COMPANY NUMBER 01003142
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2025
BLANK PAGE
CONTENTS
COMPANY INFORMATION 1
STRATEGIC REPORT 2
DIRECTORS’ REPORT 26
CONSOLIDATED FINANCIAL STATEMENTS 31
COMPANY FINANCIAL STATEMENTS 97
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROLLS-ROYCE PLC 126
OTHER FINANCIAL INFORMATION 135
ALTERNATIVE PERFORMANCE MEASURES 137
GLOSSARY 141
Use of underlying performance measures in the Annual Report
All figures in the narrative of the Strategic Report are underlying unless otherwise stated. We believe this is the most appropriate basis to measure
our in-year performance as this reflects the substance of trading activity, including the impact of the Group’s foreign exchange forward contracts,
which lock in transactions at predetermined exchange rates. In addition, underlying results exclude the accounting impact of business acquisitions
and disposals, certain impairment charges and exceptional items. A full definition of underlying and the reconciliation to the statutory figures can
be found on pages 51 to 57. All references to organic change are at constant translational currency.
Forward-looking statements
This Annual Report contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees
of future performance and guidance may be updated from time to time. This report is intended to provide information to shareholders and is not
designed to be relied upon by any other party or for any other purpose. The Company and its Directors accept no liability to any other person
other than that required under English law. Latest information will be made available on the Group’s website. By their nature, these statements
involve risk and uncertainty and a number of factors could cause material differences to the actual results or developments.
Company Information Rolls-Royce plc Annual Report 2025
1
COMPANY INFORMATION
COMPANY NUMBER 01003142
Registered office Kings Place
Independent Auditors PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Embankment Place
London
WC2N 6RH
Strategic Report Rolls-Royce plc Annual Report 2025
2
STRATEGIC REPORT
The Directors present their Strategic Report on the Rolls-Royce plc Group (the Group), together with the audited Financial Statements for the
year ended 31 December 2025. Rolls-Royce plc (the Company) is a wholly-owned subsidiary of Rolls-Royce Holdings plc (RRH).
Rolls-Royce plc is a public company limited by shares and incorporated under the Companies Act 2006. It holds the Group’s listed debt facilities
and is one of the main trading companies of the Group.
Key Performance Indicators
Financial Performance Indicators
Order backlog (£bn)
How we define it
Why is it important
Total value of firm orders placed by
customers for delivery of products and
services where there is no right to cancel.
This KPI is the same as the statutory measure
for order backlog. See note 2 on page 55 for
more information.
Order backlog provides visibility of future
business activity.
Underlying revenue (£m)
How we define it
Why is it important
Revenue generated from operations at the
average exchange rate achieved on effective
settled derivative contracts in the period that
the cash flow occurs. See note 2 on page 54
for more information.
Underlying revenue provides a measure of
business growth and activity.
Underlying operating profit (£m)
How we define it
Why is it important
Operating profit generated from operations
at the average exchange rate achieved on
effective settled derivative contracts in the
period that the cash flow occurs. It excludes
M&A, exceptional items and certain other
items outside of normal operating activities.
See note 2 on page 52 for more information.
Underlying operating profit indicates how
the effect of growing revenue and control of
our costs delivers value for our shareholders.
Underlying operating margin (%)
How we define it
Why is it important
Underlying operating profit (as defined
above) as a percentage of underlying
revenue (as defined above). It indicates how
much profit the business makes for every one
pound sterling of revenue generated.
Underlying operating margin indicates how
effective the business is at converting
revenue to profit. A higher margin is an
indicator of increased value for our
shareholders, as it demonstrates a higher
conversion of revenue to profit.
Strategic Report Rolls-Royce plc Annual Report 2025
3
Key Performance Indicators continued
Financial Performance Indicators continued
Free cash flow (£m)
How we define it
Why is it important
Free cash flow is cash flows from operating
activities, adjusted to include capital
expenditure and movements in investments,
capital elements of lease payments, interest
paid, cash received on maturity of share-
based payment schemes and amounts paid
relating to the settlement of excess
derivatives.
It excludes amounts spent/received on
business acquisitions/disposals, and other
material exceptional or one-off cash flows.
Cash flows from operating activities is our
statutory equivalent. See note 28 on page 96
for more information
.
Free cash flow is a key metric used to
measure the performance of our business
and how effectively we are creating value for
our shareholders. It enables the business to
fund growth, reduce debt and make
shareholder distributions.
Total underlying cash costs as a proportion of underlying gross margin ratio (TCC) ratio
How we define it
Why is it important
TCC is defined as total underlying cash
costs during the year (represented by
underlying R&D and underlying C&A) as a
proportion of underlying gross profit.
This measure provides an indicator of total
cash costs relative to gross profit (the
percentage of the Group’s overheads that are
covered by gross profit). A reduction in total
cash costs relative to gross profit indicates
how effective the business is at managing
and/or reducing its costs.
Gross R&D expenditure (£m)
1
How we define it
Why is it important
In-year gross cash expenditure on R&D
excludes contributions and fees, amortisation
and impairment of capitalised costs and
amounts capitalised during the year.
This measure demonstrates the balance
between long-term strategic investments and
delivering short-term shareholder returns.
Gross capital expenditure (£m)
How
we define it
Why is it important
In-year gross cash expenditure on capital
excluding depreciation, impairments and
write-offs during the year.
This measure demonstrates the balance
between long-term strategic investments and
delivering short-term shareholder returns.
1
The £58m decrease in gross R&D in 2025 compared with 2024 is driven by the Group’s exit of its advanced air mobility activities in 2024, and the deconsolidation of Rolls-Royce SMR Limited
in 2025, which contributed a £189m decrease. Adjusting for this, gross R&D increased by £131m
Strategic Report Rolls-Royce plc Annual Report 2025
4
Key Performance Indicators continued
Non-financial Performance Indicators
Safety index (%)
How we define it
Why is it important
The safety index provides a composite score
of five leading indicators: senior leadership
safety walks; safety case improvement
activity; HSE alert response, non-
conformance close-out and accountable
person engagement. Together, these
measures reinforce proactive safety
behaviours that improve the effectiveness of
our controls.
With measures that mature year-on-year, the
safety index facilitates the continuous
improvement of our safety culture.
Total reportable injuries rate
1
How we define it
Why is it
important
This is a measure of total reportable injuries
(TRI) rate per 100 employees.
This is a standard measure of actual safety
experience which allows us to benchmark our
performance against external peers and to
measure progress against our ambition to
zero harm. TRI events are shared widely to
strengthen controls and reinforce a culture
in which colleagues feel safe to speak up.
Employee engagement (%)
1
How we define it
Why is it important
Our Voices: Big Picture has evolved over the
past year and is now a core source for
listening to our colleagues and taking action.
Our Voices delivers insights on engagement,
inclusion and employee experience relative
to our targeted behaviours.
Our people are crucial to delivering our
strategy. Our Voices: Big Picture is a key part
of our listening strategy, providing a clear
picture of our cultural progress, while also
making clear where we must act with
urgency.
Scope 1 + 2 greenhouse gas emissions
1
How we define it
Why is it important
Total Scope 1 + 2 greenhouse gas emissions
from facilities, operations and testing,
measured in kilotonnes of carbon dioxide
equivalent (ktCO
2
e).
The Group is committed to achieving net zero
by 2050 and we support our customers to do
the same. Playing our part in the energy
transition means reducing energy
consumption and decarbonising operations
and product testing. This will help ensure our
facilities and internal supply chains remain
resilient in a changing external environment.
1
External assurance provided by DNV. See page 202 of the RRH Annual Report for their assurance statement
Strategic Report Rolls-Royce plc Annual Report 2025
5
Financial review
2025 marked another strong year for Rolls-Royce in both strategic and financial delivery. Key strategic and financial metrics improved
significantly, as did operational execution. All three of our divisions, and our growing nuclear business, contributed to the Group’s continued
progress.
We are continuing to invest in future growth for decades to come. Key investments included: UltraFan in Civil Aerospace, which will position us
for future success on both widebody and narrowbody platforms; the next-generation engine in Power Systems, which will be the most compact
and powerful engine in its category in the market; and in Defence, continued investment across our many multi-decade platforms.
The progress we have made is due to a One Rolls-Royce mindset and team effort. It could not have happened without the expertise, commitment
and hard work of the teams across the Group. Teams across the organisation are delivering to an ever increasing standard as we transform Rolls-
Royce into a high-performing, competitive, resilient and growing business.
Our transformation has already delivered class-leading performance, and we know there is more we need and want to do, to enable us to unlock
further potential across the Group. That work is already underway.
The Company has four key areas of focus for financial performance: integrated performance management, commercial and cost optimisation,
working capital optimisation, and capital framework. We continue to make good progress across all four as part of our transformation journey.
1. Integrated performance management
Our approach to integrated performance management remains at the heart of what we do. It is distinctive and embedded throughout all levels of
the organisation. We aim for everyone in Rolls-Royce to understand how they contribute to strategic and financial delivery. Everyone has clear
targets, which are linked to our strategic initiatives. Rigorous and dynamic performance management ensures that the delivery of these strategic
initiatives drives in-year, mid-term and longer-term delivery.
