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Thursday 26 July, 2012

Rolls-Royce Holdings

Half-yearly Report


                                                                     26 July, 2012

                           ROLLS-ROYCE HOLDINGS PLC
                            HALF-YEAR 2012 RESULTS

Group Highlights

- Order book of £60.1bn, up four per cent.

- Underlying revenue of £5.8bn, up five per cent.

- Underlying profit before tax of £637m, up seven per cent.

- First half payment to shareholders of 7.6 pence per share, up ten per cent.

- Completion of sale of share holding in International Aero Engines AG (IAE).

- Full year Group guidance confirmed.

                                                   H1 12        H1 11          +/-
Order book                                       £60.1bn     £57.6bn*          +4%
Underlying revenue**                             £5.76bn      £5.46bn          +5%
Underlying profit before tax**                     £637m        £595m          +7%
Underlying earnings per share                     26.54p       23.89p         +11%
Half-year payment to shareholders                   7.6p         6.9p         +10%
 
Reported revenue                                 £5.72bn      £5.36bn          +7%
Reported profit before financing                 £1,280m        £716m         +79%
 
Net cash                                           £869m       £223m†
Average net cash                                 £(590)m        £780m

*  Restated 2011 year-end data excluding IAE order book of £4.6bn
** See Note 2 on p.19 for explanation
†  Full year 2011 data.

John Rishton, Chief Executive, said:

"Rolls-Royce has delivered solid growth in underlying revenue and
underlying profit in the first half of the year.

"We continue to invest to support future growth, including our new
production facility in Singapore, a new turbine blade casting plant in the UK,
a new stator facility in the USA and a new assembly plant for our Energy
business in Brazil.

"For the full year, we continue to expect good growth in underlying
profit with cash flow around breakeven, excluding the positive impact of the
Tognum acquisition and the sale of our equity stake in IAE."

Group Overview

In the first half of the year, underlying revenue increased by five
per cent and underlying profit by seven per cent. We continue to invest in
technology, infrastructure and people. These investments will enable us to
meet our customer commitments and improve efficiency.

This programme of investment continued in the first half:

- We opened our new state-of-the-art facilities in Singapore, where we will
manufacture wide-chord fan blades and assemble large civil engines for the
first time outside the UK. We will be producing engines later in 2012 and will
be at full production capability by the end of 2013.

- We are building a new casting facility at Rotherham in the UK that will have
capacity to produce 100,000 turbine blades a year.

- A new advanced manufacturing facility at Indianapolis will produce
compressor banded stators for our Civil Aerospace business.

- At Santa Cruz in Brazil work has started on a new assembly plant for our
Energy business.

- We began building a new nuclear reactor core factory at Derby in the UK as
part of a £1bn contract with the Ministry of Defence to support the UK's
nuclear powered submarine fleet.

- Construction has begun on a new Heathrow Services Centre. This will expand
the scale and capability of the services operations for our growing Civil
Aerospace customer base at London Heathrow.

- We announced an expansion programme of our global network of Authorised
Maintenance Centres (AMCs) for our Defence Aerospace customers. These AMCs
will enhance our capacity to provide repair and overhaul services for the
installed base of T56 engines that power military transport aircraft such as
the C-130 Hercules and the P3 Orion.

- We announced our intention to acquire Aero Engine Controls ("AEC"), a joint
venture with Goodrich Corporation. The transaction will give us full ownership
of a critical capability that enhances jet engine performance.

The status of two major transactions is as follows:

1. Sale of IAE Share Holding

The sale to Pratt & Whitney of our 32.5% share holding in IAE
completed for a consideration of US$1.5 billion, subject to working capital
adjustments. We remain an essential supplier to IAE and will benefit from a
revenue stream from the current installed fleet of V2500-powered aircraft for
the next 15 years. Rolls-Royce remains committed to the mid-size aircraft
market, to IAE and to its customers and will continue to be responsible for
the manufacture of high-pressure compressors, fan blades and discs as well as
the provision of engineering support and final assembly of 50 per cent of
V2500 engines.

Our long and successful partnership with Pratt & Whitney will
continue through a new venture to be established, subject to regulatory
approval, to develop engines for the next generation of mid-size aircraft. The
other IAE partners, Japanese Aero Engines Corporation (JAEC) and MTU Aero
Engines GmbH (MTU), have also agreed to join this new venture.

2. Acquisition of Tognum AG

Engine Holding GmbH, our 50:50 joint venture with Daimler, owns
over 99% of shares in Tognum. The German legal process to acquire the
remaining shares is now expected to be completed in the first half of 2013.
The Group will therefore equity account Tognum for 2012 and fully consolidate
it upon completion.

Group Trading Summary

 Order Book

- The order book increased four per cent to £60.1bn, adjusted for
the IAE disposal. Order intake of £9.1bn comprised new orders of £6.0bn in
Civil Aerospace, £0.6bn in Defence Aerospace, £2.2bn in Marine and £0.3bn in
Energy.

Income Statement

- Underlying revenue, up five per cent to £5.76bn, included five
per cent growth in underlying OE revenue (£2.72bn) and six per cent growth in
underlying services revenue (£3.04bn).

- Underlying OE revenue growth included increased deliveries of
Trent, V2500 and corporate engines in Civil Aerospace (up 26 per cent) and of
military transport and civil helicopter engines in Defence Aerospace (up 11
per cent). Growth was offset by the reduction in Marine (down 11 per cent) and
Energy (down 43 per cent).

- Underlying services revenue increased six per cent. Services grew
ten per cent in Civil Aerospace, in line with growth in the installed base,
and ten per cent in Defence Aerospace, excluding the £60m one-off SDSR
settlement in 2011. Energy also saw good growth. Marine was down six per cent
reflecting deferrals of maintenance activity by customers and lower spares
spend.

- Underlying profit before tax increased seven per cent to £637m,
reflecting revenue growth, revenue mix, unit cost reduction and the
contribution of Tognum. These benefits were partially offset in Civil
Aerospace by higher R&D charges and lower entry fees associated with major new
programmes, and in Defence Aerospace by the non recurrence of the £60m SDSR
settlement. Underlying earnings per share (UEPS) improved 11 per cent compared
with H1 2011.

Balance Sheet

- The balance sheet remains strong with net cash at period end of
£869m, up from £223m at the end of 2011. Average net cash reduced since the
first half of 2011, primarily due to the acquisition of Tognum in the second
half of 2011. The £953m consideration for the sale of the IAE share holding
had no effect on average net cash in the first half but will have an impact in
the second half of the year.

- In April, Standard & Poor's Ratings Services raised its long- and
short-term corporate credit ratings for the Group to 'A/A-1' from 'A-/A-2'.

- The Group continued to have good liquidity with £3.15bn of cash
and committed facilities. Debt maturities remain well spread through to 2019.

- Pension liabilities increased by £173m on an accounting basis due
to a reduction in the discount rate. On an economic basis however, funding
requirements remain stable following the series of measures taken in recent
years to achieve greater certainty for our major UK schemes.

Cash Flow

- A cash inflow of £646m during the period included £953m from the
disposal of IAE and £167m for the contribution of Bergen to Engine Holding.
Excluding acquisitions, disposals and foreign exchange, the outflow of £447m
reflects the continued investment programme in future growth and the increase
in net working capital required ahead of OE volume growth, predominantly in
Civil Aerospace.

Group Prospects

Confirming full year 2012 Group guidance for growth in underlying
revenue and underlying profit:

For the full year 2012, the Group continues to expect good growth
in underlying revenue and underlying profit, with cash flow around breakeven
as we continue to invest for future growth.

This guidance includes the performance of Bergen, but excludes the
impact of the Tognum acquisition and the IAE transaction, for which further
information is given below.

In Civil Aerospace, we anticipate good growth in underlying revenue
and strong growth in underlying profit. In Defence Aerospace we expect modest
growth in underlying revenue and profit. In Marine we expect a modest increase
in underlying revenue, with underlying profit broadly flat. And in Energy we
now expect underlying revenue to be broadly flat with some improvement in
underlying profit.

The implications of the Tognum acquisition on 2012 performance:

The Group cannot provide financial guidance on Tognum while it is
still listed.

Tognum will report its second quarter results on 7 August 2012.

The implications of the IAE transaction on 2012 performance:

The Group expects the revised trading arrangements with IAE to
produce a benefit of around £70m to Civil Aerospace's underlying profit in
2012.

Enquiries:

Investors:                                  Media:
Simon Goodson                               Josh Rosenstock
Director - Investor Relations               Director of External Communications
Rolls-Royce plc                             Rolls-Royce plc
Tel: +44 (0)20 7227 9237                    Tel: +44 (0)20 7227 9163
simon.goodson@rolls-royce.com               josh.rosenstock@rolls-royce.com

Photographs and broadcast-standard video are available at
www.rolls-royce.com.

