be recovered through sale rather than through\ncontinuing use.\nFinancial instruments – Classification and measurement\nFinancial assets primarily include trade receivables and other non-derivative financial assets, cash and cash equivalents, short-term\ninvestments, derivatives (foreign exchange, commodity and interest rate contracts), and listed and unlisted investments.\n— Trade receivables and other assets are classified either as held to collect and measured at amortised cost, or as held to collect and sell and\nmeasured at fair value, with movements in fair value recognised through other comprehensive income (FVOCI). The Group may sell trade\nreceivables due from certain customers before the due date. Any trade receivables from such customers that are not sold at the reporting\ndate are classified as ‘held to collect and sell’.\n— Cash and cash equivalents (consisting of balances with banks and other financial institutions, money market funds and short-term deposits)\nand short-term investments are subject to low market risk. Cash balances, short-term deposits (with a maturity of primarily three months or\nless) and short-term investments are measured at amortised cost. Money market funds are measured at fair value, with movements in fair\nvalue recognised in the income statement as a profit or loss (FVPL).\n— Derivatives and unlisted investments are measured at FVPL. The Company has elected to measure its listed investments at FVOCI.\nFinancial liabilities primarily consist of trade payables and other non-derivative financial liabilities, borrowings, derivatives, financial RRSAs\nand C Shares.\n— Derivatives are classified and measured at FVPL.\n— All other financial liabilities are classified and measured at amortised cost.\n128 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5624, "tables": [], "table_count": 0 }, { "pdf_page": 131, "printed_page": 129, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nFinancial instruments – Impairment of financial assets and contract assets\nIFRS 9 Financial Instruments sets out the basis for the accounting of ECLs on financial assets and contract assets resulting from transactions within\nthe scope of IFRS 15 Revenue from Contracts with Customers. The Group has adopted the simplified approach to provide for ECLs, measuring the\nloss allowance at a probability weighted amount that considers reasonable and supportable information about past events, current conditions and\nforecasts of future economic conditions of customers. These are incorporated in the simplified model adopted by using credit ratings which are\npublicly available, or through internal risk assessments derived using the customer’s latest available financial information. The ECLs are updated\nat each reporting date to reflect changes in credit risk since initial recognition. ECLs are calculated for all financial assets in scope, regardless of\nwhether or not they are overdue.\nFinancial instruments – Hedge accounting\nForward foreign exchange contracts and commodity swaps (derivative financial instruments) are held to manage the cash flow exposures of\nforecast transactions denominated in foreign currencies or in commodities respectively. Derivative financial instruments qualify for hedge\naccounting when: (i) there is a formal designation and documentation of the hedging relationship and the Group’s risk management objective\nand strategy for undertaking the hedge at the inception of the hedge; and (ii) the hedge is expected to be effective. In general, the Group has\nchosen to not apply hedge accounting in respect of these exposures.\nThe Group economically hedges the fair value and cash flow exposures of its borrowings. Cross-currency interest rate swaps are held to\nmanage the fair value or cash flow exposures of borrowings denominated in foreign currencies and are designated as fair value hedges or\ncash flow hedges as appropriate. Interest rate swaps are held to manage the interest rate exposures of fixed and floating rate borrowings and\nmay be designated as fair value hedges or cash flow hedges as appropriate. If the swaps are not designated as fair value or cash flow hedges,\nthe economic effect is included in the underlying results – see note 22.\nChanges in the fair values of derivatives that are designated as fair value hedges are recognised directly in the income statement. The fair value\nchanges of effective cash flow hedge derivatives are recognised in OCI and subsequently recycled to the income statement in the same period or\nperiods during which the hedged cash flows affect profit or loss. Any ineffectiveness in the hedging relationship is included in the income statement.\nFinancial instruments – Hedge accounting continued\nHedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge\naccounting. At that time, for cash flow hedges and, if the forecast transaction remains probable, any net cumulative gain or loss on the hedging\ninstrument recognised in the Statement of Changes in Equity (SOCIE) is retained until the forecast transaction occurs. If a hedged transaction is\nno longer expected to occur, the net cumulative gain or loss is recycled to the income statement.\nBusiness combinations and goodwill\nGoodwill recognised represents the excess of the fair value of the purchase consideration over the fair value to the Group of the net\nof the identifiable assets acquired and the liabilities assumed. On transition to IFRS on 1 January 2004, business combinations were not\nretrospectively adjusted to comply with UK-adopted International Accounting Standards and goodwill was recognised based on the carrying\nvalue under the previous accounting policies. Goodwill, in respect of the acquisition of a subsidiary, is recognised as an intangible asset.\nGoodwill arising on the acquisition of joint arrangements and associates is included in the carrying value of the investment.\nCustomer relationships\nThe fair value of customer relationships recognised as a result of a business combination relate to the acquired company’s established\nrelationships with its existing customers that result in repeat purchases and customer loyalty. Amortisation is charged on a straight-line basis\nover its useful economic life, up to a maximum of 15 years.\nCertification costs\nCosts incurred in respect of meeting regulatory certification requirements for new Civil Aerospace aero-engine/aircraft combinations,\nincluding payments made to airframe manufacturers for this, are recognised as intangible assets to the extent that they can be recovered out\nof future sales. They are charged to the income statement over the programme life. Individual programme assets are allocated pro rata to the\nestimated number of units to be produced. Amortisation commences as each unit is delivered and then charged on a 15-year straight-line basis.\nResearch and development\nExpenditure incurred on research and development is distinguished as relating either to a research phase or to a development phase. All\nresearch phase expenditure is charged to the income statement. Development expenditure is recognised as an internally generated intangible\nasset (programme asset) only if it meets strict criteria, relating in particular to technical feasibility and generation of future economic benefits.\nMore specifically, development costs are capitalised from the point at which the following conditions have been met:\n— the technical feasibility of completing the programme and the intention and ability (availability of technical, financial and other resources)\nto complete the programme asset and use or sell it;\n— the probability that future economic benefits will flow from the programme asset; and\n— the ability to measure reliably the expenditure attributable to the programme asset during its development.\nCapitalisation continues until the point at which the programme asset meets its originally contracted technical specification (defined internally\nas the point at which the asset is capable of operating in the manner intended by the Directors). Subsequent expenditure is capitalised where\nit enhances the functionality of the programme asset and demonstrably generates an enhanced economic benefit to the Group. All other\nsubsequent expenditure on programme assets is expensed as incurred.\nIndividual programme assets are allocated pro rata to the estimated number of units to be produced. Amortisation commences as each unit is\ndelivered and then charged on a 15-year straight-line basis. In accordance with IAS 38 Intangible Assets, the basis on which programme assets\nare amortised is assessed annually.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 129\nFINANCIAL\nSTATEMENTS", "char_count": 6864, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 132, "printed_page": 130, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nKey judgement – Determination of the point in time when costs incurred on an internal programme development meet the criteria\nfor capitalisation\nThe Group incurs significant research and development expenditure in respect of various development programmes. Determining when\ncapitalisation should commence and cease is a key judgement, as is the determination of when subsequent expenditure on the programme\nassets should be capitalised. During the year, £222m (2024: £263m) of development expenditure was capitalised.\nWithin the Group there are established processes in place e.g., the Product Introduction and Lifecycle Management process (PILM), to\nconsider technical feasibility, commercial viability and financial assessment of the programme at certain milestones. When these are met,\ndevelopment expenditure is capitalised. Prior to this, expenditure is expensed as incurred.\nThe Group continues to invest in new technologies as a result of its decarbonisation commitments. As these are new technologies there\nis a higher level of uncertainty over potential outcomes and, therefore, this could impact the level of expenditure that is capitalised or\nrecognised in the income statement in future years.\nSubsequent expenditure after entry into service which enhances the performance of the engine and the economic benefit to the Group\nis capitalised. This expenditure is referred to as enhanced performance and is governed by the PILM process referred to above. All other\ndevelopment costs are expensed as incurred.\nKey judgement – Determination of the basis for amortising capitalised development costs\nThe economic benefits of the development costs are primarily those cash inflows arising from LTSAs, which are expected to be relatively\nconsistent for each engine within a programme. Amortisation of development costs is recognised on a straight-line basis over the\nestimated period of operation of the engine by its initial operator.\nSoftware\nSoftware that is not specific to an item of property, plant and equipment is classified as an intangible asset, recognised at its acquisition cost\nand amortised on a straight-line basis over its useful economic life, up to a maximum of ten years. The amortisation period of software assets is\nreviewed annually. The cost of internally developed software includes direct labour and an appropriate proportion of overheads.\nOther intangible assets\nThese include intangible assets arising on acquisition of businesses, such as technology which is amortised on a straight-line basis over a\nmaximum of 15 years and trademarks which are not amortised. They also include the costs incurred testing and analysing engines with the\nlongest time in service (fleet leader engines) to gather technical knowledge on engine endurance, which are amortised on a straight-line basis\nover a maximum of 15 years.\nProperty, plant and equipment\nProperty, plant and equipment are stated at acquisition cost less accumulated depreciation and any provision for impairment in value.\nThe cost of self-constructed assets includes the cost of materials, direct labour, an appropriate proportion of overheads and, where\nappropriate, interest.\nDepreciation is provided on a straight-line basis to write off the cost, less the estimated residual value, of property, plant and equipment over\ntheir estimated useful lives. No depreciation is recorded on assets in the course of construction. Estimated useful lives are reassessed annually\nand are as follows:\n— Land and buildings, as advised by the Group’s professional advisers:\n• freehold buildings – three to 50 years; and\n• no depreciation is provided on freehold land.\n— Plant and equipment – two to 25 years.\n— Aircraft and engines – five to 20 years.\nLeases\nAssets and liabilities arising from a lease are initially measured on a present value basis.\nLease liabilities include the net present value of the following lease payments:\n— fixed payments less any lease incentive receivable;\n— variable lease payments that are based on an index or a rate;\n— amounts expected to be payable by the Group under residual value guarantees;\n— the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and\n— payments of penalties for termination of the lease, if the lease term reflects the Group exercising that option.\nWhere leases commenced after the initial IFRS 16 Leases transition date, the lease payments are discounted using the interest rate implicit in\nthe lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay\nto borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Where\nappropriate, lease liabilities are revalued at each reporting date using the spot exchange rate.\n130 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4970, "tables": [], "table_count": 0 }, { "pdf_page": 133, "printed_page": 131, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nRight-of-use assets are measured at cost comprising the following:\n— the amount of the initial measurement of lease liability or a revaluation of the liability;\n— any lease payments made at or before the commencement date less any lease incentives received;\n— any initial direct costs; and\n— restoration costs.\nEach right-of-use asset is depreciated over the shorter of its useful economic life and the lease term on a straight-line basis unless the lease\nis expected to transfer ownership of the underlying asset to the Group, in which case the asset is depreciated to the end of the useful life of\nthe asset.\nShort-term leases are leases with a lease term of 12 months or less. Payments associated with short-term leases and low-value leases are\nrecognised on a straight-line basis as an expense in the income statement.\nKey judgement – Determination of lease term\nIn determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension\noption, or not exercise a termination option. Extension options (or periods after termination) are only included in the lease term if the\nlease is reasonably certain to be extended (or not terminated). Certain land and building leases have renewal options although none\ndue in the next 12 months would have a material impact. Other renewals are evenly spread between 2029 to 2033 and then post 2038.\nThe Group reviews its judgements on lease terms annually, including the operational significance of the site, especially where utilised for\nmanufacturing activities.\nImpairment of non-current assets\nImpairment of non-current assets is considered in accordance with IAS 36 Impairment of Assets. Where the asset does not generate cash\nflows that are independent of other assets, impairment is considered for the cash-generating unit (CGU) to which the asset belongs. Goodwill,\nindefinite life intangible assets and intangible assets not yet available for use are tested for impairment annually. Other intangible assets\n(including programme-related intangible assets), property, plant and equipment, right-of-use assets and investments are assessed for any\nindications of impairment annually. If any indication of impairment is identified, an impairment test is performed to estimate the\nrecoverable amount.\nIf the recoverable amount of an asset (or CGU) is estimated to be below the carrying value, the carrying value is reduced to the recoverable\namount and the impairment loss is recognised as an expense. The recoverable amount is the higher of value in use or fair value less costs of\ndisposal. The value in use is the present value of future cash flows using a pre-tax discount rate that reflects the time value of money and the\nrisk specific to the asset (or CGU). Fair value less costs of disposal (FVLCOD) reflects market inputs or inputs based on market evidence if\nreadily available. If these inputs are not readily available, the fair value is estimated by discounting future cash flows modified for market\nparticipants’ views. The relevant local statutory tax rates have been applied in calculating post-tax to pre-tax discount rates.\nKey judgement – Determination of CGUs for assessing impairment of goodwill\nThe Group conducts impairment reviews at the CGU level. As permitted by IAS 36 Impairment of Assets, impairment reviews for goodwill\nare performed at the groups of CGUs level, representing the lowest level at which the Group monitors goodwill for internal management\npurposes and no higher than the Group’s operating segments. The main CGUs for which goodwill impairment reviews have been\nperformed are Rolls-Royce Deutschland Ltd & Co KG and at an aggregated Rolls-Royce Power Systems AG level.\nInventories\nInventories are valued on a first-in, first-out basis, at the lower of cost and net realisable value. Cost comprises direct materials and, where\napplicable, direct labour costs and those direct and indirect overheads, including depreciation of property, plant and equipment, that have\nbeen incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling prices\nless all estimated costs of completion and costs to be incurred in marketing, selling and distribution. All inventories are classified as current as\nit is expected that they will be used in the Group’s operating cycle, regardless of whether this is expected to be within 12 months of the balance\nsheet date.\nCash and cash equivalents\nCash and cash equivalents include cash at bank and in hand, investments in money market funds and short-term deposits with a maturity\nof three months or less on inception. The Group considers overdrafts (repayable on demand) to be an integral part of its cash management\nactivities and these are included in cash and cash equivalents for the purposes of the cash flow statement. Where the Group operates pooled\nbanking arrangements across multiple accounts, these are presented on a net basis when it has both a legal right and intention to settle the\nbalances on a net basis.\nThe Group’s suppliers have access to a supply chain financing (SCF) programme through partnership with banks. This is to enable smaller\nsuppliers, including joint ventures (90-day standard payment terms), who are on our standard 75 day or more payment terms to receive\ntheir payment sooner. The election to utilise the programme is the sole decision of the supplier. As the Group continues to have a contractual\nobligation to pay its suppliers under commercial terms, which are unaffected by any utilisation of the programme, and it does not retain any\nongoing involvement in the SCFs, the related payables are retained on the Group’s balance sheet and classified as trade payables. Further\ndetails are disclosed in note 21.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 131\nFINANCIAL\nSTATEMENTS", "char_count": 5945, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 134, "printed_page": 132, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nProvisions\nProvisions 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\nto settle that obligation. Provisions are discounted to present value where the effect is material.\nThe principal provisions are recognised as follows:\n— onerous contracts based on an assessment of whether the direct costs to fulfil a contract are greater than the expected revenue;\n— warranty and guarantees based on an assessment of future claims with reference to past experience and recognised at the earlier of when\nthe underlying products and services are sold and when the likelihood of a future cost is identified; and\n— transformation and restructuring when the Group has approved a detailed and formal restructuring plan, and the restructuring has either\ncommenced or has created a valid expectation to those affected.\nKey judgement – Whether any costs should be treated as wastage\nIn rare circumstances, the Group may incur costs of wasted material, labour or other resources to fulfil a contract where the level of\ncost was not reflected in the contract price. The identification of such costs is a matter of judgement and would only be expected to arise\nwhere there has been a series of abnormal events which give rise to a significant level of cost of a nature that the Group would not expect\nto incur. As the Group is an owner of an engine Type Certificate, it has a present obligation to develop appropriate design changes to\naddress certain engine conditions that have been noted in issued Airworthiness Directives. The Group is also required to ensure engine\noperators can continue to safely operate engines within the terms of their LTSAs, and this requires the engines to be compliant with the\nrequirements of those issued Airworthiness Directives. Where Airworthiness Directives are issued, requirements cannot be met without\nthe Group incurring significant costs in the form of replacement parts and customer claims. Given the significant activities of the Group\nin designing and overhauling aero engines it is very experienced in making the required estimates in relation to the number and timing of\nshop visits, parts costs, overhaul labour costs and customer claims.\nDuring the year, the Group has utilised the remaining £35m of the Trent 1000 wastage costs provision.\nKey judgement – Estimates of the time to incorporate required modified parts into the fleet to resolve technical issues on the Trent 1000,\nand the implications of this on forecast future costs when assessing onerous contracts\nThe Group considers that at 31 December 2025 the Trent 1000 onerous contract provisions are most sensitive to changes in estimates.\nOur forecast increases in shop visit capacity could be impacted by several factors, including prolonged supply chain challenges.\nIf forecast increases in shop visit capacity are not achieved, this could have the impact of reducing planned output of engine overhauls.\nA 20% reduction in Trent 1000 planned output during the first half of 2026 (and thus delayed incorporation of modified parts into the\nfleet) could lead to around a £20m to £30m charge.\nKey estimates – Estimates of the future revenues and costs to fulfil onerous contracts\nThe Group has provisions for onerous contracts at 31 December 2025 of £986m (2024: £1,433m). An increase in Civil Aerospace large\nengine estimates of LTSA costs of 1% over the remaining term of the contracts could lead to around a £50m to £70m increase in the\nonerous contract provisions across all programmes.\nKey estimates – Assumptions implicit within the calculation of discount rates\nThe onerous contract provisions are sensitive to changes in the discount rate used to value the provisions. The rate used for each\ncontract is derived from bond yields (i.e. risk-free rates) with a similar duration and currency to the contract that they are applied to.\nThe rate is adjusted to reflect the specific inflation characteristics of the contracts. The forecast rates are determined from third-party\nmarket analysis and average 5%. A 1% change in the discount rates used could lead to around a £20m to £30m change in the provision.\nCustomer financing support\nIn connection with the sale of its products, the Group will, on occasion, provide financing support for its customers. Credit-based guarantees\nare disclosed as commitments or contingent liabilities dependent on whether aircraft have been delivered or not. As described on page 178,\nthe Directors consider the likelihood of crystallisation in assessing whether provision is required for any contingent liabilities.\nThe Group’s contingent liabilities relating to financing arrangements are spread over many years and relate to a number of customers and a\nbroad product portfolio and are reported on a discounted basis.\n132 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4949, "tables": [], "table_count": 0 }, { "pdf_page": 135, "printed_page": 133, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n1 Accounting policies continued\nPost-retirement benefits\nPensions and similar benefits (principally healthcare) are accounted for under IAS 19 Employee Benefits.\nFor defined benefit plans obligations are measured at discounted present value using a discount rate derived from high-quality corporate\nbonds denominated in the currency of the plan, whilst plan assets are recorded at fair value. Surpluses in schemes are recognised as assets\nonly if they represent economic benefits available to the Group in the future. Actuarial gains and losses are recognised immediately in OCI.\nThe service and financing costs of such plans are recognised separately in the income statement:\n— current service costs are spread systematically over the lives of employees;\n— past-service costs and settlements are recognised immediately; and\n— financing costs are recognised in the periods in which they arise.\nUK pension obligations include the estimated impact of the obligation to equalise defined benefit pensions and transfer values for men\nand women.\nPayments to defined contribution schemes are charged as an expense as they fall due.\nKey estimate – Estimates of the assumptions for valuing the net defined benefit obligation\nThe Group’s defined benefit pension schemes and similar arrangements are assessed annually in accordance with IAS 19 Employee\nBenefits. The valuations, which are based on assumptions determined with independent actuarial advice, resulted in a net deficit of £606m\nbefore deferred taxation being recognised on the balance sheet at 31 December 2025 (2024: deficit of £191m). The size of the net surplus/\ndeficit is sensitive to the actuarial assumptions which include the discount rate, price inflation, pension and salary increases, longevity and,\nin the UK, the number of plan members who take the option to transfer their pension to a lump sum on retirement or who choose to take\nthe Bridging Pension Option. Following consultation, the UK scheme closed to future accrual on 31 December 2020.\nA reduction in the discount rate of 0.25% from 5.60% could lead to an increase in the defined benefit obligations of the RR UK Pension\nFund (RRUKPF) of approximately £140m and an increase in the assumed rate of inflation of 0.25% (RPI of 3.05% and CPI of 2.70%) could\nlead to an increase in the defined benefit obligations of the RRUKPF of approximately £55m. In August 2025 the scheme completed a\nBuy-in, with the purchase of a bulk insurance annuity policy, with the effect that the majority of scheme liabilities, and therefore these\npotential risks, are covered by this policy. See further details and overseas scheme sensitivities in note 24.\nShare-based payments\nThe Group provides share-based payment arrangements to certain employees. These are principally equity-settled arrangements and are\nmeasured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value is expensed on a\nstraight-line basis over the vesting period. The amount recognised as an expense is adjusted to reflect the actual number of shares or options\nthat will vest based on expected performance, except where additional shares vest as a result market-based performance conditions, such as\nthe total shareholder return (TSR) performance condition in the long-term incentive plan (LTIP), where no adjustment is required as allowance\nfor these performance conditions are included in the initial fair value.\nCash-settled share options (grants in the International ShareSave plan) are measured at fair value at the balance sheet date. The Group\nrecognises a liability at the balance sheet date based on these fair values, taking into account the estimated number of options that are\nexpected to vest and the relative completion of the vesting period. Changes in the value of this liability are recognised in the income\nstatement for the year.\nThe cost of shares of Rolls-Royce Holdings plc held by the Group for the purpose of fulfilling obligations in respect of employee share plans is\ndeducted from equity in the consolidated balance sheet. See note 26 for a further description of the share-based payment plans.\nPost balance sheet events\nRolls-Royce plc and the Trustee of the UK pension scheme signed an agreement on 2 February 2026 triggering the wind up of the UK scheme.\nThe Group’s current expectation is that the residual surplus on the scheme will be shared between the Group and the scheme’s members,\nand communications to this effect have been made to members. This is subject to a statutory consultation process between the Trustee\nand the members, expected to be completed in 2026. Subject to the outcome of that process, it is currently expected that this will result in\na constructive obligation of around £100m being recognised as a past service charge in the income statement in 2026.\nFollowing the completion in November 2025 of its £1 bn share buyback programme for 2025, the Group announced in December 2025 that it\nwas commencing a further share buyback programme of up to £200m in January 2026. This programme was completed in February 2026, with\nthe Group having purchased 15,971,931 shares for consideration of £200m. These shares have all been cancelled.\nOn 26 February 2026, the Group announced a multi-year share buyback programme (see page 57 for further details).\nOn 16 February 2026, the Group repaid €750m of borrowings on their contractual maturity date which, along with the associated cross\ncurrency interest rate swaps, resulted in a cash outflow of £677m.\nThe Group has taken the latest legal position in relation to any ongoing legal proceedings and reflected these in the 2025 results\nas appropriate.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 133\nFINANCIAL\nSTATEMENTS", "char_count": 5794, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 136, "printed_page": 134, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis\nThe analysis by segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those segments whose operating results\nare regularly reviewed by the Board (who acts as the Chief Operating Decision Maker as defined by IFRS 8 Operating Segments). The Group’s\nthree divisions are set out below.\nCivil Aerospace development, manufacture, marketing and sales of commercial aero engines and aftermarket services\nDefence d evelopment, manufacture, marketing and sales of military aero engines, naval engines, submarine nuclear power plants\nand aftermarket services\nPower Systems d evelopment, manufacture, marketing and sales of integrated solutions for onsite power and propulsors\nOn 4 March 2025, an investment was received by Rolls-Royce SMR Limited from ČEZ Group (CEZ), as a result the Group relinquished control of\nRolls-Royce SMR Limited and the subsidiary was deconsolidated (see note 29 for further details).\nFollowing the decision in 2024 to exit the Group’s advanced air mobility activities and the deconsolidation of Rolls-Royce SMR Limited on\n4 March 2025 (see note 29) the New Markets operating segment that was reported at 31 December 2024 is no longer regularly reviewed by\nthe Board as a basis for making decisions about the allocation of resources to the business or to assess its performance. In line with IFRS 8\nOperating Segments, New Markets is no longer considered to meet the definition of an operating segment.\nRevenue and expenses from new electrical power solutions and the Group’s share of the financial results of Rolls-Royce SMR Limited have been\nincluded in ‘All Other Businesses’, which also includes the trading results of the UK Civil Nuclear business. The segmental analysis for 2024 has\nbeen restated to reflect the 2025 assessment of operating segments.\nUnderlying results\nThe Group presents the financial performance of the businesses in accordance with IFRS 8 Operating Segments and consistently with the basis\non which performance is communicated to the Board each month.\nUnderlying results are presented by recording all relevant revenue and cost of sales transactions at the average exchange rate achieved on\neffective settled derivative contracts for the Company and its subsidiaries in the period that the cash flow occurs. The impact of the revaluation\nof monetary assets and liabilities (other than lease liabilities) using the exchange rate that is expected to be achieved by the use of the effective\nhedge book is recorded within underlying cost of sales. Underlying financing excludes the impact of revaluing monetary assets and liabilities to\nperiod end exchange rates. Lease liabilities are not revalued to reflect the expected exchange rates due to their multi-year remaining term, the\nDirectors believe that doing so would not be the most appropriate basis to measure the in-year performance. Transactions between segments\nare presented on the same basis as underlying results and eliminated on consolidation. Unrealised fair value gains/(losses) on foreign exchange\ncontracts, which are recognised as they arise in the statutory results, are excluded from underlying results. To the extent that the previously\nforecast transactions are no longer expected to occur, an appropriate portion of the unrealised fair value gain/(loss) on foreign exchange\ncontracts is recorded immediately in the underlying results.\nAmounts receivable/(payable) on interest rate swaps which are not designated as hedge relationships for accounting purposes are\nreclassified from fair value movement on a statutory basis to interest receivable/(payable) on an underlying basis, as if they were in an\neffective hedge relationship.\nIn the year to 31 December 2025, the Group was a net seller of USD at an achieved exchange rate GBP:USD of 1.44 (2024: 1.48) based on\nthe USD hedge book.\nIn 2020, the Group experienced a significant decline in its medium-term outlook and consequently a significant deterioration to its forecast net\nUSD cash inflows. The Group took action to reduce the size of the USD hedge book by $11.8bn across 2020–2026 to reflect the fact that, at that\ntime, future operating cash flows were no longer forecast to materialise. An underlying charge of £1.7bn was recognised within the underlying\nfinance costs in 2020 and the associated cash settlement costs occur over the period 2020–2026. The derivatives relating to this underlying\ncharge have been subsequently excluded from the hedge book, and therefore are also excluded from the calculation of the average exchange\nrate achieved in the current and future periods.\nUnderlying performance also excludes the following:\n— the effect of acquisition accounting and business disposals;\n— impairment of goodwill, other non-current and current assets where the reasons for the impairment are outside of normal operating activities;\n— exceptional items; and\n— certain other items which are market driven and outside of the control of management.\nSubsequent changes in items excluded from underlying performance in a prior period will also be excluded from underlying performance.\nAll other changes will be recognised within underlying performance.\n134 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5271, "tables": [], "table_count": 0 }, { "pdf_page": 137, "printed_page": 135, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis continued\nAcquisition accounting, business disposals and impairment\nThe Group excludes these from underlying results so that the current year and comparative results are directly comparable.\nExceptional items\nItems are classified as exceptional where the Directors believe that presentation of the results in this way is useful in providing an\nunderstanding of the Group’s financial performance. Exceptional items are identified by virtue of their size, nature or incidence.\nIn determining whether an event or transaction is exceptional, the Directors consider quantitative as well as qualitative factors such as\nthe frequency or predictability of occurrence. Examples of exceptional items include one-time costs and charges in respect of aerospace\nprogrammes, costs of exceptional restructuring and transformation programmes and one-time past service charges and credits on post-\nretirement schemes.\nExceptional items are not allocated to segments and may not be comparable to similarly titled measures used by other companies.\nOther items\nThe financing component of the defined benefit pension scheme cost is determined by market conditions and has therefore been excluded\nfrom underlying performance.\nThe tax effects of adjustments above are excluded from the underlying tax charge. Changes in tax rates are excluded from the underlying tax\ncharge. In addition, changes in the amount of recoverable deferred tax recognised are excluded from the underlying results to the extent that\ntheir recognition or derecognition was not originally recorded within the underlying results.\nThe following analysis sets out the results of the Group’s divisions on the basis described above and also includes a reconciliation of the\nunderlying results to those reported in the consolidated income statement.\nAll Other Corporate and Total\nCivil Aerospace Defence Power Systems Businesses 1 Inter-segment 2 Underlying\n£m £m £m £m £m £m\nYear ended 31 December 2025\nUnderlying revenue from sale of original equipment 3,217 2,228 3,433 13 – 8,891\nUnderlying revenue from aftermarket services 7,165 2,544 1,459 – – 11,168\nTotal underlying revenue 10,382 4,772 4,892 13 – 20,059\nGross profit/(loss) 2,675 933 1,522 (2) (2) 5,126\nCommercial and administrative costs (432) (201) (518) (5) (67) (1,223)\nResearch and development costs (267) (45) (164) (21) – (497)\nShare of results of joint ventures and associates 154 2 12 (112) – 56\nUnderlying operating profit/(loss) 2,130 689 852 (140) (69) 3,462\nYear ended 31 December 2024\nUnderlying revenue from sale of original equipment 3,105 1,943 2,942 15 – 8,005\nUnderlying revenue from aftermarket services 5,935 2,579 1,329 – – 9,843\nTotal underlying revenue 9,040 4,522 4,271 15 – 17,848\nGross profit/(loss) 1,990 908 1,199 (3) (3) 4,091\nCommercial and administrative costs (396) (212) (483) (41) (65) (1,197)\nResearch and development costs (252) (55) (165) (133) – (605)\nShare of results of joint ventures and associates 163 3 9 – – 175\nUnderlying operating profit/(loss) 1,505 644 560 (177) (68) 2,464\n1 Following the decision to exit the Group’s advanced air mobility activities in 2024 and the relinquishment of control of Rolls-Royce SMR Limited on 4 March 2025 (see note 29)\nthe results of those activities in both 2024 and 2025 have been reported within All Other Businesses. The Group’s income statement for 2025 includes two months of the results of\nRolls-Royce SMR Limited as a subsidiary and ten months of the Group’s share of the results of the equity-accounted investment\n2 Corporate and Inter-segment consists of costs that are not attributable to a specific segment and consolidation adjustments\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 135\nFINANCIAL\nSTATEMENTS", "char_count": 3772, "tables": [ [ [ "3,217", "2,228", "3,433", "13", "–", "8,891" ], [ "7,165", "2,544", "1,459", "–", "–", "11,168" ], [ "10,382", "4,772", "4,892", "13", "–", "20,059" ], [ "2,675", "933", "1,522", "(2)", "(2)", "5,126" ], [ "(432)", "(201)", "(518)", "(5)", "(67)", "(1,223)" ], [ "(267)", "(45)", "(164)", "(21)", "–", "(497)" ], [ "154", "2", "12", "(112)", "–", "56" ], [ "2,130", "689", "852", "(140)", "(69)", "3,462" ] ] ], "table_count": 1, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 138, "printed_page": 136, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis continued\nReconciliation to statutory results\nUnderlying\nadjustments and\nadjustments to Group statutory\nTotal underlying foreign exchange results\n£m £m £m\nYear ended 31 December 2025\nRevenue from sale of original equipment 8,891 212 9,103\nRevenue from aftermarket services 11,168 936 12,104\nTotal revenue 20,059 1,148 21,207\nGross profit 5,126 1,049 6,175\nCommercial and administrative costs (1,223) (45) (1,268)\nResearch and development costs (497) 2 (495)\nShare of results of joint ventures and associates 56 – 56\nOperating profit 3,462 1,006 4,468\nGain arising on the disposal of businesses – 809 809\nProfit before financing and taxation 3,462 1,815 5,277\nNet financing (110) 1,768 1,658\nProfit before taxation 3,352 3,583 6,935\nTaxation (593) (506) (1,099)\nProfit for the year 2,759 3,077 5,836\nAttributable to:\nOrdinary shareholders 2,764 3,077 5,841\nNCI (5) – (5)\nYear ended 31 December 2024\nRevenue from sale of original equipment 8,005 384 8,389\nRevenue from aftermarket services 9,843 677 10,520\nTotal revenue 17,848 1,061 18,909\nGross profit 4,091 130 4,221\nCommercial and administrative costs (1,197) (87) (1,284)\nResearch and development costs (605) 402 (203)\nShare of results of joint ventures and associates 175 (3) 172\nOperating profit 2,464 442 2,906\nGain arising on the disposal of business – 16 16\nProfit before financing and taxation 2,464 458 2,922\nNet financing (171) (517) (688)\nProfit/(loss) before taxation 2,293 (59) 2,234\nTaxation (282) 532 250\nProfit for the year 2,011 473 2,484\nAttributable to:\nOrdinary shareholders 2,048 473 2,521\nNCI (37) – (37)\n136 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1693, "tables": [ [ [ "8,891", "212", "9,103" ], [ "11,168", "936", "12,104" ], [ "20,059", "1,148", "21,207" ], [ "5,126", "1,049", "6,175" ], [ "(1,223)", "(45)", "(1,268)" ], [ "(497)", "2", "(495)" ], [ "56", "–", "56" ], [ "3,462", "1,006", "4,468" ], [ "–", "809", "809" ], [ "3,462", "1,815", "5,277" ], [ "(110)", "1,768", "1,658" ], [ "3,352", "3,583", "6,935" ], [ "(593)", "(506)", "(1,099)" ], [ "2,759", "3,077", "5,836" ] ], [ [ "2,764", "3,077", "5,841" ], [ "(5)", "–", "(5)" ] ] ], "table_count": 2 }, { "pdf_page": 139, "printed_page": 137, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis continued\nDisaggregation of revenue from contracts with customers\nAnalysis by type and basis of recognition\nAll Other Corporate and Total\nCivil Aerospace Defence Power Systems Businesses Inter-segment Underlying\n£m £m £m £m £m £m\nYear ended 31 December 2025\nOriginal equipment recognised at a point in time 3,217 409 3,368 – – 6,994\nOriginal equipment recognised over time – 1,819 65 13 – 1,897\nAftermarket services recognised at a point in time 1,617 735 1,348 – – 3,700\nAftermarket services recognised over time 5,469 1,809 111 – – 7,389\nTotal underlying customer contract revenue 10,303 4,772 4,892 13 – 19,980\nOther underlying revenue 1 79 – – – – 79\nTotal underlying revenue 2 10,382 4,772 4,892 13 – 20,059\nYear ended 31 December 2024\nOriginal equipment recognised at a point in time 3,105 562 2,871 3 – 6,541\nOriginal equipment recognised over time – 1,381 71 12 – 1,464\nAftermarket services recognised at a point in time 1,258 918 1,231 – 3,407\nAftermarket services recognised over time 4,594 1,661 98 – – 6,353\nTotal underlying customer contract revenue 8,957 4,522 4,271 15 – 17,765\nOther underlying revenue 1 83 – – – – 83\nTotal underlying revenue 2 9,040 4,522 4,271 15 – 17,848\n1 Includes leasing revenue\n2 Includes £259m of revenue recognised in the year relating to performance obligations satisfied in previous years, of which £253m related to Civil Aerospace long term contracts (2024:\n£317m, of which £311m relates to Civil Aerospace long term contracts)\nUnderlying\nadjustments and\nadjustments to Group statutory\nTotal underlying foreign exchange results 1\n£m £m £m\nYear ended 31 December 2025\nOriginal equipment recognised at a point in time 6,994 211 7,205\nOriginal equipment recognised over time 1,897 1 1,898\nAftermarket services recognised at a point in time 3,700 123 3,823\nAftermarket services recognised over time 7,389 806 8,195\nTotal customer contract revenue 19,980 1,141 21,121\nOther revenue 79 7 86\nTotal revenue 20,059 1,148 21,207\nYear ended 31 December 2024\nOriginal equipment recognised at a point in time 6,541 384 6,925\nOriginal equipment recognised over time 1,464 – 1,464\nAftermarket services recognised at a point in time 3,407 163 3,570\nAftermarket services recognised over time 6,353 501 6,854\nTotal customer contract revenue 17,765 1,048 18,813\nOther revenue 83 13 96\nTotal revenue 17,848 1,061 18,909\n1 During the year to 31 December 2025, revenue recognised within Civil Aerospace, Defence and Power Systems of £2,034m (2024: £1,915m) was received from a single customer\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 137\nFINANCIAL\nSTATEMENTS", "char_count": 2652, "tables": [ [ [ "3,217", "409", "3,368", "–", "–", "6,994" ], [ "–", "1,819", "65", "13", "–", "1,897" ], [ "1,617", "735", "1,348", "–", "–", "3,700" ], [ "5,469", "1,809", "111", "–", "–", "7,389" ], [ "10,303", "4,772", "4,892", "13", "–", "19,980" ], [ "79", "–", "–", "–", "–", "79" ], [ "10,382", "4,772", "4,892", "13", "–", "20,059" ] ], [ [ "6,994", "211", "7,205" ], [ "1,897", "1", "1,898" ], [ "3,700", "123", "3,823" ], [ "7,389", "806", "8,195" ], [ "19,980", "1,141", "21,121" ], [ "79", "7", "86" ], [ "20,059", "1,148", "21,207" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 140, "printed_page": 138, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis continued\nAnalysis by geographical destination\nThe Group’s revenue by destination of the ultimate operator is as follows:\n2025 2024\n£m £m\nUnited Kingdom 3,103 2,642\nGermany 1,225 1,048\nTürkiye 442 307\nSpain 410 282\nSwitzerland 362 440\nItaly 357 318\nFrance 327 332\nIreland 202 324\nNetherlands 199 130\nIsrael 139 73\nNorway 132 96\nPoland 107 141\nSweden 95 28\nPortugal 82 121\nLatvia 54 16\nRest of Europe 192 273\nEurope 7,428 6,571\nUnited States 5,802 5,477\nCanada 529 462\nNorth America 6,331 5,939\nSouth America 300 336\nCentral America 90 169\nUnited Arab Emirates 543 255\nSaudi Arabia 514 428\nQatar 374 196\nRest of Middle East 243 301\nMiddle East 1,674 1,180\nChina 1,500 1,400\nJapan 733 634\nSingapore 558 506\nSouth Korea 404 359\nIndonesia 199 125\nPhilippines 166 130\nIndia 152 147\nTaiwan 148 211\nThailand 140 138\nRest of Asia 380 243\nAsia 4,380 3,893\nAfrica 587 406\nAustralasia 417 415\n21,207 18,909\n138 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1011, "tables": [ [ [ "3,103" ], [ "1,225" ], [ "442" ], [ "410" ], [ "362" ], [ "357" ], [ "327" ], [ "202" ], [ "199" ], [ "139" ], [ "132" ], [ "107" ], [ "95" ], [ "82" ], [ "54" ], [ "192" ], [ "7,428" ], [ "5,802" ], [ "529" ], [ "6,331" ], [ "300" ], [ "90" ], [ "543" ], [ "514" ], [ "374" ], [ "243" ], [ "1,674" ], [ "1,500" ], [ "733" ], [ "558" ], [ "404" ], [ "199" ], [ "166" ], [ "152" ], [ "148" ], [ "140" ], [ "380" ], [ "4,380" ], [ "587" ], [ "417" ], [ "21,207" ] ] ], "table_count": 1 }, { "pdf_page": 141, "printed_page": 139, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis continued\nOrder backlog\nContracted consideration, translated at the estimated long-term exchange rates, that is expected to be recognised as revenue when\nperformance obligations are satisfied in the future (referred to as order backlog) is as follows:\n2025 2024\nWithin five years After five years Total Within five years After five years Total\n£bn £bn £bn £bn £bn £bn\nCivil Aerospace 29.2 35.4 64.6 29.7 30.2 59.9\nDefence 14.1 3.3 17.4 14.0 3.4 17.4\nPower Systems 5.9 0.2 6.1 4.7 0.1 4.8\nAll Other Businesses – – – – – –\n49.2 38.9 88.1 48.4 33.7 82.1\nThe parties to these contracts have approved the contract and customers do not have a unilateral enforceable right to terminate the contract\nwithout compensation. The Group excludes Civil Aerospace OE orders (for deliveries beyond the next seven to 12 months) that customers have\nplaced where they retain a right to cancel. The Group’s expectation based on historical experience is that these orders will be fulfilled. Civil\nAerospace order backlog has increased by £4.7bn, this is due to new aftermarket contracts and contract extensions. Other drivers include\ncommercial optimisation and revenue escalation with major customers. The Civil order backlog will be recognised over the contract term.\nThe £1.3bn increase within Power Systems is mainly driven by orders for power generation (from the growth in data centres) and governmental,\nwhich will be mainly recognised over the next three years.\nUnderlying adjustments\n2025 2024\nProfit\nProfit before Net before Net\nRevenue financing financing Taxation Revenue financing financing Taxation\n£m £m £m £m £m £m £m £m\nUnderlying performance 20,059 3,462 (110) (593) 17,848 2,464 (171) (282)\nImpact of foreign exchange differences\nas a result of hedging activities on\ntrading transactions 1 A 1,148 797 499 (328) 1,061 197 190 (97)\nUnrealised fair value changes on derivative\ncontracts held for trading 2 A – – 1,328 (333) – (6) (649) 164\nUnrealised fair value changes on derivative\ncontracts held for financing 3 A – – (4) 1 – – 40 (10)\nExceptional programme credits 4 B – 83 – (21) – – – –\nExceptional transformation and\nrestructuring charges 5 B – (44) – 4 – (234) (11) 65\nImpairment reversals 6 C – 179 – (44) – 547 – (157)\nEffect of acquisition accounting 7 C – (16) – 3 – (45) – 11\nOther 8 D – 7 (55) 12 – (17) (87) 27\nGains arising on the disposals of businesses 9 C – 809 – (28) – 16 – (6)\nImpact of tax rate change 10 D – – – (58) – – – 10\nRecognition of deferred tax assets 11 D – – – 286 – – – 525\nTotal underlying adjustments 1,148 1,815 1,768 (506) 1,061 458 (517) 532\nStatutory performance per consolidated\nincome statement 21,207 5,277 1,658 (1,099) 18,909 2,922 (688) 250\nA – FX, B – Exceptional, C – M&A and impairment, D – Other\n1 The impact of measuring revenues and costs at the average exchange rate during the year and the impact of valuation of assets and liabilities using the year end exchange rate rather\nthan the achieved rate or the exchange rate that is expected to be achieved by the use of the hedge book increased statutory revenues by £1,148m (2024: £1,061m) and increased profit\nbefore financing and taxation by £797m (2024: £197m). Underlying financing excludes the impact of revaluing monetary assets and liabilities at the year end exchange rate\n2 The underlying results exclude the fair value changes on derivative contracts held for trading. These fair value changes are subsequently recognised in the underlying results when the\ncontracts are settled\n3 Includes net fair value loss of £4m (2024: gain of £40m) on any interest rate swaps not designated into hedging relationships for accounting purposes\n4 During 2025, contract loss provisions have reduced by £83m (2024: £nil) as a result of amounts released following contractual renegotiations where the original charge was treated as\nnon-underlying\n5 In 2023, the Group announced a major multi-year transformation programme (set out in the 2022 Annual Report). During 2025, the Group incurred charges of £44m related to this\nprogramme (2024: £234m). The charges comprise of advisory fees and transformation office costs £52m (2024: £37m) and severance costs £3m (2024: £68m). These were partly offset by\nan £11m reversal of previously recognised costs for impairments, write-offs and closure costs related to the exit of the Group’s advanced air mobility activities (2024: £129m)\n6 The Group has assessed the carrying value of its assets and reviewed them for potential impairment and impairment reversal triggers. During 2025, there was an impairment reversal\nof intangible assets of £10m (2024 £413m), property, plant and equipment assets of £46m (2024: £nil), right of use assets of £129m (2024: £nil) and contract assets of £nil (2024: £132m).