We continue to invest in and improve our performance management processes. A step-change improvement in management information,
supported by the use of digitisation tools, such as dashboards used throughout all levels of the organisation, drives deeper analysis and insight
into key business drivers. All of which help drive pace, intensity and better insight for more proactive and timely interventions.
2. Commercial and cost optimisation
As part of our transformation, we have embedded a new commercial mindset and cost-conscious culture across the organisation.
Commercial optimisation remains a key area of focus as we adopt a value-based pricing approach across the Group. This has been a significant
driver of improved performance in all three divisions. For example, in Civil Aerospace where we are driving higher aftermarket margins, we have
now renegotiated all our original equipment (OE) contracts. Strong progress has also been made with onerous aftermarket contracts, the most
significant of which have been renegotiated with the balance to be concluded in 2026.
Improved commercial acumen is also making us more agile. For example, we were quick to respond to the impact of tariffs, where we were able
to fully mitigate their direct impact. We are transforming Rolls-Royce into a more commercially proactive and agile business.
Our cost efficiency initiatives are also continuing to deliver as we continue to embed a cost-conscious mindset across the Group. At the end of
2025, our total cash costs to gross margin ratio, a measure of operational efficiency and resilience, stood at 0.36x, a best-in-class ratio. Our
efficiency and simplification programme has delivered benefits of £0.6bn, exceeding our target of £0.5bn by the end of 2025. A number of
workstreams underpin our activities in this area. For example, zero- based budgeting which has been rolled out across the organisation, driving
discipline in spending and providing efficiency benefits. We have also expanded our Group Business Services operations in India and opened a
new centre in Poland. These centres will provide effective and efficient support, as well as an improved customer experience.
3. Working capital optimisation
Working capital optimisation remains a key priority as we focus on delivering sustainable and growing free cash flow, maintaining our resilience
and increasing our return on capital.
In the three years of our transformation we have materially strengthened working capital management, with significant improvements across
inventory days and days sales outstanding, as well as overdue debt. All of this we have done in a challenged supply chain environment, and as we
supported business growth. Working capital culture and discipline across the Group is becoming much stronger.
We worked closely with key suppliers, including embedding Rolls-Royce employees into their organisations, to support them as they navigated
supply chain challenges.
We are also investing in improved sales, inventory and operational planning systems and processes. A new material Group-wide programme was
launched to drive further operational and working capital improvements.
4. Capital framework
We further strengthened our balance sheet, enabled by a growing cash delivery, and ended 2025 with a net cash position. We also repaid a $1bn
bond that matured in October.
Our efforts continue to be recognised by the credit rating agencies, who now all hold us at strong investment grade. In 2025, both Fitch and S&P
Global upgraded Rolls-Royce to BBB+ and Moody’s upgraded Rolls-Royce to Baa1.
We continued to make strategic, disciplined investments in 2025, while staying focused on the safety of our products, processes and people.
Our £1bn multi-year time on wing investment is progressing to plan and will help extend the time between shop visits for our customers, as well
as creating additional capacity in our maintenance, repair and overhaul (MRO) facilities.
Strategic Report Rolls-Royce plc Annual Report 2025
6
Financial review continued
As our transformation programme continues, we look forward to making further progress in these four key priorities in 2026.
2025 financial performance
2025 has been another year of strong strategic and financial delivery with a significant improvement across all financial metrics. Over the past
three years, our transformation programme has delivered a step change in performance, with higher operating profit and free cash flow delivered
alongside a doubling of capital expenditure, as we continue to transform Rolls-Royce into a high-performing, competitive, resilient, and growing
business. Our actions have driven stronger financial performance despite an external environment that remains challenging, including supply
chain constraints which we are actively managing.
Significant operating profit and margin growth: Underlying operating profit increased to £3.5bn in 2025 compared with £2.5bn in 2024, with an
operating margin of 17.3% (2024: 13.8%). Civil Aerospace delivered an underlying operating margin of 20.5% (2024: 16.6%), driven by stronger
large engine aftermarket performance, contractual margin improvements and higher spare engine profitability. Defence reported an underlying
operating margin of 14.4% (2024: 14.2%), which reflects stronger performance across transport and combat, and the absence of a one-off benefit
in submarines in the prior year. Power Systems delivered an operating margin of 17.4% (2024: 13.1%), driven by power generation, where we
continue to capture profitable growth in data centres, and governmental. Across the Group, improved profitability was supported by our ongoing
efficiency and simplification programme.
Sustainable free cash flow growth: Free cash flow of £3.3bn (2024: £2.4bn) was driven by strong operating profit, continued long-term service
agreement (LTSA) balance growth, and a strong working capital performance offset by net investments. Civil Aerospace LTSA balance growth net
of risk and revenue sharing arrangements (RRSAs) was £0.6bn (2024: £0.7bn), this was supported by 8% growth in large engine flying hours (EFH)
and an improved EFH rate, partly offset by a higher number of shop visits and supply chain costs. Working capital was an inflow of £463m (2024:
£278m), reflecting the continued benefits of our working capital initiatives. Net investments of £257m (2024: £282m) supported maintenance repair
and overhaul (MRO) capacity growth in Civil Aerospace and additional capacity in Power Systems.
Building resilience: Net cash stood at £1.9bn at 31 December 2025 compared with £475m at the end of 2024, supported by continued strong cash
flow delivery. Gross debt reduced to £2.8bn (2024: £3.6bn), as we repaid a $1bn bond in October from available cash, and lease liabilities stood at
£1.5bn (2024: £1.6bn). Liquidity remained robust at £8.2bn (2024: £8.1bn), which included cash and cash equivalents of £5.7bn (2024: £5.6bn). Total
underlying cash costs as a proportion of underlying gross margin (TCC/GM) further improved to 0.36x (2024: 0.47x), reflecting further cost
discipline and operational efficiency. We are building a more resilient company with a less volatile free cash flow.
Statutory and underlying Group financial performance
2025 2024
£ million
Statutory
Impact of hedge
book
1
Impact of
acquisition
accounting
Impact of other
non-underlying
items
Underlying
Underlying
Revenue
21,207
(1,148)
–
–
20,059
17,848
Gross profit
6,175
(799)
14
(264)
5,126
4,091
Operating profit
4,468
(797)
16
(225)
3,462
2,464
Gain arising on disposal of businesses
2
809
–
–
(809)
–
–
Profit before financing and taxation
5,277
(797)
16
(1,034)
3,462
2,464
Net financing income/(costs)
1,658
(1,823)
–
55
(110)
(171)
Profit before taxation
6,935
(2,620)
16
(979)
3,352
2,293
Taxation
(1,099)
660
(3)
(151)
(593)
(282)
Profit for the year
5,836
(1,960)
13
(1,130)
2,759
2,011
1
Reflecting the impact of measuring revenue and costs at the average exchange rate during the year and the valuation of assets
and liabilities using the year end
exchange rate rather than the rate achieved on settled foreign exchange contracts in the year o
r the rate expected to be achieved by the use of the hedge book
2
For further information, see note 27, page 94
All underlying income statement commentary is provided on an organic basis unless otherwise stated.
Revenue: Underlying revenue of £20.1bn was higher by 14%, with strong growth across all divisions. Statutory revenue of £21.2bn was 12% higher
compared with 2024. The difference between statutory and underlying revenue is driven by statutory revenue being measured at average
prevailing exchange rates (2025: GBP:USD 1.32; 2024: GBP:USD 1.28) and underlying revenue being measured at the hedge book achieved rate
during the year (2025: GBP:USD 1.44; 2024: GBP:USD 1.48).
Operating profit: Underlying operating profit of £3.5bn (17.3% margin) compared to £2.5bn (13.8% margin) in the prior year. Underlying operating
profit was higher in all three core divisions, driven by our strategic initiatives, including commercial optimisation and cost efficiency benefits. The
largest increase in underlying operating profit was in Civil Aerospace, driven by stronger large engine aftermarket performance, contractual
margin improvements and spare engine profitability. Power Systems also delivered a significant increase in underlying operating profit, driven
by continued profitable growth in power generation, notably in data centres, and governmental. Higher Defence profit reflected a stronger
performance across transport and combat, partly offset by the absence of a one-off benefit in submarines. Statutory operating profit of £4.5bn
compares to underlying profit of £3.5bn. The £(1)bn difference between statutory and underlying operating profit comprises a £(797)m negative
impact from currency hedges in the underlying results alongside a net £(209)m of other adjustments to underlying operating profit. The £(209)m
is made up of: impairment reversal of £(179)m related to a Civil Aerospace programme asset impairment previously recorded, £(83)m onerous
provision release, £(6)m pension past service credit, £(1)m other credits, £44m of charges relating to transformation and restructuring costs and
£16m amortisation of intangible assets arising on previous acquisitions.
