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Rolls-Royce Holdings (RR.)

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Thursday 09 February, 2012

Rolls-Royce Holdings

Final Results

                                                                   9 February 2012

                           ROLLS-ROYCE HOLDINGS PLC                            
                             2011 FULL YEAR REPORT                             

Group Highlights

- Record order book of £62.2bn, up five per cent.

- Record underlying revenue of £11.3bn, up four per cent.

- Record underlying profit before tax of £1.16bn, up 21 per cent.

- Full year payment to shareholders of 17.5 pence per share, up nine per cent.

- Joint acquisition of Tognum, Rolls-Royce investment £1.5bn.

- Proposed restructuring of International Aero Engines (IAE) and sale of share 

Summary data - £ million               2011    2010   Change 
Order book                             62,201  59,153   +5%  
Underlying revenue*                    11,277  10,866   +4%  
Underlying profit before tax*           1,157     955  +21%  
Underlying earnings per share*         48.54p  38.73p  +25%  
Full year payment to shareholders       17.5p   16.0p   +9%  
Reported revenue                       11,124  11,085    0%   
Reported profit before financing        1,189   1,134   +5%  
Net cash                                  223   1,533        
Average net cash                          320     960        
*   See explanations in Note 2 on p.20 and Note 4 on p23

John Rishton, Chief Executive, said:

"Rolls-Royce performed well in 2011, and at the year-end had a record order
book, record underlying revenue and record underlying profit. We continue to
benefit from a broad portfolio, a large and growing customer base and access to
markets where demand remains strong for our products and services.

"Our order book gives us good visibility of future revenues and demonstrates
the confidence our customers have in us.  

"We see opportunities for profitable growth across our portfolio. In
particular, the acquisition of Tognum, that we have made in partnership with
Daimler, adds significantly to the breadth of our portfolio and will accelerate

"For 2012 we expect good growth in both underlying revenue and underlying
profit with cash flow around breakeven as we continue to invest in future

Group Overview

Rolls-Royce continued to perform well in 2011. Our order book grew to £62.2bn,
underlying revenue increased to £11.3bn and underlying profit rose to £1.16bn.
This strong performance demonstrates the increasing resilience of our business
and underpins our confidence for the future which is reflected in a final
payment to shareholders of 10.6 pence per share, bringing the full year payment
to 17.5 pence per share.

Rolls-Royce is a long-term business. We invest in products, systems and
services that take many years to develop but then have life cycles that last
for decades. The Group has consistently invested in future growth and we
continue to develop technology and expand capacity in order to meet our
customers' current and future needs. This consistent record of long-term
investment has given Rolls-Royce a broad portfolio, a strong market position
and access to world markets, creating a powerful platform for future growth.

This disciplined application of a long-term strategy has enabled Rolls-Royce to
grow its underlying revenue, profit and order book consistently over a decade.
This has been achieved despite the financial crisis of 2008, recessions in
Europe and the USA and significant economic and social turmoil. We have doubled
our revenues within the past decade and expect to double them again in the
coming ten years through organic growth alone.

To fulfil our record order book, we continue to invest in operational capacity.
During 2011, we opened a major new facility at Crosspointe, in Virginia USA,
where we are now manufacturing gas turbine discs. We completed the construction
of a 65,000 sq metre facility at Seletar in Singapore where, for the first time
outside the UK, we will manufacture wide-chord fan blades and assemble and test
Trent engines. We also continued to add to our network of Marine service
centres during the year, opening or expanding sites in the Netherlands, Poland,
Namibia, Germany and Hong Kong. These investments and others across the
portfolio add to our capacity and increase productivity.

Close collaboration with our suppliers is critical to our continued success.
Around 70 per cent of our manufacturing is conducted within our supply chain.
Our partners and suppliers are also investing significantly to deliver future
growth and improve productivity.

During 2011, we took three strategic actions that will further strengthen our
position and underpin long-term growth. The first was our acquisition of the
German industrial engines group Tognum, that we made in a joint offer with
Daimler. It brings together highly complementary product and technology
portfolios and creates significant new opportunities for our Marine and Energy
businesses. Second, we signed an exclusive deal to develop an enhanced Trent
XWB that will power the long-range Airbus A350-1000 aircraft. Third, we agreed
to sell our equity stake in IAE to Pratt & Whitney, at the same time announcing
our intention to form a new joint venture to develop engines for the next
generation of mid-size aircraft. This agreement builds on a long and successful
partnership with Pratt & Whitney in this segment and charts a clear course for
our future in this important market.

Progress was evident in each of our business segments in 2011.

In Civil Aerospace good order intake accompanied strong growth in underlying
revenue and profit. We celebrated the first commercial flight of the Boeing 787
Dreamliner powered by Trent 1000 engines. The Trent XWB engine programme for
the Airbus A350 progressed well, with over 1,500 test hours completed. Our
BR725 engine, developed for Gulfstream's new flagship executive jet, the
Gulfstream G650, is due to enter service in 2012.

Our Defence Aerospace business performed well despite the pressure on defence
spending in Europe and the USA. We continue to benefit from the diversity of
our portfolio and our access to emerging markets. Our LiftFan™ system for the
F-35 Lightning II Joint Strike Fighter (JSF) continued to make good progress
during intensive flight tests that included multiple take offs and vertical
landings on board the aircraft carrier USS Wasp. The TP400 engine for the
Airbus A400M is on course to enter service in 2013.

While the underlying profit generated by the Marine business was broadly flat,
original equipment (OE) revenue failed to meet our expectations as some
offshore customers deferred investment decisions beyond 2011. Set against this,
revenue from services grew strongly as the business benefited from the
expansion of our network of service centres and the growth of the fleet
equipped with our systems. During the year, we received an order to power a
further ten US Navy Littoral Combat Ships, our largest ever surface fleet
order. We also secured the first orders for our award winning Environship, a
cargo vessel powered by liquid natural gas.

In Energy, underlying profit fell, primarily due to our investment in Civil
Nuclear and revenues declined, reflecting  weak demand for gas turbine power
generation. However, strong demand from the oil and gas industry drove a
significant increase in the order book. This included our biggest ever single
contract, to supply Petrobras, Brazil's leading oil company, with 32 gas
turbine power generators for its offshore operations.

Trading Summary

Underlying revenue

The Group's underlying revenue increased four per cent to £11.3bn. This
includes a nine per cent growth in services revenue to £6.0bn that more than
offset a one per cent reduction in OE revenue to £5.3bn. OE performance
included strong 18 per cent growth in Civil Aerospace offset by a greater than
anticipated reduction of 23 per cent in Marine OE revenue.

Underlying services revenue continues to represent more than half (53 per cent)
of the Group's revenue. In 2011, we achieved growth in services revenue in each
of our businesses as we continue to benefit from the growth in our installed
base and the expansion of our services network. Defence Aerospace income
included contract termination settlements resulting from the Strategic Defence
and Security Review (SDSR) of the UK Ministry of Defence (MoD).

Underlying profit

Underlying profit before tax increased 21 per cent to £1.16bn. This was due to
a better mix between OE and services, an improvement in productivity resulting
from the focus on cost, net foreign exchange (FX) benefits of £54m including an
eight cent improvement in the achieved rate on selling USD income. In addition
there was a benefit of £30m from Tognum net of the costs of the acquisition and
a £60m benefit from the SDSR settlements referred to above. 

Cash and liquidity

The reported net cash position was £223m after the impact of the acquisition of
Tognum and R Brooks Associates totalling £1.5bn. Excluding these acquisitions
and FX translation there was a cash inflow of £210m. The Group retains a strong
balance sheet with debt maturities well spread and total liquidity of £2.5bn.


The Group's joint venture with Daimler now owns over 99 per cent of Tognum AG
for which Rolls-Royce paid a cash consideration of £1.5bn in 2011. This joint
venture investment made a £30m net contribution to underlying profit before tax
but did not impact the Group's 2011 revenues.

International Aero Engines (IAE)

The Group's proposed sale of its 32.5 per cent shareholding in IAE is subject
to regulatory approval and did not impact 2011 financial performance. 
Rolls-Royce will continue to play an active role as a first tier supplier of
high pressure compressors and fan blades and remains responsible for the final
assembly of 50 per cent of the production engines. The announced new joint
venture with Pratt & Whitney to develop an engine to power the next generation
of mid-size aircraft is also subject to regulatory approval and had no effect
on 2011 financial performance.