A PDF copy of this report can be downloaded from
www.rolls-royce.com/investors.

This Half-Year 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 the Company and its directors accept no liability to any other person
other than under English law.

Business Segment Reviews[1]

Civil Aerospace

                                                      H1 12      H1 11     Change
Order book (£bn)                                       49.4      47.3*        +4%
Engine deliveries                                       533        462       +15%
Underlying revenue (£m)                               3,034      2,604       +17%
Underlying OE revenue (£m)                            1,314      1,047       +26%
Underlying services revenue (£m)                      1,720      1,557       +10%
Underlying profit before financing (£m)                 310        250       +24%
 * Restated 2011 year-end data excluding IAE order book of £4.6bn

Financial

- New orders of £6.0bn (£6.5bn in H1 2011) resulted in a four per
cent increase in the order book. We continue to grow our wide-body market
share with Trent engines making up around 70 per cent of our order book of
almost 3,300 engines. We remain committed to the mid-size market both as a
supplier to IAE and via our planned new joint venture with the IAE partners to
develop the next generation of engines for this market segment. Our continued
success in the corporate market is being driven by primarily by the success of
our BR700 series of engines for large cabin Gulfstream and Bombardier
aircraft. Significant orders in the period included:

- Trent 700 engines and TotalCare support for a total of 44 Airbus
A330s for China Eastern, Synergy, Garuda Indonesia, Air Pacific and Etihad.

- Trent 1000 engines and TotalCare support for five Boeing 787s for
Avianca and Air New Zealand.

- Trent XWB engines and TotalCare support for six A350s for Cathay
Pacific.

- Revenue increased by 17 per cent. There was a 26 per cent growth
in OE revenue, primarily reflecting higher deliveries of Trent and corporate
engines. Services revenue grew by ten per cent consistent with growth in the
installed base of thrust.

- Profit increased by 24 per cent due to increased OE volume,
better OE mix, services growth and unit cost improvements. This growth was
tempered by a higher R&D charge to higher spend and lower capitalisation
related to major new programme activity, and lower entry fees related to the
Trent XWB.

Portfolio

- The Trent XWB engine took to the skies for the first time,
powering an Airbus A380 test aircraft, and completed over 70 hours and over 20
flights. The Trent XWB is the world's most efficient large jet engine and is
the fastest-selling Trent engine ever, with orders for more than 1,100 engines
already received.

- Trent 1000 engines have now powered more than 4,500 flights on
ten Boeing 787s with Japanese airline ANA.

Defence Aerospace

                                                      H1 12      H1 11     Change
Order book (£bn)                                        5.5       6.0*        -8%
Engine deliveries                                       393        330       +19%
Underlying revenue (£m)                               1,134      1,088        +4%
Underlying OE revenue (£m)                              559        504       +11%
Underlying services revenue (£m)                        575        584        -2%
Underlying profit before financing (£m)                 196        219       -11%
 * 2011 year-end data

Financial

- An eight per cent reduction in the order book to £5.5bn reflects
the budgetary pressures of our major customers in Europe and North America.
Net order intake was £0.6bn and includes cancellations of £0.4bn, the majority
of which reflects the cancellation of the C27J aircraft contract by the US
Department of Defense ("DoD"). The business continues to benefit from the
breadth and diversity of our portfolio and our access to developing economies.
Significant orders in the period included:

- Over US$870m worth of contracts with the US DoD for OE and
services for military transport engines for the US Air Force, US Marine Corps
and US Navy.

- A US$315m contract from Pratt & Whitney for 17 LiftSystem sets
for the F-35B STOVL variant of the Lightning II Joint Strike Fighter.

- A £100m contract extension to maintain the engines for the UK
MoD's fleet of C-130 military transport and VC10 tanker fleets of aircraft.

- A contract with the Royal Australian Air Force to help improve
the fuel efficiency of its fleet of C-130 military transport aircraft.

- Revenue increased by four per cent, reflecting an 11 per cent
increase in OE revenue. OE revenue benefited from a 19 per cent increase in
engine deliveries, with more military transport and combat engines and
significantly more civil helicopter engines delivered during the period.
Services revenue fell by two per cent, however adjusted for the non-recurrence
of the £60m SDSR benefit in H1 2011, services revenue increased by ten per
cent. This increase highlights how our large installed base will continue to
provide services opportunities as customers seek to optimise the efficiency of
their aircraft.

- Profit was down 11 per cent, primarily due to the non-recurrence
of the £60m SDSR benefit in 2011. Adjusted for the non-recurrence of this
benefit, profit increased by 23 per cent due to increased OE volumes and mix,
growth in services and unit cost improvements.

Portfolio

- The F-35B made its maiden training mission and also its 500th
short take-off during the first half. The DoD lifted the probationary status
for the F-35B STOVL variant of the JSF, safeguarding the future of the
LiftSystem.

- We continue to work with our partners on the TP400 engine towards
the 2013 entry into service of the A400M military transport aircraft.

- We continued to invest in the ADVENT development programme for
the next generation of heavy combat aircraft for the United States Air Force,
and are bidding for inclusion in the AETD development programme.

Marine

                                                      H1 12      H1 11     Change
Order book (£bn)                                        3.9       2.7*       +44%
Underlying revenue (£m)                               1,070      1,171        -9%
Underlying OE revenue (£m)                              622        695       -11%
Underlying services revenue (£m)                        448        476        -6%
Underlying profit before financing (£m)                 147        157        -6%
 * 2011 year-end data

 N.B. H1 2011 restated to take into account the transfer of Bergen
to Engine Holding on January 2nd as per Note 2 on p.19

Financial

- A 44 per cent increase in the order book to £3.9bn includes
£2.2bn of new orders compared with £1.0bn in H1 2011. Most of this increase is
due to the £1bn order by the UK MoD to deliver reactor cores for its fleet of
nuclear-powered submarines. Offshore orders were encouraging and reflected the
increasing bid activity in the Oil & Gas sector in areas such as Brazil,
partially offset by weak order flow in the Merchant sector. The Naval business
remains stable. Significant orders in the period included:

- A contract with the US Navy to supply power and propulsion
systems for the two latest vessels in the Littoral Combat Ship (LCS)
programme.

- A contract with the Republic of Korea's Navy to supply the MT30
gas turbine to power a new FFX frigate. This is the first order for the MT30
in Asia.

- Over £100m of contracts to design and equip 13 Offshore Supply
Vessels (OSVs) for Norway's Farstad Shipping, Korea's Hyundai and Brazil's
Navegaç�£o S�£o Miguel.

- Revenue fell by nine per cent reflecting lower OE volumes and
deferrals by customers of services activity. Services revenue was also
affected by lower customer spend as a result of reduced workscopes. This was
partially offset by a better capture of the available market from the recent
investment in the global network of services centres.

- Profit reduced by six per cent due to lower OE and services
volumes, competitive pricing pressures and some adverse foreign exchange
movement, partially offset by cost reduction.

Portfolio

- The reactor core contract with the UK MoD includes the
regeneration of our manufacturing facility in Derby. The phased re-build will
provide a leading-edge manufacturing facility with the highest standards of
safety to support the future programme needs of the UK MoD.

- The OSVs we design and equip support complex and demanding subsea
projects, including construction and servicing of oil and gas wells on the sea
bed up to 3,000 metres beneath sea level. We are well positioned to take
advantage of growth in this market as an increasing proportion of the world's
oil supply comes from beneath deep seas.

- Tognum will add complementary high-speed diesel and other
products and scale to our existing portfolio and systems integration
capabilities.

Energy

                                                      H1 12      H1 11     Change
Order book (£bn)                                        1.3       1.4*        -7%
Underlying revenue (£m)                                 445        541       -18%
Underlying OE revenue (£m)                              179        312       -43%
Underlying services revenue (£m)                        266        229       +16%
Underlying loss before financing (£m)                   (5)        (7)       +29%
 * 2011 year-end data
 N.B. H1 2011 restated to take into account the transfer of Bergen
to Engine Holding on January 2nd as per Note 2 on p.19

Financial

- A seven per cent reduction in the order book included an order
intake of £0.3bn (£0.4bn in H1 2011). In the Oil & Gas market, high oil prices
continue to sustain bid activity around the world, albeit with pricing
pressures and order deferrals by some customers. The traditional power
generation market remains suppressed and industrial demand has not yet fully
recovered to pre-2008 levels, with few new projects being tendered in the
developed world. However we continue to see opportunities in the developing
economies. We continue to invest for future growth in Civil Nuclear.
Significant orders in the period included:

- A Power Generation contract to supply two industrial Trent 60 WLE
gas turbines to power LUKOIL's plant in Russia.