Strategic Report Rolls-Royce plc Annual Report 2025
7
Financial review continued
Profit before taxation: Underlying profit before taxation of £3.4bn included £(110)m net financing costs comprising £265m interest receivable,
£(240)m interest payable and £(135)m of other financing charges and costs of undrawn facilities. Statutory profit before tax of £6.9bn included
£1.3bn net fair value gains on derivative contracts, £(31)m net interest payable, net foreign exchange gains of £499m and £(134)m other financing
charges and costs of undrawn facilities.
Taxation: Underlying tax charge of £(593)m (2024: £(282)m) reflects an overall tax charge on profits of Group companies and includes a £277m
tax credit relating to the recognition of previously unrecognised deferred tax asset on underlying UK tax losses and a £31m tax credit relating to
the utilisation of previously unrecognised UK tax loss deferred tax asset against underlying profits in the year. These are reflected in the statutory
tax charge of £(1.1)bn (2024: tax credit of £250m) which also include a further £286m tax credit on the recognition of previously unrecognised
deferred tax asset on non-underlying UK tax losses, offset by a tax charge of £(660)m related to unrealised gains on foreign exchange derivatives,
a £(44)m tax charge related to programme asset impairment reversals, a tax charge of £(58)m relating to the reduction in the substantively enacted
tax rate in Germany and a £(30)m tax charge relating to other non-underlying items.
Free cash flow
2025
2024
£ million
Cash flow
Impact of
hedge book
Impact of
acquisition
accounting
Impact of
other non-
underlying
items
Funds flow
Funds flow
Operating profit
4,468
(797)
16
(225)
3,462
2,464
Depreciation, amortisation and impairment
737
–
(16)
179
900
853
Movement in provisions
(486)
78
–
118
(290)
(167)
Movement in Civil Aerospace LTSA balance
123
378
–
–
501
910
Movement in RRSA
prepayments for parts
90
(19)
–
–
71
(219)
Movement in cost to obtain contracts
(44)
–
–
–
(44)
(18)
Settlement of excess derivatives
(148)
–
–
–
(148)
(146)
Interest received
269
–
–
–
269
269
Other operating cash flows
1
110
–
–
5
115
43
Operating cash flow before working capital and
income tax
5,119
(360)
–
77
4,836
3,989
Working capital
2
6
1
5
(195)
–
4
3
463
278
Cash flows on other financial assets and liabilities held
for operating purposes
(578)
532
–
–
(46)
(24)
Income tax
(590)
–
–
35
(555)
(381)
Cash from operating activities
4,
566
(23)
–
1
5
5
4,698
3,862
Capital element of lease payments
(232)
23
–
–
(209)
(275)
Capital expenditure
(978)
–
–
–
(978)
(876)
Investments
(7)
–
–
37
30
16
Interest paid
(262)
–
–
–
(262)
(298)
Other
1
8
4
–
–
(1
9
2)
(8)
(6)
Free cash flow
3,271
–
–
–
3,271
2,423
1
Other operating cash flows includes profit/(loss) on disposal, share of results and dividends received from joint ventures and associates, flows
relating to our
defined benefit post
-
retirement schemes, and share based payments
2
Working capital includes inventory, trade and other receivables and payables, and contract assets and liabilities (excluding
Civil Aerospace LTSA balances,
prepayment to RRSAs and costs to obtain contracts)
Free cash flow in the year was £3.3bn, £848m higher than the prior year driven by:
Underlying operating profit of £3.5bn was £1.0bn higher than the prior year. This reflects improved underlying operating profit and margins in
all three core divisions, notably Civil Aerospace.
Movement in provisions of £(290)m was primarily driven by a net release of onerous provisions.
Movement in Civil Aerospace LTSA balance was £501m (2024: £910m), driven by continued EFH growth and a higher normalised EFH rate due to
our commercial actions, offset by an increased number of shop visits. Catch-ups were £(279)m in 2025 compared with £(311)m in the prior year.
Movement in RRSA prepayments for parts of £71m (2024: £(219)m) is driven by growth in income received from customers (based on EFH flown)
where the partner receives a share in advance of them providing goods and services to the Group.
Working capital inflow of £463m, compared to an inflow of £278m in the prior year. This reflected the continued benefits of our working capital
initiatives, partly offset by investment to support growth across the Group. A net £1.1bn inflow from receivables, payables and contract liabilities,
was partly offset by a £(684)m increase in inventory.
Income tax of £(555)m was higher than the prior year of £(381)m due to increased profits and timing of payments.
Capital expenditure of £(978)m includes £(621)m of property, plant and equipment additions and £(364)m of intangibles additions. The combined
additions were higher than the prior year as a result of investment across the Group to support strategic growth and safety.
Strategic Report Rolls-Royce plc Annual Report 2025
8
Financial review continued
Balance Sheet
£ million
2025
2024
Change
Intangible assets
and goodwill
2,346
4,402
(2,056
)
Property, plant and equipment 2,198 3,724 (1,526)
Right-of-use assets 517 761 (244)
Joint ventures and associates
787
597
190
Civil Aerospace LTSA
1
(10,397)
(10,184)
(213)
RRSA prepayments for parts
1
1,771 1,668 103
Costs to obtain contracts
1
– 135 (135)
Working capital
1
467
(1,393)
1,860
Provisions
(995)
(1,994)
999
Net cash
2
1,884 475 1,409
Net financial assets and liabilities
2
135 (1,957)
2,092
Net
post
-
retirement scheme surplus
es
/(deficits)
256
(191)
447
Taxation
2,886
3,383
(497)
Net assets held for sale and distribution
3
3,122 53 3,069
Net assets/(liabilities) 4,977 (521)
5,498
US$ hedge book (US$bn)
21
19
1
The total of these lines represent inventory, trade receivables and payables, contract assets and liabilities and other assets and liabilities i
n the statutory
balance sheet
2
Net cash includes £(77)m (2024: £33m) of the fair value of derivatives included in fair value
hedges and the element of fair value relating to exchange
differences on the underlying principal of derivatives in cash flow hedges
and excludes
£11m net cash and borrowings held for sale and distribution
3
Net assets held for sale and distribution include the net assets of the naval handling business and the assets and liabilitie
s of entities that are part of the
Group’s legal entity review programme as held for distribution. During the year, the Group dispo
sed of the naval propulsors business to Fairbanks Morse
Defence (FMD) that was held for sale in 2024
Key drivers of balance sheet movements were:
Intangible assets, goodwill, property, plant and equipment and right-of-use assets: The net reduction of £(3.8)bn is primarily driven by the Group’s
legal entity review programme with £(4.3)bn of assets reclassified to held for distribution, partly offset by an increase of £483m relating to additions
net of depreciation.
Joint ventures and associates: The £190m increase was largely a result of a £732m increase resulting from Rolls-Royce SMR being recognised at
its fair value as an equity-accounted investment following the strategic investment by ČEZ Group (ČEZ) in Rolls-Royce SMR during the year partly
offset by £(502)m of investments being reclassified to assets held for distribution.
Civil Aerospace LTSA: The £(213)m movement in the net liability balance was mainly driven by an increase in invoiced LTSA receipts exceeding
revenue recognised in the year. This is especially prevalent on new contracts where the first shop visits do not occur for some time after the
engine is delivered.
RRSA prepayments for parts: The £103m increase corresponds to the increase seen in the Civil Aerospace LTSA balance above. RRSA prepayments
typically move in line with the Civil Aerospace LTSA balance as the RRSA prepayment represents amounts that we have paid to Risk and Revenue
Share Partners for the parts that they will ultimately provide in support of our contracts.
Working capital: The £1.9bn movement was driven by an increase in net receivables of £1.3bn due to changes in operational volumes and timing
of supplier payments; a £636m increase in inventory reflecting higher sales volumes and net liabilities of £477m reclassified to held for distribution.
This was partly offset by an increase in net contract liabilities of £(541)m.
Provisions: The £999m net reduction in provisions included a net reduction of £437m due to onerous provision reversals and utilisation being
greater than onerous provision charges in the year, supported by continued efforts to renegotiate our most significant onerous contracts and
£562m reclassified to held for distribution.
Net cash: Increased to £1.9bn from £475m driven by a free cash inflow of £3.3bn. Our liquidity position is strong with £8.7bn of liquidity including
cash and cash equivalents of £6.2bn and undrawn facilities of £2.5bn. During the year, the Group repaid a $1.0bn loan note in line with its maturity
date. Net cash included £(1.5)bn of lease liabilities (2024: £(1.6)bn).
Net financial assets and liabilities: A £2.1bn increase in the net financial assets primarily driven by fair value gains on foreign exchange and
commodity contracts due to the impact on the movement in GBP:USD exchange rates.
Net post-retirement scheme surplus/(deficits): The £447m increase in the surplus is driven by £862m of pension deficits being reclassified to held
for distribution, partly offset by a £415m net reduction largely from actuarial movements, primarily due to the Rolls-Royce UK Pension Fund
entering into a Buy-in transaction in 2025, the buy-in was done in anticipation of entering into a full buy-out during 2026.