Group Prospects

Our consistent strategy, which has been pursued over many years, has created a
broad and balanced portfolio and established a strong financial position.
Despite continued macroeconomic uncertainty, our record order book and strong
market positions underpin our confidence in the future. The increasing
resilience of the business has enabled Rolls-Royce consistently to grow its
underlying revenue, underlying profit and order book in spite of the
significant macro economic turbulence of recent years.

In 2012 the Group expects to see good growth in underlying revenue and
underlying profit with a cash flow around breakeven as we continue to invest
for future growth, excluding the impact of the Tognum acquisition and the
proposed IAE transaction.

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 see
growth in underlying revenue and some improvement in underlying profit.


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
[email protected]            [email protected]

Photographs and broadcast-standard video are available at .

A PDF copy of this report can be downloaded from

This Full Year Results Announcement contains certain forward-looking
statements. These forward-looking statements can be identified by the fact that
they do not relate only to historical or current facts. In particular, all
statements that express forecasts, expectations and projections with respect to
future matters, including trends in results of operations, margins, growth
rates, overall market trends, the impact of interest or exchange rates, the
availability of financing to the Company, anticipated cost savings or synergies
and the completion of the Company's strategic transactions, are forward-looking
statements. By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on circumstances that may
or may not occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those expressed or
implied by these forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the date of
preparation of this Full Year Results Announcement, and will not be updated
during the year. Nothing in this Preliminary Full Year Results
Announcement should be construed as a profit forecast.

Civil Aerospace

FY Review - £ million                      2011    2010   Change
Order book                               51,942  48,490     +7%
Engine deliveries                           962     846    +14%
Underlying revenue                        5,572   4,919    +13%
Underlying OE revenue                     2,232   1,892    +18%
Underlying services revenue               3,340   3,027    +10%
Underlying profit before financing          499     392    +27%

The order book increased by seven per cent, including new orders of £11.0bn.
The order book contains over 5,000 engines that will add around 250m pounds of
installed thrust to our current installed base of 400m pounds of thrust. During
2011 we secured orders for more than 200 Trents, among the most significant

- Trent XWB engines for up to 60 Airbus A350 XWBs from AirFrance KLM Group.
- Trent 1000 engines for six Boeing 787s from Oman Air.
- Trent 900 engines for six Airbus A380s from Skymark Airlines and for six A380s
  from Asiana.
- Trent 700 engines for 15 Airbus A330s from Singapore Airlines and for 15 A330s
  from Cathay Pacific.

Revenue increased by 13 per cent. OE revenue grew 18 per cent, largely as a
result of higher deliveries of widebody and corporate and regional engines.
Services revenue grew by 10 per cent. This was due to growth in TotalCare
revenue during the year and a recovery in time and materials.

Profit increased by 27 per cent due to increased volume, improving
productivity, FX benefits and the non-recurrence of a one-off charge. This
improvement was partially offset by higher R&D charges and the launch costs
associated with major new programmes.


- In June, Rolls-Royce announced an exclusive agreement to produce a higher
  thrust version of the Trent XWB, to offer increased range and capacity for the
  Airbus A350-1000. 

- In September, Rolls-Royce powered the entry into service of the Boeing 787
  Dreamliner with launch customer All Nippon Airways (ANA).

- In October 2011 we announced a new joint venture with Pratt & Whitney to
  develop engines for future generation mid-size aircraft. We also agreed to sell
  our shareholding in IAE.

We delivered production BR725 engines for the Gulfstream 650 that is due to
enter service in 2012.

Defence Aerospace

FY Review - £ million                    2011    2010    Change
Order book                              6,035   6,522       -7%
Engine deliveries                         814     710      +15%
Underlying revenue                      2,235   2,123       +5%
Underlying OE revenue                   1,102   1,020       +8%
Underlying services revenue             1,133   1,103       +3%
Underlying profit before financing        376     309      +22%


The order book declined by seven per cent as OE deliveries exceeded order
intake, reflecting the pressures on defence budgets in Europe and the USA.
However, new orders of £1.8bn in the year demonstrate that there are still
opportunities for growth in both traditional and in developing markets.
Significant orders included:

- Two major service contracts, worth almost US$250m for AE2100 engines powering
  C-130J military transport aircraft for the US and UK armed forces.
- A US$100m MissionCare contract from the US Department of Defence to provide
  support for F405 (Adour) engines on T-45 training aircraft.

Revenue grew by five per cent benefiting from increased OE deliveries of eight
per cent, reflecting LiftSystem, AirTanker, and Military Transport production
increases, and a three per cent increase in services revenue, principally due
to the impact of the SDSR settlement and increases in fleet sizes for C-130J
and V-22 aircraft. 

Profit grew by 22 per cent as a result of increased revenue, cost reduction
programmes and the £60m benefit of the SDSR settlement.


- In February, funding for the development programme of the F136 engine for the
  JSF in which Rolls-Royce was a 40 per cent partner, was terminated by the US
  Department of Defense.

- In May, the TP400 engine for the Airbus A400M military transport aircraft
  received civil certification from European Aviation Safety Agency (EASA). The
  programme has amassed over 8,000 flying hours as part of the flight test
  programme. Deliveries for the first production engines are due to begin in 2012
  as part of the initial order of 180 aircraft.

- In the combat sector, the LiftSystem for the STOVL variant of the JSF achieved
  its 'Initial Service Release'. In October, two F-35B aircraft accomplished 72
  short take-offs and vertical landings on the USS Wasp during sea trials. In
  January 2012, probationary status was lifted for the F-35B and the first STOVL
  aircraft were delivered to the customer.

- The Eurofighter Typhoon was deployed on combat operations for the first time as
  part of the NATO operation in Libya, displaying outstanding levels of
  performance and reliability. During 2011, we delivered the 750th EJ200 engine
  on behalf of Eurojet for the Eurofighter programme.


FY Review - £ million                  2011    2010    Change
Order book                            2,737   2,977       -8%
Underlying revenue                    2,271   2,591      -12%
Underlying OE revenue                 1,322   1,719      -23%
Underlying services revenue             949     872       +9%
Underlying profit before financing      323     332       -3%


The order book declined by eight per cent. However new order intake during the
year improved by 15 per cent to £2.1bn providing some evidence of recovering
demand. Significant systems and equipment orders during the period included:

- MT30 gas turbines and water jets for a ten vessel contract for the US Navy
  Littoral Combat Ship.
- First orders for the award-winning Environship, including two vessels for
  Norway's Nor Lines AS.
- 60 water jets for a new fleet of 20 Fast Patrol Vessels for the Indian Coast
- An order to design and equip two anchor handling vessels for Farstad Shipping
  in Norway.

Revenue declined by 12 per cent due to a 23 per cent decline in OE revenue that
was partially offset by a nine per cent improvement in service revenue. The
recovery in OE that had been expected in the second half of the year did not
materialise as customer investment decisions were deferred. The improved
service revenue was driven by the expansion of our network of marine supply
centres and the growth of our installed fleet.

Profit declined by three per cent relative to a fall in revenue of 12 per cent
reflecting an improved revenue mix and an increased focus on costs and
operational performance.


- In May, the UK Government announced its decision to replace the UK's Vanguard
  class nuclear submarines with a new design of submarine utilising our
  Pressurised Water Reactor (PWR) Generation 3 reactor technology.

- In September, we announced the success of our joint tender offer for Tognum.
  This acquisition brings together highly complementary product and technology
  sets and represents an important strategic step in the long-term development of
  the business.

- We continue to invest in our service capability and capacity, with customer
  training centres opening in Norway and Singapore, and service centres opened or
  expanded in Namibia, the Netherlands, Poland, Germany and Hong Kong.


FY Review - £ million                   2011    2010    Change 
Order book                             1,487   1,164      +28%
Engine Deliveries                         75      95      -21%
Underlying revenue                     1,199   1,233       -3%
Underlying OE revenue                    602     691      -13%
Underlying services revenue              597     542      +10%
Underlying profit before financing        24      27      -11%


The order book increased by 28 per cent, driven by significant demand in the
oil and gas industry. New orders of £1.5bn included a number of significant

- 32 RB211 gas turbines for offshore application in support of Petrobras. 
  This US$650m contract is the largest signed by the Energy business.
- Six RB211 compressor units for Petro China's WEPP Line 2 East project.
- Eight Bergen engines for power generation in Bangladesh - 82 now sold in
- A €250m contract with EDF to supply instrumentation and control (I&C)
  technologies to the world's largest reactor upgrade programme, being carried
  out in France.

Revenue declined by three per cent largely due to the phasing of OE deliveries
in power generation. Demand for aftermarket products and services continue to
grow with an increase of ten per cent.