- A Power Generation contract to supply a Trent 60 WLE gas turbine
for the El Alto plant in the Kenko Zone that will power over 100,000 homes in
and around La Paz, Bolivia.

- An Oil & Gas contract to supply an RB211 to operate PTT's Ethane
Separation Plant in Thailand.

- Revenue fell by 18 per cent due to a significant reduction in OE
revenue and adverse revenue mix in Oil & Gas and in Power Generation. The OE
reduction was partially offset by a 16 per cent increase in services revenue.
Services revenue, particularly in Oil & Gas, benefited from a better
penetration of the aftermarket services market for the installed base across
all markets.

- The reduced loss in H1 is due to the increased aftermarket volume
partly offset by higher R&D spend, lower OE volumes and also increased
investment in Civil Nuclear.

Portfolio

- An agreement was signed with Areva to collaborate further on
civil nuclear new build projects for which we will manufacture complex
components and provide engineering and technical services.

- LG has invested $45m to acquire a 51% share holding in
Rolls-Royce Fuel Systems (US) Inc. that will enable the business to further
the research, development, testing and commercialisation of solid oxide fuel
cell technology.

- Ground has been broken for a new purpose-built gas turbine
package, assembly and test facility in Santa Cruz in the state of Rio de
Janeiro. The facility is expected to start production from the first quarter
of 2013, including equipment for Petrobras for the Lula (Tupi) and Guará
oilfields.

- As in our Marine business, Tognum will add complementary products
and scale to our existing portfolio and systems integration capabilities.

Additional Financial Information

Income statement

Underlying income statement extracts - £ million                               H1 12        H1 11       Change
Revenue                                                                        5,757        5,463          +5%
Civil Aerospace                                                                3,034        2,604         +17%
Defence Aerospace                                                              1,134        1,088          +4%
Marine                                                                         1,070        1,171          -9%
Energy                                                                           445          541         -18%
Engine Holding                                                                   142          172         -17%
Intra-segment                                                                   (68)        (113)
Profit before financing costs and taxation                                       668          619          +8%
Civil Aerospace                                                                  310          250         +24%
Defence Aerospace                                                                196          219         -11%
Marine                                                                           147          157          -6%
Energy                                                                           (5)          (7)         +29%
Engine Holding                                                                    52           25        +108%
Intra-segment                                                                    (6)            -
Central costs                                                                   (26)         (25)          -4%
Net financing costs                                                             (31)         (24)         -29%
Profit before taxation                                                           637          595          +7%
Taxation                                                                       (140)        (153)          +8%
Profit for the period                                                            491          442         +11%
EPS                                                                           26.54p       23.89p         +11%
Payment to shareholders                                                         7.6p         6.9p         +10%
Other items
Other operating income                                                            17           52         -67%
Gross R&D investment                                                             428          431          +1%
Net R&D charged to the income statement                                          285          210         -36%

- Engine Holding, our 50:50 joint venture with Daimler, owns 100
per cent of Bergen and over 99 per cent of Tognum. Engine Holding's revenue
and H1 2011 profit includes only the contribution of Bergen (100%). Engine
Holding's H1 2012 profit of £52m includes 100 per cent of Bergen's profit of
£17m and our share of Tognum's post tax contribution of £35m on an equity
accounting basis. Further details are provided in Note 2 on p. 19.

- Underlying profit before financing costs and taxation is
discussed in the relevant business sections.

- Underlying financing costs increased by £7m, largely reflecting
an increased interest charge, consistent with the lower average cash balances
following the Tognum investment in H2 2011.

- Underlying taxation of £140m, represents an underlying tax rate
of 22.0 per cent, lower than the 25.6 per cent in 2011, primarily due to the
impact of equity accounting Tognum (on a post tax basis) which dilutes the
overall Group underlying rate.

- Underlying EPS increased by 11% to 26.54 pence, marginally lower
than the increase in underlying profit for the period.

- Payment to shareholders is made in the form of C Shares which is
explained on p. 26. An interim payment to shareholders of 7.6 pence per share
will be made, a ten per cent increase to 2011.

- Other operating income relates to programme receipts from RRSPs,
which reimburse past R&D costs. These receipts decreased by 67 per cent in
2012 due to the phasing of major programmes.

- Net R&D charged to the income statement increased by 36 per cent
to £285m. This reflects a combination of increased investment, compounded by
lower capitalisation and higher amortisation due to the phasing of new
programmes.

- Foreign exchange rate movements influence the reported income
statement, the cash flow and closing net cash balance. The average and spot
rates for the principal trading currencies of the Group are shown in the table
below:

                                                            2012          2011
USD per GBP          Opening spot rate                      1.55          1.57
                     Closing spot rate                      1.57          1.61
                     Average spot rate                      1.58          1.62
 
EUR per GBP          Opening spot rate                      1.20          1.17
                     Closing spot rate                      1.24          1.11
                     Average spot rate                      1.22          1.15

- The adjustments between the underlying income statement and the
reported income statement are set out in Note 2 to the condensed financial
statements on p.19.

Balance sheet

Summary balance sheet - £ million                                            HY 12                FY 11
Intangible assets                                                            2,865                2,882
Property, plant and equipment                                                2,394                2,338
Net post-retirement scheme deficits                                          (570)                (397)
Net working capital                                                          (796)              (1,098)
Net funds                                                                      869                  223
Provisions                                                                   (457)                (502)
Net financial assets and liabilities                                         (646)                (718)
Investment in joint ventures and associates                                  1,833                1,680
Assets held for sale                                                             5                  178
Other net assets and liabilities                                              (16)                 (67)
Net assets                                                                   5,481                4,519
Other items
USD hedge book                                                             $24,100              $22,000
Net TotalCare assets                                                         1,124                  956
Gross customer finance contingent liabilities                                  602                  612
Net customer finance contingent liabilities                                     76                  124

- Intangible assets relate to goodwill, certification costs,
participation fees, development expenditure, recoverable engine costs,
software and other costs that represent long-term assets of the Group. In
aggregate, these assets remained broadly unchanged at £2.9bn with increased
software costs being offset by amortisation of previously capitalised
development costs. The carrying values of the intangible assets are assessed
for impairment against the present value of forecast cash flows generated by
the intangible asset. The principal risks remain: reductions in assumed market
share; programme timings; increases in unit cost assumptions; and adverse
movements in discount rates. There have been no impairments in 2012. Further
details are given in Note 7 of the condensed financial statements on p.22.

- Property, plant and equipment increased by two per cent to £2.4bn
due to the ongoing development and refreshment of facilities and tooling, as
the Group prepares for increased production volumes.

- Net post-retirement scheme deficits increased by 44 per cent,
primarily due to a reduction in the discount rates used to value the
liabilities for accounting purposes. Over 80 per cent of the assets are held
in liability-driven investment portfolios that are designed to match changes
to the liabilities on a funding basis.

- Net funds increased to £869m largely due to the $1.5bn
consideration received following the sale of the Group's 32.5 per cent
shareholding in IAE. This was partly offset by the impact of increased capital
expenditure and an increase in working capital. As a result of the Tognum
investment in the second half of 2011, average net funds decreased from £780m
to £(590)m (£755m excluding Tognum). The Group continues to have access to
good liquidity with £0.9bn undrawn committed facilities and bond proceeds of
£1.4bn, providing total liquidity of £3.2bn when net funds of £0.9bn are taken
into consideration.

- Investment - joint ventures and associates increased by £153m to
£1.8bn, the increase principally reflects the contribution of Bergen Engines
AS (£167m) to Engine Holding.

- Assets held for sale were derecognised following the completion
of the IAE restructuring.

- Provisions largely relate to warranties and guarantees provided
to secure the sale of OE and services. Provisions in total reduced modestly to
£457m following utilisation in the period of previously charged provisions.

- Net financial assets and liabilities relate to financial RRSPs
and the fair value of foreign exchange, commodity and interest rate contracts,
set out in detail in Note 8 to the condensed financial statements on p.23. The
change largely reflects the impact of the change in the GBP/USD exchange rate
on the valuation of foreign exchange contracts.

- The USD hedge book of US$24.1bn represents over five years of net
exposure and has an average book rate of £1 to US$1.59. Current forward market
exchange rates are similar to current average book rates.

- Net TotalCare assets relate to long-term service agreement
contracts in the Civil Aerospace business, including the flagship services
product TotalCare. These assets represent the timing difference between the
recognition of income and costs in the income statement and cash receipts and
payments.