Strategic Report Rolls-Royce plc Annual Report 2025
9
Financial review continued
Taxation: The net tax asset decrease of £(497)m was driven by a £156m decrease in deferred tax liabilities (primarily due to a reduction in the UK
defined benefit pension surplus) and a £27m decrease in net current tax liabilities (driven by an increase due to timing of payments), offset by net
current tax liabilities reclassified to net assets held for distribution. These were more than offset by a net reduction in the deferred tax asset of
£(680)m which was driven by a £(480)m reduction in deferred tax assets reclassified to assets held for distribution, a £(504)m reduction in deferred
tax related to foreign exchange derivatives, which moved from a net financial liability to a net financial asset position, a £(178)m reduction in other
deferred tax assets driven by a reactivation of previously disallowed interest in the UK and asset impairment reversals, and other movements on
UK tax losses of £(81)m. These were partly offset by the recognition of a £563m deferred tax asset relating to UK tax losses previously not
recognised.
Strategic Report Rolls-Royce plc Annual Report 2025
10
Business review
Our divisions
Civil Aerospace
Civil Aerospace is a major manufacturer of aero engines for the large commercial aircraft, regional jets and business aviation markets. The division
uses its engineering expertise, in-depth knowledge and capabilities to provide through-life service solutions for its customers.
Market overview
Civil Aerospace has two main areas of focus – large engine production, based in Derby, UK and business aviation, headquartered in Dahlewitz,
Germany. We have 14,263 in-service engines and power four out of five in-production widebody aircraft. A majority of our engines are covered
under long-term service agreements, and are supported by our global MRO network spanning 12 locations in 10 countries.
In 2025, we saw a strong intake of orders and as such our large engine order book increased by 20% to 2,207 engines at the end of the year. A
total of 638 large engines were ordered with a gross book-to-bill ratio of 2.5x. Significant new orders included Riyadh Air, IndiGo, and IAG.
Deliveries of 259 large engines during 2025 (2024: 278) were aligned to airframer production schedules, reflecting the impact of industry-wide
supply chain issues, and included a slightly lower number of spare engine deliveries.
Our market share of the installed widebody base has grown from 34% at the end of 2022 to 38% at the end of 2025, supported by our market
share of more than 50% of new engine deliveries over the past three years.
Business aviation engine deliveries were 224 in 2025 (2024: 251), of which a majority were Pearl engines, which saw a 26% increase year-on-year,
offset by lower deliveries of legacy BR engines. At present, there are over 7,500 in-service Rolls-Royce business aviation engines across our
Pearl, Tay, BR710, BR725 and AE 3007 families, which provide power to a range of platforms, including the Gulfstream and the Bombardier aircraft.
There are over 1,600 BR725 and Pearl engines in service, which power the Gulfstream G650/G650ER/G700 and the Bombardier Global jets
5500/6500.
Large engine flying hours rose by 8% compared to the prior year to 111% of 2019 levels, driven by continued strong demand for travel and our
growing installed large engine fleet. Business aviation and regional engine flying hours were broadly unchanged compared to 2024.
In 2025, we saw higher shop visit volumes, as expected, despite continued supply chain challenges which we are actively managing. These shop
visits are required to maintain and repair our growing installed engine fleet.
We have invested to grow capacity in Derby, UK, Dahlewitz, Germany, and Singapore. This has allowed us to deliver more new engines, and at the
end of 2025, perform an additional 10% shop visits compared to 2024 to support rising aftermarket volumes.
Operational and strategic progress
We have made continued progress on our six levers to unlock value within Civil Aerospace: extend time on wing; lower shop visit costs; reduce
product costs; keep engines earning for longer; implement value-based pricing; and drive contractual rigour.
Our time on wing programme to improve the durability across our in-production Trent engines now targets more than a 100% increase. More
than half of this improvement is now delivered. On the Trent XWB-84, we have refined and accelerated our programme to extend critical part
lives. For the Trent 1000 XE engine, the improved phase one HPT blade was certified in June and has been fitted to new production engines and
engines in shop visits. In addition, the phase two HPT blade was certified for the Trent 1000 XE and Trent 7000 engines in December and will be
incorporated into production engines and existing engines commencing in 2026.
We have continued to enact and embed a value-based pricing framework and have made further progress on re-structuring onerous contracts,
driving improvements in LTSA margins. Alongside our time on wing improvements and cost initiatives, our efforts have significantly improved
contract margins of in-production engines over the past three years.
During 2025, we continued to make progress in expanding our MRO capacity across the network. We celebrated the official opening of BAESL,
our MRO joint venture with Air China in Beijing, China, to support up to 250 shop visits per year by the mid-2030s. We announced plans with
Turkish Technic to establish a world-leading aero engine facility in İstanbul, Republic of Türkiye, targeted to be operational by the end of 2027
to support up to 200 shop visits per year.
In business aviation, the first Pearl 700 powered Gulfstream G800 entered service in August. Certification for the Pearl 10X engine, which powers
the Dassault Falcon 10X, is underway, with all engine certification tests successfully completed in 2025. The ongoing finalisation of the certification
reports for EASA is progressing to plan.
We continue to progress our work on the UltraFan technology programme, which spans the development of the next-generation, ducted engine
solution for widebody and narrowbody aircraft. Where applicable, we will utilise technologies and learnings from the programme to enhance
existing Trent engines by improving time on wing, increasing fuel efficiency, reducing emissions and engine noise.
The transition to lower-carbon energy and the reduction of emissions in our markets is important. Ensuring the maximum efficiency of our current
fleet is a vital first step, as many of these engines will remain in service for decades to come. All of our in-production civil aero engines have been
proven to be 100% compatible with sustainable aviation fuels. In May, the new Trent XWB-84EP engine variant entered into service delivering a
1% fuel efficiency improvement, as well as improved durability, reduced CO2 emissions, and further time on wing benefits.
Strategic Report Rolls-Royce plc Annual Report 2025
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Business review continued
Defence
Defence is a market leader in aero engines for military transport and patrol aircraft, with strong positions in combat applications. It has significant
scale in naval and also designs, supplies and supports the nuclear propulsion plant for all of the UK Royal Navy’s nuclear submarines.
Market overview
Our Defence business supports five distinct end markets: transport, where we are the market leader; combat, where we have full power and
propulsion capability; submarines, where we have unique nuclear propulsion capability; naval, where our high power density engines bring real
advantage; and helicopters, where we have accumulated significant experience in military and civil programmes.
Order intake in Defence was £5.5bn in the year with a book-to-bill ratio of 1.1x. Our order backlog at the year end stood at £17.4bn, equivalent to
more than three years of revenue, with order cover of around 90% for 2026.
In light of ongoing security concerns around the world, governments have increased their commitment to defence budgets. We have been
selected as long-term partners in the development, manufacture and maintenance of defence power for critical military missions to deter threats,
preserve life and maintain peace.
We provide power for our global defence customers. We are a trusted supplier chosen for our unrivalled engineering and technological
capabilities, as we push the boundaries of what is possible and provide our customers with a strategic advantage. Rolls-Royce does not provide
or manufacture weapons for our customers.
Our Defence market remains resilient and our customers continue to invest in capability in our core markets. £45bn of new programmes will come
online by 2050 within the transport and patrol market, creating substantial opportunities for us. We are well positioned to capture a significant
portion of these emerging opportunities as well as benefit from the growing combat market, including autonomous platforms.
Operational and strategic progress
In Defence, demand for our products remains robust and we secured major orders this year.
In the first half, we agreed key aftermarket contracts worth more than £1.5bn with the UK MoD and the US DoW for the EJ200 and AE2100 engines.
In the second half of the year, the Republic of Türkiye and the UK signed an agreement to export 20 British-built Eurofighter Typhoon aircraft,
with an option for more in the future.
Furthermore, Italy, Germany and Spain have placed orders this year for EJ200 engines. Coupled with the recent commitment from the Republic
of Türkiye, this now provides visibility of our EJ200 original equipment production into the 2030s.
During the year, we also made important progress on the development of key future programmes. On GCAP, the international consortium
announced a major expansion of their partnership to accelerate development of the power and propulsion system for the next-generation fighter
aircraft. As leaders of the GCAP power and propulsion workstream, we successfully tested a combustor developed with enhanced additive layer
manufacturing techniques that will result in an improved design and higher performance.
In addition, we began AE 1107 engine testing to support the prototype delivery for the U.S. Army MV-75 Future Long Range Assault Aircraft
(FLRAA) programme. At the heart of this next-generation platform are Rolls-Royce engines, the latest evolution of a powerplant trusted by the
U.S. military for decades. Each MV-75 FLRAA will be equipped with two advanced Rolls-Royce AE 1107F engines, featuring world-class power
density, cyber-compliant controls and survivability technology.
We also carried out altitude testing and released controls software for the next phase of integration testing of our F130 engine for the B-52 re-
engine programme. The ramp-up of the MV-75 and B-52 programmes is supported by significant investments that we have already made in
Indianapolis, US, where we have invested around $1bn over the last decade to increase our production capacity, modernising and improving our
facilities and supporting thousands of local jobs. This investment reflects our belief in American capability and our commitment to being in the
US for the long term.