Profit fell by 11 per cent as a result of lower revenue and investment in the
future growth of our Civil Nuclear business. 


- In February 2011, we announced plans for the construction of a new
  purpose-built gas turbine package, assembly and test facility in Rio de
  Janeiro, Brazil. The facility, expected to become operational in the first
  quarter of 2013, will strengthen our support of Petrobras and other customers
  in the rapidly expanding offshore market in Brazil.

- As in the Marine business, Energy will benefit from the joint acquisition of
  Tognum. By combining our medium-speed diesel and gas Bergen engines business
  with Tognum's high-speed reciprocating engines and systems capabilities, we
  have significantly enhanced our core product portfolio and global network of
  sales and service facilities.

We continued to build our capability in the Civil Nuclear sector, with a number
of important milestones reached during the year.

- A cooperation agreement was signed with Areva for the manufacture of complex
  components for the first European Pressurised Reactors to be built in the UK.

- Enhanced MoUs were agreed with Nuclear Power Delivery UK,EDF and Rosatom.

- We acquired the US-based R.Brooks Associates, a world leader in remote

Additional Financial Information

Underlying income statement

Underlying income statement extracts - £ million      2011     2010     Change  
Revenue                                              11,277   10,866       +4%   
     Civil Aerospace                                  5,572    4,919      +13%   
     Defence Aerospace                                2,235    2,123       +5%   
     Marine                                           2,271    2,591      -12%   
     Energy                                           1,199    1,233       -3%   
Profit before financing costs and taxation            1,206    1,010      +19%   
     Civil Aerospace                                    499      392      +27%   
     Defence Aerospace                                  376      309      +22%   
     Marine                                             323      332       -3%   
     Energy                                              24       27      -11%   
     Engine Holding (Tognum JV)                          36        -         -    
     Central costs                                     (52)     (50)       -4%   
Net financing costs                                    (49)     (55)      +11%   
Profit before taxation                                1,157      955      +21%   
Taxation                                              (261)    (236)      +11% 
Profit for the year                                     896      719      +25%   
EPS                                                  48.54p   38.73p      +25%   
Payment to shareholders                               17.5p    16.0p       +9%   
Other items                                                               
Other operating income                                   70       87      -20%   
Gross R&D investment                                    908      923       -2%   
Net R&D charged to the income statement                 463      422      +10%   
- Underlying revenue and underlying profit before financing costs and taxation
  are discussed in the relevant business sections.

- Underlying financing costs declined by 11 per cent to £49m, including a small
  reduction in financial Risk & Revenue Sharing Partners (RRSP) costs and lower
  funding costs due to the settlement of the Group's €750m Eurobond during the

- Underlying taxation was £261m, an underlying tax rate of 22.6 per cent compared
  with 24.7 per cent in 2010. This reduction reflects increased profits from
  joint ventures (which are accounted for on post-tax basis) and some adjustments
  to prior year estimates.

- Underlying EPS increased by 25 per cent to 48.54 pence, broadly in line with
  the increase in the underlying profit after tax.

- Payments to shareholders At the AGM on May 4, 2012, the directors will
  recommend an issue of 106 C Shares with a total nominal value of 10.6 pence for 
  each ordinary share. The final payment is payable on July 4, 2012 to
  shareholders on the register on April 27, 2012 and the final day of trading
  with entitlement to C Shares is April 24, 2012.  Together with the interim
  issue on January 3, 2012 of 69 C Shares for each ordinary share with a total
  nominal value of 6.9 pence, this is the equivalent of a total annual payment to
  ordinary shareholders of 17.5 pence for each ordinary share.

  The payment to shareholders will, as before, be made in the form of redeemable
  C Shares which shareholders may either choose to retain or redeem for a cash
  equivalent.  The Registrar, on behalf of the Company, operates a C Share
  Reinvestment Plan (CRIP) and can, on behalf of shareholders, purchase ordinary
  shares from the market rather than delivering a cash payment.  Shareholders
  wishing to redeem their C Shares or else redeem and participate in the CRIP
  must ensure that their instructions are lodged with the Registrar,
  Computershare Investor Services Plc, no later than 5pm on Friday June 1, 2012.

- Other operating income relates to programme receipts from RRSPs, which
  reimburse past R&D costs. These receipts decreased by 20 per cent in 2011 due
  to the phasing of major programmes.

- Net R&D charged to the income statement increased by 10 per cent to £463m. The
  Group recruited an additional 1,000 engineers to develop the products of the
  future and to help continue to improve the in-service performance of the
  existing installed base of products. This investment and the 29 per cent
  increase in capital expenditure to £467m will prepare our infrastructure and
  global supply chain for significant growth in the next decade. The Group
  continues to expect net R&D investment to remain within four to five per cent
  of Group underlying revenue.

- 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:

                                          2011     2010   Change 
                USD per GBP                                               
                Year end spot rate        1.55     1.57      -1%   
                Average spot rate         1.60     1.54      +4%   
                EUR per GBP                                               
                Year end spot rate        1.20     1.17      +3%   
                Average spot rate         1.15     1.17      -2%   

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

Balance Sheet

Summary balance sheet - £ million                   2011      2010  
Intangible assets                                  2,882     2,884
Property, plant and equipment                      2,338     2,136
Net post-retirement scheme deficits (IAS19basis)   (397)     (856)                                                      
Net working capital                              (1,098)     (973)
Net funds                                            223     1,533
Provisions                                         (502)     (544)
Net financial assets and liabilities               (718)     (627)
Investments in joint ventures and associates       1,680       393
Assets held for sale                                 178         9
Other net assets and liabilities                    (67)        24
Net assets                                         4,519     3,979
Other items                                                  
USD hedge book                                   $22,000   $20,900
Net TotalCare assets                                 956       920
Gross customer finance contingent liabilities        612       633
Net customer finance contingent liabilities          124       121

- 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: this was largely due to increased
  development, certification and software costs being offset by the 
  reclassification of V2500 assets on the balance sheet as "Assets held for
  sale". 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 2011. Further details are
  given in note 6 of the condensed financial statements.

- Property, plant and equipment increased by nine per cent to £2.3bn due to the
  ongoing development and refreshment of facilities and tooling as the Group
  prepares for increased production volumes.

- Net post-retirement scheme deficits decreased 54 per cent to £397m, including:
  (i) the impact of the change in pensions' indexing to CPI in the UK  (£130m);
  (ii) revised healthcare benefits in certain overseas schemes (£74m); and (iii)
  the reduction in discount rates having a larger impact on the value of the
  assets than the obligations (calculated on an IAS 19 basis). Overall funding
  across the schemes has improved in recent years as the Group has improved
  funding of the schemes with an increasingly lower risk investment strategy that
  reduces volatility going forward and enables the funding position to remain
  stable: interest rate and inflation risks are largely hedged; exposure to
  equities has reduced to around 20 per cent of scheme assets, this has been
  achieved against the headwind of increasing life expectancy assumptions. In
  2011, the Group made further arrangements to reduce volatility and enable
  future funding to be predicted with more certainty. A longevity swap was
  transacted with a third party to eliminate the risk of increasing life
  expectancy of pensioners in the largest UK defined benefit scheme. No
  significant change expected to the ongoing funding levels of the UK pension
  schemes in 2012.

- Net funds reduced to £223m largely due to the £1.5bn consideration paid during
  the year for the Group's shared investment in Tognum AG. As a result, average
  net funds fell by £640m to £320m (£805m excluding acquisitions). The Group
  continues to have access to good liquidity with £1.2bn undrawn committed
  facilities and bond proceeds of £1.1bn, providing total liquidity of £2.5bn
  when net funds of £223m are taken into consideration. 

- Investment - joint ventures and associates increased in the year as a result of
  the investment in Tognum.

- Assets held for sale represent the assets and liabilities expected to be
  derecognised as a result of the anticipated restructuring of IAE.

- Provisions largely relate to warranties and guarantees provided to secure the
  sale of OE and services. These provisions reduced modestly during the year.

- 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 7 to the condensed financial statements.  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 increased five per cent to US$22.0bn. This represents around
  four and a half years of net exposure and has an average book rate of £1 to
  US$1.60. Current forward market exchange rates are similar to current average
  book rates.

- Net TotalCare assets relate to Long Term Service Agreement (LTSA) contracts in
  the Civil Aerospace business, including the flagship services product
  TotalCare. These assets represent the timing difference between the recognition
  of income and costs in the income statement and cash receipts and payments.