- Customer financing facilitates the sale of OE and services by
providing financing support from to certain customers. Where such support is
provided by the Group, it is generally to customers of the civil aerospace
business and takes the form of various types of credit and asset value
guarantees. The contingent liabilities represent the maximum aggregate
discounted gross and net exposure in respect of delivered aircraft, regardless
of the point in time at which such exposures may arise. During the first half
of 2012, the Group's gross exposure remained relatively stable. The net
exposure reduced to £76m (December 31, 2011 £124m) primarily as a result of
the IAE restructuring.

Condensed consolidated income statement
For the half-year ended June 30, 2012

                                                        Half-year to June 30, 2012         Half-year          Year to
                                                                                             to June          December
                                               Excluding IAE           IAE                   30, 2011         31, 2011
                                               restructuring restructuring   Total               

                                       Notes              £m            £m      £m                £m               £m

Revenue                                  2             5,720             -   5,720             5,364           11,124
Cost of sales                                        (4,465)             -  (4,465)           (4,077)          (8,676)
Gross profit                                           1,255             -   1,255             1,287            2,448
Other operating income                                    17             -      17                51               69
Commercial and administrative costs                    (474)             -   (474)             (472)            (984)
Research and development costs                         (285)             -   (285)             (210)            (463)
Share of results of joint ventures                        67             -      67                60
and associates                                                                                                    116
Operating profit                                         580             -     580               716            1,186
Profit on restructuring/disposal of businesses            -            700     700                -                 3
Profit before financing and taxation                    580            700   1,280               716            1,189
 
Financing income                         3               278             -     278               671              456
Financing costs                          3             (250)             -   (250)             (250)            (540)
Net financing                                             28             -      28               421             (84)
 
Profit before taxation 1                                 608           700   1,308             1,137            1,105
Taxation                                 5             (141)            37   (104)             (295)            (257)
Profit for the period                                    467           737   1,204               842              848
 
Attributable to:
Ordinary shareholders                                    461           737   1,198               842              850
Non-controlling interests                                  6             -       6                 -              (2)
Profit for the period                                    467           737   1,204               842              848
 
Earnings per ordinary share              4
attributable to shareholders
Basic                                                 24.92p        39.84p  64.76p            45.51p           45.95p
Diluted                                                                     63.83p            44.93p           45.33p
Underlying earnings per ordinary
share are shown in note 4.
 
Payments to ordinary shareholders in     6
respect of the period
Pence per share                                                               7.6p              6.9p            17.5p
Total                                                                          142               129              328
 
1 Underlying profit before taxation      2               637             -     637               595            1,157
Condensed consolidated statement of comprehensive income


For the half-year ended June 30, 2012

                                                                                      Half-year   Half-year    Year to
                                                                                        to June     to June   December
                                                                                       30, 2012    30, 2011   31, 2011
                                                                                             £m          £m         £m
Profit for the period                                                                     1,204         842        848
Other comprehensive income (OCI)
Foreign exchange translation differences on foreign operations                            (102)          76      (102)
Movements in post-retirement schemes                                                      (216)        (81)        123
Amount credited to cash flow hedging reserve                                                (1)          30          -
Share of OCI of joint ventures and associates                                                14           5       (10)
Related tax movements                                                                        74          17       (54)
Total comprehensive income for the period                                                   973         889        805
 
Attributable to:
Ordinary shareholders                                                                       968         889        808
Non-controlling interests                                                                     5           -        (3)
Total comprehensive income for the period                                                   973         889        805
Condensed consolidated balance sheet

At June 30, 2012

                                                                   June            June      December
                                                               30, 2012        30, 2011      31, 2011
                                                  Notes              £m              £m            £m
ASSETS
Non-current assets
Intangible assets                                   7             2,865           3,027         2,882
Property, plant and equipment                                     2,394           2,205         2,338
Investments - joint ventures and associates                       1,833             469         1,680
Investments - other                                                  10              11            10
Other financial assets                              8               302             485           327
Deferred tax assets                                                 464             309           368
Post-retirement scheme surpluses                    9               337             249           503
                                                                  8,205           6,755         8,108
Current assets
Inventories                                                       2,742           2,612         2,561
Trade and other receivables                                       4,015           4,070         4,009
Taxation recoverable                                                 15               5            20
Other financial assets                              8                73             187            91
Short-term investments                                               12               3            11
Cash and cash equivalents                                         2,160           2,526         1,310
Assets held for sale                                                  5               9           313
                                                                  9,022           9,412         8,315
Total assets                                                     17,227          16,167        16,423
 
LIABILITIES
Current liabilities
Borrowings                                                          (4)               -          (20)
Other financial liabilities                         8             (110)            (56)         (111)
Trade and other payables                                        (6,732)         (6,116)       (6,236)
Current tax liabilities                                           (177)           (173)         (138)
Provisions for liabilities and charges                            (253)           (306)         (276)
Liabilities associated with assets held for sale                      -               -         (135)
                                                                (7,276)         (6,651)       (6,916)
Non-current liabilities
Borrowings                                                      (1,407)         (1,140)       (1,184)
Other financial liabilities                         8             (803)           (742)         (919)
Trade and other payables                                          (659)         (1,248)       (1,314)
Deferred tax liabilities                                          (490)           (483)         (445)
Provisions for liabilities and charges                            (204)           (219)         (226)
Post-retirement scheme deficits                     9             (907)           (930)         (900)
                                                                (4,470)         (4,762)       (4,988)
Total liabilities                                              (11,746)        (11,413)      (11,904)
 
Net assets                                                        5,481           4,754         4,519
 
EQUITY
Attributable to ordinary shareholders
Called-up share capital                                             374             374           374
Share premium account                                                 -               -             -
Capital redemption reserve                                          172               -           173
Cash flow hedging reserve                                          (58)            (11)          (52)
Other reserves                                                      350             606           433
Retained earnings                                                 4,589           3,781         3,590
                                                                  5,427           4,750         4,518
Non-controlling interests                                            54               4             1
Total equity                                                      5,481           4,754         4,519
Condensed consolidated cash flow statement

For the half-year ended June 30, 2012

                                                                                              * Restated
                                                                           Half-year to     Half-year to         Year to
                                                                          June 30, 2012    June 30, 2011    December 31,
                                                                  Notes              £m               £m         2011 £m

Reconciliation of cash flows from operating activities
Profit before taxation                                                            1,308            1,137           1,105
Share of results of joint ventures and associates                                  (67)             (60)           (116)
Profit on restructuring/disposal of businesses                                    (700)                -             (3)
Profit on disposal of property, plant and equipment                                 (9)             (10)             (8)
Net financing                                                       3              (28)            (421)              84
Taxation paid                                                                      (69)             (95)           (208)
Amortisation of intangible assets                                                   115               73             169
Depreciation of property, plant and equipment                                       122              111             241
Decrease in provisions                                                             (38)             (36)            (28)
Increase in inventories                                                           (200)            (152)           (140)
Increase in trade and other receivables                                           (248)             (90)            (62)
(Decrease)/increase in trade and other payables                                    (69)              150             416
Movement in other financial assets and liabilities                                    7               52              68
Net defined benefit post-retirement cost/(credit) recognised in
profit before financing                                             9                75            (107)            (43)
Cash funding of defined benefit post-retirement schemes             9             (143)            (146)           (304)
Share-based payments                                                                 27               20              59
Dividends received from joint ventures and associates                                65               31              76
Net cash inflow from operating activities                                           148              457           1,306
 
Cash flows from investing activities
Disposals of unlisted investments                                                     -                -               1
Additions of intangible assets                                                    (126)            (152)           (363)
Disposals of intangible assets                                                        -                1               6
Purchases of property, plant and equipment                                        (237)            (209)           (412)
Government grants received                                                            8               22              38
Disposals of property, plant and equipment                                           26               22              31
Acquisitions of businesses                                                          (2)                -            (19)
Restructuring of IAE                                                                953                -               -
Disposals of businesses                                                               -                2               7
Investments in joint ventures and associates                                       (16)             (37)         (1,329)
Transfer of subsidiary to associate                                                 (1)                -               -
Repayment of/(increase in) loan to Engine Holding GmbH                              167                -           (167)
Net cash inflow/(outflow) from investing activities                                 772            (351)         (2,207)
 
Cash flows from financing activities
Repayment of loans                                                                    -            (567)           (567)
Proceeds from increase in loans                                                     221                -               -
Net cash flow from increase/(decrease) in borrowings                                221            (567)           (567)
Interest received                                                                     7                9              19
Interest paid                                                                      (40)             (39)            (50)
(Increase)/decrease in short-term investments                                       (1)              325             316
Issue of ordinary shares (net of expenses)                                            -                1             (1)
Purchase of ordinary shares                                                        (94)             (57)            (57)
Other transactions in ordinary shares                                                 -               21               -
Redemption of C Shares                                                            (124)            (141)           (315)
Net cash outflow from financing activities                                         (31)            (448)           (655)
 
Net increase/(decrease) in cash and cash equivalents                                889            (342)         (1,556)
Cash and cash equivalents at January 1                                            1,291            2,851           2,851
Exchange gains on cash and cash equivalents                                        (23)               17             (4)
Cash and cash equivalents at period end                                           2,157            2,526           1,291
* Restated to show government grants, previously included in trade and other
payables, separately.