During the year, Rolls-Royce submarines alongside Assystem, AtkinsRéalis and Frazer-Nash, formed the Capability Assured Strategic Partnership,
which brings together nuclear capability in the UK to support the Royal Navy’s submarines programme and the wider Defence Nuclear Enterprise.
We also signed a memorandum of understanding with the State of Victoria, Australia, outlining a commitment to collaborate on developing their
defence industry skills, supply chain, and innovation ecosystem. This follows similar agreements signed with Western and South Australian
governments in 2025 and highlights the unique nuclear expertise Rolls-Royce brings to the AUKUS agreement. Furthermore, to meet the growing
demand from the Royal Navy and as part of our commitment to AUKUS, we announced our fissile construction partner in the expansion of our
submarines site in Derby, UK.
As part of our continued transformation programme, Rolls-Royce completed the sale of our naval propulsors business to Fairbanks Morse Defense
in July.
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12
Business review continued
Power Systems
Power Systems, with its product and solutions brand mtu, is a global provider of high-performance energy and propulsion solutions for a wide
range of applications in the power generation, governmental, maritime and industrial sectors.
Market overview
Our Power Systems business serves five distinct end markets.
In power generation, we offer dependable diesel and gas power solutions for mission-critical to everyday back-up and continuous power needs.
We have a market share of 20% to 25% in our key markets of data centres and mission-critical back-up systems. Data centres now represent more
than 80% of power generation revenue.
In governmental, we provide peak-performance diesel engines and propulsion systems with outstanding power density and power-to-weight
ratios. We have a market share of 30% in our key markets of land defence and naval.
In marine, we deliver integrated diesel, gas and hybrid propulsion systems, including automation and control systems, which are renowned for
their reliability and performance. We have a market share of 15% to 20% and our key markets are commercial marine and yacht.
In industrial, we offer a broad range of highly reliable industrial diesel and hybrid solutions for a diverse range of requirements. We have a market
share of 15% to 20% and our key markets are rail and mining.
Our fast-growing battery energy storage systems business (BESS), which achieved a breakeven performance in 2025, provides grid stability to
harness renewable power.
In 2025, order intake in Power Systems was £6.1bn, up 21% versus the prior year, with a book-to-bill ratio of 1.2x. OE order coverage for 2026 is
79%. Demand grew 31% year on year in power generation, and in governmental order intake grew 15%.
Operational and strategic progress
We have seen growing demand for our back-up power solutions for data centres, driven by global trends in cloud computing, data processing
and AI. Our order intake in power generation grew 31% in 2025 and we are now taking orders for 2027 and 2028. We have significantly expanded
our production capacity worldwide, including in our US production network, in Aiken and Mankato, to support this growing data centre demand.
In October, we announced a new product to support the power generation market, a fast-start gas genset. This will offer prime power to data
centre customers who are awaiting grid connection and can later be switched to back-up power generation once the data centre is connected
to the grid. There has been strong interest in this product from our customers.
In governmental, we hold a market-leading position and are well positioned to capture increased defence spending by governments through our
propulsion systems placed into military vehicle platforms and naval vessels. In December, we received a major order to supply more than 300 mtu
engines to power Leopard 2 tanks. We are also developing new, 8-, 10-, and 12-cylinder S199 engines. The development project is progressing to
plan and we are planning to make the first deliveries in 2026.
In BESS, we have seen strong growth with improved profitability. We have won a large order with the Ignitis Group in Lithuania.
In marine, we advanced our yacht propulsion portfolio with the new mtu 12V2000Z engine delivering 2,222 hp, representing the next development
step in our high-performance Series 2000 platform. We continue to execute our integrated ‘Bridge to Propeller’ strategy, combining propulsion,
POD drives and mtu NautIQ bridge systems into fully integrated yacht solutions from a single source. We have successfully tested the world’s first
high-speed marine engine powered exclusively by methanol in Friedrichshafen, Germany.
The development of our next-generation Series 4000 engine is progressing to plan, with product launch on track for 2028. Our first sample
engine has been commissioned in Aiken, US. In product testing the engine has delivered to all targeted technical parameters.
We have also conducted single-cylinder testing of advanced and optimised components for future generation engines. These components are
developed using cutting-edge additive manufacturing technology, a significant milestone in our technological innovation efforts.
Strategic Report Rolls-Royce plc Annual Report 2025
13
Principal risks
Principal risks
Risk management is increasingly an integral part of our ways of working, enhancing our ability to successfully execute our strategy in a
predictable, repeatable manner.
Our approach to risk management and the improvements we have made during the year are outlined below. We explain how we identify principal
and emerging risks, how these are mitigated in line with our risk appetite, and how they have changed in 2025.
Our approach relies on an organisation and culture where individuals at all levels (starting with the Executive Team) demonstrate the principles
of good risk management and the capabilities to deliver on these.
Our risk management and internal control framework
We have an established framework, shown in the diagram below, to support the delivery of effective risk management. It enables us to manage
risks in an integrated, consistent way across the Group and is refreshed annually.
The framework aligns with international standards for managing risk and sets out requirements across the Group for all types of risk, including
climate, finance, legal, operations, technical and programmes.
The RRH Board is ultimately responsible for our approach to risk management and internal controls, from endorsing the framework each year, to
assessing:
1. how effective the framework is at managing the principal risks;
2. the input from assurance providers listed in the principal risk tables from page 15, as well as the internal audit team. Risk-related findings are
taken into account when considering how well risks are being managed; and
3. the Group’s internal financial controls (at the RRH Audit Committee) with financial reporting controls being subject to periodic review by the
internal controls team.
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Principal risks continued
How we use the framework to manage risk
Risk governance
Risk governance sets out the roles and responsibilities, as well as the what and the why, of risk management through the policy and standard. The
Board’s responsibilities relating to principal risks and risk management are primarily discharged by ensuring that we have an effective risk
management framework in place. In addition, the Board considers the findings of the RRH Board in evaluating how well our principal risks are
being managed as part of their review of:
individual principal risk reports from the executive risk owner throughout the year at the RRH Board or appropriate RRH Board Committee
(with a focus on current risk status, controls in place to manage the risk, and mitigating actions). See from page 66 to 72 of the RRH Annual
Report for a detailed list of reviews that took place this year; and
a portfolio principal risk report, shared with the RRH Board by the Head of Enterprise Risk Management, summarising our overall risk position
at the end of the year. This report highlights changes in risk status and includes an effectiveness review of the risk management framework
as well as an assessment of risk maturity.
Risk appetite for principal risks is also included as part of the RRH Board’s annual risk framework review. There are three possible threat risk
appetite levels – low, moderate and high. These statements are used as guidance to help risk owners determine an acceptable current risk position
as well as set a target position if they consider the risk to be out of appetite.
Below RRH Board level, the Executive Team reviews portfolio and individual principal risk reports throughout the year, with divisional level risk
information also being considered at the executive audit committee and as an input into the five-year planning process. These reports contain
the risk status including whether this is within our risk appetite, control effectiveness and details of improvement actions to mitigate any control
gaps.
Risk process
Risk owners are accountable for the execution of the risk process, to ensure that our threats and opportunities are identified, assessed, managed
and assured. It applies to all levels and types of risks.
Identify Risks can be identified by anyone across the Group. The risk process focuses on scanning the internal and external
environment to monitor emerging trends, to identify and document what could hinder or accelerate the achievement of our
strategic, operationa
l and compliance objectives, or impact the sustainability of our business model
.
Quantify and
evaluate
Risk owners quantify the likelihood of a risk materialising and the potential impact if it does, considering current effective
controls, and then deciding on a course of action to manage the risk
.
Control and
assure
Most risks are managed through the implementation of controls designed to prevent, detect or react to either the causes or
impacts of a risk, which are then anchored in our processes. Risk owners must satisfy themselves that the controls are effective
and
that their opinion rests on assurance findings
.
Act Where a controls gap has been identified, or a risk is otherwise not currently within risk appetite, risk owners are responsible
for implementing remediating action plans to reduce the current risk level. Any costs of remediation plans should be
proportionate to the benefit provided
.
Monitor,
review and
report
Risk owners report their assessment of current and target risk scores to local leadership as well as other review forums
(including the RRH Board and its Committees and the Executive Team) as needed depending on the level of the risk, for
support, challenge, escalation and oversight
.
Risk toolkit
The above are underpinned by a toolkit of guidance, templates, tools and training and an independent enterprise risk management team supports
the divisions and functions in their effective management of risk. Continuous improvement in 2025 has focused on streamlining the supporting
toolkit across the Group and moving everyone to one enterprise-wide risk tool.
For some principal risks, such as cyber-security, safety and compliance, there is mandatory training in place, linked to performance management
and remuneration, which all our people are required to complete and comply with.
Principal risks
Each principal risk is owned by one or more members of the Executive Team and is subject to a review at the appropriate executive committee at
least once each year, ahead of a review by the RRH Board or relevant RRH Board Committee. Risks are managed in relation to achieving our
target risk appetite or better. The actions needed to achieve or maintain these target positions are also monitored.
Changes to the principal risks profile in 2025
Throughout the year, we continued to monitor our principal risks portfolio to ensure that it remains current and dynamic.