- Customer financing facilitates the sale of OE and services by providing
  financing support to certain customers. Where such support is provided by the
  Group, it is generally to customers of the Civil Aerospace business and takes
  the form of various types of credit and asset value guarantees. These exposures
  produce contingent liabilities that are outlined in note 10 to the condensed
  financial statements. 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 2011,
  the Group's exposure remained stable with gross and net exposures of £612m and
  £124m respectively. As has been well publicised, some banks that have been
  active in recent years in providing funds for aircraft financing have chosen
  during 2011 to substantially reduce their exposure in this market segment.
  Although this may have some effect on the terms and pricing of new aircraft
  finance transactions in the near future, the Group expects that other providers
  of USD funding and ongoing support from the export credit agencies will largely
  fill the gap left by these banks.

Group 2012 Guidance

Excluding the impact of the Tognum acquisition and the proposed IAE
transaction, in 2012 the Group expects to see good growth in underlying revenue
and underlying profit with a cash flow around breakeven as we continue to
invest for future growth.

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 see
growth in revenue and some improvement in profit.

Other relevant data

- Foreign exchange: neutral.

- R&D: a modest increase in expenditure combined with lower net capitalisation
  and higher amortisation due to the phasing of new programmes.

- Taxation: the underlying tax rate is expected to be around 24 per cent.

- Capital expenditure: a modest increase, including increased investment in IT.

- Intangible assets: modest increase compared with 2011 due to a modest increase
  in recoverable engine costs partially offset by a decrease in development costs
  due to the phasing of new programmes.

- Property, plant and equipment: modest increase compared with 2011 as we
  continue to invest in capability and infrastructure.

- Pensions: no material changes expected to funding levels.

Tognum and IAE transactions

- Tognum is expected to contribute in the first half to the Group's share of
  results of joint ventures and associates. Tognum's results are expected to be
  fully consolidated around the half year with Daimler's 50 per cent share of the
  result recorded as a non-controlling interest. For 2012, Tognum will be
  reported as a separate segment. As Tognum remains a listed company, the Group
  is not permitted to provide guidance at this time. Tognum will issue their
  preliminary results on 8 March, 2012.

- The sale of the Group's 32.5 per cent shareholding in IAE is expected to
  receive regulatory approval during the first half of 2012, at which time the
  initial cash consideration of $1.5bn will be received. For the first full year
  following settlement, the impact of the sale on subsequent trading will have a
  small negative effect on underlying revenue and a positive effect of around £
  140m on underlying profit. The impact on the order book will be a reduction of
  around £4bn.


Condensed consolidated income statement

For the year ended December 31, 2011

                                                                 2011      2010
                                                        Notes      £m        £m
Revenue                                                   2    11,124    11,085
Cost of sales                                                 (8,676)   (8,885)
Gross profit                                                    2,448     2,200
Other operating income                                             69        95
Commercial and administrative costs                             (984)     (836)
Research and development costs                                  (463)     (422)
Share of results of joint ventures and associates                 116        93
Operating profit                                                1,186     1,130
Profit on disposal of businesses                                    3         4
Profit before financing and taxation                      2     1,189     1,134

Financing income                                                  456       453
Financing costs                                                 (540)     (885)
Net financing                                             3      (84)     (432)
Profit before taxation 1                                        1,105       702
Taxation                                                        (257)     (159)
Profit for the year                                               848       543
Attributable to:                                                               
Ordinary shareholders                                             850       539
Non-controlling interests                                         (2)         4
Profit for the year                                               848       543
Earnings per ordinary share attributable to shareholders2 4                                  
Basic                                                          45.95p    29.20p
Diluted                                                        45.33p    28.82p
Payments to ordinary shareholders in respect of the year  5                         
Per share                                                       17.5p     16.0p
Total                                                             328       299
1 Underlying profit before taxation                             1,157       955
2 Underlying earnings per share is shown in note 4                             

Condensed consolidated statement of comprehensive income

For the year ended December 31, 2011
                                                                   2011    2010
                                                                     £m      £m
Profit for the year                                                 848     543
Other comprehensive income (OCI)                                               
  Foreign exchange translation differences on foreign operations  (102)      22
  Movements in post-retirement schemes                              123    (94)
  Share of OCI of joint ventures and associates                    (10)    (16)
  Related tax movements                                            (54)      29
Total comprehensive income for the year                             805     484
Attributable to:                                                               
Ordinary shareholders                                               808     480
Non-controlling interests                                           (3)       4
Total comprehensive income for the year                             805     484

Condensed consolidated balance sheet

At December 31, 2011
                                                          2011             2010  
                                                Notes       £m               £m  
Non-current assets                                                               
Intangible assets                                 6      2,882            2,884  
Property, plant and equipment                            2,338            2,136  
Investments - joint ventures and associates              1,680              393  
Investments - other                                         10               11  
Other financial assets                            7        327              371  
Deferred tax assets                                        368              451  
Post-retirement scheme surpluses                  9        503              164  
                                                         8,108            6,410  
Current assets                                                                   
Inventories                                              2,561            2,429  
Trade and other receivables                              4,009            3,943  
Taxation recoverable                                        20                6  
Other financial assets                            7         91              250  
Short-term investments                                      11              328  
Cash and cash equivalents                                1,310            2,859  
Assets held for sale                                       313                9  
                                                         8,315            9,824  
Total assets                                            16,423           16,234  
Current liabilities                                                              
Borrowings                                                (20)            (717)  
Other financial liabilities                       7      (111)            (105)  
Trade and other payables                               (6,236)          (5,910)  
Current tax liabilities                                  (138)            (170)  
Provisions for liabilities and charges                   (276)            (276)  
Liabilities associated with assets held for sale         (135)                -  
                                                       (6,916)          (7,178)  
Non-current liabilities                                                          
Borrowings                                             (1,184)          (1,135)  
Other financial liabilities                       7      (919)            (945)  
Trade and other payables                               (1,314)          (1,271)  
Deferred tax liabilities                                 (445)            (438)  
Provisions for liabilities and charges                   (226)            (268)  
Post-retirement scheme deficits                   9      (900)          (1,020)  
                                                       (4,988)          (5,077)  
Total liabilities                                     (11,904)         (12,255)  
Net assets                                               4,519            3,979
Equity attributable to ordinary shareholders                                     
Called-up share capital                                    374              374  
Share premium account                                        -              133  
Capital redemption reserve                                 173              209  
Cash flow hedging reserve                                 (52)             (37)  
Other reserves                                             433              527  
Retained earnings                                        3,590            2,769  
                                                         4,518            3,975  
Non-controlling interests                                    1                4  
Total equity                                             4,519            3,979  

Condensed consolidated cash flow statement
For the year ended December 31, 2011 

                                                                  2011       2010
                                                         Notes      £m         £m
Reconciliation of cash flows from operating activities                         
Profit before taxation                                           1,105        702
Share of results of joint ventures and associates                (116)       (93)
Profit on disposal of businesses                                   (3)        (4)
Profit on disposal of property, plant and equipment                (8)       (10)
Net financing                                              3        84        432
Taxation paid                                                    (208)      (168)
Amortisation of intangible assets                                  169        130
Depreciation and impairment of property, plant and equipment       241        237
Impairment of investments                                            -          3
(Decrease)/increase in provisions                                 (28)         99
(Increase)/decrease in inventories                               (140)         41
(Increase)/decrease in trade and other receivables                (62)         39
Increase in trade and other payables                               416        248
Movement  in other financial assets and liabilities                 68      (299)
Net defined benefit post-retirement (credit)/cost                 (43)        147
recognised in profit before financing                                          
Cash funding of defined benefit post-retirement schemes          (304)      (282)
Share-based payments                                                59         50
Dividends received from joint ventures and associates               76         68
Net cash inflow from operating activities                        1,306      1,340
Cash flows from investing activities                                           
Additions of unlisted investments                                    -        (1)
Disposals of unlisted investments                                    1         46
Additions of intangible assets                                   (363)      (321)
Disposals of intangible assets                                       6          -
Purchases of property, plant and equipment                       (412)      (354)
Government grants received                                          38         38
Disposals of property, plant and equipment                          31         38
Acquisitions of businesses                                        (19)      (150)
Disposals of businesses                                              7          2
Investments in joint ventures and associates                   (1,329)       (19)
Loan to Engine Holding GmbH                                      (167)          -
Net cash outflow from investing activities                     (2,207)      (721)

Cash flows from financing activities                                           
Repayment of loans                                               (567)      (108)
Proceeds from increase in loans                                      -         68
Net cash flow from decrease in borrowings                        (567)       (40)
Interest received                                                   19         23
Interest paid                                                     (50)       (77)
Decrease/ (increase) in short-term investments                     316      (326)
Issue of ordinary shares (net of expenses)                         (1)         67
Purchase of ordinary shares                                       (57)      (124)
Redemption of C Shares                                           (315)      (266)
Net cash outflow from financing activities                       (655)      (743)
Net decrease in cash and cash equivalents                      (1,556)      (124)
Cash and cash equivalents at January 1                           2,851      2,958
Exchange (losses)/gains on cash and cash equivalents               (4)         17
Cash and cash equivalents at December 31                         1,291      2,851

* Restated to show government grants, previously included in trade and other
payables, separately.