                                                                                     Half-year    Half-year      Year to
                                                                                   to June 30,  to June 30,     December
                                                                                       2012 £m      2011 £m  31, 2011 £m

Reconciliation of movements in cash and cash equivalents to movements in net funds
Net increase/(decrease) in cash and cash equivalents                                       889        (342)      (1,556)
Net cash flow from (increase)/decrease in borrowings                                     (221)          567          567
Net cash flow from increase/(decrease) in short-term investments                             1        (325)        (316)
Change in net funds resulting from cash flows                                              669        (100)      (1,305)
Exchange (losses)/gains on net funds                                                      (23)           18          (5)
Fair value adjustments                                                                     (2)          136           92
Movement in net funds                                                                      644           54      (1,218)
Net funds at January 1 excluding the fair value of swaps                                   117        1,335        1,335
Net funds at period end excluding the fair value of swaps                                  761        1,389          117
Fair value of swaps hedging fixed rate borrowings                                          108           62          106
Net funds at period end                                                                    869        1,451          223

The movement in net funds (defined by the Group as including the items shown
below) is as follows:

                                                       At January     Funds       Exchange      Fair value       At June
                                                       1, 2012 £m   flow £m differences £m  adjustments £m   30, 2012 £m
Cash at bank and in hand                                    1,285     (634)           (19)               -           632
Money market funds                                             11       458              -               -           469
Short-term deposits                                            14     1,049            (4)               -         1,059
Overdrafts                                                   (19)        16              -               -           (3)
Cash and cash equivalents                                   1,291       889           (23)               -         2,157
Investments                                                    11         1              -               -            12
Other current borrowings                                      (1)         -              -               -           (1)
Non-current borrowings                                    (1,183)     (221)              -             (2)       (1,406)
Finance leases                                                (1)         -              -               -           (1)
Net funds excluding the fair value of swaps                   117       669           (23)             (2)           761
Fair value of swaps hedging fixed rate borrowings             106                                        2           108
Net funds                                                     223       669           (23)               -           869

Condensed consolidated statement of changes in equity
For the half-year ended June 30, 2012

                                                                                             Non-controlling   Total
                                                      Attributable to ordinary shareholders        interests  equity
                                                            Cash
                                                 Capital    flow
                                 Share   Share   redemption hedging Other    Retained
                                 capital premium reserve    reserve reserves earnings Total
                                      £m      £m         £m      £m       £m       £m    £m               £m      £m
At January 1, 2011                   374     133        209    (37)      527    2,769 3,975                4   3,979
Total comprehensive income for
the period                             -       -          -      26       79      784   889                -     889
Arising on issues of ordinary
shares                                 -       1          -       -        -        -     1                -       1
Issue of C Shares                      -   (120)          -       -        -        2 (118)                -   (118)
Redemption of C Shares                 -       -        143       -        -    (143)     -                -       -
Ordinary shares purchased              -       -          -       -        -     (57)  (57)                -    (57)
Share-based payments - direct to
equity                                 -       -          -       -        -       56    56                -      56
Effect of scheme of arrangement1   2,434    (14)      (352)       -        -  (2,068)     -                -       -
Effect of capital reduction1     (2,434)       -          -       -        -    2,434     -                -       -
Related tax movements                  -       -          -       -        -        4     4                -       4
Other changes in equity in the
period                                 -   (133)      (209)       -        -      228 (114)                -   (114)
At June 30, 2011                     374       -          -    (11)      606    3,781 4,750                4   4,754
Total comprehensive income for
the period                             -       -          -    (41)    (173)      133  (81)              (3)    (84)
Issue of C Shares                      -       -          -       -        -    (178) (178)                -   (178)
Redemption of C Shares                 -       -        174       -        -    (174)     -                -       -
Share-based payments - direct to
equity                                 -       -          -       -        -       21    21                -      21
Effect of scheme of arrangement        -       -        (1)       -        -      (1)   (2)                -     (2)
Related tax movements                  -       -          -       -        -        8     8                -       8
Other changes in equity in the
period                                 -       -        173       -        -    (324) (151)                -   (151)
At December 31, 2011                 374       -        173    (52)      433    3,590 4,518                1   4,519
Total comprehensive income for
the period                             -       -          -     (6)     (83)    1,057   968                5     973
Issue of C Shares                      -       -      (129)       -        -        2 (127)                -   (127)
Redemption of C Shares                 -       -        128       -        -    (128)     -                -       -
Ordinary shares purchased              -       -          -       -        -     (94)  (94)                -    (94)
Share-based payments - direct to
equity                                 -       -          -       -        -       35    35                -      35
Transactions with
non-controlling interests2             -       -          -       -        -      115   115               48     163
Related tax movements                  -       -          -       -        -       12    12                -      12
Other changes in equity in the
period                                 -       -        (1)       -        -     (58)  (59)               48    (11)
At June 30, 2012                     374       -        172    (58)      350    4,589 5,427               54   5,481

1 On May 23, 2011, under a scheme of arrangement between
Rolls-Royce Group plc, the former holding company of the Group, and its
shareholders under Part 26 of the Companies Act 2006, and as sanctioned by the
High Court, all the issued ordinary shares in that company were cancelled and
the same number of new ordinary shares were issued to Rolls-Royce Holdings plc
in consideration for the allotment to shareholders of one ordinary share in
Rolls-Royce Holdings plc for each ordinary share in Rolls-Royce Group plc held
on the record date (May 20, 2011).

 On May 23, 2011, pursuant to the scheme of arrangement noted
above, 1,872,188,709 ordinary shares of 150 pence were issued. As required by
Section 612 of the Companies Act 2006, no share premium was recognised.

 On May 24, 2011, the share capital of Rolls-Royce Holdings plc was
reduced by reducing the nominal value of the ordinary shares from 150 pence to
20 pence as sanctioned by the High Court.

2 On January 2, 2012, the Group contributed its interest in Bergen
Engines AS to Engine Holding GmbH, a company jointly held by Rolls-Royce and
Daimler AG. Under the terms of agreement with Daimler, Rolls-Royce has
retained certain rights such that Bergen Engines continues to be classified as
a subsidiary and consolidated.

1 Basis of preparation and accounting policies

Reporting entity

Rolls-Royce Holdings plc is a company domiciled in the UK. These
condensed consolidated half-year financial statements of the Company as at and
for the six months ended June 30, 2012 comprise the Company and its
subsidiaries (together referred to as the "Group") and the Group's interests
in joint ventures and associates.

The consolidated financial statements of the Group as at and for
the year ended December 31, 2011 (2011 Annual report) are available upon
request from the Company Secretary, Rolls­­­-Royce Holdings plc, 65
Buckingham Gate, London SW1E 6AT.

Statement of compliance

These condensed consolidated half-year financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting as adopted
by the European Union. They do not include all of the information required for
full annual statements, and should be read in conjunction with the 2011 Annual
report.

The comparative figures for the financial year December 31, 2011
are not the Group's statutory accounts for that financial year. Those accounts
have been reported on by the Group's auditors and delivered to the registrar
of companies. 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 Board of directors approved the condensed consolidated
half-year financial statements on July 25, 2012.

Significant accounting policies

The accounting policies applied by the Group in these condensed
consolidated half-year financial statements are the same as those that applied
to the consolidated financial statements of the Group for the year ended
December 31, 2011 (International Financial Reporting Standards issued by the
International Accounting Standards Board, as adopted for use in the EU
effective at December 31, 2011).

Key sources of estimation uncertainty

In applying the accounting policies, management has made
appropriate estimates in many areas, and the actual outcome may differ from
those calculated. The key sources of estimation uncertainty at the balance
sheet date were the same as those that applied to the consolidated financial
statements of the Group for the year ended December 31, 2011.

2 Analysis by business segment

The analysis by business segment is presented in accordance with
IFRS 8 Operating segments, on the basis of those segments whose operating
results are regularly reviewed by the Board. Following the transfer of Bergen
Engines AS to Engine Holding GmbH on January 2, 2012, the comparative figures
for 2011 have been restated to put them on a consistent basis.