The overall risk level within our portfolio has remained stable in 2025, with an increase in probability for both political and business Interruption
because of the increasing volatility in the external environment. However, we continue to develop controls and mitigation programmes to keep
pace.
Details of these changes can be found in the tables starting on the following page, which outline the current principal risks together with how we
manage and assure them in addition to internal audit and the oversight provided by the RRH Board and its Committees.
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15
Principal risks continued
Principal risks
Safety
Change in risk
level
Decreased
Principal risk
description
People and process: Failure to create a place to work which minimises the risk of harm to our people, those who work with
us, and the environment, would adversely affect our reputation and long-term sustainability.
Product: Failure to meet the expectations of our customers to provide safe products which also meet the relevant
regulations.
Controls People and process:
Our HSE management and governance framework includes controls designed to reduce our safety risks as far as is
reasonably practicable and to meet or exceed relevant Group, legal, regulatory and industry requirements
We have nuclear site licensing
Product:
Our product safety management system includes controls designed to reduce our safety risks as far as is reasonably
practicable and to meet or exceed relevant Group, legal, regulatory and industry requirements. As part of this we:
o verify and approve product design;
o test adherence to quality standards during manufacturing;
o validate conformance to specification for our own products and those of our suppliers;
o mandate safety awareness training; and
o use engine health monitoring to provide early warning of product issues.
Our controls are underpinned by a strong safety culture, as detailed on page
35
of the RRH Annual Report.
Assurance
activities and
providers
People and process
Safety case interventions
HSE audit team
Product
Product safety assurance board
Product safety assurance team
Technical
product lifecycle audits
Oversight
forum(s)
RRH Safety, Energy Transition & Tech Committee
Executive Team
What has
changed in
2025?
The level of safety risk has decreased during 2025, due to the strengthening of controls, with safety a focus for all
colleagues, and we continue to prioritise action plans to improve people, process and product safety. People safety metrics,
including the reported improvement in the safety index, along with further detail on the actions being taken to reduce
these risks
,
can be found on page
35
of the RRH Annual Report.
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16
Principal risks continued
Compliance
Change in risk
level
Static
Principal risk
description
Failure to comply with legislation and/or other regulatory requirements in the heavily regulated environment in which we
operate (e.g. export controls; data privacy; use of controlled chemicals and substances; anti-bribery and corruption; human
rights; and tax and customs legislation). This could affect our ability to conduct business in certain jurisdictions and would
potentially expose us to: reputational damage; financial penalties; debarment from government contracts for a period of
time; and/or suspension of export privileges (including export credit financing), each of which could have a material
adverse effect
.
Controls
Compliance risk framework which comprises:
o a comprehensive suite of mandatory policies and processes and controls;
o third-party due diligence;
o investigations into potential regulatory matters;
o digital screening and IT compliance tools;
o data classification to meet internal and external requirements and standards; and
o export control framework.
Speak up line and investigation of speak up cases
Assurance
activities and
providers
Compliance teams
Financial controls team
Oversight
forum(s)
RRH Audit Committee
RRH Board
RRH Nominations, Culture & Governance Committee
Executive audit committee
RRH
Disclosure Committee
What has
changed in
2025?
Our compliance risk has remained stable in 2025 due to the ongoing effectiveness of our controls to manage the risks as
well as our agility in responding to a changing regulatory landscape. Mitigating actions focused on the overarching
compliance framework as well as specific key risk areas including, but not limited to, new export control requirements,
failure to prevent fraud, human rights and modern slavery, competition, money laundering and data privacy. Read more
about ethics and compliance on page 37 of the RRH Annual Report, which covers supply chain due diligence, anti-bribery
and corruption, and human rights and anti
-
slavery in more detail
.
Strategy
Change in risk
level
Static
Principal risk
description
Failure to develop an optimal strategy and continuously evolve it, investing in key areas for performance improvement and
growth (taking into account risk – reward), making difficult decisions for competitive advantage and the right portfolio and
partnership choices, could result in us underperforming against our competitors and significantly reduce our ability to
build a high
-
performing, competitive,
resilient and growing business
.
Controls
Long-term planning including portfolio reviews
Strategic performance reviews
Integrated performance management
To support these controls, we benchmark our capabilities and performance against our competitors, the market and other
external metrics as well as horizon scan for competitive threats and opportunities, including patent searches
.
Assurance
activities and
providers
Challenge from external advisers
Oversight
forum(s)
RRH Board
Executive Team
Investment committee
What has
changed in
2025?
Overall, this risk remained stable in 2025. We continued to iterate detailed strategies, including for other principal risks,
such as energy transition and technology. Robust controls operate over our decision-making processes and integrated
performance management also drives strategic priorities (such as through the five-year planning process).
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17
Principal risks continued
Execution
Change in risk
level
Static
Principal risk
description
Failure to deliver as One Rolls-Royce on short to medium-term financial plans, including efficient and effective delivery of
quality products, services and programmes, and/or falling significantly short of customer expectations
.
Controls
Strategic performance reviews
Integrated performance management, including forecasting, budgeting, financial planning, and monitoring
performance against plans
Investment committee
Assurance
activities and
providers
Business reviews
Programme introduction and lifecycle management and the Project Assurance Review process.
Oversight
forum(s)
RRH Board
Executive Team
Investment committee
What has
changed in
2025?
Overall, this risk remained stable in 2025. The potential impact of this risk materialising is high with a complex and
competitive operating environment. However, we have focused on embedding strong performance management, including
the effectiveness of our controls, to manage this risk, as well as robust Executive Team oversight. The outcome is reflected
in our financial results (see pages 5 to 9), as well as enabling ongoing transformation and putting in place the foundations
and sustainable change requir
ed to take advantage of future opportunities.
Business interruption
Change in risk
level
Increased
Principal risk
description
Failure to prevent a major disruption of our operations and ability to deliver our products, services and programmes could
have an adverse impact on our people, internal facilities and/or external supply chain, which could result in failure to meet
agreed customer commitments and damage our prospects of winning future orders.
Disruption could be caused by a range of events, for example extreme weather or natural hazards (such as earthquakes or
floods) which could increase in severity or frequency given the impact of climate change; political events; financial
insolvency of a cr
itical supplier; scarcity of materials; loss of data; fire; pandemic or other infectious disease
.
Controls
Clarity of which products, services and/or customers to prioritise following a disruption
Strategic decision-making on product and suppliers, including:
o supplier due diligence;
o dual sourcing of critical suppliers;
o identification of alternate suppliers;
o investment in capacity, equipment and facilities and in researching alternative materials; and
o holding surplus stock to offset future shortages.
Investment committee
Business continuity policy, including crisis management exercises
Relevant and appropriate insurance in place
Assurance
activities and
providers
Supplier monitoring tools
Security and resilience team
External property risk assessments
Oversight
forum(s)
RRH Audit Committee
Executive audit committee
What has
changed in
2025?
The probability of this risk materialising has increased in 2025 as the external environment remains uncertain, increasing
the likelihood of external events which could disrupt our ability to deliver the business model. However, we continue to
develop controls and mitigation programmes to keep pace and manage any potential impacts.
Read more about how we are managing uncertainty in our supply chain on page
13
of the RRH Annual Report
.
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18
Principal risks continued
Energy transition
Change in risk
level
Static
Principal risk
description
Failure to reach net zero by 2050, and failure to leverage technology to transition from carbon-intensive products and
services at pace could impact our ability to win future business; achieve operating results; attract and retain talent; secure
access to funding; realise future growth opportunities; and/or force government intervention to limit emissions
.
Controls Sustainability governance framework which encompasses:
inclusion of sustainability criteria in our investment committee decision-making process to reduce the carbon
impact of existing products and replace our existing products with zero-carbon technologies;
energy transition & technology committee;
sustainability steering committee which considers climate scenario modelling, physical risk impact assessments and
emerging risk identification;
global supplier code of conduct; and
commercial agreements.
Assurance
activities and
providers
Sustainability team
External verification of data and calculations
Oversight
forum(s)
RRH Board
RRH Audit Committee
RRH Safety, Energy Transition & Tech Committee
Executive audit committee
Executive energy, transition & technology committee
What has
changed in
2025?
There has been no overall change in risk status. The likelihood of this risk materialising is driven by macro-economic,
geopolitical and social factors, with our controls focused on mitigating their impact. Our focus for 2026 will include
continued review of our sustainability strategy, the management of Scope 1 + 2 decarbonisation, a review of responsible
consumption targets and product portfolio alignment. See pages 38 to 47 of the RRH Annual Report for more on
sustainability and related key risks.
Information & data (including cyber)
Change in risk
level
Decreased
Principal risk
description
Failure to protect the integrity, confidentiality and availability of data, both physical and digital, systems, services or
products from attempts to cause us and/or our customers harm, which could hinder data-driven decision-making, disrupt
internal business operations and services for customers, or result in a data breach or non-compliance to regulatory
requirements, all of which could dam
age our reputation, reduce resilience, and cause financial loss.