\nSee note 10, 11, 12 and 13 for further details. Of the £185m reversed, £179m (2024: £132m) was included within cost of sales, and £6m has been included with research and development\ncosts, see note 3 for further details\n7 The effect of acquisition accounting includes the amortisation of intangible assets arising on previous acquisitions\n8 Includes interest received of £52m (2024: £78m) on interest rate swaps which are not designated into hedge relationships for statutory purposes from interest payable on an underlying\nbasis to fair value movement and £6m (2024: charge of £13m) past-service credit on defined benefit schemes\n9 An exceptional gain on disposal was recognised as a result of the deconsolidation of Rolls-Royce SMR Limited and the sale of the naval propulsors business during the year. Further\ndetails can be found in note 29\n10 Represents the impact to the income statement of the gradual reduction in the German Federal Corporate Income tax rate from 15% to 10%, in 2024 this represented the reduction in the\ntax rate on authorised surplus pension charges from 35% to 25% in 2024\n11 During 2025, the Group recognised deferred tax assets of £563m (2024: £1,033m) relating to UK tax losses of which £277m (2024: £508m) is included in underlying performance and\n£286m (2024: £525m) in non-underlying\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 139\nFINANCIAL\nSTATEMENTS", "char_count": 6192, "tables": [ [ [ "29.2", "35.4", "64.6" ], [ "14.1", "3.3", "17.4" ], [ "5.9", "0.2", "6.1" ], [ "–", "–", "–" ], [ "49.2", "38.9", "88.1" ] ], [ [ "20,059", "3,462", "(110)", "(593)" ], [ "1,148", "797", "499", "(328)" ], [ "–", "–", "1,328", "(333)" ], [ "–", "–", "(4)", "1" ], [ "–", "83", "–", "(21)" ], [ "–", "(44)", "–", "4" ], [ "–", "179", "–", "(44)" ], [ "–", "(16)", "–", "3" ], [ "–", "7", "(55)", "12" ], [ "–", "809", "–", "(28)" ], [ "–", "–", "–", "(58)" ], [ "–", "–", "–", "286" ], [ "1,148", "1,815", "1,768", "(506)" ], [ "21,207", "5,277", "1,658", "(1,099)" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 142, "printed_page": 140, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n2 Segmental analysis continued\nBalance sheet analysis\nTotal\nCivil Power reportable\nAerospace Defence Systems segments\nAt 31 December 2025 £m £m £m £m\nSegment assets 20,754 3,582 4,691 29,027\nInterests in joint ventures and associates 570 9 34 613\nSegment liabilities (25,932) (3,523) (2,404) (31,859)\nNet (liabilities)/assets (4,608) 68 2,321 (2,219)\nInvestment in intangible assets, property, plant and equipment, right-of-use assets and\njoint ventures and associates 766 185 219 1,170\nDepreciation, amortisation and impairment 493 73 167 733\nAt 31 December 2024\nSegment assets 19,303 3,495 3,998 26,796\nInterests in joint ventures and associates 550 9 33 592\nSegment liabilities (26,621) (3,322) (1,969) (31,912)\nNet (liabilities)/assets (6,768) 182 2,062 (4,524)\nInvestment in intangible assets, property, plant and equipment, right-of-use assets and joint\nventures and associates 650 164 198 1,012\nDepreciation, amortisation and impairment 210 85 199 494\nReconciliation to the balance sheet\n2025 2024\n£m £m\nSegment assets (excluding held for sale) 29,027 26,796\nInterests in joint ventures and associates 613 592\nAll Other Businesses 681 122\nCorporate and Inter-segment (2,286) (2,227)\nAssets held for sale 15 153\nCash and cash equivalents 6,244 5,575\nFair value of swaps hedging fixed rate borrowings – 154\nDeferred and income tax assets 3,535 3,731\nPost-retirement scheme surpluses 286 790\nTotal assets 38,115 35,686\nSegment liabilities (excluding held for sale) (31,859) (31,912)\nAll Other Businesses (62) (200)\nCorporate and Inter-segment 2,286 2,227\nLiabilities associated with assets held for sale (19) (100)\nBorrowings and lease liabilities (4,272) (5,132)\nFair value of swaps hedging fixed rate borrowings (77) (121)\nDeferred and income tax liabilities (467) (348)\nPost-retirement scheme deficits (892) (981)\nTotal liabilities (35,362) (36,567)\nNet assets/(liabilities) 2,753 (881)\nThe carrying amounts of the Group’s non-current assets including investments but excluding financial instruments, deferred tax assets and\npost-retirement scheme surpluses/(deficits), by the geographical area in which the assets are located, are as follows:\n2025 2024\n£m £m\nUnited Kingdom 5,833 4,968\nGermany 2,613 2,326\nUnited States 1,482 1,481\nOther 731 709\n10,659 9,484\n140 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2361, "tables": [ [ [ "20,754", "3,582", "4,691", "29,027" ], [ "570", "9", "34", "613" ], [ "(25,932)", "(3,523)", "(2,404)", "(31,859)" ], [ "(4,608)", "68", "2,321", "(2,219)" ], [ "766", "185", "219", "1,170" ], [ "493", "73", "167", "733" ] ], [ [ "29,027" ], [ "613" ], [ "681" ], [ "(2,286)" ], [ "15" ], [ "6,244" ], [ "–" ], [ "3,535" ], [ "286" ], [ "38,115" ], [ "(31,859)" ], [ "(62)" ], [ "2,286" ], [ "(19)" ], [ "(4,272)" ], [ "(77)" ], [ "(467)" ], [ "(892)" ], [ "(35,362)" ], [ "2,753" ] ], [ [ "5,833" ], [ "2,613" ], [ "1,482" ], [ "731" ], [ "10,659" ] ] ], "table_count": 3 }, { "pdf_page": 143, "printed_page": 141, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n3 Research and development\n2025 2024\n£m £m\nGross research and development expenditure (1,417) (1,475)\nContributions and fees 1 814 700\nNet expenditure (603) (775)\nCapitalised as intangible assets ² 211 263\nAmortisation and impairment of capitalised costs 3, 4 (103) 309\nNet amount recognised in the income statement (495) (203)\nUnderlying adjustments 4 (2) (402)\nNet underlying cost recognised in the income statement (497) (605)\n1 Includes £795m (2024: £667m) of government funding\n2 R&D capitalised as intangibles is presented net of £11m (2024: £nil) Government funding received\n3 See notes 2, 10 and 11 for analysis of amortisation and impairment\n4 Underlying adjustments include impact of acquisition accounting, foreign exchange and an impairment reversal of £6m (2024: £413m). Further details can be found in notes 2 and 11\n4 Net financing\n2025 2024\nStatutory Underlying 1 Statutory Underlying 1\n£m £m £m £m\nInterest receivable and similar income 2 271 265 269 266\nNet fair value gains on foreign currency contracts 1,335 – – –\nNet fair value gains on non-hedge accounted interest rate swaps 3 – – 40 –\nFinancing on post-retirement scheme surpluses 32 – 37 –\nNet foreign exchange gains 499 – 190 –\nFinancing income 2,137 265 536 266\nInterest payable (302) (240) (362) (273)\nNet fair value losses on foreign currency contracts – – (631) –\nNet fair value losses on non-hedge accounted interest rate swaps 3 (4) – – –\nNet fair value losses on revaluation of other investments accounted for at FVTPL 4 – – (24) (24)\nForeign exchange differences and changes in forecast payments relating to\nfinancial RRSAs (4) – – –\nNet fair value losses on commodity contracts (7) – (18) –\nFinancing on post-retirement scheme deficits (38) – (39) –\nCost of undrawn facilities (9) (9) (17) (17)\nOther financing charges (115) (126) (133) (123)\nFinancing costs (479) (375) (1,224) (437)\nNet financing income/(costs) 1,658 (110) (688) (171)\nAnalysed as:\nNet interest (payable)/receivable (31) 25 (93) (7)\nNet fair value gains/(losses) on derivative contracts 1,324 – (609) –\nNet post-retirement scheme financing (6) – (2) –\nNet foreign exchange gains 499 – 190 –\nNet other financing (128) (135) (174) (164)\nNet financing income/(costs) 1,658 (110) (688) (171)\n1 See note 2 for definition of underlying results\n2 Includes interest income on cash balances and short-term deposits of £149m (2024: £188m) and similar income of £122m (2024: £81m) on money market funds\n3 The consolidated income statement shows the net fair value loss on any interest rate swaps not designated into hedging relationships for accounting purposes. Underlying financing\nreclassifies the realised fair value movements on these interest rate swaps to net interest payable\n4 Included in the 2024 financing costs is a £24m charge in relation to the fair value write down of an unlisted investment recorded at fair value through profit or loss (FVTPL)\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 141\nFINANCIAL\nSTATEMENTS", "char_count": 3020, "tables": [ [ [ "(1,417)" ], [ "814" ], [ "(603)" ], [ "211" ], [ "(103)" ], [ "(495)" ], [ "(2)" ], [ "(497)" ] ], [ [ "271", "265" ], [ "1,335", "–" ], [ "–", "–" ], [ "32", "–" ], [ "499", "–" ], [ "2,137", "265" ], [ null, null ], [ "(302)", "(240)" ], [ "–", "–" ], [ "(4)", "–" ], [ "–", "–" ], [ "(4)", "–" ], [ "(7)", "–" ], [ "(38)", "–" ], [ "(9)", "(9)" ], [ "(115)", "(126)" ], [ "(479)", "(375)" ], [ null, null ], [ "1,658", "(110)" ], [ null, null ], [ null, null ], [ "(31)", "25" ], [ "1,324", "–" ], [ "(6)", "–" ], [ "499", "–" ], [ "(128)", "(135)" ], [ "1,658", "(110)" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 144, "printed_page": 142, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n5 Taxation\nUK Overseas Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nCurrent tax charge for the year 39 30 730 379 769 409\nCurrent tax charge in respect of Pillar Two income taxes 2 2 – – 2 2\nAdjustments in respect of prior years (9) – 79 (18) 70 (18)\nCurrent tax 32 32 809 361 841 393\nDeferred tax charge for the year 726 265 50 3 776 268\nAdjustments in respect of prior years 12 17 (25) (47) (13) (30)\nRecognition of deferred tax (563) (1,033) – – (563) (1,033)\nDerecognition of advance corporation tax – 162 – – – 162\nDeferred tax charge resulting from a decrease in the overseas tax rate – – 58 – 58 –\nDeferred tax credit resulting from a decrease in the UK tax rate – (10) – – – (10)\nDeferred tax 175 (599) 83 (44) 258 (643)\nCharged/(credited) in the income statement 207 (567) 892 317 1,099 (250)\nOther tax (charges)/credits\nOCI Equity\nItems that will not be Items that will be\nreclassified reclassified\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nDeferred tax:\nMovement in post-retirement schemes 115 61 – – – –\nCash flow hedge – – 3 (1) – –\nNet investment hedge – – 2 (2) – –\nShare-based payments – direct to equity – – – – 76 71\nOther tax credits/(charges) 115 61 5 (3) 76 71\nTax reconciliation\n2025 2024\n£m £m\nProfit before taxation 6,935 2,234\nLess share of profits of joint ventures and associates (note 14) (71) (137)\nProfit before taxation excluding joint ventures and associates 6,864 2,097\nNominal tax charge at UK corporation tax rate 25% (2024: 25%) 1,716 524\nOverseas rate differences 1 40 27\nUS state taxes 18 23\nExempt gain on disposal of businesses 2 (185) –\nTax de-grouping charge 3 – 102\nOther permanent differences 4 5 12\nTax losses and other temporary differences not recognised in deferred tax 5 11 3\nDerecognition of deferred tax – 30\nBenefit arising from previously unrecognised other temporary differences 6 (27) (42)\nRecognition of deferred tax 7 (563) (1,033)\nUtilisation of previously unrecognised UK tax losses (31) –\nAdjustments in respect of prior years 57 (48)\nDerecognition of advance corporation tax 8 – 162\nIncrease in deferred taxes resulting from a change in the overseas tax rate 9 58 –\nDecrease in deferred taxes resulting from a change in the UK tax rate 10 – (10)\n1,099 (250)\nUnderlying items (note 2) 593 282\nNon-underlying items 506 (532)\n1,099 (250)\n1 Overseas rate differences mainly relate to tax on profits or losses in countries such as Germany\n2 Relates primarily to deconsolidation of Rolls-Royce SMR Limited\n3 The tax de-grouping charge in 2024 arose on the dilution of the shareholding in Rolls-Royce SMR Limited to below 75%\n4 Includes £2m (2024:£2m) relating to Pillar two income taxes\n5 Relates to tax losses not recognised\n6 Relates to foreign exchange derivatives\n7 The recognition of deferred tax relates to UK tax losses\n8 Advance corporation tax was de-recognised in 2024 on the basis that payment of cash dividends will prevent the utilisation\n9 Represents the impact to the income statement of the gradual reduction in the German Federal corporate income tax rate from 15% to 10%\n10 Represents the impact to the income statement of the reduction in the tax rate on authorised surplus pension charges from 35% to 25% in 2024\n142 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3297, "tables": [ [ [ "39", "30", "730", "379", "769" ], [ "2", "2", "–", "–", "2" ], [ "(9)", "–", "79", "(18)", "70" ], [ "32", "32", "809", "361", "841" ] ], [ [ "726", "265", "50", "3", "776" ], [ "12", "17", "(25)", "(47)", "(13)" ], [ "(563)", "(1,033)", "–", "–", "(563)" ], [ "–", "162", "–", "–", "–" ], [ "–", "–", "58", "–", "58" ], [ "–", "(10)", "–", "–", "–" ], [ "175", "(599)", "83", "(44)", "258" ] ], [ [ "207", "(567)", "892", "317", "1,099" ] ], [ [ null, null, null, null, null ], [ "115", "61", "–", "–", "–" ], [ "–", "–", "3", "(1)", "–" ], [ "–", "–", "2", "(2)", "–" ], [ "–", "–", "–", "–", "76" ], [ "115", "61", "5", "(3)", "76" ] ], [ [ "6,935" ], [ "(71)" ], [ "6,864" ] ], [ [ "1,716" ], [ "40" ], [ "18" ], [ "(185)" ], [ "–" ], [ "5" ], [ "11" ], [ "–" ], [ "(27)" ], [ "(563)" ], [ "(31)" ], [ "57" ], [ "–" ], [ "58" ], [ "–" ], [ "1,099" ], [ "593" ], [ "506" ], [ "1,099" ] ] ], "table_count": 6 }, { "pdf_page": 145, "printed_page": 143, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n5 Taxation continued\nDeferred taxation assets and liabilities\n2025 2024\n£m £m\nAt 1 January 3,429 2,668\nAmount (charged)/ credited to income statement (258) 643\nAmount credited to OCI 117 59\nAmount credited/(charged) to hedging reserves 3 (1)\nAmount credited to equity 76 71\nExchange differences (8) (11)\nAt 31 December 3,359 3,429\nDeferred tax assets 3,460 3,660\nDeferred tax liabilities (101) (231)\n3,359 3,429\nThe analysis of the deferred tax position is as follows:\nRecognised\nin income Recognised Recognised Exchange At\nAt 1 January statement in OCI in equity differences 31 December\n£m £m £m £m £m £m\n2025\nIntangible assets (613) (8) – – (16) (637)\nProperty, plant and equipment 142 (80) – – 8 70\nOther temporary differences 1 874 (7) 5 13 (1) 884\nNet contract liabilities 63 (3) – – – 60\nPensions and other post-retirement scheme benefits (54) (23) 115 – (2) 36\nForeign exchange and commodity financial assets\nand liabilities 488 (506) – – 2 (16)\nLosses 2,481 420 – 63 – 2,964\nR&D credit 48 (51) – – 1 (2)\n3,429 (258) 120 76 (8) 3,359\n2024\nIntangible assets (431) (191) – – 9 (613)\nProperty, plant and equipment 229 (87) – – – 142\nOther temporary differences 1 752 77 (3) 62 (14) 874\nNet contract liabilities 60 3 – – – 63\nPensions and other post-retirement scheme benefits (123) 10 61 – (2) (54)\nForeign exchange and commodity financial assets and\nliabilities 451 40 – – (3) 488\nLosses 1,489 984 – 9 (1) 2,481\nR&D credit 79 (31) – – – 48\nAdvance corporation tax 2 162 (162) – – – –\n2,668 643 58 71 (11) 3,429\n1 Other temporary differences mainly relate to the deferral of relief for interest expenses and share based payments in the UK and revenue recognised earlier under local GAAP compared\nto IFRS in Germany. The amount recognised in the income statement includes a £1m credit (2024: £8m credit) relating to share-based payments\n2 Prior to 1999 advance corporation tax (“ACT”) was paid to the UK Tax Authority when cash dividends were paid by the Group. This was a payment on account which was available to offset\nagainst UK corporation tax liabilities. Any unused balance remaining after 1999 can be carried forward indefinitely and utilised against future UK corporation tax liabilities. See page 144\nfor further details\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 143\nFINANCIAL\nSTATEMENTS", "char_count": 2349, "tables": [ [ [ "3,429" ], [ "(258)" ], [ "117" ], [ "3" ], [ "76" ], [ "(8)" ], [ "3,359" ], [ "3,460" ], [ "(101)" ], [ "3,359" ] ], [ [ "(613)", "(8)", "–", "–", "(16)", "(637)" ], [ "142", "(80)", "–", "–", "8", "70" ], [ "874", "(7)", "5", "13", "(1)", "884" ], [ "63", "(3)", "–", "–", "–", "60" ], [ "(54)", "(23)", "115", "–", "(2)", "36" ], [ "488", "(506)", "–", "–", "2", "(16)" ], [ "2,481", "420", "–", "63", "–", "2,964" ], [ "48", "(51)", "–", "–", "1", "(2)" ], [ "3,429", "(258)", "120", "76", "(8)", "3,359" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 146, "printed_page": 144, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n5 Taxation continued\nUnrecognised deferred tax assets\n2025 2024\n£m £m\nAdvance corporation tax 181 181\nUK losses 5 629\nForeign exchange and commodity financial assets and liabilities – 27\nLosses and other unrecognised deferred tax assets 54 47\nDeferred tax not recognised on unused tax losses and other items on the basis that future economic benefit\nis uncertain 240 884\nGross amount and expiry of losses and other deductible temporary differences for which no deferred tax asset has been recognised\n2025 2024\nTotal gross losses Foreign exchange Total gross losses Foreign exchange\nand deductible and commodity and deductible and commodity\ntemporary financial assets temporary financial assets\ndifferences UK losses and liabilities Other losses differences UK losses and liabilities Other losses\n£m £m £m £m £m £m £m £m\nExpiry within five years 178 – – 178 75 – – 75\nExpiry within six to 30\nyears 512 – – 512 218 – – 218\nNo expiry 94 18 – 76 2,698 2,515 107 76\n784 18 – 766 2,991 2,515 107 369\nAdvance corporation tax was derecognised in 2024 following the Group’s announcement to reinstate shareholder distributions via cash\ndividends. In addition to the gross balances shown above, advance corporation tax of £181m (2024: £181m) has not been recognised as a result of\nthe assessment performed considering the time period over which this could be recovered, when taking into account both shadow and surplus\nadvance corporation tax. Advance corporation tax has no expiry. See below for developments following the 2025 Autumn Budget.\nOf the total deferred tax asset of £3,460m, £2,835m (2024: £3,099m) relates to the UK and is made up as follows:\n— £2,954m (2024: £2,472m) relating to tax losses;\n— £(40)m (2024: £425m) arising on unrealised losses on derivative contracts; and\n— £(79)m (2024: £202m) relating to other deductible temporary differences, in particular tax depreciation and relief for interest expenses.\nThe UK deferred tax assets primarily arise in Rolls-Royce plc and have been recognised based on the expectation that the business will\ngenerate taxable profits and tax liabilities in the future against which the losses and deductible temporary differences can be utilised.\nMost of the UK tax losses relate to the Civil Aerospace large engine business which makes initial losses through the investment period of a\nprogramme and then makes a profit through its contracts for services. The programme lifecycles are typically in excess of 30 years.\nDeferred tax assets are recognised only to the extent it is probable that future taxable profits will be available against which the assets can be\nutilised. Where necessary, this is based on management’s assumptions and probability assessments relating to the amounts and timing of future\ntaxable profits. The Directors continually reassess the appropriateness of recovering deferred tax assets, which includes a consideration of\nthe level of future profits and the time period over which they are recovered. A recoverability assessment has been undertaken, taking account\nof deferred tax liabilities against which the reversal can be offset and using latest UK forecasts, which are mainly driven by the Civil Aerospace\nlarge engine business, to assess the level of future taxable profits.\nThe recoverability of deferred tax assets has been assessed on the following basis:\n— using the most recent UK profit forecasts, covering the next five years which are consistent with external sources on market conditions;\n— the long-term forecast profit profile of existing large engine programmes which are typically in excess of 30 years from initial investment to\nretirement of the fleet, including the aftermarket revenues earned from airline customers;\n— the long-term forecast is adjusted to exclude engine programmes which are in the development stage with no confirmed orders;\n— taking into account the risk that regulatory changes could materially impact demand for our products;\n— consideration that although all Civil Aerospace large engines are compatible with sustainable fuels, there is a risk that in the longer term\ndemand will shift towards more sustainable products and solutions;\n— the long-term forecast profit and cost profile of the other parts of the UK business;\n— taking into consideration past performance and experience, including the fact that the UK business returned to profitability in 2023; and\n— reflecting the sustained profitability and continued growing financial resilience of the Group, modelling is based on 100% probability of\na base case forecast (31 December 2024: 75% base case and 25% downside forecast). It also reflects the fact that the Group’s multi-year\ntransformation continues to deliver despite the current volatility in macro-economic variables and an external environment that remains\nchallenging, including geopolitical tensions, the uncertainty introduced by tariffs and supply chain challenges. Delivery against the Group’s\nstrategic initiatives continues to expand the earnings potential of the business.\n144 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5110, "tables": [ [ [ "181" ], [ "5" ], [ "–" ], [ "54" ], [ "240" ] ], [ [ "178", "–", "–", "178" ], [ "512", "–", "–", "512" ], [ "94", "18", "–", "76" ], [ "784", "18", "–", "766" ] ] ], "table_count": 2 }, { "pdf_page": 147, "printed_page": 145, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n5 Taxation continued\nThe assessment takes into account UK tax laws that, in broad terms, restrict the offset of carried forward tax losses to 50% of current year\nprofits. In addition, the amounts and timing of future taxable profits incorporate:\n— the impact of significant Civil Aerospace large engine orders in 2025 and improvements in large engine LTSA business plans;\n— latest assessment of the time period over which future probable profits are expected to arise for Civil Aerospace large engine programmes;\n— the outcomes of strategic initiatives, including contractual margin improvements and cost reduction;\n— the continued growth in Civil Aerospace engine flying hours; and\n— management’s assumptions on the impact of macro-economic factors and climate change on the UK business.\nThe climate change scenarios previously prepared to assess the viability of our business strategy, decarbonisation plans and approach to\nmanaging climate-related risks remain consistent with those at 31 December 2024. The scale up of sustainable aviation fuel is expected to play\na crucial role in reaching net zero carbon emissions by 2050 and the Group has demonstrated that all the commercial aero engines it produces\nare compatible for use with sustainable fuels. The impact that this could have on our costs and customer pricing is factored into the deferred tax\nassessment. However, benefits that may arise in the future from the development of breakthrough new technologies are not taken into account.\nBased on the assessment, the Group has recognised a total deferred tax asset relating to UK tax losses of £2,954m (2024: £2,472m), which\nincludes the recognition of a further £563m (2024: £1,033m) of previously unrecognised deferred tax asset relating to UK tax losses (of which\n£286m is non-underlying and £277m is underlying). This reflects the conclusions that:\n— based on current financial results and an improved outlook it is probable that the UK business will generate taxable income and tax\nliabilities in the future against which these losses can be utilised; and\n— using current forecasts and various scenarios these losses will be used in full within eight-15 years, which is within the expected\nprogramme lifecycles.\nAs stated above, the ACT balance of £181m remains unrecognised at 31 December 2025. The Group is closely monitoring developments\nfollowing the announcement in the 2025 Autumn Budget that the shadow ACT regime will be repealed, effective from 1 April 2026. The\nstatutory instrument is not yet published so the legislation is not substantially enacted at the balance sheet date. This will be considered for\nfuture accounting periods.\nAny future changes in tax law or the structure of the Group could have a significant effect on the use of losses and other deductible temporary\ndifferences, including the period over which they can be used. In view of this and the significant judgement involved, the Board continuously\nreassesses this area.\nThe Group is within the scope of the OECD Pillar Two (Global Minimum Tax) model rules, which came into effect from 1 January 2024. For the\nperiod to 31 December 2025, the Group has continued to apply the mandatory exception to recognising and disclosing information about\ndeferred tax assets and liabilities related to Pillar Two income taxes.\nThe temporary differences associated with investments in subsidiaries, joint ventures and associates, for which a deferred tax liability has not\nbeen recognised, aggregate to £2,825m (2024: £1,558m). No deferred tax liability has been recognised on the potential withholding tax due on\nthe 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\ngiven in the foreseeable future.\nImpact of recognition of UK deferred tax assets on underlying profit after tax\nAs outlined above, during the year the Group recognised a further £563m (2024: £1,033m) of previously unrecognised deferred tax asset\nrelating to UK tax losses (of which £286m (2024: £525m) is non-underlying and £277m (2024: £508m) is underlying). During 2024 the Group fully\nderecognised £162m advance corporation tax balance (as an underlying charge). The £277m (2024: net £346m) credit to underlying profit after\ntax has been adjusted in the calculation of earnings per share, the proposed dividend payout ratio, and return on capital. This one-off non-cash\nadjustment has been made as it would otherwise cause a disproportionate impact on these metrics.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 145\nFINANCIAL\nSTATEMENTS", "char_count": 4629, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 148, "printed_page": 146, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n6 Earnings per ordinary share\nBasic earnings per ordinary share (EPS) is calculated by dividing the profit attributable to ordinary shareholders by the weighted average\nnumber of ordinary shares in issue during the year, excluding ordinary shares held under trust, which have been treated as if they had\nbeen cancelled.\n2025 2024\nPotentially Potentially\ndilutive share dilutive share\nBasic options Diluted Basic options Diluted\nProfit attributable to ordinary shareholders (£m): 5,841 5,841 2,521 2,521\nWeighted average number of ordinary shares\n(millions) 8,415 33 8,448 8,388 51 8,439\nEPS (pence): 69.41 (0.27) 69.14 30.05 (0.18) 29.87\nThe reconciliation between underlying EPS and basic EPS is as follows:\n2025 2024\nPence £m Pence £m\nEPS/Profit attributable to ordinary shareholders 69.41 5,841 30.05 2,521\nTotal underlying adjustments to (loss)/profit before taxation (note 2) (42.58) (3,583) 0.70 59\nRelated tax effects 6.01 506 (6.34) (532)\nAdjustment for recognition of deferred tax assets 1 (3.29) (277) (4.12) (346)\nUnderlying EPS/Underlying profit attributable to ordinary shareholders 29.55 2,487 20.29 1,702\nDiluted underlying EPS attributable to ordinary shareholders 29.44 20.17\n1 Underlying profit attributable to ordinary shareholders has been adjusted for the one-off non-cash impact of £277m (2024: £346m) related to the recognition of deferred tax assets on\nUK tax losses, see note 5 for further details\n7 Dividends\n2025 2024\n£m £m\nDividends provided for or paid during the year 885 –\nOrdinary dividends declared and paid in the year ended 31 December 2025 comprised of a final dividend for 2024 of 6.0p per ordinary share\nand an interim cash dividend in respect of the first half of 2025 of 4.5p per ordinary share.\nThe Employee Benefit Trust has currently waived the right to receive dividends on Rolls-Royce Holdings plc shares. This waiver has been\napplied to dividends paid in 2025.\nThe Directors have proposed a final dividend for 2025 of 5.0p per share (2024: 6.0p), giving a total for the year of 9.5p (2024: 6.0p) including\nthe interim dividend paid during the year of 4.5p (2024: nil). The expected cost of servicing this final dividend is £419m, for which no liability\nhas been recognised at the balance sheet date. The final dividend will be paid on 3 June 2026 to shareholders on the register on 24 April 2026.\nThe election deadline for ordinary shareholders wishing to participate in the Dividend Reinvestment Programme (DRIP) is 15 May 2026, further\ndetails can be obtained from the Company’s Registrar, Equiniti Limited.\n146 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2650, "tables": [ [ [ "5,841", null, "5,841" ], [ "8,415", "33", "8,448" ] ], [ [ "69.41", "(0.27)", "69.14" ] ], [ [ "69.41", "5,841" ], [ "(42.58)", "(3,583)" ], [ "6.01", "506" ], [ "(3.29)", "(277)" ], [ "29.55", "2,487" ], [ "29.44", null ] ] ], "table_count": 3 }, { "pdf_page": 149, "printed_page": 147, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n8 Auditors’ remuneration\n2025 2024\n£m £m\nFees payable to the Company’s auditor for the audit of the Company’s annual Financial Statements 3.4 3.9\nFees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries\npursuant to legislation 8.4 8.6\nTotal fees payable for audit services 11.8 12.5\nFees payable to the Company’s auditor and its associates for other services:\nAudit related assurance services 1 0.7 0.7\nOther assurance services 2 0.1 0.1\nTotal fees payable to the Company’s auditor and its associates 3 12.6 13.3\nFees payable in respect of the Group’s pension schemes:\nAudit 0.1 0.1\n1 This includes £0.7m (2024: £0.7m) for the review of the half-year report\n2 This includes £0.1m (2024: £0.1m) in respect of agreed upon procedures in respect of levies payable\n3 Audit fees for overseas entities are reported at the average exchange rate for the year\n9 Employee information\n2025 2024\nNumber 1 Number 1\nUnited Kingdom 22,100 21,900\nGermany 9,900 10,000\nUnited States 5,300 5,300\nItaly 1,000 900\nSingapore 700 700\nCanada 700 700\nIndia 700 600\nChina 500 500\nIsrael 300 300\nFrance 200 200\nRest of world 1,200 1,300\nMonthly average number of employees 42,600 42,400\nCivil Aerospace 19,400 18,700\nDefence 12,800 12,500\nPower Systems 10,000 9,900\nAll Other Businesses 2 200 1,200\nCorporate 3 200 100\nMonthly average number of employees 42,600 42,400\n2025 2024\nTotal Total\n£m £m\nWages, salaries and benefits 3,107 3,056\nSocial security costs 437 369\nShare-based payments (note 26) 104 136\nPensions and other post-retirement scheme benefits (note 24) 403 387\nGroup employment costs 4 4,051 3,948\n1 Employee numbers are rounded to the nearest hundred\n2 Following the decision to exit the Group’s advanced air mobility activities in 2024 and the relinquishment of control of Rolls-Royce SMR Limited on 4 March 2025 the results of those\nactivities in both 2024 and 2025 have been reported within All Other Business. The employee information above contains two months of Rolls-Royce SMR Limited employee information,\nfollowing the relinquishment of control of Rolls-Royce SMR Limited in March 2025 the employee information of Rolls-Royce SMR Limited was not included within the monthly average\nnumber of employees for the Group\n3 Corporate consists of employees who do not provide a shared service to the segments. Where corporate functions provide such a service, employees have been allocated to the\nsegments on an appropriate basis\n4 Remuneration of key management personnel is shown in note 28\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 147\nFINANCIAL\nSTATEMENTS", "char_count": 2643, "tables": [ [ [ "3.4" ], [ "8.4" ], [ "11.8" ] ], [ [ "0.7" ], [ "0.1" ], [ "12.6" ] ], [ [ "22,100" ], [ "9,900" ], [ "5,300" ], [ "1,000" ], [ "700" ], [ "700" ], [ "700" ], [ "500" ], [ "300" ], [ "200" ], [ "1,200" ], [ "42,600" ] ], [ [ "19,400" ], [ "12,800" ], [ "10,000" ], [ "200" ], [ "200" ], [ "42,600" ] ], [ [ "3,107" ], [ "437" ], [ "104" ], [ "403" ], [ "4,051" ] ] ], "table_count": 5, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 150, "printed_page": 148, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n10 Goodwill\nIn accordance with the requirements of IAS 36 Impairment of Assets, goodwill is allocated to the Group’s CGUs, or groups of CGUs, that are\nexpected to benefit from the synergies of the business combination that gave rise to the goodwill as follows:\nRolls-Royce Rolls-Royce\nPower Deutschland\nSystems AG Ltd & Co KG Other 1 Total\n£m £m £m £m\nCost:\nAt 1 January 2024 798 240 63 1,101\nTransferred to assets held for sale 2 – – (25) (25)\nExchange differences (19) (11) (1) (31)\nAt 31 December 2024 779 229 37 1,045\nTransferred from assets held for sale 2 – – 2 2\nDisposals of business – – (2) (2)\nDisposals – – (10) (10)\nExchange differences 8 11 – 19\nAt 31 December 2025 787 240 27 1,054\nAccumulated amortisation and impairment:\nAt 1 January 2024 – 3 32 35\nImpairment 3 – – 13 13\nTransferred to assets held for sale 2 – – (12) (12)\nAt 31 December 2024 – 3 33 36\nTransferred from assets held for sale 2 – – 2 2\nDisposals of business – – (2) (2)\nDisposals – – (10) (10)\nAt 31 December 2025 – 3 23 26\nNet book value at:\nAt 31 December 2025 787 237 4 1,028\nAt 31 December 2024 779 226 4 1,009\n1 Goodwill balances that are not considered to be individually significant were also tested for impairment\n2 At 31 December 2024 the Group held for sale the goodwill allocated to the naval propulsors & handling business. During the year goodwill with a net book value of £nil was transferred\ninto and out of assets held for sale relating to the naval propulsors business and naval handling business respectively. The assets and liabilities of the naval propulsors business were\ndisposed of on 1 July 2025 and the assets of the naval handling business are held for sale at 31 December 2025, see note 29 for further details\n3 During 2024 the Group impaired £13m of goodwill due to the closure of its electrical advanced air mobility activities\nThe Directors have reviewed the presentation of the Balance Sheet during the year and believe that presenting goodwill separately from the\nremaining intangible assets is relevant to an understanding of the entity’s financial position and provides more useful information to the users\nof the Annual Report and Financial Statements. The comparative balance at 31 December 2024 has also been represented for comparability.\nThe carrying amount of goodwill allocated across multiple CGUs is not significant in comparison with the Group’s total carrying amount\nof goodwill.\nGoodwill has been tested for impairment during 2025 on the following basis:\n— the carrying values of goodwill have been assessed by reference to the value in use;\n— these have been estimated using cash flows from the most recent forecasts prepared by the Directors, which are consistent with past\nexperience and external sources of information on market conditions. These forecasts generally cover the next five years. Growth rates\nfor the period not covered by the forecasts are based on growth rates of 2% which reflects the products, industries and countries in which\nthe relevant CGU or group of CGUs operate. Inflation has been included based on contractual commitments where relevant. Where general\ninflation assumptions have been required, these have been estimated based on externally sourced data. General inflation assumptions of\n2% to 3% have been included in the forecasts, depending on the nature and geography of the flows;\n— the key forecast assumptions for the impairment tests are the discount rate and the cash flow projections, in particular the programme\nassumptions (such as sales volumes and product costs), the impact of foreign exchange rates on the relationship between selling prices and\ncosts, and growth rates. Impairment tests are performed using prevailing exchange rates; and\n— the Group believes there are significant business growth opportunities to come from Rolls-Royce playing a leading role in the transition to\nnet zero as we develop and deliver the products that will support our customers through the energy transition across multiple markets. At\nthe same time climate change poses potentially significant risks. The assumptions used by the Directors are based on past experience and\nexternal sources of information. Based on the climate scenarios prepared, the forecasts do not assume a significant deterioration of demand\nfor Civil Aerospace (including Rolls-Royce Deutschland) programmes given that all commercial aero engines are compatible with sustainable\nfuels. Similarly, the majority of the portfolio in Power Systems is now compatible with alternative and more sustainable fuels. The investment\nrequired to ensure our new products will be compatible with net zero operation, and to achieve net zero Scope 1 + 2 GHG emission\ncommitments is reflected in the forecasts used.\n148 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4823, "tables": [ [ [ "–", "–", "2", "2" ], [ "–", "–", "(2)", "(2)" ], [ "–", "–", "(10)", "(10)" ], [ "8", "11", "–", "19" ], [ "787", "240", "27", "1,054" ] ], [ [ "–", "–", "2", "2" ], [ "–", "–", "(2)", "(2)" ], [ "–", "–", "(10)", "(10)" ], [ "–", "3", "23", "26" ] ], [ [ "787", "237", "4", "1,028" ] ] ], "table_count": 3 }, { "pdf_page": 151, "printed_page": 149, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n10 Goodwill continued\nA 1.5°C scenario has been prepared using key data points from external sources, including Oxford Economic Global Climate Service and\nDatabank. This scenario has been used as the basis of a sensitivity. It is assumed that governments adopt stricter product and behavioural\nstandards and measures that result in higher carbon pricing. Under these conditions, it is assumed that markets are willing to pay for low\ncarbon solutions and that there is an economic return from strategic investments in low carbon alternatives. The sensitivity has considered\nthe likelihood of demand changes for our products based on their relative fuel efficiency in the marketplace and the probability of alternatives\nbeing introduced earlier than currently expected. The sensitivity also reflects the impact of a broad range of potential costs imposed by policy\nor regulatory interventions (through carbon pricing). This sensitivity does not indicate the need for an impairment charge.\nThe principal assumptions for the impairment testing of goodwill balances that are considered to be individually significant are:\nCash-generating unit (CGU) or group of CGUs\nDownside scenario\nNominal pre-tax discount rate Growth rate 2 weighting 3\nPrimary operating\nsegment Key trading assumptions 1 2025 2024 2025 2024 2025 2024\nRolls-Royce Power Power Systems e.g. volume of equipment\nSystems AG deliveries; pricing\nachieved; cost escalation 10.7% 10.2% 2% 2% 25% 25%\nRolls-Royce Civil Aerospace e.g. volume of engine\nDeutschland Ltd deliveries, flying hours\n& Co KG of installed fleet,\ncost escalation 11.7% 12.6% 2% 2% 25% 25%\n1 Trading assumptions are based on current and known future programmes, estimates of market share and long-term economic forecasts\n2 Growth rate at which cash flows beyond the five-year forecasts are assumed to grow\n3 Weighting of the plausible downside scenario in relation to macro-economic factors\nThe Directors do not consider that any reasonably possible changes in the key assumptions (including taking consideration of the climate-\nrelated risks above) would cause the value in use of the goodwill to fall below its carrying value.\n11 Intangible assets\nCertification Development Customer\ncosts expenditure relationships Software 1 Other 2 Total\n£m £m £m £m £m £m\nCost:\nAt 1 January 2024 930 3,763 498 1,004 699 6,894\nAdditions – 263 – 96 8 367\nTransferred to assets held for sale 3 – (4) (4) (1) – (9)\nDisposals 4 – (3) (13) (77) (2) (95)\nExchange differences (1) (63) (12) (4) (17) (97)\nAt 31 December 2024 929 3,956 469 1,018 688 7,060\nAdditions 31 222 – 105 6 364\nTransferred from assets held for sale 3 – 3 4 – (4) 3\nDisposals 5 – (422) (415) (26) (122) (985)\nExchange differences 2 62 2 – 16 82\nAt 31 December 2025 962 3,821 60 1,097 584 6,524\nAccumulated amortisation and impairment:\nAt 1 January 2024 467 1,976 433 718 357 3,951\nCharge for the year 6 27 96 35 78 19 255\nImpairment 7 – (405) – – 17 (388)\nTransferred to assets held for sale 3 – (4) (4) (1) – (9)\nDisposals 4 – – (13) (69) (2) (84)\nExchange differences (1) (37) (10) (3) (7) (58)\nAt 31 December 2024 493 1,626 441 723 384 3,667\nCharge for the year 6 31 107 7 68 22 235\nImpairment 8 (3) (4) – – 13 6\nTransferred from assets held for sale 3 – 3 4 – (4) 3\nDisposals 5 – (422) (415) (23) (122) (982)\nExchange differences 1 18 – – 6 25\nAt 31 December 2025 522 1,328 37 768 299 2,954\nNet book value at:\nAt 31 December 2025 440 2,493 23 329 285 3,570\nAt 31 December 2024 436 2,330 28 295 304 3,393\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 149\nFINANCIAL\nSTATEMENTS", "char_count": 3603, "tables": [ [ [ "10.7%", "10.2%", "2%", "2%", "25%" ], [ "11.7%", "12.6%", "2%", "2%", "25%" ] ], [ [ "31", "222", "–", "105", "6", "364" ], [ "–", "3", "4", "–", "(4)", "3" ], [ "–", "(422)", "(415)", "(26)", "(122)", "(985)" ], [ "2", "62", "2", "–", "16", "82" ], [ "962", "3,821", "60", "1,097", "584", "6,524" ] ], [ [ "31", "107", "7", "68", "22", "235" ], [ "(3)", "(4)", "–", "–", "13", "6" ], [ "–", "3", "4", "–", "(4)", "3" ], [ "–", "(422)", "(415)", "(23)", "(122)", "(982)" ], [ "1", "18", "–", "–", "6", "25" ], [ "522", "1,328", "37", "768", "299", "2,954" ] ], [ [ "440", "2,493", "23", "329", "285", "3,570" ] ] ], "table_count": 4, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 152, "printed_page": 150, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n11 Intangible assets continued\n1 Includes £160m (2024: £100m) of software under course of construction which is not amortised\n2 Other intangible assets includes trademarks, brands and the costs incurred testing and analysing engines with the longest time in service (fleet leader engines) to gather technical\nknowledge on engine endurance which will improve reliability and enable the Group to reduce the costs of meeting LTSA obligations\n3 At 31 December 2024 the Group held for sale the assets and liabilities of the naval propulsors & handling business. During the year intangible assets with a net book value of £nil was\ntransferred into and out of assets held for sale relating to the naval propulsors business and naval handling business respectively. The assets and liabilities of the naval propulsors\nbusiness were disposed of on 1 July 2025 and the assets of the naval handling business are held for sale at 31 December 2025, see note 29 for further details\n4 During 2024 the Group disposed of its lower power range engine business based in Power Systems\n5 During 2025 the majority of disposals relate to the derecognition of assets that are fully amortised and where no future economic benefits are expected from their use or disposal\n6 Charged to cost of sales and commercial and administrative costs except development costs, which are charged to research and development costs\n7 The 2024 impairment charge included £17m of other impairment (related to IP) resulting from the closure of the Group’s electrical advanced air mobility activities. It also included\nthe reversal of a Civil Aerospace programme asset impairment recognised in 2020, with £413m credited to research and development within the non-underlying income statement\n8 The 2025 impairment charge includes a partial impairment reversal of a Civil Aerospace – Trent programme asset that had been fully impaired by 30 June 2020. A reversal of £10m\nhas been credited, with £4m recognised in cost of sales and £6m in research and development within the non-underlying income statement. See further details below\nAt 31 December 2025, the Group had expenditure commitments for software of £24m (2024: £28m).\nThe carrying amount of intangible assets allocated across multiple CGUs is not significant in comparison with the Group’s total carrying amount\nof goodwill or intangible assets with indefinite useful lives.\nMaterial intangible assets\nThe carrying amount and the residual life of the material intangible assets for the Group is as follows:\nNet book value\n2025 2024\nResidual life 1 £m £m\nTrent programme intangible assets 2 1–15 years 1,993 2,001\nBusiness aviation programme intangible assets 3 9–15 years 814 674\nIntangible assets related to Power Systems 4 323 309\n3,130 2,984\n1 Residual life reflects the remaining amortisation period of those assets where amortisation has commenced. As per page 129, the amortisation period of 15 years will commence on those\nassets which are not being amortised as the units are delivered\n2 Included within the Trent programmes are the Trent 1000, Trent 7000 and Trent XWB\n3 Included within business aviation are the Pearl 700, Pearl 15 and Pearl 10X\n4 Includes £112m (2024: £107m) in respect of a brand intangible asset which is not amortised. Remaining assets are amortised over a range of three to 15 years\nIntangible assets (including programme intangible assets) have been reviewed for impairment in accordance with IAS 36 Impairment of Assets.\nAssessments have considered potential triggers of impairment such as external factors including climate change, significant programme changes\nand by analysing latest management forecasts against those prepared in 2024 to identify any change in performance. Where a trigger event has\nbeen identified, an impairment test has been carried out. Where an impairment test was required, it was performed on the following basis:\n— the carrying values have been assessed by reference to value in use. These have been estimated using cash flows from the most recent\nforecasts prepared by the Directors, which are consistent with past experience and external sources of information on market conditions\nover the lives of the respective programmes; and\n— the key assumptions underpinning cash flow projections are based on estimates of product performance related estimates, future market\nshare and pricing and cost for uncontracted business. Climate-related risks are considered when making these estimates consistent with the\nassumptions above.\nAn intangible asset impairment reversal of £10m was recognised together with a property, plant and equipment impairment reversal of £46m\n(see note 12) and a lease right-of-use asset impairment reversal of £129m (see note 13) being recognised in cost of sales (£179m) and research and\ndevelopment (£6m) in the year as follows:\nImpairment reversal\nProperty, plant Right-of-use Pre-tax nominal\nIntangible assets and equipment assets Total discount rate at\n£m £m £m £m 30 June 2025 1\nCivil Aerospace – Trent programme assets 10 46 129 185 12.0%\n1 The equivalent pre-tax nominal discount rate in 2020 when the impairment was recognised was 11.0%\nThe recoverable amount calculated includes passage of time benefits in addition to those from the impairment reversal trigger drivers\ndescribed above and has resulted in a partial impairment reversal. In making this assessment, the Directors have considered a range of\nsensitivities in relation to the aftermarket returns, cost increases and discount rates.\nThere have been no other individually material impairment charges or reversals recognised during the year (2024: reversal of £413m).\n150 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5727, "tables": [ [ [ "1,993" ], [ "814" ], [ "323" ], [ "3,130" ] ], [ [ "10", "46", "129", "185", null, "12.0%" ] ] ], "table_count": 2 }, { "pdf_page": 153, "printed_page": 151, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n12 Property, plant and equipment\nLand and Plant and Aircraft and In course of\nbuildings equipment engines construction Total\n£m £m £m £m £m\nCost:\nAt 1 January 2024 1,883 4,962 1,006 412 8,263\nAdditions 21 129 108 245 503\nTransferred to assets held for sale 1 (33) (51) – (2) (86)\nDisposals/write-offs (23) (142) (17) (4) (186)\nReclassifications within PPE 2 46 67 3 (116) –\nReclassification from right-of-use assets 11 – – – 11\nExchange differences (23) (55) (1) – (79)\nAt 31 December 2024 1,882 4,910 1,099 535 8,426\nAdditions 56 178 163 273 670\nDisposal of businesses – (5) – – (5)\nDisposals/write-offs (19) (284) (5) (8) (316)\nReclassifications within PPE 2 42 104 1 (147) –\nExchange differences – 1 (8) (17) (24)\nAt 31 December 2025 1,961 4,904 1,250 636 8,751\nAccumulated depreciation and impairment:\nAt 1 January 2024 709 3,384 434 8 4,535\nCharge for the year 3 77 249 49 – 375\nImpairment 2 23 – – 25\nTransferred to assets held for sale 1 (11) (24) – – (35)\nDisposals/write-offs (16) (123) (10) – (149)\nReclassifications within PPE 2 16 (16) – – –\nExchange differences (9) (39) (1) – (49)\nAt 31 December 2024 768 3,454 472 8 4,702\nCharge for the year 3 71 239 70 – 380\nImpairment 4 – 2 (44) – (42)\nDisposal of businesses – (2) – – (2)\nDisposals/write-offs (14) (278) (4) – (296)\nExchange differences (3) 2 (3) – (4)\nAt 31 December 2025 822 3,417 491 8 4,738\nNet book value at:\nAt 31 December 2025 1,139 1,487 759 628 4,013\nAt 31 December 2024 1,114 1,456 627 527 3,724\n1 At 31 December 2024 the Group held for sale the assets and liabilities of its naval propulsors & handling business. The assets and liabilities of the naval propulsors business were disposed\nof during the year and the assets of the naval handling business are held for sale at 31 December 2025, see note 29 for further details\n2 Includes reclassifications from assets under construction into the other categories of property, plant and equipment when the assets become available for use\n3 Depreciation is charged to cost of sales and commercial and administrative costs or included in the cost of inventory as appropriate\n4 The carrying values of property, plant and equipment have been assessed during the year in line with IAS 36 Impairment of Assets. Material items of plant and equipment and aircraft\nand engines are assessed for impairment together with other assets used in individual programmes – see potential triggers considered in notes 10 and 11. Land and buildings are generally\nused across multiple programmes and are considered based on future expectations of the use of the site, which includes any implications from climate-related risks. During the year, a\npartial impairment reversal of £46m has been recognised within cost of sales (2024: £nil), as outlined within notes 2, 10 and 11\nProperty, plant and equipment includes:\n2025 2024\nLand and Plant and Aircraft and Land and Plant and Aircraft and\nbuildings equipment engines buildings equipment engines\n£m £m £m £m £m £m\nAssets held for use in leases where the Group is the\nlessor:\nCost 6 36 1,018 6 36 861\nDepreciation (4) (23) (366) (4) (22) (372)\nNet book value 2 13 652 2 14 489\n2025 2024\n£m £m\nCapital expenditure commitments 252 177\nCost of fully depreciated assets 2,183 2,286\nThe Group’s share of equity accounted entities’ capital commitments is £100m (2024: £69m).