The operating results are prepared on an underlying basis that
excludes items considered to be non-underlying in nature. The principles
adopted are:

Underlying revenues - Where revenues are denominated in a currency
other than the functional currency of the Group undertaking, these reflect the
achieved exchange rates arising on settled derivative contracts.

Underlying profit before financing - Where transactions are
denominated in a currency other than the functional currency of the Group
undertaking, this reflects the transactions at the achieved exchange rates on
settled derivative contracts. The revaluation effects of acquisition
accounting are excluded and, in 2012, the profit arising on the restructuring
of IAE is also excluded. In 2011, the effects of one-off past-service credits
on post-retirement schemes were excluded.

Underlying profit before taxation - In addition to those
adjustments in underlying profit before financing, this:

- Includes amounts realised from settled derivative contracts and
revaluation of relevant assets and liabilities to exchange rates forecast to
be achieved from future settlement of derivative contracts; and

- Excludes unrealised amounts arising from revaluations required by
IAS 39 Financial Instruments: Recognition and Measurement, changes in value of
financial RRSP contracts arising from changes in forecast payments and the net
impact of financing costs related to post-retirement scheme benefits.

This analysis also includes a reconciliation of the underlying
results to those reported in the consolidated income statement.

                                  Half-year to June 30, 2012    Half-year to June 30, 2011     Year to December 31, 2011

                                 Original                      Original                      Original
                                equipment Aftermarket  Total  equipment Aftermarket  Total  equipment Aftermarket  Total
 
                                       £m          £m     £m         £m          £m     £m         £m          £m     £m
Underlying revenues
Civil aerospace                     1,314       1,720  3,034      1,047       1,557  2,604      2,232       3,340  5,572
Defence aerospace                     559         575  1,134        504         584  1,088      1,102       1,133  2,235
Marine                                622         448  1,070        695         476  1,171      1,322         949  2,271
Energy                                179         266    445        312         229    541        527         556  1,083
Engine Holding                         66          76    142         88          84    172        185         146    331
Eliminate intra-segment revenue      (17)        (51)   (68)       (55)        (58)  (113)      (110)       (105)  (215)
                                    2,723       3,034  5,757      2,591       2,872  5,463      5,258       6,019 11,277

                                                                                                Half-year       Year to
                                                                               Half-year to   to June 30,      December
                                                                              June 30, 2012          2011      31, 2011
 
                                                                                         £m            £m            £m
Underlying profit before financing
Civil aerospace                                                                         310           250           499
Defence aerospace                                                                       196           219           376
Marine                                                                                  147           157           287
Energy                                                                                  (5)           (7)            16
Engine Holding                                                                           52            25            80
Eliminate intra-segment profit                                                          (6)             -             -
Reportable segments                                                                     694           644         1,258
Underlying central items                                                               (26)          (25)          (52)
Underlying profit before financing and taxation                                         668           619         1,206
Underlying net financing                                                               (31)          (24)          (49)
Underlying profit before taxation                                                       637           595         1,157
Underlying taxation                                                                   (140)         (153)         (261)
Underlying profit for the period                                                        497           442           896


                                        Total assets               Total liabilities        Net assets/(liabilities)
                                  June 30,  June 30,  Dec. 31, June 30,  June 30, Dec. 31,   June 30, June 30,  Dec.31
                                    2012      2011       2011     2012    2011     2011      2012       2011     2011

                                     £m        £m         £m      £m       £m       £m        £m        £m        £m

Civil aerospace                     8,585   8,821      8,621   (5,701)  (5,506)   (5,982)     2,884    3,315     2,639
Defence aerospace                   1,360   1,440      1,311   (1,773)  (1,784)   (1,831)     (413)    (344)     (520)
Marine                              2,167   2,410      2,031   (1,458)  (1,730)   (1,440)       709      680       591
Energy                              1,295   1,125      1,234     (528)    (569)     (546)       767      556       688
Engine Holding                      1,543     229      1,654     (120)    (110)     (164)     1,423      119     1,490
Reportable segments                14,950  14,025     14,851   (9,580)  (9,699)   (9,963)     5,370    4,326     4,888
Eliminations                        (819) (1,012)      (746)       819    1,012       746         -        -         -
Net funds                           2,280   2,591      1,427   (1,411)  (1,140)   (1,204)       869    1,451       223
Tax assets/(liabilities)              479     314        388     (667)    (656)     (583)     (188)    (342)     (195)
Post-retirement scheme
surpluses/(deficits)                  337     249        503     (907)    (930)     (900)     (570)    (681)     (397)
                                   17,227  16,167     16,423  (11,746) (11,413)  (11,904)     5,481    4,754     4,519


Group employees at period end                                                                     June 30,      December
                                                                              June 30, 2012           2011      31, 2011

Civil aerospace                                                                      21,100         19,400        20,000
Defence aerospace                                                                     7,800          7,900         8,000
Marine                                                                                8,800          8,700         8,800
Energy                                                                                3,600          3,400         3,600
Engine Holding                                                                        1,000            900           900
                                                                                     42,300         40,300        41,300

Underlying revenue adjustments                                                Half-year to     Half-year         Year to
                                                                                 June 30,     to June 30,   December 31,
                                                                                   2012          2011            2011
                                                                                     £m           £m               £m

Underlying revenue                                                                  5,757         5,463          11,277
Recognise revenue at exchange rate on date of                                        (37)          (99)
transaction                                                                                                        (153)
Revenue per consolidated income statement                                           5,720         5,364          11,124


Underlying profit
adjustments                   Half-year to June 30, 2012     Half-year to June 30, 2011      Year to December 31, 2011

                               Profit                         Profit                         Profit
                               before       Net               before       Net               before       Net
                            financing financing Taxation   financing financing Taxation   financing financing Taxation

                                   £m        £m       £m          £m        £m       £m          £m        £m       £m

Underlying performance            668      (31)    (140)         619      (24)    (153)       1,206      (49)    (261)
Realised (gains)/losses on
settled derivative
contracts1                       (26)        26        -        (71)         2        -       (116)        24        -
Net unrealised fair value
changes to derivative
contracts2                        (6)        66        -           6       456        -         (5)      (49)        -
Effect of currency on
contract accounting              (14)         -        -          10         -        -           4         -        -
Revaluation of trading
assets and liabilities              -       (4)        -           -      (10)        -           -         -        -
Financial RRSPs - exchange
differences and changes in
forecast payments                   -         2        -           -         5        -           -         2        -
Effect of acquisition
accounting                       (42)         -        -           -         -        -        (64)         -        -
Post-retirement scheme
past-service costs3,4               -         -        -         152         -        -         164         -        -
Net post-retirement scheme
financing                           -      (31)        -           -       (8)        -           -      (12)        -
Related tax effect                  -         -      (1)           -         -    (142)           -         -        4
IAE restructuring (note 12)       700         -       37           -         -        -           -         -        -
Total underlying
adjustments                       612        59       36          97       445    (142)        (17)      (35)        4
Reported per consolidated
income statement                1,280        28    (104)         716       421    (295)       1,189      (84)    (257)

1 The adjustments for realised (gains)/losses on settled derivative
contracts include adjustments to reflect the (gains)/losses in the same period
as the related trading cash flows. It excludes amounts settled in respect of
the IAE restructuring (£6m loss).

2 The adjustments for unrealised fair value changes to derivative
contracts include those in respect of in equity accounted joint ventures and
exclude those for which the related trading contracts have been cancelled when
the fair value changes are recognised immediately in underlying profit.

3 In 2010, the UK Government announced changes to the basis of the
statutory indexation for pension increases. As a result, the relevant
arrangements were amended, resulting in a gain in the 2011 income statement of
£130m, which has been excluded from underlying profit.

4 During 2011, the Group agreed revised post-retirement healthcare
arrangements on certain of its overseas schemes. This resulted in a net gain
in the income statement of £34m (2011 half year £22m) which was excluded from
underlying profit.