Controls
The information security management system deploys multiple layers of controls, such as web and email gateways,
intrusion detection, behavioural analytics and data loss prevention
Extensive maintenance and testing of hardware and software and systems
Access controls (employees and third parties) to our locations, infrastructure, systems, software and data
Control of the use of our systems
Application of our incidence response framework to govern our response to potential cyber-security incidents and
significant IT disruption
Assurance
activities and
providers
Cyber-security team
Security and resilience team
Oversight
forum(s)
RRH Safety, Energy Transition & Tech Committee
Executive audit committee
What has
changed in
2025?
The risk level has reduced in 2025 due to the progress of our mitigation programmes putting in place additional effective
controls. For example, we have put in place improvements in controls to address externally facing vulnerabilities and
enhancements to other controls. However, the risk remains high due to external factors including the ongoing speed of
evolution of cyber-security threats, with increasing sophistication and technological advancement of the threat actor
groups. We continue to monitor the evolving external threat landscape, undertaking additional mitigating activities where
needed.
Strategic Report Rolls-Royce plc Annual Report 2025
19
Principal risks continued
Market & financial shock
Change in risk
level
Static
Principal risk
description
Failure to minimise our exposure to market and financial risks, some of which are of a macro-economic nature (e.g.
economic growth rates, foreign currency, oil price, interest rates) and some of which are more specific to us (e.g. cyclical
aviation industry, reduction in air travel or defence spending, disruption to other customer operations, liquidity, and credit
risks). This could affect demand for our products and services.
Significant extraneous market events could also materially damage our competitiveness and/or creditworthiness and our
ability to access funding. This would affect operational results or the outcomes of financial transactions.
Controls
Monitoring of trends, market demand and future market forecasts, adjusting business plans accordingly
Investment committee to ensure capital investments are in line with our strategy
Diverse and balanced portfolio
Financial risk committee which monitors financial risks and compliance with relevant policies including:
o group liquidity policy;
o credit risk policy;
o policies designed to hedge residual risks using financial derivatives covering foreign exchange, interest rates
and commodity price risk; and
o maintaining strong access to debt and equity markets as a strategic lever to manage financial risk and
safeguard capital resilience.
Treasury operates a system of confirmations, mandates, system access controls, segregation of duties, dual controls
and checks to prevent and detect fraud and errors
In addition, controls in place to manage business interruption and political risk
,
also address market shock risk.
Assurance
activities and
providers
Strategy reviews
Group investments team
Treasury team
Oversight
forum(s)
RRH Board
RRH Audit Committee
Executive audit committee
What has
changed in
2025?
The robust control environment we have in place has kept this risk stable in 2025. Uncertainty around external market
volatility and significant shocks (such as global conflict or the repeat of a pandemic) is offset by our increasing ability to
withstand these events through our greater business resilience. The RRH Board has continued to approve policies to
manage financial risks, the Group’s £2.5bn revolving credit facility was renewed in December 2025, and the control
environment is underpinned by systemi
sed segregation of duties and management review of controls.
Political
Change in risk
level
Increased
Principal risk
description
Failure to respond strategically and tactically to geopolitical developments and events, such as adverse changes in key
political relationships, trade protectionism and conflicts, deteriorating tax or regulatory regimes, and armed conflict, would
lead to an unfavourable business climate which could impact
our short and/or long
-
term execution commitments
.
Controls Geopolitical insights capability, which includes:
development of Group and country strategies and maintaining our understanding of associated dependencies;
horizon scanning process;
Group crisis and incident management policy; and
diversification
considerations built into our investment and procurement choices.
Assurance
activities and
providers
Government relations teams
Country councils
Input from external advisers
Oversight
forum(s)
RRH Board
Executive audit committee
What has
changed in
2025?
The probability of this risk arising has increased due to ongoing uncertainty in the external environment. The likelihood of
emerging risks now materialising due to political developments globally, such as intensifying trade conflict and rising
protectionism is higher than before (see page 13 of the RRH Annual Report).
However, our ability to respond to geopolitical risks, such as tariffs, has kept pace with the external environment. We
continue to build on our insights capabilities to further improve our adaptability.
Strategic Report Rolls-Royce plc Annual Report 2025
20
Principal risks continued
Talent & capability
Change in risk
level
Static
Principal risk
description
Failure to attract, retain and develop the critical talent, skills and capabilities required to deliver our strategic priorities
could threaten our ability to be a high
-
performing, competitive, resilient and growing business
.
Controls The People System includes controls to:
anticipate future requirements, strategically shaping future workforce composition and a differentiated workforce
strategy;
attract and develop the best talent to increase talent density and bench strength;
drive high performance through a culture of regular and candid feedback and strong relative differentiation;
operate a differentiated and fair reward proposition to reflect strategic business impact and critical positions and
difficult-to-hire capabilities;
improve future readiness of workforce through targeted learning, integrating learning into the flow of work through
digital including delivering mandatory learning;
increase relevant talent supply through fit-for-purpose emerging talent programmes; and
embed and monitor a culture of belonging through defined standards, leadership accountability, and regular
employee listening, ensuring equitable access to opportunity, equity in decision
-
making, and psychological safety.
Assurance
activities and
providers
People leadership team
Leaders across Rolls-Royce
Employee opinion survey
External remuneration audits
Oversight
forum(s)
RRH Nominations, Culture & Governance Committee
People committee
What has
changed in
2025?
The level of risk has remained steady this year through controls operating as part of the People System launched in 2024,
with a focus in 2025 on performance management, employee engagement, reward, capability and skills, talent management
and development, which you can read more about on pages 31 to 36 of the RRH Annual Report, as well as more information
on people
-
related initiatives, such as the People Deal and Change Makers
.
Technology
Change in risk
level
Static
Principal risk
description
Failure to ensure products and services are based on competitive technology, leveraging substantial engineering and
scientific challenges, adopting digital tools (such as AI) and/or new ways of working, could hinder our ability to accelerate
product design and deliver a competitive offer that ensures superior performance; enhances the customer experience;
drives the transition to lower carbon; improves productivity and reduces costs. This will negatively impact our
competitiveness and market share
.
Controls
Horizon scanning process for emerging technology threats and opportunities, which includes the identification of
business opportunities, providing technology intelligence, and performing early-stage technical assessments
The outputs are used to inform strategy and technology roadmaps as well as how we prioritise the research and
technology portfolio
Assurance
activities and
providers
Technical assurance team
Programme introduction and lifecycle management to prioritise investments and uphold uniform project
management standards
Oversight
forum(s)
RRH Safety, Energy Transition & Tech Committee
E
xecutive e
nergy transition & technology committee
What has
changed in
2025?
This risk has remained stable in 2025 due to the ongoing mitigating actions to manage this risk, including detailed
technology roadmaps, robust horizon scanning and the work of the Group-wide research and technology organisation.
New technologies are matured and vetted for industrialisation and customer interest during development and before
integration into our systems.
To further mitigate the impact of potential technological disruptions and align with broader strategy needs, we will continue
to invest in emerging technology evaluation, accelerate innovation through data-driven approaches, and prioritise
technology integ
ration
.
Strategic Report Rolls-Royce plc Annual Report 2025
21
Going concern statement
Overview
In adopting the going concern basis for preparing the consolidated and Company financial statements, the Directors have undertaken a review
of the Group’s cash flow forecasts and available liquidity, along with consideration of possible risks and uncertainties over an 18-month period
from the balance sheet date to June 2027. The Directors have determined that the period to June 2027 (‘the going concern period’) is an
appropriate timeframe over which to assess going concern as it considers the Group’s short to medium-term cash flow forecasts and available
liquidity.
Forecasts
In modelling the cash flow forecasts for Rolls-Royce plc, the Directors have taken into account the legal entity review programme that is planned
to complete during 2026 (see note 27 on page 95 for more details in respect of this programme) and consequently, only the cash flows relating
to the Company and entities that are expected to remain within the Group have been included in the going concern assessment.
Recognising the challenges of reliably estimating and forecasting the impact of external factors on the Group, the Directors have considered two
forecasts in their assessment of going concern, along with a likelihood assessment of these forecasts. The base case forecast reflects the Directors
current expectations of future trading. A downside forecast has also been modelled which envisages severe but plausible downside risks. Both
forecasts have been modelled over the going concern period.
The base case forecast reflects the Directors’ best estimation of how the business plans to perform over the going concern period. Macro-
economic assumptions have been modelled using externally available data based on the most likely forecasts with general inflation at around 2%-
3%, wage inflation at an average of 3%-4%, interest rates at around 2%-4% and GDP growth at around 2%-4%.
The downside forecast assumes Civil Aerospace large engine flying hours remain at average fourth quarter 2025 levels throughout the going
concern period, reflecting slower GDP growth in this forecast when compared with the base case. It also assumes a more pessimistic view of
general inflation at around 2%-3% higher than the base case covering a broad range of costs including product costs, energy, commodities and
jet fuel. Wage inflation in the downside forecast is 1%-2% higher than the base case and interest rates are 1%-2% higher. These macro-economic
pressures have been modelled across the whole going concern period.
