REG - Rolls-Royce Holdings - Full Year Results 2024
27/02/2025 07:15
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RNS Number : 6251Y Rolls-Royce Holdings plc 27 February 2025
This announcement contains inside information
27 February 2025
ROLLS-ROYCE HOLDINGS PLC - 2024 Full Year Results
Strong 2024 results; Mid-term Guidance upgraded; £1bn share buyback in 2025
- Significant transformation progress as we expand the earnings and cash flow
potential of the Group
- Underlying operating profit of £2.5bn with a margin of 13.8%, reflecting the
impact of our strategic initiatives, commercial optimisation and cost
efficiency benefits
- Free cash flow of £2.4bn driven by strong operating profit and continued LTSA
balance growth supporting a net cash balance of £475m at the end of the year
- Dividend of 6.0p per share in respect of the full year 2024, based on a 30%
payout ratio of underlying profit after tax (1,2)
- 2025 guidance of £2.7bn-2.9bn underlying operating profit and £2.7bn-2.9bn
free cash flow; delivering our Capital Markets Day mid-term targets two years
earlier than planned
- £1bn share buyback to commence immediately for completion through 2025
- Upgraded mid-term targets of £3.6bn-£3.9bn underlying operating profit,
15%-17% operating margin, £4.2bn-£4.5bn free cash flow, and 18%-21% return
on capital based on a 2028 timeframe
Tufan Erginbilgic, CEO said: "Strong 2024 results build on our progress last
year, as we transform Rolls-Royce into a high-performing, competitive,
resilient, and growing business. All core divisions delivered significantly
improved performance, despite a supply chain environment that remains
challenging.
We are moving with pace and intensity. Based on our 2025 guidance, we now
expect to deliver underlying operating profit and free cash flow within the
target ranges set at our Capital Markets Day, two years earlier than planned.
Significantly improved performance and a stronger balance sheet gives us
confidence to reinstate shareholder dividends and announce a £1bn share
buyback in 2025.
Our upgraded mid-term targets include underlying operating profit of
£3.6bn-£3.9bn and free cash flow of £4.2bn-£4.5bn. These mid-term targets
are a milestone, not a destination, and we see strong growth prospects beyond
the mid-term."
Full Year 2024 Group Results
Underlying Underlying 2023 3 Statutory Statutory
2024 3 2024 2023
£ million
Revenue 17,848 15,409 18,909 16,486
Operating profit 2,464 1,590 2,906 1,944
Operating margin % 13.8% 10.3% 15.4% 11.8%
Profit before taxation 2,293 1,262 2,234 2,427
Basic earnings per share (pence) (2) 20.29 13.75 30.05 28.85
Free cash flow 2,425 1,285
Return on Capital (%) (2,) (4) 13.8% 11.3%
Net cash flow from operating activities 3,782 2,485
Net cash/(debt) 475 (1,952)
(1) Subject to shareholder approval at the 2025 annual general meeting
(2) In 2024, the Group recognised a net £346m credit to underlying profit after
tax (PAT), primarily in respect of deferred tax assets on UK tax losses. This
£346m credit has been adjusted in the calculation of the proposed dividend
per share, earnings per share and return on capital. For further details, see
note 5, page 32
(3) All underlying income statement commentary is provided on an organic basis
unless otherwise stated. A reconciliation of alternative performance measures
to their statutory equivalent is provided on pages 49 to 52
(4) Adjusted return on capital is defined on page 52 and is abbreviated to return
on capital
Full year 2024 performance summary
· Strategic delivery: 2024 has been another year of strong strategic
and financial delivery, building on our 2023 performance. Across these two
years we have driven significantly improved performance: underlying operating
profit has increased by £1.8bn to £2.5bn, operating margin by 8.7pts to
13.8%, free cash flow by £1.9bn to £2.4bn and return on capital has improved
by 8.9pts to 13.8%.
· Significantly growing operating margins: Underlying operating
profit rose from £1.6bn in 2023 to £2.5bn in 2024, a 57% increase compared
to the prior year, driven by our strategic initiatives including commercial
optimisation and cost efficiency benefits across the Group. This was achieved
despite ongoing supply chain challenges. Civil Aerospace's operating margin
rose to 16.6% (2023: 11.6%), driven by higher widebody aftermarket profit,
stronger performance in business aviation and net contractual margin
improvements. Defence delivered an operating margin of 14.2% (2023: 13.8%),
with higher operating profit driven by stronger aftermarket performance
alongside submarines growth. Power Systems delivered an operating margin of
13.1% (2023: 10.4%), primarily driven by stronger performance in power
generation, supported by our business interventions. Delivery across all
divisions has been supported by our cost efficiency actions.
· Growing and sustainable cash flows: Strong free cash flow of £2.4bn
(2023: £1.3bn) was achieved despite a challenging supply chain environment.
This was driven by strong operating profit and continued net long-term service
agreement (LTSA) balance growth, alongside a working capital release and
higher net investments in the year. Civil Aerospace LTSA balance growth net of
risk and revenue sharing arrangements (RRSAs) of £0.7bn (2023: £1.1bn) was
supported by higher large engine flying hours (EFH) at 103% of 2019 levels
(2023: 88%) and an improved EFH rate, partly offset by higher shop visits.
Working capital was an inflow of £280m, compared to an outflow of £356m in
the prior year. Since 2022, we have increased our net investments by £0.5bn
and our working capital programme has helped to drive more than a 45 day
improvement in inventory days and a 14 day improvement in days sales
outstanding with more than a 40% decrease in overdue debt.
· Strengthening our balance sheet and building resilience: Net cash
stood at £475m at the end of 2024. This compares to a £2.0bn net debt
position at the end of 2023. Gross debt was reduced by repaying a €550
million bond, and the remaining £1bn UK Export Finance (UKEF) supported
undrawn loan facility was cancelled, both enabled by our growing and more
resilient cash delivery. Liquidity remained robust at £8.1bn on 31 December
2024 (2023: £7.2bn). Our efforts to strengthen the balance sheet were
recognised by all three credit ratings agencies, who rate us at investment
grade with a positive outlook. In addition, the operating resilience of the
Group has been improved. Total underlying cash costs as a proportion of
underlying gross margin (TCC/GM) at year end was a best-in-class ratio of
0.47x (2023: 0.59x). We are creating a more robust and less volatile free cash
flow delivery that is more resilient to the external environment.
· Shareholder distributions: In line with our capital framework, now
that the balance sheet is being strengthened, we are reinstating shareholder
dividends in respect of the full year 2024. The cash dividend of 6p per share
represents a 30% pay-out ratio of underlying profit after tax and will be paid
subject to shareholder approval at our annual general meeting on 1 May
2025(1). We are also pleased to announce a £1bn share buyback to be completed
over the course of 2025.
(1) The dividend will be paid on 16 June 2025 to ordinary shareholders on the
register on 22 April 2025. In addition to the cash dividend, shareholders will
be offered a dividend reinvestment plan
Transformation programme and strategic initiatives 2022 - 2024
The success of our transformation programme and strategic initiatives is
evident in our financial performance over the past two years. We have made
good progress, and there is still more to do. Our strategy framework is
founded on four pillars.
Portfolio choices & partnerships
· Rolls-Royce SMR was named the preferred supplier for the
construction of Small Modular Reactors (SMRs) by the Government of the Czech
Republic and the Czech State utility, ČEZ Group in late 2024. This is enabled
by a strategic investment by ČEZ and an exclusive commitment to deploy up to
3GW of electricity in Czechia.
· In Civil Aerospace, we successfully tested our UltraFan demonstrator
and are developing the next design of the engine that will position us
strongly for a new generation of narrow and widebody aircraft.
· We have invested to grow capacity in Derby, Dahlewitz, and
Singapore. This will allow us to deliver more new engines and, by the end of
this year, perform an additional 50% more shop visits compared to 2023 to
support rising aftermarket volumes. We also received the first Trent 1000 to
our MRO facility in Dahlewitz.
· In business aviation, we certified and delivered Pearl 700 engines
that will power the Gulfstream G700, which entered service in April 2024, and
will also power the forthcoming G800. Our commercial optimisation actions mean
that business aviation engine deliveries are now profitable.
· In Defence, we are expanding our submarines facilities in
Raynesway, Derby, to support growth driven by the AUKUS programme.
· In Power Systems, we are investing in a next generation engine that
will enter the market in 2028. This engine will offer best-in-class fuel
efficiency and power density. We also expanded our JV in China with Yuchai to
address the fast-growing Chinese market.
· We completed the disposals of our direct air capture assets, the
lower power range engines business in Power Systems and agreed to sell our
naval propulsors & handling business in Defence.
· We made the decision to close our advanced air mobility activities,
alongside our electrolyser and fuel cells activities.
Strategic initiatives
· In Civil Aerospace, we have made strong progress renegotiating
original equipment (OE) and aftermarket contracts that will deliver a
significant benefit to underlying operating profit and cash flows to the
mid-term and beyond. Our efforts to improve the commercial terms of our large
engine LTSA aftermarket contracts supported a significant increase in total
contract margins for our in-production engines over the last two years.
· At our CMD we set a mid-term target to improve the time on wing of
our modern engines by an average of 40%. As a result of further initiatives,
we now expect to improve this by an average of more than 80%. A significant
portion of this will be delivered by the end of 2025.
o On the Trent 1000 TEN, we successfully completed flight testing of the new
HPT blade in January 2025. This blade, which we expect to be certified in the
coming months, will more than double the time on wing of the engine. We have
introduced the new blade into our production engines and expect to roll out
the improvement across the existing fleet over the next two years.
o In addition, we completed the design phase of further improvements for the
Trent 1000 and Trent 7000 that will deliver an incremental 30% time on wing
benefit by the end of 2025. Engine testing of the modification commences in
April.
o We certified the Trent XWB-84 EP, which further improves fuel efficiency
and durability of the engine, and introduced a new coating for the Trent
XWB-97 to improve its durability in harsh environments.
o On the Trent XWB-84, a compressor blade modification to the engine
combined with improved analysis of millions of hours of operating data will
allow us to systematically raise the cycle limit of critical parts.
· Our market share of the widebody installed fleet has grown from 32%
at the end of 2022 to 36% at the end of 2024, supported by our market share of
more than 50% of new engine deliveries over the past two years.
· In business aviation, where we have almost a 70% market share on
large cabin jets, operating profit has more than doubled over the last two
years, with improvements across OE and aftermarket supported by commercial
optimisation and cost efficiencies.
· In Defence, we won an eight year submarines contract worth c.£9bn
with the UK Ministry of Defence, the Survivable Airborne Operations Center
(SAOC) contract to deliver a replacement for the United States Air Force's
current fleet of E-4B "Nightwatch" led by prime contractor SNC, and the TACAMO
contract for Northrop Grumman.
· In Power Systems, we have restructured our Power Generation business
model, which has resulted in a significant increase in profitability to
capture strong profitable growth from the data centre market.
Efficiency & simplification
· In total, our efficiency & simplification programme delivered over
£350m of savings by the end of 2024. We now expect to deliver benefits of
over £500m in 2025, above our CMD target of £0.4-£0.5bn in 2027, and two
years earlier than planned. Within this, we also remain on track to deliver
c.£200m per annum of organisational design benefits by the end of 2025.
Supporting our efficiency & simplification programme is the roll-out of
zero-based budgeting across the Group. Pilots were completed in Civil
Aerospace that demonstrated savings of 10-15% in third-party costs in the
selected areas.
· We delivered more than £550m of cumulative gross third-party cost
savings by the end of 2024 and now expect to deliver in excess of £1bn by the
end of 2025 helping to offset inflationary pressures. This is also two years
earlier than our previous CMD target of £1bn in 2027.
· We are executing on our new Group Business Services strategy, with a
new centre opening in Poland and the expansion of our India centre, which will
drive further efficiencies in the mid-term.
· TCC/GM improved to a best-in-class ratio of 0.47x in 2024 (2023:
0.59x).
Lower carbon & digitally enabled businesses
· Rolls-Royce SMR was shortlisted as one of four potential SMR providers
by the UK Government and as one of two potential SMR providers in Sweden by
Vattenfall. We remain the only SMR company in Step 3 of the UK's Generic
Design Assessment, significantly ahead of the competition in the regulatory
process.
· In Power Systems, we won major battery energy storage systems (BESS)
contracts, including a contract with Latvia to install one of the largest BESS
in the EU, and our BESS activities remain on track to break even in the
near-term. We sold over 500 HVO (Hydrotreated Vegetable Oil) powered mtu
generators to the data centre sector, representing nearly 1.3 gigawatt of
standby power capacity.
· Across the Group, we are investing in our sales and operating planning
systems, as well as upgrading the current engineering mainframe system.
· We are pioneering new tools and techniques in Civil Aerospace. For
example, we have introduced machine learning and advanced imaging technologies
to assist with the inspection of turbine blades, which we believe will extend
time on wing.
We are working at pace on our Transformation Programme to further embed a
high-performance culture across the Group. Our workforce is excited and
energised by our Transformation and the progress we are making.
Outlook and 2025 guidance
Our guidance for underlying operating profit and free cash flow for the full
year 2025 demonstrates continued strong strategic progress. Our 2025 guidance
sees us delivering the Capital Markets Day targets for 2027 two years earlier
than planned.
2025 financial guidance
Underlying operating profit £2.7bn-£2.9bn
Free cash flow £2.7bn-£2.9bn
Our free cash flow guidance for full year 2025 includes a £150-200m cash
impact related to the supply chain, similar to 2024, with parts availability
remaining constrained. We expect supply chain issues to persist for a further
12-18 months. We are actively managing these challenges and are working to
mitigate the impacts.
In Civil Aerospace, we expect 2025 large EFH will grow to 110-115% of 2019
levels, alongside 540-570 total OE deliveries and 1,400-1,500 total shop
visits. Our 2025 free cash flow guidance is based on Civil Aerospace net LTSA
creditor growth at the lower end of the £0.8bn to £1.2bn guided range (2024:
£0.7bn). Additional details are included in the results presentation and
supplementary data slides.
Upgraded mid-term targets
Strong delivery in 2023 and 2024 gives us confidence to upgrade our mid-term
targets.
Upgraded mid-term targets (2028) CMD mid-term targets (2027)
Group targets:
Underlying operating profit £3.6bn-£3.9bn £2.5bn-£2.8bn
Underlying operating margin 15-17% 13-15%
Free cash flow £4.2bn-£4.5bn £2.8bn-£3.1bn
Return on capital 18-21% 16-18%
Divisional margin targets:
Civil Aerospace 18-20% 15-17%
Defence 14-16% 14-16%
Power Systems 14-16% 12-14%
Underlying operating profit is expected to increase from £2.5bn in 2024 to
£3.6bn-£3.9bn in the mid-term and underlying operating margin to increase
from 13.8% to 15-17%. These targets are significantly underpinned by our
actions, investments and strategic initiatives, including the benefits of
efficiency and simplification across the Group.
· Civil Aerospace: We target an 18-20% margin in the mid-term (2024:
16.6%). Higher operating profit will be driven by improved large engine LTSA
aftermarket performance, with higher LTSA margins reflecting the benefits of
our six levers (extending time on wing, lowering shop visit costs, reducing
product costs, keeping engines earning, implementing value-driven pricing, and
continuing to drive rigour on contractual terms and conditions). We expect
improved large engine OE profitability, both in installed and spare engines,
alongside further improvements in business aviation performance. These
benefits will be partly offset by a reduced contribution from contractual
margin improvements, as we anticipate completing the majority of our remaining
onerous contract renegotiations in 2025 and 2026.
· Defence: We target a 14-16% margin in the mid-term (2024: 14.2%).
Higher operating profit will be driven by stronger OE and aftermarket
performance, reflecting commercial optimisation benefits supported by our
actions taken over the past two years. These benefits will be partly offset by
the impact of divestments.
· Power Systems: We target a 14-16% margin in the mid-term (2024:
13.1%). Higher operating profit will be driven principally by power
generation, as we continue to capture profitable growth in the data centre
market, alongside governmental, and BESS which we aim to be profitable in the
near-term. We also expect continued growth in our marine and industrial
businesses.
Free cash flow of £4.2bn-£4.5bn in the mid-term compares to £2.4bn in 2024.
The improvement will be driven by higher operating profit alongside a
continued benefit in Civil Aerospace net LTSA balance growth at the upper end
of the £0.8bn to £1.2bn guided range. LTSA balance growth reflects growing
large EFH to 130-140% of 2019 levels, and our deliberate actions including
driving a higher EFH rate, the benefits of our time on wing initiatives with
total shop visits of 1,250-1,350 by the mid-term, alongside continued business
aviation growth. Our mid-term targets assume a forecast achieved foreign
exchange rate of $1.31/£ in 2028. Our profit growth will lead to a higher
cash tax cost.
We continue to expect a progressive, but not necessarily linear, improvement
year-on-year in underlying operating profit and free cash flow to 2028. The
performance improvements that underpin these targets and the actions required
to deliver them are owned across the Group and supported through rigorous
performance management.
Further details on the actions and assumptions that underpin these targets are
included in the results presentation and supplementary data slides.
Growth prospects beyond the mid-term
We see strong growth prospects beyond the mid-term across the Group.
In Civil Aerospace, we are strategically positioned to continue to outgrow the
market in both widebody and business aviation due to our strong positions on
leading platforms, with UltraFan uniquely placed for the next generation of
narrowbody and widebody aircraft. Rising LTSA margins will be supported by the
full benefit of our strategic initiatives, notably contract renegotiations,
value-based pricing on new and renewing contracts, lower shop visit costs, and
our time on wing programme that will drive a lower number of shop visits. We
also expect improving OE profitability, reflecting the full benefits of our
commercial optimisation and efficiency actions, alongside a further
strengthening in business aviation performance.
In Defence, growth will be driven by new platforms, which will ramp up from
2029 and remain in service for decades to come. These include AUKUS, B-52,
Future Long-Range Assault Aircraft (FLRAA), Global Combat Air Programme (GCAP)
and MQ-25. Furthermore, we anticipate extended demand for our existing
profitable portfolio of products.
In Power Systems, we have differentiated positions in power generation,
governmental, marine and industrial end markets. Growth will be largely driven
by power generation, notably data centres, where our strong market position
will be supported by the introduction of our next generation engine that will
offer higher power density, lower emissions, and improved fuel consumption
compared to its peers. We also see opportunities for profitable growth in our
lower carbon products, notably BESS.
Our unique nuclear capabilities and differentiated offering means that we are
well-placed to become a market leader in SMRs, where we see a significant
value creation opportunity. We also see opportunity in the micro-reactor
market.
Our investor presentation will provide more specific information on the above.
2024 Financial performance by business
£ million Underlying revenue Organic change(1) Underlying operating profit/(loss) Organic change(1) Underlying operating margin Organic margin change(1)
Civil Aerospace 9,040 24% 1,505 79% 16.6% 5.1pt
Defence 4,522 13% 644 16% 14.2% 0.4pt
Power Systems 4,271 11% 560 40% 13.1% 2.7pt
New Markets 3 nm(2) (177) 12% nm(2) nm(2)
Other businesses 12 nm(2) - nm(2) nm(2) nm(2)
Corporate/eliminations - nm(2) (68) 23% nm(2) nm(2)
Total 17,848 17% 2,464 57% 13.8% 3.5pt
Trading cash flow
£ million 2024 2023
Civil Aerospace 2,030 626
Defence 591 511
Power Systems 452 461
New Markets (181) (63)
Other businesses 5 5
Corporate/eliminations (60) (57)
Total trading cash flow 2,837 1,483
Underlying operating profit charge exceeded by contributions to defined (31) (26)
benefit schemes
Taxation (381) (172)
Total free cash flow 2,425 1,285
(1) Organic change is the measure of change at constant translational currency
applying full year 2023 average rates to 2024. All underlying income statement
commentary is provided on an organic basis unless otherwise stated
(2) nm is defined as not meaningful
Civil Aerospace
2024 key Civil Aerospace operational metrics: Large engine Business aviation/ regional Total Change
OE deliveries 278 251 529 16%
LTSA engine flying hours (millions) 15.8 3.0 18.8 14%
Total LTSA shop visits 903 410 1,313 7%
…of which major shop visits 430 384 814 11%
Significantly improved Civil Aerospace profit reflected higher large engine
aftermarket and business aviation performance, net contractual margin
improvements, alongside the benefits from our cost efficiency actions.