\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 151\nFINANCIAL\nSTATEMENTS", "char_count": 3436, "tables": [ [ [ "56", "178", "163", "273", "670" ], [ "–", "(5)", "–", "–", "(5)" ], [ "(19)", "(284)", "(5)", "(8)", "(316)" ], [ "42", "104", "1", "(147)", "–" ], [ "–", "1", "(8)", "(17)", "(24)" ], [ "1,961", "4,904", "1,250", "636", "8,751" ] ], [ [ "71", "239", "70", "–", "380" ], [ "–", "2", "(44)", "–", "(42)" ], [ "–", "(2)", "–", "–", "(2)" ], [ "(14)", "(278)", "(4)", "–", "(296)" ], [ "(3)", "2", "(3)", "–", "(4)" ], [ "822", "3,417", "491", "8", "4,738" ] ], [ [ "1,139", "1,487", "759", "628", "4,013" ] ], [ [ "6", "36", "1,018" ], [ "(4)", "(23)", "(366)" ], [ "2", "13", "652" ] ], [ [ "252" ], [ "2,183" ] ] ], "table_count": 5, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 154, "printed_page": 152, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n13 Right-of-use assets\nLand and Plant and Aircraft and\nbuildings equipment engines Total\n£m £m £m £m\nCost:\nAt 1 January 2024 513 194 1,864 2,571\nAdditions/modification of leases 28 73 37 138\nTransferred to assets held for sale 1 (2) (1) – (3)\nDisposals (8) (17) – (25)\nReclassifications to PPE (11) – – (11)\nExchange differences (3) (3) (4) (10)\nAt 31 December 2024 517 246 1,897 2,660\nAdditions/modification of leases 79 50 49 178\nDisposal of businesses (2) – – (2)\nDisposals (11) (49) (54) (114)\nExchange differences (14) 1 3 (10)\nAt 31 December 2025 569 248 1,895 2,712\nAccumulated depreciation and impairment:\nAt 1 January 2024 259 109 1,298 1,666\nCharge for the year 2 42 43 172 257\nImpairment 3 3 2 3 8\nTransferred to assets held for sale 1 (2) – – (2)\nDisposals (7) (17) – (24)\nExchange differences (1) (2) (3) (6)\nAt 31 December 2024 294 135 1,470 1,899\nCharge for the year 2 47 47 193 287\nImpairment 3 – – (129) (129)\nDisposal of businesses (1) – – (1)\nDisposals (11) (36) (54) (101)\nExchange differences (6) 2 2 (2)\nAt 31 December 2025 323 148 1,482 1,953\nNet book value:\nAt 31 December 2025 246 100 413 759\nAt 31 December 2024 223 111 427 761\nRight-of-use assets held for use in operating leases where the Group is the lessor:\nCost 18 – 1,895 1,913\nDepreciation (9) – (1,482) (1,491)\nNet book value at 31 December 2025 9 – 413 422\nCost 18 – 1,897 1,915\nDepreciation (8) – (1,470) (1,478)\nNet book value at 31 December 2024 10 – 427 437\n1 At 31 December 2024 the Group held for sale the assets and liabilities of the naval propulsors & handling business. The assets and liabilities of the naval propulsors business were\ndisposed of on 1 July 2025 and the assets of the naval handling business are held for sale at 31 December 2025, see note 29 for further detail\n2 Depreciation is charged to cost of sales and commercial and administrative costs as appropriate\n3 The carrying values of right-of-use assets have been assessed during the year in line with IAS 36 Impairment of Assets. Material items of plant and equipment and aircraft and engines are\nassessed for impairment together with other assets used in individual programmes – see potential triggers considered in notes 10 and 11. Land and buildings are generally used across\nmultiple programmes and are considered based on future expectations of the use of the site (which includes any implications from climate-related risks). During the year, a partial\nimpairment reversal of £129m has been recognised within cost of sales (2024: charge of £8m) as outlined within notes 2, 10 and 11\n152 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2646, "tables": [ [ [ "79", "50", "49", "178" ], [ "(2)", "–", "–", "(2)" ], [ "(11)", "(49)", "(54)", "(114)" ], [ "(14)", "1", "3", "(10)" ], [ "569", "248", "1,895", "2,712" ] ], [ [ "47", "47", "193", "287" ], [ "–", "–", "(129)", "(129)" ], [ "(1)", "–", "–", "(1)" ], [ "(11)", "(36)", "(54)", "(101)" ], [ "(6)", "2", "2", "(2)" ], [ "323", "148", "1,482", "1,953" ] ], [ [ "246", "100", "413", "759" ] ], [ [ "18", "–", "1,895", "1,913" ], [ "(9)", "–", "(1,482)", "(1,491)" ], [ "9", "–", "413", "422" ] ] ], "table_count": 4 }, { "pdf_page": 155, "printed_page": 153, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n14 Investments\nComposition of the Group\nThe entities contributing to the Group’s financial results are listed on pages 187 to 190.\nWhere the Group does not own 100% of the shares of a group undertaking, there are a number of arrangements with the other shareholder(s)\nthat give the Group the option or potential obligation to acquire the third parties’ shares. These arrangements have been assessed and are not\nconsidered to have a significant value, individually or in aggregate.\nThe Group does not have any non-wholly owned subsidiaries that have a material non-controlling interest.\nEquity accounted and other investments\nEquity accounted Other 1 Total\nJoint ventures\n£m £m £m\nAt 1 January 2024 479 31 510\nAdditions 2 17 – 17\nImpairment (4) – (4)\nShare of retained profit 3 95 – 95\nReclassification of deferred profit to deferred income 4 (2) – (2)\nRevaluation of other investments accounted for as FVOCI – (2) (2)\nRevaluation of other investments accounted for as FVTPL 5 – (24) (24)\nExchange differences 11 – 11\nShare of OCI (4) – (4)\nAt 1 January 2025 592 5 597\nTransfer from subsidiary to joint venture 6 732 – 732\nAdditions 2 56 – 56\nShare of retained loss 3 (32) – (32)\nReclassification of deferred profit to deferred income 4 2 – 2\nRevaluation of other investments accounted for as FVOCI – (1) (1)\nExchange differences (66) – (66)\nShare of OCI 1 – 1\nAt 31 December 2025 1,285 4 1,289\n1 Other investments includes unlisted investments of £nil (2024: £nil) and listed investments of £4m (2024: £5m)\n2 Additions relates to investments of £52m (2024: £nil) related to Rolls-Royce SMR Limited following its deconsolidation in March 2025. Of this, £15m was recognised in July 2025 due to\na change in shareholding resulting from an additional equity investment made by ČEZ Group (ČEZ), a further £37m was recognised in December 2025 due to the purchase of shares by\nRolls-Royce Plc from an existing investor. Further details can be found in note 29. The remaining £4m (2024: £17m) of additions relates to the joint venture, Beijing Aero Engine Services\nCompany Limited\n3 See table below\n4 The Group’s share of unrealised profit on sales to joint ventures is eliminated against the carrying value of the investment in the entity. Any excess amount, once the carrying value\nis reduced to £nil, is recorded as deferred income\n5 During 2024 the Group wrote down the value of an unlisted investment. This charge was recognised within net financing\n6 In March 2025, an equity-accounted investment of £732m was recognised at fair value as a result of the deconsolidation of Rolls-Royce SMR Limited. See note 29 for further information\nReconciliation of share of retained (loss)/profit to the income statement and cash flow statement:\n2025 2024\n£m £m\nShare of results of joint ventures and associates ¹ 71 137\nAdjustments for intercompany trading 2 (15) 35\nShare of results of joint ventures and associates to the Group 56 172\nDividends paid by joint ventures and associates to the Group (cash flow statement) (88) (77)\nShare of retained (loss)/profit above (32) 95\n1 The results to 31 December 2025 include ten months of the Group’s share of the results of Rolls-Royce SMR Limited\n2 During the year, the Group sold spare engines to Rolls-Royce & Partners Finance, a joint venture and subsidiary of Alpha Partners Leasing Limited. The Group’s share of the profit on\nthese sales is deferred and released to match the depreciation of the engines in the joint venture’s financial statements. In 2025 profit deferred on the sale of engines was higher than\n(2024: lower than) the release of that deferred in prior years\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 153\nFINANCIAL\nSTATEMENTS", "char_count": 3725, "tables": [ [ [ "592", null, "5", null, "597" ], [ "732", null, "–", null, "732" ], [ "56", null, "–", null, "56" ], [ "(32)", null, "–", null, "(32)" ], [ "2", null, "–", null, "2" ], [ "–", null, "(1)", null, "(1)" ], [ "(66)", null, "–", null, "(66)" ], [ "1", null, "–", null, "1" ], [ "1,285", null, "4", null, "1,289" ] ], [ [ "71" ], [ "(15)" ], [ "56" ], [ "(88)" ], [ "(32)" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 156, "printed_page": 154, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n14 Investments continued\nThe following joint ventures are considered to be individually material to the Group:\nPrincipal location Activity Ownership interest\nAlpha Partners Leasing Limited (APL) UK Aero-engine leasing 50.0%\nHong Kong Aero Engine Services Limited (HAESL) Hong Kong Aero-engine repair and overhaul 50.0%\nSingapore Aero Engine Services Pte Limited (SAESL) Singapore Aero-engine repair and overhaul 50.0%\nRolls-Royce SMR Limited (SMR) UK Small modular reactors 57.8%\nSummarised financial information of the Group’s individually material joint ventures is as follows:\nAPL HAESL SAESL SMR 1\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m 2025\nRevenue 518 400 3,674 4,017 3,505 2,469 2\nProfit/(loss) and total comprehensive income/\n(expense) for the year 168 114 93 70 48 46 (193)\nDividends paid during the year (14) (63) (78) (69) – – –\nProfit/(loss) for the year included the following:\nDepreciation and amortisation (154) (150) (13) (11) (16) (18) (2)\nInterest income 13 12 – – 5 8 6\nInterest expense (127) (112) (8) (8) (2) (1) –\nIncome tax (expense)/credit (62) (41) (16) (17) (5) (3) 12\nCurrent assets 343 345 515 1,129 1,291 1,154 70\nNon-current assets 2 3,776 3,506 97 100 152 133 1,032\nCurrent liabilities (242) (360) (331) (895) (1,019) (950) (57)\nNon-current liabilities 2 (2,955) (2,662) (45) (95) (67) (8) (243)\nNet assets 922 829 236 239 357 329 802\nIncluded in the above:\nCash and cash equivalents 192 190 7 4 77 129 52\nCurrent financial liabilities 3 (114) (244) (100) (10) – – –\nNon-current financial liabilities 3 (2,371) (2,134) (37) (86) (67) (8) –\nReconciliation to the carrying amount recognised in the Consolidated Financial Statements\nOwnership interest 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 57.8%\nGroup share of net assets above 461 415 118 120 179 165 463\nGoodwill – – 35 37 10 11 209\nAdjustments for intercompany trading (404) (386) 4 (7) (3) (4) –\nIncluded in the balance sheet 57 29 157 150 186 172 672\n1 In March 2025, an equity-accounted investment of £732m was recognised at fair value as a result of the deconsolidation of Rolls-Royce SMR Limited. A notional purchase price allocation\n(PPA) exercise has been undertaken that has identified and valued the assets and liabilities of the joint venture as if the Group had acquired a business. The majority of the value of\nthe investment has been attributed to development expenditure related to Rolls-Royce SMR Limited’s investment in its products. Goodwill, which has not been impaired, relates to the\nexpected future growth of the business\n2 Non-current assets includes £1,006m of intangible assets identified on acquisition relating to development expenditure and non-current liabilities including £(239)m of associated\ndeferred tax liabilities\n3 Excluding trade payables and other liabilities\nThe summarised aggregated results of the Group’s share of equity accounted investments is as follows:\nIndividually material joint\nventures (above) Other joint ventures Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nProfit and total comprehensive income for the year 36 115 34 18 70 133\nAssets:\nNon-current assets 2,609 1,870 433 245 3,042 2,115\nCurrent assets 1,115 1,314 605 632 1,720 1,946\nLiabilities: 1\nCurrent liabilities (829) (1,102) (703) (536) (1,532) (1,638)\nNon-current liabilities (1,674) (1,382) (98) (86) (1,772) (1,468)\nGroup adjustment for goodwill 254 48 – – 254 48\nAdjustment for intercompany trading (403) (397) (24) (14) (427) (411)\nIncluded in the balance sheet 1,072 351 213 241 1,285 592\n1 Liabilities include borrowings of: (1,345) (1,241) (267) (113) (1,612) (1,354)\n154 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3679, "tables": [ [ [ "518", "400", "3,674", "4,017", "3,505", "2,469", "2" ], [ "168", "114", "93", "70", "48", "46", "(193)" ], [ "(14)", "(63)", "(78)", "(69)", "–", "–", "–" ] ], [ [ "(154)", "(150)", "(13)", "(11)", "(16)", "(18)", "(2)" ], [ "13", "12", "–", "–", "5", "8", "6" ], [ "(127)", "(112)", "(8)", "(8)", "(2)", "(1)", "–" ], [ "(62)", "(41)", "(16)", "(17)", "(5)", "(3)", "12" ] ], [ [ "343", "345", "515", "1,129", "1,291", "1,154", "70" ], [ "3,776", "3,506", "97", "100", "152", "133", "1,032" ], [ "(242)", "(360)", "(331)", "(895)", "(1,019)", "(950)", "(57)" ], [ "(2,955)", "(2,662)", "(45)", "(95)", "(67)", "(8)", "(243)" ], [ "922", "829", "236", "239", "357", "329", "802" ] ], [ [ "192", "190", "7", "4", "77", "129", "52" ], [ "(114)", "(244)", "(100)", "(10)", "–", "–", "–" ], [ "(2,371)", "(2,134)", "(37)", "(86)", "(67)", "(8)", "–" ] ], [ [ "50.0%", "50.0%", "50.0%", "50.0%", "50.0%", "50.0%", "57.8%" ], [ "461", "415", "118", "120", "179", "165", "463" ], [ "–", "–", "35", "37", "10", "11", "209" ], [ "(404)", "(386)", "4", "(7)", "(3)", "(4)", "–" ], [ "57", "29", "157", "150", "186", "172", "672" ] ], [ [ "36", "115", "34", "18", "70" ], [ null, null, null, null, null ], [ null, null, null, null, null ], [ "2,609", "1,870", "433", "245", "3,042" ], [ "1,115", "1,314", "605", "632", "1,720" ], [ null, null, null, null, null ], [ "(829)", "(1,102)", "(703)", "(536)", "(1,532)" ], [ "(1,674)", "(1,382)", "(98)", "(86)", "(1,772)" ], [ "254", "48", "–", "–", "254" ], [ "(403)", "(397)", "(24)", "(14)", "(427)" ], [ "1,072", "351", "213", "241", "1,285" ], [ "(1,345)", "(1,241)", "(267)", "(113)", "(1,612)" ] ] ], "table_count": 6 }, { "pdf_page": 157, "printed_page": 155, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n15 Inventories\n2025 2024\n£m £m\nRaw materials 699 544\nWork in progress 1,932 1,715\nFinished goods 3,097 2,833\n5,728 5,092\nInventories stated at net realisable value 236 232\nAmount of inventory write-down 113 56\nReversal of inventory write-down 75 15\n16 Trade receivables and other assets\nCurrent Non-current 1 Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nTrade receivables 3,046 2,917 78 138 3,124 3,055\nPrepayments 1,083 829 78 89 1,161 918\nRRSA prepayment for parts 2 570 486 1,201 1,182 1,771 1,668\nReceivables due on RRSAs 1,114 1,118 91 119 1,205 1,237\nAmounts owed by joint ventures and associates 706 894 7 2 713 896\nOther taxation and social security receivable 184 215 2 2 186 217\nCosts to obtain contracts with customers 3 2 11 176 124 178 135\nOther receivables and similar assets 4 532 529 76 58 608 587\n7,237 6,999 1,709 1,714 8,946 8,713\nTrade receivables and other assets are analysed as follows:\nFinancial instruments (note 22):\nTrade receivables and similar items 5,041 5,188\nOther non-derivative financial assets 484 366\nNon-financial instruments 3,421 3,159\n8,946 8,713\n1 Trade receivables and other assets have been presented on the face of the balance sheet in line with the operating cycle of the business. Further disclosure is included in the table above\nand relates to amounts not expected to be received in the next 12 months, in line with specific customer payment arrangements, including customers on payment plans\n2 These amounts reflect the contractual share of EFH flows and original equipment deposits from customers paid to RRSA partners in return for the supply of parts in future periods under\nlong-term supply contracts. During the year £597m (2024: £262m) has been charged to cost of sales in relation to parts supplied and used in the year\n3 These are amortised over the term of the related contract in line with engine deliveries, resulting in amortisation of £10m (2024: £8m) in the year. There were no impairment losses\n4 Other receivables includes unbilled recoveries relating to completed overhaul activity where the right to consideration is unconditional\nThe Group has adopted the simplified approach to provide for expected credit losses (ECLs), measuring the loss allowance at a probability\nweighted amount incorporated by using credit ratings which are publicly available, or through internal risk assessments derived using the\ncustomer’s latest available financial information.\nThe ECLs for trade receivables and other financial assets has decreased by £7m to £232m (2024: decreased by £3m to £239m).\nThe assumptions and inputs used for the estimation of the ECLs are disclosed in the table below:\n2025 2024\nTrade receivables Trade receivables\nand other and other\nfinancial assets Loss allowance Average ECL rate financial assets Loss allowance Average ECL rate\n£m £m % £m £m %\nCredit rating BBB- and above ¹ 1,519 (24) 2% 2,179 (74) 3%\nCredit rating below BBB- ¹ 629 (72) 11% 28 (4) 14%\nWithout credit rating 3,609 (136) 4% 3,586 (161) 4%\n5,757 (232) 4% 5,793 (239) 4%\n1 During the year, there has been a change to the classification used for investment gradings. In 2024, the ratings were reported using credit ratings C and above, credit ratings C and\nbelow and without credit rating. In 2025, the ratings have been reported using credit rating BBB- and above, credit rating below BBB- and without credit rating\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 155\nFINANCIAL\nSTATEMENTS", "char_count": 3486, "tables": [ [ [ "699" ], [ "1,932" ], [ "3,097" ], [ "5,728" ] ], [ [ "236" ], [ "113" ], [ "75" ] ], [ [ "3,046", "2,917", "78", "138", "3,124" ], [ "1,083", "829", "78", "89", "1,161" ], [ "570", "486", "1,201", "1,182", "1,771" ], [ "1,114", "1,118", "91", "119", "1,205" ], [ "706", "894", "7", "2", "713" ], [ "184", "215", "2", "2", "186" ], [ "2", "11", "176", "124", "178" ], [ "532", "529", "76", "58", "608" ], [ "7,237", "6,999", "1,709", "1,714", "8,946" ] ], [ [ "5,041" ], [ "484" ], [ "3,421" ], [ "8,946" ] ], [ [ "1,519", "(24)", "2%" ], [ "629", "(72)", "11%" ], [ "3,609", "(136)", "4%" ], [ "5,757", "(232)", "4%" ] ] ], "table_count": 5, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 158, "printed_page": 156, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n16 Trade receivables and other assets continued\nThe movements of the Group ECLs provision are as follows:\n2025 2024\n£m £m\nAt 1 January (239) (242)\nIncreases in loss allowance recognised in the income statement during the year (83) (130)\nLoss allowance utilised 18 11\nReleases of loss allowance previously provided 55 116\nTransferred to assets held for sale – 1\nExchange differences 17 5\nAt 31 December (232) (239)\n17 Contract assets and liabilities\nCurrent Non-current 1 Total 2\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nContract assets\nContract assets with customers 561 886 1,019 598 1,580 1,484\nParticipation fee contract assets 31 38 286 291 317 329\n592 924 1,305 889 1,897 1,813\n1 Contract assets have been presented on the face of the balance sheet in line with the operating cycle of the business. Further disclosure of contract assets is provided in the table above,\nwhich shows within current the element of consideration that will become unconditional in the next year\n2 Contract assets are classified as non-financial instruments\nThe balance includes £973m (2024: £955m) Civil Aerospace LTSA assets and £477m (2024: £381m) Defence LTSA assets.\nThe increase in the Civil Aerospace balance is driven by revenue recognised (when performance obligations have been completed during\nthe year) being greater than the amount invoiced on those contracts that have a contract asset balance. Revenue recognised relating to\nperformance obligations satisfied in previous years was £36m which reduced the contract asset (2024: reduction of £42m) in Civil Aerospace.\nNo impairment losses in relation to these contract assets (2024: none) have arisen during the year.\nParticipation fee contract assets have decreased by £12m (2024: increased by £102m) primarily due to amortisation of £(20)m (2024: £(23)m)\nand the Civil Aerospace programme asset impairment reversal of £nil (2024: £132m), offset by foreign exchange on consolidation of £8m\n(2024: £(7)m).\nThe absolute value of ECLs for contract assets has increased by £1m to £12m (2024: increased by £5m to £11m).\nCurrent Non-current ¹ Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nContract liabilities 7,832 6,309 8,762 9,447 16,594 15,756\nContract liabilities are analysed as follows:\nFinancial instruments (note 22) 1,423 1,280\nNon-financial instruments 15,171 14,476\n16,594 15,756\n1 Contract liabilities have been presented on the face of the balance sheet in line with the operating cycle of the business. Contract liabilities are further split according to when the\nrelated performance obligation is expected to be satisfied and, therefore, when revenue is estimated to be recognised in the income statement\nDuring the year, £5,562m (2024: £5,048m) of the opening contract liability was recognised as revenue.\nContract liabilities have increased by £838m. The movement in the Group balance is primarily as a result of an increase in Civil Aerospace\nof £576m. This is mainly a result of growth in LTSA liabilities of £231m (2025: £11,370m, 2024: £11,139m) driven almost wholly by large engines,\nwith customer invoicing in 2025 (based on EFH) being in advance of revenue recognised (based on costs incurred completing performance\nobligations). The contract liability movement includes a decrease of £289m (2024: decrease of £354m) as a result of revenue being recognised\nin relation to performance obligations satisfied in previous years. Contract liability increases in Defence of £180m and Power Systems of £90m\nis from the receipt of deposits in advance of performance obligations being completed.\n156 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3660, "tables": [ [ [ "(239)" ], [ "(83)" ], [ "18" ], [ "55" ], [ "–" ], [ "17" ], [ "(232)" ] ], [ [ "561", "886", "1,019", "598", "1,580" ], [ "31", "38", "286", "291", "317" ], [ "592", "924", "1,305", "889", "1,897" ] ], [ [ "7,832", "6,309", "8,762", "9,447", "16,594" ] ], [ [ "1,423" ], [ "15,171" ], [ "16,594" ] ] ], "table_count": 4 }, { "pdf_page": 159, "printed_page": 157, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n18 Cash and cash equivalents\n2025 2024\n£m £m\nCash at bank and in hand 889 714\nMoney market funds 2,424 1,900\nShort-term deposits 2,931 2,961\nCash and cash equivalents per the balance sheet 6,244 5,575\nOverdrafts (note 19) (3) (2)\nCash and cash equivalents per cash flow statement (page 117) 6,241 5,573\nCash and cash equivalents at 31 December 2025 includes £210m (2024: £245m) that is not available for general use by the Group. This balance\nincludes £47m (2024: £40m) which is held in an account that is exclusively for the general use of Rolls-Royce Submarines Limited and £128m\n(2024: £160m) which is held exclusively for the use of Rolls-Royce Saudi Arabia Limited. This cash is not available for use by other entities within\nthe Group. The remaining balance relates to cash held in non-wholly owned subsidiaries and joint arrangements.\nBalances are presented on a net basis when the Group has both a legal right of offset and the intention to either settle on a net basis or realise\nthe asset and settle the liability simultaneously. There is no offsetting of financial instruments in the Group’s statement of financial position as at\n31 December 2025 and 2024.\n19 Borrowings and lease liabilities\nCurrent Non-current Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nUnsecured\nOverdrafts 3 2 – – 3 2\nBank loans 5 4 4 3 9 7\n3.625% Notes 2025 $1,000m ¹ – 795 – – – 795\n3.375% Notes 2026 £375m ² 372 – – 364 372 364\n4.625% Notes 2026 €750m ³ 654 – – 620 654 620\n5.75% Notes 2027 $1,000m ³ – – 741 795 741 795\n5.75% Notes 2027 £545m – – 543 543 543 543\n1.625% Notes 2028 €550m ¹ – – 470 442 470 442\nOther loans – – 10 9 10 9\nTotal unsecured 1,034 801 1,768 2,776 2,802 3,577\nLease liability – Land and buildings 45 44 456 405 501 449\nLease liability – Aircraft and engines 304 209 562 784 866 993\nLease liability – Plant and equipment 43 43 60 70 103 113\nTotal lease liabilities 392 296 1,078 1,259 1,470 1,555\nTotal borrowings and lease liabilities 1,426 1,097 2,846 4,035 4,272 5,132\nAll outstanding items described as loan notes above are listed on the London Stock Exchange\n1 These notes are the subject of cross-currency interest rate swap agreements under which the Group has undertaken to pay floating rates of GBP interest, which form a fair value hedge.\nThey are also subject to interest rate swap agreements under which the Group has undertaken to pay fixed rates of interest, which are classified as fair value through profit and loss\n2 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. They are also subject\nto interest rate swap agreements under which the Group has undertaken to pay fixed rates of interest, which are classified as fair value through profit and loss\n3 These notes are the subject of cross-currency interest rate swap agreements under which the Group has undertaken to pay fixed rates of GBP interest, which form a cash flow hedge\nDuring the year to 31 December 2025, the Group repaid a loan note of $1bn in October 2025 in line with its maturity date.\nThe Group has access to the following undrawn committed borrowing facilities at the end of the year:\nTotal\n2025 2024\n£m £m\nExpiring within one year – –\nExpiring after one year 2,500 2,500\nTotal undrawn facilities 2,500 2,500\nFurther details can be found in the going concern statement on page 57.\nIn December 2025 the Group signed a new £2.5bn Revolving Credit Facility maturing December 2030 and cancelled the existing facility. These\nfacilities have not been drawn during the year and remain undrawn at 31 December 2025.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 157\nFINANCIAL\nSTATEMENTS", "char_count": 3742, "tables": [ [ [ "889" ], [ "2,424" ], [ "2,931" ], [ "6,244" ], [ "(3)" ], [ "6,241" ] ], [ [ null, null, null, null, null ], [ "3", "2", "–", "–", "3" ], [ "5", "4", "4", "3", "9" ], [ "–", "795", "–", "–", "–" ], [ "372", "–", "–", "364", "372" ], [ "654", "–", "–", "620", "654" ], [ "–", "–", "741", "795", "741" ], [ "–", "–", "543", "543", "543" ], [ "–", "–", "470", "442", "470" ], [ "–", "–", "10", "9", "10" ], [ "1,034", "801", "1,768", "2,776", "2,802" ] ], [ [ "45", "44", "456", "405", "501" ], [ "304", "209", "562", "784", "866" ], [ "43", "43", "60", "70", "103" ], [ "392", "296", "1,078", "1,259", "1,470" ] ], [ [ "1,426", "1,097", "2,846", "4,035", "4,272" ] ], [ [ "–" ], [ "2,500" ], [ "2,500" ] ] ], "table_count": 5, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 160, "printed_page": 158, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n20 Leases\nLeases as lessee\nThe net book value of right-of-use assets at 31 December 2025 was £759m (2024: £761m), with a lease liability of £1,470m (2024: £1,555m),\nper notes 13 and 19, respectively. Leases that have not yet commenced to which the Group is committed have a future liability of £293m (2024:\n£2m) and consist of mainly plant and equipment and properties. The consolidated income statement shows the following amounts relating\nto leases:\n2025 2024\n£m £m\nLand and buildings depreciation and impairment 1 (47) (45)\nPlant and equipment depreciation and impairment 2 (47) (45)\nAircraft and engines depreciation and impairment 3 (64) (175)\nTotal depreciation and impairment charge for right-of-use assets (158) (265)\nAdjustment of amounts payable under residual value guarantees within lease liabilities 3, 4 – 6\nExpense relating to short-term leases of 12 months or less recognised as an expense on a straight line basis 2 (31) (38)\nExpense relating to variable lease payments not included in lease liabilities 3, 5 (8) (8)\nTotal operating costs (197) (305)\nInterest expense 6 (74) (83)\nTotal lease expense (271) (388)\nIncome from sub-leasing right-of-use assets 30 29\nTotal amount recognised in the income statement (241) (359)\n1 Included in cost of sales and commercial and administration costs depending on the nature and the use of the right-of-use asset\n2 Included in cost of sales, commercial and administration costs, or research and development depending on the nature and use of the right-of-use asset\n3 Included in cost of sales\n4 Where the cost of meeting residual value guarantees is less than that previously estimated, as costs have been mitigated or liabilities waived by the lessor, the lease liability has been\nremeasured. Where the value of this remeasurement exceeds the value of the right-of use asset, the reduction in the lease liability is credited to cost of sales\n5 Variable lease payments primarily arise on a small number of contracts where engine lease payments are dependent upon utilisation rather than a periodic charge\n6 Included in financing costs\nThe total cash outflow for leases in 2025 was £345m (2024: £421m). Of this, £306m related to leases reflected in the lease liability, £31m\nto short-term leases where lease payments are expensed on a straight-line basis and £8m for variable lease payments where obligations\nare only due when the assets are used. The timing difference between income statement charge and cash flow relates to costs incurred at the\nend of leases for residual value guarantees and restoration costs that are recognised within depreciation over the term of the lease, the most\nsignificant amounts relate to engine leases.\nEngine leases in the Civil Aerospace business often include clauses that require the engines to be returned to the lessor with specific levels of\nusable life remaining or cash payments to the lessor. The costs of meeting these requirements are included in the lease payments. The amounts\npayable are calculated based upon an estimate of the utilisation of the engines over the lease term, whether the engine is restored to the\nrequired condition by performing an overhaul at our own cost or through the payments of amounts specified in the contract and any new\ncontractual arrangements arising when the current lease contracts end. Amounts due can vary depending on the level of utilisation of the\nengines, overhaul activity prior to the end of the contract, and decisions taken on whether ongoing access to the assets is required at the end\nof the lease term. The lease liability at 31 December 2025 included £292m relating to the cost of meeting these residual value guarantees in the\nCivil Aerospace business. Up to £127m is payable in the next 12 months and £165m is due over the following five years.\nLeases as lessor\nThe Group acts as lessor for engines to Civil Aerospace customers when they require engines to support their fleets. Lease agreements\nwith the lessees provide protection over the assets. Usage in excess of specified limits and damage to the engine while on lease are covered\nby variable lease payment structures. Lessee bankruptcy risk is managed through ongoing monitoring of airline credit rating and, where\napplicable, the Cape Town Convention on International Interests in Mobile Equipment (including a specific protocol relating to aircraft\nequipment); an international treaty that creates common standards for the registration of lease contracts and establishes various legal remedies\nfor default in financing agreements, including repossession and the effect of particular states’ bankruptcy laws. Engines are only leased once\nthe Group confirm that appropriate insurance documentation is established that covers the engine assets to pre-agreed amounts. All such\ncontracts are operating leases. The Group also leases out a small number of properties, or parts of properties, where there is excess capacity\nunder operating leases.\n2025 2024\n£m £m\nOperating lease income 1, 2 91 99\n1 Includes variable lease payments received of £73m (2024: £83m) that do not depend on an index or a rate\n2 Items of property, plant and equipment subject to an operating lease are disclosed in note 12\nTotal non-cancellable future operating lease rentals (undiscounted) are £63m (2024: £71m) with £11m (2024: £10m) due within one year, £39m\n(2024: £38m) between one to five years and £13m (2024: £23m) after five years.\nIn a limited number of circumstances, the Group sublets properties that are treated as a finance lease when the arrangement transfers\nsubstantially all the risks and rewards of ownership of the asset. At 31 December 2025, the total undiscounted lease payments receivable\nis £32m (2024: £37m) on annual lease income of £5m (2024: £5m). The discounted finance lease receivable at 31 December 2025 is £25m\n(2024: £29m).\n158 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5933, "tables": [ [ [ "(47)" ], [ "(47)" ], [ "(64)" ], [ "(158)" ], [ "–" ], [ "(31)" ], [ "(8)" ], [ "(197)" ], [ "(74)" ], [ "(271)" ], [ "30" ], [ "(241)" ] ] ], "table_count": 1 }, { "pdf_page": 161, "printed_page": 159, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n21 Trade payables and other liabilities\nCurrent Non-current Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nTrade payables 2,167 1,526 40 – 2,207 1,526\nAccrued liabilities 2,242 2,552 113 109 2,355 2,661\nCustomer discounts 1 1,113 1,035 631 866 1,744 1,901\nPayables due on RRSAs 1,800 1,529 14 11 1,814 1,540\nDeferred receipts from RRSA workshare partners 35 55 747 757 782 812\nAmounts owed to joint ventures and associates 564 492 – – 564 492\nGovernment grants 2 42 26 33 24 75 50\nOther taxation and social security 116 54 – – 116 54\nOther payables 3 784 740 200 198 984 938\n8,863 8,009 1,778 1,965 10,641 9,974\nTrade payables and other liabilities are analysed as follows:\nFinancial instruments (note 22):\nTrade payables and similar items 6,928 6,205\nOther non-derivative financial liabilities 2,522 2,642\nNon-financial instruments 1,191 1,127\n10,641 9,974\n1 Customer discounts include customer concession credits. Revenue recognised comprises sales to the Group’s customers after such items. Customer concession credits are discounts\ngiven to a customer upon the sale of goods or services. A liability is recognised to correspond with the recognition of revenue when the performance obligation is met, as set out on\npage 125. The largest element of the balance, approximately £1.2bn (2024: £1.4bn) arises when the Civil business delivers its engines to an airframer. A concession is often payable to the\nend customer (e.g. an airline) on delivery of the aircraft from the airframer. The concession amounts are known and the payment date is reasonably certain, hence there is no significant\njudgement or uncertainty associated with the timing of these amounts\n2 During the year, £5m (2024: £102m) of government grants were released to the income statement\n3 Other payables includes payroll liabilities and HM Government UK levies\nThe Group’s payment terms with suppliers vary based on the products and services being sourced, the competitive global markets the Group\noperates in and other commercial aspects of suppliers’ relationships. Industry average payment terms vary between 90 to 120 days. The Group\noffers reduced payment terms to its smaller suppliers, who are typically on 75-day payment terms, so that they are paid in 30 days.\nIn line with civil aviation industry practice, the Group offers a SCF programme in partnership with banks to enable suppliers (including\njoint ventures who are on 90-day standard payment terms) to receive their payments sooner. This SCF programme is available to suppliers at\ntheir discretion and does not change the Group’s rights and obligations with the suppliers or the timing of payment by the Group to settle its\nliabilities arising from transactions with these suppliers.\nAt 31 December 2025, £646m (2024: £594m) of trade payables and other liabilities were within the scope of SCF arrangements of which\nsuppliers had drawn £536m (2024: £506m), with £227m (2024: £243m) drawn by joint ventures. In some cases the Group settles the costs\nincurred by joint ventures as a result of them utilising SCF arrangements and, during the year to 31 December 2025, the Group incurred costs\nof £9m (2024: £9m). These costs were included within cost of sales.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 159\nFINANCIAL\nSTATEMENTS", "char_count": 3315, "tables": [ [ [ "2,167", "1,526", "40", "–", "2,207" ], [ "2,242", "2,552", "113", "109", "2,355" ], [ "1,113", "1,035", "631", "866", "1,744" ], [ "1,800", "1,529", "14", "11", "1,814" ], [ "35", "55", "747", "757", "782" ], [ "564", "492", "–", "–", "564" ], [ "42", "26", "33", "24", "75" ], [ "116", "54", "–", "–", "116" ], [ "784", "740", "200", "198", "984" ], [ "8,863", "8,009", "1,778", "1,965", "10,641" ] ], [ [ "6,928" ], [ "2,522" ], [ "1,191" ], [ "10,641" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 162, "printed_page": 160, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments\nCarrying values and fair values of financial instruments\nAssets Liabilities Total\nBasis for Amortised\ndetermining FVPL FVOCI cost FVPL Other\nNotes fair value £m £m £m £m £m £m\n2025\nOther non-current asset investments 14 A – 4 – – – 4\nTrade receivables and similar items 16 B/C – 10 5,031 – – 5,041\nOther non-derivative financial assets 16 B – – 484 – – 484\nOther assets D/F 18 – 14 – – 32\nDerivative financial assets 1 C 773 – – – – 773\nCash and cash equivalents 18 B 2,424 – 3,820 – – 6,244\nBorrowings 19 E/F – – – – (2,802) (2,802)\nLease liabilities 19 G – – – – (1,470) (1,470)\nDerivative financial liabilities 1 C – – – (680) – (680)\nFinancial RRSAs H – – – – (5) (5)\nOther liabilities H – – – – (214) (214)\nC Shares B – – – – (21) (21)\nTrade payables and similar items 21 B – – – – (6,928) (6,928)\nOther non-derivative financial liabilities 21 B – – – – (2,522) (2,522)\nContract liabilities 17 B – – – – (1,423) (1,423)\n3,215 14 9,349 (680) (15,385) (3,487)\n2024\nOther non-current asset investments 14 A – 5 – – – 5\nTrade receivables and similar items 16 B/C – 9 5,179 – – 5,188\nOther non-derivative financial assets 16 B – – 366 – – 366\nOther assets D/F 21 – 16 – – 37\nDerivative financial assets 1 C 298 – – – – 298\nCash and cash equivalents 18 B 1,900 – 3,675 – – 5,575\nBorrowings 19 E/F – – – – (3,577) (3,577)\nLease liabilities 19 G – – – – (1,555) (1,555)\nDerivative financial liabilities 1 C – – – (2,054) – (2,054)\nFinancial RRSAs H – – – – (7) (7)\nOther liabilities H – – – – (198) (198)\nC Shares B – – – – (23) (23)\nTrade payables and similar items 21 B – – – – (6,205) (6,205)\nOther non-derivative financial liabilities 21 B – – – – (2,642) (2,642)\nContract liabilities 17 B – – – – (1,280) (1,280)\n2,219 14 9,236 (2,054) (15,487) (6,072)\n1 In the event of counterparty default relating to derivative financial assets and derivative financial liabilities, offsetting would apply and financial assets and liabilities held with the same\ncounterparty would net off. If this occurred with every counterparty, total financial assets would be £343m (2024: £26m) and liabilities £250m (2024: £1,657m)\n160 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2229, "tables": [ [ [ "–", "4", "–", null, "–", "–", null, "4" ], [ "–", "10", "5,031", null, "–", "–", null, "5,041" ], [ "–", "–", "484", null, "–", "–", null, "484" ], [ "18", "–", "14", null, "–", "–", null, "32" ], [ "773", "–", "–", null, "–", "–", null, "773" ], [ "2,424", "–", "3,820", null, "–", "–", null, "6,244" ], [ "–", "–", "–", null, "–", "(2,802)", null, "(2,802)" ], [ "–", "–", "–", null, "–", "(1,470)", null, "(1,470)" ], [ "–", "–", "–", null, "(680)", "–", null, "(680)" ], [ "–", "–", "–", null, "–", "(5)", null, "(5)" ], [ "–", "–", "–", null, "–", "(214)", null, "(214)" ], [ "–", "–", "–", null, "–", "(21)", null, "(21)" ], [ "–", "–", "–", null, "–", "(6,928)", null, "(6,928)" ], [ "–", "–", "–", null, "–", "(2,522)", null, "(2,522)" ], [ "–", "–", "–", null, "–", "(1,423)", null, "(1,423)" ], [ "3,215", "14", "9,349", null, "(680)", "(15,385)", null, "(3,487)" ] ] ], "table_count": 1 }, { "pdf_page": 163, "printed_page": 161, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nFair values equate to book values for both 2025 and 2024, with the following exceptions:\n2025 2024\nBasis for\ndetermining Book value Fair value Book value Fair value\nfair value £m £m £m £m\nOther assets F 14 15 16 16\nBorrowings E (2,780) (2,778) (3,559) (3,540)\nBorrowings F (22) (23) (18) (21)\nFinancial RRSAs H (5) (5) (7) (7)\nThe fair value of a financial instrument is the price at which an asset could be exchanged, or a liability settled, between knowledgeable,\nwilling parties in an arm’s-length transaction. There have been no transfers during the year from or to Level 3 valuation. Fair values have been\ndetermined with reference to available market information at the balance sheet date, using the methodologies described below.\nA These primarily comprise unconsolidated companies where fair value approximates to the book value. Listed investments are valued using Level 1 methodology\nB Fair values are assumed to approximate to cost either due to the short-term maturity of the instruments or because the interest rate of the investments is reset after periods not exceeding\nsix months. Money market funds are valued using Level 1 methodology\nC Fair values of derivative financial assets and liabilities and trade receivables held to collect or sell are estimated by discounting expected future contractual cash flows using prevailing\ninterest rate curves. For commodity derivatives, forward commodity prices are used to determine expected future cash flows. Amounts denominated in foreign currencies are valued\nat 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)\nD Other assets are included on the balance sheet at fair value, derived from observable market prices or latest forecast (Level 2/Level 3). At 31 December 2025, Level 3 assets totalled £11m\n(2024: £14m)\nE Borrowings are carried at amortised cost. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date. The fair value of borrowings is\nestimated using quoted prices (Level 1)\nF Other assets and borrowings are carried at amortised cost. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date. The fair\nvalue of borrowings is estimated by discounting contractual future cash flows. (Level 2)\nG The fair value of lease liabilities are estimated by discounting future contractual cash flows using either the interest rate implicit in the lease or the Group’s incremental cost of borrowing\n(Level 2)\nH The fair value of RRSAs and other liabilities are estimated by discounting expected future cash flows. The contractual cash flows are based on future trading activity, which is estimated\nbased on latest forecasts (Level 3)\nIFRS 13 Fair Value Measurement defines a three level valuation hierarchy:\nLevel 1 – quoted prices for similar instruments\nLevel 2 – directly observable market inputs other than Level 1 inputs\nLevel 3 – inputs not based on observable market data\nCarrying values of other financial assets and liabilities\nForeign\nexchange Commodity Interest rate Total Financial\ncontracts contracts contracts 1 derivatives RRSAs Other C Shares Total\n£m £m £m £m £m £m £m £m\n2025\nNon-current assets 467 6 32 505 – 18 – 523\nCurrent assets 257 6 5 268 – 14 – 282\nAssets 724 12 37 773 – 32 – 805\nCurrent liabilities (193) (19) (24) (236) (1) (35) (21) (293)\nNon-current liabilities (382) (17) (45) (444) (4) (179) – (627)\nLiabilities (575) (36) (69) (680) (5) (214) (21) (920)\n149 (24) (32) 93 (5) (182) (21) (115)\n2024\nNon-current assets 10 1 110 121 – 5 – 126\nCurrent assets 25 4 148 177 – 32 – 209\nAssets 35 5 258 298 – 37 – 335\nCurrent liabilities (539) (18) – (557) – (62) (23) (642)\nNon-current liabilities (1,364) (22) (111) (1,497) (7) (136) – (1,640)\nLiabilities (1,903) (40) (111) (2,054) (7) (198) (23) (2,282)\n(1,868) (35) 147 (1,756) (7) (161) (23) (1,947)\n1 Includes the foreign exchange impact of cross-currency interest rate swaps\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 161\nFINANCIAL\nSTATEMENTS", "char_count": 4212, "tables": [ [ [ "14", "15" ], [ "(2,780)", "(2,778)" ], [ "(22)", "(23)" ], [ "(5)", "(5)" ] ], [ [ null, null, null ], [ "467", "6", "32" ], [ "257", "6", "5" ], [ "724", "12", "37" ], [ "(193)", "(19)", "(24)" ], [ "(382)", "(17)", "(45)" ], [ "(575)", "(36)", "(69)" ], [ "149", "(24)", "(32)" ] ], [ [ null, null, null, null, null ], [ "505", "–", "18", "–", "523" ], [ "268", "–", "14", "–", "282" ], [ "773", "–", "32", "–", "805" ], [ "(236)", "(1)", "(35)", "(21)", "(293)" ], [ "(444)", "(4)", "(179)", "–", "(627)" ], [ "(680)", "(5)", "(214)", "(21)", "(920)" ], [ "93", "(5)", "(182)", "(21)", "(115)" ] ] ], "table_count": 3, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 164, "printed_page": 162, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nDerivative financial instruments\nThe Group uses various financial instruments to manage its exposure to movements in foreign exchange rates. The Group uses commodity\nswaps to manage its exposure to movements in the price of commodities (jet fuel, base metals, gas and power). To hedge the currency risk\nassociated with a borrowing denominated in a foreign currency, the Group has currency derivatives designated as part of fair value or cash\nflow hedges. The Group uses interest rate swaps and forward rate agreements to manage its exposure to movements in interest rates.\nMovements in the fair values of derivative financial assets and liabilities were as follows:\nForeign exchange Interest rate instruments Interest rate instruments\ninstruments Commodity instruments – hedge accounted 1 – non-hedge accounted Total\n2025 2024 2025 2024 2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m £m £m £m £m\nAt 1 January (1,868) (2,035) (35) (19) 54 45 93 131 (1,756) (1,878)\nMovements in fair value\nhedges – – – – (33) (32) – – (33) (32)\nMovements in cash flow\nhedges – – – – (40) (23) – – (40) (23)\nMovements in other\nderivative contracts 2 1,335 (631) (7) (18) – – (4) 40 1,324 (609)\nContracts settled 682 798 18 2 (50) 64 (52) (78) 598 786\nAt 31 December 149 (1,868) (24) (35) (69) 54 37 93 93 (1,756)\n1 Includes the foreign exchange impact of cross-currency interest rate swaps\n2 Included in net financing\nFinancial risk and revenue sharing arrangements (RRSAs) and other financial assets and liabilities\nThe Group has financial liabilities arising from financial RRSAs that are valued at each reporting date using the amortised cost method. This\ninvolves calculating the present value of the forecast cash flows of the arrangements using the internal rate of return at the inception of the\narrangements as an appropriate discount rate. Other liabilities includes royalties payable to airframers where the present value of the liability is\ncalculated using the Group’s average borrowing rate as that reflects the nature of the balance in line with the effective interest method. In each\ncase below, the fair value of the assets and liabilities reflect a level 3 valuation.\nMovements in the carrying values were as follows:\nFinancial RRSAs Other – assets Other – liabilities\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nAt 1 January (7) (17) 14 25 (198) (163)\nExchange adjustments included in OCI 6 1 (3) – 3 (5)\nAdditions – – – – (29) (34)\nFinancing charge 1 – – – (11) (16) (9)\nExcluded from underlying profit/(loss):\nChanges in forecast payments 1 (4) – – – – –\nCash paid – 9 – – 17 12\nOther – – – – 9 1\nAt 31 December (5) (7) 11 14 (214) (198)\n1 Included in net financing\n162 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2801, "tables": [ [ [ "(1,868)", "(2,035)", "(35)", "(19)", "54", "45", "93", "131", "(1,756)" ], [ "–", "–", "–", "–", "(33)", "(32)", "–", "–", "(33)" ], [ "–", "–", "–", "–", "(40)", "(23)", "–", "–", "(40)" ], [ "1,335", "(631)", "(7)", "(18)", "–", "–", "(4)", "40", "1,324" ], [ "682", "798", "18", "2", "(50)", "64", "(52)", "(78)", "598" ], [ "149", "(1,868)", "(24)", "(35)", "(69)", "54", "37", "93", "93" ] ], [ [ "(7)", "(17)", "14", "25", "(198)" ], [ "6", "1", "(3)", "–", "3" ], [ "–", "–", "–", "–", "(29)" ], [ "–", "–", "–", "(11)", "(16)" ] ], [ [ "(4)", "–", "–", "–", "–" ], [ "–", "9", "–", "–", "17" ], [ "–", "–", "–", "–", "9" ], [ "(5)", "(7)", "11", "14", "(214)" ] ] ], "table_count": 3 }, { "pdf_page": 165, "printed_page": 163, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nEffect of hedging instruments on the financial position and performance\nTo manage the risk of changes in the fair values of fixed rate borrowings (the hedged items), the Group has entered into fixed-to-floating\ninterest rate swaps and cross currency interest rate swaps (the hedging instruments), which, for accounting purposes, are designated as fair\nvalue hedges. The impact of fair value hedges on the financial position and performance of the Group is as follows:\nHedged item 1 Hedging instrument 2\nHedge\nFV FV FV ineffect-\nadjustment adjustment Carrying Carrying movement iveness Weighted\nin the since Carrying amount amount in the in the Weighted average\nNominal period inception amount Nominal asset liability period period 3 average interest\n£m £m £m £m £m £m £m £m £m FX rate rate\nAt 31 December 2025\nSterling (375) (8) 3 (372) 375 – (3) 9 – 1.00 SONIA +\n0.89\nEuro (484) (28) 14 (470) 484 – (23) 31 4 1.14 SONIA +\n1.09\nAt 31 December 2024\nSterling (375) (3) 11 (364) 375 – (12) 3 – 1.00 SONIA +\n0.89\nUSD (658) (25) (137) (795) 658 128 – 25 – 1.52 SONIA +\n1.47\nEuro (484) 13 42 (442) 484 – (54) (11) 2 1.14 SONIA +\n1.09\n1 Hedged items are included in borrowings in the balance sheet\n2 Hedging instruments are included in other financial assets or liabilities in the balance sheet\n3 Hedge ineffectiveness is included in net financing in the income statement\nTo manage the foreign exchange rate risk in cash flows on fixed rate non-GBP borrowings (the hedged items), the Group has entered into\nfixed-to-fixed cross-currency interest rate swaps (the hedging instruments) to hedge the cash flows into GBP, which, for accounting purposes,\nare designated as cash flow hedges.\nThe impact of cash flow hedges on the financial position and performance of the Group is as follows:\nHedged item Hedging instrument 1 Hedging reserves\nHedge\nFV Carrying FV ineffect- Closing\nmovement amount movement iveness Weighted Amount Recycled cash flow\nin the asset/ in the in the Weighted average recognised to net hedge\nNominal period Nominal (liability) period period 2 average interest in OCI financing reserve\n£m £m £m £m £m £m FX rate rate £m £m £m\nAt 31 December 2025\nUSD (772) 56 772 (22) (59) (2) 1.29 5.33 55 (53) (7)\nEuro (677) (23) 677 (21) 24 – 1.11 5.45 (17) 26 (1)\nAt 31 December 2024\nUSD (772) (15) 772 37 9 (6) 1.29 5.33 (19) 15 (9)\nEuro (677) 28 677 (45) (28) – 1.11 5.45 36 (38) (10)\n1 Hedging instruments are included in other financial assets or liabilities in the balance sheet\n2 Hedge ineffectiveness is included in net financing in the income statement\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 163\nFINANCIAL\nSTATEMENTS", "char_count": 2710, "tables": [ [ [ "(375)", "(8)", "3", "(372)", null, "375", "–", "(3)", "9", "–", "1.00", "SONIA + 0.89" ], [ "(484)", "(28)", "14", "(470)", null, "484", "–", "(23)", "31", "4", "1.14", "SONIA + 1.09" ] ], [ [ "(772)", "56", null, "772", "(22)", "(59)", "(2)", "1.29", "5.33", null, "55", "(53)", "(7)" ], [ "(677)", "(23)", null, "677", "(21)", "24", "–", "1.11", "5.45", null, "(17)", "26", "(1)" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 166, "printed_page": 164, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nRisk management policies and hedging activities\nThe principal financial risks to which the Group is exposed are: foreign currency exchange rate risk; liquidity risk; credit risk; interest rate risk;\nand commodity price risk. The Board has approved policies for the management of these risks.