3 Net financing

                                                                       Half-year to June 30,
                                      Half-year to June 30, 2012                        2011   Year to December 31, 2011

                                                  Per                         Per                         Per
                                         consolidated                consolidated                consolidated
                                               income Underlying           income Underlying           income Underlying
                                            statement  financing        statement  financing        statement  financing
                                                   £m         £m               £m         £m               £m         £m
Financing income
Interest receivable                                 5          5               10         10               20         20
Fair value gains on foreign currency
contracts                                          79          -              452          -                - -
Financial RRSPs - foreign exchange
differences and changes in forecast
payments                                            2          -                5          -                2 -
Fair value gains on commodity
derivatives                                         -          -                4          -                - -
Expected return on post-retirement
scheme assets                                     170          -              200          -              410 -
Net foreign exchange gains                         22          -                -          -               24 -
                                                  278          5              671         10              456         20
Financing costs
Interest payable                                 (25)       (25)             (24)       (24)             (51)       (51)
Fair value losses on foreign currency
contracts                                           -          -                -          -             (21)         -
Financial charge relating to financial
RRSPs                                             (5)        (5)              (5)        (5)             (11)       (11)
Fair value losses on commodity
derivatives                                      (13)          -                -          -             (28) -
Interest on post-retirement scheme
liabilities                                     (201)          -            (208)          -            (422) -
Net foreign exchange losses                         -          -              (8)          -                - -
Other financing charges                           (6)        (6)              (5)        (5)             (7)         (7)
                                                (250)       (36)            (250)       (34)            (540)       (69)
 
Net financing                                      28       (31)              421       (24)             (84)       (49)
 
Analysed as:
Net interest payable                             (20)       (20)             (14)       (14)             (31)       (31)
Net post-retirement scheme financing             (31)          -              (8)          -             (12) -
Net other financing                                79       (11)              443       (10)             (41)       (18)
Net financing                                      28       (31)              421       (24)             (84)       (49)
 
4 Earnings per ordinary share (EPS)

Basic EPS are calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of ordinary shares in
issue during the period, excluding ordinary shares held under trust, which
have been treated as if they had been cancelled. Diluted EPS are calculated by
adjusting the weighted average number of ordinary shares in issue during the
period for the bonus element of share options.

                                 Half-year to June 30, 2012     Half-year to June 30, 2011     Year to December 31, 2011
                                        Potentially                    Potentially                   Potentially
                                           dilutive                       dilutive                      dilutive
                                              share                          share                         share
                               Basic        options Diluted      Basic     options Diluted     Basic     options Diluted
Profit/(loss) (£m)                1,198           -   1,198        842           -     842       850           -     850
Weighted average shares
(millions)                        1,850          27   1,877      1,850          24   1,874     1,850          25   1,875
EPS (pence)                       64.76      (0.93)   63.83      45.51      (0.58)   44.93     45.95      (0.62)   45.33

The reconciliation between underlying EPS and basic EPS is as follows:

                                                                          Half-year to June 30,     Year to December 31,
                                            Half-year to June 30, 2012                     2011                     2011
                                                        Pence       £m          Pence        £m           Pence       £m
Underlying EPS / Underlying profit attributable to
ordinary shareholders                                   26.54      491          23.89       442           48.54      898
Total underlying adjustments to profit before tax
(note 2)                                                36.27      671          29.30       542          (2.81)     (52)
Related tax effects                                      1.95       36         (7.68)     (142)            0.22        4
EPS / Profit attributable to ordinary shareholders      64.76    1,198          45.51       842           45.95      850
Excluding IAE restructuring                             24.92      461          45.51       842           45.95      850
IAE restructuring                                       39.84      737              -         -               -        -
Diluted underlying EPS                                  26.16                   23.59                     47.89
 
5 Taxation

The effective tax rate for the half year is 8.0% (2011: half year
25.9%, full year 23.3%). Excluding the impact of the IAE restructuring, the
effective tax rate for the half year is 23.2%. Pursuant to the Substantial
Shareholdings Exemption, the majority of the upfront proceeds received on the
IAE restructuring are not subject to tax, which has the effect of reducing the
effective tax rate. The tax credit of £37m relating to the IAE restructuring
arises as a consequence of the derecognition of various assets and liabilities
on completion of the transaction.

The UK corporation tax rate reduced from 26% to 24% on April 1,
2012 and the effective tax rate takes this into account. The impact of the
reduction to 25% was reflected in the 2011 closing deferred tax balances as
the rate change was substantively enacted prior to the year end. As the
further reduction to 24% was substantively enacted on March 26, 2012, the
closing deferred tax assets and liabilities have been remeasured. The proposed
future reductions in the rate to 22% will be reflected when the relevant
legislation is substantively enacted. The impact of the reduction in the rate
on the effective tax rate for the full year is not expected to be significant.

6 Payments to shareholders in respect of the period

Payments to shareholders in respect of the period represent the
value of C Shares to be issued in respect of the results for the period.
Issues of C Shares were declared as follows:

                                                            Half-year to June 30, 2012        Year to December 31, 2011
                                                                     Pence per                     Pence per
                                                                       share        £m              share         £m
Interim (issued in January)                                             7.6        142              6.9          129
Final (issued in July)                                                                              10.6         199
                                                                        7.6        142              17.5         328
 
7 Intangible assets

                                                          Certification
                                                              costs and  Development  Recoverable    Software
                                              Goodwill    participation  expenditure engine costs         and
                                                    £m          fees £m           £m           £m    other £m   Total £m
Cost:
At January 1, 2012                               1,106              720          954          464         490      3,734
Exchange differences                              (18)              (2)          (3)            -         (1)       (24)
Additions                                            -               16           14           30          41        101
On acquisition of business                           2                -            -            -           -          2
Disposals/write-offs                                 -              (6)          (6)            -           -       (12)
At June 30, 2012                                 1,090              728          959          494         530      3,801
 
Accumulated amortisation:
At January 1, 2012                                   7              197          268          231         149        852
Exchange differences                                 -                -            -            -           -          -
Charge for the period                                -               17           25           27          27         96
Disposals/write-offs                                 -              (6)          (6)            -           -       (12)
At June 30, 2012                                     7              208          287          258         176        936
 
Net book value at:
June 30, 2012                                    1,083              520          672          236         354      2,865
December 31, 2011                                1,099              523          686          233         341      2,882

Certification costs and participation fees, development expenditure
and recoverable engine costs have been reviewed for impairment in accordance
with the requirements of IAS 36 Impairment of Assets. Where an impairment test
was considered necessary, it has been performed on the following basis:

- The carrying values have been assessed by reference to value in use. These
have been estimated using cash flows from the most recent forecasts prepared
by management, which are consistent with past experience and external sources
of information on market conditions over the lives of the respective
programmes.

- The key assumptions underlying cash flow projections are assumed market
share, programme timings, unit cost assumptions, discount rates, and foreign
exchange rates.

- The pre-tax cash flow projections have been discounted at 11% (2011 full
year 11%), based on the Group's weighted average cost of capital.

- No impairment is required on this basis. However, a combination of changes
in assumptions and adverse movements in variables that are outside the
Company's control (discount rate, exchange rate and airframe delays), could
result in impairment in future periods.

8 Other financial assets and liabilities

                                Half-year to June 30, 2012     Half-year to June 30, 2011     Year to December 31, 2011

                                 Assets  Liabilities   Net      Assets  Liabilities  Net        Assets  Liabilities Net
                                    £m          £m    £m          £m         £m        £m         £m          £m    £m

Foreign exchange contracts         279        (647)  (368)        598       (531)      67         321       (768) (447)
Commodity contracts                  7         (32)   (25)         29         (7)      22          14        (26)  (12)
Interest rate contracts             89          (3)     86         45         (4)      41          83         (2)    81
Derivative financial               375                            672                             418       (796) (378)
instruments                                   (682)  (307)                  (542)     130
Financial RRSPs                      -        (224)  (224)          -       (256)   (256)           -       (230) (230)
C Shares                             -          (7)    (7)          -           -       -           -         (4)   (4)
                                   375        (913)  (538)        672       (798)   (126)         418     (1,030) (612)
Current                             73        (110)               187       (56)                   91       (111)
Non-current                         302       (803)               485       (742)                 327       (919)
                                    375       (913)               672       (798)                 418     (1,030)

Derivative financial instruments                                                                    Half-year    Year to
                                                                                                      to June   December
                                                                      Half-year to June 30, 2012     30, 2011   31, 2011

                                                     Foreign                   Interest
                                                     exchange      Commodity      rate     Total       Total      Total
                                                       £m              £m          £m       £m          £m          £m

At January 1                                           (447)           (12)         81     (378)        (140)      (140)
Movements in fair value hedges                           (1)              -          4         3           41         85
Movements in cash flow hedges                            (3)              -          -       (3)           29        (1)
Movements in other derivative contracts                   79           (13)          1        67          457       (48)
Contracts settled                                          4              -          -         4        (257)      (274)
At period end                                          (368)           (25)         86     (307)          130      (378)
 

Financial risk and revenue sharing partnerships (RRSPs)                                           Half-year      Year to
                                                                                  Half-year to      to June     December
                                                                                      June 30,     30, 2011     31, 2011
                                                                                       2012 £m           £m           £m
At January 1                                                                             (230)        (266)        (266)
Cash paid to partners                                                                        6           13           46
Exchange adjustments included in OCI                                                         3          (3)          (1)
Financing charge 1                                                                         (5)          (5)         (11)
Excluded from underlying profit: 1
Exchange adjustments                                                                         1            5            1
Changes in forecast payments                                                                 1            -            1
At period end                                                                            (224)        (256)        (230)
1 Included in net financing.