Civil Aerospace large EFHs rose by 17% year on year to 103% of 2019 levels,
reflecting continued strong demand for travel and our growing installed
widebody fleet. Business aviation and regional EFH were unchanged versus the
prior year. A total of 494 large engines were ordered with a gross
book-to-bill of 1.8x in 2024. Significant new orders included IndiGo, Cathay
Pacific, Korean Air and Delta, alongside an order for Trent 1000 engines from
EL AL. As a result of strong order intake, our large engine order book
increased by 13% to 1,843 engines at the end of the year.
Total OE deliveries rose by 16% to 529 engines, with 251 business aviation
deliveries (2023: 196) and 278 total large engine deliveries (2023: 262),
including 57 large spare engines (2023: 53) helping to support fleet health
and resilience. Total shop visits increased by 7% versus the prior year to
1,313 (2023: 1,227), of these 430 were large engine major shop visits (2023:
368).
Underlying revenue of £9.0bn increased by 24%, driven by higher shop visit
volumes and mix, OE engine deliveries and commercial optimisation. Underlying
OE revenue grew by 16% in the year to £3.1bn and services revenue grew by 28%
to £5.9bn. LTSA revenue catch-ups were £311m (2023: £(104)m).
Underlying operating profit was £1.5bn (16.6% margin) versus £850m in 2023
(11.6% margin). Higher underlying operating profit reflected improved large
engine aftermarket performance. This was primarily driven by improved LTSA
profit, higher shop visit volumes, and increased time and materials profit. In
addition, business aviation performance improved with higher OE and
aftermarket profit. Higher underlying operating profit across large engines
and business aviation also reflected the benefits of net contractual margin
improvements as well as cost efficiency benefits.
Our efforts to improve the commercial terms and reduce costs across our large
engine and business aviation contracts supported total contractual margin
improvements of £617m in the year. These benefits were partially offset by
£382m of additional charges largely associated with the impact of prolonged
supply chain challenges, which were booked across onerous provisions and
contract catch-ups. As a result, net contractual margin improvements were
£235m (2023: £(54)m), comprising contract catch-ups of £290m (2023:
£(29)m) and net onerous provision charges of £(55)m (2023: £(25)m).
Trading cash flow of £2.0bn (2023: £626m) reflected strong operating profit,
continued LTSA balance growth, and a working capital release, partly offset by
higher net investments in the year. Civil Aerospace net LTSA balance growth
net of RRSAs of £0.7bn in the year (2023: £1.1bn) was supported by higher
large engine flying hours (EFH), and an improved EFH rate, with LTSA invoiced
flying hour receipts of £5.5bn (2023: £4.6bn). This was partly offset by a
higher number of shop visits, including a significant increase in Trent 1000
major refurbishments.
Defence
Higher operating profit in Defence was driven by aftermarket profit growth,
submarines growth, and cost efficiencies across the business.
Demand remained very strong, with an order intake of £13.3bn in the year and
a book-to-bill ratio of 2.9x, including an eight-year submarines contract
worth c.£9bn with the UK Ministry of Defence. This order combines several
current and upcoming contracts and underscores our unique nuclear capability.
We were selected to form part of the team led by prime contractor SNC, to
modernise and deliver a replacement for the United States Air Force's current
fleet of E-4B "Nightwatch" aircraft as part of the SAOC contract. We were also
selected by Northrop Grumman on the TACAMO contract, a key component of the
U.S. nuclear triad. Our order backlog at the end of the year was £17.4bn,
with order cover of 90% for 2025.
Revenue increased by 13%(1) to £4.5bn (2023: £4.1bn). Growth was led by
submarines which reported growth of 53%(1) while transport and combat were
broadly flat, as the supply chain constrained OE volumes. Total OE revenues
grew by 11% versus last year to £1.9bn driven by increased submarines
volumes, including the ramp up of the AUKUS programme. Services revenues grew
by 13% to £2.6bn(1) supported by a more favourable shop visit mix and
improved pricing.
Operating profit grew by 16% to £644m (2023: £562m), with an operating
margin of 14.2% (2023: 13.8%), despite a challenged supply chain environment
which constrained OE deliveries. Profit growth was driven by stronger
aftermarket performance, led by transport, reflecting our commercial
optimisation efforts and a more favourable mix. Submarines growth was also
strong. In addition, higher operating profit was supported by cost efficiency
benefits.
Trading cash flow of £591m increased versus £511m last year, driven by
higher underlying operating profit alongside the continued tight management of
working capital.
Power Systems
In Power Systems, stronger performance was primarily driven by power
generation, alongside cost efficiency benefits.
Order intake in Power Systems was £5.1bn, up 19% versus the prior year, with
a book-to-bill ratio of 1.2x. OE order coverage for 2025 is 82%. Demand
remains particularly strong in power generation, with data centre orders up
42% year on year, and in governmental where order intake increased by 33%.
Underlying revenue was £4.3bn, an increase of 11% versus the prior year, with
particularly strong growth in power generation, where revenues grew by 25%,
and by 46% for data centres. Revenue growth was also strong in governmental at
17%, reflecting continued demand for land defence and naval products.
Industrial revenues were 20% lower, largely as a result of the disposal of the
lower power range of off highway engines. Underlying OE revenues grew by 14%
to £2.9bn. Underlying services revenue grew by 5% to £1.3bn.
Underlying operating profit grew by 40% to £560m. Underlying operating margin
rose by 2.7pts to 13.1% (2023: 10.4%). Higher operating profit reflected
significant growth in power generation and benefits from our young and growing
BESS business. Power generation growth was driven by data centres, where we
have restructured our business model to achieve a double-digit operating
margin, with our differentiated offering for back-up power generators,
competing on power density, speed of back-up and service. Higher operating
profit was also supported by cost efficiency benefits.
Trading cash flow was £452m with a conversion ratio of 81% versus £461m and
112% last year. The decrease in trading cash flow reflected strong growth in
operating profit, offset by investment in working capital to support business
growth.
New Markets
Rolls-Royce SMR was named in September as the preferred supplier for the
construction of SMRs by the Government of the Czech Republic and the Czech
State utility, ČEZ Group. This is enabled by a strategic investment by ČEZ
into Rolls-Royce SMR and an exclusive commitment to deploy up to 3GW of
electricity in the Czech Republic.
Rolls-Royce SMR has completed step two of the Generic Design Assessment (GDA)
regulatory process in the UK and moved into the third and final step on 30
July 2024. Rolls-Royce is the only company to have reached this milestone,
adding to our competitive advantage. First power is still planned in the early
2030s, which will be dependent on securing orders from the UK Government's SMR
procurement process.
Rolls-Royce SMR is one of two companies that have been shortlisted by
Vattenfall, to potentially deploy a fleet of SMRs in Sweden. The programme is
part of Vattenfall's plans to meet the rising demand for electricity, adding
nuclear capacity and helping Sweden to achieve its goal of creating a fossil
free economy by 2045. Rolls-Royce SMR is also in a range of selection
processes with a number of other counterparts.
Planned increases in expenditure to meet development milestones in SMR
resulted in an increased operating loss for New Markets of £(177)m versus
£(160)m in the prior year.
Trading cash flow was an outflow of £(181)m compared to £(63) in the prior
year.
(1) Defence services revenues includes a c.£220m benefit of a one-off capital and
lease transaction. Excluding this, Defence revenue growth was 7% and
submarines revenue growth was 29%
Statutory and underlying Group financial performance
2024 2023
£ million Statutory Impact of hedge book(1) Impact of acquisition accounting Impact of other non-underlying items Underlying Underlying
Revenue 18,909 (1,061) - - 17,848 15,409
Gross profit 4,221 (186) 43 13 4,091 3,231
Operating profit 2,906 191) 45 (296) 2,464 1,590
Gain arising on disposal of businesses 16 - - (16) - -
Profit before financing and taxation 2,922 (191) (312) 2,464
45 1,590
Net financing (costs)/income (688) 419 - 98 (171) (328)
Profit before taxation 2,234 228 45 (214) 2,293 1,262
Taxation(2) 250 (57) (11) (464) (282) (120)
Profit for the year 2,484 171 34 (678) 2,011 1,142
Basic earnings per share (pence)(3) 30.05 20.29 13.75
Revenue: Underlying revenue of £17.8bn was up 17%, with double-digit growth
in all three core divisions, notably Civil Aerospace. Statutory revenue of
£18.9bn was 15% higher compared with 2023. The difference between statutory
and underlying revenue is driven by statutory revenue being measured at
average prevailing exchange rates (2024: GBP:USD 1.28; 2023: GBP:USD 1.24) and
underlying revenue being measured at the hedge book achieved rate during the
year (2024 GBP:USD 1.48; 2023:GBP:USD 1.50).
Operating profit: Underlying operating profit of £2.5bn (13.8% margin) versus
£1.6bn (10.3% margin) in the prior year. Underlying operating profit was
higher in all three core divisions, driven by strategic initiatives including
commercial optimisation and cost efficiency benefits across the Group. The
largest year on year improvement in margins was in Civil Aerospace, driven by
higher large engine aftermarket, net contractual improvements, and business
aviation profits. Defence and Power Systems margins also rose materially.
Statutory operating profit was £2.9bn, higher than the £2.5bn underlying
operating profit largely due to a £545m impairment reversal related to a
Civil Aerospace programme asset impairment that was recognised in 2020 and
£191m negative impact from currency hedges in the underlying results. Charges
of £294m were excluded from the underlying results as these related to
non-underlying items comprising net transformation and restructuring charges
of £234m; £45m relating to the amortisation of intangible assets arising on
previous acquisitions; £14m pension past service credit; and £1m of other
credits.
Profit before taxation: Underlying profit before taxation of £2.3bn included
£(171)m net financing costs comprising £266m interest receivable, £(273)m
interest payable and £(164)m of other financing charges and costs of undrawn
facilities. Statutory profit before tax of £2.2bn included £(609)m net fair
value losses on derivative contracts, £(93)m net interest payable, net
foreign exchange gains of £190m and £(176)m other financing charges and
costs of undrawn facilities.
Taxation: Underlying tax charge of £(282)m (2023: £(120)m) reflects an
overall tax charge on profits of Group companies as well as a tax charge of
£(102)m on a de-grouping gain in the UK, a tax charge of £(162)m on
de-recognition of the deferred tax asset relating to advance corporation tax
and a tax credit of £508m relating to the recognition of some of the deferred
tax asset on UK tax losses. These are reflected in the statutory tax credit of
£250m (2023: tax charge £(23)m) which also includes an additional tax credit
on the recognition of a £525m deferred tax asset relating to UK tax losses, a
£10m tax credit related to the reduction in the UK tax rate on authorised
pension surpluses, a tax credit of £57m related to unrealised foreign
exchange derivatives and a £(60)m tax charge related to other non-underlying
items.
(1) 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 than 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
(2) Statutory taxation includes the recognition of a deferred tax asset on UK tax
losses of £1,033m (of which £508m is included in underlying) and the
de-recognition of the deferred tax asset relating to advance corporation tax
of £(162)m (of which £(162)m is included in underlying), see note 5, pages
31 to 32 for further details)
(3) In 2024, the underlying profit attributable to ordinary shareholders has been
adjusted for the one-off non-cash impact of £346m related to the net
recognition of deferred tax assets on UK tax losses, see note 5, page 32 for
further details
Free cash flow
2024 2023
£ million Cash flow Impact of hedge book Impact of acquisition accounting Impact of other non-underlying items Funds flow Funds flow
Operating profit 2,906 (191) 45 (296) 2,464 1,590
Depreciation, amortisation and impairment 543 - (45) 355 853
978
Movement in provisions (56) (56) - (55) (167) (258)
Movement in Civil Aerospace LTSA balance 1,193 (283) - - 910
1,331
Movement in RRSA prepayments for LTSA parts (348) 129 - - (219) (252)
Movement in cost to obtain contracts (19) 1 - - (18)
(40)
Settlement of excess derivatives (146) - - - (146) (389)
Interest received 269 - - - 269 159
Other operating cash flows (1) 61 (5) - (13) 43 (68)
Operating cash flow before working capital and income tax 4,403 (405) - (9) 3,989
3,051
Working capital (2) 436 (271) - 115 280 (356)
Cash flows on other financial assets and liabilities held for operating (676) 652 - - (24) 8
purposes
Income tax (381) - - - (381) (172)
Cash from operating activities 3,782 (24) - 106 3,864
2,531
Capital element of lease payments (299) 24 - - (275) (270)
Capital expenditure (876) - - - (876) (695)
Investments 16 - - - 16 69
Interest paid (298) - - - (298) (333)
Other 100 - - (106) (6) (17)
Free cash flow 2,425 - - - 2,425 1,285
Free cash flow in the year was £2.4bn, an improvement of £1.1bn compared
with the prior year driven by:
Underlying operating profit of £2.5bn, £874m higher than the prior year.
This reflects improved underlying operating profit and margins in all three
core divisions, notably Civil Aerospace.
Movement in provisions of £(167)m driven by movements across several
provisions, including contract losses, warranty and guarantees, Trent 1000 and
transformation and restructuring.
Movement in Civil Aerospace LTSA balance was £910m, lower than the prior year
£1,331m, due to higher invoiced revenue driven by higher EFH, offset by
higher traded revenue as a result of volume and mix of shop visits, and
catch-ups of £(311)m in 2024 compared with £104m in prior year.
Movement in RRSA prepayments for LTSA parts of £(219)m (2023: £(252)m). The
movement corresponds to the movement seen in the Civil Aerospace LTSA balance
above. RRSA prepayments typically move in line with the Civil Aerospace LTSA
balance as the RRSA prepayment represents amounts that we have paid to Risk
and Revenue Share Partners for the parts that they will ultimately provide in
support of our contracts.
Working capital inflow of £280m, compared to an outflow of £356m in the
prior year. A net £603m inflow from receivables, payables and contract
liabilities, reflecting the benefits from our working capital initiatives was
partly offset by a £(323)m increase in inventory to meet growing demand.
Income tax of £(381)m, net cash tax payments for 2024 were higher than the
prior year (£(172)m) due to timing of payments.
(1) 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-retirement schemes, and share based
payments
(2) Working capital includes inventory, trade and other receivables and payables,
and contract assets and liabilities (excluding Civil Aerospace LTSA balances,
prepayment to RRSAs and costs to obtain contracts). Working capital was
previously defined as inventory, trade and other receivables and payables, and
contract assets and liabilities, excluding Civil Aerospace LTSA balances
Capital expenditure of £(876)m, includes £(519)m of property, plant and
equipment additions and £(367)m of intangibles additions. The combined
additions were higher than the prior year as a result of investment across the
Group to support strategic growth and safety.
Interest paid of £(298)m, including lease interest payments and fees on
undrawn facilities, reduced by £35m primarily as a result of the termination
of a £1bn UKEF-supported loan facility and £1bn term loan in 2023.
Balance Sheet
£ million 2024 2023 Change
Intangible assets 4,402 4,009 393
Property, plant and equipment 3,724 3,728 (4)
Right-of-use assets 761 905 (144)
Joint ventures and associates 592 479 113
Civil Aerospace LTSA (1) (10,184) (9,080) (1,104)
RRSA prepayments for LTSA parts (1) 1,668 1,320 348
Costs to obtain contracts (1) 135 116 19
Working capital (1) (1,731) (1,502) (229)
Provisions (1,994) (2,029) 35
Net cash/(debt) (2) 475 (1,952) 2,427
Net financial assets and liabilities (2) (1,980) (2,060) 80
Net post-retirement scheme deficits (191) (253) 62
Taxation 3,383 2,605 778
Assets and liabilities held for sale (3) 53 54 (1)
Other net assets and liabilities 6 31 (25)
Net liabilities (881) (3,629) 2,748
Other items
US$ hedge book (US$bn) 19 15
Key drivers of balance sheet movements were:
Intangible assets: The £393m increase is largely the result of an impairment
reversal related to a Civil Aerospace programme asset impairment that was
recognised in 2020.
Civil Aerospace LTSA: The £(1.1)bn movement in the net liability balance was
mainly driven by an increase in invoiced LTSA receipts exceeding revenue
recognised in the year. This is especially prevalent on new contracts where
shop visits are not immediately scheduled.
RRSA prepayments for LTSA parts: The £348m increase corresponds to the
increase seen in the Civil Aerospace LTSA balance above. RRSA prepayments
typically move in line with the Civil Aerospace LTSA balance as the RRSA
prepayment represents amounts that we have paid to Risk and Revenue Share
Partners for the parts that they will ultimately provide in support of our
contracts.
Working capital: The £(1.7)bn net working capital position increased by
£(229)m compared to the prior year. This £(229)m movement reflected higher
sales volumes and supply chain disruption, along with changes in operational
volumes and timing of supplier payments.
Net cash/(debt): Increased to £475m from £(2.0)bn driven by a free cash
inflow of £2.4bn. Our liquidity position is strong with £8.1bn of liquidity
including cash and cash equivalents of £5.6bn and undrawn facilities of
£2.5bn. During the year, the Group repaid a €550m bond in line with its
maturity date. Net cash included £(1.6)bn of lease liabilities (2023:
£(1.7)bn).
Taxation: The net tax asset increased by £778m. The increase largely relates
to the recognition of a deferred tax asset relating to UK tax losses of
£1,033m, this is partially offset by a reduction in UK deferred tax assets of
£(171)m due to the utilisation of UK tax losses and reliefs and the
de-recognition of the deferred tax asset relating to UK advance corporation
tax of £(162)m. Non-UK deferred tax assets have reduced by £(38)m. Deferred
tax liabilities have decreased by £99m, mainly due to a reduction in the UK
tax rate applied to authorised pension surpluses and net current tax
liabilities have also decreased by £17m.
(1) 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
(2) Net cash includes £33m (2023: £23m) of the fair value of derivatives
included in fair value hedges and the element of fair value relating to
exchange differences on the underlying principal of derivatives in cash flow
hedges
(3) Assets and liabilities held for sale relate to the sale of the naval
propulsors & handling business. During the year, the Group disposed of
part of Power Systems' lower power range engines business that was held for
sale in 2023
Results meeting and webcast
Our results presentation will be held at UBS, 5 Broadgate, London EC2M 2QS and
webcast live at 09:00 (GMT) today. Downloadable materials will also be
available on the Investor Relations section of the Rolls-Royce website:
https://www.rolls-royce.com/investors/results-and-events.aspx
(https://www.rolls-royce.com/investors/results-and-events.aspx)
To register for the webcast, including Q&A participation, please visit the
following link:
https://app.webinar.net/a2OWERzEem5 (https://app.webinar.net/a2OWERzEem5)
Please use this same link to access the webcast replay which will be made
available shortly after the event concludes. Photographs and
broadcast-standard video are available at www.rolls-royce.com
(http://www.rolls-royce.com)
Enquiries:
Investors: Media:
Jeremy Bragg +44 7795 840875 Alice Hunt +44 7824 508131
Ruchi Malaiya +44 7900 189184 Bianca D'Orsi +44 7721 812660
The person responsible for arranging the release of this announcement on
behalf of Rolls-Royce Holdings plc is Claire-Marie O'Grady, Chief Governance
Officer.
This results announcement contains forward-looking statements. Any statements
that express forecasts, expectations and projections are not guarantees of
future performance and will not be updated. By their nature, these statements
involve risk and uncertainty, and a number of factors could cause material
differences to the actual results or developments. This report is intended to
provide information to shareholders, is not designed to be relied upon by any
other party, or for any other purpose and Rolls-Royce Holdings plc and its
Directors accept no liability to any other person other than under English
law.