Reconciliation of movement in cash and cash equivalents to movements in net funds

                                                                   2011    2010
                                                                     £m      £m
Decrease in cash and cash equivalents                           (1,556)   (124)
Cash flow from decrease in borrowings                               567      40
Cash flow from (decrease)/ increase in short-term investments     (316)     326
Change in net funds resulting from cash flows                   (1,305)     242
Net funds (excluding cash and cash equivalents) of businesses         -     (1)
Exchange (losses)/gains on net funds                                (5)      17
Fair value adjustments                                               92      26
Movement in net funds                                           (1,218)     284
Net funds at January 1 excluding the fair value of swaps          1,335   1,051
Net funds at December 31 excluding the fair value of swaps          117   1,335
Fair value of swaps hedging fixed rate borrowings                   106     198
Net funds at December 31                                            223   1,533
The movement in net funds (defined by the Group as including the items shown
below) is as follows:

                               At     Funds    Exchange   Fair value          At
                          January      flow differences  adjustments    December
                          1, 2011                                      31, 2011
                               £m        £m          £m           £m          £m
Cash at bank and in hand    1,266        26         (7)            -       1,285
Money-market funds            381     (370)           -            -          11
Short-term deposits         1,212   (1,201)           3            -          14
Overdrafts                    (8)      (11)           -            -        (19)
Cash and cash equivalents   2,851   (1,556)         (4)            -       1,291
Short-term investments        328     (316)         (1)            -          11
Other current borrowings    (709)       566           -          142         (1)
Non-current borrowings    (1,134)         1           -         (50)     (1,183)
Finance leases                (1)         -           -            -         (1)
                            1,335   (1,305)         (5)           92         117
Fair value of swaps hedging   198                               (92)         106
fixed rate borrowings                                                            
                            1,533   (1,305)         (5)            -         223

Condensed consolidated statement of changes in equity
For the year ended December 31, 2011
                                     Attributable to ordinary shareholders                           
                                 Capital    flow                                                Total
                Share   Share redemption hedging     Other  Retained         Non-controlling         
              capital premium    reserve reserve reserves1 earnings2 Total         interests   equity
                   £m      £m         £m      £m        £m        £m    £m                £m       £m
At January 1,                                                                                        
2010              371      98        191    (19)       506     2,635 3,782                 -    3,782
income for                                                                                           
the year            -       -          -    (18)        21       477   480                 4      484
Arising on                                                                                           
issues of                                                                                            
shares              3      64          -       -         -         -    67                 -       67
Issue of C                                                                                           
Shares              -    (29)      (249)       -         -         1 (277)                 -    (277)
Redemption of                                                                                        
C Shares            -       -        267       -         -     (267)     -                 -        -
purchased           -       -          -       -         -     (124) (124)                 -    (124)
payments -                                                                                           
direct to                                                                                            
equity 3            -       -          -       -         -        42    42                 -       42
Related tax                                                                                          
movements           -       -          -       -         -         5     5                 -        5
Other changes                                                                                        
in equity in                                                                                         
the year            3      35         18       -         -     (343) (287)                 -    (287)
At January 1,                                                                                        
2011              374     133        209    (37)       527     2,769 3,975                 4    3,979
Total               -       -          -    (15)      (94)       917   808                           
income for                                                                                           
the year                                                                                 (3)      805
Arising on          -       1          -       -         -         -     1                 -        1
issues of                                                                                            
Issue of C          -   (120)          -       -         -     (176) (296)                 -    (296)
Redemption of       -       -        317       -         -     (317)     -                 -        -
C Shares                                                                                             
Ordinary            -       -          -       -         -      (57)  (57)                 -     (57)
Share-based         -       -          -       -         -        77    77                 -       77
payments -                                                                                           
direct to                                                                                            
equity 3                                                                                             
Effect of       2,434    (14)      (353)       -         -   (2,069)   (2)                 -      (2)
scheme of                                                                                            
arrangement 4                                                                                        
Effect of     (2,434)       -          -       -         -     2,434     -                 -        -
reduction 4                                                                                          
Related tax         -       -          -       -         -        12    12                 -       12
Other changes       -   (133)       (36)       -         -      (96) (265)                 -    (265)
in equity in                                                                                         
the year                                                                                             
At December       374       -        173    (52)       433     3,590 4,518                 1    4,519
31, 2011                                                                                             

1 Other reserves include a merger reserve of £3m (2010: £3m; 2009: £3m) and a
  translation reserve of £430m (2010: £524m; 2009: £503m).

2 At December 31, 2011, 22,541,187 ordinary shares with a net book value of £116m
  (2010: 28,320,962; 2009: 7,156,497 ordinary shares with net book values of £
  125m and £25m respectively) were held for the purpose of share-based payment
  plans and included in retained earnings.  During the year, 14,822,563 ordinary 
  shares with a net book value of £66m (2010: 6,586,568 shares with a net book
  value of £24m) vested in share-based payment plans.  During the year the
  Company acquired 9,042,788 of its ordinary shares through purchases on the
  London Stock Exchange.  

3 Share-based payments - direct to equity is the net of the credit to equity in
  respect of the share-based payment charge to the income statement and the
  actual cost of shares vesting, excluding those vesting from own shares.

4 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).  Pursuant to the scheme of arrangement, 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.

5 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.

1 Basis of preparation

These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted for use in the EU (Adopted IFRS)
in accordance with EU law (IAS Regulation EC 1606/2002).

The financial information set out above does not constitute the Company's
statutory accounts for the year ended December 31, 2011, but is derived from
those accounts. Statutory accounts for Rolls-Royce Group plc for the year ended
December 31, 2010 have been delivered to the Registrar of Companies.  Statutory
accounts for Rolls-Royce Holdings plc will be delivered to the registrar of
Companies following the Company's Annual General Meeting.   The auditors have
reported on those accounts; their reports were (i) unqualified, (ii) did not
include references to any matters to which the auditors drew attention by way
of emphasis without qualifying their reports and (iii) did not contain
statements under section 498(2) or (3) of the Companies Act 2006.

There were no revisions to Adopted IFRS that became applicable in 2011 which
had a significant impact on the Group's financial statements.

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 (the Chief Operating Decision Maker as defined
by IFRS 8), as follows:

Civil aerospace    development, manufacture, marketing and sales of commercial
                   aero engines and aftermarket services.
Defence aerospace  development, manufacture, marketing and sales of military
                   aero engines and aftermarket services.

Marine             development, manufacture, marketing and sales of marine-power
                   propulsion systems and aftermarket services.
Energy             development, manufacture, marketing and sales of power systems
                   for the offshore oil and gas industry and electrical power
                   generation and aftermarket services.

Engineering and Technology and Operations, discussed in the business review,
operate on a Group-wide basis across all the above segments.  The equity
accounted share of the Engine Holding GmbH business acquired during the year is
shown separately.

The operating results reviewed by the Board are prepared on an underlying
basis, which the Board considers reflects better the economic substance of the
Group's trading in the year.  The principles adopted to determine underlying
results are:

Underlying revenues - Where revenues are denominated in a currency other than
the functional currency of the Group undertaking, these reflect the achieved
exchange rates arising on settled derivative contracts.  There is no
inter-segment trading and hence all revenues are from external customers.

Underlying profit before financing - Where transactions are denominated in a
currency other than the functional currency of the Group undertaking, this
reflects the transactions at the achieved exchange rates on settled derivative
contracts.  In addition, adjustments have been made to exclude one-off past–
service credits on post retirement schemes and the effect of acquisition

Underlying profit before taxation - In addition to those adjustments in
underlying profit before financing:
- Includes amounts realised from settled derivative contracts and revaluation of
  relevant assets and liabilities to exchange rates forecast to be achieved from
  future settlement of derivative contracts.
- 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.