9 Pensions and other post-retirement benefits

The net post-retirement scheme deficit as at June 30, 2012 is
calculated on a year to date basis, using the latest valuation as at December
31, 2011, updated to June 30, 2012 for the principal schemes.

Movements in the net post-retirement position recognised in the
balance sheet were as follows:

                                                                                                     Overseas
                                                                                       UK schemes     schemes      Total
                                                                                               £m          £m         £m
At January 1, 2012                                                                            252       (649)      (397)
Exchange adjustments                                                                            -           6          6
Current service cost                                                                         (61)        (18)       (79)
Past service (cost)/credit                                                                    (1)           5          4
Interest on post-retirement scheme liabilities                                              (177)        (24)      (201)
Expected return on post-retirement scheme assets                                              156          14        170
Contributions by employer                                                                     123          20        143
Actuarial losses                                                                            (542)        (34)      (576)
Movement in unrecognised surplus 1                                                            329           -        329
Movement on minimum funding liability 2                                                        31           -         31
At June 30, 2012                                                                              110       (680)      (570)
 
Analysed as:
Post-retirement scheme surpluses - included in non-current assets                             329           8        337
Post-retirement scheme deficits - included in non-current liabilities                       (219)       (688)      (907)
                                                                                              110       (680)      (570)
1 Where a surplus has arisen on a scheme, in accordance with IAS 19
and IFRIC 14, the surplus is recognised as an asset only if it represents an
unconditional economic benefit available to the Group in the future. Any
surplus in excess of this benefit is not recognised in the balance sheet.

2 A minimum funding liability arises where the statutory funding
requirements require future contributions in respect of past service that will
result in a future unrecognisable surplus.

10 Contingent liabilities and contingent assets

In connection with the sale of its products the Group will, on some
occasions, provide financing support for its customers. The Group's contingent
liabilities related to financing arrangements are spread over many years and
relate to a number of customers and a broad product portfolio.

The discounted values of contingent liabilities relating to
delivered aircraft and other arrangements where financing is in place, less
insurance and indemnity arrangements and relevant provisions were:

                                                                                   June 30, 2012    December 31, 2011
                                                                                    £m        $m         £m        $m
Gross contingent liabilities                                                       602       944        612       951
Contingent liabilities net of relevant security                                     76       119        124       192
Contingent liabilities net of relevant security reduced by 20% 1                   145       228        201       312

1 Although sensitivity calculations are complex, the reduction of the relevant
security by 20% illustrates the sensitivity of the contingent liability to
changes in this assumption.

The reduction in net contingent liabilities since December 31, 2011
is primarily a result of the IAE restructuring.

Contingent liabilities exist in respect of guarantees provided by
the Group in the ordinary course of business for product delivery, performance
and reliability. The Group has, in the normal course of business, entered into
arrangements in respect of export finance, performance bonds, countertrade
obligations and minor miscellaneous items. Various Group undertakings are
parties to legal actions and claims which arise in the ordinary course of
business, some of which are for substantial amounts. While the outcome of some
of these matters cannot precisely be foreseen, the directors do not expect any
of these arrangements, legal actions or claims, after allowing for provisions
already made, to result in significant loss to the Group.

11 Related party transactions

Transactions with related parties are shown on page 118 of the
Annual report 2011. Significant transactions in the current financial period
are as follows:

                                                                                     Half-year to   Half-year   Year to
                                                                                         June 30,     to June   December
                                                                                             2012    30, 2011   31, 2011
                                                                                               £m          £m         £m
Sales of goods and services to joint ventures and associates                                1,976       1,280      2,864
Purchases of goods and services from joint ventures and associates                        (1,410)     (1,044)    (2,380)
 
12 Restructuring of IAE

On June 29, 2012, the Group and Pratt & Whitney completed the
restructuring of their participation in IAE, which produces the V2500 engine
for the Airbus A320 family of aircraft. As a result of the restructuring,
Rolls-Royce sold its equity, programme share and related goodwill in IAE to
Pratt & Whitney for US$1.5 billion, giving rise to a profit before tax of £700
million.

As Rolls-Royce continues to be responsible for the manufacture of
high-pressure compressors, fan blades as well as the provision of engine
support and final assembly of 50 per cent of V2500 engines, the transaction is
not considered to give rise to a discontinued operation.

Principal risks and uncertainties

Whilst the Group has a consistent strategy and long performance
cycles, it continues to be exposed to a number of risks and has an
established, structured approach to identifying, assessing and managing those
risks.

The principal risks facing the Group for the remaining six months
of the financial year are unchanged from those reported on page 34 and 35 of
the Annual report 2011, and are summarised below:

- Significant external events affecting demand;              - Failure to grow capable resource globally;
 
- Failure to minimise the environmental impact of the        - Product performance not meeting expectations;
Group's products and operations;
                                                             - Disruption of supply chain;
- Reduction in government spending;
                                                             - Downgrade in credit rating;
- Failure of counterparties;
                                                             - Failure to conduct business in an ethical and socially
- Fluctuations in foreign currency exchange rates;           responsible manner;
 
- Regulatory changes relating to financial derivatives;      - Failure to manage multiple complex product programmes
                                                             effectively;
- The Group's products, services and pricing do not remain
competitive;                                                 - Breach of IT security;
 
- Non-compliance with applicable legislation and             - Failure to execute the programme to modernise the IT
regulations;                                                 infrastructure; and
 
                                                             - Loss or unintended disclosure of Intellectual Property.
Going concern

After making enquiries, the directors have a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the foreseeable future. For this reason they continue to adopt the going
concern basis in preparing the consolidated financial statements. The
financial risk management objectives and policies of the Group and its
exposure to price, credit, liquidity and cash flow risks are considered in the
Finance Director's review on pages 14 to 17 and in Additional financial
information on pages 36 and 37 of the Annual report 2011.

Payments to shareholders

The Company makes payments to shareholders by allotting
non-cumulative redeemable preference shares of 0.1 pence each (C Shares).
Shareholders can opt to redeem the C Shares for a cash payment, or reinvest
the cash proceeds by purchasing additional ordinary shares via the C Share
Reinvestment Plan (CRIP), which is operated by our Registrar, Computershare
Investor Services PLC. On January 2, 2013, 76 C Shares, with a total nominal
value of 7.6 pence, will be allotted for each ordinary share to those
shareholders on the register on October 26, 2012. The final day of trading
with entitlement to C Shares is October 23, 2012. Shareholders wishing to
redeem their C Shares, or participate in the CRIP, must lodge instructions
with our Registrar to arrive no later than 5.00 pm on December 3, 2012. The
payment of C Shares redemption monies will be made on January 4, 2013.

Statement of directors' responsibilities

The directors confirm that, to the best of their knowledge:

- the condensed consolidated half-year financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting as adopted
by the EU;

- the interim management report includes a fair review of the
information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed consolidated half-year
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last Annual report that could do so.

The directors of Rolls-Royce Holdings plc at February 8, 2012 are
listed in its Annual report 2011 on pages 38 and 39. Since that date, the
following changes have taken place:

- Sir Peter Gregson retired as a non-executive director at the
conclusion of the Annual General Meeting held on May 4, 2012; and

- Jasmin Staiblin was appointed as a non-executive director on May
21, 2012.

By order of the Board

John Rishton          Mark Morris
Chief Executive       Finance Director
July 25, 2012         July 25, 2012

Independent review report to Rolls-Royce Holdings plc

Introduction

We have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the six months
ended June 30, 2012 which comprises the condensed consolidated income
statement, the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated cash flow
statement, the condensed consolidated statement of changes in equity and the
related explanatory notes. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.

This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the requirements of
the Disclosure and Transparency Rules ("the DTR") of the UK's Financial
Services Authority ("the UK FSA"). Our review has been undertaken so that we
might state to the company those matters we are required to state to it in
this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company for
our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for preparing
the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the
condensed set of financial statements in the half-yearly financial report
based on our review.

Scope of review

We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity issued by the
Auditing Practices Board for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes
us to believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended June 30, 2012 is not
prepared, in all material respects, in accordance with IAS 34 as adopted by
the EU and the DTR of the UK FSA.

AJ Sykes

for and on behalf of KPMG Audit Plc

Chartered Accountants, London

July 25, 2012

---------------------------------