LSE: RR.; ADR: RYCEY; LEI: 213800EC7997ZBLZJH69
Condensed Consolidated Financial Statements
Condensed consolidated income statement
For the year ended 31 December 2024
( )
2024 2023
Notes £m £m
Revenue 2 18,909 16,486
Cost of sales (1, 2) (14,688) (12,866)
Gross profit 2 4,221 3,620
Commercial and administrative costs 2 (1,284) (1,110)
Research and development costs (2) 2, 3 (203) (739)
Share of results of joint ventures and associates 172 173
Operating profit 2,906 1,944
Gain arising on disposal of businesses 23 16 1
Profit before financing and taxation 2,922 1,945
Financing income 4 536 1,163
Financing costs 4 (1,224) (681)
Net financing (costs)/income (3) (688) 482
Profit before taxation 2,234 2,427
Taxation 5 250 (23)
Profit for the year 2,484 2,404
Attributable to:
Ordinary shareholders 2,521 2,412
Non-controlling interests (NCI) (37) (8)
Profit for the year 2,484 2,404
Other comprehensive income/(expense) (OCI) 50 (171)
Total comprehensive income for the year 2,534 2,233
Earnings per ordinary share attributable to ordinary shareholders: 6
Basic 30.05p 28.85p
Diluted 29.87p 28.70p
(1)( ) Cost of sales includes a net charge for expected credit losses
(ECLs) of £14m (2023: net release of £48m). Further details can be found in
note 12
(2) The impact of an exceptional impairment reversal relating to a Civil
Aerospace programme impairment that was recognised in 2020 is included within
cost of sales, £132m, and research and development, £413m. Further details
can be found in notes 2, 3 and 7
(3) Included within net financing are fair value changes on derivative
contracts. Further details can be found in notes 2, 4 and 18
Condensed consolidated statement of comprehensive income
For the year ended 31 December 2024
2024 2023
Notes £m £m
Profit for the year 2,484 2,404
Other comprehensive income/(expense) (OCI)
Actuarial movements in post-retirement schemes 20 22 116
Revaluation to fair value of other investments 10 (2) (4)
Share of OCI of joint ventures and associates (1) 1
Related tax movements 61 (43)
Items that will not be reclassified to profit or loss 80 70
Foreign exchange translation differences on foreign operations (29) (226)
Foreign exchange translation differences reclassified to income statement - 1
on disposal of businesses
Movement on fair values charged to cash flow hedge reserve (CFHR) (17) (82)
Reclassified to income statement from cash flow hedge reserve (CFHR) 22 61
Share of OCI of joint ventures and associates (3) 1
Related tax movements (3) 4
Items that will be reclassified to profit or loss (30) (241)
Total other comprehensive income/(expense) 50 (171)
Total comprehensive income for the year 2,534 2,233
Attributable to:
Ordinary shareholders 2,571 2,241
NCI (37) (8)
Total comprehensive income for the year 2,534 2,233
Condensed consolidated balance sheet
At 31 December 2024
2024 2023
Notes £m £m
ASSETS
Intangible assets 7 4,402 4,009
Property, plant and equipment 8 3,724 3,728
Right-of-use assets 9 761 905
Investments - joint ventures and associates 10 592 479
Investments - other 10 5 31
Other financial assets 18 126 360
Deferred tax assets 5 3,660 2,998
Post-retirement scheme surpluses 20 790 782
Non-current assets 14,060 13,292
Inventories 11 5,092 4,848
Trade receivables and other assets 12 8,713 8,123
Contract assets 13 1,813 1,242
Taxation recoverable 71 80
Other financial assets 18 209 34
Cash and cash equivalents 14 5,575 3,784
Current assets 21,473 18,111
Assets held for sale 23 153 109
TOTAL ASSETS 35,686 31,512
LIABILITIES
Borrowings and lease liabilities 15 (1,097) (809)
Other financial liabilities 18 (642) (448)
Trade payables and other liabilities 17 (8,009) (6,896)
Contract liabilities 13 (6,309) (6,098)
Current tax liabilities (117) (143)
Provisions for liabilities and charges 19 (589) (532)
Current liabilities (16,763) (14,926)
Borrowings and lease liabilities 15 (4,035) (4,950)
Other financial liabilities 18 (1,640) (1,983)
Trade payables and other liabilities 17 (1,965) (1,927)
Contract liabilities 13 (9,447) (8,438)
Deferred tax liabilities 5 (231) (330)
Provisions for liabilities and charges 19 (1,405) (1,497)
Post-retirement scheme deficits 20 (981) (1,035)
Non-current liabilities (19,704) (20,160)
Liabilities associated with assets held for sale 23 (100) (55)
TOTAL LIABILITIES (36,567) (35,141)
NET LIABILITIES (881) (3,629)
EQUITY
Called-up share capital 1,701 1,684
Share premium 1,012 1,012
Capital redemption reserve 168 167
Cash flow hedge reserve 13 12
Translation reserve 603 634
Accumulated losses (4,409) (7,190)
Equity attributable to ordinary shareholders (912) (3,681)
Non-controlling interest (NCI) 31 52
TOTAL EQUITY (881) (3,629)
Condensed consolidated cash flow statement
For the year ended 31 December 2024
Notes 2024 2023
£m £m
Reconciliation of cash flows from operating activities
Operating profit 2,906 1,944
Loss on disposal of property, plant and equipment 32 18
Loss on disposal of intangible assets 6 -
Share of results of joint ventures and associates 10 (172) (173)
Dividends received from joint ventures and associates 10 77 54
Amortisation and impairment of intangible assets 7 (120) 272
Depreciation and impairment of property, plant and equipment 8 400 423
Depreciation and impairment of right-of-use assets 9 265 334
Adjustment of amounts payable under residual value guarantees within lease 16 (6) (10)
liabilities
Impairment of and other movements on investments 10 4 -
Decrease in provisions (56) (325)
Increase in inventories (323) (200)
Movement in trade receivables/payables and other assets/liabilities 833 (1,346)
Movement in contract assets/liabilities 752 2,703
Cash flows on other financial assets and liabilities held for operating (676) (845)
purposes (1)
Cash flows on settlement of excess derivative contracts (2) (146) (389)
Interest received 269 159
Net defined benefit post-retirement cost recognised in profit before financing 20 56 41
Cash funding of defined benefit post-retirement schemes 20 (74) (69)
Share-based payments 136 66
Net cash inflow from operating activities before taxation 4,163 2,657
Taxation paid (381) (172)
Net cash inflow from operating activities 3,782 2,485
Cash flows from investing activities
Movement in other investments - 1
Additions of intangible assets 7 (367) (284)
Disposals of intangible assets 5 4
Purchases of property, plant and equipment (519) (429)
Disposals of property, plant and equipment 5 10
Acquisition of businesses - (14)
Disposal of businesses (including cash flows on disposals in prior periods) 23 62 (4)
Movement in investments in joint ventures and associates 10 (17) (9)
Movement in short-term investments - 11
Cash flows on other financial assets and liabilities held for non-operating - (12)
purposes
Net cash outflow from investing activities (831) (726)
Cash flows from financing activities
Repayment of loans (475) (1)
Settlement of swaps hedging fixed rate borrowings (11) -
Proceeds from increase in loans 7 2
Capital element of lease payments (299) (291)
Net cash flow from decrease in borrowings and lease liabilities (778) (290)
Interest paid (200) (196)
Interest element of lease payments (83) (85)
Fees paid on undrawn facilities (15) (52)
Transactions with NCI (3) 33 77
Dividends to NCI (3) (2)
Redemption of C Shares (1) (1)
Net cash outflow from financing activities (1,047) (549)
Change in cash and cash equivalents 1,904 1,210
Cash and cash equivalents at 1 January 3,731 2,605
Exchange losses on cash and cash equivalents (62) (84)
Cash and cash equivalents at 31 December (4) 5,573 3,731
(1 ) Predominantly relates to cash settled on derivative contracts held for
operating purposes
(2) 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 longer 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 $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. The 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 £146m (2023: £389m) and estimates that future cash outflows
of £148m will be incurred in 2025 and £27m will be incurred in 2026
(3)( ) Relates to NCI investment received in the year, in respect of
Rolls-Royce SMR Limited
(4)( ) The Group considers overdrafts (repayable on demand) to be an
integral part of its cash management activities and these are included in cash
and cash equivalents for the purposes of the cash flow statement
Condensed consolidated cash flow statement continued
For the year ended 31 December 2024
In deriving the condensed consolidated cash flow statement, movements in
balance sheet line items have been adjusted for non-cash items. The cash flow
in the year includes the sale of goods and services to joint ventures and
associates - see note 22.
2024 2023
£m £m
Reconciliation of movements in cash and cash equivalents to movements in net
cash/(debt)
Change in cash and cash equivalents 1,904 1,210
Cash flow from decrease in borrowings and lease liabilities 778 290
Less: settlement of related derivatives included in fair value of swaps (11) -
below
Cash flow from decrease in short-term investments - (11)
Change in net cash/(debt) resulting from cash flows 2,671 1,489
Lease additions, modifications and other non-cash adjustments on borrowings (193) (191)
and lease liabilities
Exchange (losses)/gains on net cash/(debt) (50) 57
Fair value adjustments (11) 7
Movement in net cash/(debt) 2,417 1,362
Net (debt) at 1 January (1,975) (3,337)
Net cash/(debt) at 31 December excluding the fair value of swaps 442 (1,975)
Fair value of swaps hedging fixed rate borrowings 33 23
Net cash/(debt) at 31 December 475 (1,952)
The movement in net cash/(debt) (defined by the Group as including the items
shown below) is as follows:
At 1 January Funds flow Exchange differences Fair value adjustments Reclassifi-cations ( ) Other movements At 31 December
£m £m £m £m £m £m £m
2024
Cash at bank and in hand 739 (15) (10) - - - 714
Money market funds 1,077 841 (18) - - - 1,900
Short-term deposits 1,968 1,027 (34) - - - 2,961
Cash and cash equivalents 3,784 1,853 (62) - - - 5,575
(per balance sheet)
Overdrafts (53) 51 - - - - (2)
Cash and cash equivalents 3,731 1,904 (62) - - - 5,573
(per cash flow statement)
Other current borrowings (478) 471 - (18) (774) - (799)
Non-current borrowings (3,568) (3) 19 7 774 (5) (2,776)
Lease liabilities (1,660) 299 (7) - 1 (188) (1,555)
Lease liabilities included within liabilities held for sale - - - - (1) - (1)
Financial liabilities (5,706) 767 12 (11) - (193) (5,131)
Net cash/(debt) excluding fair value of swaps (1,975) 2,671 (50) (11) - (193) 442
Fair value of swaps hedging fixed rate borrowings (1) 23 11 (18) 17 - - 33
Net cash/(debt) (1,952) 2,682 (68) 6 - (193) 475
2023
Cash at bank and in hand 847 (79) (29) - - - 739
Money market funds 34 1,043 - - - - 1,077
Short-term deposits 1,726 297 (55) - - - 1,968
Cash and cash equivalents 2,607 1,261 (84) - - - 3,784
(per balance sheet)
Overdrafts (2) (51) - - - - (53)
Cash and cash equivalents 2,605 1,210 (84) - - - 3,731
(per cash flow statement)
Short-term investments 11 (11) - - - - -
Other current borrowings (1) (1) - (13) (462) (1) (478)
Non-current borrowings (4,105) - 59 20 462 (4) (3,568)
Lease liabilities (1,847) 291 82 - - (186) (1,660)
Financial liabilities (5,953) 290 141 7 - (191) (5,706)
Net (debt) excluding fair value of swaps (3,337) 1,489 57 7 - (191) (1,975)
Fair value of swaps hedging fixed rate borrowings (1) 86 - (59) (4) - - 23
Net (debt) (3,251) 1,489 (2) 3 - (191) (1,952)
(1)( ) 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 derivatives included in fair
value hedges (2024: £62m, 2023: £34m) and the element of fair value relating
to exchange differences on the underlying principal of derivatives in cash
flow hedges (2024: £(29)m, 2023: £(11)m)
Condensed consolidated statement of changes in equity
For the year ended 31 December 2024
Attributable to ordinary shareholders
Notes Share capital Share premium Capital redemption reserve Cashflow hedging reserve Translation reserve Accum-ulated losses (1) Total NCI Total equity
£m £m £m £m £m £m £m £m £m
At 1 January 2024 1,684 1,012 167 12 634 (7,190) (3,681) 52 (3,629)
Profit/(loss) for the year - - - - - 2,521 2,521 (37) 2,484
Foreign exchange translation differences on foreign operations - - - - (29) - (29) - (29)
Actuarial movements on post-retirement schemes 20 - - - - - 22 22 - 22
Fair value movement on CFHR - - - (17) - - (17) - (17)
Reclassified to income statement from CFHR - - - 22 - - 22 - 22
Revaluation to fair value of other investments 10 - - - - - (2) (2) - (2)
OCI of joint ventures and associates 10 - - - (3) - (1) (4) - (4)
Related tax movements - - - (1) (2) 61 58 - 58
Total comprehensive income/(expense) for the year - - - 1 (31) 2,601 2,571 (37) 2,534
Issue of ordinary shares 17 - - - - - 17 - 17
Redemption of C shares - - 1 - - (1) - - -
Shares issued to employee share trust - - - - - (17) (17) - (17)
Share-based payments - direct to equity (2) - - - - - 95 95 - 95
Dividends to NCI - - - - - - - (3) (3)
Transactions with NCI (3) - - - - - 32 32 19 51
Related tax movements 5 - - - - - 71 71 - 71
Other changes in equity in the year 17 - 1 - - 180 198 16 214
At 31 December 2024 1,701 1,012 168 13 603 (4,409) (912 31 (881)
A final dividend in respect of the year ended 31 December 2024 of 6 pence per
share, or approximately £504m, based on a 30% pay-out ratio of underlying
profit after tax attributable to ordinary shareholders (adjusted for the
one-off non-cash impact of £346m related to the net recognition of deferred
tax assets on UK tax losses, see note 5, page 32 for further details), is to
be recommended to shareholders for approval at the 2025 AGM. These financial
statements do not reflect this proposed final dividend.
Condensed consolidated statement of changes in equity continued
For the year ended 31 December 2023
Attributable to ordinary shareholders
Notes Share capital Share premium Capital redemption reserve Cashflow hedging reserve Translation reserve Accum-ulated losses (1) Total NCI Total equity
£m £m £m £m £m £m £m £m £m
At 1 January 2023 1,674 1,012 166 26 861 (9,789) (6,050) 34 (6,016)
Profit/(loss) for the year - - - - - 2,412 2,412 (8) 2,404
Foreign exchange translation differences on foreign operations - - - - (226) - (226) - (226)
Foreign exchange translation differences reclassified to income statement on - - - - 1 - 1 - 1
disposal of businesses
Actuarial movements on post-retirement schemes - - - - - 116 116 - 116
Fair value movement on CFHR - - - (82) - - (82) - (82)
Reclassified to income statement from CFHR - - - 61 - - 61 - 61
Revaluation to fair value of other investments - - - - - (4) (4) - (4)
OCI of joint ventures and associates - - - 2 (1) 1 2 - 2
Related tax movements - - - 5 (1) (43) (39) - (39)
Total comprehensive income/(expense) for the year - - - (14) (227) 2,482 2,241 (8) 2,233
Issue of ordinary shares 10 - - - - - 10 - 10
Redemption of C Shares - - 1 - - (1) - - -
Shares issued to employee share trust - - - - - (10) (10) - (10)
Share-based payments - direct to equity (2) - - - - - 49 49 - 49
Dividends to NCI - - - - - - - (2) (2)
Transactions with NCI (3) - - - - - 57 57 28 85
Related tax movements 5 - - - - - 22 22 - 22
Other changes in equity in the year 10 - 1 - - 117 128 26 154
At 31 December 2023 1,684 1,012 167 12 634 (7,190) (3,681) 52 (3,629)
(1 ) At 31 December 2024, 106,066,831 ordinary shares with a net book value
of £26m (2023: 52,912,406 ordinary shares with a net book value of £22m)
were held for the purpose of share-based payment plans and included in
accumulated losses. During the year:
- 35,117,065 ordinary shares with a net book value of £14m (2023:
7,875,240 ordinary shares with a net book value of £15m) vested in
share-based payment plans;
- the Company issued 88,200,000 (2023: 49,100,000) new ordinary shares
to the Group's share trust for its employee share-based payment plans with a
net book value of £17m (2023: £10m); and
- the Company acquired none (2023: none) of its ordinary shares via
reinvestment of dividends received on its own shares and purchased 71,490
(2023: 284,850) of its ordinary shares through purchases on the London Stock
Exchange
(2 ) 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 share-based schemes
(3) Relates to NCI investment received in the year in respect of Rolls-Royce
SMR Limited
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation and accounting policies
Reporting entity
Rolls-Royce Holdings plc (the 'Company') is a public company limited by shares
incorporated under the Companies Act 2006 and domiciled in the UK. These
Condensed Consolidated Financial Statements of the Company as at and for the
year ended 31 December 2024 consist of the consolidation of the financial
statements of the Company and its subsidiaries (together referred to as the
'Group') and include the Group's interest in jointly controlled and associated
entities.
The Consolidated Financial Statements of the Group as at and for the year
ended 31 December 2024 (2024 Annual Report) are available upon request from
the Company Secretary, Rolls-Royce Holdings plc, Kings Place, 90 York Way,
London, N1 9FX.
Statement of compliance
These Condensed Consolidated Financial Statements have been prepared in
accordance with UK adopted International Accounting Standards (IAS) and
interpretations issued by the IFRS Interpretations Committee applicable to
companies reporting under UK adopted IFRS. They do not include all the
information required for full annual statements and should be read in
conjunction with the 2024 Annual Report.
The Board of Directors approved the Condensed Consolidated Financial
Statements on 27 February 2025. They are not statutory accounts within the
meaning of section 435 of the Companies Act 2006.
The Group's Financial Statements for the year ended 31 December 2024 were
approved by the Board on 27 February 2025. They have been reported on by the
Group's auditors and will be delivered to the registrar of companies in due
course. The report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
The comparative figures for the financial year 31 December 2023 have been
extracted from the Group's statutory accounts for that financial year. The
Board of Directors approved the Group Financial Statements on 22 February
2024. The report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
Revisions to IFRS applicable in 2024
Supplier Finance Arrangements
New disclosure requirements resulting from amendments to IAS 7 Statement of
Cash Flows and IFRS 7 Financial Instruments: Disclosures relating to
Supplier Finance Arrangements (SFAs) were effective from 1 January 2024. The
objective of the new amendments is to provide enhanced information about SFAs
that enables investors to assess the effects on an entity's liabilities, cash
flows and its exposure to liquidity risk. The Group's suppliers have access to
a supply chain financing (SCF) programme that is considered to be within the
scope of the Standard's SFA definition. The new prescriptive disclosure
requirements have necessitated some additional information being disclosed on
page 41 in relation to the value of trade payables that were within the scope
of such arrangements. This has been presented alongside the value of received
payments which suppliers had drawn, this being information which the Group has
previously disclosed in its Annual Reports.
Other
There are no other new standards or interpretations issued by the
International Accounting Standards Board (IASB) that had a significant impact
on these Consolidated Financial Statements.
Post balance sheet events
The Group has taken the latest legal position in relation to any ongoing legal
proceedings and reflected these in the 31 December 2024 results as
appropriate.
Climate change
In preparing the Condensed Consolidated Financial Statements the Directors
have considered the potential impact of climate change, particularly in the
context of the disclosures included in the 2024 Strategic Report that set out
climate-related commitments, targets and the four pillars of the Rolls-Royce
energy transition strategy which are:
- decarbonising operations, facilities, product testing and business
activities. This will be met through a combination of procuring clean energy,
reducing overall energy demand, and clean power generation. An estimate of the
investment required to meet Scope 1 + 2 emission improvements is included in
the forecasts that support these Consolidated Financial Statements;
- enabling customers to operate their products in a way that is
compatible with low or net zero carbon emissions. The Group is working with
customers to enable them to operate products in a way that is compatible with
net zero emissions. This means further advancing the efficiency and
environmental performance of the Group's engine and technology portfolio and
ensuring compatibility with sustainable fuels. Within Power Systems, 80% of
the Group's portfolio is compatible with alternative and sustainable fuels.
The Group has demonstrated that all the commercial aero engines it produces
are compatible for use with sustainable fuels and is also working with its
armed forces customers, such as the RAF, on the use of SAF blends;
- delivering new products and solutions that can accelerate the
global energy transition. This includes the development and deployment of
small modular reactors (SMRs) and, in Power Systems, battery energy storage
solutions is a growth area. Future investment required to deliver these
technologies is included in the forecasts that support the Consolidated
Financial Statements; and by
- supporting the necessary enabling environment, with public and
policy support, to achieve collective climate goals. This involves actively
engaging with policy makers, regulators and others to advocate for the
necessary policy and economic support we have identified.
The Directors have considered the impact of climate change on a number of key
estimates within the financial statements. The climate-related estimates and
assumptions that have been considered to be key areas of judgement or sources
of estimation uncertainty for the year ended 31 December 2024 are those
relating to:
- Civil Aerospace LTSA revenues;
- the estimates of future cash flows considered for trigger
assessments or used in impairment assessments for non-financial asset
impairments; and
- estimates of suitable taxable profits that will arise in the UK to
utilise the deferred tax assets recognised.
As details of what specific future intervention measures will be taken by
governments are not yet available, carbon pricing has been used to quantify
the potential impact of future policy changes on the Group. The approach is
consistent with that disclosed in note 1 in the 2024 Annual Report.