                                         2011                              2010
                  Original                          Original                   
                 equipment Aftermarket  Total      equipment Aftermarket  Total
                        £m          £m     £m             £m          £m     £m
Underlying revenues                                                                               
Civil aerospace      2,232       3,340  5,572          1,892       3,027  4,919
Defence aerospace    1,102       1,133  2,235          1,020       1,103  2,123
Marine               1,322         949  2,271          1,719         872  2,591
Energy                 602         597  1,199            691         542  1,233
                     5,258       6,019 11,277          5,322       5,544 10,866
                                                                  2011      2010
                                                                    £m        £m
Underlying profit before financing and taxation                                 
Civil aerospace                                                    499       392
Defence aerospace                                                  376       309
Marine                                                             323       332
Energy                                                              24        27
Engine Holding                                                      36         -
Reportable segments                                              1,258     1,060
Central items                                                     (52)      (50)
                                                                 1,206     1,010
Underlying net financing                                          (49)      (55)
Underlying profit before taxation                                1,157       955
Underlying taxation                                              (261)     (236)
Underlying profit for the year                                     896       719

Net assets/(liabilities)         Total assets   Total liabilities    Net assets
                                  2011    2010       2011     2010    2011   2010
                                    £m      £m         £m       £m      £m     £m
Civil aerospace                  8,621   8,162    (5,982)  (5,435)   2,639  2,727
Defence aerospace                1,311   1,344    (1,831)  (1,867)   (520)  (523)
Marine                           2,227   2,363    (1,544)  (1,548)     683    815
Energy                           1,285   1,182      (617)    (748)     668    434
Engine Holding                   1,418      -          -        -   1,418      -
Reportable segments             14,862  13,051    (9,974)  (9,598)   4,888  3,453
Eliminations                     (757)   (823)        757      823       -      -
Net funds/(debt)                 1,427   3,385    (1,204)  (1,852)     223  1,533
Tax assets/(liabilities)           388     457      (583)    (608)   (195)  (151)
Net post-retirement scheme         503     164      (900)  (1,020)   (397)  (856)
Net assets                      16,423  16,234   (11,904) (12,255)   4,519  3,979

Group employees at year end                                 2011            2010
Civil aerospace                                           21,100          19,600
Defence aerospace                                          6,900           7,000
Marine                                                     9,500           9,400
Energy                                                     3,800           3,600
                                                          41,300          39,600
Reconciliation to reported results                    
                             Total Underlying                                  
                        reportable    central        Total  Underlying         
                          segments      items   underlying adjustments    Group
                                £m         £m           £m          £m       £m
Year ended December 31, 2011                                                    
Revenue from sale of         5,258          -        5,258        (19)    5,239
original equipment                                                             
Revenue from                 6,019          -        6,019       (134)    5,885
aftermarket services                                                           
Total revenue               11,277          -       11,277       (153)   11,124
Operating profit                                                               
excluding share of                                                             
results of joint                                                               
ventures and associates      1,083      (52)1        1,031          39    1,070
Share of results of            172          -          172        (56)      116
joint ventures and                                                             
Profit on disposal of            3          -            3           -        3
Profit before financing      1,258       (52)        1,206        (17)    1,189
and taxation                                                                   
Net financing                            (49)         (49)        (35)     (84)
Profit before taxation                  (101)        1,157        (52)    1,105
Taxation                                (261)        (261)           4    (257)
Profit for the year                     (362)          896        (48)      848
Year ended December 31,                                                        
Revenue from sale of         5,322          -        5,322         112    5,434
original equipment                                                             
Revenue from                 5,544          -        5,544         107    5,651
aftermarket services                                                           
Total revenue               10,866          -       10,866         219   11,085
Operating profit                                                               
excluding share of                                                             
results of joint                                                               
ventures and associates        963      (50)1          913         124    1,037
Share of results of             93          -           93           -       93
joint ventures and                                                             
Profit on disposal of            4          -            4           -        4
Profit before financing      1,060       (50)        1,010         124    1,134
and taxation                                                                   
Net financing                            (55)         (55)       (377)    (432)
Profit before taxation                  (105)          955       (253)      702
Taxation                                (236)        (236)          77    (159)
Profit for the year                     (341)          719       (176)      543

1 Central corporate costs



Underlying adjustments                                                                                
                                                2011                                   2010
                           Profit                                 Profit                   
                           before       Net                       before       Net         
                Revenue financing financing Taxation   Revenue financing financing Taxation
                     £m        £m        £m       £m        £m        £m        £m       £m
Underlying        1,277     1,206      (49)    (261)    10,866     1,010      (55)    (236)
Revenue           (153)         -         -        -       219         -         -        -
recognised at                                                                              
exchange rate     
on date of                                                                                 
Realised              -     (116)        24        -         -       180       (7)        -
on settled            

Net unrealised        -       (5)      (49)        -         -         -     (341)        -
fair value                                                                                 
changes to             

Effect of             -         4         -        -         -      (56)         -        -
currency on                                                                                

Revaluation of        -         -         -        -         -         -         8        -
trading assets                                                                             
and liabilities                                                                             
Financial RRSPs                                                                            
- foreign                                                                                  
exchange              -         -         2        -         -         -       (6)        -
differences and                                                                            
changes in                                                                                 

Effect of             -      (64)         -        -         -         -         -        -
Post-retirement       -       164         -        -         -         -         -        -
scheme past-                                                                               
service credits4,5                                                                            

Net                   -         -      (12)        -         -         -      (31)        -
scheme financing                                                                       
Related tax           -         -         -        4         -         -         -       77

Total             (153)      (17)      (35)        4       219       124     (377)       77
Reported per                                                                               
statement        11,124     1,189      (84)    (257)    11,085     1,134     (432)    (159)

1 Realised (gains)/losses on settled derivative contracts include adjustments
  to reflect the (gains)/losses in the same period as the related trading cash
2 Unrealised fair value changes to derivative contracts include those included
  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 The adjustment eliminates charges recognised as a result of recognising
  assets in acquired businesses at fair value.

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

5 The Group has agreed revised post-retirement healthcare arrangements on
  certain of its overseas schemes. This has resulted in a net gain in the income
  statement of £34m which has been excluded from underlying profit.

The reconciliation of underlying earnings per ordinary share is shown in note 4.

3     Net financing

                                                 2011                      2010
                                       Per                       Per           
                              consolidated Underlying   consolidated Underlying
                                    income financing1         income financing1
                                 statement                statement   
                                        £m          £m            £m         £m
Financing income                                                               
Interest receivable                     20          20            23         23
Financial RRSPs - foreign                                                      
exchange differences and                                                       
changes in forecast payments             2          -              -          -
Fair value gains on commodity            -          -             29          -
Expected return on                     410          -            400          -
post-retirement scheme assets                                                  
Net foreign exchange gains              24          -              1          -
                                       456          20           453         23
Financing costs                                                                
Interest payable                      (51)        (51)          (63)       (63)
Fair value losses on foreign          (21)          -          (370)          -
currency contracts
Financial RRSPs - foreign                -          -            (6)          -
exchange differences and                                                       
changes in forecast payments             
Financial charge relating to          (11)        (11)          (13)       (13)
financial RRSPs                                                                
Fair value losses on                  (28)          -              -          -
commodity contracts                                                            
Interest on post-retirement          (422)          -          (431)          -
scheme liabilities                                                             
Other financing charges                (7)         (7)           (2)        (2)
                                     (540)        (69)         (885)       (78)
Net financing                         (84)        (49)         (432)       (55)
Analysed as:                                                                   
Net interest payable                  (31)        (31)          (40)       (40)
Net post-retirement scheme financing  (12)          -           (31)          -
Net other financing                   (41)        (18)         (361)       (15)
Net financing                         (84)        (49)         (432)       (55)
1 See note 2

4 Earnings per ordinary share

Basic earnings per ordinary share (EPS) are calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, excluding ordinary shares held under
trust, which have been treated as if they had been cancelled.

Diluted EPS are calculated by adjusting the weighted average number of ordinary
shares in issue during the year for the bonus element of share options.