\nForeign currency exchange rate risk – The Group has significant cash flows (most significantly USD, followed by the euro) denominated in\ncurrencies other than the functional currency of the relevant trading entity. To manage its exposures to changes in values of future foreign\ncurrency cash flows, so as to maintain relatively stable long-term foreign exchange rates on settled transactions, the Group enters into\nderivative forward foreign currency transactions. In addition, the Group enters into fixed-to-floating cross-currency interest rate swaps to\nmanage its exposure to changes in fair value as a result of foreign exchange risk. See below.\nThe Group economically hedges its GBP/USD exposure by forecasting highly probable net USD receipts up to five years forward. Hedges are\ntaken out within prescribed maximum and minimum hedge positions set out in the Group FX Policy. The maximum and minimum policy bands\ndecline gradually over the five-year horizon and are calculated as a percentage of forecast net income. A similar policy is operated for the\nGroup’s EUR/USD exposure. For accounting purposes, these derivative contracts are not designated in hedging relationships.\nThe Group also has exposures to cash flows on EUR and USD denominated fixed rate borrowings. To manage its exposures to changes\nin values of future foreign currency cash flows, the Group has entered into fixed-to-fixed cross-currency interest rate swaps, which, for\naccounting purposes, are designated as cash flow hedges. The swaps have similar critical terms to the hedged items, such as the initial\nexchange amounts, payment dates and maturities. Therefore, there is an economic relationship and the hedge ratio is established as 1:1.\nPossible sources of ineffectiveness in the cash flow hedge relationship are changes in the credit risk of either party to the interest rate swap.\nAnother possible source of ineffectiveness would be if the notional of the borrowings is less than the notional of the derivative, for example,\nin the event of a partial repayment of hedged debt prior to its maturity.\nThe Group regards its interests in overseas subsidiary companies as long-term investments. The Group aims to match its translational exposures\nby matching the currencies of assets and liabilities.\nLiquidity risk – The Group’s policy is to hold financial investments and maintain undrawn committed facilities at a level sufficient to ensure\nthat the Group has available funds to meet its medium-term capital and funding obligations and to meet any unforeseen obligations and\nopportunities. The Group holds cash and short-term investments, which, together with the undrawn committed facilities, enable the Group\nto manage its liquidity risk.\nCredit risk – The Group is exposed to credit risk to the extent of non-payment by either its customers or the counterparties of its financial\ninstruments. The effective monitoring and controlling of credit risk is a key component of the Group’s risk management activities. The Group\nhas credit policies covering both trading and financial exposures. Credit risks arising from treasury activities are managed by a central treasury\nfunction in accordance with the Group credit policy. The objective of the policy is to diversify and minimise the Group’s exposure to credit risk\nfrom its treasury activities by ensuring the Group transacts strictly with ‘BBB’ or higher rated financial institutions based on pre-established\nlimits per financial institution. At the balance sheet date, there were no significant concentrations of credit risk to individual customers\nor counterparties. The Group’s revenue is generated from customers located across multiple geographical locations (see note 2). These\ncustomers are typically: airframers and airline operators relating to Civil Aerospace; government defence departments for the UK and US; and\nmultiple smaller entities for Power Systems. Whilst there are a limited number of customers related to Civil Aerospace and Defence, they are\nspread across various geographical locations. The maximum exposure to credit risk at the balance sheet date is represented by the carrying\nvalue of each financial asset, including derivative financial instruments.\nInterest rate risk – The Group’s interest rate risk is primarily in relation to its fixed rate borrowings (fair value risk), floating rate borrowings\nand cash and cash equivalents (cash flow risk). Interest rate derivatives are used to manage the overall interest rate profile of the Group.\nThe fixed or floating rate interest rate decision on long-term borrowings is determined for each new agreement at the point it is entered into.\nThe aggregate interest rate position of the Group is reviewed regularly and can be revised at any time in order to react to changes in market\nconditions or circumstances.\nThe Group also has exposures to the fair values of non-derivative financial instruments such as EUR, GBP and USD fixed rate borrowings. To\nmanage the risk of changes in these fair values, the Group has entered into fixed-to-floating interest rate swaps and cross-currency interest\nrate swaps, which, for accounting purposes, are designated as fair value hedges. The swaps have similar critical terms to the hedged items, such\nas the reference rate, reset dates, notional amounts, payment dates and maturities. Therefore, there is an economic relationship and the hedge\nratio is established as 1:1. Possible sources of ineffectiveness in the fair value hedge relationship are changes in the credit risk of either party to\nthe interest rate swap and, for cross-currency interest rate swaps, the cross-currency basis risk as this risk is present in the hedging instrument\nonly. Another possible source of ineffectiveness would be if the notional of the borrowings is less than the notional of the derivative, for\nexample in the event of a partial repayment of hedged debt prior to its maturity.\nThe Group has exposure to changes in cash flows due to changes in interest rates. To manage this risk, the Group has entered into floating-to-\nfixed interest rate swaps to hedge a proportion of its floating rate exposure to fixed rates. The swaps have similar critical terms to the floating\nleg of swaps that form part of the fair value hedges, such as the reference rate, reset dates, notional amounts, payment dates and maturities.\nFor accounting purposes, these derivative contracts are generally not designated as hedging instruments.\nCommodity price risk – The Group has exposures to the price of jet fuel, base metals, gas and power arising from business operations. To\nminimise its cash flow exposures to changes in commodity prices, the Group enters into derivative commodity transactions. During 2025, the\nGroup entered into a Virtual Power Purchase Arrangement, which had a fair value of £3m at 31 December 2025. The commodity hedging policy\nis similar to the Group FX policy, in that the Group forecasts highly probable exposures to commodities, and takes out hedges within prescribed\nmaximum and minimum levels as set out in the policy. The maximum and minimum policy bands decline gradually over time. For accounting\npurposes, these derivative contracts are generally not designated in hedging relationships.\n164 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 7658, "tables": [], "table_count": 0 }, { "pdf_page": 167, "printed_page": 165, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nOther price risk – The Group’s cash equivalent balances represent investments in money market instruments, with a term of up to three months.\nThe Group does not consider that these are subject to significant price risk.\nDerivative financial instruments\nThe nominal amounts, analysed by year of expected maturity and fair values of derivative financial instruments are as follows:\nExpected maturity Fair value\nBetween Between\nNominal Within one and two and After\namount one year two years five years five years Assets Liabilities\n£m £m £m £m £m £m £m\nAt 31 December 2025\nForeign exchange contracts:\nNon-hedge accounted 21,850 7,559 5,516 8,775 – 724 (575)\nInterest rate contracts:\nFair value hedges 859 375 – 484 – – (26)\nCash flow hedges 1,449 677 772 – – – (43)\nNon-hedge accounted 859 375 – 484 – 37 –\nCommodity contracts:\nNon-hedge accounted 392 146 110 126 10 12 (36)\n25,409 9,132 6,398 9,869 10 773 (680)\nAt 31 December 2024\nForeign exchange contracts:\nNon-hedge accounted 20,728 8,018 5,781 6,929 – 35 (1,903)\nInterest rate contracts:\nFair value hedges 1,517 658 375 484 – 128 (66)\nCash flow hedges 1,449 – 677 772 – 37 (45)\nNon-hedge accounted 1,517 658 375 484 – 93 –\nCommodity contracts:\nNon-hedge accounted 330 137 108 85 – 5 (40)\n25,541 9,471 7,316 8,754 – 298 (2,054)\nAs described above, all derivative financial instruments are entered into for risk management purposes, although these may not be designated\ninto hedging relationships for accounting purposes.\nCurrency analysis\nForeign exchange contracts are denominated in the following currencies:\nNominal amount of currencies purchased forward\nSterling USD Euro Other Total\n£m £m £m £m £m\nAt 31 December 2025\nCurrencies sold forward:\nSterling – 149 39 7 195\nUSD 16,118 – 4,541 371 21,030\nEuro 10 317 – 107 434\nOther 4 4 176 7 191\nAt 31 December 2024\nCurrencies sold forward:\nSterling – 882 41 59 982\nUSD 14,654 – 4,419 287 19,360\nEuro 35 290 – 26 351\nOther 3 1 31 – 35\nThe nominal value of interest rate and commodity contracts are denominated in the following currencies:\n2025 2024\n£m £m\nSterling 1,304 1,915\nUSD 1,063 1,719\nEuro 1,192 1,179\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 165\nFINANCIAL\nSTATEMENTS", "char_count": 2259, "tables": [ [ [ "21,850", "7,559", "5,516", "8,775", null, "–", "724", "(575)" ] ], [ [ "859", "375", "–", "484", null, "–", "–", "(26)" ], [ "1,449", "677", "772", "–", null, "–", "–", "(43)" ], [ "859", "375", "–", "484", null, "–", "37", "–" ] ], [ [ "392", "146", "110", "126", null, "10", "12", "(36)" ], [ "25,409", "9,132", "6,398", "9,869", null, "10", "773", "(680)" ] ], [ [ "–", "149", "39", "7", "195" ], [ "16,118", "–", "4,541", "371", "21,030" ], [ "10", "317", "–", "107", "434" ], [ "4", "4", "176", "7", "191" ] ], [ [ "1,304" ], [ "1,063" ], [ "1,192" ] ] ], "table_count": 5, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 168, "printed_page": 166, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nNon-derivative financial instruments are denominated in the following currencies:\nSterling USD Euro Other Total\n£m £m £m £m £m\nAt 31 December 2025\nOther non-current asset investments – 4 – – 4\nTrade receivables and similar items 367 3,903 662 109 5,041\nOther non-derivative financial assets 60 354 64 6 484\nOther assets – 18 14 – 32\nCash and cash equivalents 2,922 911 2,235 176 6,244\nAssets 3,349 5,190 2,975 291 11,805\nBorrowings (918) (746) (1,133) (5) (2,802)\nLease liabilities (251) (976) (45) (198) (1,470)\nFinancial RRSAs – (5) – – (5)\nOther liabilities (31) (183) – – (214)\nC Shares (21) – – – (21)\nTrade payables and similar items (1,225) (4,853) (765) (85) (6,928)\nOther non-derivative financial liabilities (392) (1,896) (187) (47) (2,522)\nContract liabilities – (1,423) – – (1,423)\nLiabilities (2,838) (10,082) (2,130) (335) (15,385)\n511 (4,892) 845 (44) (3,580)\nAt 31 December 2024\nOther non-current asset investments – 5 – – 5\nTrade receivables and similar items 301 4,346 460 81 5,188\nOther non-derivative financial assets 73 242 40 11 366\nOther assets – 21 16 – 37\nCash and cash equivalents 2,251 1,283 1,867 174 5,575\nAssets 2,625 5,897 2,383 266 11,171\nBorrowings (908) (1,594) (1,072) (3) (3,577)\nLease liabilities (237) (1,074) (49) (195) (1,555)\nFinancial RRSAs – (6) (1) – (7)\nOther liabilities (39) (159) – – (198)\nC Shares (23) – – – (23)\nTrade payables and similar items (1,006) (4,701) (423) (75) (6,205)\nOther non-derivative financial liabilities (350) (2,084) (158) (50) (2,642)\nContract liabilities – (1,280) – – (1,280)\nLiabilities (2,563) (10,898) (1,703) (323) (15,487)\n62 (5,001) 680 (57) (4,316)\n166 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1759, "tables": [ [ [ "–", "4", "–", "–", "4" ], [ "367", "3,903", "662", "109", "5,041" ], [ "60", "354", "64", "6", "484" ], [ "–", "18", "14", "–", "32" ], [ "2,922", "911", "2,235", "176", "6,244" ], [ "3,349", "5,190", "2,975", "291", "11,805" ], [ "(918)", "(746)", "(1,133)", "(5)", "(2,802)" ], [ "(251)", "(976)", "(45)", "(198)", "(1,470)" ], [ "–", "(5)", "–", "–", "(5)" ], [ "(31)", "(183)", "–", "–", "(214)" ], [ "(21)", "–", "–", "–", "(21)" ], [ "(1,225)", "(4,853)", "(765)", "(85)", "(6,928)" ], [ "(392)", "(1,896)", "(187)", "(47)", "(2,522)" ], [ "–", "(1,423)", "–", "–", "(1,423)" ], [ "(2,838)", "(10,082)", "(2,130)", "(335)", "(15,385)" ], [ "511", "(4,892)", "845", "(44)", "(3,580)" ] ] ], "table_count": 1 }, { "pdf_page": 169, "printed_page": 167, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nCurrency exposures\nThe Group’s actual currency exposures on financial instruments after taking account of derivative foreign currency contracts, which are not\ndesignated as hedging instruments for accounting purposes are as follows:\nSterling USD Euro Other Total\nFunctional currency of Group operations £m £m £m £m £m\nAt 31 December 2025\nSterling – – 1 3 4\nUSD (7) – – – (7)\nEuro 2 4 – (3) 3\nOther 33 36 78 – 147\nAt 31 December 2024\nSterling – – – 1 1\nUSD (11) – – (2) (13)\nEuro – 7 – 15 22\nOther 55 37 68 – 160\nAgeing beyond contractual due date of financial assets\nBetween\nUp to three\nthree months and More than\nWithin months one year one year\nterms overdue overdue overdue Total\n£m £m £m £m £m\nAt 31 December 2025\nOther non-current asset investments 4 – – – 4\nTrade receivables and similar items 4,663 257 74 47 5,041\nOther non-derivative financial assets 480 3 – 1 484\nOther assets 25 – 7 – 32\nDerivative financial assets 773 – – – 773\nCash and cash equivalents 6,244 – – – 6,244\n12,189 260 81 48 12,578\nAt 31 December 2024\nOther non-current asset investments 5 – – – 5\nTrade receivables and similar items 4,738 324 82 44 5,188\nOther non-derivative financial assets 331 32 – 3 366\nOther assets 28 9 – – 37\nDerivative financial assets 298 – – – 298\nCash and cash equivalents 5,575 – – – 5,575\n10,975 365 82 47 11,469\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 167\nFINANCIAL\nSTATEMENTS", "char_count": 1470, "tables": [ [ [ "–", "–", "1", "3", "4" ], [ "(7)", "–", "–", "–", "(7)" ], [ "2", "4", "–", "(3)", "3" ], [ "33", "36", "78", "–", "147" ] ], [ [ "4", "–", "–", "–", "4" ], [ "4,663", "257", "74", "47", "5,041" ], [ "480", "3", "–", "1", "484" ], [ "25", "–", "7", "–", "32" ], [ "773", "–", "–", "–", "773" ], [ "6,244", "–", "–", "–", "6,244" ], [ "12,189", "260", "81", "48", "12,578" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 170, "printed_page": 168, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nContractual maturity analysis of non-derivative financial liabilities\nGross values\nBetween Between\nWithin one and two and After Carrying\none year two years five years five years value\n£m £m £m £m £m\nAt 31 December 2025\nBorrowings (1,146) (1,371) (490) (19) (2,802)\nLease liabilities (454) (291) (496) (1,050) (1,470)\nFinancial RRSAs – – (1) (3) (5)\nOther liabilities (35) (19) (28) (131) (214)\nC Shares (21) – – – (21)\nTrade payables and similar items (6,745) (71) (56) (56) (6,928)\nOther non-derivative financial liabilities (1,806) (131) (294) (291) (2,522)\nContract liabilities (1,423) – – – (1,423)\n(11,630) (1,883) (1,365) (1,550) (15,385)\nAt 31 December 2024\nBorrowings (961) (1,109) (1,893) (16) (3,577)\nLease liabilities (365) (324) (533) (1,189) (1,555)\nFinancial RRSAs (1) – (1) (4) (7)\nOther liabilities (61) (11) (25) (101) (198)\nC Shares (23) – – – (23)\nTrade payables and similar items (6,054) (21) (67) (63) (6,205)\nOther non-derivative financial liabilities (1,700) (316) (297) (329) (2,642)\nContract liabilities (1,280) – – – (1,280)\n(10,445) (1,781) (2,816) (1,702) (15,487)\nExpected maturity analysis of derivative financial instruments\nGross values\nBetween Between\nWithin one and two and After Carrying\none year two years five years five years value\n£m £m £m £m £m\nAt 31 December 2025\nDerivative financial assets:\nCash inflows 5,682 4,460 7,783 –\nCash outflows (5,433) (4,260) (7,505) –\nOther net cash flows 1 29 16 8 –\n278 216 286 – 773\nDerivative financial liabilities:\nCash inflows 2,596 1,850 1,479 –\nCash outflows (3,001) (2,059) (1,552) –\nOther net cash flows 1 (24) (11) (6) –\n(429) (220) (79) – (680)\nAt 31 December 2024\nDerivative financial assets:\nCash inflows 1,940 605 1,089 –\nCash outflows (1,780) (592) (1,054) –\nOther net cash flows 1 66 25 24 –\n226 38 59 – 298\nDerivative financial liabilities:\nCash inflows 6,988 5,866 7,154 –\nCash outflows (7,959) (6,524) (7,850) –\nOther net cash flows 1 (30) (11) (11) –\n(1,001) (669) (707) – (2,054)\n1 Derivative financial assets and liabilities that are settled on a net cash basis\n168 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2186, "tables": [ [ [ "(1,146)", "(1,371)", "(490)", "(19)", "(2,802)" ], [ "(454)", "(291)", "(496)", "(1,050)", "(1,470)" ], [ "–", "–", "(1)", "(3)", "(5)" ], [ "(35)", "(19)", "(28)", "(131)", "(214)" ], [ "(21)", "–", "–", "–", "(21)" ], [ "(6,745)", "(71)", "(56)", "(56)", "(6,928)" ], [ "(1,806)", "(131)", "(294)", "(291)", "(2,522)" ], [ "(1,423)", "–", "–", "–", "(1,423)" ], [ "(11,630)", "(1,883)", "(1,365)", "(1,550)", "(15,385)" ] ], [ [ null, null, null, null, null ], [ "5,682", "4,460", "7,783", "–", null ], [ "(5,433)", "(4,260)", "(7,505)", "–", null ], [ "29", "16", "8", "–", null ], [ "278", "216", "286", "–", "773" ], [ null, null, null, null, null ], [ "2,596", "1,850", "1,479", "–", null ], [ "(3,001)", "(2,059)", "(1,552)", "–", null ], [ "(24)", "(11)", "(6)", "–", null ], [ "(429)", "(220)", "(79)", "–", "(680)" ] ] ], "table_count": 2 }, { "pdf_page": 171, "printed_page": 169, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n22 Financial instruments continued\nInterest rate risk\nIn respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates.\nThe value shown is the carrying amount before taking account of swaps.\n2025 2024\nFixed rate Floating rate Total Fixed rate Floating rate Total\n£m £m £m £m £m £m\nCash and cash equivalents 1 – 6,244 6,244 – 5,575 5,575\nBorrowings (2,785) (17) (2,802) (3,563) (14) (3,577)\nLease liabilities (1,237) (233) (1,470) (1,298) (257) (1,555)\n(4,022) 5,994 1,972 (4,861) 5,304 443\nWeighted average interest rates\nBorrowings 4.4% 4.7% 4.0% 5.0%\nLease liabilities 2 4.8% 5.0% 4.9% 5.8%\n1 Cash and cash equivalents comprises bank balances and term deposits and earn interest based on short-term floating market interest rates\n2 Interest rates for lease liabilities are considered to be the discount rates at the balance sheet date\nNone (2024: none) of the Group’s borrowings are subject to financial covenants and there are no rating triggers contained in any of the Group’s\nfacilities that could require the Group to accelerate or repay any facility for a given movement in the Group’s credit rating.\n£99m (2024: £106m) of the Group’s lease liabilities include a customary loan-to-value covenant that is applicable if the credit rating of\nRolls-Royce Plc is sub-investment grade. The Group has several contractual cures available in the event the stipulated loan-to-value ratio\nis exceeded. Failure by the Group to satisfy its contractual obligations under the covenant gives rights to the lessor to terminate its lease and\nclaim termination amounts for the outstanding lease balance. At 31 December 2025 none (2024: none) of these were in breach.\nSensitivity analysis\n2025 2024\nSensitivities at 31 December (all other variables held constant) – impact on profit after tax and equity £m £m\nSterling 10% weaker against the USD (1,598) (1,506)\nSterling 10% stronger against the USD 1,307 1,232\nEuro 10% weaker against the USD (318) (358)\nEuro 10% stronger against the USD 260 293\nSterling 10% weaker against the Euro (27) (27)\nSterling 10% stronger against the Euro 22 22\nCommodity prices 10% lower (26) (20)\nCommodity prices 10% higher 26 20\nInterest rates 50 basis points lower (24) (40)\nInterest rates 50 basis points higher 24 39\nC Shares and payments to shareholders\nThe Company has previously made payments to shareholders by issuing non-cumulative redeemable preference shares (C Shares) as an\nalternative to paying a cash dividend. As the C share reinvestment programme is no longer available, C shares can only be redeemed for cash.\nAny C Shares retained attract a dividend of Bank of England base rate on the 0.1p nominal value of each share, paid on a twice-yearly basis, and\nhave limited voting rights. The Company has the option to compulsorily redeem the C Shares, at any time, if the aggregate number of C Shares\nin issue is less than 10% of the aggregate number of C Shares issued, or on the acquisition or capital restructuring of the Company.\nMovements in issued and fully paid C Shares during the year were as follows:\n2025 2024\nMillions Millions\nAt 1 January 22,506 23,153\nRedeemed (1,199) (647)\nAt 31 December 21,307 22,506\nNo distributions in the form of C shares have been made since 2019, payments to shareholders represent the value of C Shares redeemed within\nthe year.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 169\nFINANCIAL\nSTATEMENTS", "char_count": 3502, "tables": [ [ [ "–", "6,244", "6,244" ], [ "(2,785)", "(17)", "(2,802)" ], [ "(1,237)", "(233)", "(1,470)" ], [ "(4,022)", "5,994", "1,972" ] ], [ [ "4.4%", "4.7%" ], [ "4.8%", "5.0%" ] ], [ [ "(1,598)" ], [ "1,307" ], [ "(318)" ], [ "260" ], [ "(27)" ], [ "22" ], [ "(26)" ], [ "26" ], [ "(24)" ], [ "24" ] ], [ [ "22,506" ], [ "(1,199)" ], [ "21,307" ] ] ], "table_count": 4, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 172, "printed_page": 170, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n23 Provisions for liabilities and charges\nCharged to At\nAt 1 January income Exchange 31 December\n2025 statement 1 Reversed Utilised differences 2025\n£m £m £m £m £m £m\nOnerous contracts 1,433 433 (694) (187) 1 986\nWarranty and guarantees 354 179 (25) (93) 7 422\nTrent 1000 wastage costs 36 – – (35) (1) –\nEmployer liability claims 25 1 (4) (2) – 20\nTransformation and restructuring 62 10 (16) (35) 1 22\nTax related interest and penalties 16 2 (1) – – 17\nClaims and litigation 25 30 (12) (7) – 36\nOther 43 22 (3) (7) (1) 54\n1,994 677 (755) (366) 7 1,557\nCurrent liabilities 589 507\nNon-current liabilities 1,405 1,050\n1 The charge to the income statement within net financing includes £27m (2024: £47m) as a result of the unwinding of the discounting of provisions previously recognised and £16m (2024:\n£36m) as a result of changes in discount rates during the year\nOnerous contracts\nOnerous contract provisions are recorded when the direct costs to fulfil a contract are assessed as being greater than the expected\nrecoverable amount. Onerous contract provisions are measured on a fully costed basis. During the year, additional contract losses for the\nGroup of £433m (2024: £558m) have been recognised. These are mainly a result of increases in the estimate of future LTSA costs due to\nprolonged supply chain challenges and inflationary cost increases. Contract losses of £694m (2024: £374m) previously recognised have\nbeen reversed following improvements to the forecast revenue, cost estimates and time on wing across various engine programmes as a\nresult of operational improvements, contractual renegotiations and extensions. During the year £187m (2024: £218m) of the provisions has been\nutilised. The Group continues to monitor onerous contract provisions for changes in the market and revises the provision as required. The value\nof the remaining onerous contract provisions reflect, in each case, the single most likely outcome. The provisions are expected to be utilised\nover the term of the customer contracts, typically within eight to 15 years.\nIAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a company to recognise any impairment loss that has occurred on\nassets used in fulfilling the contract before recognising a separate provision for an onerous contract. No impairments were required for any\nof the assets solely used in the fulfilment of onerous contracts.\nWarranty and guarantees\nProvisions for warranty and guarantees relate to products sold and are calculated based on an assessment of the remediation costs related to\nfuture claims based on past experience. The provision generally covers a period of up to three years.\nTrent 1000 wastage costs\nDuring the year, the Group has utilised the remaining £35m (2024: £82m) of the Trent 1000 wastage costs provision. This represents customer\ndisruption costs and remediation shop visit costs.\nEmployer liability claims\nThe provision relating to employer healthcare liability claims is as a result of an historical insolvency of the previous provider and is expected to\nbe utilised over the next 30 years.\nTransformation and restructuring\nThe Group announced a major multi-year transformation programme in 2023. During the year £35m (2024: £35m) was utilised and £16m\nreversed (2024: £12m). As part of these plans a further £3m (2024: £2m) has been charged directly to the income statement that had not been\nprovided for. The remaining provision is expected to be utilised by 31 December 2027.\nTax related interest and penalties\nProvisions for tax related interest and penalties relate to uncertain tax positions in some of the jurisdictions in which the Group operates.\nUtilisation of the provisions will depend on the timing of resolution of these matters with the relevant tax authorities.\nClaims and litigation\nProvisions for claims and litigation represent ongoing matters where the outcome for the Group may be unfavourable.\nThe balance also includes the best estimate of any retained exposure by the Group’s captive insurance company for any claims that have been\nincurred but not yet reported to the Group, as that entity retains a portion of the exposures it insures on behalf of the remainder of the Group.\nSuch exposures include policies for aviation claims, employer liabilities and healthcare claims. Significant delays can occur in the notification\nand settlement of claims, and judgement is involved in assessing outstanding liabilities, the ultimate cost and timing of which cannot be known\nwith certainty at the balance sheet date. The insurance provisions are based on information currently available, however, it is inherent in the\nnature of the business that ultimate liabilities may vary if the frequency or severity of claims differs from estimated.\nOther\nOther items are individually immaterial. The value of any remaining provisions reflects the single most likely outcome in each case.\nThere were no provisions held for customer financing at 31 December 2025 (2024: £nil). Provisions are held to cover potential calls on\nguarantees provided over asset values and/or financing when it is considered probable by management that the exposure will crystallise.\nThe Group discloses contingent liabilities for customer financing arrangements where the payment is not probable. See note 27.\n170 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5393, "tables": [ [ [ "1,433", "433", "(694)", "(187)", "1", "986" ], [ "354", "179", "(25)", "(93)", "7", "422" ], [ "36", "–", "–", "(35)", "(1)", "–" ], [ "25", "1", "(4)", "(2)", "–", "20" ], [ "62", "10", "(16)", "(35)", "1", "22" ], [ "16", "2", "(1)", "–", "–", "17" ], [ "25", "30", "(12)", "(7)", "–", "36" ], [ "43", "22", "(3)", "(7)", "(1)", "54" ], [ "1,994", "677", "(755)", "(366)", "7", "1,557" ], [ "589", null, null, null, null, "507" ], [ "1,405", null, null, null, null, "1,050" ] ] ], "table_count": 1 }, { "pdf_page": 173, "printed_page": 171, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n24 Post-retirement benefits\nThe Group operates a number of defined benefit and defined contribution schemes:\n— the UK defined benefit scheme is funded, with the assets held in a separate UK trust. The scheme closed to future accrual on 31 December 2020\nfor all active members and there are no new defined benefit accruals in the UK scheme. In August 2025 the scheme completed a Buy-in,\nwith the purchase of a bulk insurance annuity policy, with the effect that the majority of scheme liabilities are now covered by this policy.\nSee below for further details;\n— the Group also operates a large trust-based defined contribution scheme for current employees in the UK (Rolls-Royce Retirement Savings\nTrust). Pension contributions are generally paid as a salary sacrifice under which employees agree to a reduction in gross contractual pay\nin return for the Group making additional pension contributions on their behalf. As a result, there is a decrease in wages and salaries and a\ncorresponding increase in pension costs of £106m (2024: £88m) in the year; and\n— overseas defined benefit schemes are a mixture of funded and unfunded plans and provide benefits in line with local practice. Additionally,\nin the US, and to a lesser extent in some other countries, the Group’s employment practices include the provision of healthcare and life\ninsurance benefits for retired employees. These healthcare schemes are unfunded.\nThe valuations of the defined benefit schemes are based on the results of the most recent funding valuation from 31 March 2023, where\nrelevant, updated by the scheme actuaries to 31 December 2025.\nVirgin Media\nA UK High Court legal ruling that took place in June 2023 between Virgin Media Limited and NTL Pension Trustees II Limited, found that certain\nhistoric rule amendments were invalid if they were not accompanied by actuarial certifications. The ruling was subject to an appeal with a judgment\ndelivered on 25 July 2024. The Court of Appeal unanimously upheld the decision of the High Court and concluded that the pre-April 2013 conditions\napplied to amendments to both future and past service. Whilst this ruling was in respect of another scheme, its relevance and hence the\npotential impact of this to the RRUKPF scheme, and other UK schemes was unclear.\nOn 5 June 2025 the Government announced that in light of this uncertainty, it would introduce legislation to give potentially affected pension\nschemes the ability to retrospectively obtain written actuarial confirmation that historic rule amendments met the necessary standards. As a\nresult of this Government intervention the Group does not anticipate any scheme amendments or additional liabilities.\nBuy-in of Rolls-Royce UK Pension Fund\nIn August 2025, the Trustee of the Rolls-Royce UK Pension Fund entered into a Buy-in transaction with Pension Insurance Corporation plc\n(PIC), whereby the Fund purchased a bulk purchase annuity policy in exchange for consideration of £4.3bn. This was paid from the Fund’s\nexisting assets, with no additional funding required by the Group. This transaction resulted in substantially all the benefits and liabilities\nunder the Fund being insured. The Buy-in was undertaken in anticipation of entering into a Buy-out during 2026, upon which the liabilities and\nmanagement of bought out benefits will be transferred to PIC. A charge of £517m has been recognised within the line ‘Actuarial gains/(losses)\nrecognised in OCI’ in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2025 comprising around £450m\nrelating to the impact of the Buy-in.\nFollowing the transaction, the bulk purchase annuity policy has been treated as an asset of the Fund and has been valued on the same basis as\nthe liabilities to which it relates, as until a Buy-out takes place, the legal responsibility to pay benefits remains with the Trustee.\nThe Company and the Trustee of the UK pension scheme agreed on 2 February 2026 to terminate and wind up the UK scheme. See further\ndetails in Note 1.\nOverseas schemes\nDuring the year, Rolls-Royce Deutschland replaced a number of their existing defined benefit schemes with a new company pension scheme\nto offer payment options at time of retirement. The new system, which is similar in structure to the UK defined contribution scheme but with\na guarantee from the Company regarding investment returns in accordance with German legislation, significantly reduces interest risks and\nlongevity risks for the employer for future commitments. A past service credit of £10m has been recognised within non-underlying operating\nprofit in respect of these changes.\nAmounts recognised in the income statement\n2025 2024\nUK Overseas UK Overseas\nschemes schemes Total schemes schemes Total\n£m £m £m £m £m £m\nDefined benefit schemes:\nCurrent service cost and administrative expenses 6 42 48 5 37 42\nPast-service cost/(credit) and settlement loss 1 4 (10) (6) 14 – 14\n10 32 42 19 37 56\nDefined contribution schemes 251 104 355 228 101 329\nOperating cost 261 136 397 247 138 385\nNet financing (credit)/charge in respect of defined benefit schemes (32) 38 6 (35) 37 2\nTotal income statement charge 229 174 403 212 175 387\n1 Following the signing of the framework agreement with PIC, adjustments have been made to align the methodology for the calculation of certain benefits with those required by the\ninsurer. These have resulted in an additional past service charge of £(4)m being recognised in the income statement in 2025. A past service credit of £10m has also been recognised in\nthe year in respect of the changes to the Rolls-Royce Deutschland schemes detailed above. In 2024 a past service charge of £14m was recognised in respect of the UK scheme as a result\nof further work carried out by the pension scheme administrators and the Scheme Actuary in 2024 to review all relevant data points and make further changes to member records and\nrequired payments under the Barber judgement which sought to equalise normal retirement ages between men and women\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 171\nFINANCIAL\nSTATEMENTS", "char_count": 6129, "tables": [ [ [ "6", "42", "48" ], [ "4", "(10)", "(6)" ], [ "10", "32", "42" ], [ "251", "104", "355" ], [ "261", "136", "397" ], [ "(32)", "38", "6" ], [ "229", "174", "403" ] ] ], "table_count": 1, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 174, "printed_page": 172, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n24 Post-retirement benefits continued\nThe operating cost is charged as follows:\nDefined benefit Defined contribution Total\n2025 2024 2025 2024 2025 2024\n£m £m £m £m £m £m\nCost of sales 37 30 252 227 289 257\nCommercial and administrative costs (3) 20 50 51 47 71\nResearch and development costs 8 6 53 51 61 57\n42 56 355 329 397 385\nNet financing comprises:\n2025 2024\nUK Overseas UK Overseas\nschemes schemes Total schemes schemes Total\n£m £m £m £m £m £m\nFinancing on scheme obligations 214 64 278 200 61 261\nFinancing on scheme assets (246) (26) (272) (235) (24) (259)\nNet financing (income)/charge in respect of defined benefit schemes (32) 38 6 (35) 37 2\nFinancing income on scheme surpluses (32) – (32) (35) (2) (37)\nFinancing cost on scheme deficits – 38 38 – 39 39\nAmounts recognised in OCI in respect of defined benefit schemes\n2025 2024\nUK Overseas UK Overseas\nschemes schemes Total schemes schemes Total\n£m £m £m £m £m £m\nActuarial gains and losses arising from:\nDemographic assumptions 1 (121) – (121) 19 (10) 9\nFinancial assumptions 2 97 63 160 617 56 673\nExperience adjustments 3 (9) 1 (8) (8) (14) (22)\n(Loss)/return on scheme assets excluding financing income 2, 4 (484) 9 (475) (633) (5) (638)\n(517) 73 (444) (5) 27 22\n1 For the UK Scheme, this reflects latest available CMI mortality projections, and a charge of around £100m in relation to the Buy-in of the UK scheme due to updates to the assumptions\nrelating to transfer values, and alignments made to insurer factors post Buy-in\n2 Actuarial gains and losses arising from financial assumptions arise primarily due to changes in discount rate and inflation\n3 This reflects an experience loss as a result of realised inflation being higher than expected over the period meaning that actual and projected increases are now higher than\npreviously expected\n4 Includes an asset re-measurement loss estimated at £350m recognised in respect of the Buy-in of the UK Scheme that took place in the year\nAmounts recognised in the balance sheet in respect of defined benefit schemes\n2025 2024\nUK Overseas UK Overseas\nschemes schemes Total schemes schemes Total\n£m £m £m £m £m £m\nPresent value of funded obligations (4,040) (987) (5,027) (3,958) (986) (4,944)\nFair value of scheme assets 4,324 560 4,884 4,737 531 5,268\nNet asset/(liability) on funded schemes 284 (427) (143) 779 (455) 324\nPresent value of unfunded obligations – (463) (463) (515) (515)\nNet asset/(liability) recognised in the balance sheet 1 284 (890) (606) 779 (970) (191)\nPost-retirement scheme surpluses 2 284 2 286 779 11 790\nPost-retirement scheme deficits – (892) (892) – (981) (981)\n1 The surplus in the UK scheme is recognised as, on an ultimate wind-up when there are no longer any remaining members, the Group would be entitled to receive any surplus and, has the\npower to determine how any remaining surplus is used\n2 The decrease in the net asset in the UK Scheme is largely as a result of the Buy-in of the scheme in August 2025, which has resulted in a charge estimated at £450m being recognised\nwithin the line ‘Actuarial gains/(losses) recognised in OCI’ in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2025\n172 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3275, "tables": [ [ [ "37", "30", "252", "227", "289" ], [ "(3)", "20", "50", "51", "47" ], [ "8", "6", "53", "51", "61" ], [ "42", "56", "355", "329", "397" ] ], [ [ "214", "64", "278" ], [ "(246)", "(26)", "(272)" ], [ "(32)", "38", "6" ], [ "(32)", "–", "(32)" ], [ "–", "38", "38" ] ], [ [ "(121)", "–", "(121)" ], [ "97", "63", "160" ], [ "(9)", "1", "(8)" ], [ "(484)", "9", "(475)" ], [ "(517)", "73", "(444)" ] ], [ [ "(4,040)", "(987)", "(5,027)" ], [ "4,324", "560", "4,884" ], [ "284", "(427)", "(143)" ], [ "–", "(463)", "(463)" ], [ "284", "(890)", "(606)" ], [ "284", "2", "286" ], [ "–", "(892)", "(892)" ] ] ], "table_count": 4 }, { "pdf_page": 175, "printed_page": 173, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n24 Post-retirement benefits continued\nOverseas schemes are located in the following countries:\n2025 2024\nAssets Obligations Net Assets Obligations Net\n£m £m £m £m £m £m\nCanada 189 (215) (26) 193 (225) (32)\nGermany 98 (651) (553) 56 (664) (608)\nUS pension schemes 273 (295) (22) 282 (297) (15)\nUS healthcare schemes – (284) (284) – (312) (312)\nOther – (5) (5) – (3) (3)\nNet asset/(liability) recognised in the balance sheet 560 (1,450) (890) 531 (1,501) (970)\nDefined benefit schemes\nAssumptions\nSignificant actuarial assumptions for UK schemes at the balance sheet date were as follows:\n2025 2024\nDiscount rate 5.60% 5.50%\nInflation assumption (RPI) 3.05% 3.30%\nInflation assumption (CPI) 2.70% 2.90%\nTransfer take-up assumption (employed deferred/deferred) 20%/15% 20%/15%\nBridging Pension Option take-up assumption (employed deferred/deferred) 40%/25% 40%/25%\nLife expectancy from age 65: current male pensioner 21.1 years 20.8 years\nfuture male pensioner currently aged 45 21.8 years 21.5 years\ncurrent female pensioner 23.0 years 22.8 years\nfuture female pensioner currently aged 45 24.2 years 24.1 years\nDiscount rates are determined by reference to the market yields on AA rated corporate bonds. The rate is determined by using the profile of\nforecast benefit payments to derive a weighted average discount rate from the yield curve.\nThe inflation assumption is determined by the market-implied assumption based on the yields on long-term index-linked government securities.\nThe mortality assumptions adopted for the UK pension schemes are derived from the SAPS S3 ‘All’ actuarial tables, with future improvements\nin line with the CMI 2024 core projections updated to reflect use of an ‘A’ parameter of 0.25% for future improvements and long-term\nimprovements of 1.25%. Where appropriate, these are adjusted to take account of the scheme’s actual experience.\nThe assumption for transfers and the BPO is based on actual experience, actuarial advice and updates required following the Buy-in of\nthe scheme.\nOther assumptions have been set on advice from the actuary, having regard to the latest trends in scheme experience, the assumptions used in\nthe most recent funding valuation and any updates required to insurer factors. The rate of increase of pensions in payment is based on the rules\nof the scheme, combined with the inflation assumption where the increase is capped.\nAssumptions for overseas schemes are based on advice from local actuaries. The principal assumptions are:\n2025 2024\nDiscount rate 4.70% 4.50%\nInflation assumption 2.00% 2.10%\nLong-term healthcare cost trend rate 4.75% 4.75%\nMale life expectancy from age 65: current pensioner 20.8 years 20.5 years\nfuture pensioner currently aged 45 23.1 years 22.5 years\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 173\nFINANCIAL\nSTATEMENTS", "char_count": 2851, "tables": [ [ [ "189", "(215)", "(26)" ], [ "98", "(651)", "(553)" ], [ "273", "(295)", "(22)" ], [ "–", "(284)", "(284)" ], [ "–", "(5)", "(5)" ], [ "560", "(1,450)", "(890)" ] ], [ [ "5.60%" ], [ "3.05%" ], [ "2.70%" ], [ "20%/15%" ], [ "40%/25%" ], [ "21.1 years" ], [ "21.8 years" ], [ "23.0 years" ], [ "24.2 years" ] ], [ [ "4.70%" ], [ "2.00%" ], [ "4.75%" ], [ "20.8 years" ], [ "23.1 years" ] ] ], "table_count": 3, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 176, "printed_page": 174, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n24 Post-retirement benefits continued\nChanges in present value of defined benefit obligations\n2025 2024\nUK Overseas UK Overseas\nschemes schemes Total schemes schemes Total\n£m £m £m £m £m £m\nAt 1 January (3,958) (1,501) (5,459) (4,537) (1,540) (6,077)\nExchange differences – 13 13 – 38 38\nCurrent service cost – (41) (41) – (37) (37)\nPast-service (cost)/credit 1 (4) 10 6 (14) – (14)\nFinance cost (214) (64) (278) (200) (61) (261)\nContributions by employees – (14) (14) – (13) (13)\nBenefits paid out 169 83 252 165 80 245\nActuarial (losses)/gains 2 (33) 64 31 628 32 660\nAt 31 December (4,040) (1,450) (5,490) (3,958) (1,501) (5,459)\nFunded schemes (4,040) (987) (5,027) (3,958) (986) (4,944)\nUnfunded schemes – (463) (463) – (515) (515)\n1 Following the signing of the framework agreement with the UK scheme’s trustee, which was signed alongside the Buy-in agreement, adjustments have been made to align the\nmethodology for the calculation of certain benefits with the pricing methodology used by the insurer. These have resulted in an additional past service charge of £4m being recognised\nin the income statement in 2025. A past service credit of £10m has also been recognised in the year in respect of the changes to the Rolls-Royce Deutschland schemes detailed above.\nIn 2024 a past service charge of £14m was recognised in respect of the UK scheme as a result of further work carried out by the pension scheme administrators and the Scheme Actuary\nin 2024 to review all relevant data points and make further changes to member records and required payments under the Barber judgement which sought to equalise normal retirement\nages between men and women\n2 The actuarial loss of £(33)m relating to the UK schemes includes a charge of around £(100)m in respect of the Buy-in of the UK scheme detailed above\nThe defined benefit obligations are in respect of:\nActive plan participants 1 (1,243) (712) (1,955) (1,277) (731) (2,008)\nDeferred plan participants (1,067) (95) (1,162) (1,064) (98) (1,162)\nPensioners (1,730) (643) (2,373) (1,617) (672) (2,289)\nWeighted average duration of obligations (years) 13 12 13 14 12 13\n1 Although the UK scheme closed to future accrual on 31 December 2020, members who became deferred as a result of the closure and remain employed by the Group retain some\nadditional benefits compared to other deferred members. The obligations for these members are shown as active plan participants\nChanges in fair value of scheme assets\n2025 2024\nUK Overseas UK Overseas\nschemes schemes Total schemes schemes Total\n£m £m £m £m £m £m\nAt 1 January 4,737 531 5,268 5,304 520 5,824\nExchange differences – (20) (20) – (13) (13)\nAdministrative expenses (6) (1) (7) (5) (1) (6)\nFinancing 246 26 272 235 24 259\n(Loss)/return on plan assets excluding financing 1 (484) 9 (475) (633) (5) (638)\nContributions by employer – 84 84 1 73 74\nContributions by employees – 14 14 – 13 13\nBenefits paid out (169) (83) (252) (165) (80) (245)\nAt 31 December 4,324 560 4,884 4,737 531 5,268\nTotal (loss)/return on scheme assets (238) 35 (203) (398) 19 (379)\n1 Includes an asset remeasurement net loss estimated at £350m recognised in respect of the Buy-in of the UK Scheme that took place in the year. For further details see page 171\n174 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3328, "tables": [ [ [ "(3,958)", "(1,501)", "(5,459)" ], [ "–", "13", "13" ], [ "–", "(41)", "(41)" ], [ "(4)", "10", "6" ], [ "(214)", "(64)", "(278)" ], [ "–", "(14)", "(14)" ], [ "169", "83", "252" ], [ "(33)", "64", "31" ], [ "(4,040)", "(1,450)", "(5,490)" ], [ "(4,040)", "(987)", "(5,027)" ], [ "–", "(463)", "(463)" ] ], [ [ "(1,243)", "(712)", "(1,955)" ], [ "(1,067)", "(95)", "(1,162)" ], [ "(1,730)", "(643)", "(2,373)" ], [ "13", "12", "13" ] ], [ [ "4,737", "531", "5,268" ], [ "–", "(20)", "(20)" ], [ "(6)", "(1)", "(7)" ], [ "246", "26", "272" ], [ "(484)", "9", "(475)" ], [ "–", "84", "84" ], [ "–", "14", "14" ], [ "(169)", "(83)", "(252)" ], [ "4,324", "560", "4,884" ], [ "(238)", "35", "(203)" ] ] ], "table_count": 3 }, { "pdf_page": 177, "printed_page": 175, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n24 Post-retirement benefits continued\nFair value of scheme assets at 31 December\n2025 2024\nUK Overseas UK Overseas\nschemes 1 schemes Total schemes schemes Total\n£m £m £m £m £m £m\nSovereign debt – 143 143 3,335 140 3,475\nCorporate debt instruments – 237 237 1,860 248 2,108\nInterest rate swaps – – – 197 – 197\nInflation swaps – – – 92 – 92\nCash and similar instruments 2 – – – (1,176) – (1,176)\nLiability driven investment (LDI) portfolios – 380 380 4,308 388 4,696\nListed equities – 52 52 – 54 54\nUnlisted equities 4 1 5 25 – 25\nCorporate debt instruments – – – 379 – 379\nCash 280 8 288 25 11 36\nBuy-in insurance policy 3 4,040 – 4,040 – – –\nOther – 119 119 – 78 78\nAt 31 December 4,324 560 4,884 4,737 531 5,268\n1 Following the Buy-in in August 2025, described on page 171, the Group entered into a bulk purchase annuity policy with PIC for consideration of £4.3bn. The consideration was paid by\ntransferring certain existing RRUKPF’s assets and cash to PIC\n2 UK cash and similar instruments include repurchase agreements on UK Government bonds amounting to £nil (2024: £(1,203)m)\n3 Following the transaction, the bulk purchase annuity policy has been treated as an asset of the scheme and has been valued on the same basis as the liabilities to which it relates, as until a\nBuy-out takes place, the legal responsibility to pay benefits remains with the Trustee\nThe investment strategy for the UK scheme is controlled by the Trustee in consultation with the Group. The scheme assets do not include any of\nthe Group’s own financial instruments, nor any property occupied by, or other assets used by, the Group (2024: none).\nFuture contributions\nThe Group expects to contribute approximately £81m to its overseas defined benefit schemes in 2026 (2025: £84m).\nIn the UK, any cash funding of RRUKPF is based on a statutory triennial funding valuation process. The Group and the Trustee negotiate\nand agree the actuarial assumptions used to value the liabilities (Technical Provisions); assumptions which may differ from those used\nfor accounting set out above. Once each valuation is signed, a Schedule of Contributions (SoC) must be agreed which sets out the cash\ncontributions to be paid. The most recent valuation, as at 31 March 2023, agreed by the Trustee in October 2023, showed that the RRUKPF was\nestimated to be 115% funded on the Technical Provisions basis. All cash due has been paid in full and the current SoC does not require any cash\ncontributions to be made by the Group. Following the Buy-in of the scheme in August 2025 substantially all the scheme liabilities have been\ninsured and it is expected that no further funding will be required by the Group: any further liabilities arising are expected to be funded from\nthe scheme’s existing assets.\nSensitivities\nThe calculations of the defined benefit obligations are sensitive to the assumptions set out above. A number of the overseas schemes are\nunfunded. For the most significant funded schemes, the investment strategies hedge the risks from interest rates and inflation measured on a\nproxy solvency basis.\nUK Scheme\nThe following table summarises how the estimated impact of a change in a significant assumption would affect the UK defined benefit obligation\nat 31 December 2025, while holding all other assumptions constant. This sensitivity analysis may not be representative of the actual change\nin the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the\nassumptions may be correlated.\nThe UK scheme previously hedged interest rate and inflation risk based on UK Government bond yields without any adjustment for any credit\nspread, however as a result of the Buy-in that took place in August 2025, most of the scheme’s assets were either liquidated or transferred\nto PIC during the year. The majority of the assets at 31 December 2025 represent the value of the bulk purchase annuity policy, which aligns\nexactly to the liabilities to which it relates, hence any movement in the assets will result in an equal and opposite movement in the liabilities.\nThe sensitivity analysis set out below has been determined based on a method that estimates the impact on the defined benefit obligation as a\nresult of reasonable changes in key assumptions occurring at the end of the reporting period.