1 Basis of preparation and accounting policies continued
There have been no significant changes to assumptions, including the potential
impact of carbon prices on the Group's cost base, since the year ended 31
December 2023. This is consistent with the assessment that climate change is
not expected to have a significant impact on the Group's going concern
assessment to June 2026, nor on the viability of the Group over the next five
years.
Going concern
Overview
In accordance with the requirements of the 2018 UK Corporate Governance Code,
the Directors have assessed the prospects of the Group, taking into account
its current position, the Group's principal risks which are described on pages
55 to 60 of the Group's 2024 Annual Report, and the Group's mid-term forecasts
together with factors that could affect its future development, performance
and position, as set out in pages 11 to 12 of the Strategic Report in the 2024
Annual Report.
The Financial Review on pages 19 to 24 of the 2024 Annual Report sets out the
financial position of the Group, its cash flows, liquidity position and the
Group's capital framework. The notes to the accounts include the objectives,
policies and procedures over financial risk management including financial
instruments and hedging activities, exposure to credit risk, liquidity risk,
interest rate risk and commodity price risk.
In adopting the going concern basis for preparing the consolidated and Company
financial statements, the Directors have undertaken a review of the Group's
cash flow forecasts and available liquidity, along with consideration of
possible risks and uncertainties over an 18-month period from the balance
sheet date to June 2026. The Directors have determined that the period to June
2026 ('the going concern period') is an appropriate timeframe over which to
assess going concern as it considers the Group's short to medium-term cash
flow forecasts and available liquidity.
Forecasts
Recognising the challenges of reliably estimating and forecasting the impact
of external factors on the Group, the Directors have considered two forecasts
in their assessment of going concern, along with a likelihood assessment of
these forecasts. The base case forecast reflects the Directors' current
expectations of future trading. A downside forecast has also been modelled
which envisages severe but plausible downside risks. Both forecasts have been
modelled over the going concern period.
Latest forecasts predict large engine flying hours will reach 115% of 2019
levels in 2025, which is reflected in the Group's base case forecast.
Macro-economic assumptions have been modelled using externally available data
based on the most likely forecasts with general inflation at around 2%-3%,
wage inflation at an average of 3%-4%, interest rates at around 2%-4% and GDP
growth at around 2%-4%.
The downside forecast assumes Civil Aerospace large engine flying hours remain
at average fourth quarter 2024 levels throughout the going concern period,
reflecting slower GDP growth in this forecast when compared with the base
case. It also assumes a more pessimistic view of general inflation at around
2%-3% higher than the base case covering a broad range of costs including
energy, commodities and jet fuel. Wage inflation in the downside forecast is
1%-2% higher than the base case and interest rates are 1%-2% higher. These
macro-economic pressures have been modelled across the whole going concern
period. The downside forecast also considers lower demand as a result of
slower market growth, and potential output risks associated with increasing
volumes and possible ongoing supply chain challenges.
As announced on 27 February 2025, the Group is recommencing dividends, with
the full year 2024 dividend of approximately £504m payable in June 2025,
subject to shareholder approval, and interim and final dividends payable
annually in June and September thereafter. In addition, the Group announced a
£1bn share buyback which will be completed over the course of 2025. The
dividends and the £1bn share buyback have been included in the going concern
assessment in both the base case and the downside forecast.
The future impact of climate change on the Group has been considered through
climate scenarios. The climate scenarios modelled do not have a material
impact on either the base case or downside forecast over the going concern
period. Further detail on these climate scenarios is set out on page 39 of the
2024 Annual Report.
Liquidity and borrowings
During 2024, the Group cancelled a £1bn undrawn UKEF-supported loan facility
that was due to mature in 2027, and in May 2024 the Group repaid a €550m
bond at its maturity. A one-year extension option on the £2.5bn undrawn
revolving credit facility was exercised in October 2024, extending the
revolving credit facility maturity to November 2027. A further one-year
extension option remains, subject to bank agreement at the time of exercise.
At 31 December 2024, the Group had liquidity of £8.1bn including cash and
cash equivalents of £5.6bn and undrawn facilities of £2.5bn. The going
concern period includes the maturity of a $1bn bond in October 2025 that the
Group intends to repay from cash. Subsequent maturities during the going
concern period are a €750m bond in February 2026 and a £375m bond in June
2026. Given the Group's cash and liquidity position over the going concern
period, the bond maturities in 2026 could be repaid from cash should the Group
decide not to refinance.
Based on borrowing facilities available at the date of this report the Group's
committed borrowing facilities at 31 December 2024 and 30 June 2026 are set
out below. None of the facilities are subject to any financial covenants or
rating triggers which could accelerate repayment.
£m 31 December 2024 30 June 2026
Issued bond notes (1) 3,511 1,801
Revolving credit facility (undrawn) (2) 2,500 2,500
Total committed borrowing facilities 6,011 4,301
(1) The value of issued bond notes reflects the impact of derivatives on
repayments of the principal amount of debt. The bonds mature by May 2028
(2) The £2.5bn revolving credit facility matures in November 2027 with a
one-year extension option (currently undrawn)
Taking into account the maturity of these borrowing facilities, the Group has
committed facilities of at least £4.3bn available throughout the period to 30
June 2026.
Conclusion
After reviewing the current liquidity position and the cash flows modelled
under both the base case and downside forecasts, the Directors consider that
the Group has sufficient liquidity to continue in operational existence over
the going concern period to 30 June 2026 and are therefore satisfied that it
is appropriate to adopt the going concern basis of accounting in preparing the
financial statements.
Basis of preparation and accounting policies continued
Key areas of judgement and sources of estimation uncertainty
The determination of the Group's accounting policies requires judgement. The
subsequent application of these policies requires estimates and the actual
outcome may differ from that calculated. The key areas of judgement and
sources of estimation uncertainty as at 31 December 2024, that were assessed
as having a significant risk of causing material adjustments to the carrying
amount of assets and liabilities, are set out in
note 1 to the Consolidated Financial Statements in the 2024 Annual Report and
are summarised below. Sensitivities for key sources of estimation uncertainty
are disclosed where this is appropriate and practical.
Area Key judgements Key sources of estimation uncertainty Sensitivities performed
Revenue recognition and contract assets and liabilities Whether Civil Aerospace OE and aftermarket contracts should be combined. Estimates of future revenue, including customer pricing, and costs of Based upon the stage of completion of all large engine LTSA contracts within
long-term contractual arrangements, including the impact of climate change. Civil Aerospace as at 31 December 2024, the following changes in estimate
How performance on long-term aftermarket contracts should be measured. would result in catch-up adjustments being recognised in the period in which
the estimates change (at underlying FX rates):
Whether long-term aftermarket contracts contain a significant financing
component. - A change in forecast EFHs of 1% over the remaining term of the contracts
would impact LTSA income and to a lesser extent costs, resulting in an impact
Whether any costs should be treated as wastage. of around £20m.
Whether the Civil Aerospace LTSA contracts are warranty style contracts - A 2% increase or decrease in our pricing to customers over the life of the
entered into in connection with OE sales and therefore can be accounted for contracts would lead to a revenue
under IFRS 15 Revenue from Contracts with Customers.
catch-up adjustment in the next 12 months of around £340m.
Whether sales of spare engines to joint ventures are at fair value. - 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 12 months of
When revenue should be recognised in relation to spare engine sales. around
£90m.
Risk and revenue sharing arrangements (RRSAs) Determination of the nature of entry fees received.
Taxation Estimates necessary to assess whether it is probable that sufficient suitable A 5% change in margin or shop visits (which could be driven by fewer EFHs as a
taxable profits will arise in the UK to utilise the deferred tax assets result of number of factors, including climate change) would result in an
recognised. increase/decrease in the deferred tax asset in respect of UK losses of around
£110m.
If only 90% of assumed future cost increases from climate change are passed on
to customers, this would result in a decrease in the deferred tax asset of
around £10m, and if the potential impact of carbon prices on the Group's cost
base was to double, the recoverable value of deferred tax assets would
decrease by around £70m.
Research and development Determination of the point in time where costs incurred on an internal
programme development meet the criteria for capitalisation.
Determination of the basis for amortising capitalised development costs.
Leases Determination of the lease term.
Impairment of non-current assets Determination of cash-generating units (CGU's) for assessing impairment of
goodwill.
Basis of preparation and accounting policies continued
Key areas of judgement and sources of estimation uncertainty continued
Area Key judgements Key sources of estimation uncertainty Sensitivities performed
Provisions Whether any costs should be treated as wastage. Estimates of the time and cost to incorporate required modified parts into the Our forecast increases in shop visit capacity could be impacted by several
fleet to resolve technical issues on certain programmes (which could be factors, including prolonged supply chain challenges. If forecast increases in
Whether the criteria to recognise transformation and restructuring provisions exacerbated by ongoing supply chain challenges) and the implications of this shop visit capacity are not achieved, this could have the impact of reducing
have been met. on forecast future costs when assessing onerous contracts. planned output of engine overhauls. A 20% reduction in Trent 1000 planned
output during the second half of 2025 (and thus delayed incorporation of
Estimates of the future revenues and costs to fulfil onerous contracts. modified parts into the fleet) could lead to around a £30m to £50m charge.
Assumptions implicit within the calculation of discount rates. An increase in Civil Aerospace large engines estimates of LTSA costs of 1%
over the remaining term of the contracts could lead to a £60m to 80m increase
in the onerous contract provision across all programmes.
A 1% change in the discount rates used could lead to around a £40m to £50m
change in the onerous contract provision.
Post-retirement benefits Estimates of the assumptions for valuing the net defined benefit obligation. A reduction in the discount rate of 0.25% from 5.50% could lead to an increase
in the defined benefit obligations of the RR UK Pension Fund (RRUKPF) of
approximately £145m. This would be expected to be broadly offset by changes
in the value of scheme assets, as the scheme's investment policies are
designed to mitigate this risk.
An increase in the assumed rate of inflation of 0.25% (RPI of 3.30% and CPI of
2.90%) could lead to an increase in the defined benefit obligations of the
RRUKPF of approximately £55m.
A one-year increase in life expectancy from 20.8 years (male aged 65) and from
21.5 years (male aged 45) would increase the defined benefit obligations of
the RRUKPF by approximately £125m.
2 Segmental analysis
The analysis by segment is presented in accordance with IFRS 8 Operating
Segments, on the basis of those segments whose operating results are regularly
reviewed by the Board (who acts as the Chief Operating Decision Maker as
defined by IFRS 8 Operating Segments). The Group's four divisions are set out
below.
Civil Aerospace - development, manufacture, marketing and sales of commercial aero engines
and aftermarket services
Defence - development, manufacture, marketing and sales of military aero engines,
naval engines, submarine nuclear power plants and aftermarket services
Power Systems - development, manufacture, marketing and sales of integrated solutions for
onsite power and propulsion
New Markets - development, manufacture and sales of small modular reactors (SMRs) and
new electrical power solutions
Other businesses include the trading results of the UK Civil Nuclear business.
Underlying results
The Group presents the financial performance of the divisions in accordance
with IFRS 8 Operating Segments and consistently with the basis on which
performance is communicated to the Board each month.
Underlying results are presented by recording all relevant revenue and cost of
sales transactions at the average exchange rate achieved on effective settled
derivative contracts in the period that the cash flow occurs. The impact of
the revaluation of monetary assets and liabilities (other than lease
liabilities) using the exchange rate that is expected to be achieved by the
use of the effective hedge book is recorded within underlying cost of sales.
Underlying financing excludes the impact of revaluing monetary assets and
liabilities to period end exchange rates. Lease liabilities are not revalued
to reflect the expected exchange rates due to their multi-year remaining term,
the Directors believe that doing so would not be the most appropriate basis to
measure the in-year performance. Transactions between segments are presented
on the same basis as underlying results and eliminated on consolidation.
Unrealised fair value gains/(losses) on foreign exchange contracts, which are
recognised as they arise in the statutory results, are excluded from
underlying results. To the extent that the previously forecast transactions
are no longer expected to occur, an appropriate portion of the unrealised fair
value gain/(loss) on foreign exchange contracts is recorded immediately in the
underlying results.
Amounts receivable/(payable) on interest rate swaps which are not designated
as hedge relationships for accounting purposes are reclassified from fair
value movement on a statutory basis to interest receivable/(payable) on an
underlying basis, as if they were in an effective hedge relationship.
In the year to 31 December 2024, the Group was a net seller of USD at an
achieved exchange rate of GBP:USD 1.48 (2023: 1.50) based on the USD hedge
book.
In 2020, the Group experienced a significant decline in its medium-term
outlook and consequently a significant deterioration to its forecast net USD
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 time, future
operating cash flows were no longer forecast to materialise. An underlying
charge of £1.7bn was recognised within the underlying finance costs in 2020
and the associated cash settlement costs occur over the period 2020-2026. The
derivatives relating to this underlying charge have been subsequently excluded
from the hedge book, and therefore are also excluded from the calculation of
the average exchange rate achieved in the current and future periods.
Underlying performance also excludes the following:
- the effect of acquisition accounting and business disposals;
- impairment of goodwill and other non-current and current assets
where the reasons for the impairment are outside of normal operating
activities;
- exceptional items; and
- certain other items which are market driven and outside of the
control of management.
Subsequent changes in items excluded from underlying performance recognised in
a prior period will also be excluded from underlying performance. All other
changes will be recognised within underlying performance.
Acquisition accounting, business disposals and impairment
The Group exclude these from underlying results so that the current period and
comparative results are directly comparable.
Exceptional items
Items are classified as exceptional where the Directors believe that
presentation of the results in this way is useful in providing an
understanding of the Group's financial performance. Exceptional items are
identified by virtue of their size, nature or incidence.
In determining whether an event or transaction is exceptional, the Directors
consider quantitative as well as qualitative factors such as the frequency or
predictability of occurrence. Examples of exceptional items include one-time
costs and charges in respect of aerospace programmes, costs of exceptional
transformation and restructuring programmes and one-time past service charges
and credits on post-retirement schemes.
Exceptional items are not allocated to segments and may not be comparable to
similarly titled measures used by other companies.
Other items
The financing component of the defined benefit pension scheme cost is
determined by market conditions and has therefore been included as a
reconciling difference between underlying and statutory performance.
The tax effects of adjustments above are excluded from the underlying tax
charge. Changes in tax rates are excluded from the underlying tax charge. In
addition, changes in the amount of recoverable deferred tax recognised are
excluded from the underlying results to the extent that their recognition or
derecognition was not originally recorded within the underlying results.
2 Segmental analysis continued
The following analysis sets out the results of the Group's businesses on the
basis described above and also includes a reconciliation of the underlying
results to those reported in the Condensed Consolidated Income Statement.