                                              2011                            2010
                              Potentially                      Potentially        
                           dilutive share                   dilutive share        
                     Basic       options   Diluted     Basic       options Diluted
Profit attributable    850                     850       539                   539
to ordinary                                                                     
shareholders (£m)                                                               
Weighted average     1,850            25     1,875     1,846            24   1,870
number of shares                                                                
EPS (pence)          45.95        (0.62)     45.33     29.20        (0.38)   28.82
The reconciliation between underlying EPS and basic EPS is as follows:

                                                           2011              2010
                                                   Pence     £m      Pence     £m  
Underlying EPS/Underlying profit attributable to   48.54    898      38.73    715  
ordinary shareholders                                                          
Total underlying adjustments to profit before tax (2.81)   (52)    (13.70)  (253)  
(note 2)                                                                       
Related tax effects                                 0.22      4       4.17     77  
EPS/Profit attributable to ordinary shareholders   45.95    850      29.20    539  
Diluted underlying EPS                             47.89             38.24        


5 Payments to shareholders in respect of the year

Payments to shareholders in respect of the year represent the value of C Shares
to be issued in respect of the results for the year.  Issues of C Shares were
declared as follows:
                                                      2011                  2010
                                                Pence                 Pence     
                                            per share   £m        per share   £m
Interim (issued in January)                       6.9  129              6.4  119
Final   (issued in July)                         10.6  199              9.6  180
                                                 17.5  328             16.0  299
6 Intangible assets

                             costs and              Recoverable Software        
                         participation  Development      engine      and        
              Goodwill            fees  expenditure       costs    other   Total
                    £m              £m           £m          £m       £m      £m
At January 1,    1,115             686          862         697      413   3,773
Exchange          (20)             (2)          (1)           -      (2)    (25)
Additions            -              44           93         135       95     367
Acquisitions        11               -            -           -        8      19
of businesses                                                                  
Transferred          -               -            -       (368)        -   (368)
to assets                                                                      
held for sale                                                                  
Disposals            -             (8)            -           -     (24)    (32)
At December      1,106             720          954         464      490   3,734
31, 2011                                                                       
At January 1,        7             190          232         351      109     889
Charge for           -              15           36          62       56     169
the year                                                                       
Transferred          -               -            -       (182)        -   (182)
to assets                                                                      
held for sale                                                                  
Disposals            -             (8)            -           -     (16)    (24)
At December          7             197          268         231      149     852
31, 2011                                                                       
Net book         1,099             523          686         233      341   2,882
value at                                                                       
December 31,                                                                   
Net book         1,108             496          630         346      304   2,884
value at                                                                       
December 31,                                                                   

Certification costs and participation fees, development costs and recoverable
engine costs have been reviewed for impairment in accordance with the
requirements of IAS 36 Impairment of Assets. Where an impairment test was
considered necessary, it has been performed on the following basis:
- The carrying values have been assessed by reference to value in use. These have
  been estimated using cash flows from the most recent forecasts prepared by
  management, which are consistent with past experience and external sources of
  information on market conditions over the lives of the respective programmes.
- The key assumptions underlying cash flow projections are assumed market share,
  programme timings, unit cost assumptions, discount rates, and foreign exchange
- The pre-tax cash flow projections have been discounted at 11 per cent (2010 11
  per cent), based on the Group's weighted average cost of capital.
- No impairment is required on this basis. However, a combination of changes in
  assumptions and adverse movements in variables that are outside the Group's
  control (discount rate, exchange rate and airframe delays), could result in
  impairment in future years.

7 Other financial assets and liabilities

                Foreign             Interest                                   
               exchange Commodity       rate         Financial      C          
              contracts contracts  contracts Total       RRSPs Shares     Total
                     £m        £m         £m    £m          £m     £m        £m
At December                                                                    
31, 2011                                                                       
Non-current assets  237         7         83   327           -      -       327
Current assets       84         7          -    91           -      -        91
                    321        14         83   418           -      -       418
Current            (85)       (7)          -  (92)        (15)    (4)     (111)
Non-current       (683)      (19)        (2) (704)       (215)      -     (919)
                  (768)      (26)        (2) (796)       (230)    (4)   (1,030)
                  (447)      (12)         81 (378)       (230)    (4)     (612)
At December                                                                    
31, 2010                                                                       
Non-current assets  317        18         36   371           -      -       371
Current assets       98        10        142   250           -      -       250
                    415        28        178   621           -      -       621
Current            (38)       (5)          -  (43)        (39)   (23)     (105)
Non-current       (713)       (2)        (3) (718)       (227)      -     (945)
                  (751)       (7)        (3) (761)       (266)   (23)   (1,050)
                  (336)        21        175 (140)       (266)   (23)     (429)

Derivative financial instruments

Movements in the fair value of derivative financial instruments were as

                                                                   2011    2010
                                     Foreign             Interest              
                                    exchange Commodity       rate Total   Total
                                          £m        £m         £m    £m      £m
At January 1                           (336)        21        175 (140)      44
Movements in fair value hedges             2         -         83    85    (14)
Movements in cash flow hedges            (1)         -          -   (1)       -
Movements in other derivative contracts (21)      (28)          1  (48)   (342)
Contracts settled                       (91)       (5)      (178) (274)     172
At December 31                         (447)      (12)         81 (378)   (140)

Financial risk and revenue sharing partnerships (RRSPs)

Movements in the recognised values of financial RRSPs were as follows:

                                                               2011        2010
                                                                 £m          £m
At January 1                                                  (266)       (363)
Cash paid to partners                                            46         114
Exchange adjustments included in OCI                            (1)           2
Financing charge1                                             (11)        (13)
Excluded from underlying profit:                                               
   Exchange adjustments1                                         1         (6)
   Changes in forecast payments1                                 1           -
At December 31                                                (230)       (266)

1 Total charge included within finance in the income statement is £9m (2010
charge £19m).

8 Borrowings

During 2011, the £250m bank revolving credit facility ("RCF") due in 2012 and £
750m RCF due in 2013 were both refinanced with a new £1.0bn RCF due in 2016
provided by a syndicate of relationship banks.

9 Pensions and other post-retirement benefits

Movements in the net post-retirement position recognised in the balance sheet
were as follows:
                                                        UK     Overseas   Total
                                                   schemes      schemes        
                                                        £m           £m      £m
At January 1, 2011                                   (220)        (636)   (856)
Exchange differences                                     -            1       1
Current service cost                                 (119)         (34)   (153)
Past-service credit                                    126          162     288
Curtailment                                              -            2       2
Finance cost                                         (372)         (50)   (422)
Expected return on assets                              381           29     410
Contributions by employer                              256           48     304
Net actuarial gains/(losses)                           790         (84)     706
Movement in unrecognised past-service credit             -         (94)    (94)
Movement in unrecognised surplus1                    (690)            7   (683)
Movement on minimum funding liability2                 100            -     100
At December 31, 2011                                   252        (649)   (397)
Analysed as:                                                                   
Post-retirement scheme surpluses - included in         495            8     503
non-current assets                                                             
Post-retirement scheme deficits - included in        (243)        (657)   (900)
non-current liabilities                                                        
                                                       252        (649)   (397)
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

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. 

Contingent liabilities are disclosed on a discounted basis. As the directors
consider the likelihood of these contingent liabilities crystallising to be
remote, this amount does not represent the value that is expected to
crystallise. However, the amounts are discounted at the Group's borrowing rate
to reflect better the time span over which these exposures could arise. The
contingent liabilities are denominated in US dollars.  As the Group does not
adopt hedge accounting for forecast foreign currency transactions, this amount
is reported, together with the sterling equivalent at the reporting date spot

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

                                                                  2011        2010
                                                                 £m   $m   £m   $m
Gross contingent liabilities                                    612  951  633  991
Contingent liabilities net of relevant security 1               124  192  121  190
Contingent liabilities net of relevant security reduced by 20%2 201  312  200  314

1 Security includes unrestricted cash collateral of:             67  104   68  106
2 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

There are also net contingent liabilities in respect of undelivered aircraft,
but it is not considered practicable to estimate these as deliveries can be
many years in the future, and the relevant financing will only be put in place
at the appropriate time.

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.