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 175\nFINANCIAL\nSTATEMENTS", "char_count": 4454, "tables": [ [ [ "–", "143", "143" ], [ "–", "237", "237" ], [ "–", "–", "–" ], [ "–", "–", "–" ], [ "–", "–", "–" ], [ "–", "380", "380" ], [ "–", "52", "52" ], [ "4", "1", "5" ], [ "–", "–", "–" ], [ "280", "8", "288" ], [ "4,040", "–", "4,040" ], [ "–", "119", "119" ], [ "4,324", "560", "4,884" ] ] ], "table_count": 1, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 178, "printed_page": 176, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n24 Post-retirement benefits continued\n2025 2024\n£m £m\nReduction in the discount rate of 0.25% 1 Obligations (140) (145)\nPlan assets (Buy-in policy) 140 –\nPlan assets (LDI portfolio) – 179\nIncrease in inflation of 0.25% 1 Obligations (55) (55)\nPlan assets (Buy-in policy) 55 –\nPlan assets (LDI portfolio) – 73\nIncrease of 1% in transfer value assumption Obligations (20) (25)\nPlan assets (Buy-in policy) 20 –\nOne year increase in life expectancy Obligations (125) (125)\nPlan assets (Buy-in policy) 125 –\n1 The differences between the sensitivities on obligations and plan assets in 2024 arise largely due to differences in the methods used to value the obligations for accounting purposes and\nthe adopted proxy solvency basis\nOverseas Schemes\n2025 2024\n£m £m\nReduction in the discount rate of 0.25% ¹ Obligations (40) (46)\nIncrease in inflation of 0.25% ¹ Obligations (9) (10)\n1 Unlike the UK scheme, the benefits for the majority of the overseas schemes are not linked to inflation, hence the impact of a change in the inflation rate has a less significant impact on\nthe defined benefit obligation than a change in the discount rate\n25 Share capital\nNon-equity Equity\nSpecial Nominal Ordinary shares Nominal\nShare value of 20p each value\nof £1 £m Millions £m\nIssued and fully paid\nAt 1 January 2024 1 – 8,417 1,684\nShares issued to employee share trust – – 88 17\nAt 31 December 2024 1 – 8,505 1,701\nShares issued via a bonus issue 1 – – – 6,962\nCapital reduction 1 – – – (6,962)\nCancellation of shares 2 – – (61) (12)\nAt 31 December 2025 1 – 8,444 1,689\n1 On 1 May 2025 Rolls-Royce Holdings plc performed a bonus issue of one share from its merger reserve for £6,962m. The Company subsequently performed a capital reduction against\nshare capital, share premium, and capital redemption reserve\n2 During the year the Company cancelled 61,088,437 (2024: none) of its ordinary shares with a total nominal value of £12m in relation to the share buyback programme. Further details can\nbe found within the Consolidated statement of changes in equity\nThe rights attaching to each class of share are set out on pages 212 to 213.\nIn accordance with IAS 32 Financial Instruments: Presentation, the Company’s non-cumulative redeemable preference shares (C Shares) are\nclassified as financial liabilities. Accordingly, movements in C Shares are included in note 22. In addition, rights to C share holders are included\non page 212.\n176 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2512, "tables": [ [ [ "(140)" ], [ "140" ], [ "–" ], [ "(55)" ], [ "55" ], [ "–" ], [ "(20)" ], [ "20" ], [ "(125)" ], [ "125" ] ], [ [ "(40)" ], [ "(9)" ] ], [ [ "–", "–", null, "–", "6,962" ], [ "–", "–", null, "–", "(6,962)" ], [ "–", "–", null, "(61)", "(12)" ], [ "1", "–", null, "8,444", "1,689" ] ] ], "table_count": 3 }, { "pdf_page": 179, "printed_page": 177, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n26 Share-based payments\nEffect of share-based payment transactions on the Group’s results and financial position\n2025 2024\n£m £m\nTotal expense recognised for equity-settled share-based payments transactions 98 95\nTotal cost recognised for cash-settled share-based payments transactions 6 41\nShare-based payments recognised in the consolidated income statement 104 136\nLiability for cash-settled share-based payment transactions – 59\nA description of the share-based payment plans is included in the Directors’ Remuneration Report on pages 82 to 109.\nMovements in the Group’s share-based payment plans during the year\nShareSave Free Shares LTIP Incentive Plan Matching Shares\nWeighted\naverage exercise\nNumber price Number Number Number Number\nMillions Pence Millions Millions Millions Millions\nOutstanding at 1 January 2024 53.4 107 – 101.0 17.2 –\nGranted – – 6.2 22.8 5.0 –\nForfeited (2.3) 110 (0.2) (5.7) (0.5) –\nExercised (0.5) 104 – (25.4) (5.6) –\nOutstanding at 31 December 2024 50.6 107 6.0 92.7 16.1 –\nGranted – – – 10.6 0.5 0.6\nForfeited (0.2) 118 (0.7) (3.7) – –\nExercised (50.3) 107 (2.3) (35.3) (5.6) –\nOutstanding at 31 December 2025 0.1 111 3.0 64.3 11.0 0.6\nExercisable at 31 December 2025 – – – – – –\nExercisable at 31 December 2024 0.1 – – – – –\nThe weighted average share price at the date share options were exercised was 728p (2024: 420p). The closing price at 31 December 2025 was\n1,150p (2024: 569p).\nThe weighted average remaining contractual life for the share options as at 31 December 2025 was six months (2024: one month) and all\noutstanding share options have a maturity date in 2026.\nFair values of share-based payment plans\nThe weighted average fair value per share of equity-settled share-based payment plans granted during the year, estimated at the date of grant,\nare as follows:\n2025 2024\nFree Shares n/a 494p\nLTIP 759p 361p\nIncentive Plan 802p 378p\nMatching Shares 1,089p n/a\nVesting period of share-based payment plans\nThe vesting period for the share-based payment plans are between 6 months to 63 months. See the details below.\nVesting period\nLTIP 6 to 59 months\nIncentive Plan 7 to 47 months\nSharesave 39 or 63 months\nFree shares 12 or 36 months\nMatching shares 24 or 36 months\nLong-term incentive plans (LTIP)\nThe fair value of shares awarded is calculated using a pricing model that takes account of the non-entitlement to dividends (or equivalent)\nduring the vesting period and the market-based performance condition based on expectations about volatility and the correlation of\nshare price returns in the group of FTSE 100 and S&P Global Industrials Index companies and which incorporates into the valuation the\ninterdependency between share price performance and TSR vesting where market-based conditions are applicable. This adjustment decreases\nthe fair value of the award relative to the share price at the date of grant.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 177\nFINANCIAL\nSTATEMENTS", "char_count": 2982, "tables": [ [ [ "98" ], [ "6" ], [ "104" ], [ "–" ] ], [ [ "–", "–", null, "–", null, "10.6", null, "0.5", null, "0.6" ], [ "(0.2)", "118", null, "(0.7)", null, "(3.7)", null, "–", null, "–" ], [ "(50.3)", "107", null, "(2.3)", null, "(35.3)", null, "(5.6)", null, "–" ], [ "0.1", "111", null, "3.0", null, "64.3", null, "11.0", null, "0.6" ], [ "–", "–", null, "–", null, "–", null, "–", null, "–" ] ], [ [ "n/a" ], [ "759p" ], [ "802p" ], [ "1,089p" ] ], [ [ "Vesting period" ], [ "6 to 59 months" ], [ "7 to 47 months" ], [ "39 or 63 months" ], [ "12 or 36 months" ], [ "24 or 36 months" ] ] ], "table_count": 4, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 180, "printed_page": 178, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n26 Share-based payments continued\nShareSave\nThe fair value of the options granted is calculated using a pricing model that assumes that participants will exercise their options at the\nbeginning of the six-month window if the share price is greater than the exercise price. Otherwise, it assumes that options are held until the\nexpiration of their contractual term. This results in an expected life of the mid-point between the start of the exercise window and the date\nof expiration.\nIncentive Plan\nThe fair value of shares awarded is calculated as the share price on the date of the award, on the basis that awards are entitled to receive\ndividends (or equivalents).\nFree Shares\nIn 2024, every Rolls-Royce employee was gifted 150 shares. The awards were granted under two plans; the ‘Rolls-Royce Share Purchase Plan’\nfor UK employees and the ‘Rolls-Royce Global Employee Share Purchase Plan’ for non-UK employees; both being equity-settled schemes. The\nfair value of shares awarded under the free shares scheme is calculated as the share price on the date of the award, on the basis that awards are\nentitled to receive dividends (or equivalents).\nMatching Shares\nRolls-Royce launched the ‘Your Shares: Matched’ plan during the year. Every participant receives the free matching shares with a value of up\nto £50 each month based on the number of investment shares they purchase. There are no performance conditions attached to the shares.\nThe fair value of the free matching shares awarded under these plans is calculated using the share price on the date of the award. Non-vesting\nconditions are taken into consideration with a percentage discount applied based on the assumption of the expected forfeiture rates of the\nmatching shares.\n27 Contingent liabilities\nIn January 2017, after full cooperation, the Company concluded deferred prosecution agreements (DPA) with the Serious Fraud Office and\nthe US Department of Justice and a leniency agreement with the Ministério Público Federal, the Brazilian federal prosecutor. The terms of both\nDPAs have now expired. The Company has also met all its obligations under a two-year leniency agreement with Brazil’s Comptroller General\n(CGU), signed in October 2021, relating to the same historical matters. In April 2024, the CGU confirmed that the Company would no longer be\nsubject to compliance monitorship. Certain authorities are investigating members of the Group for matters relating to misconduct in relation\nto historical matters. The Group is responding appropriately. Action may be taken by further authorities against the Group or individuals. In\naddition, the Group could still be affected by actions from other parties, including customers, customers’ financiers and the Company’s current\nand former investors, including certain potential claims in respect of the Group’s historical ethics and compliance disclosures which have been\nnotified to the Group. The Directors are not currently aware of any matters that are likely to lead to a material financial loss over and above the\npenalties imposed to date, but cannot anticipate all the possible actions that may be taken or their potential consequences.\nThe Group has, in the normal course of business, entered into arrangements in respect of export finance, performance bonds, grant\nfunding, countertrade obligations and minor miscellaneous items, which could result in potential outflows if the requirements related to those\narrangements are not met. Various Group undertakings are party to legal actions and claims (including with tax authorities) which arise in the\nordinary course of business, some of which are for substantial amounts.\nIn connection with the sale of its products the Group will, on some occasions, provide financing support for its customers, generally in\nrespect of civil aircraft. The Group’s commitments relating to these financing arrangements are spread over many years, they relate to a\nnumber of customers, a broad product portfolio and are generally secured on the asset subject to the financing. These include commitments\nof $339m (2024: $405m) (on a discounted basis) to provide facilities to enable customers to purchase aircraft (of which approximately $67m\ncould be called during 2026). These facilities may only be used if the customer is unable to obtain financing elsewhere and are priced at a\npremium to the market rate. Significant events impacting the international aircraft financing market, the failure by customers to meet their\nobligations under such financing agreements, or inadequate provisions for customer financing liabilities may adversely affect the Group’s\nfinancial position.\nCustomer financing provisions would be made to cover guarantees provided for asset value and/or financing were it probable that a payment\nwould be made. These would be measured on a discounted basis at the Group’s borrowing rate to reflect the time span over which these\nexposures could arise. The values of aircraft providing security are based on advice from a specialist aircraft appraiser. There were no\nprovisions for customer financing provisions at 31 December 2025 or 31 December 2024.\nThe Group has responded appropriately to the Russia-Ukraine conflict to comply with international sanctions and export control regime, and\nto continue to implement the business decision to exit from Russia. The Group could be subject to action by impacted customers, suppliers and\nother contract parties.\nWhile the outcome of the above matters cannot precisely be foreseen, the Directors do not expect any of these arrangements, legal actions or\nclaims, after allowing for provisions already made, to result in significant loss to the Group.\n178 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 5773, "tables": [], "table_count": 0 }, { "pdf_page": 181, "printed_page": 179, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n28 Related party transactions\n2025 2024\n£m £m\nSales of goods and services 1 8,679 7,702\nPurchases of goods and services 1 (9,141) (8,725)\nLease payments to joint ventures and associates (157) (241)\nGuarantees of non-wholly owned subsidiaries’ borrowings 3 4\nDividends received from joint ventures and associates 88 77\nOther income received from joint ventures and associates 38 7\n1 Sales of goods and services to related parties and purchases of goods and services from related parties, including joint ventures and associates, are included at the average exchange\nrate, consistent with the statutory income statement\nIncluded in sales of goods and services to related parties are sales of spare engines amounting to £153m (2024: £48m). Profit recognised in the\nyear on such sales amounted to £60m (2024: £62m), including profit on current year sales and recognition of profit deferred on similar sales in\nprevious years. Cash receipts relating to the sale of spare engines amounted to £134m (2024: £48m).\nIncluded in cost of sales in the income statement are interest costs of £9m (2024: £9m) incurred during the year which have been settled by the\nGroup on behalf of joint ventures.\nThe aggregated balances with joint ventures are shown in notes 16 and 21. Transactions with Group pension schemes are shown in note 24.\nKey management personnel are deemed to be the Directors (pages 64 to 65) and the members of the Executive Team (described on page 74).\nRemuneration for key management personnel is shown below:\n2025 2024\n£m £m\nSalaries and benefits 35 29\nIncluded in the above:\nPost-retirement schemes 1 1\nShare-based payments 12 13\nMore detailed information regarding the Directors’ remuneration, shareholdings, pension entitlements, share options and other long-term\nincentive plans is shown in the Remuneration Report on pages 82 to 109. The charge for share-based payments above is based on when the\naward is charged to the income statement in accordance with IFRS 2 Share-based Payments, rather than when the shares vest, which is the\nbasis used in the Remuneration Report.\n29 Business disposals and businesses held for sale\nDisposals\nRolls-Royce SMR Limited\nAn investment from ČEZ Group (ČEZ) was received by Rolls-Royce SMR Limited on 4 March 2025 and Rolls-Royce Holdings plc’s indirect\nshareholding in Rolls-Royce SMR Limited was diluted from 70.5% at 31 December 2024 to 61.7%. When the new investment was received the\nGroup relinquished control of Rolls-Royce SMR Limited, as a result of changes in shareholder matters, and the subsidiary was deconsolidated.\nThis followed detailed consideration of the criteria within IFRS 10 Consolidated Financial Statements in relation to the Group’s ability to take\ndecisions that affect the returns of the business without the support of other shareholders. The Group’s investment in Rolls-Royce SMR Limited\nwas recognised at its fair value of £732m on 4 March 2025 and a profit on disposal of £679m was recognised in the Group’s income statement.\nIn July 2025, Rolls-Royce Holdings plc’s indirect shareholding in Rolls-Royce SMR Limited was further diluted to 55.3%. This was due to a second\nequity investment being made by ČEZ into Rolls-Royce SMR Limited which resulted in an additional £15m profit on disposal being recognised in\nthe year. In December 2025 the Group made a further investment into Rolls-Royce SMR Limited increasing Rolls-Royce Holdings plc’s indirect\nshareholding to 57.8%.\nNaval propulsors & handling business\nOn 18 September 2024, the Group signed a sale and disposal agreement for its naval propulsors & handling business with Fairbanks Morse\nDefense. On 1 July 2025 the sale of the naval propulsors business completed with the sale of the naval handling business anticipated in 2026.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 179\nFINANCIAL\nSTATEMENTS", "char_count": 3878, "tables": [ [ [ "8,679" ], [ "(9,141)" ], [ "(157)" ], [ "3" ], [ "88" ], [ "38" ] ], [ [ "1" ], [ "12" ] ] ], "table_count": 2, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 182, "printed_page": 180, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n29 Business disposals and businesses held for sale continued\nNaval propulsors Rolls-Royce SMR\nbusiness Limited Total\n2025 2025 2025\n£m £m £m\nProceeds\nNet cash consideration at prevailing exchange rate and at effective hedged rate 172 – 172\nCash and cash equivalents disposed – (81) (81)\nNet cash consideration 172 (81) 91\nDisposal costs paid (7) (4) (11)\nNet cash inflow/(outflow) on disposal per cash flow statement 165 (85) 80\nGoodwill 12 – 12\nProperty, plant and equipment 45 3 48\nRight-of-use assets 1 1 2\nInventories 19 – 19\nTrade receivables and other assets 62 47 109\nTrade payables and other liabilities (67) (56) (123)\nProvisions for liabilities and charges (3) – (3)\nBorrowings and lease liabilities (1) – (1)\nNet assets/(liabilities) disposed 68 (5) 63\nProfit/(loss) on disposal before disposal costs and accounting adjustments 104 (76) 28\nDisposal costs (7) – (7)\nDerecognition of NCI – 23 23\nAccounting adjustment – recognition of Rolls-Royce SMR Limited at fair value – 732 732\nAccounting adjustment – dilution of the Group’s share of Rolls-Royce SMR Limited – 15 15\nCumulative currency translation gain 18 – 18\nProfit on disposal of businesses per income statement 115 694 809\nTaxation on disposal 1 (28) – (28)\n1 The deconsolidation of Rolls-Royce SMR Limited from the Group during 2025 is treated as non-taxable, following the tax de-grouping charge recognised in 2024 when the Group’s\nshareholding fell below 75%. Taxation on disposal is included within taxation in the consolidated income statement\nBusinesses held for sale\nAt 31 December 2024, the Group had classified the assets and liabilities related to its naval propulsors & handling business as held for sale as,\nin line with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the business was available for sale in its current condition\nand the sale was considered highly probable. On 18 September 2024, the Group and Fairbanks Morse Defense signed a sale and disposal\nagreement. On 1 July 2025 the sale of the naval propulsors business to Fairbanks Morse Defense took place.\nAt 31 December 2025 the assets and liabilities of the naval handling business continued to be disclosed as held for sale. They were measured at\nthe lower of their carrying value or fair value less costs to sell as summarised below. The completion of the naval handling business disposal is\nanticipated in 2026.\nThe table below summarises the categories of assets and liabilities of the naval handling business classified as held for sale at 31 December 2025.\n2025 2024\n£m £m\nGoodwill – 13\nProperty, plant and equipment 3 51\nRight-of-use assets – 1\nInventories 1 24\nTrade receivables and other assets 11 64\nAssets held for sale 15 153\nTrade payables and other liabilities (19) (96)\nProvisions for liabilities and charges – (3)\nBorrowings and lease liabilities – (1)\nLiabilities associated with assets held for sale (19) (100)\nNet (liabilities)/assets held for sale (4) 53\n180 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3036, "tables": [ [ [ null, null, null ], [ "172", "–", "172" ], [ "–", "(81)", "(81)" ], [ "172", "(81)", "91" ], [ "(7)", "(4)", "(11)" ], [ "165", "(85)", "80" ] ], [ [ "12", "–", "12" ], [ "45", "3", "48" ], [ "1", "1", "2" ], [ "19", "–", "19" ], [ "62", "47", "109" ], [ "(67)", "(56)", "(123)" ], [ "(3)", "–", "(3)" ], [ "(1)", "–", "(1)" ], [ "68", "(5)", "63" ] ], [ [ "104", "(76)", "28" ], [ "(7)", "–", "(7)" ], [ "–", "23", "23" ], [ "–", "732", "732" ], [ "–", "15", "15" ], [ "18", "–", "18" ], [ "115", "694", "809" ], [ "(28)", "–", "(28)" ] ], [ [ "–" ], [ "3" ], [ "–" ], [ "1" ], [ "11" ], [ "15" ], [ "(19)" ], [ "–" ], [ "–" ], [ "(19)" ], [ "(4)" ] ] ], "table_count": 4 }, { "pdf_page": 183, "printed_page": 181, "section": "Financial Statements", "subsection": "Notes to the consolidated financial statements", "text": "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS\n30 Derivation of summary funds flow statement\n2025 2024\nImpact of\nImpact of other non-\nImpact of acquisition underlying\nCash flow hedge book accounting items Funds flow Funds flow\n£m £m £m £m £m £m\nOperating profit/(loss) 4,468 (797) 16 (225) 3,462 2,464\nLoss on disposal of property, plant and equipment 1 18 – – – 18 32\n(Profit)/loss on disposal of intangible assets 1 (2) – – – (2) 6\nJoint venture trading 1 32 – – – 32 (95)\nDepreciation, amortisation and impairment 737 – (16) 179 900 853\nMovement in provisions (486) 78 – 118 (290) (167)\nIncrease in inventories 2 (685) – – – (685) (323)\nMovement in prepayments to RRSAs for parts 90 (19) – – 71 (219)\nMovement in cost to obtain contracts (44) – – – (44) (18)\nMovement in trade receivables/payables and other assets/liabilities 2 (29) (166) – 3 (192) 166\nRevaluation of trading assets 2 214 (18) – – 196 (14)\nRealised derivatives in financing 532 – – – 532 652\nMovement in Civil LTSA balance 123 378 – – 501 910\nMovement in contract assets/liabilities (excluding Civil LTSA) 2 581 (11) – – 570 (201)\nSettlement of excess derivatives (148) – – – (148) (146)\nInterest received 270 – – – 270 269\nContributions to defined benefit schemes in excess of underlying\noperating profit charge 1 (42) – – 5 (37) (31)\nCash flows on other financial assets and liabilities held for\noperating purposes (578) 532 – – (46) (24)\nShare-based payments 1 104 – – – 104 136\nOther 1 – – – – – (5)\nIncome tax (590) – – 35 (555) (381)\nCash from operating activities 4,565 (23) – 115 4,657 3,864\nCapital element of lease payments (232) 23 – – (209) (275)\nCapital expenditure (978) – – – (978) (876)\nCash received on maturity of share-based payment schemes 40 – – – 40 –\nInvestments (7) – – 37 30 16\nInterest paid (262) – – – (262) (298)\nOther ³ 144 – – (152) (8) (6)\nFree cash flow 3,270 – – – 3,270 2,425\n1 Included in other operating cash flows in the summarised free cash flow on page 23\n2 Included in working capital (excluding Civil LTSA balance) in the summarised free cash flow on page 23\n3 Other includes M&A related costs, exceptional transformation and restructuring costs\nFree cash flow is a measure of the financial performance of the businesses’ cash flows which is consistent with the way in which performance is\ncommunicated to the Board. Free cash flow is cash flows from operating activities, adjusted to include capital expenditure and movements in\ninvestments, capital elements of lease payments, interest paid, cash received on maturity of share-based payment schemes and amounts paid\nrelating to the settlement of excess derivatives. It excludes amounts spent/received on business acquisitions/disposals, and other material\nexceptional or one-off cash flows. Cash flows from operating activities is our statutory equivalent. The Board considers that free cash flow\nreflects cash generated from the Group’s underlying trading.\nThe reconciliation between free cash flow and cash flow from operating activities can be found on page 210.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 181\nFINANCIAL\nSTATEMENTS", "char_count": 3098, "tables": [ [ [ "4,468", "(797)", "16", "(225)", "3,462" ], [ "18", "–", "–", "–", "18" ], [ "(2)", "–", "–", "–", "(2)" ], [ "32", "–", "–", "–", "32" ], [ "737", "–", "(16)", "179", "900" ], [ "(486)", "78", "–", "118", "(290)" ], [ "(685)", "–", "–", "–", "(685)" ], [ "90", "(19)", "–", "–", "71" ], [ "(44)", "–", "–", "–", "(44)" ], [ "(29)", "(166)", "–", "3", "(192)" ], [ "214", "(18)", "–", "–", "196" ], [ "532", "–", "–", "–", "532" ], [ "123", "378", "–", "–", "501" ], [ "581", "(11)", "–", "–", "570" ], [ "(148)", "–", "–", "–", "(148)" ], [ "270", "–", "–", "–", "270" ], [ "(42)", "–", "–", "5", "(37)" ], [ "(578)", "532", "–", "–", "(46)" ], [ "104", "–", "–", "–", "104" ], [ "–", "–", "–", "–", "–" ], [ "(590)", "–", "–", "35", "(555)" ], [ "4,565", "(23)", "–", "115", "4,657" ], [ "(232)", "23", "–", "–", "(209)" ], [ "(978)", "–", "–", "–", "(978)" ], [ "40", "–", "–", "–", "40" ], [ "(7)", "–", "–", "37", "30" ], [ "(262)", "–", "–", "–", "(262)" ], [ "144", "–", "–", "(152)", "(8)" ], [ "3,270", "–", "–", "–", "3,270" ] ] ], "table_count": 1, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 184, "printed_page": 182, "section": "Financial Statements", "subsection": "Company financial statements", "text": "COMPANY FINANCIAL STATEMENTS\nCompany balance sheet\nAt 31 December 2025\n2025 2024\nNotes £m £m\nASSETS\nInvestments – subsidiary undertakings 2 15,003 14,905\nNon-current assets 15,003 14,905\nCash and cash equivalents – 1\nCurrent assets – 1\nTOTAL ASSETS 15,003 14,906\nLIABILITIES\nTrade payables and other liabilities 3 (2,201) (337)\nOther financial liabilities 4 (21) (22)\nCurrent liabilities (2,222) (359)\nNET ASSETS 12,781 14,547\nEQUITY\nCalled-up share capital 5 1,689 1,701\nShare premium – 1,012\nMerger reserve – 6,962\nCapital redemption reserve 6 2,750\nOther reserve 591 493\nRetained earnings 10,495 1,629\nTOTAL EQUITY 12,781 14,547\nThe Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company income\nstatement. The result for the Company for the year was nil (2024: nil).\nThe Financial Statements on pages 182 to 186 were approved by the Board on 26 February 2026 and signed on its behalf by:\nTufan Erginbilgic Helen McCabe\nChief Executive Chief Financial Officer\nCompany’s registered number: 7524813\n182 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 1112, "tables": [ [ [ "15,003" ], [ "15,003" ], [ "–" ], [ "–" ], [ "15,003" ] ], [ [ "(2,201)" ], [ "(21)" ], [ "(2,222)" ] ], [ [ "1,689" ], [ "–" ], [ "–" ], [ "6" ], [ "591" ], [ "10,495" ], [ "12,781" ] ] ], "table_count": 3 }, { "pdf_page": 185, "printed_page": 183, "section": "Financial Statements", "subsection": "Company financial statements", "text": "Company statement of changes in equity\nFor the year ended 31 December 2025\nAttributable to ordinary shareholders\nCapital\nShare Share Merger redemption Other Retained Total\ncapital premium reserve 1 reserve reserve 2 earnings 3, 4 equity\n£m £m £m £m £m £m £m\nAt 1 January 2024 1,684 1,012 6,962 2,749 397 1,647 14,451\nArising on issues of ordinary shares 17 – – – – (17) –\nRedemption of C Shares – – – 1 – (1) –\nShare-based payments –\ndirect to equity – – – – 96 – 96\nAt 1 January 2025 1,701 1,012 6,962 2,750 493 1,629 14,547\nBonus issue 5 6,962 – (6,962) – – – –\nCapital Reduction 5 (6,962) (1,012) – (2,757) – 10,731 –\nShare buyback programme 6 (12) – – 12 – (1,019) (1,019)\nRedemption of C Shares – – – 1 – (1) –\nShare-based payments –\ndirect to equity – – – – 98 – 98\nShareSave maturity – – – – – 40 40\nDividend paid – – – – – (885) (885)\nAt 31 December 2025 1,689 – – 6 591 10,495 12,781\n1 The Company’s merger reserve was created as a result of a High Court approved scheme of arrangement in 2011, when the Company became the holding company for the\nRolls-Royce Group\n2 Other reserve represents the value of the share-based payments in respect of employees of subsidiary undertakings for which payment has not been received\n3 The reserves, which are distributable to the Company’s equity shareholders, are determined with reference to the Companies Act 2006 and requires judgement in determining the\namount available for distribution. Further guidance is given in the Institute of Chartered Accountants in England and Wales technical release 02/17BL in relation to what profits can be\ntreated as distributable. At 31 December 2025, £10,445m of the Company’s retained earnings are distributable, however, the available amount may be different at the point any future\ndistributions are made\n4 At 31 December 2025, 69,290,662 ordinary shares with a net book value of £503m (2024: 106,066,831 ordinary shares with a net book value of £26m) were held for the purpose of\nshare-based payment plans and included in accumulated losses. During the year:\n– 81,979,149 ordinary shares with a net book value of £22m (2024: 35,117,065 ordinary shares with a net book value of £14m) vested in share-based payment plans;\n– the Company issued no (2024: 88,200,000) new ordinary shares to the Group’s share trust for its employee share-based payment plans with a net book value of £nilm (2024: £18m);\n– t he Company, through the Employee Benefit Trust, acquired none (2024: none) of its ordinary shares via reinvestment of dividends received on its own shares and purchased none\n(2024: 71,490) of its ordinary shares through purchases on the London Stock Exchange\n– t he Employee Benefit Trust purchased 3,719,489 (2024: nil) ordinary shares with an aggregate value of £40m from the Company, the Company purchased these shares through the\nshare buyback scheme and held them as Treasury shares\n– t he Company gifted 41,483,491 (2024: nil) ordinary shares with an aggregate value of £460m to the Employee Benefit Trust, the Company having previously purchased these shares\nthrough the share buyback scheme\n5 On 1 May 2025 the Company performed a bonus issue of one share from its merger reserve for £6,962m. The Company subsequently performed a capital reduction against share capital,\nshare premium, and capital redemption reserve\n6 Following the announcement of the £1bn share buyback on 27 February 2025, during the year the Company purchased with cash 106,291,417 (2024: none) of its ordinary shares at a\ncost of £1bn. The Company also separately paid costs of £8m in relation to the programme. Of these ordinary shares purchased by the Company 61,088,437 shares at a cost of £500m\nwere cancelled during the year. As detailed above, a further 3,719,489 shares at a cost of £40m were sold to the Employee Benefit Trust for consideration of £40m and in December 2025,\nthe Company gifted the remaining treasury shares of 41,483,491 at a cost of £460m to the Employee Benefit Trust. As at 31 December 2025 the Company held nil (2024: nil) treasury shares\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 183\nFINANCIAL\nSTATEMENTS\nCOMPANY FINANCIAL STATEMENTS", "char_count": 4138, "tables": [ [ [ "1,701", "1,012", "6,962", "2,750", "493", "1,629", null, "14,547" ], [ "6,962", "–", "(6,962)", "–", "–", "–", null, "–" ], [ "(6,962)", "(1,012)", "–", "(2,757)", "–", "10,731", null, "–" ], [ "(12)", "–", "–", "12", "–", "(1,019)", null, "(1,019)" ], [ "–", "–", "–", "1", "–", "(1)", null, "–" ], [ "–", "–", "–", "–", "98", "–", null, "98" ], [ "–", "–", "–", "–", "–", "40", null, "40" ], [ "–", "–", "–", "–", "–", "(885)", null, "(885)" ], [ "1,689", "–", "–", "6", "591", "10,495", null, "12,781" ] ] ], "table_count": 1, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 186, "printed_page": 184, "section": "Financial Statements", "subsection": "Notes to the Company financial statements", "text": "NOTES TO THE COMPANY FINANCIAL STATEMENTS\n1 Accounting policies\nBasis of accounting\nRolls-Royce Holdings plc (the Company) is a public company limited by shares incorporated and domiciled in England in the United Kingdom.\nThese Financial Statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework on the\nhistorical cost basis.\nThese Financial Statements have been prepared on a going concern basis. Further details are given in the Going Concern Statement on page\n57. After due consideration, the Directors consider that the Company has sufficient liquidity headroom to continue in operational existence for\na period of at least 18 months from the balance sheet date and there are no material uncertainties that may cast doubt on the Company’s going\nconcern status, accordingly they are satisfied that it is appropriate to adopt the going concern basis of accounting in preparing the Company\nFinancial Statements.\nIn preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International\nFinancial Reporting Standards (IFRS) as adopted by the UK (UK-adopted international accounting standards). The Company is included\nwithin the Consolidated Financial Statements of Rolls-Royce Holdings plc. The Consolidated Financial Statements are prepared in accordance\nwith IFRS and are publicly available. In these Financial Statements, the Company is considered to be a qualifying entity and has applied the\nexemptions available under FRS101 in respect of the following disclosures:\n— a cash flow statement and related notes;\n— comparative period reconciliation for investments and financial liabilities;\n— comparative period reconciliation for share capital;\n— the effects of new, but not yet effective accounting standards; and\n— the requirements of IAS 24 Related Party Disclosures and has, therefore, not disclosed transactions between the Company and its\nwholly owned subsidiaries.\nThe accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these\nFinancial Statements.\nThere were no changes to accounting standards that had a material impact on these Financial Statements. The Company’s Financial Statements\nare presented in sterling, which is the Company’s functional currency.\nAs permitted by section 408 of the Companies Act 2006, a separate income statement for the Company has not been included in these\nFinancial Statements. As permitted by the audit fee disclosure regulations, disclosure of non-audit fees information is not included in respect\nof the Company.\nKey areas of judgement and sources of estimation uncertainty\nThe preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Directors to exercise\ntheir judgement in the process of applying the accounting policies. The Directors have not identified any critical estimates or judgements at\n31 December 2025 where there is a significant risk of material change in the next 12 months.\nMaterial accounting policies\nInvestments in subsidiary undertakings\nInvestments included in assets are investments in subsidiary companies, and these are held at historical cost less impairments which is\nconsidered annually by the Directors.\nTrade payables\nTrade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the effective\ninterest method.\nFinancial instruments\nIn accordance with IAS 32 Financial Instruments: Presentation, the Company’s C Shares are classified as financial liabilities and held at\namortised cost from the date of issue until redeemed.\nEquity\nOrdinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or receivable,\nnet of the direct costs of issuing the equity instruments. The cost of issuing ordinary shares are charged to the share premium account.\nShare-based payments\nAs described in the Remuneration Report on pages 82 to 109, the Company grants awards of its own shares to employees of its subsidiary\nundertakings (see note 26 of the Consolidated Financial Statements). The costs of share-based payments in respect of these awards are\naccounted for, by the Company, as an additional investment in its subsidiary undertakings. The costs are determined in accordance with\nIFRS 2 Share-based Payment. Any payments made by the subsidiary undertakings in respect of these arrangements are treated as a return\nof this investment.\n184 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4614, "tables": [], "table_count": 0 }, { "pdf_page": 187, "printed_page": 185, "section": "Financial Statements", "subsection": "Notes to the Company financial statements", "text": "1 Accounting policies continued\nInsurance contracts\nThe Company enters into: financial guarantees where the Company guarantees payment in case of its subsidiary defaulting on a debt; and\nperformance guarantees where the Company guarantees certain subsidiaries’ performance to a customer. The Company has reviewed and\nconcluded that its arrangements meet the accounting definition of an insurance contract under IFRS 17 Insurance Contracts. The Company\nhas elected to apply IFRS 17 Insurance Contracts (rather than IFRS 9 Financial Instruments) to all currently issued financial guarantee contracts.\nAt 31 December 2025, financial guarantees of borrowings amounted to £5,298m (2024: £6,094m) of which the total amount of debt drawn is\n£2,798m (2024: £3,594m). Under IFRS 17 Insurance Contracts, the Company must recognise any obligation at the inception of the contract\nfor the expected fulfilment cash flows under the contract on a best estimate basis (liability for remaining coverage). The Company has assessed\nthe probability of losses on its financial and performance guarantees and has determined that the probability is remote after consideration\nof both historical and forward-looking triggers and as such the estimated liability is immaterial. As the estimated liability is immaterial at\n31 December 2025, no liability has been recognised in the Company Financial Statements.\nPost balance sheet events\nAs part of an internal legal entity review programme the Company took out a loan of £1.9bn from its direct subsidiary, Rolls-Royce plc,\non 1 January 2026. The funds were invested on the same day into a new direct subsidiary of the Company, Rolls-Royce US Holdings Limited,\nin return for shares. The funds enabled Rolls-Royce US Holdings Limited to acquire entities from Rolls-Royce plc.\nOn 1 January 2026, the Company received the remaining 96.46% shares of Rolls-Royce plc by way of distribution from its direct subsidiary\nRolls-Royce Group Limited, bringing the Company’s direct holding to 100%. Following this, on 8 January 2026, the Company contributed its\n100% direct holding in Rolls-Royce Group Limited to Rolls-Royce plc. The carrying value of investments held by the Company was unchanged\nas a result of these transactions.\nFollowing the completion in November 2025 of its £1bn share buyback programme for 2025, the Group announced in December 2025 that it\nwas commencing a further share buyback programme of up to £200m in January 2026. This programme was completed in February 2026, with\nthe Company having purchased 15,971,931 shares for consideration of £200m. These shares have all been cancelled.\nOn 26 February 2026, the Group announced a multi-year share buyback programme (see page 57 for further details).\n2 Investments – subsidiary undertakings\n£m\nCost:\nAt 1 January 2025 14,905\nCost of share-based payments in respect of employees of subsidiary undertakings less receipts from subsidiaries in respect\nof those payments 98\nAt 31 December 2025 15,003\nDetails of the Company’s subsidiary undertakings and joint venture and associates undertakings are listed on pages 187 to 192.\nThe carrying value of the Company’s investments in subsidiary undertakings has been reviewed for impairment in accordance with IAS 36\nImpairment of Assets. No indicators of impairment were identified at 31 December 2025.\n3 Trade payables and other liabilities\n2025 2024\n£m £m\nAmounts owed to – subsidiary undertakings 2,191 337\nAccruals 1 10 –\n2,201 337\n1 During the year, the Company recognised an accrual which represents an estimate of the amount it was committed to purchase under the terms of its Share Purchase Agreement but as\nyet unpurchased at 31 December 2025\nAmounts owed to subsidiary undertakings are interest free and repayable on demand.\n4 Financial liabilities\nC Shares\nMovements during the year were as follows, please see note 22 within the notes to the consolidated financial statements for further details:\nC Shares Nominal\nof 0.1p value\nmillions £m\nAt 1 January 2025 22,505 22\nRedeemed (1,198) (1)\nAt 31 December 2025 21,307 21\nThe rights attaching to C Shares are set out on page 212.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 185\nFINANCIAL\nSTATEMENTS\nNOTES TO THE COMPANY FINANCIAL STATEMENTS", "char_count": 4224, "tables": [ [ [ "14,905" ], [ "98" ], [ "15,003" ] ], [ [ "2,191" ], [ "10" ], [ "2,201" ] ], [ [ "22,505" ], [ "(1,198)" ], [ "21,307" ] ] ], "table_count": 3, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 188, "printed_page": 186, "section": "Financial Statements", "subsection": "Notes to the Company financial statements", "text": "NOTES TO THE COMPANY FINANCIAL STATEMENTS\n5 Share capital\nNon-equity Equity\nOrdinary\nSpecial Preference Nominal shares of Nominal\nShare shares of value 20p each value\nof £1 £1 each £m Millions £m\nIssued and fully paid\nAt 1 January 2025 1 – – 8,505 1,701\nShares issued via a bonus issue 1 – – – – 6,962\nCapital reduction 1 – – – – (6,962)\nCancellation of shares 2 – – – (61) (12)\nAt 31 December 2025 1 – – 8,444 1,689\n1 On 1 May 2025 the Company performed a bonus issue of one share from its merger reserve for £6,962m. The Company subsequently performed a capital reduction against share capital,\nshare premium, and capital redemption reserve. Further details can be found within the Consolidated statement of changes in equity\n2 During the year the Company cancelled 61,088,437 (2024: none) of its ordinary shares at a cost of £12m in relation to the share buyback programme. Further details can be found within\nthe Consolidated statement of changes in equity\nThe rights attaching to each class of share are set out on pages 212 to 213.\nIn accordance with IAS 32 Financial Instruments: Presentation, the Company’s non-cumulative redeemable preference shares (C Shares) are\nclassified as financial liabilities. Accordingly, movements in C Shares are included in note 4.\n6 Contingent liabilities\nFor further details on action related to historical matters that could have an impact on the Company, see page 178.\n7 Other information\nEmployees\nThe Company had no employees in 2025 (2024: none).\nShare-based payments\nShares in the Company have been granted to employees of the Group as part of share-based payment plans, and are charged in the\nemploying company.\nEmoluments of Directors\nThe remuneration of the Directors of the Company is shown below, further information is in the Remuneration Report on pages 82 to 109.\nThe total amount of remuneration paid to Directors for the year ended 31 December 2025 was £10,834,729 (2024: £7,670,542). £5,819,361 of this\nwas attributed to the highest paid Director (2024: £4,078,266). A cash allowance in lieu of company contributions to a pension scheme was also\npaid to two Directors (2024: two), which totalled £272,182 (2024: £245,888).\n186 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2227, "tables": [ [ [ "1", "–", "–", null, "8,505", "1,701" ], [ "–", "–", "–", null, "–", "6,962" ], [ "–", "–", "–", null, "–", "(6,962)" ], [ "–", "–", "–", null, "(61)", "(12)" ], [ "1", "–", "–", null, "8,444", "1,689" ] ] ], "table_count": 1 }, { "pdf_page": 189, "printed_page": 187, "section": "Financial Statements", "subsection": "Subsidiaries", "text": "As at 31 December 2025, the companies listed below and on the following pages were indirectly held by Rolls-Royce Holdings plc,\nexcept Rolls-Royce Group Limited and Rolls-Royce US Holdings Limited, which were 100% directly owned by Rolls-Royce Holdings plc,\nand Rolls-Royce plc in which Rolls-Royce Holdings plc directly owned 3.54%. The financial year end of each company is 31 December\nunless otherwise indicated.\n% of class\nCompany name Address Class of shares held\nAerospace Transmission Technologies GmbH 1 Adelheidstrasse 40, D-88046, Friedrichshafen, Germany Capital Stock 50\nAmalgamated Power Engineering Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Deferred 100\nOrdinary 100\nBristol Siddeley Engines Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nBrown Brothers & Company, Limited 3 Inchinnan Drive, Inchinnan, United Kingdom, PA4 9AF Ordinary 100\nC A Parsons & Company Limited 3 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nDerby Specialist Fabrications Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nEuropea Microfusioni Aerospaziali S.p.A. Zona Industriale AS1, 83040 Morra de Sanctis, Avellino, Italy Ordinary 100\nHeaton Power Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nJohn Thompson Cochran Limited 2 Inchinnan Drive, Inchinnan, United Kingdom, PA4 9AF 6% Cumulative 100\nPreference\nOrdinary 100\nKarl Maybach-Hilfe GmbH i.l. 4 Maybachplatz 1, 88045, Friedrichshafen, Germany Capital Stock 100\nKinolt Immo SA Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium Ordinary 100\nKinolt Sistemas de UPS SpA Bucarest No 17 Oficina, No 33, Previdencia, Santiago, Chile Ordinary 100\nKinolt UK Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nLLC Rolls-Royce Solutions Rus 2 Shabolovka Street 2, 119049, Moscow, Russian Federation Ordinary 100\nMTU Cooltech Power Systems Co., Limited 1 Building No 2, No 1633 Tianchen Road, Quingpu District, Equity 50\nShanghai, China\nMTU India Private Limited 5 6th Floor, RMZ Galleria, S/Y No. 144 Bengaluru, Bangalore, Ordinary 100\nKamataka 560,064, India\nMTU Polska Sp. z o.o. ul. Hoża 86, lokal 410, 00-682 Warsaw, Poland Ordinary 100\nNEI International Combustion Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nNEI Mining Equipment Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nNEI Nuclear Systems Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nNEI Parsons Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nNEI Peebles Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nNEI Power Projects Limited 4 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nNightingale Insurance Limited PO Box 33, Dorey Court, Admiral Park, St Peter Port GY1 4AT, Ordinary 100\nGuernsey\nNo-Break Power Limited 4 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nPowerfield Limited Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nPT Rolls-Royce Secure Building Blok B, Jl. Raya Protokol Halim, Perdanakusuma, Ordinary 100\nJakarta, 13610, Indonesia\nPT Rolls Royce Solutions Indonesia Secure Building Blok B, Jl. Raya Protokol Halim, Perdanakusuma, Ordinary 100\nJakarta, 13610, Indonesia\nRolls-Royce (Ireland) Unlimited Company Ulster International Finance, 1st Floor IFSC House, IFSC Dublin, Ordinary 100\nDublin, County Dublin, DO1R 2P9, Ireland\nRolls-Royce (Thailand) Company Limited 101 True Digital Park, Pegasus Building, 5th Floor, Unit 558 Ordinary 100\nSukhumvit Road, Bangchak, Pharakhanong, Bangkok, 10260,\nThailand\nRolls-Royce Aero Engine Services Limited 4 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nRolls-Royce Australia Pty Limited Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia Ordinary 100\nRolls-Royce Australia Services Pty Limited Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia Ordinary 100\nRolls-Royce Brasil Limitada Rua Jose Versolato, No. 111, Torre B, Sala 2502, Centro, São Quotas 100\nBernando do Campo, São Paulo, CEP 09750-730, Brazil\nRolls-Royce Canada Limited 9500 Côte de Liesse, Lachine, Québec H8T 1A2, Canada Common 100\nStock\nRolls-Royce Chile SpA Rosario Norte #407 Depto. #1601 Comuna Las Condes Ciudad Ordinary 100\nSantiago, Chile\nRolls-Royce China Holding Limited 305 Indigo Building 1, 20 Jiuxianqiao Road, Beijing, 100016, China Ordinary 100\nRolls-Royce Commercial Aero Engines Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nLimited 4\nRolls-Royce Controls and Data Services Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nLimited 3\nRolls-Royce Corporation Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce Crosspointe LLC Corporation Service Company, 251 Little Falls Drive, Wilmington, Partnership 100\nDelaware 19808, United States\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 187\nFINANCIAL\nSTATEMENTS\nSubsidiaries", "char_count": 5122, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 190, "printed_page": 188, "section": "Financial Statements", "subsection": "Subsidiaries", "text": "SUBSIDIARIES\n% of class\nCompany name Address Class of shares held\nRolls-Royce Defense Products and Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nSolutions Inc. Delaware 19808, United States Stock\nRolls-Royce Defense Services Inc. Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce Deutschland Ltd & Co KG Eschenweg 11, 15827 Blankenfelde-Mahlow OT Dahlewitz, Germany Partnership 100\nRolls-Royce Electrical Norway AS Jarleveien 8A, 7041, Trondheim, Norway Ordinary 100\nRolls-Royce Energy Angola, Limitada Casa no. 174, Largo Leite Duarte, Bairro Miramar, Luanda, Quota 100\nMunicipality of Ingombota, Angola\nRolls-Royce Energy Systems Inc. 2 Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce Engine Services Holdings Co. Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce Engine Services Limitada Inc. 4 Bldg. 06 Berthaphil Compound, Jose Abad Santos Avenue, Capital Stock 100\nClark Special Economic Zone, Clark, Pampanga, Philippines\nRolls-Royce Erste Beteiligungs GmbH Eschenweg 11, 15827 Blankenfelde-Mahlow OT Dahlewitz, Germany Capital Stock 100\nRolls-Royce Finance Company Limited 4 Kings Place, 90 York Way, London N1 9FX, United Kingdom Deferred 100\nOrdinary 100\nRolls-Royce Finance Holdings Co. Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce Fuel Cell Systems Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce General Partner (Ireland) 29 Earlsfort Terrace, Dublin 2, Dublin D02 AY28, Ireland Ordinary 100\nLimited\nRolls-Royce General Partner Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nRolls-Royce Group Limited 3, 6 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nRolls-Royce High Temperature Corporation Service Company, 2710 Gateway Oaks Drive, Ordinary 100\nComposites Inc. Suite 150N, Sacramento, California 95833, United States\nRolls-Royce Holdings Canada Inc. 9500 Côte de Liesse, Lachine, Québec H8T 1A2, Canada Common C 100\nRolls-Royce Hungary Kft. “v.a.” 4 Kacsa utca 15-23. 1. ép. Fsz., Budapest, 1027, Hungary Cash shares 100\nRolls-Royce India Limited 5, 7 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce India Private Limited 5 Birla Tower West, 2nd Floor 25, Barakhamba Road, New Delhi, Equity 100\n110001, India\nRolls-Royce Industrial & Marine Power Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nLimited 3\nRolls-Royce Industrial Power (India) Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nLimited 5, 7\nRolls-Royce Industrial Power Engineering Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\n(Overseas Projects) Limited 3\nRolls-Royce Industries Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce International Limited Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce Japan Co., Limited 31st Floor, Kasumigaseki Building, 3-2-5 Kasumigaseki, Ordinary 100\nChiyoda-Ku, Tokyo, 100-6031, Japan\nRolls-Royce Leasing Limited Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce Malaysia Sdn. Bhd. Unit A-3-6 TTDI Plaza, Jalan Wan Kadir 3, Taman Tun Dr Ismail, Ordinary 100\n6000 Kuala Lumpur, Malaysia\nRolls-Royce Military Aero Engines Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nLimited 5, 7\nRolls-Royce New Zealand Limited Deloitte Centre, Level 20, 1 Queen Street, Auckland, 10103, Ordinary 100\nNew Zealand\nRolls-Royce North America (USA) Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nHoldings Co. Delaware 19808, United States Stock\nRolls-Royce North America Holdings Inc. Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce North America Inc. Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce North America Ventures Inc. Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nDelaware 19808, United States Stock\nRolls-Royce North American Corporation Service Company, 251 Little Falls Drive, Wilmington, Common 100\nTechnologies Inc. Delaware 19808, United States Stock\nRolls-Royce Oman LLC Bait Al Reem, Business Office #131, Building No 81, Way No 3409, Ordinary 100\nBlock No 234, Al Thaqafa Street, Al Khuwair, PO Box 20,\nPostal Code 103, Oman\nRolls-Royce Operations (India) Birla Tower West, 2nd Floor, 25 Barakhamba Road, New Delhi, Ordinary 100\nPrivate Limited 2, 5 110001, India\n188 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4879, "tables": [], "table_count": 0 }, { "pdf_page": 191, "printed_page": 189, "section": "Financial Statements", "subsection": "Subsidiaries", "text": "% of class\nCompany name Address Class of shares held\nRolls-Royce Overseas Holdings Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nOrdinary A 100\nRolls-Royce Overseas Investments Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce Placements Limited 4 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nRolls-Royce plc 8 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nRolls-Royce Power Engineering Limited Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce Power Systems AG Maybachplatz 1, 88045, Friedrichshafen, Germany Ordinary 100\nRolls-Royce Retirement Savings Trust Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nLimited 2, 5\nRolls-Royce Saudi Arabia Limited 3010 – Al Arid, Riyadh 13332 – 7663, Saudi Arabia Cash shares 100\nRolls-Royce Singapore Pte. Ltd. 6 Shenton Way, #33-00 OUE, Downtown Singapore 068809, Ordinary 100\nSingapore\nRolls-Royce Solutions (Suzhou) Co. Ltd 9 Long Yun Road, Suzhou Industrial Park, Suzhou 215024, Ordinary 100\nJiang Su, China\nRolls-Royce Solutions Africa (Pty) Limited 36 Marconi Street, Montague Gardens, Cape Town, 7441, Capital Stock 100\nSouth Africa\nRolls-Royce Solutions America Inc. 100 West Tenth Street, Wilmington – Delaware DE 19808, Ordinary 100\nUnited States\nRolls-Royce Solutions Asia Pte. Limited 10 Tukang Innovation Drive, Singapore 618302 Ordinary 100\nRolls-Royce Solutions Augsburg GmbH Dasinger Strasse 11, 86165, Augsburg, Germany Capital Stock 100\nRolls-Royce Solutions Benelux B.V. Merwedestraat 86, 3313 CS, Dordrecht, Netherlands Ordinary 100\nRolls-Royce Solutions Brasil Limitada Via Anhanguera, KM 29203, 05276-000 São Paulo – SP, Brazil Quotas 100\nRolls-Royce Solutions Enerji Deniz Ve Hatira Sokak, No. 5, Ömerli Mahellesi, 34555 Arnavutköy, Ordinary 100\nSavunma Anonim Şirketi Istanbul, Türkiye\nRolls-Royce Solutions France S.A.S. Immeuble Colorado, 8/10 rue de Rosa Luxembourg-Parc Ordinary 100\ndes Bellevues 95610, Erangy-sur-Oise, France\nRolls-Royce Solutions GmbH Maybachplatz 1, 88045, Friedrichshafen, Germany Capital Stock 100\nRolls-Royce Solutions Hong Kong Limited 14/F, Chinabest International Centre, 8 Kwai On Road, Kwai Chung, Ordinary 100\nN.T., Hong Kong\nRolls-Royce Solutions Ibérica s.l.u. Paseo de las Flores 46, 28823 Coslada, Madrid, Spain Ordinary 100\nRolls-Royce Solutions Israel Limited 6 Meir Ariel St., Natanya, Israel Ordinary 100\nRolls-Royce Solutions Italia S.r.l. Via Aurelia Nord, 328, 19021 Arcola (SP), Italy Capital Stock 100\nRolls-Royce Solutions Japan Co. Limited 14-3, Nishitenma 4-chome, Kita-ku, Osaka 530-0047, Japan Ordinary 100\nRolls-Royce Solutions Korea Limited Unit 301, The Square, 9 Mulgeum-ro, Mulgeum-eup, Yangsan-si, Ordinary 100\nGyeongsangnam-do 50657, Republic of Korea\nRolls-Royce Solutions Liège Holding S.A. Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium Ordinary 100\nRolls-Royce Solutions Liège S.A. Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium Ordinary 100\nRolls-Royce Solutions Magdeburg GmbH Friedrich-List-Strasse 8, 39122 Magdeburg, Germany Capital Stock 100\nRolls-Royce Solutions Malaysia Sdn. Bhd. Office no. B329, Spaces Platinum Sentral, Lot G02-G07, Ordinary 100\nLevel 3 Platinum Sentral, Jalan Stesen Sentral 2,\n50470 Kuala Lumpur, Malaysia\nRolls-Royce Solutions Mexico City S.A. Xochicalco 620, Colonia Letran Valle, Delegacion Benito Juarez, Common 100\nde C.V. 2 Mexico City 03650, Mexico Shares\nRolls-Royce Solutions Middle East FZE S3B5SR06, Jebel Ali Free Zone, South P.O. Box 61141, Dubai, Ordinary 100\nUnited Arab Emirates\nRolls-Royce Solutions Ruhstorf GmbH Rotthofer Strasse 8, 94099 Ruhstorf a.d. Rott, Germany Capital Stock 100\nRolls-Royce Solutions South Africa (Pty) 36 Marconi Street, Montague Gardens, Cape Town, 7441, Ordinary 100\nLimited South Africa\nRolls-Royce Solutions Trading and REGUS Service Office, Office No. 1034, Shoumoukh Tower, Ordinary 49\nContracting LLC 9 10th Floor, Tower B, C-Ring Road, Al Sadd, PO Box 207207,\nDoha, Qatar\nRolls-Royce Solutions UK Limited Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls-Royce Solutions Willich GmbH Konrad-Zuse-Str. 3, 47877, Willich, Germany Capital Stock 100\nRolls-Royce Sp z.o.o. Opolska 100 31-323, Krakow, Poland Ordinary 100\nRolls-Royce Submarines Limited Atlantic House, Raynesway, Derby, Derbyshire DE21 7BE, Ordinary 100\nUnited Kingdom\nRolls-Royce Technical Support Sarl Site Motoristes Vendor-Village, 46 avenue Jean Monnet, Ordinary 100\n31770, Colomiers, France\nRolls-Royce Total Care Services Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nRolls Royce Turkey Güç Çözümleri San. ve Cumhuriyet Mah. Yakacık D-100 Kuzey Yanyol Cad. No: 25 Kartal, Cash shares 100\nTic.Ltd.Şti. Istanbul, Türkiye\nRolls-Royce UK Pension Fund Trustees Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nLimited 2\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 189\nFINANCIAL\nSTATEMENTS\nSUBSIDIARIES", "char_count": 5016, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 192, "printed_page": 190, "section": "Financial Statements", "subsection": "Subsidiaries", "text": "SUBSIDIARIES\n% of class\nCompany name Address Class of shares held\nRolls-Royce US Holdings Limited Kings Place, 90 York Way, London, N1 9FX, United Kingdom Ordinary 100\nRolls-Royce Zweite Beteiligungs GmbH Eschenweg 11, 15827 Blankenfelde-Mahlow OT Dahlewitz, Germany Capital Stock 100\nRoss Ceramics Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nServowatch Systems Limited 4 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nSharing in Growth UK Limited 10 Moor Lane, Allenton, Derby DE24 9HY, United Kingdom Limited by 100\nguarantee\nSpare IPG 20 Limited 3 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nSpare IPG 21 Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nSpare IPG 24 Limited 3 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nSpare IPG 32 Limited 3 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nSpare IPG 4 Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nTeam Italia Marine S.R.L. Kampanien, Via Luigi Einaudi 114/B, 61032 Fano, Pesaro and Urbino, Ordinary 100\nItaly\nThe Bushing Company Limited 3 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nTimec 1487 Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nTurbine Surface Technologies Limited 1 Unit 13a, Little Oak Drive, Sherwood Park, Annesley, Ordinary A Nil\nNottinghamshire NG15 0DR, United Kingdom Ordinary B 100\nVessel Lifter Inc. 2 Corporation Service Company, 1201 Hays Street, Tallahassee, Common 100\nFlorida 32301, United States Stock\nVinters Defence Systems Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nVinters Engineering Limited Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nVinters International Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nVinters Limited 3 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 100\nVinters-Armstrongs (Engineers) Limited 2 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nVinters-Armstrongs Limited 3 Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary B 100\nYocova Private Ltd Kings Place, 90 York Way, London N1 9FX, United Kingdom Ordinary 100\nYocova PTE. Ltd. 2 6 Shenton Way, #33-00 OUE, Downtown Singapore 068809, Ordinary 100\nSingapore\n1 Although the interest held is 50%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records\na non-controlling interest\n2 Dormant entity\n3 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ended 31 December 2025. The Company will issue a guarantee pursuant to s479A in relation\nto the liabilities of the entity\n4 Entity in liquidation\n5 Reporting year end is 31 March 2026\n6 On 8 January 2026, the Company contributed its 100% direct holding in Rolls-Royce Group Limited to Rolls-Royce plc\n7 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ending 31 March 2026. The Company will issue a guarantee pursuant to s479A in relation to\nthe liabilities of the entity\n8 On 1 January 2026, the Company received the remaining 96.46% shares of Rolls-Royce plc by way of distribution from its direct subsidiary Rolls-Royce Group Limited, bringing the\nCompany’s direct holding to 100%\n9 Although the interest held is 49%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records a\nnon-controlling interest\n10 The entity is not included in the consolidation, as the Company does not have a beneficial interest in the net assets of the entity\n11 The entity is accounted for as a joint operation (see note 1 to the Consolidated Financial Statements)\n12 Reporting year end is 30 June 2026\n13 Entity is accounted for as a joint venture as approval is required from the other shareholder for operationally running the affairs of the entity\n190 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4126, "tables": [], "table_count": 0 }, { "pdf_page": 193, "printed_page": 191, "section": "Financial Statements", "subsection": "Joint ventures and associates", "text": "Group\ninterest\n% of class held\nCompany name Address Class of shares held %\nAero Gearbox International SAS 11 18 Boulevard Louis Sequin, 92700 Colombes, France Ordinary 50 50\nAirtanker Services Limited Airtanker Hub, RAF Brize Norton, Carterton, Ordinary 23.5 23.5\nOxfordshire OX18 3LX, United Kingdom\nAlpha Leasing (US) (No.2) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Leasing (US) (No.4) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Leasing (US) (No.5) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Leasing (US) (No.6) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Leasing (US) (No.7) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Leasing (US) (No.8) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Leasing (US) LLC Corporation Service Company, 251 Little Falls Drive, Partnership – 50\nWilmington, Delaware 19808, United States\nAlpha Partners Leasing Limited 1 Brewer’s Green, London SW1H 0RH, United Kingdom Ordinary A 100 50\nOrdinary B Nil\nBeijing Aero Engine Services Company No. 12 Jinhang Middle Road, Shunyi District, (Tianzhu Capital 50 50\nLimited Comprehensive Bonded Zone Bonded Function Zone 2),\nBeijing, China\nCFMS Limited 43 Queen Square, Bristol BS1 4QP, United Kingdom Limited by – 33.3\nguarantee\nClarke Chapman Portia Port Services Maritime Centre, Port of Liverpool, Liverpool L21 1LA, Ordinary A 100 50\nLimited 2 United Kingdom Ordinary B Nil\nEgypt Aero Management Services 4 Maintenance and Technical Works Company Building, Ordinary 50 50\nRoom No. 204, Second Floor, Airport Road, El Nozha,\nCairo\nEPI Europrop International GmbH Pelkovenstr. 147, 80992 München, Germany Capital Stock 28 28\nEurojet Turbo GmbH Lilienthalstrasse 2b, 85399 Halbergmoos, Germany Ordinary 33 33\nForce MTU Power Systems Private Limited Mumbai Pune Road, Akurdi, Pune, Maharashtra 411035, Capital Stock 49 49\nIndia\nGenistics Holdings Limited 12 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary A 100 50\nOrdinary B Nil\nGlacier L.P. 66 Wellington Street West, Toronto Dominion, Bank Partnership 49.9 49.9\nTower, Suite 300, Toronto, ON M5K 1E6, Canada\nGlobal Aerospace Centre for Icing and 1000 Marie-Victorin Boulevard, Longueuil Québec Ordinary 50 50\nEnvironmental Research Inc. 11 J4G 1A1, Canada\nHoeller Electrolyzer GmbH 4, 13 Alter Holzhafen, 23966 Wismar, Germany Ordinary 54.2 54.2\nHong Kong Aero Engine Services Limited 33rd Floor, One Pacific Place, 88 Queensway, Hong Kong Ordinary 50 50\nInternational Aerospace Manufacturing Survey No. 3 Kempapura Village, Varthur Hobli, Ordinary 50 50\nPrivate Limited 5, 11 Bangalore, KA 560037, India\nITP Next Generation Turbines SL Parque Tecnologico Edificio 300, 48170, Zamudio, Ordinary A Nil 25\nVizcaya, Spain Ordinary B 100\nLight Helicopter Turbine Engine Company Suite 119, 9238 Madison Boulevard, Madison, Partnership – 50\n(unincorporated partnership) Alabama 35758, United States\nManse Opus Management Company Third Floor Queensberry House, 3 Old Burlington Street, Limited by 33.3 33.3\nLimited 5 London W1S 3AE, United Kingdom guarantee\nMEST Co., Limited 97 Bukjeonggongdan 2-gil, Yangsan-si, Normal 46.8 46.8\nGyeongsangnam-do, 50571, Republic of Korea\nMTU Power Systems Sdn. Bhd. 32 Floor, UBN Tower 20 Jalan P Ramlee, Ordinary A 100 49\n50250 Kuala Lumpur, Malaysia Ordinary B Nil\nMTU Turbomeca Rolls-Royce ITP GmbH Am Söldnermoos 17, 85399 Hallbergmoos, Germany Capital Stock 25 25\nMTU Turbomeca Rolls-Royce GmbH Am Söldnermoos 17, 85399 Hallbergmoos, Germany Capital Stock 33.3 33.3\nMTU Yuchai Power Company Limited No 7 Danan Road, Yuzhou, Yulin, Guangxi, China, 537005, Capital Stock 50 50\nChina\nN3 Engine Overhaul Services GmbH Gerhard-Höltje-Strasse 1, D-99310, Arnstadt, Germany Capital Stock 50 50\n& Co KG\nN3 Engine Overhaul Services Gerhard-Höltje-Strasse 1, D-99310, Arnstadt, Germany Capital Stock 50 50\nVerwaltungsgesellschaft Mbh\nRolls Laval Heat Exchangers Limited 2 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 50 50\nRolls-Royce & Partners Finance (US) 66 Wellington Street West, Toronto Dominion, Bank Partnership – 50\n(No 2) LLC Tower, Suite 300, Toronto, ON M5K 1E6, Canada\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 191\nFINANCIAL\nSTATEMENTS\nJoint ventures and associates", "char_count": 4633, "tables": [], "table_count": 0, "rotated_text": [ "FINANCIAL STATEMENTS" ] }, { "pdf_page": 194, "printed_page": 192, "section": "Financial Statements", "subsection": "Joint ventures and associates", "text": "JOINT VENTURES AND ASSOCIATES\nGroup\ninterest\n% of class held\nCompany name Address Class of shares held %\nRolls-Royce & Partners Finance (US) LLC 66 Wellington Street West, Toronto Dominion, Bank Partnership –\n50\nTower, Suite 300, Toronto, ON M5K 1E6, Canada\nRolls-Royce SMR Limited 13 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom Ordinary 57.8 57.8\nSAFYRR Propulsion Limited 2 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom A Shares Nil 50\nB Shares 100\nSingapore Aero Engine Services 11 Calshot Road, 509932, Singapore Ordinary 50 50\nPrivate Limited\nTechjet Aerofoils Limited 11 Tefen Industrial Zone, PO Box 16, 24959, Israel Ordinary A 50 50\nOrdinary B 50\nTRT Limited 2 Bramble Way, Clover Nook Industrial Estate, Ordinary A Nil 50\nSomercotes, Derbyshire, DE55 4RH, United Kingdom Ordinary B 100\n1C Nil\nTurbo-Union GmbH Lilienthalstrasse 2b, 85399 Halbergmoos, Germany Capital Stock 40 40\nX R Aero Components Limited 11 Xujiawan, Beijiao, Xian 710021, Shaanxi, China Ordinary 49 49\n1 Although the interest held is 50%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records\na non-controlling interest\n2 Dormant entity\n3 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ended 31 December 2025. The Company will issue a guarantee pursuant to s479A in relation\nto the liabilities of the entity\n4 Entity in liquidation\n5 Reporting year end is 31 March 2026\n6 On 8 January 2026, the Company contributed its 100% direct holding in Rolls-Royce Group Limited to Rolls-Royce plc\n7 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ending 31 March 2026. The Company will issue a guarantee pursuant to s479A in relation to\nthe liabilities of the entity\n8 On 1 January 2026, the Company received the remaining 96.46% shares of Rolls-Royce plc by way of distribution from its direct subsidiary Rolls-Royce Group Limited, bringing the\nCompany’s direct holding to 100%\n9 Although the interest held is 49%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records a\nnon-controlling interest\n10 The entity is not included in the consolidation, as the Company does not have a beneficial interest in the net assets of the entity\n11 The entity is accounted for as a joint operation (see note 1 to the Consolidated Financial Statements)\n12 Reporting year end is 30 June 2026\n13 Entity is accounted for as a joint venture as approval is required from the other shareholder for operationally running the affairs of the entity\n192 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2717, "tables": [], "table_count": 0 }, { "pdf_page": 195, "printed_page": 193, "section": "Other Information", "subsection": "Independent auditors' report", "text": "Report on the audit of the financial statements — The group engagement team audited the company and other\ncentralised functions and balances, including those relating\nOpinion to group treasury operations, corporate taxation, post-retirement\nIn our opinion: benefits, and certain goodwill and intangible asset impairment\nassessments. The group engagement team also performed audit\n— Rolls-Royce Holdings plc’s group financial statements and company procedures over the group consolidation and the financial\nfinancial statements (the “financial statements”) give a true and fair statements disclosures.\nview of the state of the group’s and of the company’s affairs as at\n— The components on which we performed full scope audit\n31 December 2025 and of the group’s profit and the group’s cash\nprocedures, together with the work performed by the group\nflows for the year then ended;\nengagement team as identified above, accounted for 93% of\n— the group financial statements have been properly prepared revenue and 79% of profit before taxation.\nin accordance with UK-adopted international accounting\n— For non–full scope components that were not considered\nstandards as applied in accordance with the provisions of the\ninconsequential, we either performed audit procedures over\nCompanies Act 2006;\nspecific account balances or targeted risk assessment procedures.\n— the company financial statements have been properly prepared in\n— Some centralised audit testing was performed for certain reporting\naccordance with United Kingdom Generally Accepted Accounting\ncomponents that are supported by Group Business Services (GBS).\nPractice (United Kingdom Accounting Standards, including FRS 101\n“Reduced Disclosure Framework”, and applicable law); and — As part of the group audit supervision process, the group\nengagement team met with the component teams to discuss the\n— the financial statements have been prepared in accordance with\napproach and results of their audit procedures and reviewed their\nthe requirements of the Companies Act 2006.\naudit files and final deliverables. In person site visits to components\nin the UK, Germany and the US were also performed.\nWe have audited the financial statements, included within the\nAnnual Report, which comprise:\nKey audit matters\n— the consolidated and company balance sheets as at — Long-term contract accounting and associated provisions (group)\n31 December 2025; — Translation of foreign currency denominated transactions and\n— the consolidated income statement, the consolidated statement balances (group)\nof comprehensive income, the consolidated cash flow statement, — Presentation and accuracy of underlying results and disclosure of\nthe consolidated and company statements of changes in equity other one-off items (including exceptional items) (group)\nfor the year then ended; and\n— Recoverability of the company’s investments in subsidiary\n— the notes to the financial statements, comprising material undertakings (company)\naccounting policy information and other explanatory information.\nMateriality\nOur opinion is consistent with our reporting to the Audit Committee. — Overall group materiality: £200m (2024: £178m) based on\napproximately 1.0% of underlying revenue.\nBasis for opinion\nWe conducted our audit in accordance with International Standards — Overall company materiality: £150m (2024: £149m) based on\non Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities approximately 1.0% of total assets.\nunder ISAs (UK) are further described in the Auditors’ responsibilities — Performance materiality: £150m (2024: £110m) (group) and £112m\nfor the audit of the financial statements section of our report. We (2024: £111m) (company).\nbelieve that the audit evidence we have obtained is sufficient and\nappropriate to provide a basis for our opinion.\nThe scope of our audit\nAs part of designing our audit, we determined materiality and\nIndependence assessed the risks of material misstatement in the financial statements.\nWe remained independent of the group in accordance with the\nethical requirements that are relevant to our audit of the financial\nKey audit matters\nstatements in the UK, which includes the FRC’s Ethical Standard, as\nKey audit matters are those matters that, in the auditors’ professional\napplicable to listed public interest entities, and we have fulfilled our\njudgement, were of most significance in the audit of the financial\nother ethical responsibilities in accordance with these requirements.\nstatements of the current period and include the most significant\nassessed risks of material misstatement (whether or not due to fraud)\nTo the best of our knowledge and belief, we declare that non-audit\nidentified by the auditors, including those which had the greatest\nservices prohibited by the FRC’s Ethical Standard were not provided.\neffect on: the overall audit strategy; the allocation of resources\nin the audit; and directing the efforts of the engagement team. These\nOther than those disclosed in note 8, we have provided no non-audit\nmatters, and any comments we make on the results of our procedures\nservices to the company or its controlled undertakings in the period\nthereon, were addressed in the context of our audit of the financial\nunder audit.\nstatements as a whole, and in forming our opinion thereon, and we\ndo not provide a separate opinion on these matters.\nOur audit approach\nOverview This is not a complete list of all risks identified by our audit.\nAudit scope\n— Following our assessment of the risks of material misstatement Deferred tax asset recognition and recoverability (group), which\nof the financial statements, including the impact of climate was a key audit matter last year, is no longer included because of\nchange, we subjected 31 individual components (including three the full recognition of the deferred tax asset relating to UK tax losses in\njoint ventures) to full scope audits for group reporting purposes, Rolls-Royce plc reflecting the sustained profitability of the group and\nwhich, with an element of sub-consolidation, equates to 14 group an improved outlook. Accordingly, the recognition and recoverability\nreporting opinions. In addition, nine components performed of the deferred tax asset is no longer considered a significant risk.\ntargeted specified audit procedures contributing to Otherwise, the key audit matters below are consistent with last year.\naudit coverage.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 193\nOTHER\nINFORMATION\nIndependent auditors’ report\nIndependent auditors’ report to the members of Rolls-Royce Holdings plc", "char_count": 6573, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 196, "printed_page": 194, "section": "Other Information", "subsection": "Independent auditors' report", "text": "INDEPENDENT AUDITORS’ REPORT\nKey audit matter How our audit addressed the key audit matter\nLong-term contract accounting and associated provisions We focused our work on a number of contracts where we consider\n(group) there to be the highest degree of management judgement or\nAudit Committee report and note 1 to the consolidated financial estimation and designed specific procedures over the long-term\nstatements – Accounting policies – Revenue recognition and contract accounting targeted at the associated risks. We also\nsample tested the remaining population of contracts. The audit\ncontract assets and liabilities , note 17 to the consolidated\nprocedures performed included:\nfinancial statements – Contract assets and liabilities and note 23\nto the consolidated financial statements – Provisions for liabilities\n— We attended meetings with Civil Aerospace and Defence\nand charges\nengine programme and customer contract managers in order to\nThe Civil Aerospace and Defence businesses operate primarily understand the operational matters impacting the performance\nwith long-term customer contracts that span multiple periods. of specific contracts and any amendments to contractual\nThese long-term contracts require a number of assumptions to arrangements that could have an impact on performance;\nbe made in order to determine the expected lifetime revenue and\n— We obtained and read the relevant sections of a sample of\ncosts of the contract and the amounts of revenue and profit/loss\ncontracts to understand the key terms including performance\nthat are recognised in each reporting period.\nobligations and pricing structures;\nSmall adjustments in assumptions can have a significant impact\n— We assessed how management had forecast engine flying hours\non the results of an individual financial year. Changes to the\nincluding by considering the downside scenarios modelled and\nprofile of shop visits or operating conditions of engines can\ncomparing the assumptions to industry data;\nresult in different performance assumptions and hence cost\nprofiles. Some contracts include inflation linked price escalations — We challenged management’s judgments and associated risk\nwhich require judgement to determine the extent to which future adjustments relating to the risk of engine flying hours, costs and\nprice increases are highly probable not to reverse and therefore technical items;\ncan be recognised. These changes to forecasts can result in\n— We re-performed the calculations used to determine the\nrevisions to the revenue previously recognised.\ndegree of completion for a sample of contracts and this was also\nFor Defence, long-term contracts tend to be for a fixed price or used in assessing the magnitude of any catch-up adjustments;\nbased on a cost plus or target cost reimbursement for qualifying\n— We compared the previously forecast results of a sample of\ncosts and there are also some flying hours arrangements.\ncontracts with the actual results to assess the performance of\nFor Civil Aerospace aftermarket contracts, income is earned\nthe contract and the historical accuracy of forecasting;\nbased on engine flying hours (EFH). Management is required to\nestimate this to determine the total revenue expected over the life — We verified a sample of costs incurred to third party\nof a contract. documentation to assess the validity of the forecast costs\nto complete;\nIn addition, the profitability of Civil Aerospace aftermarket\ncontracts typically assumes that there will be lifecycle cost — We assessed the assumptions relating to life cycle cost\nimprovements over the term of the contracts. Significant reductions to determine the likelihood of realisation and where\nassumptions need to be made in determining time-on-wing, relevant the speed at which they would be achieved, including\nwhether incremental costs should be treated as wastage or are the impact on the number of shop visits, validating these\npart of the ongoing cost of servicing a contract, future exchange assumptions directly with the senior programme engineers;\nrates used to translate foreign currency income and costs and\n— We obtained support for the risk adjustments made in respect\nother operating parameters used to calculate the projected\nof future costs and challenged management’s assumptions\nlife cycle. These future costs are also risk adjusted to take\nthrough assessment against historical performance, known\ninto account forecasting accuracy which represents an\ntechnical issues and the stage of completion of the programme;\nadditional judgement.\n— We recalculated the price escalation included within\nAt the development stage of a programme, agreements are\nthe contracts;\nentered into with certain Civil Aerospace suppliers to share in\nthe risk and rewards of the contracts (Risk and Revenue Sharing — We challenged the assessment of provisions for onerous\nAgreements – ‘RRSA’). This can involve upfront participation fees contracts to determine the completeness of the unavoidable\nfrom the RRSA that are amortised over the engine production costs to fulfil the contractual obligations. We also validated\nphase. In addition, certain revenue and costs are recorded in the the rates used to discount the future cash flows;\nconsolidated income statement net of the amounts received from\n— We assessed the sensitivity of the Trent 1000 programme to\nthe RRSA.\nreasonable changes in estimates, particularly in respect of the\nThe nature of the Civil Aerospace business gives rise to a repair and overhaul facility capacity, technical cost creep on\nnumber of contractual guarantees, warranties and potential the known issues and cost outturns against previous similar\nclaims, including the in-service issues of the Trent 1000 matters, including whether any costs should be treated\nprogramme. The accounting for these can be complex and as wastage, in determining whether the judgements\njudgemental and may impact the consolidated income statement were supportable;\nimmediately or over the life of the contract. The valuation of\n— We read and understood the key terms of a sample of RRSA\nprovisions for the associated amounts are judgemental and\ncontracts to assess whether revenue and costs had been\nneed to be considered on a contract by contract basis.\nappropriately reflected, net of the share attributable to the\nRRSA in the consolidated income statement;\n194 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6395, "tables": [ [ [ "Long-term contract accounting and associated provisions (group) Audit Committee report and note 1 to the consolidated financial statements – Accounting policies – Revenue recognition and contract assets and liabilities , note 17 to the consolidated financial statements – Contract assets and liabilities and note 23 to the consolidated financial statements – Provisions for liabilities and charges The Civil Aerospace and Defence businesses operate primarily with long-term customer contracts that span multiple periods. These long-term contracts require a number of assumptions to be made in order to determine the expected lifetime revenue and costs of the contract and the amounts of revenue and profit/loss that are recognised in each reporting period. Small adjustments in assumptions can have a significant impact on the results of an individual financial year. Changes to the profile of shop visits or operating conditions of engines can result in different performance assumptions and hence cost profiles. Some contracts include inflation linked price escalations which require judgement to determine the extent to which future price increases are highly probable not to reverse and therefore can be recognised. These changes to forecasts can result in revisions to the revenue previously recognised. For Defence, long-term contracts tend to be for a fixed price or based on a cost plus or target cost reimbursement for qualifying costs and there are also some flying hours arrangements. For Civil Aerospace aftermarket contracts, income is earned based on engine flying hours (EFH). Management is required to estimate this to determine the total revenue expected over the life of a contract. In addition, the profitability of Civil Aerospace aftermarket contracts typically assumes that there will be lifecycle cost improvements over the term of the contracts. Significant assumptions need to be made in determining time-on-wing, whether incremental costs should be treated as wastage or are part of the ongoing cost of servicing a contract, future exchange rates used to translate foreign currency income and costs and other operating parameters used to calculate the projected life cycle. These future costs are also risk adjusted to take into account forecasting accuracy which represents an additional judgement. At the development stage of a programme, agreements are entered into with certain Civil Aerospace suppliers to share in the risk and rewards of the contracts (Risk and Revenue Sharing Agreements – ‘RRSA’). This can involve upfront participation fees from the RRSA that are amortised over the engine production phase. In addition, certain revenue and costs are recorded in the consolidated income statement net of the amounts received from the RRSA. The nature of the Civil Aerospace business gives rise to a number of contractual guarantees, warranties and potential claims, including the in-service issues of the Trent 1000 programme. The accounting for these can be complex and judgemental and may impact the consolidated income statement immediately or over the life of the contract. The valuation of provisions for the associated amounts are judgemental and need to be considered on a contract by contract basis.", null, "We focused our work on a number of contracts where we consider there to be the highest degree of management judgement or estimation and designed specific procedures over the long-term contract accounting targeted at the associated risks. We also sample tested the remaining population of contracts. The audit procedures performed included: — We attended meetings with Civil Aerospace and Defence engine programme and customer contract managers in order to understand the operational matters impacting the performance of specific contracts and any amendments to contractual arrangements that could have an impact on performance; — We obtained and read the relevant sections of a sample of contracts to understand the key terms including performance obligations and pricing structures; — We assessed how management had forecast engine flying hours including by considering the downside scenarios modelled and comparing the assumptions to industry data; — We challenged management’s judgments and associated risk adjustments relating to the risk of engine flying hours, costs and technical items; — We re-performed the calculations used to determine the degree of completion for a sample of contracts and this was also used in assessing the magnitude of any catch-up adjustments; — We compared the previously forecast results of a sample of contracts with the actual results to assess the performance of the contract and the historical accuracy of forecasting; — We verified a sample of costs incurred to third party documentation to assess the validity of the forecast costs to complete; — We assessed the assumptions relating to life cycle cost reductions to determine the likelihood of realisation and where relevant the speed at which they would be achieved, including the impact on the number of shop visits, validating these assumptions directly with the senior programme engineers; — We obtained support for the risk adjustments made in respect of future costs and challenged management’s assumptions through assessment against historical performance, known technical issues and the stage of completion of the programme; — We recalculated the price escalation included within the contracts; — We challenged the assessment of provisions for onerous contracts to determine the completeness of the unavoidable costs to fulfil the contractual obligations. We also validated the rates used to discount the future cash flows; — We assessed the sensitivity of the Trent 1000 programme to reasonable changes in estimates, particularly in respect of the repair and overhaul facility capacity, technical cost creep on the known issues and cost outturns against previous similar matters, including whether any costs should be treated as wastage, in determining whether the judgements were supportable; — We read and understood the key terms of a sample of RRSA contracts to assess whether revenue and costs had been appropriately reflected, net of the share attributable to the RRSA in the consolidated income statement;" ] ] ], "table_count": 1 }, { "pdf_page": 197, "printed_page": 195, "section": "Other Information", "subsection": "Independent auditors' report", "text": "Key audit matter How our audit addressed the key audit matter\nLong-term contract accounting and associated — We considered the appropriateness of the key assumptions\nprovisions (group) continued used by management to model the impact of climate change,\nManagement have modelled the potential impact of climate including assessing the reasonableness of the carbon and\nchange on its forecasts and has incorporated these estimates commodity price forecasts utilised through sensitivity analysis.\ninto the long-term contracts for Civil Aerospace, which is the We validated management’s assertions on the ability of suppliers\nbusiness with the highest expected exposure to the impact and the group to pass on incremental costs by reviewing supplier\nof climate change. This included incorporating the potential and customer contracts for price change mechanisms. Where\nimpact of carbon prices on the group’s direct emissions appropriate we performed independent sensitivity analysis to\nincluding engine testing and those of its suppliers and the determine to what extent reasonably possible changes in these\npotential impact of climate change on commodity prices in cost assumptions could result in material changes to the revenue\nestimates. The impact of climate change on long-term contracts recorded in the year and assessed the appropriateness of the\nis highly uncertain and requires estimates on carbon prices, associated disclosures;\nthe cost and speed of decarbonisation, the ability of the group\n— We read and challenged management’s accounting papers that\nand its suppliers to pass on incremental costs and assessing the\nwere prepared to explain the positions taken in respect of their\nassociated impact on aviation demand.\nkey contract judgements;\n— We considered whether there were any indicators of\nmanagement bias in arriving at their reported position; and\n— We assessed the adequacy of disclosures in note 1 of\nthe key judgements and estimates involved in long-term\ncontract accounting.\nBased on the work performed, we concur that management’s\nestimates for long-term contract accounting and associated\nprovisions are materially appropriate, in the context of the\nfinancial statements taken as a whole.\nTranslation of foreign currency denominated transactions We performed the following specific audit procedures over\nand balances (group) this area:\nNote 1 to the consolidated financial statements – Accounting\npolicies – Foreign currency translation — Obtained an understanding of the process employed by\nmanagement to correctly record the translation of foreign\nForeign exchange rate movements influence the reported currency balances and transactions;\nconsolidated income statement, the consolidated cash flow\n— Obtained an understanding of the process employed by\nstatement and consolidated balance sheet. One of the group’s\nmanagement at a group level to identity any unusual\nprimary accounting systems that is used by a number of their\nmovements or balances;\nsubsidiaries translates transactions and balances denominated\nin foreign currencies at a fixed budget rate for management — Tested the reports identifying transactions and balances in\ninformation purposes. Foreign currency denominated transaction currency by agreeing these to general ledger\ntransactions and balances are then re-translated to actual average balances;\nand closing spot rates through manual adjustments. Due to the\nmanual nature of the process and significance of the recurring — Tested, on a sample basis, the manual calculations of the\nadjustments needed there is a risk that transactions and balances adjustment needed to correctly record the translation of the\ndenominated in foreign currencies are incorrectly translated in foreign currency denominated transactions and balances;\nthe consolidated financial statements. — Sampled balances and transactions requiring adjustment by\ntransaction currency and tested to source data and assessed\nthe completeness of these balances and transactions; and\n— Agreed the exchange rates used in management’s translation\nadjustments to an independent source.\nThere were no material uncorrected errors from our audit work.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 195\nOTHER\nINFORMATION\nINDEPENDENT AUDITORS’ REPORT", "char_count": 4247, "tables": [ [ [ "Long-term contract accounting and associated provisions (group) continued Management have modelled the potential impact of climate change on its forecasts and has incorporated these estimates into the long-term contracts for Civil Aerospace, which is the business with the highest expected exposure to the impact of climate change. This included incorporating the potential impact of carbon prices on the group’s direct emissions including engine testing and those of its suppliers and the potential impact of climate change on commodity prices in cost estimates. The impact of climate change on long-term contracts is highly uncertain and requires estimates on carbon prices, the cost and speed of decarbonisation, the ability of the group and its suppliers to pass on incremental costs and assessing the associated impact on aviation demand.", null, "— We considered the appropriateness of the key assumptions used by management to model the impact of climate change, including assessing the reasonableness of the carbon and commodity price forecasts utilised through sensitivity analysis. We validated management’s assertions on the ability of suppliers and the group to pass on incremental costs by reviewing supplier and customer contracts for price change mechanisms. Where appropriate we performed independent sensitivity analysis to determine to what extent reasonably possible changes in these assumptions could result in material changes to the revenue recorded in the year and assessed the appropriateness of the associated disclosures; — We read and challenged management’s accounting papers that were prepared to explain the positions taken in respect of their key contract judgements; — We considered whether there were any indicators of management bias in arriving at their reported position; and — We assessed the adequacy of disclosures in note 1 of the key judgements and estimates involved in long-term contract accounting. Based on the work performed, we concur that management’s estimates for long-term contract accounting and associated provisions are materially appropriate, in the context of the financial statements taken as a whole." ], [ "Translation of foreign currency denominated transactions and balances (group) Note 1 to the consolidated financial statements – Accounting policies – Foreign currency translation Foreign exchange rate movements influence the reported consolidated income statement, the consolidated cash flow statement and consolidated balance sheet. One of the group’s primary accounting systems that is used by a number of their subsidiaries translates transactions and balances denominated in foreign currencies at a fixed budget rate for management information purposes. Foreign currency denominated transactions and balances are then re-translated to actual average and closing spot rates through manual adjustments. Due to the manual nature of the process and significance of the recurring adjustments needed there is a risk that transactions and balances denominated in foreign currencies are incorrectly translated in the consolidated financial statements.", null, "We performed the following specific audit procedures over this area: — Obtained an understanding of the process employed by management to correctly record the translation of foreign currency balances and transactions; — Obtained an understanding of the process employed by management at a group level to identity any unusual movements or balances; — Tested the reports identifying transactions and balances in transaction currency by agreeing these to general ledger balances; — Tested, on a sample basis, the manual calculations of the adjustment needed to correctly record the translation of the foreign currency denominated transactions and balances; — Sampled balances and transactions requiring adjustment by transaction currency and tested to source data and assessed the completeness of these balances and transactions; and — Agreed the exchange rates used in management’s translation adjustments to an independent source. There were no material uncorrected errors from our audit work." ] ] ], "table_count": 1, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 198, "printed_page": 196, "section": "Other Information", "subsection": "Independent auditors' report", "text": "INDEPENDENT AUDITORS’ REPORT\nKey audit matter How our audit addressed the key audit matter\nPresentation and accuracy of underlying results and We have considered the judgements taken by management to\ndisclosure of other one-off items (including exceptional determine what should be treated as an exceptional item and the\nitems) (group) translation of foreign currency amounts and obtained\nNote 1 to the consolidated financial statements – Accounting corroborative evidence for these.\npolicies – Presentation of underlying results, note 2 to the We also considered whether there were items that were recorded\nconsolidated financial statements – Segmental analysis and within underlying profit that are exceptional in nature and should\nnote 30 to the consolidated financial statements – Derivation be reported as an exceptional item. No such material items were\nof summary funds flow statement identified. As part of this assessment we challenged management’s\nrationale for the designation of certain items as exceptional or\nIn addition to the performance measures prescribed by\none-off and assessed such items against the group’s accounting\nInternational Financial Reporting Standards, the group also\npolicy, considering the nature and value of those items.\npresents their results on an underlying basis, as the Directors\nbelieve this better reflects the performance of the group during Within underlying results, foreign currency transactions are\nthe year. The group also presents a free cash flow metric which presented at rates achieved on derivative contracts hedging the\nthe Directors believe reflects the cash generated from underlying net operating cash flows of the group and monetary assets and\ntrading. This differs from the cash flows presented in the liabilities are retranslated at rates forecast to be achieved on\nconsolidated cash flow statement. derivative contracts when the associated cash flows occur. We\nhave agreed these forecast rates to the profile of the derivatives\nThe underlying results differ significantly from the that are expected to mature in the future and tested their\nreported statutory results and are used extensively to explain application to the relevant monetary assets and liabilities.\nperformance to shareholders. Alternative performance\nWe tested the reconciling items between the operating profit and\nmeasures can provide investors with additional understanding of\nfree cash flow disclosed in note 30 including verifying that the\nthe group’s performance if consistently calculated, properly used\nitems adjusted for are consistent with the prior year. This included\nand presented. However, when improperly used and presented,\nvalidating a sample of restructuring costs and verifying that the\nthese non-GAAP measures can mislead investors and may mask\ncosts were sufficiently related to the transformation programme.\nthe real financial performance and position. There is judgement\nWe also considered whether free cash flow contains material\nin determining whether items should be excluded from underlying\none-off items which require further disclosure.\nprofit or free cash flow.\nWe assessed the appropriateness and completeness of disclosures\nA key adjustment between the statutory results and the of the impact of one-off or non-underlying items primarily in notes\nunderlying results relates to the foreign exchange rates used 1, 2 and 30 to the consolidated financial statements and found\nto translate foreign currency transactions and balances. The them to be appropriate. This included assessing the explanations\nunderlying results reflect the achieved rate on foreign currency management provided on the reconciling items between\nderivative contracts settled in the period and retranslates assets underlying performance and statutory performance in note 2.\nand liabilities at the foreign currency rates at which they are\nOverall we found that the classification judgements made\nexpected to be realised or settled in the future. As the group can\nby management were in line with their policy for underlying\ninfluence which derivative contracts are settled in each reporting\nresults and exceptional items, had been consistently applied and\nperiod it has the ability to influence the achieved rate and hence\nthere are no material uncorrected misstatements resulting from\nthe underlying results.\nour testing.\nOne of the items excluded from underlying profit is exceptional\nrestructuring costs associated with the transformation programme.\nJudgement is required to determine what costs are related to this\nprogramme to warrant exclusion from underlying profit.\nRecoverability of the company’s investments in subsidiary We have evaluated management’s assessment around\nundertakings (company) recoverability of the investment in subsidiary undertakings.\nNote 2 to the company financial statements – Investments In doing so we have considered whether any potential indicators\n– subsidiary undertakings of impairment existed at 31 December 2025. In doing this,\nwe considered the market capitalisation of the company at\nInvestments in subsidiary undertakings of £15,003m (2024: 31 December 2025, which exceeded the carrying value of\n£14,905m) are accounted for at cost less provision for impairment investments in subsidiary undertakings. We have compared\nin the company balance sheet at 31 December 2025. the performance of the group against the 2024 forecasts.\nInvestments are tested for impairment if impairment indicators\nOverall, we found that management’s judgement that there has\nexist. If such indicators exist, the recoverable amounts of the\nbeen no indicator of potential impairment to be appropriate.\ninvestments in subsidiaries are estimated in order to determine\nthe extent of the impairment loss, if any. Any such impairment loss\nis recognised in the income statement.\nA review of potential indicators of impairment was performed\nby management focusing on the developments in the year,\nconcluding that no such indicators were present and therefore\nthat the investments’ carrying values remain recoverable.