- Civil Aerospace Defence Power Systems New Markets Other businesses Corporate and Inter-segment (1) Total underlying
£m £m £m £m £m £m £m
Year ended 31 December 2024
Underlying revenue from sale of original equipment 3,105 1,943 2,942 3 12 - 8,005
Underlying revenue from aftermarket services 5,935 2,579 1,329 - - - 9,843
Total underlying revenue 9,040 4,522 4,271 3 12 - 17,848
Gross profit/(loss) 1,990 908 1,199 (4) 1 (3) 4,091
Commercial and administrative costs (396) (212) (483) (40) (1) (65) (1,197)
Research and development costs (252) (55) (165) (133) - - (605)
Share of results of joint ventures and associates 163 3 9 - - - 175
Underlying operating profit/(loss) 1,505 644 560 (177) - (68) 2,464
Year ended 31 December 2023
Underlying revenue from sale of original equipment 2,703 1,766 2,661 2 12 - 7,144
Underlying revenue from aftermarket services 4,645 2,311 1,307 2 - - 8,265
Total underlying revenue 7,348 4,077 3,968 4 12 - 15,409
Gross profit/(loss) 1,394 804 1,050 1 (15) (3) 3,231
Commercial and administrative costs (354) (173) (456) (24) - (57) (1,064)
Research and development costs (343) (72) (187) (137) - - (739)
Share of results of joint ventures and associates 153 3 6 - - - 162
Underlying operating profit/(loss) 850 562 413 (160) (15) (60) 1,590
(1) Corporate and Inter-segment consists of costs that are not attributable
to a specific segment and consolidation adjustments
2 Segmental analysis continued
Reconciliation to statutory results
Total underlying Underlying adjustments and adjustments to Group statutory results
foreign exchange
£m £m £m
Year ended 31 December 2024
Revenue from sale of original equipment 8,005 384 8,389
Revenue from aftermarket services 9,843 677 10,520
Total revenue 17,848 1,061 18,909
Gross profit 4,091 130 4,221
Commercial and administrative costs (1,197) (87) (1,284)
Research and development costs (605) 402 (203)
Share of results of joint ventures and associates 175 (3) 172
Operating profit 2,464 442 2,906
Gain arising on the disposal of businesses - 16 16
Profit before financing and taxation 2,464 458 2,922
Net financing (171) (517) (688)
Profit/(loss) before taxation 2,293 (59) 2,234
Taxation (282) 532 250
Profit for the year 2,011 473 2,484
Attributable to:
Ordinary shareholders 2,048 473 2,521
NCI (37) - (37)
Year ended 31 December 2023
Revenue from sale of original equipment 7,144 491 7,635
Revenue from aftermarket services 8,265 586 8,851
Total revenue 15,409 1,077 16,486
Gross profit 3,231 389 3,620
Commercial and administrative costs (1,064) (46) (1,110)
Research and development costs (739) - (739)
Share of results of joint ventures and associates 162 11 173
Operating profit 1,590 354 1,944
Gain arising on the disposal of businesses - 1 1
Profit before financing and taxation 1,590 355 1,945
Net financing (328) 810 482
Profit before taxation 1,262 1,165 2,427
Taxation (120) 97 (23)
Profit for the year 1,142 1,262 2,404
Attributable to:
Ordinary shareholders 1,150 1,262 2,412
NCI (8) - (8)
2 Segmental analysis continued
Disaggregation of revenue from contracts with customers
Analysis by type and basis of recognition Civil Aerospace Defence Power Systems New Markets Other businesses Corporate and Inter-segment Total underlying
£m £m £m £m £m £m £m
Year ended 31 December 2024
Original equipment recognised at a point in time 3,105 562 2,871 3 - - 6,541
Original equipment recognised over time - 1,381 71 - 12 - 1,464
Aftermarket services recognised at a point in time 1,258 918 1,231 - - - 3,407
Aftermarket services recognised over time 4,594 1,661 98 - - - 6,353
Total underlying customer contract revenue 8,957 4,522 4,271 3 12 - 17,765
Other underlying revenue (1) 83 - - - - - 83
Total underlying revenue (2) 9,040 4,522 4,271 3 12 - 17,848
Year ended 31 December 2023
Original equipment recognised at a point in time 2,703 632 2,611 2 - - 5,948
Original equipment recognised over time - 1,134 50 - 12 - 1,196
Aftermarket services recognised at a point in time 1,227 854 1,206 2 - - 3,289
Aftermarket services recognised over time 3,335 1,457 101 - - - 4,893
Total underlying customer contract revenue 7,265 4,077 3,968 4 12 - 15,326
Other underlying revenue (1) 83 - - - - - 83
Total underlying revenue (2) 7,348 4,077 3,968 4 12 - 15,409
(1 ) Includes leasing revenue
(2) Includes £317m, of which £311m relates to Civil LTSA contracts, (2023:
£(136)m, of which £(104)m relates to Civil LTSA contracts) of revenue
recognised in the year relating to performance obligations satisfied in
previous years
Total underlying Underlying adjustments and adjustments to foreign exchange Group statutory results (1)
£m £m £m
Year ended 31 December 2024
Original equipment recognised at a point in time 6,541 384 6,925
Original equipment recognised over time 1,464 - 1,464
Aftermarket services recognised at a point in time 3,407 163 3,570
Aftermarket services recognised over time 6,353 501 6,854
Total customer contract revenue 17,765 1,048 18,813
Other revenue 83 13 96
Total revenue 17,848 1,061 18,909
Year ended 31 December 2023
Original equipment recognised at a point in time 5,948 491 6,439
Original equipment recognised over time 1,196 - 1,196
Aftermarket services recognised at a point in time 3,289 186 3,475
Aftermarket services recognised over time 4,893 382 5,275
Total customer contract revenue 15,326 1,059 16,385
Other revenue 83 18 101
Total revenue 15,409 1,077 16,486
(1 ) During the year to 31 December 2024, revenue recognised within Civil
Aerospace, Defence and Power Systems of £1,915m (2023: £1,766m) was received
from a single customer
2 Segmental analysis continued
Underlying adjustments 2023
2024
Revenue Profit before financing Net financing Revenue Profit before financing Net financing
£m £m £m £m £m £m
Taxation Taxation
£m £m
Underlying performance 17,848 2,464 (171) (282) 15,409 1,590 (328) (120)
Impact of foreign exchange differences as a result of hedging activities on A 1,061 197 190 (97) 1,077 469 394 (210)
trading transactions (1)
Unrealised fair value changes on derivative contracts held for trading (2) A - (6) (649) 164 - 6 514 (130)
Unrealised fair value change to derivative contracts held for financing (3) A - - 40 (10) - - 7 (2)
Exceptional programme credits/ B - - - - - 21 - (5)
(charges) (4)
Exceptional transformation and restructuring (charges)/credits (5) B - (234) (11) 65 - (102) - 25
Impairment reversals (6) C - 547 - (157) - 8 - (2)
Effect of acquisition accounting (7) C - (45) - 11 - (50) - 12
Other (8) D - (17) (87) 27 - 2 (105) 24
Gain arising on the disposals of businesses C - 16 - (6) - 1 - -
Impact of tax rate change (9) D - - - 10 - - - -
Recognition of deferred tax assets (10) D - - - 525 - - - 385
Total underlying adjustments 1,061 458 (517) 532 1,077 355 810 97
Statutory performance per condensed consolidated income statement 18,909 2,922 (688) 250 16,486 1,945 482 (23)
A - FX and derivatives, B - Exceptional, C - M&A and impairment, D - Other
(1)( ) 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 than the achieved rate or the exchange
rate that is expected to be achieved by the use of the hedge book increased
statutory revenues by £1,061m (2023: £1,077m) and increased profit before
financing and taxation by £197m (2023: £469m). Underlying financing excludes
the impact of revaluing monetary assets and liabilities at the year end
exchange rate
(2) 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 contracts are settled
(3) Includes net fair value gain of £40m (2023: gains of £1m) on any
interest rate swaps not designated into hedging relationships for accounting
purposes
(4) During the year to 31 December 2024, £nil (2023: £21m) of Trent 1000
wastage costs provision previously recognised in respect of estimated costs to
settle obligations have been reversed to reflect the current status of claims
in respect of the Trent 1000 technical issues which were identified in 2019
(5) In 2023, the Group announced a major multi-year transformation programme
consisting of seven workstreams (set out in the 2022 Annual Report). During
the year to 31 December 2024, the Group incurred charges of £234m related to
the programme (2023: £88m). The charges comprise £68m related to severance
costs, £37m for advisory fees and transformation office costs, and £129m
related to impairments, write-offs and closure costs (including those related
to the closure of advanced air mobility activities). In the year to 31
December 2024, the Group incurred £nil charge (2023: £14m) related to
initiatives to enable restructuring under a previous programme
(6)( ) The Group has assessed the carrying value of its assets and reviewed
for potential impairment and impairment reversal triggers. As a result, there
has been an impairment reversal of an intangible asset of £413m and of a
contract asset of £132m in relation to Civil Aerospace programme assets and
£2m of other impairment reversals during the year. Details on other
impairments and impairment reversals are provided in notes 7 and 13
(7) The effect of acquisition accounting includes the amortisation of
intangible assets arising on previous acquisitions
(8) Includes interest received of £78m (2023: £83m) on interest rate swaps
which are not designated into hedge relationships for statutory purposes from
interest payable on an underlying basis to fair value movement and £14m past
service charge (2023: past service credit of £2m) on defined benefit schemes
(9) Represents the impact to the income statement of the reduction in the
tax rate on authorised surplus pension charges from 35% to 25%
(10) The 2024 balance of £525m represents the recognition of a deferred
tax asset relating to non-underlying UK tax losses. The 2023 balance
represents the recognition of deferred tax assets relating to non-underlying
UK tax losses of £328m and foreign exchange derivatives of £57m. Further
details are provided in note 5
2 Segmental analysis continued
Balance sheet analysis
( ) Civil Aerospace Defence Power Systems New Markets Total reportable segments
£m £m £m £m £m
At 31 December 2024
Segment assets 19,303 3,495 3,998 111 26,907
Interests in joint ventures and associates 550 9 33 - 592
Segment liabilities (26,621) (3,322) (1,969) (135) (32,047)
Net (liabilities)/assets (6,768) 182 2,062 (24) (4,548)
At 31 December 2023
Segment assets 17,718 3,517 3,814 115 25,164
Interests in joint ventures and associates 444 7 28 - 479
Segment liabilities (24,447) (3,376) (1,765) (88) (29,676)
Net (liabilities)/assets (6,285) 148 2,077 27 (4,033)
Reconciliation to the balance sheet
2024 2023
£m £m
Total reportable segment assets (excluding assets held for sale) 26,907 25,164
Other businesses 11 8
Corporate and Inter-segment (2,227) (2,010)
Interests in joint ventures and associates 592 479
Assets held for sale 153 109
Cash and cash equivalents and short-term investments 5,575 3,784
Fair value of swaps hedging fixed rate borrowings 154 118
Deferred and income tax assets 3,731 3,078
Post-retirement scheme surpluses 790 782
Total assets 35,686 31,512
Total reportable segment liabilities (excluding liabilities held for sale) (32,047) (29,676)
Other businesses (65) (58)
Corporate and Inter-segment 2,227 2,010
Liabilities associated with assets held for sale (100) (55)
Borrowings and lease liabilities (5,132) (5,759)
Fair value of swaps hedging fixed rate borrowings (121) (95)
Deferred and income tax liabilities (348) (473)
Post-retirement scheme deficits (981) (1,035)
Total liabilities (36,567) (35,141)
Net liabilities (881) (3,629)
3 Research and development
2024 2023
£m £m
Gross research and development costs (1,475) (1,390)
Contributions and fees (1) 700 548
Expenditure in the year (775) (842)
Capitalised as intangible assets 263 192
Amortisation and impairment of capitalised costs (2,3) 309 (89)
Net cost recognised in the income statement (203) (739)
Underlying adjustments (3) (402) -
Net underlying cost recognised in the income statement (605) (739)
(1 ) Includes £667m (2023: £531m) of government funding
(2 ) See note 7 for analysis of amortisation and impairment
(3) Underlying adjustments include impact of acquisition accounting, foreign
exchange and an impairment reversal of £413m (2023: £nil). See note 2 and
note 7 for more information
4 Net financing
2024 2023
Statutory Underlying (1) Statutory Underlying (1)
£m £m £m £m
Interest receivable and similar income (2) 269 266 164 164
Net fair value gains on foreign currency contracts - - 574 -
Net fair value gains on non-hedge accounted interest rate swaps (3) 40 - 1 -
Financing on post-retirement scheme surpluses 37 - 30 -
Net foreign exchange gains 190 - 394 -
Financing income 536 266 1,163 164
Interest payable (362) (273) (369) (275)
Net fair value losses on foreign currency contracts (631) - - -
Net fair value losses on revaluation of other investments accounted for at (24) (24) - -
FVTPL (4)
Foreign exchange differences and changes in forecast payments relating to - - (1) -
financial RRSAs
Net fair value losses on commodity contracts (18) - (60) -
Financing on post-retirement scheme deficits (39) - (42) -
Cost of undrawn facilities (17) (17) (57) (57)
Other financing charges (133) (123) (152) (160)
Financing costs (1,224) (437) (681) (492)
Net financing (costs)/income (688) (171) 482 (328)
Analysed as:
Net interest payable (93) (7) (205) (111)
Net fair value (losses)/gains on derivative contracts (609) - 515 -
Net post-retirement scheme financing (2) - (12) -
Net foreign exchange gains 190 - 394 -
Net other financing (174) (164) (210) (217)
Net financing (costs)/income (688) (171) 482 (328)
(1) See note 2 for definition of underlying results
(2 ) Includes interest income on cash balances and short-term deposits of
£188m (2023: £117m) and similar income of £81m (2023: £47m) on money
market funds
(3)( ) The condensed consolidated income statement shows the net fair value
gains on any interest rate swaps not designated into hedging relationships for
accounting purposes. Underlying financing reclassifies the realised fair value
movements on these interest rate swaps to net interest payable
(4 ) Included in the financing costs is a £24m (2023: £nil) charge in
relation to the fair value write-down of an unlisted investment recorded at
fair value through profit or loss (FVTPL)
5 Taxation
UK Overseas Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Current tax charge for the year 30 19 379 256 409 275
Current tax charge in respect of Pillar Two income taxes 2 - - - 2 -
Adjustments in respect of prior years - - (18) 2 (18) 2
Current tax 32 19 361 258 393 277
Deferred tax charge/(credit) for the year 265 224 3 (69) 268 155
Adjustments in respect of prior years 17 (5) (47) 2 (30) (3)
Recognition of deferred tax (1,033) (406) - - (1,033) (406)
Derecognition of advance corporation tax 162 - - - 162 -
Deferred tax credit resulting from a decrease in the UK tax rate (10) - - - (10) -
Deferred tax (599) (187) (44) (67) (643) (254)
(Credited)/charged in the income statement (567) (168) 317 191 (250) 23
Deferred taxation assets and liabilities
2024 2023
£m £m
At 1 January 2,668 2,445
Amount credited to income statement 643 254
Amount credited/(charged) to OCI 59 (44)
Amount (charged)/credited to hedging reserves (1) 5
Amount credited to equity 71 22
On acquisition of businesses (1) - (1)
Exchange differences (11) (13)
At 31 December 3,429 2,668
Deferred tax assets 3,660 2,998
Deferred tax liabilities (231) (330)
3,429 2,668
(1) The 2023 deferred tax relates to the acquisition of Team Italia Marine
S.R.L.
Of the total deferred tax asset of £3,660m, £3,099m (2023: £2,399m) relates
to the UK and is made up as follows:
- £2,472m (2023: £1,476m) relating to tax losses;
- £425m (2023: £412m) arising on unrealised losses on derivative
contracts;
- £nil (2023: £162m) of advance corporation tax; and
- £202m (2023: £349m) relating to other deductible temporary
differences, in particular tax depreciation and relief for interest expenses.
The UK deferred tax assets primarily arise in Rolls-Royce plc and have been
recognised based on the expectation that the business will generate taxable
profits and tax liabilities in the future against which the losses and
deductible temporary differences can be utilised.
Most of the UK tax losses relate to the Civil Aerospace large engine business
which makes initial losses through the investment period of a programme and
then makes a profit through its contracts for services. The programme
lifecycles are typically in excess of 30 years.
Deferred tax assets are recognised only to the extent it is probable that
future taxable profits will be available against which the assets can be
utilised. A recoverability assessment has been undertaken, taking account of
deferred tax liabilities against which the reversal can be offset and using
latest UK forecasts, which are mainly driven by the Civil Aerospace large
engine business, to assess the level of future taxable profits.
The recoverability of deferred tax assets has been assessed on the following
basis:
- using the most recent UK profit forecasts, covering the next five
years which are consistent with external sources on market conditions;
- the long-term forecast profit profile of existing large engine
programmes which are typically in excess of 30 years from initial investment
to retirement of the fleet, including the aftermarket revenues earned from
airline customers;
- the long-term forecast is adjusted to exclude engine programmes
which are in the development stage with no confirmed orders;
- taking into account the risk that regulatory changes could
materially impact demand for our products;
- consideration that although all Civil Aerospace large engines are
now compatible with sustainable fuels, there is a risk that in the longer term
demand will shift towards more sustainable products and solutions;
- the long-term forecast profit and cost profile of the other parts
of the UK business;
- taking into consideration past performance and experience as well
as a 25% probability of a severe but plausible downside forecast materialising
in relation to the civil aviation industry; and
- consideration that the UK business returned to profitability in
2023.
5 Taxation continued
The assessment takes into account UK tax laws that, in broad terms, restrict
the offset of carried forward tax losses to 50% of current year profits. In
addition, the amounts and timing of future taxable profits incorporate:
- the impact of significant Civil Aerospace large engine orders in
2024:
- the outcomes of strategic initiatives, including contractual margin
improvements and cost reduction;
- the continued growth in Civil Aerospace engine flying hours; and
- management's assumptions on the impact of macro-economic factors
and climate change on the UK business.
The climate change scenarios previously prepared to assess the viability of
our business strategy, decarbonisation plans and approach to managing
climate-related risks have continued to develop over the last year. The scale
up of sustainable aviation fuel is expected to play a crucial role in reaching
net zero carbon emissions by 2050 and the Group has demonstrated that all the
commercial aero engines it produces are compatible for use with sustainable
fuels. The impact that this could have on our costs and customer pricing is
factored into the deferred tax assessment. However, benefits that may arise in
the future from the development of breakthrough new technologies are not taken
into account.
Based on the assessment, the Group has recognised a total UK deferred tax
asset of £3,099m, which includes the recognition of a further £1,033m (of
which £525m is non-underlying and £508m is underlying) deferred tax asset
relating to UK tax losses. This reflects the conclusions that:
- Based on current financial results and an improved outlook it is
probable that the UK business will generate taxable income and tax liabilities
in the future against which these losses can be utilised.
- Using current forecasts and various scenarios these losses and
other deductible temporary differences will be used in full within 30-40
years, which is within the expected programme lifecycles. An explanation of
the potential impact of climate change on forecast profits and sensitivity
analysis can be found in note 1.
The 2024 announcement of a reinstatement of regular shareholder distributions
via cash dividends will prevent utilisation of the Group's £162m advance
corporation tax balance. As a result, the associated deferred tax asset has
been fully de-recognised.
Any 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
differences, including the period over which they can be used. In view of this
and the significant judgement involved, the Board continuously reassesses this
area.
The Statutory instrument reducing the tax rate on authorised surplus pension
charges from 35% to 25% effective from 6 April 2024 was enacted on 11 March
2024. The deferred tax liability on the UK pension surplus has therefore been
re-measured at 25%. The resulting credit has been recognised in OCI except to
the extent that the items were previously charged or credited to the income
statement. Accordingly, in 2024, £67m has been credited to OCI and £10m has
been credited to the income statement.
The 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 period to 31
December 2024, the Group has continued to apply the mandatory exception to
recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes.
The temporary differences associated with investments in subsidiaries, joint
ventures and associates, for which a deferred tax liability has not been
recognised, aggregate to £1,558m (2023: £1,230m). No deferred tax liability
has been recognised on the potential withholding tax due on the remittance of
undistributed profits as the Group is able to control the timing of such
remittances and it is probable that consent will not be given in the
foreseeable future.
Impact of recognition of deferred tax asset on UK tax losses on underlying
profit after tax
As outlined above, during the year the Group recognised a further £1,033m (of
which £525m is non-underlying and £508m is underlying) deferred tax asset
relating to UK tax losses and fully derecognised a £162m advance corporation
tax balance (as an underlying charge). The net £346m credit to underlying
profit after tax has been adjusted in the calculation of the proposed dividend
per share, earnings per share and return on capital, this one-off non-cash
adjustment has been made as it would otherwise cause a disproportionate impact
on these metrics.
6 Earnings per ordinary share
Basic earnings per share (EPS) is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, excluding ordinary shares held under
trust, which have been treated as if they had been cancelled.
2024 2023
Basic Potentially dilutive share options Diluted Basic Potentially dilutive share options Diluted
Profit attributable to ordinary shareholders (£m): 2,521 2,521 2,412 2,412
Weighted average number of ordinary shares (millions) 8,388 51 8,439 8,361 44 8,405
EPS (pence): 30.05 (0.18) 29.87 28.85 (0.15) 28.70
The reconciliation between underlying EPS and basic EPS is as follows:
2024 2023
Pence £m Pence £m
EPS/Profit attributable to ordinary shareholders 30.05 2,521 28.85 2,412
Total underlying adjustments to profit before tax (note 2) 0.70 59 (13.94) (1,165)
Related tax effects (6.34) (532) (1.16) (97)
Adjustment for net recognition of deferred tax assets (1) (4.12) (346) - -
Underlying EPS/Underlying profit attributable to ordinary shareholders 20.29 1,702 13.75 1,150
Diluted underlying EPS attributable to ordinary shareholders 20.17 13.68
(1) Underlying profit attributable to ordinary shareholders has been adjusted
for the one-off non-cash impact of £346m related to the net recognition of
deferred tax assets on UK losses, see note 5, page 32 for further details
7 Intangible assets
Goodwill Certification costs Development expenditure Customer relationships Software (1) Other (2) Total
£m £m £m £m £m £m £m
Cost:
At 1 January 2024 1,101 930 3,763 498 1,004 699 7,995
Additions - - 263 - 96 8 367
Transferred to assets held for sale (3) (25) - (4) (4) (1) - (34)
Disposals (4) - - (3) (13) (77) (2) (95)
Exchange differences (31) (1) (63) (12) (4) (17) (128)
At 31 December 2024 1,045 929 3,956 469 1,018 688 8,105
Accumulated amortisation and impairment:
At 1 January 2024 35 467 1,976 433 718 357 3,986
Charge for the year (5) - 27 96 35 78 19 255
Impairment (6) 13 - (405) - - 17 (375)
Transferred to assets held for sale (3) (12) - (4) (4) (1) - (21)
Disposals (4) - - - (13) (69) (2) (84)
Exchange differences - (1) (37) (10) (3) (7) (58)
At 31 December 2024 36 493 1,626 441 723 384 3,703
Net book value at:
31 December 2024 1,009 436 2,330 28 295 304 4,402
1 January 2024 1,066 463 1,787 65 286 342 4,009
(1)( ) Includes £100m (2023: £97m) of software under course of
construction which is not amortised
(2 ) Other intangibles includes trademarks, brands and the costs incurred
testing and analysing engines with the longest time in service (fleet leader
engines) to gather technical knowledge on engine endurance which will improve
reliability and enable us to reduce the costs of meeting our LTSA obligations
(3 ) At 31 December 2024, the Group held for sale the assets and liabilities
of the naval propulsors & handling business. See note 23 for further
detail
(4 ) During the year, the Group disposed of its lower power range engines
business based in Power Systems. See note 23 for further detail
(5) Charged to cost of sales and commercial and administrative costs except
development costs, which are charged to research and development costs
(6) Includes £13m of goodwill impairment and £17m of other impairment
(related to intellectual property) resulting from the closure of the Group's
advanced air mobility activities. Also includes reversal of a Civil Aerospace
programme asset impairment recognised in 2020. The impairment reversal of
£413m (2023: £nil) has been credited to research and development within the
non-underlying income statement. See further details below
The carrying amount of goodwill or intangible assets allocated across multiple
CGUs is not significant in comparison with the Group's total carrying amount
of goodwill or intangible assets with indefinite useful lives.
Goodwill has been tested for impairment during 2024 on the following basis:
- The carrying values of goodwill have been assessed by reference to
the value in use.
- These have been estimated using cash flows from the most recent
forecasts prepared by the Directors, which are consistent with past experience
and external sources of information on market conditions. These forecasts
generally cover the next five years. Growth rates for the period not covered
by the forecasts are based on growth rates of 2% which reflects the products,
industries and countries in which the relevant CGU or group of CGUs operate.
Inflation has been included based on contractual commitments where relevant.
Where general inflation assumptions have been required, these have been
estimated based on externally sourced data. General inflation assumptions of
2% to 3% have been included in the forecasts, depending on the nature and
geography of the flows.
- The key forecast assumptions for the impairment tests are the
discount rate and the cash flow projections, in particular the programme
assumptions (such as sales volumes and product costs), the impact of foreign
exchange rates on the relationship between selling prices and costs, and
growth rates. Impairment tests are performed using prevailing exchange rates.
- The Group believes there are significant business growth
opportunities to come from Rolls-Royce playing a leading role in the
transition to net zero as we develop and deliver the products that will
support our customers through the energy transition across multiple markets.
At the same time climate change poses potentially significant risks. The
assumptions used by the Directors are based on past experience and external
sources of information. Based on the climate scenarios prepared, the forecasts
do not assume a significant deterioration of demand for Civil Aerospace
(including Rolls-Royce Deutschland) programmes given that all commercial aero
engines are compatible with sustainable fuels. Similarly, 80% of the portfolio
in Power Systems is now compatible with alternative and more sustainable
fuels. The investment required to ensure our new products will be compatible
with net zero operation, and to achieve net zero Scope 1 + 2 GHG emission
commitments is reflected in the forecasts used.