Principal risks and uncertainties

Risk or uncertainty and potential impact     Mitigation                          
Significant external events affecting        - Established a balanced business     
demand for transportation such as              portfolio                           
terrorism, political change, global          - Strong access to parts of the world 
pandemic, natural disaster or continued        where demand remains robust
and deeper economic retrenchment             - Diversity of global operations      
                                             - Regularly exercised senior response

Failure to minimise the environmental        - Research and development in low     
impact of the Group's products and             carbon technologies such as nuclear 
operations leading to reputational damage      power, tidal energy and fuel cells  
and ultimately loss of market share          - Significant investment in 
                                               innovative solutions for aviation, 
                                               marine and energy markets                      
                                             - Governance structure headed by the  
                                               Environment Council to oversee      
Reduction in Government spending due to      - Development of a diversified        
global financial uncertainty and budgetary     portfolio of products and services  
constraint in Europe and the US in             for various markets and regions     
particular causing reduced revenues on       - Proactive lobbying for research and 
existing platforms and inhibiting              technology funding                  
investment in new technologies               - Achieve commitments under current   
Failure of counterparties, including         - Established policy for managing     
financial institutions, customers, joint       counterparty credit risk            
venture partners and insurers, driven        - Common framework to measure, report 
mainly by the economic uncertainties and       and control exposures to            
pressures in the current environment,          counterparties across the Group     
potentially affecting short term cash          using value-at-risk and fair-value  
flows                                          techniques                          
                                             - Internal credit rating assigned to  
                                               each counterparty, assessed with    
                                               reference to publicly available     
                                               credit information and subject to   
                                               regular review                      
Fluctuations in foreign currency exchange    - Long-term hedging policy, using a   
rates affecting operational results or the     variety of financial instruments    
outcomes of financial transactions           - Where applicable, currency matching 
                                               of assets and liabilities to manage 
                                               translational exposures             
                                             - Regular review of risks and         
                                               appropriate risk mitigation         
                                               performed where material mismatches 
Regulatory changes relating to financial     - Close monitoring of proposed changes
derivatives may require the Group to post    - Evaluation of potential financial   
cash collateral, increasing cash flow          impact in terms of cash collateral  
volatility and the risk of default             required and use of public trading  
                                             - Lobbying politicians and regulators 
                                               in conjunction with other large     
                                               European corporates                 
If the Rolls-Royce products, services and    - Establishment of long-term customer 
pricing do not remain competitive, this        relationships to differentiate      
could result in the loss of market share,      products and services and protect   
with attendant impact on long-term             margins                             
financial performance.                       - Steady focus on improvement in      
                                               operational performance, for 
                                               example through the modernisation 
                                               of facilities                          
                                             - Increased focus on managing the     
                                               costs of operations and products    
                                             - Sustained investment in technology  
Non-compliance with applicable legislation   - A business-wide compliance structure
and regulations, for example export            focussing on anti-bribery and       
controls, anti-bribery and authorisation       corruption legislation              
of chemicals and substances compromising     - Exports Committee, chaired by the   
the ability to conduct business in certain     Chief Operating Officer directs     
jurisdictions and exposing the Group to        strategy and policy on exports      
reputational damage and potential            - Resources to comply with            
financial penalties                            requirements are embedded 
                                               throughout the business                        
                                             - Employee awareness training         
Failure to grow capable resource globally    - Continued significant investment in 
due to demographic trends and limited          resourcing and capability           
supply of appropriately skilled personnel      infrastructure                      
affecting programme delivery, damaging       - Objective assessment of performance 
reputation and stifling opportunities for      using improved system for developing
future innovation                              and monitoring the competency of    
                                             - Regularly refreshed framework to    
                                               develop managers and leaders        
Product performance not meeting              - Operating a 'safety first' culture, 
expectations affecting safety and              including delivery of regularly     
reliability with adverse long term             refreshed mandated product integrity
financial consequences                         training to employees and suppliers 
                                             - Future safety requirements are      
                                               defined by the Product Safety       
                                               Assurance team                      
                                             - Activities to improve maturity of   
                                               products at entry into service      
                                             - Engineering focus on improvements
                                               to product reliability and service     
Disruption of supply chain due to external   - Continuous improvement of all       
factors or failure to deliver parts to         processes and project management    
committed costs and quality reducing the       controls to ensure both technical   
ability to meet customer commitments, win      and business objectives are achieved
future business or achieve operational       - Customer Excellence Centre provides 
results                                        improved response to and analysis of
                                               supply chain disruption             
                                             - Focus on production quality through 
                                               plant and supplier improvement plans
                                             - Providing duality of capability     
                                               through establishment of world-class
                                               manufacturing capabilities in Asia, 
                                               North America and Europe            
                                             - Pursuit of low cost sourcing        
Downgrade in credit rating restricting the   - The Group has developed a strong    
Group's ability to secure funding, hedge       financial risk profile and continues
forward or provide vendor financing            to improve the business risk profile
Failure to conduct business in an ethical    - Ethics Committee established to     
and socially responsible manner causing        oversee and maintain the highest    
disruption and reputational damage             ethical standards                   
                                             - Global Code of Business Ethics, in  
                                               18 languages, issued to all         
                                               employees supported by a training   
                                               and engagement programme to improve 
                                               awareness of the Group's values     
                                             - Global telephone and intranet       
                                               channels are available for employees
                                               to report in confidence any concerns
                                               regarding potentially unethical     
Failure to manage multiple complex product   - Continuous improvement of all       
programmes effectively with potentially        processes and project management    
significant adverse financial and              controls to ensure both technical   
reputational consequences, including the       and business objectives are achieved
risk of impairment of the carrying value     - All major programmes subject to     
of the Group's intangible assets and the       approval and regular review by the  
impact of potential litigation                 Board, with particular focus on the 
                                               nature and potential impact of      
                                               emerging risks and the effective    
                                               mitigation of previously identified 
Breach of IT security through increasing     - Continual upgrading of security     
volumes of data being transmitted              equipment and software              
electronically across international          - Deployment of a multi-layered       
borders may cause controlled data to be        protection system that includes web 
lost, corrupted or accessed by                 gateway filtering, firewalls and    
unauthorised users, impacting the Group's      intrusion detection                 
reputation                                   - Specialist resources employed to    
                                               increase capability                 
                                             - Active sharing of information       
                                               through industry and government     
Failure to execute of programme to           - Governance structure established to 
modernise the IT infrastructure impacting      oversee the programme               
efficiency and effectiveness of business     - Project and risk management         
operations                                     methodologies are being followed    
                                             - Specialist resources have been      
                                               secured to increase capability      
                                             - Involvement of multiple service     
                                               providers to provide competition and
                                               remove dependency on any single     
Loss or unintended disclosure of             - Strengthening of resources to manage
Intellectual Property damaging the Group's     patents                             
competitive position and causing potential   - Creation of a global framework of   
breach of contractual requirements             Intellectual Property officers      
                                             - Procurement of a global IT system to
                                               make patent information more widely 
                                               available to engineers              

Annual report and financial statements

The statements below have been prepared in connection with the Company's full
Annual report for the year ended December 31, 2011. Certain parts thereof are 
not included with this announcement.

Going concern

The Group's business activities, together with the factors likely to affect its
future development, performance and position and a summary of the principal
risks affecting the business are shown in the business review.  The financial
position of the Group, its cash flows, liquidity position, borrowing facilities
and financial risks are also described in the business review. In addition the
consolidated financial statements include the Group's objectives, policies and
processes for financial risk management, details of its cash and cash
equivalents, indebtedness and borrowing facilities and its financial
instruments, hedging activities and its exposure to counterparty credit risk,
liquidity risk, currency risk, interest rate risk and commodity pricing risk.

The Group meets its funding requirements through a mixture of shareholders'
funds, bank borrowings, bonds, notes and finance leases. The Group has
facilities of £2.3bn of which £1.1bn was drawn at the year end.  None of these
facilities expire in 2012.

The Group's forecasts and projections, taking into account reasonably possible
changes in trading performance, show that the Group has sufficient financial
resources. As a consequence, the Directors have a reasonable expectation that
the Company and the Group are well placed to manage their business risks and to
continue in operational existence for the foreseeable future, despite the
current uncertain global economic outlook. Accordingly, the Directors continue
to adopt the going concern basis (in accordance with the guidance 'Going
Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009' issued
by the Financial Reporting Council) in preparing the consolidated financial

Responsibility statement

Each of the persons who is a director at the date of approval of this report
confirms that to the best of his or her knowledge:

i)  each of the Group and parent company financial statements, prepared in
    accordance with IFRS and UK Accounting Standards respectively, gives a true 
    and fair view of the assets, liabilities, financial position and profit or 
    loss of the issuer and the undertakings included in the consolidation taken 
    as a whole; and

ii) the Directors' report includes a fair review of the development and
    performance of the business and the position of the Company and the
    undertakings included in the consolidation taken as a whole, together with a
    description of the principal risks and uncertainties that they face.

AGM and directorate change

This year's AGM will be held at 11.00am on Friday, May 4 2012 at the QEII
Conference Centre, Broad Sanctuary, Westminster, London, SW1P 3EE. Under
Article 112 of the Company's Articles of Association, all directors will retire
at the 2012 AGM and offer themselves for re-election. However, Sir Peter
Gregson has expressed his wish to retire as a non-executive director of
Rolls-Royce at this year's Annual General Meeting and therefore will not be
seeking re-election.

By order of the Board

John Rishton                        Mark Morris
Chief Executive                     Finance Director
February 8, 2012                    February 8, 2012

a d v e r t i s e m e n t