\n196 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6102, "tables": [ [ [ "Presentation and accuracy of underlying results and disclosure of other one-off items (including exceptional items) (group) Note 1 to the consolidated financial statements – Accounting policies – Presentation of underlying results, note 2 to the consolidated financial statements – Segmental analysis and note 30 to the consolidated financial statements – Derivation of summary funds flow statement In addition to the performance measures prescribed by International Financial Reporting Standards, the group also presents their results on an underlying basis, as the Directors believe this better reflects the performance of the group during the year. The group also presents a free cash flow metric which the Directors believe reflects the cash generated from underlying trading. This differs from the cash flows presented in the consolidated cash flow statement. The underlying results differ significantly from the reported statutory results and are used extensively to explain performance to shareholders. Alternative performance measures can provide investors with additional understanding of the group’s performance if consistently calculated, properly used and presented. However, when improperly used and presented, these non-GAAP measures can mislead investors and may mask the real financial performance and position. There is judgement in determining whether items should be excluded from underlying profit or free cash flow. A key adjustment between the statutory results and the underlying results relates to the foreign exchange rates used to translate foreign currency transactions and balances. The underlying results reflect the achieved rate on foreign currency derivative contracts settled in the period and retranslates assets and liabilities at the foreign currency rates at which they are expected to be realised or settled in the future. As the group can influence which derivative contracts are settled in each reporting period it has the ability to influence the achieved rate and hence the underlying results. One of the items excluded from underlying profit is exceptional restructuring costs associated with the transformation programme. Judgement is required to determine what costs are related to this programme to warrant exclusion from underlying profit.", null, "We have considered the judgements taken by management to determine what should be treated as an exceptional item and the translation of foreign currency amounts and obtained corroborative evidence for these. We also considered whether there were items that were recorded within underlying profit that are exceptional in nature and should be reported as an exceptional item. No such material items were identified. As part of this assessment we challenged management’s rationale for the designation of certain items as exceptional or one-off and assessed such items against the group’s accounting policy, considering the nature and value of those items. Within underlying results, foreign currency transactions are presented at rates achieved on derivative contracts hedging the net operating cash flows of the group and monetary assets and liabilities are retranslated at rates forecast to be achieved on derivative contracts when the associated cash flows occur. We have agreed these forecast rates to the profile of the derivatives that are expected to mature in the future and tested their application to the relevant monetary assets and liabilities. We tested the reconciling items between the operating profit and free cash flow disclosed in note 30 including verifying that the items adjusted for are consistent with the prior year. This included validating a sample of restructuring costs and verifying that the costs were sufficiently related to the transformation programme. We also considered whether free cash flow contains material one-off items which require further disclosure. We assessed the appropriateness and completeness of disclosures of the impact of one-off or non-underlying items primarily in notes 1, 2 and 30 to the consolidated financial statements and found them to be appropriate. This included assessing the explanations management provided on the reconciling items between underlying performance and statutory performance in note 2. Overall we found that the classification judgements made by management were in line with their policy for underlying results and exceptional items, had been consistently applied and there are no material uncorrected misstatements resulting from our testing." ], [ "Recoverability of the company’s investments in subsidiary undertakings (company) Note 2 to the company financial statements – Investments – subsidiary undertakings Investments in subsidiary undertakings of £15,003m (2024: £14,905m) are accounted for at cost less provision for impairment in the company balance sheet at 31 December 2025. Investments are tested for impairment if impairment indicators exist. If such indicators exist, the recoverable amounts of the investments in subsidiaries are estimated in order to determine the extent of the impairment loss, if any. Any such impairment loss is recognised in the income statement. A review of potential indicators of impairment was performed by management focusing on the developments in the year, concluding that no such indicators were present and therefore that the investments’ carrying values remain recoverable.", null, "We have evaluated management’s assessment around recoverability of the investment in subsidiary undertakings. In doing so we have considered whether any potential indicators of impairment existed at 31 December 2025. In doing this, we considered the market capitalisation of the company at 31 December 2025, which exceeded the carrying value of investments in subsidiary undertakings. We have compared the performance of the group against the 2024 forecasts. Overall, we found that management’s judgement that there has been no indicator of potential impairment to be appropriate." ] ] ], "table_count": 1 }, { "pdf_page": 199, "printed_page": 197, "section": "Other Information", "subsection": "Independent auditors' report", "text": "How we tailored the audit scope The impact of climate risk on our audit\nWe tailored the scope of our audit to ensure that we performed As part of our audit we made enquiries of management to understand\nenough work to be able to give an opinion on the financial statements the process they adopted to assess the extent of the potential impact\nas a whole, taking into account the structure of the group and the of climate risk on the group’s and the company’s financial statements\ncompany, the accounting processes and controls, and the industry and to support the disclosures made within the Sustainability section\nin which they operate. of the Strategic report. In addition to our enquiries with management,\nwe understood the governance processes in place to assess climate\nOur scoping is based on the group’s consolidation structure. We risk, reviewed the group’s assessment of climate-related risk including\ndefine a component as a single reporting unit which feeds into the both physical and transition risks and read additional reporting\ngroup consolidation. Of the group’s approximately 350 reporting made on climate related matters, including the group’s disclosures\ncomponents, 31 individual components (including three joint in line with the Task Force on Climate-related Financial Disclosures\nventures) were subject to full scope audits which, with an element (TCFD) framework.\nof sub-consolidation, equates to 14 group reporting opinions.\nA further nine components performed targeted specified audit We held meetings with management, including the group’s\nprocedures contributing to audit coverage. sustainability team, to consider the completeness of management’s\nclimate risk assessment and its consistency with internal climate plans\nUnder our audit methodology, we test both the design and operating and board minutes, including whether the time horizons used by\neffectiveness of relevant business process controls over significant management take account of all relevant aspects of climate change,\nrisks and perform substantive testing over each financial statement such as transition risks. We also considered the consistency of this\nline item. assessment with the group’s communications on climate-related\nimpacts. We challenged management on the carbon prices used\nThe group operates Group Business Services (GBS) to bulk within their modelling and how these have been applied, as well\nprocess financial transactions in Derby (UK), Indianapolis (US), as on the alignment of the longer-term forecast period to 2050 with\nBengaluru (India) and Krakow (Poland). Based on our assessment it is the company’s transition plan and its associated metrics and targets.\nnot possible to fully test revenue and profit centrally as certain key\nprocesses, such as long-term contracting, remain within the business We considered the following areas, which depend on medium to\ndue to their nature and are not handled by GBS. long-term profit or cash flow forecasts to be potentially materially\nimpacted by climate risk and consequently we focused our audit\nFurther specific audit procedures over central functions, the group work in these areas: long-term contract accounting in the UK Civil\nconsolidation and areas of significant judgement, including group business (including contract loss provisions); the recoverability of\ntreasury operations, corporate taxation, post-retirement benefits, deferred tax assets in the UK and the recoverability of the carrying\nand certain goodwill balances and intangible assets impairment value of goodwill and certain intangible assets. Our findings\nassessments, were performed by the group engagement team. were reported to and discussed with the Audit Committee and\nmanagement. Where significant, further details of how climate\nThis scope of work, together with the additional procedures change has been considered in these areas and our audit response\nperformed at a group level as identified above, covered 93% of is given in the key audit matters above.\nrevenue and 79% of profit before taxation.\nTo respond to the audit risks identified in these areas we tailored our\nWhere work was performed by component auditors, we determined audit approach to address these, in particular, we:\nthe level of involvement required in the audit work at those reporting\nunits to enable us to conclude whether sufficient appropriate — Validated the carbon prices used by management by benchmarking\naudit evidence had been obtained as a basis for our opinion on them against external forecasts and performed sensitivity analysis\nthe consolidated financial statements. over their application. The carbon prices have been incorporated\nby management in their forecasts of the group’s future cost base\nWe issued formal written instructions to all component auditors for long-term contract accounting and associated provisions as\nsetting out the audit work to be performed by each of them and well as scenarios utilised in assessing the recoverability of deferred\nmaintained regular communication with the component auditors tax assets, goodwill and other assets;\nthroughout the audit cycle. These interactions included attending\n— Considered the reasonableness of management’s assertion that\ncertain component clearance meetings and holding regular\nclimate change is unlikely to have a material impact on aviation\nconference calls, as well as reviewing and assessing any matters\ndemand by comparing management’s EFH forecasts against\nreported. The group engagement team also reviewed selected\nother industry benchmarks and by considering the sensitivity\naudit working papers for certain component teams to evaluate the\nof EFH to different GDP growth rates expected under differing\nsufficiency of audit evidence obtained and to fully understand the\nclimate scenarios;\nmatters arising from the component audits.\n— Verified that estimates of capital and cash costs from reductions to\nIn addition, senior members of the group engagement team have the group’s scope 1 and scope 2 emissions have been incorporated\nvisited component teams across all the group’s major segments in the group’s forecasts including those used for going concern\nin the UK, Germany and the US. They included meetings with the and the disclosures around the viability of the group that are\ncomponent auditor and with local management. included in the Strategic Report;\n— Validated management’s judgement that climate change is unlikely\nReflective of its nature, our audit of the company financial statements\nto have a material impact on other estimates at 31 December 2025,\nfocused on the investments in subsidiary undertakings and validating\nincluding the recoverability of inventory or the expected credit\namounts owed to subsidiary undertakings.\nloss provision associated with trade receivables and contract\nassets, by considering the short timeframe these assets are\nexpected to be utilised in compared to the period over which\ntransition and physical risks are expected to arise; and\n— Where appropriate, performed independent sensitivity analysis\nto determine to what extent reasonably possible changes\nin the climate related assumptions in the group’s forecasts\ncould result in material changes to the impacted balances and\nassessed the appropriateness of the associated disclosures.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 197\nOTHER\nINFORMATION\nINDEPENDENT AUDITORS’ REPORT", "char_count": 7376, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 200, "printed_page": 198, "section": "Other Information", "subsection": "Independent auditors' report", "text": "INDEPENDENT AUDITORS’ REPORT\nWe also considered the consistency of the disclosures in relation to climate change (including the disclosures in the Sustainability\nsection of the Strategic Report) within the Annual Report and our knowledge obtained from our audit. This included considering the models\nmanagement used in the TCFD scenario analysis and if the assumptions in those models are consistent with the assumptions used elsewhere in\nthe financial statements.\nAs disclosed within the Sustainability section of the Strategic Report, the achievement of net zero by 2050 will require significant change\nacross the aviation sector, including widespread adoption of Sustainable Aviation Fuels or other alternative fuel sources.\nOur procedures did not identify any material impact in the context of our audit of the financial statements as a whole for the year ended\n31 December 2025. The future estimated financial impacts of climate risk are inherently uncertain given the medium to long-term time frames\ninvolved and their dependency on how governments, global markets, corporations and society respond to climate change, as well as the speed of\ntechnological advancements that may be required. Accordingly, financial statements cannot capture all possible future outcomes as these are not\nyet known.\nMateriality\nThe scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together\nwith qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the\nindividual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the\nfinancial statements as a whole.\nBased on our professional judgement, we determined materiality for the financial statements as a whole as follows:\nFinancial statements – group Financial statements – company\nOverall materiality £200m (2024: £178m). £150m (2024: £149m).\nHow we determined it Approximately 1.0% of underlying revenue Approximately 1.0% of total assets\nRationale for We have consistently used underlying revenue to We determined our materiality based on total assets,\nbenchmark applied determine materiality as opposed to a profit-based which is more applicable than a performance-related\nbenchmark. This is because there is considerable measure as the company is an investment holding\nvolatility in profit before tax as a result of revenue company for the group.\nrecognition under IFRS 15 and from the fair value\nmovement in the group’s derivatives. Underlying\nrevenue continues to be a key performance metric\nfor the group and is more stable than the profit\nmetric. We have applied a 1.0% revenue benchmark,\nconsistent with prior year. This is also a commonly\nused benchmark for revenue based materiality.\nFor each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of\nmateriality allocated across components was between £8m and £110m. Certain components were audited to a local statutory audit materiality\nthat was also less than our overall group materiality.\nWe use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected\nmisstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the\nnature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.\nOur performance materiality was 75% (2024: 62.5%) of overall materiality, amounting to £150m (2024: £110m) for the group financial statements\nand £112m (2024: £111m) for the company financial statements.\nIn determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation\nrisk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.\nWe agreed with the Audit Committee that we would report to them misstatements identified during our audit above £8m (group audit)\n(2024: £7m) and £8m (company audit) (2024: £7m) as well as misstatements below those amounts that, in our view, warranted reporting for\nqualitative reasons.\n198 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4417, "tables": [ [ [ "£200m (2024: £178m).", "£150m (2024: £149m)." ], [ "Approximately 1.0% of underlying revenue", "Approximately 1.0% of total assets" ], [ "We have consistently used underlying revenue to determine materiality as opposed to a profit-based benchmark. This is because there is considerable volatility in profit before tax as a result of revenue recognition under IFRS 15 and from the fair value movement in the group’s derivatives. Underlying revenue continues to be a key performance metric for the group and is more stable than the profit metric. We have applied a 1.0% revenue benchmark, consistent with prior year. This is also a commonly used benchmark for revenue based materiality.", "We determined our materiality based on total assets, which is more applicable than a performance-related measure as the company is an investment holding company for the group." ] ] ], "table_count": 1 }, { "pdf_page": 201, "printed_page": 199, "section": "Other Information", "subsection": "Independent auditors' report", "text": "Conclusions relating to going concern Reporting on other information\nOur evaluation of the directors’ assessment of the group’s and the The other information comprises all of the information in the\ncompany’s ability to continue to adopt the going concern basis Annual Report other than the financial statements and our\nof accounting included: auditors’ report thereon. The directors are responsible for the other\ninformation. Our opinion on the financial statements does not cover\n— Testing the model used for management’s going concern the other information and, accordingly, we do not express an audit\nassessment which is primarily a liquidity assessment given opinion or, except to the extent otherwise explicitly stated in this\nthere are no significant financial covenants in its committed debt report, any form of assurance thereon.\nfacilities. Management’s assessment covered the 18 months from\nthe balance sheet date to 30 June 2027. We focused on this period In connection with our audit of the financial statements, our\nand also considered the subsequent six months to the end of 2027; responsibility is to read the other information and, in doing so,\nconsider whether the other information is materially inconsistent\n— Management’s base case forecasts are prepared through its\nwith the financial statements or our knowledge obtained in the\nnormal budget and forecasting process for each of its businesses\naudit, or otherwise appears to be materially misstated. If we identify\nover the next five years. We understood and assessed this process\nan apparent material inconsistency or material misstatement, we\nincluding the assumptions used for 2026 and 2027 and assessed\nare required to perform procedures to conclude whether there\nwhether there was adequate support for these assumptions.\nis a material misstatement of the financial statements or a material\nA similar assessment was performed on the downside cash flows,\nmisstatement of the other information. If, based on the work we have\nincluding gaining an understanding of the scenarios modelled by\nperformed, we conclude that there is a material misstatement of this\nmanagement and how they were quantified in the downside cash\nother information, we are required to report that fact. We have\nflow forecast;\nnothing to report based on these responsibilities.\n— We have read and understood the key terms of all committed debt\nfacilities to understand any terms, covenants or undertakings that With respect to the Strategic report and Directors’ report, we also\nmay impact the availability of the facility; considered whether the disclosures required by the UK Companies\nAct 2006 have been included.\n— We considered the potential mitigating actions available to\nmanagement to reduce costs, manage cash flows, limit share\nBased on our work undertaken in the course of the audit, the\nbuybacks or raise additional financing and assessed whether these\nCompanies Act 2006 requires us also to report certain opinions and\nwere within management’s control and feasible within the period of\nmatters as described below.\nthe assessment; and\n— We assessed the adequacy of disclosures in the Going concern Strategic report and Directors’ report\nstatement and statements in note 1 of the consolidated and In our opinion, based on the work undertaken in the course of the\ncompany financial statements and found these appropriately audit, the information given in the Strategic report and Directors’\nreflect the key areas of uncertainty identified. report for the year ended 31 December 2025 is consistent with the\nfinancial statements and has been prepared in accordance with\nBased on the work we have performed, we have not identified applicable legal requirements.\nany material uncertainties relating to events or conditions that,\nindividually or collectively, may cast significant doubt on the group’s In light of the knowledge and understanding of the group and\nand the company’s ability to continue as a going concern for a period company and their environment obtained in the course of the audit,\nof at least twelve months from when the financial statements are we did not identify any material misstatements in the Strategic report\nauthorised for issue. and Directors’ report.\nIn auditing the financial statements, we have concluded that the Directors’ Remuneration\ndirectors’ use of the going concern basis of accounting in In our opinion, the part of the Remuneration Committee report\nthe preparation of the financial statements is appropriate. to be audited has been properly prepared in accordance with the\nCompanies Act 2006.\nHowever, because not all future events or conditions can be\npredicted, this conclusion is not a guarantee as to the group’s\nand the company’s ability to continue as a going concern.\nIn relation to the directors’ reporting on how they have applied the\nUK Corporate Governance Code, we have nothing material to add or\ndraw attention to in relation to the directors’ statement in the financial\nstatements about whether the directors considered it appropriate to\nadopt the going concern basis of accounting.\nOur responsibilities and the responsibilities of the directors with\nrespect to going concern are described in the relevant sections of\nthis report.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 199\nOTHER\nINFORMATION\nINDEPENDENT AUDITORS’ REPORT", "char_count": 5330, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 202, "printed_page": 200, "section": "Other Information", "subsection": "Independent auditors' report", "text": "INDEPENDENT AUDITORS’ REPORT\nCorporate governance statement Responsibilities for the financial statements and the audit\nThe Listing Rules require us to review the directors’ statements in\nResponsibilities of the directors for the financial statements\nrelation to going concern, longer-term viability and that part of\nAs explained more fully in the Statement of Directors’ responsibilities\nthe corporate governance statement relating to the company’s\nin respect of the financial statements, the directors are responsible\ncompliance with the provisions of the UK Corporate Governance\nfor the preparation of the financial statements in accordance with the\nCode specified for our review. Our additional responsibilities\napplicable framework and for being satisfied that they give a true and\nwith respect to the corporate governance statement as other\nfair view. The directors are also responsible for such internal control\ninformation are described in the Reporting on other information\nas they determine is necessary to enable the preparation of financial\nsection of this report.\nstatements that are free from material misstatement, whether due to\nfraud or error.\nBased on the work undertaken as part of our audit, we have\nconcluded that each of the following elements of the corporate\nIn preparing the financial statements, the directors are responsible\ngovernance statement, included within the Governance report is\nfor assessing the group’s and the company’s ability to continue as\nmaterially consistent with the financial statements and our knowledge\na going concern, disclosing, as applicable, matters related to going\nobtained during the audit, and we have nothing material to add or\nconcern and using the going concern basis of accounting unless\ndraw attention to in relation to:\nthe directors either intend to liquidate the group or the company\nor to cease operations, or have no realistic alternative but to do so.\n— The directors’ confirmation that they have carried out a robust\nassessment of the emerging and principal risks;\nAuditors’ responsibilities for the audit of the financial\n— The disclosures in the Annual Report that describe those principal statements\nrisks, what procedures are in place to identify emerging risks and Our objectives are to obtain reasonable assurance about whether\nan explanation of how these are being managed or mitigated; the financial statements as a whole are free from material misstatement,\n— The directors’ statement in the financial statements about whether whether due to fraud or error, and to issue an auditors’ report that\nthey considered it appropriate to adopt the going concern basis includes our opinion. Reasonable assurance is a high level of\nof accounting in preparing them, and their identification of any assurance, but is not a guarantee that an audit conducted in\nmaterial uncertainties to the group’s and company’s ability to accordance with ISAs (UK) will always detect a material misstatement\ncontinue to do so over a period of at least twelve months from the when it exists. Misstatements can arise from fraud or error and are\ndate of approval of the financial statements; considered material if, individually or in the aggregate, they could\nreasonably be expected to influence the economic decisions of users\n— The directors’ explanation as to their assessment of the group’s and taken on the basis of these financial statements.\ncompany’s prospects, the period this assessment covers and why\nthe period is appropriate; and Irregularities, including fraud, are instances of non-compliance\nwith laws and regulations. We design procedures in line with\n— The directors’ statement as to whether they have a reasonable\nour responsibilities, outlined above, to detect material misstatements\nexpectation that the company will be able to continue in operation\nin respect of irregularities, including fraud. The extent to which our\nand meet its liabilities as they fall due over the period of its\nprocedures are capable of detecting irregularities, including fraud,\nassessment, including any related disclosures drawing attention to\nis detailed below.\nany necessary qualifications or assumptions.\nBased on our understanding of the group and industry, we identified\nOur review of the directors’ statement regarding the longer-term\nthat the principal risks of non-compliance with laws and regulations\nviability of the group and company was substantially less in scope\nrelated to the regulations of country aviation authorities such as\nthan an audit and only consisted of making inquiries and considering\nthe Civil Aviation Authority, import and export restrictions including\nthe directors’ process supporting their statement; checking that\nsanctions, and the UK Bribery Act, and we considered the extent to\nthe statement is in alignment with the relevant provisions of the UK\nwhich non-compliance might have a material effect on the financial\nCorporate Governance Code; and considering whether the statement\nstatements. We also considered those laws and regulations that have\nis consistent with the financial statements and our knowledge and\na direct impact on the financial statements such as the Listing Rules of\nunderstanding of the group and company and their environment\nthe UK Financial Conduct Authority, the Companies Act 2006 and tax\nobtained in the course of the audit.\nlegislation. We evaluated management’s incentives and opportunities\nfor fraudulent manipulation of the financial statements (including the\nIn addition, based on the work undertaken as part of our audit, we\nrisk of override of controls), and determined that the principal risks\nhave concluded that each of the following elements of the corporate\nwere related to (1) posting inappropriate journal entries to manipulate\ngovernance statement is materially consistent with the financial\nfinancial results; (2) management bias in significant accounting\nstatements and our knowledge obtained during the audit:\nestimates such as long-term contract accounting and associated\nprovisions; (3) the sale of Civil engines to joint ventures for\n— The directors’ statement that they consider the Annual Report,\nno clear commercial purpose or above market prices; and\ntaken as a whole, is fair, balanced and understandable, and\n(4) inappropriately including or excluding transactions from the\nprovides the information necessary for the members to assess\ngroup’s underlying or free cash flow alternative performance metrics.\nthe group’s and company’s position, performance, business model\nThe group engagement team shared this risk assessment with the\nand strategy;\ncomponent auditors so that they could include appropriate audit\n— The section of the Annual Report that describes the review of procedures in response to such risks in their work. Audit procedures\neffectiveness of risk management and internal control systems; and performed by the group engagement team and/or component\nauditors included:\n— The section of the Annual Report describing the work of the\nAudit Committee.\n— Discussions throughout the year with management, internal audit,\nthe group’s legal counsel, and the head of ethics and compliance,\nWe have nothing to report in respect of our responsibility to report\nincluding consideration of known or suspected instances of\nwhen the directors’ statement relating to the company’s compliance\nnon-compliance with laws and regulation and fraud;\nwith the Code does not properly disclose a departure from a relevant\nprovision of the Code specified under the Listing Rules for review by — Reading the minutes of the group’s Safety, Energy Transition & Tech\nthe auditors. Committee and assessment of ‘speak-up’ matters reported through the\ngroup’s Speak Up Line and the results of management’s investigation\nof such matters;\n200 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 7805, "tables": [], "table_count": 0 }, { "pdf_page": 203, "printed_page": 201, "section": "Other Information", "subsection": "Independent auditors' report", "text": "— Verifying sales of spare engines to joint ventures are in line Other required reporting\nwith the approved timetable and are at a price supported by\nexternal valuation; Companies Act 2006 exception reporting\nUnder the Companies Act 2006 we are required to report to you if,\n— Reading the minutes of Board meetings to identify any\nin our opinion:\ninconsistencies with other information provided by management;\n— Reviewing legal expense accounts to identify significant legal — we have not obtained all the information and explanations we\nspend that may be indicative of non-compliance with laws require for our audit; or\nand regulations;\n— adequate accounting records have not been kept by the company,\n— Challenging assumptions and judgements made by management in or returns adequate for our audit have not been received from\ndetermining significant accounting estimates (because of the risk branches not visited by us; or\nof management bias), in particular in relation to long-term contract\n— certain disclosures of directors’ remuneration specified by law are\naccounting and associated provisions;\nnot made; or\n— Identifying and testing unusual journal entries, in particular\n— the company financial statements and the part of the Remuneration\njournal entries posted with unusual account combinations, and\nCommittee report to be audited are not in agreement with the\ntesting all material consolidation journals; and\naccounting records and returns.\n— Challenging why certain items are excluded or included from\nunderlying profit or free cash flow and review of disclosures We have no exceptions to report arising from this responsibility.\nincluded in the Annual Report explaining and reconciling\nalternative performance measures to statutory metrics. Appointment\nWe were first appointed by the company for the financial year ended\nThere are inherent limitations in the audit procedures described 31 December 2018. Our uninterrupted engagement covers eight\nabove. We are less likely to become aware of instances of non- financial years.\ncompliance with laws and regulations that are not closely related to\nevents and transactions reflected in the financial statements. Also, Other matter\nthe risk of not detecting a material misstatement due to fraud is\nhigher than the risk of not detecting one resulting from error, as The company is required by the Financial Conduct Authority\nfraud may involve deliberate concealment by, for example, forgery Disclosure Guidance and Transparency Rules to include these\nor intentional misrepresentations, or through collusion. financial statements in an annual financial report prepared under\nthe structured digital format required by DTR 4.1.15R – 4.1.18R and\nOur audit testing might include testing complete populations of filed on the National Storage Mechanism of the Financial Conduct\ncertain transactions and balances, possibly using data auditing Authority. This auditors’ report provides no assurance over whether\ntechniques. However, it typically involves selecting a limited number the structured digital format annual financial report has been\nof items for testing, rather than testing complete populations. We prepared in accordance with those requirements.\nwill often seek to target particular items for testing based on their\nsize or risk characteristics. In other cases, we will use audit sampling Ian Morrison (Senior Statutory Auditor)\nto enable us to draw a conclusion about the population from which for and on behalf of\nthe sample is selected. PricewaterhouseCoopers LLP\nChartered Accountants and Statutory Auditors\nA further description of our responsibilities for the audit of London\nthe financial statements is located on the FRC’s website at: 26 February 2026\nwww.frc.org.uk/auditorsresponsibilities. This description forms\npart of our auditors’ report.\nUse of this report\nThis report, including the opinions, has been prepared for and\nonly for the company’s members as a body in accordance with\nChapter 3 of Part 16 of the Companies Act 2006 and for no other\npurpose. We do not, in giving these opinions, accept or assume\nresponsibility for any other purpose or to any other person to whom\nthis report is shown or into whose hands it may come save where\nexpressly agreed by our prior consent in writing.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 201\nOTHER\nINFORMATION\nINDEPENDENT AUDITORS’ REPORT", "char_count": 4361, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 204, "printed_page": 202, "section": "Other Information", "subsection": "Independent limited assurance report", "text": "Independent limited assurance report\nIndependent limited assurance report to the Management of Rolls-Royce Holdings plc\nDNV Business Assurance Services UK Limited (‘DNV’, ‘us’ or ‘we’) requirements for validation and verification bodies, and accordingly\nwere commissioned by Rolls-Royce plc to provide limited assurance maintains a comprehensive system of quality control including\nto Rolls-Royce Holdings plc (‘Rolls-Royce’) over Selected Information documented policies and procedures regarding compliance with\npresented in the Annual Report 2025 (the ‘Report’) for the reporting ethical requirements, professional standards, and applicable legal\nyear ended 31 December 2025. and regulatory requirements.\nOur conclusion: On the basis of the work undertaken, nothing The procedures performed in a limited assurance engagement vary\ncame to our attention to suggest that the Selected Information is in nature and are shorter in extent than for a reasonable assurance\nnot fairly stated and has not been prepared, in all material respects, engagement. Consequently, the level of assurance obtained in\nin accordance with the Criteria. a limited assurance engagement is substantially lower than the\nassurance that would have been obtained if a reasonable assurance\nThis conclusion relates only to the Selected Information, and is to engagement had been performed.\nbe read in the context of this Independent limited assurance report,\nin particular the inherent limitations explained below. Disclaimers\nThe assurance provided by DNV is limited to the selected indicators\nSelected Information and information specified in the scope of the engagement. DNV has\nThe scope and boundary of our work are restricted to the key not conducted an assessment of the reporting organisation’s overall\nperformance indicators (KPIs) included within pages 18, 35, 38 to 47, adherence to reporting principles or the preparation of the Report.\n204 and 205 of the Report for the year ended 31 December 2025 Therefore, no conclusions should be drawn regarding the reporting\n(the ‘Selected Information’), listed below. organization’s compliance with reporting principles or the quality of\nthe overall Report. The assurance provided by DNV is based on the\nKey performance indicators Reported value Unit selected indicators and information made available to us at the time\nTotal group energy consumption of the engagement. DNV assumes no responsibility for any changes or\n(including product testing activities) 1,592,613,547 kWh updates made to the indicators or information after the completion of\nTotal Scope 1 + 2 greenhouse gas (GHG) the assurance engagement.\nemissions) (market-based): operations\nand facility emissions (including product\ntesting activities) 264,199 tCO 2 e Our competence, independence and quality control\nTotal solid and liquid waste generated 54.7 kt DNV established policies and procedures are designed\nRecycling and recovery rate 65.7 % to ensure that DNV, its personnel and, where applicable,\nTotal reportable injuries (TRI) 128 Number others are subject to independence requirements (including\nTotal reportable injuries (TRI) rate Number per personnel of other entities of DNV) and maintain independence\n0.29 100 employees where required by relevant ethical requirements. This\nNumber of people reached through engagement work was carried out by an independent team of\nthe Science, Technology, Engineering sustainability assurance professionals. DNV holds other audit\nand Mathematics (STEM) outreach and assurance contracts with Rolls-Royce, none of which, in\nprogrammes 823,797 Number our opinion, conflict with the scope of this work. Our multi-\nEmployee engagement 81 % disciplinary team consisted of professionals with a combination\nof environmental and sustainability assurance experience.\nTo assess the Selected Information, which includes an assessment\nof the risk of material misstatement in the Report, we have used\nRolls-Royce’s Basis of Reporting: Sustainability (the ‘Criteria’) available\nat www.rolls-royce.com Inherent limitations\nDNV’s assurance engagements are based on the assumption\nWe have not performed any work, and do not express any conclusion, that the data and information provided by Rolls-Royce to us as\non any other information that may be published in the Report or part of our review have been provided in good faith, are true,\non Rolls-Royce’s website for the current reporting period or for and are free from material misstatements. Because of the\nprevious periods. selected nature (sampling) and other inherent limitation\nof both procedures and systems of internal control, there\nStandard and level of assurance remains the unavoidable risk that errors or irregularities,\nWe performed a limited assurance engagement of specified possibly significant, may not have been detected. The\ndata and information using the ‘Greenhouse Protocol – engagement excludes the sustainability management,\nA Corporate Accounting and Reporting Standard’ (revised performance, and reporting practices of Rolls-Royce’s\n2015) and international assurance best practice including the suppliers, contractors, and any third parties mentioned in the\nInternational Standard on Assurance Engagements (ISAE) 3000 Report. We did not interview external stakeholders as part of\n– ‘Assurance Engagements other than Audits and Reviews of this assurance engagement. We understand that the reported\nHistorical Financial Information’ (revised) issued by the International financial data, governance and related information are based\nAuditing and Assurance Standards Board. To ensure consistency on statutory disclosures and audited financial statements,\nin our assurance process, we conducted our work in accordance which are subject to a separate independent statutory audit\nwith DNV’s assurance methodology, VerisustainTM, applying only process. We did not review financial disclosures and data as\nthe pertinent sections of the protocol relevant to the specific they are not within the scope of our assurance engagement.\npurpose of the activity. This methodology ensures compliance with\nethical requirements and mandates planning and execution of the The assessment is limited to data and information in scope\nassurance engagement to obtain the desired level of assurance. within the defined reporting period. Any data outside this\nperiod is not considered within the scope of assurance.\nDNV applies its own management standards and compliance policies DNV expressly disclaims any liability or co-responsibility for\nfor quality control, which are based on the principles enclosed within any decision a person or an entity may make based on this\nISO IEC 17029:2019 – Conformity Assessment – General principles and Independent limited assurance report.\n202 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6792, "tables": [], "table_count": 0 }, { "pdf_page": 205, "printed_page": 203, "section": "Other Information", "subsection": "Independent limited assurance report", "text": "INDEPENDENT LIMITED ASSURANCE REPORT\nBasis of our conclusion\nWe are required to plan and perform our work in order to consider Responsibilities of the Management of Rolls-Royce\nthe risk of material misstatement of the Selected Information; our work and DNV\nincluded, but was not restricted to:\nThe Management of Rolls-Royce have sole responsibility for:\n— conducting interviews with Rolls-Royce management to obtain an\n— preparing and presenting the Selected Information in\nunderstanding of the key processes, systems and controls in place\naccordance with the Criteria;\nto generate, aggregate and report the Selected Information;\n— designing, implementing and maintaining effective internal\n— site visits to Dahlewitz (Germany), Derby Fuel Farm (UK) and\ncontrols over the information and data, resulting in the\nMankato (US) to review process and systems for preparing site level\npreparation of the Selected Information that is free from\ndata consolidated centrally. DNV were free to choose the sites on\nmaterial misstatements;\nthe basis of materiality to the company data;\n— measuring and reporting the Selected Information based on\n— performing limited substantive testing on a selective basis of the\ntheir established Criteria; and\nSelected Information to check that data had been appropriately\nmeasured, recorded, collated and reported; — contents and statements contained within the Report and\nthe Criteria.\n— reviewing that the evidence, measurements and their scope\nprovided to us by Rolls-Royce for the Selected Information is\nOur responsibility is to plan and perform our work to obtain\nprepared in line with the Criteria;\nlimited assurance about whether the Selected Information has\n— assessing the appropriateness of the Criteria for the Selected been prepared in accordance with the Criteria and to report\nInformation; and to Rolls-Royce in the form of an independent limited assurance\nconclusion, based on the work performed and the evidence\n— reading the Report and narrative accompanying the Selected obtained. Our Independent limited assurance report\nInformation within it with regard to the Criteria. represents our independent conclusion and is intended\nto inform all stakeholders. DNV was not involved in the\nIn performing these activities, we did not come across limitations to preparation of any statements or data included in the\nthe scope of the agreed assurance engagement. Report except for this Independent limited assurance report.\nWe found a limited number of non-material errors and these were\ncorrected prior to inclusion in the Report.\nDNV Business Assurance Services UK Limited\nFor and on behalf of DNV Business Assurance\nDNV Business Assurance Services UK Limited is part of DNV\nServices UK Limited\n– DNV is an independent assurance and risk management\nLondon, UK provider, operating in more than 100 countries, with the\n26 February 2026 purpose of safeguarding life, property, and the environment.\nAs a trusted voice for many of the world’s most successful\nShuhaib Maudarbaccus organisations, we help seize opportunities and tackle\nLead Verifier the risks arising from global transformations. We use our\nDNV Business Assurance Services UK Limited broad experience and deep expertise to advance safety and\nsustainable performance, set industry standards, and inspire\nPaul O’Hanlon and invent solutions.\nTechnical Reviewer\nDNV Business Assurance Services UK Limited\nDNV-2026-ASN-C772267\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 203\nOTHER\nINFORMATION", "char_count": 3483, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 206, "printed_page": 204, "section": "Other Information", "subsection": "Greenhouse gas emissions", "text": "Greenhouse gas emissions\nIn 2025, our total gross Scope 1 + 2 greenhouse gas (GHG) (location-based) emissions were 359,132 tonnes of carbon dioxide equivalent (tCO e).\n2\nThis represents a reduction of 6% compared with 382,155 tCO e in 2024.\n2\nAspect tCO2e 2019 2021 2022 2023 2024 2025\nEmissions from activities Global 137,504 139,360 123,807 106,275 96,937 101,212\nfor which the Company (excluding UK)\nown or control including UK 90,522 72,279 101,987 72,238 135,524 110,012\nthe combustion of fuel and\nTotal 228,027 211,639 225,794 178,513 232,460 211,224\noperation of facilities. [Direct\nGHG emissions (Scope 1)]\nEmissions from the purchase Global 170,526 115,421 97,612 91,176 90,312 89,036\nof electricity, heat, steam and (excluding UK)\ncooling purchased for our own UK 80,023 53,210 52,762 58,185 59,383 58,872\nuse. [Indirect GHG emissions\nTotal 250,549 168,631 150,374 149,361 149,695 147,908\n(Scope 2) location-based]\nTotal gross GHG emissions Global 308,031 254,781 221,420 197,451 187,249 190,248\n(Scope 1 + Scope 2 location- (excluding UK)\nbased) UK 170,545 125,489 154,749 130,424 194,906 168,884\nTotal 478,576 380,270 376,168 327,875 382,155 359,132\nEnergy consumption used to Global 1,084,719,815 954,056,653 856,063,249 781,982,344 750,082,091 787,204,764\ncalculate above emissions – (excluding UK)\nkWh UK 738,001,393 590,689,817 732,077,990 648,552,229 879,615,727 805,408,783\nTotal 1,822,721,208 1,544,746,470 1,588,141,239 1,430,534,573 1,629,697,818 1,592,613,547\nIntensity ratio (total GHG Total 29.9 33.9 27.9 19.9 20.2 16.9\nemissions per £m revenue)\nEmissions from the purchase Global 132,030 90,871 77,578 70,598 41,323 36,928\nof electricity, heat, steam and (excluding UK)\ncooling purchased for our own UK 21,594 1,484 1,293 1,365 24,631 16,047\nuse. [Indirect GHG emissions\nTotal 153,624 92,355 78,871 71,963 65,954 52,975\n(Scope 2) market-based]\nTotal gross GHG emissions Global 269,535 230,232 201,386 176,872 138,259 138,140\n(Scope 1 + Scope 2 market- (excluding UK)\nbased) UK 112,116 73,763 103,280 73,603 160,155 126,059\nTotal 381,651 303,995 304,665 250,476 298,414 264,199\nOutside of Scopes Global 4,329 – 1,350 42 2,799 5,944.06\n(excluding UK)\nUK – – – 7,712 997 6,121.65\nTotal 4,329 – 1,350 7,754 3,795 12,065.71\nAdditional supporting Global 321,775,488 303,672,640 301,419,960 315,822,645 286,074,507 407,196,198\ninformation, electricity (including UK)\npurchased from renewable\nsources – kWh\nEnergy generated onsite from Global 6,791,044 8,237,037 8,120,644 6,313,137 9,524,077 9,980,271\nrenewable sources – kWh (including UK)\nThe above figures include 407,196,198 kWh of renewable energy purchases either backed by the Renewable Energy Guarantees of Origin\n(REGO) scheme in the UK or the Guarantees of Origin (GoO) from a relevant EU Member State. This energy is used by the majority of our\nfacilities in the UK, US and Germany. Our EACs have been sourced mainly from solar and wind with some hydro included for EU locations.\nIn addition, the above figures include 9,980,271 kWh of electricity and heat generated onsite from renewable energy sources, including\nsolar panels and ground source heat pumps.\nWe include the reporting of fugitive emissions of hydrofluorocarbons (HFCs), associated with air conditioning equipment, into our\nGHG emissions figures. These emissions have been include from our global portfolio.\nWith the exceptions noted above, we have reported on the underlying energy use and emission sources required under the Companies\n(Directors’ report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.\nWe have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) as of 31 December 2014 utilising the\noperational control approach, supplemented by the GHG Reporting Guidance for the Aerospace Industry (version 3) and emission factors\nfrom the UK Government’s GHG Conversion Factors for Company Reporting 2024. We report our emissions of carbon dioxide, methane,\nnitrous oxide, hydrofluorocarbons and perfluorocarbons on a carbon dioxide equivalent basis. We have no emissions of sulphur hexafluoride\nor nitrogen trioxide.