7 Intangible assets continued
A 1.5°C scenario has been prepared using key data points from external
sources, including Oxford Economics Global Climate Service and Databank and
the International Energy Agency. This scenario has been used as the basis of a
sensitivity. It is assumed that governments adopt stricter product and
behavioural standards and measures that result in higher carbon pricing. Under
these conditions, it is assumed that markets are willing to pay for low carbon
solutions and that there is an economic return from strategic investments in
low carbon alternatives. The sensitivity has considered the likelihood of
demand changes for our products based on their relative fuel efficiency in the
marketplace and the probability of alternatives being introduced earlier than
currently expected. The sensitivity also reflects the impact of a broad range
of potential costs imposed by policy or regulatory interventions (through
carbon pricing). This sensitivity does not indicate the need for an impairment
charge.
The principal assumptions for the impairment testing of goodwill balances that
are considered to be individually significant are:
Rolls-Royce Power Systems AG
- Trading assumptions (e.g. volume of equipment deliveries, pricing
achieved and cost escalation) that are based on current and known future
programmes, estimates of market share and long-term economic forecasts;
- Plausible downside scenario in relation to macro-economic factors
included with a 25% weighting;
- Cash flows beyond the five-year forecasts are assumed to grow at
2.0% (2023: 2.0%); and
- Nominal pre-tax discount rate 10.2% (2023: 12.0%).
The Directors do not consider that any reasonably possible changes in the key
assumptions (including taking consideration of the climate-related risks
above) would cause the value in use of the goodwill fall below its carrying
value.
Rolls-Royce Deutschland Ltd & Co KG
- Trading assumptions (e.g. volume of engine deliveries, flying hours
of installed fleet, including assumptions on the recovery of the aerospace
industry, and cost escalation) that are based on current and known future
programmes, estimates of market share and long-term economic forecasts;
- Plausible downside scenario in relation to macro-economic factors
included with a 25% weighting;
- Cash flows beyond the five-year forecasts are assumed to grow at
2.0% (2023: 2.0%); and
- Nominal pre-tax discount rate 12.6% (2023: 14.4%).
The Directors do not consider that any reasonably possible changes in the key
assumptions (including taking consideration of the climate-related risks
above) would cause the value in use of the goodwill to fall below its carrying
value.
Other CGU's
Goodwill balances across the Group that are not considered to be individually
significant were also tested for impairment. Following the Directors decision
to close the Group's advanced air mobility activities £13m (2023: £nil) of
goodwill, that arose on the acquisition of Siemens' eAircraft, was impaired
during the year.
Material intangible assets (excluding goodwill)
The carrying amount and the residual life of the material intangible assets
(excluding goodwill) for the Group are as follows:
Residual life (1) 2024 2023
£m £m
Trent programme intangible assets (2) 1-15 years 2,001 1,920
Business aviation programme intangible assets (3) 10-15 years 674 238
Intangible assets related to Power Systems (4) 309 370
2,984 2,528
(1 ) Residual life reflects the remaining amortisation period of those
assets where amortisation has commenced. The amortisation period of 15 years
will commence on those assets which are not being amortised as the units are
delivered
(2) Included within the Trent programmes are the Trent 1000, Trent 7000 and
Trent XWB
(3 ) Included within business aviation are the Pearl 700, Pearl 15 and Pearl
10X
(4 ) Includes £107m (2023: £112m) in respect of a brand intangible asset
which is not amortised. Remaining assets are amortised over a range of three
to 15 years
Intangible assets (including programme intangible assets) have been reviewed
for impairment in accordance with IAS 36 Impairment of Assets. Assessments
have considered potential triggers of impairment such as external factors
including climate change, significant changes with an adverse effect on a
programme and by analysing latest management forecasts against those prepared
in 2023 to identify any change in performance. Where a trigger event has been
identified, an impairment test has been carried out. Where an impairment was
required the test was performed on the following basis:
- The carrying values have been assessed by reference to value in
use. These have been estimated using cash flows from the most recent forecasts
prepared by the Directors, which are consistent with past experience and
external sources of information on market conditions over the lives of the
respective programmes; and
- The key assumptions underpinning cash flow projections are based on
estimates of product performance related estimates, future market share and
pricing and cost for uncontracted business. Climate-related risks are
considered when making these estimates consistent with the assumptions above.
Impairment reversal triggers were identified for a Civil Aerospace programme
asset previously impaired as a result of the impacts of the pandemic in 2020.
The triggers for recalculating the recoverable amount were improvements during
the period in exchange rates, the discount rate and forecast costs following
successful entry-into-service of the engine.
7 Intangible assets continued
An impairment reversal assessment has been carried out on the following basis:
- The recoverable amount of programme assets has been estimated using
a value in use calculation. This has been estimated using cash flows from the
most recent forecasts prepared by the Directors, which are consistent with
past experience and external sources of information on market conditions over
the lives of the respective programmes; and
- The key assumptions underpinning cash flow projections are based on
estimates of product performance related estimates, future market share,
pricing and cost for uncontracted business. Climate-related risks are
considered when making these estimates.
The intangible asset impairment reversal of £413m was recognised in research
and development costs together with a participation fee contract asset
impairment reversal of £132m (see note 13) being recognised in cost of sales
in the period as follows:
Impairment reversal
Intangible Assets Contract Total Pre-tax nominal discount rate at 30 June 2024(1)
£m Assets £m
£m
Civil Aerospace - Business Aviation programme assets (2) 413 132 545 13.9%
(1 ) The impairment reversal test was performed at 30 June 2024. The
equivalent pre-tax nominal discount rate in 2020, when the impairment was
recognised, was 11.9%. As at 31 December 2023, the discount rate was 14.4%
(2) The actual amount reversed in local currency represents the full
impairment recognised in 2020. Any subsequent change in GBP values on
consolidation is solely due to exchange rate movements
The recoverable amount calculated now significantly exceeds the carrying value
of the assets as a result of the inclusion of passage of time benefits in
addition to those from the impairment reversal trigger drivers described
above. In making this assessment, the Directors have considered a range of
sensitivities in relation to the market, pricing, cost increases, exchange
rates and discount rates.
There have been no other individually material impairment charges or reversals
recognised during the period (2023: none).
8 Property, plant and equipment
Land and buildings Plant and equipment Aircraft and engines In course of construction Total
£m £m £m £m £m
Cost:
At 1 January 2024 1,883 4,962 1,006 412 8,263
Additions 21 129 108 245 503
Transferred to assets held for sale (1) (33) (51) - (2) (86)
Disposals/write-offs (23) (142) (17) (4) (186)
Reclassifications (2) 46 67 3 (116) -
Reclassification from right-of-use assets 11 - - - 11
Exchange differences (23) (55) (1) - (79)
At 31 December 2024 1,882 4,910 1,099 535 8,426
Accumulated depreciation and impairment:
At 1 January 2024 709 3,384 434 8 4,535
Charge for the year (3) 77 249 49 - 375
Impairment (4) 2 23 - - 25
Transferred to assets held for sale (1) (11) (24) - - (35)
Disposals/write-offs (16) (123) (10) - (149)
Reclassifications (2) 16 (16) - - -
Exchange differences (9) (39) (1) - (49)
At 31 December 2024 768 3,454 472 8 4,702
Net book value at:
31 December 2024 1,114 1,456 627 527 3,724
1 January 2024 1,174 1,578 572 404 3,728
(1 ) At 31 December 2024 the Group held for sale the assets and liabilities
of its naval propulsors & handling business. See note 23 for further
detail
(2 ) Includes reclassifications from assets under construction into the
other categories of property, plant and equipment when the assets become
available for use
(3 ) Depreciation is charged to cost of sales and commercial and
administrative costs or included in the cost of inventory as appropriate
(4 ) 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 and engines are assessed for impairment
together with other assets used in individual programmes - see potential
triggers considered in note 7. Land and buildings are generally used across
multiple programmes and are considered based on future expectations of the use
of the site, which includes any implications from climate-related risks. As a
result of this assessment, there are no (2023: none) individually material
impairment charges or reversals in the year
9 Right-of-use assets
Land and buildings Plant and equipment Aircraft and engines Total
£m £m £m £m
Cost:
At 1 January 2024 513 194 1,864 2,571
Additions/modification of leases 28 73 37 138
Transferred to assets held for sale (1) (2) (1) - (3)
Disposals (8) (17) - (25)
Reclassifications to PPE (11) - - (11)
Exchange differences (3) (3) (4) (10)
At 31 December 2024 517 246 1,897 2,660
Accumulated depreciation and impairment:
At 1 January 2024 259 109 1,298 1,666
Charge for the year (2) 42 43 172 257
Impairment (3) 3 2 3 8
Transferred to assets held for sale (1) (2) - - (2)
Disposals (7) (17) - (24)
Exchange differences (1) (2) (3) (6)
At 31 December 2024 294 135 1,470 1,899
Net book value at:
31 December 2024 223 111 427 761
1 January 2024 254 85 566 905
(1)( ) At 31 December 2024 the Group held for sale the assets and
liabilities of the naval propulsors & handling business. See note 23 for
further detail
(2 ) Depreciation is charged to cost of sales and commercial and
administrative costs as appropriate
(3 ) 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 assessed for impairment together with
other assets used in individual programmes - see potential triggers considered
in note 7. Land and buildings are generally used across multiple programmes
and are considered based on future expectations of the use of the site (which
includes any implications from climate-related risks). As a result of this
assessment, the carrying values of assets, where a trigger was identified,
have been assessed by reference to value in use considering assumptions such
as estimated future cash flows, product performance related estimates and
climate-related risks. During the year to 31 December 2024, an immaterial
impairment charge of £8m has been recognised (2023: £71m)
10 Investments
Equity accounted and other investments
Equity accounted Other (1)
Joint ventures £m
£m
At 1 January 2024 479 31
Additions (2) 17 -
Impairment (4) -
Share of retained profit (3) 95 -
Reclassification of deferred profit to deferred income (4) (2) -
Revaluation of other investments accounted for at FVOCI - (2)
Revaluation of other investments accounted for as FVTPL (5) - (24)
Exchange differences 11 -
Share of OCI (4) -
At 31 December 2024 592 5
(1) Other investments includes unlisted investments of £nil (2023: £24m) and
listed investments of £5m (2023: £7m)
(2 ) Additions to investments of £17m (2023: £9m) relate to the joint
venture Beijing Aero Engine Services Company Limited
(3) See table below
(4) 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 is reduced to £nil, is recorded as
deferred income
(5) During the year, the Group wrote down the value of an unlisted
investment. This charge was recognised within net financing
Reconciliation of share of retained profit/(loss) to the income statement and
cash flow statement:
2024 2023
£m £m
Share of results of joint ventures and associates 137 139
Adjustments for intercompany trading (1) 35 34
Share of results of joint venture and associates to the Group 172 173
Dividends paid by joint ventures and associates to the Group (cash flow (77) (54)
statement)
Share of retained profit (above) 95 119
(1) 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 these sales is deferred and
released to match the depreciation of the engines in the joint venture's
financial statements. In 2024 and 2023, profit deferred on the sale of engines
was lower than the release of that deferred in prior years
11 Inventories
2024 2023
£m £m
Raw materials 544 516
Work in progress 1,715 1,679
Finished goods 2,833 2,653
5,092 4,848
12 Trade receivables and other assets
Current Non-current (1) Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Trade receivables 2,917 2,724 138 40 3,055 2,764
Prepayments 829 1,032 89 102 918 1,134
RRSA prepayment for LTSA parts (2) 486 236 1,182 1,084 1,668 1,320
Receivables due on RRSAs 1,118 1,159 119 193 1,237 1,352
Amounts owed by joint ventures and associates 894 731 2 10 896 741
Other taxation and social security receivable 215 160 2 13 217 173
Costs to obtain contracts with customers (3) 11 7 124 109 135 116
Other receivables and similar assets (4) 529 478 58 45 587 523
6,999 6,527 1,714 1,596 8,713 8,123
(1) 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 and 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
(2 ) These amounts reflect the contractual share of EFH flows from
customers paid to RRSA partners in return for the supply of parts in future
periods under long-term supply contracts. During the year £(262)m (2023:
£(211)m) has been recognised in cost of sales in relation to parts supplied
and used in the year
(3 ) These are amortised over the term of the related contract in line with
engine deliveries, resulting in amortisation of £8m (2023: £9m) in the year.
There were no impairment losses
(4) Other receivables includes unbilled recoveries relating to completed
overhaul activity where the right to consideration is unconditional
The Group has adopted the simplified approach to provide for expected credit
losses (ECLs), measuring the loss allowance at a probability weighted amount
incorporated by using credit ratings which are publicly available, or through
internal risk assessments derived using the customer's latest available
financial information.
The ECLs for trade receivables and other assets has decreased by £3m to
£239m (2023: decreased by £104m to £242m).
The movements of the Group's ECLs provision are as follows:
2024 2023
£m £m
At 1 January (242) (346)
Increases in loss allowance recognised in the income statement during the year (130) (80)
Loss allowance utilised 11 34
Releases of loss allowance previously provided 116 128
Transferred to assets held for sale 1 -
Exchange differences 5 22
At 31 December (239) (242)
13 Contract assets and liabilities
Current Non-current (1) Total (2)
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Contract assets
Contract assets with customers 886 534 598 481 1,484 1,015
Participation fee contract assets 38 26 291 201 329 227
924 560 889 682 1,813 1,242
(1 )Contract assets and 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 related
performance obligation is expected to be satisfied and, therefore, when
revenue is estimated to be recognised in the income statement. Further
disclosure of contract assets is provided in the table above, which shows
within current the element of consideration that will become unconditional in
the next year
(2 )Contract assets are classified as non-financial instruments
The balance includes £955m (2023: £494m) of Civil Aerospace LTSA assets and
£381m (2023: £410m) Defence LTSA assets. The increase in the Civil Aerospace
balance is driven by revenue recognised (when performance obligations have
been completed during the year) being greater than the amount invoiced on
those contracts that have a contract asset balance. Revenue recognised
relating to performance obligations satisfied in previous years was £(42)m
which reduced the contract asset (2023: £64m increased). No impairment losses
in relation to these contract assets (2023: none) have arisen during the year.
Participation fee contract assets have increased by £102m (2023: decreased by
£16m) primarily due to the Civil Aerospace programme asset impairment
reversal of £132m (2023: £nil) referred to in note 7, offset by amortisation
of £23m (2023: £15m) and foreign exchange on consolidation of £7m (2023:
£1m).
The absolute value of ECLs for contract assets has increased by £5m to £11m
(2023: decreased by £15m to £6m).
Current Non-current Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Contract liabilities 6,309 6,098 9,447 8,438 15,756 14,536
During the year, £5,048m (2023: £3,813m) of the opening contract liability
was recognised as revenue.
Contract liabilities have increased by £1,220m. The movement in the Group
balance is primarily as a result of an increase in Civil Aerospace of
£1,179m. This is mainly as a result of growth in LTSA liabilities of £1,565m
(2024: £11,139m, 2023: £9,574m) driven almost wholly by large engines, with
customer invoicing in 2024 (based on EFH) being in advance of revenue
recognised (based on costs incurred completing performance obligations). The
contract liability movement includes a decrease of £(354)m (2023: £168m
increase) as a result of revenue being recognised in relation to performance
obligations satisfied in previous years. An increase in Power Systems of £67m
is from the receipt of deposits in advance of performance obligations being
completed.
14 Cash and cash equivalents
2024 2023
£m £m
Cash at bank and in hand 714 739
Money market funds 1,900 1,077
Short-term deposits 2,961 1,968
Cash and cash equivalents per the balance sheet 5,575 3,784
Overdrafts (note 15) (2) (53)
Cash and cash equivalents per cash flow statement (page 16) 5,573 3,731
Cash and cash equivalents at 31 December 2024 includes £245m (2023: £279m)
that is not available for general use by the Group. This balance includes
£40m (2023: £40m) which is held in an account that is exclusively for the
general use of Rolls-Royce Submarines Limited and £160m (2023: £195m) which
is held exclusively for the use of Rolls-Royce Saudi Arabia Limited. This cash
is not available for use by other entities within the Group. The remaining
balance relates to cash held in non-wholly owned subsidiaries and joint
arrangements.
Balances 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 the asset
and settle the liability simultaneously. There is no offsetting of
financial instruments in the Group's statement of financial position as at 31
December 2024 and 2023.
15 Borrowings and lease liabilities
Current Non-current Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Unsecured
Overdrafts 2 53 - - 2 53
Bank loans 4 3 3 - 7 3
Loan notes 795 475 2,764 3,559 3,559 4,034
Other loans - - 9 9 9 9
Total unsecured 801 531 2,776 3,568 3,577 4,099
Lease liabilities 296 278 1,259 1,382 1,555 1,660
Total borrowings and lease liabilities 1,097 809 4,035 4,950 5,132 5,759
All outstanding items described as loan notes above are listed on the London
Stock Exchange
During the year to 31 December 2024, the Group repaid a loan note of €550m
in May 2024 in line with its maturity date.
The Group has access to the following undrawn committed borrowing facilities
at the end of the year:
2024 2023
£m £m
Expiring within one year - -
Expiring after one year 2,500 3,500
Total undrawn facilities 2,500 3,500
Further details can be found in the going concern statement on page 21
In May 2024, the Group cancelled its undrawn £1bn UKEF-supported loan
facility which was due to expire in 2027. The facility had remained undrawn in
the year.
In October 2024, the Group extended the maturity date of its undrawn £2.5bn
revolving credit facility by one year to November 2027, with the Group having
the option to exercise a further one-year extension option, subject to bank
agreement at the time of exercise.
16 Leases
Leases as lessee
The net book value of right-of-use assets at 31 December 2024 was £761m
(2023: £905m), with a lease liability of £1,555m (2023: £1,660m), per notes
9 and 15, respectively. Leases that have not yet commenced to which the Group
is committed have a future liability of £2m and consist of mainly plant and
equipment and properties. The condensed consolidated income statement shows
the following amounts relating to leases:
2024 2023
£m £m
Land and buildings depreciation and impairment (1) (45) (45)
Plant and equipment depreciation and impairment (2) (45) (48)
Aircraft and engines depreciation and impairment (3) (175) (241)
Total depreciation and impairment charge for right-of-use assets (265) (334)
Adjustment of amounts payable under residual value guarantees within lease 6 10
liabilities (3, 4)
Expense relating to short-term leases of 12 months or less recognised as an (38) (49)
expense on a straight-line basis (2)
Expense relating to variable lease payments not included in lease liabilities (8) (5)
(3, 5)
Total operating costs (305) (378)
Interest expense (6) (83) (85)
Total lease expense (388) (463)
Income from sub-leasing right-of-use assets 29 31
Total amount recognised in income statement (359) (432)
(1) Included in cost of sales and commercial and administration costs
depending on the nature and use of the right-of-use asset
(2) 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
(3) Included in cost of sales
(4) 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 remeasured. To the extent that 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
(5) Variable lease payments primarily arise on a small number of contracts
where engine lease payments are solely dependent upon utilisation rather than
a periodic charge
(6) Included in financing costs
16 Leases continued
The total cash outflow for leases in 2024 was £421m (2023: £429m). Of this,
£375m related to leases reflected in the lease liability, £38m to short-term
leases where lease payments are expensed on a straight-line basis and £8m for
variable lease payments where obligations are only due when the assets are
used. The timing difference between income statement charge and cash flow
relates to costs incurred at the end of leases for residual value guarantees
and restoration costs that are recognised within depreciation over the term of
the lease, the most significant amounts relate to engine leases.
Engine leases in the Civil Aerospace business often include clauses that
require the engines to be returned to the lessor with specific levels of
usable life remaining or cash payments to the lessor. The costs of meeting
these requirements are included in the lease payments. The amounts payable are
calculated based upon an estimate of the utilisation of the engines over the
lease term, whether the engine is restored to the required condition by
performing an overhaul at our own cost or through the payments of amounts
specified in the contract and any new contractual arrangements arising when
the current lease contracts end. Amounts due can vary depending on the level
of utilisation of the engines, overhaul activity prior to the end of the
contract, and decisions taken on whether ongoing access to the assets is
required at the end of the lease term. During the year, adjustments to return
conditions at the end of leases resulted in a credit of £6m to the income
statement. The lease liability at 31 December 2024 included £297m relating to
the cost of meeting these residual value guarantees in the Civil Aerospace
business. Up to £76m is payable in the next 12 months, £125m is due over the
following four years and the remaining balance after five years.