\nFurther details on our methodology for reporting and the criteria used can be found within our basis of reporting, available at\nwww.rolls-royce.com\n204 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4326, "tables": [ [ [ "101,212" ], [ "110,012" ], [ "211,224" ], [ "89,036" ], [ "58,872" ], [ "147,908" ], [ "190,248" ], [ "168,884" ], [ "359,132" ], [ "787,204,764" ], [ "805,408,783" ], [ "1,592,613,547" ], [ "16.9" ], [ "36,928" ], [ "16,047" ], [ "52,975" ], [ "138,140" ], [ "126,059" ], [ "264,199" ], [ "5,944.06" ], [ "6,121.65" ], [ "12,065.71" ], [ "407,196,198" ], [ "9,980,271" ] ] ], "table_count": 1 }, { "pdf_page": 207, "printed_page": 205, "section": "Other Information", "subsection": "Greenhouse gas emissions", "text": "GREENHOUSE GAS EMISSIONS\nAspect MtCO2e 2019 2021 2022 2023 2024 2025\nEmissions from purchased Total – – – – 2.18 2.69\ngoods and services, by spend\n(Scope 3, category 1)\nUse of sold products on a Total 93.9 – – 75.9 72.5 69.8\nfossil fuel-based pathway with\nweight-based adjustment\n(Scope 3, category 11)\nUse of sold products on a Total 531.0 – – 284.7 287.7 272.7\nfossil fuel-based pathway\nwithout weight-based\nadjustment (Scope 3,\ncategory 11)\nUse of sold products of Total 79.1 – – 59.3 54.7 51.8\na sustainable fuel-based\npathway with weight-based\nadjustment (Scope 3,\ncategory 11)\nUse of sold products of Total 430.3 – – 203.4 198.5 180.9\na sustainable fuel-based\npathway without weight-\nbased adjustment (Scope 3,\ncategory 11)\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 205\nOTHER\nINFORMATION", "char_count": 795, "tables": [ [ [ "2.69" ], [ "69.8" ], [ "272.7" ], [ "51.8" ], [ "180.9" ] ] ], "table_count": 1, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 208, "printed_page": 206, "section": "Other Information", "subsection": "Other financial information", "text": "Other financial information\nForeign exchange Investments and capital expenditure\nForeign exchange rate movements influence the reported income The Group subjects all major investments and capital expenditure\nstatement, the cash flow and closing net cash/(debt) balance. The to a rigorous examination of risks and future cash flows. Investments\naverage and spot rates for the principal trading currencies of the and capital expenditure must align to the Group’s strategy and create\nGroup are shown in the table below: shareholder value. All major investments, including the launch of\nmajor programmes, require Board approval.\n2025 2024 Change\nUSD per GBP Year-end spot rate 1.35 1.25 +8% The Group has a portfolio of projects at different stages of their\nAverage spot rate 1.32 1.28 +3% lifecycles. All of our major investments and projects are assessed\nusing a range of financial metrics, including discounted cash flow\nEUR per GBP Year-end spot rate 1.15 1.21 -5%\nand return on investment.\nAverage spot rate 1.17 1.18 -1%\nFinancial risk management\nThe Group’s global corporate income tax contribution The Board has established a structured approach to financial risk\nThe Group’s total corporation tax payments in 2025 were £590m. management. The Financial risk committee (Frc) is accountable for\nAround 96% of this was paid in the US, Germany, UK, Singapore managing, reporting and mitigating the Group’s financial risks and\nand Canada. The balance of tax payments were made in around exposures. These risks include the Group’s principal counterparty,\n40 other countries. currency, interest rate, commodity price, liquidity and credit rating\nrisks outlined in more depth in note 22. The Frc is chaired by the\nIn common with most multinational groups, the total profits for Chief Financial Officer. The Group has a comprehensive financial\ncorporate income tax purposes are not the same as the consolidated risk policy that advocates the use of financial instruments to manage\nprofit before taxation reported on page 113. and hedge business operations risks that arise from movements in\nfinancial, commodities, credit or money markets. The Group’s policy\nThe main reasons for this are: is not to engage in speculative financial transactions. The Frc sits\nquarterly to review and assess the key risks and agree any mitigating\n(i) the consolidated income statement is prepared under IFRS,\nactions required.\nwhereas the corporate income tax profits and losses for each\ncompany are determined by local tax accounting rules;\nCapital structure\n(ii) accounting rules require certain income and costs relating to\n£m 2025 2024\nour commercial activities to be eliminated from, or added to,\nTotal equity 2,753 (881)\nthe aggregate of all the profits of the Group companies when\npreparing the consolidated income statement (consolidation Cash flow hedges (7) (13)\nadjustments); and Group capital 2,746 (894)\nNet cash 1,895 475\n(iii) specific tax rules including exemptions or incentives as\ndetermined by the tax laws in each country.\nOperations are funded through various shareholders’ funds, bank\nIn most cases, paragraphs (i) and (ii) above are only a matter of timing borrowings, bonds and notes. The capital structure of the Group\nand therefore tax will be paid in an earlier or later year. The impact reflects the judgement of the Board as to the appropriate balance\nof the paragraph above will often be permanent, depending on the of funding required. Funding is secured by the Group’s continued\nrelevant tax law. Further information on the tax position of the Group access to the global debt markets. Borrowings are funded in various\ncan be found as follows: currencies using derivatives where appropriate to achieve a required\ncurrency and interest rate profile. The Board’s objective is to retain\n— Audit Committee Report (page 78) – updates given to the Audit\nsufficient financial investments and undrawn facilities to ensure that\nCommittee during the year;\nthe Group can both meet its medium-term operational commitments\n— note 5 to the Consolidated Financial Statements (pages 142 to 145); and cope with unforeseen obligations and opportunities.\nand\nThe Group holds cash and short-term investments which, together\n— details of the tax balances in the Consolidated Financial Statements\nwith the undrawn committed facilities, enable it to manage its\ntogether with a tax reconciliation. This explains the main drivers of\nliquidity risk.\nthe tax rate and the impact of our assessment on the recovery of UK\ndeferred tax assets.\nInformation on the approach to managing the Group’s tax affairs can\nbe found at www.rolls-royce.com\n206 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4668, "tables": [ [ [ "1.35" ], [ "1.32" ], [ "1.15" ], [ "1.17" ] ], [ [ "2,753" ], [ "(7)" ], [ "2,746" ], [ "1,895" ] ] ], "table_count": 2 }, { "pdf_page": 209, "printed_page": 207, "section": "Other Information", "subsection": "Other financial information", "text": "OTHER FINANCIAL INFORMATION\nDuring the year to 31 December 2025, the Group repaid a $1bn bond\nat its maturity and cancelled its undrawn £2.5bn revolving credit\nfacility, which was due to mature in November 2027. This facility had\nremained undrawn during the year. The Group replaced this facility\nwith a new £2.5bn revolving credit facility, maturing December 2030.\nAt the year end, the Group retained aggregate liquidity of £8.7bn,\nincluding cash and cash equivalents of £6.2bn and undrawn\nborrowing facilities of £2.5bn.\nThe Group has two material debt maturities in February and\nJune 2026. The maturity profile of the borrowing facilities\nis regularly reviewed to ensure that refinancing levels are\nmanageable in the context of the business and market conditions.\nThere are no rating triggers in any borrowing facility that would\nrequire the facility to be accelerated or repaid due to an adverse\nmovement in the Group’s credit rating. The Group conducts some\nof its business through a number of joint ventures. A major proportion\nof the debt of these joint ventures is secured on the assets of the\nrespective companies and is non-recourse to the Group. This debt is\nfurther outlined in note 19.\nCredit rating\n£m Rating Outlook\nMoody’s Investors Service Baa1 Positive\nStandard & Poor’s BBB+ Stable\nFitch BBB+ Positive\nThe Group subscribes to Moody’s, Standard & Poor’s and Fitch for\nindependent long-term credit ratings, with the ratings in the table\nabove being applicable at the date of this report.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 207\nOTHER\nINFORMATION", "char_count": 1570, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 210, "printed_page": 208, "section": "Other Information", "subsection": "Reconciliation of alternative performance measures", "text": "Reconciliation of alternative performance measures\nAlternative performance measures (APMs)\nBusiness performance is reviewed and managed on an underlying basis. These alternative performance measures reflect the economic\nsubstance of trading in the year. In addition, a number of other APMs are utilised to measure and monitor the Group’s performance.\nDefinitions and reconciliations to the relevant statutory measure are included below. All comparative periods relate to 31 December 2024.\nUnderlying results\nUnderlying results are presented by recording all relevant revenue and cost of sales transactions at the average exchange rate achieved\non effective settled derivative contracts in the period that the cash flow occurs. Underlying results also exclude: the effect of acquisition\naccounting and business disposals, impairment of goodwill and other non-current assets where the reasons for the impairment are outside\nof normal operating activities, exceptional items and certain other items which are market driven and outside of management’s control.\nFurther detail can be found in note 2.\n2025 2024\n£m £m\nRevenue\nStatutory revenue 21,207 18,909\nDerivative and FX adjustments (1,148) (1,061)\nUnderlying revenue 20,059 17,848\nGross profit\nStatutory gross profit 6,175 4,221\nDerivative and FX adjustments (799) (186)\nProgramme exceptional credits (83) –\nExceptional transformation and restructuring (credits)/charges (9) 147\nAcquisition accounting and M&A 14 43\nImpairment charge/(reversal) 6 (2)\nCivil Aerospace programme asset impairment reversal (179) (132)\nOther underlying adjustments 1 –\nUnderlying gross profit 5,126 4,091\nCommercial and administrative costs\nStatutory commercial and administrative (C&A) costs (1,268) (1,284)\nExceptional transformation and restructuring charges 53 70\nOther underlying adjustments (8) 17\nUnderlying C&A costs (1,223) (1,197)\nResearch and development costs\nStatutory research and development (R&D) costs (495) (203)\nDerivative and FX adjustments 2 (8)\nExceptional transformation and restructuring charges – 17\nAcquisition accounting 2 2\nCivil Aerospace programme asset impairment reversal (6) (413)\nUnderlying R&D costs (497) (605)\nOperating profit\nStatutory operating profit 4,468 2,906\nDerivative and FX adjustments (797) (191)\nProgramme exceptional credits (83) –\nExceptional transformation and restructuring charges 44 234\nAcquisition accounting and M&A 16 45\nCivil Aerospace programme asset impairment reversal (185) (545)\nImpairment charge/(reversal) 6 (2)\nOther underlying adjustments (7) 17\nUnderlying operating profit 3,462 2,464\nUnderlying operating margin 17.3% 13.8%\n208 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 2670, "tables": [ [ [ "21,207" ], [ "(1,148)" ], [ "20,059" ] ], [ [ "6,175" ], [ "(799)" ], [ "(83)" ], [ "(9)" ], [ "14" ], [ "6" ], [ "(179)" ], [ "1" ], [ "5,126" ] ], [ [ "(1,268)" ], [ "53" ], [ "(8)" ], [ "(1,223)" ] ], [ [ "(495)" ], [ "2" ], [ "–" ], [ "2" ], [ "(6)" ], [ "(497)" ] ], [ [ "4,468" ], [ "(797)" ], [ "(83)" ], [ "44" ], [ "16" ], [ "(185)" ], [ "6" ], [ "(7)" ], [ "3,462" ], [ "17.3%" ] ] ], "table_count": 5 }, { "pdf_page": 211, "printed_page": 209, "section": "Other Information", "subsection": "Reconciliation of alternative performance measures", "text": "Underlying results continued\n2025 2024\npence pence\nBasic EPS\nStatutory basic EPS 69.41 30.05\nEffect of underlying adjustments to profit/(loss) before tax (42.58) 0.70\nRelated tax effects 6.01 (6.34)\nAdjustment for recognition of deferred tax assets 1 (3.29) (4.12)\nBasic underlying EPS 29.55 20.29\n1 Underlying profit attributable to ordinary shareholders has been adjusted for the one-off non-cash impact of £277m (2024: 346m) related to the recognition of deferred tax assets on UK\ntax losses, see note 5 of the consolidated financial statements for further details\nOrganic change\nOrganic change is the measure of change at constant translational currency applying full year 2024 average rates to 2025 and excludes M&A\nchanges and business disposals. The movement in underlying change to organic change is reconciled below and on page 210.\nAll amounts below are shown on an underlying basis and reconciled to the nearest statutory measure above and on page 208. All comparative\nperiods relate to the year ended 31 December 2024.\nTotal Group income statement\nOrganic Organic\n2025 2024 Change FX M&A ¹ Change Change\n£m £m £m £m £m £m %\nUnderlying revenue 20,059 17,848 2,211 (115) (164) 2,490 14%\nUnderlying gross profit 5,126 4,091 1,035 (16) (22) 1,073 26%\nUnderlying operating profit 3,462 2,464 998 (21) 14 1,005 38%\nNet financing costs (110) (171) 61 2 – 59 (35%)\nUnderlying profit before taxation 3,352 2,293 1,059 (19) 14 1,064 44%\nTaxation (593) (282) (311) (5) 24 (330) 128%\nUnderlying profit for the year 2,759 2,011 748 (24) 38 734 34%\n1 During 2025, the sale of the naval propulsors business completed and the Group relinquished control of Rolls-Royce SMR Limited. As a result, organic change excludes these results\nfrom 2025 and 2024. During 2024, the sale of the lower power range engines business completed and the Group exited the advanced air mobility activities. As a result, organic change\nexcludes these results from 2024\nCivil Aerospace\nOrganic Organic\n2025 2024 Change FX M&A Change Change\n£m £m £m £m £m £m %\nUnderlying revenue 10,382 9,040 1,342 16 – 1,326 15%\nUnderlying OE revenue 3,217 3,105 112 11 – 101 3%\nUnderlying services revenue 7,165 5,935 1,230 5 – 1,225 21%\nUnderlying gross profit 2,675 1,990 685 6 – 679 34%\nCommercial and administrative costs (432) (396) (36) 1 – (37) 9%\nResearch and development costs (267) (252) (15) – – (15) 6%\nJoint ventures and associates 154 163 (9) (3) – (6) (4%)\nUnderlying operating profit 2,130 1,505 625 4 – 621 41%\nDefence\nOrganic Organic\n2025 2024 Change FX M&A ¹ Change Change\n£m £m £m £m £m £m %\nUnderlying revenue 4,772 4,522 250 (71) (48) 369 8%\nUnderlying OE revenue 2,228 1,943 285 (27) (24) 336 18%\nUnderlying services revenue 2,544 2,579 (35) (44) (24) 33 1%\nUnderlying gross profit 933 908 25 (12) (3) 40 4%\nCommercial and administrative costs (201) (212) 11 2 (1) 10 (5%)\nResearch and development costs (45) (55) 10 1 – 9 (16%)\nJoint ventures and associates 2 3 (1) – – (1) 33%\nUnderlying operating profit 689 644 45 (9) (4) 58 9%\n1 On 1 July 2025 the sale of the naval propulsors business completed. As a result, organic change excludes the naval propulsors results from 2025 and 2024\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 209\nOTHER\nINFORMATION\nRECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES", "char_count": 3283, "tables": [ [ [ "69.41" ], [ "(42.58)" ], [ "6.01" ], [ "(3.29)" ], [ "29.55" ] ], [ [ "20,059" ], [ "5,126" ], [ "3,462" ], [ "(110)" ], [ "3,352" ], [ "(593)" ], [ "2,759" ] ], [ [ "10,382" ], [ "3,217" ], [ "7,165" ], [ "2,675" ], [ "(432)" ], [ "(267)" ], [ "154" ], [ "2,130" ] ], [ [ "4,772" ], [ "2,228" ], [ "2,544" ], [ "933" ], [ "(201)" ], [ "(45)" ], [ "2" ], [ "689" ] ] ], "table_count": 4, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 212, "printed_page": 210, "section": "Other Information", "subsection": "Reconciliation of alternative performance measures", "text": "RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES\nPower Systems\nOrganic Organic\n2025 2024 Change FX M&A ¹ Change Change\n£m £m £m £m £m £m %\nUnderlying revenue 4,892 4,271 621 (60) (113) 794 19%\nUnderlying OE revenue 3,433 2,942 491 (46) (104) 641 23%\nUnderlying services revenue 1,459 1,329 130 (14) (9) 153 12%\nUnderlying gross profit 1,522 1,199 323 (10) (23) 356 30%\nCommercial and administrative costs (518) (483) (35) – 3 (38) 8%\nResearch and development costs (164) (165) 1 (2) – 3 (2%)\nJoint ventures and associates 12 9 3 (1) – 4 44%\nUnderlying operating profit 852 560 292 (13) (20) 325 60%\n1 On 31 July 2024 the sale of the lower power range engines business completed. As a result, organic change excludes the lower power range engines results from 2024\nTrading cash flow\nTrading cash flow is defined as free cash flow (as defined below) before the deduction of recurring tax and post-employment benefit expenses.\nTrading cash flow per segment is used as a measure of business performance for the relevant segments.\n2025 2024\n£m £m\nCivil Aerospace 2,512 2,030\nDefence 745 591\nPower Systems 658 452\nTotal reportable segments trading cash flow 3,915 3,073\nAll Other Businesses 1 9 (176)\nCorporate and Inter-segment (62) (60)\nTrading cash flow 3,862 2,837\nUnderlying operating profit charge exceeded by contributions to defined benefit schemes (37) (31)\nTax 2 (555) (381)\nFree cash flow 3,270 2,425\n1 All Other Businesses include the financial results of small modular reactors, electrical power solutions and the UK Civil Nuclear business (see note 2 for further details)\n2 See page 181 for tax paid in the derivation of summary funds flow statement\nFree cash flow\nFree cash flow is a measure of the financial performance of the businesses’ cash flows which is consistent with the way in which performance is\ncommunicated to the Board. Free cash flow is cash flows from operating activities, adjusted to include capital expenditure and movements in\ninvestments, capital elements of lease payments, interest paid, cash received on maturity of share-based payment schemes and amounts paid\nrelating to the settlement of excess derivatives. It excludes amounts spent/received on business acquisitions/disposals, and other material\nexceptional or one-off cash flows. Cash flows from operating activities is our statutory equivalent.\n2025 2024\n£m £m\nStatutory cash flows from operating activities 4,565 3,782\nCapital expenditure (978) (876)\nCash received on maturity of share-based payment schemes 40 –\nInvestment (including investment from NCI and movement in joint ventures, associates and other investments) (7) 16\nCapital element of lease payments (232) (299)\nInterest paid (262) (298)\nExceptional transformation and restructuring costs 78 104\nM&A costs 70 1\nOther (4) (5)\nFree cash flow 3,270 2,425\nGroup R&D expenditure\nIn year gross cash expenditure on R&D excludes contributions and fees, amortisation and impairment of capitalised costs and amounts\ncapitalised during the year. For further detail, see note 3.\nGross capital expenditure\nGross capital expenditure during the year. All proposed investments are subject to rigorous review to ensure that they are consistent with\nforecast activity and provide value for money. The Group measures annual capital expenditure as the cash purchases of PPE acquired during\nthe year.\n2025 2024\n£m £m\nPurchases of PPE (cash flow statement) 621 519\n210 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3446, "tables": [ [ [ "4,892" ], [ "3,433" ], [ "1,459" ], [ "1,522" ], [ "(518)" ], [ "(164)" ], [ "12" ], [ "852" ] ], [ [ "2,512" ], [ "745" ], [ "658" ], [ "3,915" ], [ "9" ], [ "(62)" ], [ "3,862" ], [ "(37)" ], [ "(555)" ], [ "3,270" ] ], [ [ "4,565" ], [ "(978)" ], [ "40" ], [ "(7)" ], [ "(232)" ], [ "(262)" ], [ "78" ], [ "70" ], [ "(4)" ], [ "3,270" ] ] ], "table_count": 3 }, { "pdf_page": 213, "printed_page": 211, "section": "Other Information", "subsection": "Reconciliation of alternative performance measures", "text": "Key performance indicators\nThe following measures are key performance indicators and are calculated using alternative performance measures or statutory results.\nSee below for calculation of these amounts.\nOrder backlog\nTotal value of firm orders placed by customers for delivery of products and services where there is no right to cancel. Further details are\nincluded in note 2 of the Consolidated Financial Statements.\nAdjusted return on capital (abbreviated to return on capital)\nReturn on capital is defined as net operating profit after tax (NOPAT) as a percentage of average invested capital. NOPAT is defined as\nunderlying net profit excluding net finance costs and the tax shield on net finance costs. Invested capital is defined as current and non-current\nassets less current liabilities. It excludes pension assets, cash and cash equivalents, and borrowings and lease liabilities. Return on capital\nassesses the efficiency in allocating capital to profitable investments.\n2025 2024\n£m £m\nUnderlying operating profit 3,462 2,464\nLess: taxation 1 (889) (649)\nUnderlying operating profit (post-taxation) 2,573 1,815\nTotal assets 38,115 35,686\nLess: post-retirement scheme surpluses (286) (790)\nLess: cash and cash equivalents (6,244) (5,575)\nCurrent liabilities (19,287) (16,763)\nLiabilities held for sale (19) (100)\nLess: borrowings and lease liabilities 1,426 1,097\nInvested capital (closing) 13,705 13,555\nInvested capital (average) 13,630 13,166\nReturn on capital 18.9% 13.8%\n1 Excluding underlying taxation on underlying finance income of £19m (2024: £21m) and adjusted for the one-off non-cash impact of £277m in the year (2024: £346m) related to the\nrecognition of deferred tax assets on UK tax losses, see note 5, page 145 for further details\nTotal underlying cash costs as a proportion of underlying gross margin (abbreviated to TCC/GM)\nTotal underlying cash costs during the year (represented by underlying research and development (R&D) expenditure and underlying\ncommercial and administrative (C&A) costs) as a proportion of underlying gross profit. This measure provides an indicator of total cash costs\nrelative to gross profit. A reduction in total cash costs relative to gross profit indicates how effective the business is at managing and/or\nreducing its costs.\n2025 2024\n£m £m\nUnderlying R&D expenditure 1 598 745\nUnderlying C&A 1,223 1,197\nTotal cash costs 1,821 1,942\nUnderlying gross profit 5,126 4,091\nTotal cash costs as a proportion of underlying gross profit 0.36 0.47\n1 Excludes £4m derivatives and FX (2024: £30m impact of acquisition accounting, exceptional transformation costs, derivatives and FX)\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 211\nOTHER\nINFORMATION\nRECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES", "char_count": 2750, "tables": [ [ [ "3,462" ], [ "(889)" ], [ "2,573" ] ], [ [ "38,115" ], [ "(286)" ], [ "(6,244)" ], [ "(19,287)" ], [ "(19)" ], [ "1,426" ], [ "13,705" ], [ "13,630" ], [ "18.9%" ] ], [ [ "598" ], [ "1,223" ], [ "1,821" ], [ "5,126" ], [ "0.36" ] ] ], "table_count": 3, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 214, "printed_page": 212, "section": "Other Information", "subsection": "Directors' report", "text": "Directors’ report\nFor the purposes of the Companies Act 2006, the following are — Note 1 to the Consolidated Financial Statements\nincorporated by reference and shall be deemed to form part of (Post-balance sheet events) 133\nthis Directors’ report:\n— Note 22 to the Consolidated Financial Statements\n(Financial instruments) 160\n— Strategic report 2\n— Note 28 to the Consolidated Financial Statements\n— Corporate Governance section, which includes the\n(Related-party transactions) 179\nBoard of Directors, the Governance report and the\nDirectors’ remuneration report 62 — Subsidiaries, joint ventures and associates 187\n— Directors’ responsibility statement 111 — Greenhouse gas emissions disclosure 204\n— Note 1 to the Consolidated Financial Statements — Shareholder information 215\n(Accounting policies) 121\nBoard of Directors Payment of this dividend is subject to shareholder approval at\nThe Directors of the Company who were in office during the year the 2026 AGM. The Trustees of the EBT have waived their right to\nand up to the date of signing the financial statements are set out on receive dividends.\npages 64 and 65.\nFurther information on the Company’s approach to dividends can\nDirectors’ indemnities be found on page 20 and the key dates for the final dividend can\nThe Directors benefit from an indemnity provision contained in the be found on page 215.\nArticles. In addition, the Directors have been granted a qualifying\nthird-party indemnity which was in force throughout the financial year Changes to the Articles of Association\nand remains in force. The Company maintained directors’ and officers’ The Articles may be amended or new articles may be adopted by\nliability insurance in respect of the Company and its subsidiaries. a special resolution of the Company’s shareholders, subject to the\nprovisions of the Companies Act 2006. The current Articles of the\nShare capital Company were adopted by special resolution on 23 May 2024.\nOn 31 December 2025, the Company’s issued share capital comprised:\nShare class rights\n8,443,808,552 Ordinary shares 20p each\nThe full share class rights are set out in the Company’s Articles,\n21,306,466,168 C shares 0.1p each\nwhich are available at www.rolls-royce.com. The rights are\n1 Special share £1 summarised below.\nNo shares are held in treasury. The ordinary shares are listed on Ordinary shares\nthe London Stock Exchange. The Company has previously issued Each member has one vote for each ordinary share held. Holders of\nnon-cumulative redeemable preference shares (C shares) as an ordinary shares are entitled to: receive the Company’s Annual Report;\nalternative to paying a cash dividend. Since the reintroduction of attend and speak at general meetings of the Company; appoint one or\ndividends on ordinary shares as announced on 27 February 2025, more proxies or, if they are corporations, corporate representatives;\nthe Company no longer makes payments to shareholders in the form and exercise voting rights. Holders of ordinary shares may receive a\nof C shares. Holders of C shares can either: dividend and on liquidation may share in the assets of the Company.\n— redeem C shares for cash at their nominal value; or\nC shares\n— retain C shares and receive a coupon payment twice a year. Since the reintroduction of dividends on ordinary shares\nas announced on 27 February 2025, the Company no longer makes\nFurther information on C shares can be found at payments to shareholders in the form of C shares. C shares have\nwww.rolls-royce.com limited voting rights and attract a preferential dividend, paid on a\ntwice-yearly basis. On a return of capital on a winding-up, the holders\nShare buyback programmes of C shares shall be entitled, in priority to any payment to the holders\nDuring the year, 106,291,417 ordinary shares of 20p each (representing of ordinary shares, to the repayment of the nominal capital paid-up or\n1.26% of the ordinary shares in issue at 31 December 2025) were credited as paid-up on the C shares held by them, together with a sum\npurchased by the Company for a total consideration of £1bn. A further equal to the outstanding preferential dividend which will have been\n15,971,931 shares were purchased between 2 January 2026 and the accrued but not paid until the date of return of capital. The holders\ndate of this report. The purpose of the programmes was to reduce of C shares are only entitled to attend, speak and vote at a general\nthe Company’s share capital and to meet obligations arising from its meeting if a resolution to wind up the Company is to be considered,\nemployee share plans. Shares purchased under the programmes in which case they may vote only on that resolution. The Company\nwere either cancelled, held in treasury or transferred to the Company’s may elect, at its own discretion (and whether or not with the consent\nEmployee Benefit Trust (EBT) for the purpose of satisfying awards under of the holders of C shares), to redeem all of the C shares then in issue\nthe Company’s employee share plans. at their nominal value each together with any accrued but unpaid\nC preferential dividend on such shares as at the day of redemption.\nOn 6 November 2025, the Company transferred 3,719,489 ordinary\nshares held in treasury to the EBT and on 18 December 2025, gifted Special share\n41,483,491 ordinary shares held in treasury to the EBT. As at the date of Certain rights attach to the special rights non-voting share (Special\nthis report, there are no shares held in treasury. Share) issued to the UK Secretary of State for the Department of\nBusiness and Trade (Special Shareholder). Subject to the provisions\nDividends of the Companies Act 2006, the Treasury Solicitor may redeem the\nA final dividend of 6p per share for the year ended 31 December 2024 Special Share at par value at any time. The Special Share confers no\nwas paid on 16 June 2025. An interim dividend of 4.5p per share rights to dividends but, in the event of a winding-up, it shall be repaid\nwas paid on 18 September 2025. The Directors have recommended at its nominal value in priority to any other shares.\na final dividend of 5.0p per share for the financial year ended\n31 December 2025. This gives a total dividend of 9.5p per share\nfor the financial year ending 31 December 2025 (2024: 6p).\n212 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 6312, "tables": [], "table_count": 0 }, { "pdf_page": 215, "printed_page": 213, "section": "Other Information", "subsection": "Directors' report", "text": "Certain provisions of the Articles (in particular those relating to Authority to purchase own shares\nthe foreign shareholding limit, disposals and the nationality of At the 2025 AGM, the Company was authorised by shareholders\nthe Company’s Directors) that relate to the rights attached to to purchase up to 850,489,698 ordinary shares representing 10% of\nthe Special Share may only be altered with the consent of the its issued ordinary share capital as at 22 February 2025. The authority\nSpecial Shareholder. The Special Shareholder is not entitled to for the Company to purchase its own shares expires at the conclusion\nvote at any general meeting or any other meeting of any class of the 2026 AGM or 30 June 2026, whichever is sooner. A resolution to\nof shareholders. renew this authority will be proposed at the 2026 AGM.\nRestrictions on transfer of shares and limitations on holdings Deadlines for exercising voting rights\nThere are no restrictions on transfer or limitations on the holding of the Electronic and paper proxy appointments, together with voting\nordinary shares or C shares other than under the Articles (as described instructions, must be received by our Registrar, Equiniti Limited,\nhere) or, under restrictions imposed by law or regulation. The Articles not less than 48 hours before a general meeting.\nprovide that the Company should be and remain under UK control.\nAs such, an individual foreign shareholding limit is set at 15% of the Voting rights for employee share plan shares\naggregate votes attaching to the share capital of all classes (taken Shares are held in an employee benefit trust for the purpose of\nas a whole) and capable of being cast on a poll and to all other shares satisfying awards made under the Company’s various employee\nthat the Directors determine are to be included in the calculation of share plans. For shares held in a nominee capacity or if plan/trust\nthat holding. The Special Share may only be issued to, held by and rules provide the participant with the right to vote in respect of\ntransferred to the Special Shareholder or their successor or nominee. specifically allocated shares, the trustee votes in line with participant\ninstructions. For shares that are not held absolutely on behalf of\nShareholder agreements and consent requirements specific individuals, the general policy of the trustees, in accordance\nNo disposal may be made to a non-Group member which, alone with investor protection guidelines, is to abstain from voting in respect\nor when aggregated with the same or a connected transaction, of those shares.\nconstitutes a disposal of the whole or a material part of either the\nnuclear propulsion business or the assets of the Group as a whole, Change of control\nwithout the consent of the Special Shareholder. Contracts and joint venture agreements\nThere are a number of contracts and joint venture agreements\nAuthority to issue shares which would allow the counterparties to terminate or alter those\nAt the 2025 AGM, an ordinary resolution was passed authorising arrangements in the event of a change of control of the Company.\nthe Directors to allot new ordinary shares up to a nominal value of These arrangements are considered commercially confidential\n£566,993,133, equivalent to one-third of the issued share capital of as their disclosure could be seriously prejudicial to the Company\nthe Company as at 22 February 2025. This resolution also authorised (or the Group).\nthe Directors to allot up to a further one-third of the total issued share\ncapital of the Company, although only in the case of a rights issue Borrowings and other financial instruments\non a pre-emptive basis. A further special resolution was passed to The Group has outstanding bonds, as well as a revolving credit\nauthorise the disapplication of pre-emption rights in respect of an facility provided by various banks. These generally include provisions\nissue (or transfer out of treasury) of equity securities up to a nominal which may require any outstanding borrowings to be repaid or the\nvalue of £85,048,970, equivalent to 5% of the issued share capital of alteration or termination of the facility upon the occurrence of a\nthe Company. These authorities are valid until the end of the 2026 change of control of the Company. At 31 December 2025, these\nAGM or 30 June 2026, whichever is sooner. The Directors propose facilities totalled £4.4bn, of which 44% was drawn (2024: 4.5bn,\nto renew each of these authorities at the 2026 AGM to be held on 44% drawn).\n30 April 2026. In addition to these authorities, and to align with\nbroader market practice, at the 2026 AGM the Company is seeking The Group has entered into a series of financial instruments to hedge\nauthority to disapply pre-emption rights in respect of an issue (or its currency, interest rate and commodity exposures. These contracts\ntransfer out of treasury) of equity securities up to an aggregate provide for termination or alteration in the event that a change of\nnominal value representing an additional 5% of the issued share control of the Company materially weakens the creditworthiness of\ncapital of the Company, which is only to be used for the purposes the Group.\nof an acquisition or specified capital investment. The Board believes\nthat these authorities will allow the Company to retain flexibility\nto respond to circumstances and opportunities as they arise. The\nDirectors have no present intention of using the authorities being\nsought for the disapplication of pre-emption rights.\nMajor shareholdings\nAt 31 December 2025, the following shareholders had notified an interest in the issued ordinary share capital of the Company in accordance\nwith section 5.1.2 of the Disclosure and Transparency Rules. No notifications have been received from 1 January 2026 to the date of this report.\n% of issued ordinary % of issued ordinary\nDate of notification of Number of share capital as at share capital as at\nShareholder change of interest ordinary shares date of disclosure 23 February 2026\nBlackrock, Inc. 19 December 2023 476,330,141 5.65 5.65\nCapital Group Companies Inc 9 April 2024 427,042,722 5.07 5.07\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 213\nOTHER\nINFORMATION\nDIRECTORS’ REPORT", "char_count": 6222, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 216, "printed_page": 214, "section": "Other Information", "subsection": "Directors' report", "text": "DIRECTORS’ REPORT\nEmployee share plans reform, which might not be thought of as political expenditure in the\nIn the event of a change of control of the Company, the effect on the usual sense, could be captured. Activities of this nature would not be\nemployee share plans would be as follows: thought of as political donations in the ordinary sense of those words.\nThe resolution to be proposed at the 2026 AGM, authorising political\n— Annual Incentive Plan: deferred share awards will normally vest\ndonations and expenditure, is to ensure that the Group does not\nimmediately, and may be time prorated. The new controlling\ncommit any technical breach of the Act.\ncompany might offer an award in exchange instead (normally on\nsubstantially equivalent terms to the existing award). Awards with\nIn accordance with the Federal Election Campaign Act in the\nperformance conditions would normally vest on the change of\nUS, eligible employees are able to make personal contributions to\ncontrol subject to the Remuneration Committee’s judgement of\na US Political Action Committee (PAC). The PAC is not funded by\nperformance and may be reduced pro rata to service in the\nRolls-Royce Holdings plc and this separate fund is managed by a\nvesting period;\nboard of directors of participating employees from the Company’s\n— ShareSave: options would become exercisable immediately and US operating company (Rolls-Royce North America Holdings Inc.)\ncan be exercised within six months following the change of control. and makes contributions in connection with Federal elections.\nThe new controlling company might offer an equivalent option in In 2025, a total of $94,844.01 was donated to political organisations\nexchange for cancellation of the existing option; by the PAC. PAC contributions do not count towards the limits for\npolitical donations and expenditure for which shareholder approval\n— SharePurchase Plan (SPP): consideration received as shares would\nwill be sought at the 2026 AGM to renew the authority given at the\nbe held within the SPP, if possible, otherwise the consideration\n2025 AGM.\nwould be treated as a disposal from the SPP;\n— LTIP: awards would vest on the change of control, subject to the Disclosures in the Strategic report\nRemuneration Committee’s judgement of performance and may The Board has taken advantage of section 414C(11) of the Act to\nbe reduced pro rata to service in the vesting period. Any applicable include disclosures in the Strategic report including:\nholding period will cease in the event of a change of control; and\n— employee involvement;\n— Global Employee SharePurchase Plan (GESPP): matching share\n— the employment of disabled people;\nawards would vest on the date of the change of control; free\nshare awards would vest if and to the extent that the Remuneration — the future development, performance and position of the Group; and\nCommittee decides, and rights to purchase investment shares\n— research and development activities.\nwill lapse.\nInformation required by UK Listing Rule (UKLR) 6.6.1\nPolitical donations\nThere are no disclosures to be made under UKLR 6.6.1.\nThe Company’s policy is that it does not, directly or through any\nsubsidiary, make what are commonly regarded as donations to any\nManagement report\npolitical party. However, the Companies Act 2006 defines political\nThe Strategic report and the Directors’ report together form\ndonations very broadly and so it is possible that normal business\nthe management report for the purposes of compliance with the\nactivities, such as sponsorship, subscriptions, payment of expenses,\nDisclosure Guidance and Transparency Rules 4.1.5R(2) and 4.1.8R.\npaid leave for employees fulfilling certain public duties and support\nfor bodies representing the business community in policy review or\nDisclosures required under UK Listing Rule 6.6.6 as at 31 December 2025\nGender identity\nNumber of Percentage Number of senior Number in executive Percentage of executive\nBoard members of the Board positions on the Board management management\nMen 6 50% Chief Executive, SID 7 70%\nWomen 6 50% Chair, Chief Financial 3 30%\nOfficer\nOther categories – – – – –\nNot specified/prefer not to say – – – – –\nEthnic background\nNumber of Percentage Number of senior Number in executive Percentage of executive\nBoard members of the Board positions on the Board management management\nWhite British or other White 11 92% Chair, Chief Executive, 10 100%\n(including minority-white groups) Chief Financial Officer,\nSID\nMixed/multiple ethnic groups – – – – –\nAsian/Asian British 1 8% – – –\nBlack/African/Caribbean/Black British – – – – –\nOther ethnic group, including Arab – – – – –\nNot specified/prefer not to say – – – – –\nBy order of the Board\nClaire-Marie O’Grady\nChief Governance Officer\n26 February 2026\n214 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 4816, "tables": [], "table_count": 0 }, { "pdf_page": 217, "printed_page": 215, "section": "Other Information", "subsection": "Shareholder information", "text": "Managing your shareholding Analysis of ordinary shareholders at 31 December 2025\nYour shareholding is managed by Equiniti Limited (the Registrar).\nNumber of % of total\nWhen making contact with the Registrar, please quote your share- share- Number of % of\nshareholder reference number (SRN). This is an 11-digit number Type of holder holders holders shares total shares\nthat can be found on your share certificate or on any other Individuals 140,782 98.70 155,299,638 1.84\nshareholder correspondence. You can manage your shareholding at Institutional and\nwww.shareview.co.uk, speak to the Registrar on +44 (0)371 384 2637 other investors 1,852 1.30 8,288,508,914 98.16\n(8.30am to 5.30pm, Monday to Friday) or you can write to the Registrar\nTotal 142,634 100.00 8,443,808,552 100.00\nat Equiniti Limited, Aspect House, Spencer Road, Lancing, West\nSussex BN99 6DA. If you hold your shares in a share dealing account\n(sometimes referred to as a nominee account) then you must contact Size of holding (number\nyour account provider with any questions about your shareholding. of ordinary shares)\n1 – 150 44,794 31.40 3,842,620 0.04\nPayments to shareholders 151 – 500 50,163 35.17 13,416,742 0.16\nAs announced on 26 February 2026, the Directors have 501 – 10,000 43,779 30.69 81,779,412 0.97\nrecommended a final dividend of 5.0p per share, for the financial year 10,001 – 100,000 2,882 2.02 73,466,682 0.87\nended 31 December 2025. Payment of this dividend is subject to\n100,001 –\napproval at the 2026 AGM. Key dates relating to the final dividend are:\n1,000,000 587 0.42 213,508,110 2.53\n1,000,001\nEx-dividend date 23 April 2026 and over 429 0.30 8,057,794,986 95.43\nRecord date 24 April 2026 Total 142,634 100.00 8,443,808,552 100.00\nLast day for DRIP elections 15 May 2026\nAGM 30 April 2026 American Depositary Receipts (ADR)\nPayment date 3 June 2026 ADR holders should contact the depositary, J.P. Morgan, by calling\n+1(800) 990 1135 (toll free within the US) or +1(651) 453 2128 (outside\nFor further dividend information, please go to the US) or via www.adr.com/contact/jpmorgan\nwww.rolls-royce.com/investors\nWarning to shareholders – investment scams\nThe Company has previously made payments to shareholders by We are aware that some of our shareholders have received\nissuing redeemable C shares of 0.1p each. No distributions in the unsolicited telephone calls or correspondence, offering to buy or\nform of C shares have been made since 2019. C shareholders wishing sell their shares at very favourable terms. The callers can be very\nto redeem their existing C shares must lodge instructions with the persuasive and extremely persistent and often have professional\nRegistrar to arrive no later than 5.00pm on 16 June 2026 (CREST websites and telephone numbers to support their activities. They\nholders must submit their election in CREST by 2.55pm). The payment will sometimes imply a connection to Rolls-Royce and provide\nof C share redemption monies will be made on 16 July 2026. Any incorrect or misleading information. This type of call should be\nentitlement to interest payments by C shareholders will also be treated as an investment scam – the safest thing to do is hang up.\npaid on 1 July 2026 in accordance with the Company’s Articles. Remember: if it sounds too good to be true, it probably is. You should\nalways check that any firm contacting you about potential investment\nFor the avoidance of doubt, the C share reinvestment programme opportunities is properly authorised by the FCA. If you deal with an\nis no longer available; C shares can only be redeemed for cash at their unauthorised firm you will not be eligible for compensation under\nnominal value of 0.1p each. the Financial Services Compensation Scheme. You can find out\nmore about protecting yourself from investment scams by visiting\nDividend reinvestment plan (DRIP) the FCA’s website at www.fca.org.uk/scamsmart, or by calling the\nThe Company has a DRIP provided by Equiniti Financial Services FCA’s consumer helpline on 0800 111 6768 (overseas callers dial\nLimited (Equiniti FS), which is a convenient, easy and cost-effective +44 207 066 1000). If you have already paid money to share fraudsters,\nway to build a shareholding by using cash dividends to buy additional contact Action Fraud immediately on 0300 123 2040, whose website\nshares. Rather than having a bank account credited with a cash is www.actionfraud.police.uk\ndividend, Equiniti FS will use the dividends payable to DRIP\nparticipants to purchase shares on your behalf in the market. Visit Rolls-Royce online\nPlease go to www.shareview.co.uk for further information. Visit www.rolls-royce.com to find out more about the latest financial\nresults, the share price, payments to shareholders, the financial\ncalendar and shareholder services.\nCommunication preferences\nYou can sign up to receive the latest news updates to your phone or\nemail by visiting www.rolls-royce.com and registering for our alert\nservice. If you do not wish to receive a hard copy Annual Report in\nfuture, you can notify us online at www.shareview.co.uk\nAnnual General Meeting\nThe 2026 AGM will be held on 30 April 2026, as a hybrid meeting.\nFull details will be set out in our Notice of Meeting which will be\navailable at www.rolls-royce.com in mid-March 2026.\nROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025 215\nOTHER\nINFORMATION\nShareholder information", "char_count": 5361, "tables": [], "table_count": 0, "rotated_text": [ "OTHER INFORMATION" ] }, { "pdf_page": 218, "printed_page": 216, "section": "Other Information", "subsection": "Glossary", "text": "Glossary\nAGM annual general meeting LTSA long-term service agreement\nAI artificial intelligence M&A mergers and acquisitions\nAPAC Asia-Pacific MoU memorandum of understanding\nAPM alternative performance measure MRO maintenance repair and overhaul\nArticles Articles of Association of Rolls-Royce Holdings plc MtCO e million tonnes of carbon dioxide equivalent\n2\nAUKUS Australia, United Kingdom, United States MWh megawatt-hour\nBESS battery energy storage system NCI non-controlling interest\nC&A commercial and administrative NED Non-Executive Director\nCDP Carbon Disclosure Project net zero net zero carbon emissions from our operations and\nC shares non-cumulative redeemable preference shares company facilities and our products are compatible with net\nzero operations by 2050\nOur Code Global Code of Conduct\nNOPAT net operating profit after tax\nCompany Rolls-Royce Holdings plc\nOCI other comprehensive income\nDPAs deferred prosecution agreements\nOE original equipment\nDTR the FCA’s Disclosure Guidance and Transparency\nRules OECD Organisation for Economic Co-operation and\nDevelopment\nEFH engine flying hours\nP&L profit and loss\nELG Enterprise Leadership Group\nPBT profit before tax\nEPS earnings per share\nPPE property, plant and equipment\nESG environment, social, governance\nR&D research and development\nET&S engineering, technology and safety\nRegistrar Equiniti Limited\nEU European Union\nRMS risk management system\nEUR euro\nRolls-Royce Rolls-Royce SMR Limited\nFCA Financial Conduct Authority\nSMR\nFLRAA Future Long Range Assault Aircraft\nRRSAs risk and revenue sharing arrangements\nFPVL fair value recognised in the income statement as a\nSAF sustainable aviation fuel\nprofit or loss\nSBTs Science-Based Targets\nFRC Financial Reporting Council\nScope 1 + 2 Group Scope 1 + 2 greenhouse gas emissions\nFTE full time equivalent\nemissions\nFVOCI fair value recognised through other\ncomprehensive income SETT Safety, Energy Transition & Tech Committee\nFX foreign exchange SID Senior Independent Director\nGBP Great British pound or pound sterling SMRs small modular reactors\nGCAP Global Combat Air Programme STEM science, technology, engineering and mathematics\nGDP gross domestic product TCC total cash costs\nGESPP Global Employee Share Purchase Plan TCC/GM total underlying cash costs as a proportion of\nunderlying gross margin\nGHG greenhouse gas\nTCFD Task Force on Climate-related Financial Disclosures\nGroup Rolls-Royce Holdings plc and its subsidiaries\nTRI total reportable injuries\nGW gigawatt\nTSR total shareholder return\nHPT high-pressure turbine\nUKEF UK Export Finance\nHSE health, safety and environment\nUNSDG United Nations Sustainable Development Goals\nHVO hydrotreated vegetable oil\nUSD/US$ United States dollar\nIASB International Accounting Standards Board\nICAO International Civil Aviation Organization\nIFRS International Financial Reporting Standards\nISS Institutional Shareholder Services group\nof companies\nKPIs key performance indicators\nktCO e kilotonnes of carbon dioxide equivalent\n2\nkW kilowatts\nLTIP long-term incentive plan\nTrade marks\nThe following trade marks which appear throughout this Annual Report are trade\nmarks registered and owned by companies within the Rolls-Royce Group:\nCorporateCare®\nmtu®\nPearl®\nTotalCare®\nTrent®\nUltraFan®\n216 ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2025", "char_count": 3303, "tables": [], "table_count": 0 }, { "pdf_page": 219, "printed_page": 217, "section": "Other Information", "subsection": "Glossary", "text": "Credits\nDesigned and produced by\nPrinted on Edixion which is FSC® certified\npaper. The pulps used are Totally Chlorine\nFree (TCF), and the manufacturing mill\nhas ISO14001 environmental management\ncertification. The material’s carbon\nemissions have been measured and\ncarbon balanced at source.\nPrinted in the UK by Park Communications\nusing vegetable based inks. Both the\npaper manufacturing and the printer\nare registered to the Environmental\nManagement System ISO14001 and\nare Forest Stewardship Council® (FSC®)\nchain-of-custody certified.\nThis report is recyclable and biodegradable.", "char_count": 585, "tables": [], "table_count": 0 }, { "pdf_page": 220, "printed_page": null, "section": "Back cover", "subsection": null, "text": "© Rolls-Royce plc 2026\nRolls-Royce Holdings plc\nRegistered office:\nKings Place, 90 York Way,\nLondon N1 9FX\nwww.rolls-royce.com\nCompany number: 7524813", "char_count": 150, "tables": [], "table_count": 0 } ], "statistics": { "total_pages": 220, "pages_with_text": 220, "total_characters": 938581, "total_tables": 352, "visual_content_entries": 16, "pages_with_visual_content": 15, "pages_with_supplemental_text": 4, "pages_with_rotated_text": 113 } }