17 Trade payables and other liabilities
Current Non-current Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Trade payables 1,526 1,608 - - 1,526 1,608
Accruals 2,552 1,134 109 96 2,661 1,230
Customer discounts (1) 1,035 1,018 866 773 1,901 1,791
Payables due on RRSAs 1,529 1,713 11 - 1,540 1,713
Deferred receipts from RRSA workshare partners 55 56 757 774 812 830
Amounts owed to joint ventures and associates 492 542 - - 492 542
Government grants (2) 26 30 24 54 50 84
Other taxation and social security 54 92 - - 54 92
Other payables (3) 740 703 198 230 938 933
8,009 6,896 1,965 1,927 9,974 8,823
(1)( )Customer discounts include customer concession credits. Revenue
recognised comprises sales to the Group's customers after such items. Customer
concession credits are discounts given 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. The largest element of the
balance, approximately £1.4bn (2023: £1.2bn) arises when the Civil business
delivers its engines to an airframer. A concession is often payable to the end
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 judgement or uncertainty associated with the timing of
these amounts
(2 ) During the year, £102m, (2023: £74m) of government grants were
released to the income statement
(3)( ) Other payables includes payroll liabilities and HM Government UK
levies
The Group's payment terms with suppliers vary based on the products and
services being sourced, the competitive global markets the Group operates in
and other commercial aspects of suppliers' relationships. Industry average
payment terms vary between 90 to 120 days. The Group offers reduced payment
terms to its smaller suppliers, who are typically on 75-day payment terms, so
that they are paid in 30 days.
In line with civil aviation industry practice, the Group offers a SCF
programme in partnership with banks to enable suppliers (including joint
ventures who are on 90-day standard payment terms) to receive their payments
sooner. This SCF programme is available to suppliers at their 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 liabilities arising from
transactions with these suppliers.
At 31 December 2024, £594m of trade payables were within the scope of SCF
arrangements of which suppliers had drawn £506m (2023: £418m), with £243m
(2023: £154m) drawn by joint ventures. In some cases the Group settles the
costs incurred by joint ventures as a result of them utilising SCF
arrangements and, during the year to 31 December 2024, the Group incurred
costs of £9m (2023: £28m). These were included within cost of sales.
18 Financial assets and liabilities
Carrying value of other financial assets and liabilities
Derivatives
Foreign exchange contracts Commodity contracts Interest rate contracts (1) Total Financial RRSAs Other C Shares Total
£m £m £m derivatives £m £m £m £m
£m
At 31 December 2024
Non-current assets 10 1 110 121 - 5 - 126
Current assets 25 4 148 177 - 32 - 209
Assets 35 5 258 298 - 37 - 335
Current liabilities (539) (18) - (557) - (62) (23) (642)
Non-current liabilities (1,364) (22) (111) (1,497) (7) (136) - (1,640)
Liabilities (1,903) (40) (111) (2,054) (7) (198) (23) (2,282)
(1,868) (35) 147 (1,756) (7) (161) (23) (1,947)
At 31 December 2023
Non-current assets 72 - 254 326 - 34 - 360
Current assets 10 6 8 24 - 10 - 34
Assets 82 6 262 350 - 44 - 394
Current liabilities (351) (10) (13) (374) (10) (41) (23) (448)
Non-current liabilities (1,766) (15) (73) (1,854) (7) (122) - (1,983)
Liabilities (2,117) (25) (86) (2,228) (17) (163) (23) (2,431)
(2,035) (19) 176 (1,878) (17) (119) (23) (2,037)
(1)( ) Includes the foreign exchange impact of cross-currency interest rate
swaps
Derivative financial instruments
Movements in fair value of derivative financial assets and liabilities were as
follows:
Year ended 31 December 2024 Year ended
£m 31 December 2023
£m
Foreign exchange instruments Commodity instruments Interest rate instruments - hedge accounted (1) Interest rate instruments Total Total
£m £m £m - non-hedge accounted
£m
At 1 January (2,035) (19) 45 131 (1,878) (3,451)
Movements in fair value hedges - - (32) - (32) (71)
Movements in cash flow hedges - - (23) - (23) (78)
Movements in other derivative contracts (2) (631) (18) - 40 (609) 515
Contracts settled 798 2 64 (78) 786 1,207
At 31 December (1,868) (35) 54 93 (1,756) (1,878)
(1) Includes the foreign exchange impact of cross-currency interest rate
swaps
(2) Included in net financing
Financial risk and revenue sharing arrangements (RRSAs) and other financial
assets and liabilities
Movements in the carrying values were as follows:
Financial RRSAs Other - assets Other - liabilities
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
At 1 January (17) (22) 25 25 (163) (101)
Exchange adjustments included in OCI 1 1 - - (5) 2
Additions - - - - (34) (80)
Financing charge (1) - - (11) - (9) (8)
Excluded from underlying profit/(loss):
Changes in forecast payments (1) - (1) - - - -
Cash paid 9 5 - - 12 11
Other - - - - 1 13
At 31 December (7) (17) 14 25 (198) (163)
(1 ) Included in net financing
18 Financial assets and liabilities continued
Fair values of financial instruments equate to book values with the following
exceptions:
2024 2023
Book value Fair value Book value Fair value
£m £m £m £m
Other assets - Level 2 16 16 12 12
Borrowings - Level 1 (3,559) (3,540) (4,034) (3,977)
Borrowings - Level 2 (18) (21) (65) (67)
Financial RRSAs - Level 3 (7) (7) (17) (16)
The fair value of a financial instrument is the price at which an asset could
be exchanged, or a liability settled, between knowledgeable, willing parties
in an arm's-length transaction. There have been no transfers during the year
from or to Level 3 valuation. Fair values have been determined with reference
to available market information at the balance sheet date, using the
methodologies described below.
- Non-current asset investments primarily comprise
unconsolidated companies where fair value approximates to the book value.
Listed investments are valued using Level 1 methodology.
- Money market funds, included within cash and cash equivalents,
are valued using Level 1 methodology. Fair values are assumed to approximately
equal 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 six
months.
- The fair values of held to collect trade receivables and
similar items, trade payables and other similar items, other
non-derivative financial assets and liabilities, short-term investments and
cash and cash equivalents 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 six months.
- Fair values of derivative financial assets and liabilities and
trade receivable held to collect or sell are estimated by discounting expected
future contractual cash flows using prevailing interest rate curves or cost of
borrowing, as appropriate. Amounts denominated in foreign currencies are
valued at the exchange rate prevailing at the balance sheet date. These
financial instruments are included on the balance sheet at fair value, derived
from observable market prices (Level 2 as defined by IFRS 13 Fair Value
Measurement).
- 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 estimated using quoted
prices (Level 1 as defined by IFRS 13 Fair Value Measurement) or by
discounting contractual future cash flows (Level 2 as defined by IFRS 13 Fair
Value Measurement).
- The fair values of RRSAs and other liabilities, which
primarily includes royalties to be paid to airframers, are estimated by
discounting expected future cash flows. The contractual cash flows are based
on future trading activity, which is estimated based on latest forecasts
(Level 3 as defined by IFRS 13 Fair Value Measurement).
- 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 value of borrowings is
estimated by discounting contractual future cash flows (Level 2).
- In addition, other assets can be included on the balance sheet
at fair value, derived from observable market prices or latest forecast (Level
2/3 as defined by IFRS 13). At 31 December 2024, Level 3 assets totalled £14m
(31 December 2023: £25m).
- 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 (Level 2 as
defined by IFRS 13 Fair Value Measurement).
19 Provisions for liabilities and charges
At Charged to income statement (1) Reversed Utilised Transfers to held for sale Exchange differences At 31 December 2024
1 January 2024
£m £m £m £m £m £m £m
Onerous contracts 1,472 558 (374) (218) (3) (2) 1,433
Warranty and guarantees 306 158 (13) (87) - (10) 354
Trent 1000 wastage costs 116 2 - (82) - - 36
Employer liability claims 24 5 (1) (2) - (1) 25
Transformation and restructuring 9 101 (12) (35) - (1) 62
Tax related interest and penalties 22 3 (5) (4) - - 16
Claims and litigation 43 1 (16) (3) - - 25
Other 37 22 (2) (13) - (1) 43
2,029 850 (423) (444) (3) (15) 1,994
Current liabilities 532 589
Non-current liabilities 1,497 1,405
(1)( ) The charge to the income statement within net financing includes £47m
(2023: £59m) as a result of the unwinding of the discounting of provisions
previously recognised
19 Provisions for liabilities and charges continued
Onerous contracts
Onerous contract provisions are recorded when the direct costs to fulfil a
contract are assessed as being greater than the expected recoverable amount.
Onerous contract provisions are measured on a fully costed basis and during
the year £218m (2023: £185m) of the provisions have been utilised.
Additional contract losses for the Group of £558m (2023: £500m) have been
recognised. These are mainly a result of increases in the estimate of future
LTSA costs due to prolonged supply chain challenges, inflationary cost
increases and implementing required product modifications that could cause
some disruption to the throughput of engine overhauls. Contract losses of
£374m (2023: £433m) previously recognised have been reversed following
improvements to the forecast revenue, cost estimates and time on wing across
various engine programmes as a result of operational improvements, contractual
renegotiations and extensions. The Group continues to monitor the onerous
contract provision for changes in the market and revises the provision as
required. The value of the remaining onerous contract provisions reflect, in
each case, the single most likely outcome. The provisions are expected to be
utilised over the term of the customer contracts, typically within eight to 16
years.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a
company to recognise any impairment loss that has occurred on assets used in
fulfilling the contract before recognising a separate provision for an onerous
contract. No impairments were required for any of the assets used solely for
the fulfilment of onerous contracts.
The Trent 1000 intangible assets (certification costs and development costs)
and Trent 1000 spare engines (right-of-use and owned) are tested for
impairment as part of the Trent 1000 CGU and no impairment was required.
Warranty and guarantees
Provisions for warranty and guarantees relate to products sold and are
calculated based on an assessment of the remediation costs related to future
claims based on past experience. The provision generally covers a period of up
to three years.
Trent 1000 wastage costs
In November 2019, the Group announced the outcome of testing and a thorough
technical and financial review of the Trent 1000 TEN programme, following
technical issues which were identified in 2019, resulting in a revised
timeline and a more conservative estimate of durability for the improved HP
turbine blade for the TEN variant. During the year, the Group has utilised
£82m (2023: £79m) of the Trent 1000 wastage costs provision. This represents
customer disruption costs and remediation shop visit costs. During the year, a
net charge to the provision of £2m (2023: £16m) has been recognised
reflecting the discount unwind. The value of the remaining provision reflects
the single most likely outcome and is expected to be utilised in 2025.
Employer liability claims
The provision relating to employer healthcare liability claims is as a result
of an historical insolvency of the previous provider and is expected to be
utilised over the next 30 years.
Transformation and restructuring
In 2023, the Group announced a major multi-year transformation programme
consisting of seven workstreams, set out in the 2022 Annual Report. During the
year, the Group made progress against those workstreams and as a result of the
details communicated, a provision of £101m (2023: £2m) has been recorded and
recognised in cost of sales and commercial and administration costs. During
the year £35m (2023: £2m) was utilised and £12m reversed (2023: nil) as
part of these plans and a further £2m (2023: £4m) has been charged directly
to the income statement. The remaining provision is expected to be utilised by
31 December 2025.
Tax related interest and penalties
Provisions for tax related interest and penalties relate to uncertain tax
positions in some of the jurisdictions in which the Group operates.
Utilisation of the provisions will depend on the timing of resolution of the
issues with the relevant tax authorities.
Claims and litigation
Provisions for claims and litigation represent ongoing matters where the
outcome for the Group may be unfavourable.
The balance also includes the best estimate of any retained exposure by the
Group's captive insurance company for any claims that have been incurred 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. Such exposures
include policies for aviation claims, employer liabilities and healthcare
claims. Significant delays can occur in the notification and settlement of
claims and judgement is involved in assessing outstanding liabilities, the
ultimate cost and timing of which cannot be known with certainty at the
balance sheet date. The insurance provisions are based on information
currently available, however it is inherent in the nature of the business that
ultimate liabilities may vary if the frequency or severity of claims differs
from estimated.
Other
Other items are individually immaterial. The value of any remaining provisions
reflects the single most likely outcome in each case.
20 Post-retirement benefits
The net post-retirement deficit as at 31 December 2024 is calculated on a year
to date basis, using the latest funding valuation as at 31 March 2023 for the
UK scheme, updated to 31 December 2024 for the principal schemes.
Amounts recognised in the balance sheet in respect of defined benefit schemes
UK schemes Overseas schemes Total
£m £m £m
At 1 January 2024 767 (1,020) (253)
Exchange adjustments - 25 25
Current service cost and administrative expenses (5) (38) (43)
Past service cost (14) - (14)
Financing recognised in the income statement 35 (37) (2)
Contributions by employer 1 73 74
Actuarial gains recognised in OCI (1) 628 32 660
Returns on plan assets excluding financing recognised in OCI (1) (633) (5) (638)
At 31 December 2024 779 (970) (191)
Post-retirement scheme surpluses - included in non-current assets (2) 779 11 790
Post-retirement scheme deficits - included in non-current liabilities - (981) (981)
(1 ) Actuarial gains and losses arising from financial assumptions arise
primarily due to changes in discount rate and inflation
(2 ) The surplus in the UK scheme is recognised as, on an ultimate wind-up
when there are no longer any remaining members, any surplus would be returned
to the Group, which has the power to prevent the surplus being used for other
purposes in advance of this event
Other
Virgin Media
The Group is aware of a UK High Court legal ruling that took place in June
2023 between Virgin Media Limited and NTL Pension Trustees II Limited, which
decided that certain historic rule amendments were invalid if they were not
accompanied by actuarial certifications. The ruling was subject to an appeal
with a judgment delivered on 25 July 2024. The Court of Appeal unanimously
upheld the decision of the High Court and concluded that the pre-April 2013
conditions applied to amendments to both future and past service. Whilst this
ruling was in respect of another scheme, this judgment will need to be
reviewed for its relevance to the RRUKPF scheme, and other UK schemes. A
high-level review has been undertaken of the UK Schemes which concluded that
there is a very low risk of any historic plan amendments being found to be
invalid. The Company's pension advisers have not completed detailed numerical
analysis and no adjustments have been made to the Consolidated Financial
Statements at 31 December 2024. There is a separate legal case which is due to
be taken to the High Court in early 2025, this is expected to provide further
clarification on several outstanding points of detail relevant to this case.
Barber adjustment
In 2018, an estimated cost of equalising normal retirement ages between men
and women arising from the Barber judgement in 1990 was recognised. While the
Rolls-Royce schemes were equalised under these principles in the period after
the original Barber ruling, further work has been 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 required payments.
This work has resulted in a past service charge of £14m being recognised in
the income statement of the Consolidated Financial Statements at 31 December
2024.
Future Contributions
The Group expects to contribute approximately £76m to its overseas defined
benefit schemes in 2025 (2024: £73m).
In the UK, any cash funding of RRUKPF is based on a statutory triennial
funding valuation process. The Group and the Trustee negotiate and agree the
actuarial assumptions used to value the liabilities (Technical Provisions);
assumptions which may differ from those used for accounting are set out above.
The assumptions used to value Technical Provisions must be prudent rather than
a best estimate of the liability. Most notably, the Technical Provisions
discount rate is currently based upon UK Government bond yields plus a margin
(0.5% at the 31 March 2023 valuation) rather than being based on yields of AA
corporate bonds. Once each valuation is signed, a Schedule of Contributions
(SoC) must be agreed which sets out the cash contributions to be paid. The
most recent valuation, as at 31 March 2023, agreed by the Trustee in October
2023, showed that the RRUKPF was estimated to be 115% funded on the Technical
Provisions basis (estimated to be 119% at 31 December 2024). All cash due has
been paid in full and the current SoC does not currently require any cash
contributions to be made by the Group
21 Contingent liabilities
In January 2017, after full cooperation, the Company concluded deferred
prosecution agreements (DPA) with the Serious Fraud Office and the US
Department of Justice and a leniency agreement with the Ministério Público
Federal, the Brazilian federal prosecutor. The terms of both DPAs have now
expired. The Company has also met all its obligations under a two-year
leniency agreement with Brazil's Comptroller General (CGU), signed in October
2021, relating to the same historical matters. In April 2024, the CGU
confirmed that the Company would no longer be subject to compliance
monitorship. Certain authorities are investigating members of the Group for
matters relating to misconduct in relation to historical matters. The Group is
responding appropriately. Action may be taken by further authorities against
the Group or individuals. In addition, the Group could still be affected by
actions from other parties, including customers, customers' financiers and the
Company's current and former investors, including certain potential claims in
respect of the Group's historical ethics and compliance disclosures which have
been notified 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 penalties imposed to date, but cannot anticipate all the possible actions
that may be taken or their potential consequences.
The Group has, in the normal course of business, entered into arrangements in
respect of export finance, performance bonds, grant funding, countertrade
obligations and minor miscellaneous items, which could result in potential
outflows if the requirements related to those arrangements are not met.
Various Group undertakings are party to legal actions and claims (including
with tax authorities) which arise in the ordinary course of business, some of
which are for substantial amounts.
In connection with the sale of its products, the Group will, on some
occasions, provide financing support for its customers, generally in respect
of civil aircraft. The Group's commitments relating to these financing
arrangements are spread over many years, they relate to a number of customers,
a broad product portfolio and are generally secured on the asset subject to
the financing. These include commitments of $405m (2023: $857m) (on a
discounted basis) to provide facilities to enable customers to purchase
aircraft (of which approximately $100m could be called during 2025). These
facilities may only be used if the customer is unable to obtain financing
elsewhere and are priced at a premium to the market rate. Significant events
impacting the international aircraft financing market, the failure by
customers to meet their obligations under such financing agreements, or
inadequate provisions for customer financing liabilities may adversely affect
the Group's financial position.
Customer financing provisions would be made to cover guarantees provided for
asset value and/or financing were it probable that a payment would be made.
These would be measured on a discounted basis at the Group's borrowing rate to
reflect the time span over which these exposures could arise. The values of
aircraft providing security are based on advice from a specialist aircraft
appraiser. There were no provisions for customer financing provisions at 31
December 2024 or 31 December 2023.
The Group has responded appropriately to the Russia-Ukraine conflict to comply
with international sanctions and export control regime, and to continue to
implement the business decision to exit from Russia. The Group could be
subject to action by impacted customers, suppliers and other contract parties.
While the outcome of the above matters cannot precisely be foreseen, the
Directors do not expect any of these arrangements, legal actions or claims,
after allowing for provisions already made, to result in significant loss to
the Group.
22 Related party transactions
2024 2023
£m £m
Sale of goods and services (1) 7,702 6,700
Purchases of goods and services (1) (8,725) (7,471)
Lease payments to joint ventures and associates (241) (244)
Guarantees of joint arrangements' and associates' borrowings - 2
Guarantees of non-wholly owned subsidiaries' borrowings 4 3
Dividends received from joint ventures and associates 77 54
Other income received from joint ventures and associates 7 6
(1) 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 rate, consistent with the statutory income
statement
Included in sales of goods and services to related parties are sales of spare
engines amounting to £48m (2023: £48m). Profit recognised in the year on
such sales amounted to £62m (2023: £88m), including profit on current year
sales and recognition of profit deferred on similar sales in previous years.
Cash receipts relating to the sale of spare engines amounted to £48m (2023:
£73m).
Included in cost of sales in the income statement are interest costs of £9m
(2023: £34m) incurred during the year which have been settled by the Group on
behalf of joint ventures.
23 Business disposals and businesses held for sale
Disposals
At 31 December 2023, the Group classified the assets and liabilities related
to part of the Power Systems' lower power range engines business as held for
sale as, in line with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, the business was available for sale in its current condition and
the sale was considered highly probable. A disposal agreement was signed with
Deutz AG on 28 March 2024 and the disposal completed on 31 July 2024 for cash
consideration of £62m. The carrying value of the net assets derecognised was
£42m, with a £16m profit on disposal after costs.
2024
£m
Proceeds
Net cash consideration at prevailing exchange rate and at effective hedged 62
rate
Cash flow on disposal of business per cash flow statement 62
Intangible assets 49
Inventory 4
Provisions for liabilities and charges (6)
Contract liabilities (4)
Post-retirement scheme deficits (1)
Less: Net assets disposed 42
Profit on disposal before disposal costs and accounting adjustments 20
Disposal costs (4)
Profit on disposal of business before and after taxation 16
Profit on disposal of businesses per income statement 16
Businesses held for sale
At 31 December 2024, the Group classified the assets and liabilities related
to its naval propulsors & handling business as held for sale as, in line
with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the
business was available for sale in its current condition and the sale was
considered highly probable. On 18 September 2024, the Group and Fairbanks
Morse Defense signed a sale and disposal agreement, with completion
anticipated during 2025.
At 31 December 2023, assets and liabilities related to part of Power Systems'
lower power range engines business were held for sale, as set out above, this
sale completed on 31 July 2024.
Assets held for sale are measured at the lower of their carrying value or fair
value less costs to sell. Assets and liabilities held for sale are summarised
in the table below.
2024 2023
£m £m
Intangible assets 13 51
Property, plant and equipment 51 -
Right-of-use assets 1 -
Inventory 24 11
Trade receivables and other assets 64 47
Assets held for sale 153 109
Trade payables and other liabilities (96) (41)
Contract liabilities - (4)
Provisions for liabilities and charges (3) (8)
Borrowings and lease liabilities (1) -
Post-retirement scheme deficits - (2)
Liabilities associated with assets held for sale (100) (55)
Net assets held for sale 53 54
24 Derivation of summary funds flow statement
2024 2023
Cash flow Impact of hedge book Impact of acquisition accounting Impact of other non-underlying items Funds flow Funds flow
£m £m £m £m £m £m
Operating profit/(loss) 2,906 (191) 45 (296) 2,464 1,590
Loss on disposal of property, plant and equipment (1) 32 - - - 32 18
Loss on disposal of intangible assets (1) 6 - - - 6 -
Joint venture trading (1) (95) - - - (95) (119)
Depreciation, amortisation and impairment 543 - (45) 355 853 978
Movement in provisions (56) (56) - (55) (167) (258)
Increase in inventories (2) (323) - - - (323) (200)
Movement in prepayments to RRSAs for LTSA parts (348) 129 - - (219) (252)
Movement in cost to obtain contracts (19) 1 - - (18) (40)
Movement in trade receivables/payables and other assets/liabilities (2) 524 (341) - (17) 166 (2,251)
Revaluation of trading assets (2) 24 (38) - - (14) 196
Realised derivatives in financing 652 - - - 652 853
Movement in Civil LTSA balance 1,193 (283) - - 910 1,331
Movement in contract assets/liabilities (excluding Civil LTSA) (2) (441) 108 - 132 (201) 1,046
Settlement of excess derivatives (146) - - - (146) (389)
Interest received 269 - - - 269 159
Contributions to defined benefit schemes in excess of underlying operating (18) - - (13) (31) (26)
profit charge (1)
Cash flows on other financial assets and liabilities held for operating (676) 652 - - (24) 8
purposes
Share-based payments (1) 136 - - - 136 66
Other (1) - (5) - - (5) (7)
Income tax (381) - - - (381) (172)
Cash from operating activities 3,782 (24) - 106 3,864 2,531
Capital element of lease payments (299) 24 - - (275) (270)
Capital expenditure (876) - - - (876) (695)
Investments 16 - - - 16 69
Interest paid (298) - - - (298) (333)
Other (M&A, restructuring and exceptional transformation costs) 100 - - (106) (6) (17)
Free cash flow 2,425 - - - 2,425 1,285
(1) Included in other operating cash flows in the summarised free cash flow
on page 10
(2) Included in working capital (excluding Civil LTSA balance) in the
summarised free cash flow on page 10
The comparative information to 31 December 2024 has been presented in a
different format to align to the current year presentation. In some instances,
the groupings of items may have changed.
Free cash flow is a measure of the financial performance of the businesses'
cash flows which is consistent with the way in which performance is
communicated with the Board. Free cash flow is defined as cash flows from
operating activities including capital expenditure and movements in
investments, capital elements of lease payments, interest paid, amounts paid
relating to the settlement of excess derivatives and excluding amounts spent
or received on activity related to business acquisitions or disposals and
other material exceptional or one-off cash flows. The Board considers that
free cash flow reflects cash generated from the Group's underlying trading.
Cash flow from operating activities is determined to be the nearest statutory
measure to free cash flow. The reconciliation between free cash flow and cash
flow from operating activities can be found on page 51.
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent
Alternative Performance Measures (APMs)
Business performance is reviewed and managed on an underlying basis. These
alternative performance measures reflect the economic substance of trading in
the year. In addition, a number of other APMs are utilised to measure and
monitor the Group's performance.
Definitions and reconciliations to the relevant statutory measure are included
below. All comparative periods relate to 31 December 2023.
Underlying results
Underlying results are presented by recording all relevant revenue and cost of
sales transactions at the average exchange rate achieved on effective settled
derivative contracts in the period that the cash flow occurs. Underlying
results also exclude: the effect of acquisition accounting and business
disposals, impairment of goodwill and other non-current assets where the
reasons for the impairment are outside of normal operating activities,
exceptional items and certain other items which are market driven and outside
of managements control. Further detail can be found in note 2.
2024 2023
£m £m
Revenue
Statutory revenue 18,909 16,486
Derivative and FX adjustments (1,061) (1,077)
Underlying revenue 17,848 15,409
Gross profit
Statutory gross profit 4,221 3,620
Derivative and FX adjustments (186) (461)
Programme exceptional credits - (21)
Exceptional transformation and restructuring charges 147 55
Acquisition accounting and M&A 43 46
Impairment reversals (2) (8)
Civil Aerospace programme asset impairment reversal (132) -
Underlying gross profit 4,091 3,231
Commercial and administrative costs
Statutory commercial and administrative (C&A) costs (1,284) (1,110)
Derivative and FX adjustments - 1
Exceptional transformation and restructuring charges 70 47
Other underlying adjustments 17 (2)
Underlying C&A costs (1,197) (1,064)
Research and development costs
Statutory research and development (R&D) costs (203) (739)
Derivative and FX adjustments (8) (4)
Exceptional transformation and restructuring charges 17 -
Acquisition accounting 2 4
Civil Aerospace programme asset impairment reversal (413) -
Underlying R&D costs (605) (739)
Operating profit
Statutory operating profit 2,906 1,944
Derivative and FX adjustments (191) (475)
Programme exceptional credits - (21)
Exceptional transformation and restructuring charges 234 102
Acquisition accounting and M&A 45 50
Civil Aerospace programme asset impairment reversal (545) -
Impairment reversals (2) (8)
Other underlying adjustments 17 (2)
Underlying operating profit 2,464 1,590
Underlying operating margin 13.8% 10.3%
2024 2023
pence pence
Basic EPS
Statutory basic EPS 30.05 28.85
Effect of underlying adjustments to profit before tax 0.70 (13.94)
Related tax effects (6.34) (1.16)
Adjustment for net recognition of deferred tax assets (1) (4.12) -
Basic underlying EPS 20.29 13.75
(1 ) Underlying profit attributable to ordinary shareholders has been
adjusted for the one-off non-cash impact of £346m related to the net
recognition of deferred tax assets on UK tax losses, see note 5, page 32 for
further details
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent continued
Organic change
Organic change is the measure of change at constant translational currency
applying full year 2023 average rates to 2024. The movement in underlying
change to organic change is reconciled below.
All amounts below are shown on an underlying basis and reconciled to the
nearest statutory measure above.
Total Group income statement 2024 2023 Change FX Organic Change Organic Change
£m £m £m £m £m %
Underlying revenue 17,848 15,409 2,439 (245) 2,684 17%
Underlying gross profit 4,091 3,231 860 (67) 927 29%
Underlying operating profit 2,464 1,590 874 (35) 909 57%
Net financing costs (171) (328) 157 (1) 158 (48)%
Underlying profit before taxation 2,293 1,262 1,031 (36) 1,067 85%
Taxation (282) (120) (162) 10 (172) 143%
Underlying profit for the year 2,011 1,142 869 (26) 895 78%
Civil Aerospace 2024 2023 Change FX Organic Change Organic Change
£m £m £m £m £m %
Underlying revenue 9,040 7,348 1,692 (61) 1,753 24%
Underlying OE revenue 3,105 2,703 402 (29) 431 16%
Underlying services revenue 5,935 4,645 1,290 (32) 1,322 28%
Underlying gross profit 1,990 1,394 596 (21) 617 44%
Commercial and administrative costs (396) (354) (42) 2 (44) 12%
Research and development costs (252) (343) 91 3 88 (26)%
Joint ventures and associates 163 153 10 (1) 11 7%
Underlying operating profit 1,505 850 655 (17) 672 79%
Defence 2024 2023 Change FX Organic Change Organic Change
£m £m £m £m £m %
Underlying revenue 4,522 4,077 445 (66) 511 13%
Underlying OE revenue 1,943 1,766 177 (24) 201 11%
Underlying services revenue 2,579 2,311 268 (42) 310 13%
Underlying gross profit 908 804 104 (12) 116 14%
Commercial and administrative costs (212) (173) (39) 3 (42) 24%
Research and development costs (55) (72) 17 - 17 (24)%
Joint ventures and associates 3 3 - - - -
Underlying operating profit 644 562 82 (9) 91 16%
Power Systems 2024 2023 Change FX Organic Change Organic Change
£m £m £m £m £m %
Underlying revenue 4,271 3,968 303 (118) 421 11%
Underlying OE revenue 2,942 2,661 281 (81) 362 14%
Underlying services revenue 1,329 1,307 22 (37) 59 5%
Underlying gross profit 1,199 1,050 149 (33) 182 17%
Commercial and administrative costs (483) (456) (27) 12 (39) 9%
Research and development costs (165) (187) 22 5 17 (9)%
Joint ventures and associates 9 6 3 (1) 4 67%
Underlying operating profit 560 413 147 (17) 164 40%
New Markets 2024 2023 Change FX Organic Change Organic Change
£m £m £m £m £m %
Underlying revenue 3 4 (1) - (1) (25)%
Underlying OE revenue 3 2 1 - 1 50%
Underlying services revenue - 2 (2) - (2) (100)%
Underlying gross (loss)/profit (4) 1 (5) - (5) (500)%
Commercial and administrative costs (40) (24) (16) 1 (17) 71%
Research and development costs (133) (137) 4 1 3 (2)%
Underlying operating loss (177) (160) (17) 2 (19) 12%
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent continued
Trading cash flow
Trading cash flow is defined as free cash flow (as defined below) before the
deduction of recurring tax and post-employment benefit expenses. Trading cash
flow per segment is used as a measure of business performance for the relevant
segments.
2024 2023
£m £m
Civil Aerospace 2,030 626
Defence 591 511
Power Systems 452 461
New Markets (181) (63)
Total reportable segments trading cash flow 2,892 1,535
Other businesses 5 5
Corporate and Inter-segment (60) (57)
Trading cash flow 2,837 1,483
Underlying operating profit charge exceeded by contributions to defined (31) (26)
benefit schemes
Tax (1) (381) (172)
Free cash flow 2,425 1,285
(1) See page 16 for tax paid in the statutory cash flow statement
Free cash flow
Free cash flow is a measure of the financial performance of the businesses'
cash flows which is consistent with the way in which performance is
communicated to the Board. Free cash flow is defined as cash flows from
operating activities including capital expenditure and movements in
investments, capital elements of lease payments, interest paid, amounts paid
relating to the settlement of excess derivatives and excluding amounts spent
or received on activity related to business acquisitions or disposals and
other material exceptional or one-off cash flows.
Free cash flow from cash flows from operating activities
2024 2023
£m £m
Statutory cash flows from operating activities 3,782 2,485
Capital expenditure (876) (699)
Investment (including investment from NCI and movement in joint ventures, 16 69
associates and other investments)
Capital element of lease payments (299) (291)
Interest paid (298) (333)
Exceptional transformation and restructuring costs 104 69
M&A costs 1 2
Other (5) (17)
Free cash flow 2,425 1,285
Gross R&D expenditure
In year gross cash expenditure on R&D excludes contributions and fees,
amortisation and impairment of capitalised costs and amounts capitalised
during the year. For further detail, see note 3.
Gross capital expenditure
Gross capital expenditure during the year, excluding capital expenditure from
discontinued operations. All proposed investments are subject to rigorous
review to ensure that they are consistent with forecast activity and provide
value for money. The Group measures annual capital expenditure as the cash
purchases of PPE acquired during the year.
2024 2023
£m £m
Purchases of PPE (cash flow statement) 519 429
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent continued
Key performance indicators
The following measures are key performance indicators and are calculated using
APMs or statutory results. See below for calculation of these amounts.
Order backlog
Total value of firm orders placed by customers for delivery of products and
services where there is no right to cancel. Further details are included in
note 2 of the Consolidated Financial Statements included within the 2024
Annual Report.
Adjusted return on capital (abbreviated to return on capital)
Return on capital is defined as net operating profit after tax (NOPAT) as a
percentage of average invested capital. NOPAT is defined as underlying net
profit excluding net finance costs and the tax shield on net finance costs.
Invested capital is defined as current and non-current assets less current
liabilities. It excludes pension assets, cash and cash equivalents, and
borrowings and lease liabilities. Return on capital assesses the efficiency in
allocating capital to profitable investments.
2024 2023
£m £m
Underlying operating profit 2,464 1,590
Less: taxation (1) (649) (151)
Underlying operating profit (post-taxation) 1,815 1,439
Total assets 35,686 31,512
Less: post-retirement scheme surpluses (790) (782)
Less: cash and cash equivalents (5,575) (3,784)
Current liabilities (16,860) (14,926)
Liabilities held for sale (100) (55)
Less: borrowings and lease liabilities 1,097 809
Invested capital (closing) 13,458 12,774
Invested capital (average) 13,116 12,722
Return on capital 13.8% 11.3%
(1 ) Excluding underlying taxation on underlying finance income/(costs) of
£21m (2023: £31m) and adjusted for the one-off non-cash impact of £346m
relating to the net recognition of deferred tax assets on UK tax losses, see
note 5, page 32 for further details
Total underlying cash costs as a proportion of underlying gross margin
(abbreviated to TCC/GM)
Total underlying cash costs during the year (represented by underlying
research and development (R&D) expenditure and underlying commercial and
administrative (C&A) costs) as a proportion of underlying gross profit.
This measure provides an indicator of total cash costs relative to gross
profit. A reduction in total cash costs relative to gross profit indicates how
effective the business is at managing and/or reducing its costs.
2024 2023
£m £m
Underlying R&D expenditure (1) 745 836
Underlying C&A 1,197 1,064
Total cash costs 1,942 1,900
Underlying gross profit 4,091 3,231
Total cash costs as a proportion of underlying gross profit 0.47 0.59
(1 ) Excludes £30m (2023: £6m) impact of acquisition accounting,
exceptional transformation costs, derivatives and FX
Principal risks and uncertainties
Our risk management framework is described on pages 52 to 54 of our 2024
Annual Report. It sets out requirements for managing risk across the
organisation, in a continuous process where risk owners identify, quantify,
evaluate, control, assure and act to mitigate risks, including ongoing
monitoring and oversight.
We continue to review our principal risks, their dynamic nature and how well
they are managed. During 2024, we redefined two of our risks, Technology and
Climate Change (now Energy Transition), to reflect our strategy development in
these areas.
Principal risks remain categorised as either a 'pillar' or a 'driver', with
drivers being those risks that could cause one or more risk pillars to happen
and/or make them worse if they do. All principal risks facing the Group are
summarised below and reported in detail on pages 55 to 60 of our 2024 Annual
Report.
Principal risk pillars
Safety
Failure to: i) create a place to work which minimises the risk of harm to our
people, those who work with us, and the environment, would adversely affect
our reputation and long-term sustainability or ii) provide safe products.
Compliance
Non-compliance by the Group with legislation or other regulatory requirements
in the heavily regulated environment in which we operate (for example, export
controls; data privacy; use of controlled chemicals and substances;
anti-bribery and corruption; human rights; and tax and customs legislation).
This could affect our ability to conduct business in certain jurisdictions and
would potentially expose us to: reputational damage; financial penalties;
debarment from government contracts for a period of time; and suspension of
export privileges (including export credit financing), each of which could
have a material adverse effect.
Strategy
Failure to develop an optimal strategy and continuously evolve it, investing
in key areas for performance improvement and growth (taking into account risk
reward), making difficult decisions for competitive advantage and the right
portfolio and partnership choices, could result in us underperforming against
our competitors and significantly reduce our ability to build a
high-performing, competitive, resilient and growing business.
Execution
Failure to deliver as One Rolls-Royce on short-to medium-term financial plans,
including efficient and effective delivery of quality products, services and
programmes, or falling significantly short of customer expectations, would
reduce our resilience and have potentially significant adverse financial
and reputational consequences, including the risk of impairment of the
carrying value of the Group's intangible assets and the impact of potential
litigation.
Business interruption
A major disruption of our operations and ability to deliver our products,
services and programmes could have an adverse impact on our people, internal
facilities or external supply chain which could result in failure to meet
agreed customer commitments and damage our prospects of winning future orders.
Disruption could be caused by a range of events, including extreme weather or
natural hazards (for example, earthquakes or floods), which could increase in
severity or frequency given the impact of climate change; political events;
financial insolvency of a critical supplier; scarcity of materials; loss of
data; fire; pandemic or other infectious disease.
Principal risk drivers
Energy transition
Failure to become a net zero company by 2050, leveraging technology to
transition from carbon intensive products and services at pace could impact
our ability to win future business; achieve operating results; attract and
retain talent; secure access to funding; realise future growth opportunities;
or force government intervention to limit emissions.
Information & data (including cyber)
Failure to protect the integrity, confidentiality and availability of data,
both physical and digital, from attempts to cause us and our customers harm,
such as through a cyber-attack. Potential impacts include hindering data
driven decision making, disrupting internal business operations and services
for customers, or a data breach, all of which could damage our reputation,
reduce resilience, and cause financial loss.
Causes include ransomware threats, unauthorised access to property or systems
for the extraction, corruption, destruction of data, or availability of access
to critical data and intellectual property.
Market & financial shock
The Group is exposed to market and financial risks, some of which are of a
macro-economic nature (for example, economic growth rates, foreign currency,
oil price, interest rates) and some of which are more specific to us such as
cyclical aviation industry, reduction in air travel or defence spending,
disruption to other customer operations, liquidity and credit risks. This
could affect demand for our products and services.
Significant extraneous market events could also materially damage our
competitiveness and/or creditworthiness and our ability to access funding.
This would affect operational results or the outcomes of financial
transactions.
Political
Geopolitical factors, such as changes in key political relationships, explicit
trade protectionism, differing tax or regulatory regimes, potential for
conflict or broader political issues and heightened political tensions, could
lead to an unfavourable business climate and significant tensions between
major trading parties or blocs, which could impact our strategy, execution,
resilience, safety and compliance.
Talent & capability
Inability to identify, attract and grow 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.
Payments to shareholders
As announced on 27 February 2025, the Group is recommencing dividends and,
subject to shareholder approval at the AGM to be held on 1 May 2025, the
Directors recommend a final cash dividend of 6 pence per ordinary share for
the year ended 31 December 2024, to be paid on 16 June 2025 to shareholders on
the register on 22 April 2025. The total dividend for the year is 6 pence per
ordinary share (2023: nil). The Company will be introducing a dividend
reinvestment programme, further details can be obtained from Equiniti Limited.
The Company has previously made payments to shareholders by issuing redeemable
C shares of 0.1p each. No distributions in the form of C Shares have been made
since 2019. C shareholders wishing to redeem their existing C shares must
lodge instructions with the Registrar to arrive no later than 5.00pm on 2 June
2025 (CREST holders must submit their election in CREST by 2.55pm). For the
avoidance of doubt, the C share reinvestment programme is no longer available;
C shares can only be redeemed for cash. The payment of C Share redemption
monies will be made on 4 July 2025. Any entitlement to interest payments by C
shareholders will also be paid on 4 July 2025 in accordance with the Company's
articles of association.
Statement of Directors' responsibilities
The statements below have been prepared in connection with the Company's full
Annual Report for the year ended 31 December 2024. Certain parts are not
included in this announcement.
The Directors consider that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group and Company's position and performance,
business model and strategy.
Each of the Directors, whose names and functions are listed in the Directors'
Report, confirm that to the best of their knowledge:
- the Group Financial Statements, which have been prepared in
accordance with UK-adopted international accounting standards, give a true and
fair view of the assets, liabilities, financial position and loss of the
Group;
- the Company Financial Statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS 101
Reduced Disclosure Framework, give a true and fair view of the assets,
liabilities, financial position of the Company;
- the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that it
faces; and
In the case of each Director in office at the date the Directors' Report is
approved:
- so far as the Director is aware, there is no relevant audit
information of which the Group's and Company's auditors are unaware; and
- they have taken all steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Group's or Company's auditor are aware of that
information.
By order of the Board
Tufan Erginbilgic Helen McCabe
Chief Executive Chief Financial Officer
27 February 2025 27 February 2025
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