In reviewing the Group’s cash flow forecasts and available liquidity, the Directors have considered the current volatility in macroeconomic
variables and an external environment that remains challenging, including geopolitical tensions, the uncertainty introduced by tariffs and supply
chain challenges. The Directors continue to actively manage the potential impact of these factors on the Group’s cash flow forecasts and available
liquidity.
In modelling both the base case and downside forecast, the repayment of a €750m bond that matured in February 2026 and a £375m bond that
is due to mature in June 2026 have been assumed to be repaid from cash in both the base case and downside forecast.
The future impact of climate change on the Group has been considered through climate scenarios. The climate scenarios modelled do not have
a material impact on either the base case or downside forecast over the going concern period. Further detail on these climate scenarios is set
out on page 47 of the RRH Annual Report.
Liquidity and borrowings
During 2025, the Group repaid a $1bn bond at its maturity in October. The Group also repaid a €750m bond that matured in February 2026. The
£2.5bn undrawn revolving credit facility was refinanced in December 2025, extending the revolving credit facility maturity to December 2030.
At 31 December 2025, the Group had liquidity of £8.2bn including cash and cash equivalents of £5.7bn and undrawn facilities of £2.5bn. The going
concern period includes the repayment of a €750m bond that matured in February 2026 and a £375m bond that is due to mature in June 2026.
Given the Group’s cash and liquidity position over the going concern period, the bond maturities in 2026 have been assumed to be repaid from
cash, should the Group wish to not refinance.
Based on borrowing facilities available at the date of this report the Group’s committed borrowing facilities at 31 December 2025 and 30 June
2027 are set out below. None of the facilities are subject to any financial covenants or rating triggers which could accelerate repayment.
(£m)
3
1
D
e
cember
202
5
30
J
u
ne
202
7
Issued Bond Notes
1
2,859
1,806
Revolving Credit Facility (undrawn)
2
2,500
2,500
Total committed borrowing facilities
5,359
4,306
1
The value of Issued Bond Notes reflects the impact of derivatives on repayments of the principal amount of debt. The bonds mature by May 2028
2
The £2.5bn Revolving Credit Facility matures in December 2030
Taking into account the maturity of these borrowing facilities, the Group has committed facilities of at least £4.3 bn available throughout the
period to 30 June 2027. All facilities will continue to be held in the Group following the legal entity review programme that is planned to complete
during 2026.
Conclusion
After reviewing the current liquidity position and the cash flows modelled under both the base case and downside forecasts, the Directors consider
that the Group has sufficient liquidity to continue in operational existence over the going concern period to 30 June 2027 and are therefore
satisfied that it is appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Strategic Report Rolls-Royce plc Annual Report 2025
22
Section 172 and stakeholder engagement
Section 172 statement
Section 172 of the Companies Act 2006 requires directors of a company to act in the way he or she considers, in good faith, would most likely
promote the success of the company for the benefit of its members as a whole. To discharge their Section 172 duties the Directors had regard to
the factors set out in the table below in making the principal decisions taken by the Company.
The Company’s key stakeholders are its employees, and customers and suppliers worldwide. The Directors believe that, individually and together,
they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members
as a whole, having regard to the stakeholders and matters set out in s172(1)(a-f) of the Companies Act 2006 in the decisions taken during the year
ended 31 December 2025.
The Directors consider business relationships with the Company’s wider stakeholders, the impact of Company operations on the environment and
communities in which it operates is embedded in all Company decision-making and risk assessment made throughout the year. As a Group
company, the Company complies and acts in accordance with the Group policies in relation to the safeguarding of human rights and community
relationships as outlined in the RRH 2025 Annual Report.
The likely
consequences of any
decision in the long
term
During the year, the Directors considered the Group’s strategic direction. This, in turn, creates long-term value for
shareholders, recognising that the longer-term success of our business depends on the effects of our business
activities on wider society.
During 2025, the Company invested in future growth for decades to come. Further information on key investments,
the continuation of our multi-year transformation programme and initiatives to strengthen our financial position can
be found in the Financial R
eview section.
The interests of the
Company’s employees
The Directors recognise that the success of our business depends on attracting, retaining and motivating talented
people. The Directors consider and assess the implications of decisions on our people, where relevant and feasible.
Building on the 2024 launch of our new purpose, vision and behaviours, in 2025, we introduced three new ways to
make belonging a lived reality for our employees
. Further information can be found on page
23
.
The need to foster
the Company’s
business relationships
with suppliers,
customers and others
Delivering our strategy requires a strong, mutual and beneficial relationship with suppliers, customers, governments
and joint venture partners. The Directors receive updates on engagement across the Group and support our
Executive Team who work collaboratively with our suppliers and partners to continue to improve operational
performance. During 2025, various RRH Board and Executive Team members met with several of our key suppliers
and customers. Further information can be found on page
s 23 to 24
.
The impact of the
Company’s operations
on the community
and the environment
Our people are the driving force behind our community programmes, contributing 72,163 hours (2024: 58,785) to
community investment and education outreach in 2025, a testament to our growing impact. Further information can
be found on page 24.
We remain steadfast in delivering the technical solutions required to reduce the carbon emissions of the air
transportation sector through our work in developing advanced aircraft and propulsion technologies that enable
net zero carbon emissions while maintaining the safety and quality standards of our industry. This commitment
underpins our strategy and ensures that our innovation aligns with the evolving needs of the markets in which we
operate. Further information can be found on page
18
.
The desirability of the
Company maintaining
a reputation for high
standards of business
conduct
The RRH Board reviews and approves our ethics and compliance frameworks and the General Counsel provides
regular updates to the RRH Board on compliance with regulation. This, in conjunction with the RRH Board monitoring
compliance with governance standards, helps to ensure that Board-level decisions and the actions of our subsidiaries
promote high standards of business conduct. Our Code and Group policies, supplier code and modern slavery
statements ensure high standards are approved and can be found
on
www.rolls
-
royce.com
The need to act fairly
between members of
the
Company
After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our
strategy through the long term, taking into consideration the effect on the Group’s stakeholders.
Non-financial and sustainability information statement
The Company is a subsidiary of the Group and therefore the non-financial and sustainability information disclosures required in relation to both
RRH and the Company have been included in the RRH 2025 Annual Report on page 38.
Climate-related corporate reporting
The Company adopts the policies and frameworks set by the Group which include the sustainability measures set out in the RRH 2025 Annual
Report on pages 38 to 47. The Company is aligned to the objectives of the Group. The Directors fully recognise their responsibility to have regard
to the impact of the Company’s operations on the community and environment.
Streamlined Energy & Carbon Reporting (SECR)
The Company is a subsidiary of the Group and therefore the SECR disclosures required in relation to both RRH and the Company have been
included in the RRH 2025 Annual Report on page 40. The RRH Annual Report has been prepared for the same financial year as the Company.
Strategic Report Rolls-Royce plc Annual Report 2025
23
Section 172 and stakeholder engagement continued
Stakeholder engagement
Consistent communication with stakeholders is a priority for the Board, RRH Board and the Executive Team, who maintain regular touchpoints
with stakeholders to keep apprised of their views and interests. The matters identified through this engagement influence Board decision-making
in the short and medium-term and our long-term strategy.
Our people
Why they matter
At the heart of our business is the unrivalled dedication and technical expertise of our people. With over 42,000 colleagues in varied roles
worldwide, engagement needs to be far reaching and accessible in order to ensure that our purpose, vision and behaviours are embedded in our
culture.
How we engaged
In 2025, employees were again given the opportunity to share their perspectives on how the Group lives up to our behaviours, our strategy,
performance and leadership via our annual survey – Our Voices: Big Picture. The results are anonymised to encourage an open conversation,
and people leaders receive team results to enable Winning Together conversations to make a difference.
A further pulse survey – Our Voices: In Focus, is used to check on how it feels to work at Rolls-Royce and whether there is clarity to deliver the
strategy. The output of the survey supports the formation of focus groups to explore high-impact topics and big themes, enabling a better
understanding of perspectives.
Our Executive Team regularly host live events in the form of townhalls and ‘ET Teams Talks’ where all colleagues can hear about our progress and
have open, honest conversations about topics that matter most. This was an opportunity to communicate directly with the Chief Executive and
the Executive Team, part of our commitment to engage, listen and act on feedback.
Site visits remain an important opportunity for Board members to gain a deeper understanding of how the different divisions operate, and to meet
individuals from those divisions.
Engagement outcomes
We believe that when we feel we belong, we are at our best for each other, our business and our customers, and this starts with how we treat
each other every day. Building on the 2024 launch of our new purpose, vision and behaviours, in 2025, we introduced three new ways to make
belonging a lived reality for our employees. These include:
a Global Equal Employment Opportunity Policy, which outlines how we expect people to behave towards each other, how we make people
decisions and our zero-tolerance approach to discrimination. The principles of our Policy apply not only to employees, but also to our
visitors, customers, suppliers and former employees;
the Global Belonging Forum is sponsored by our people committee and chaired by our Chief People Officer. This senior leadership forum
is dedicated to embedding a culture of belonging across the Group; and
the Employee Voice Network is open to all colleagues to bring individual perspectives, passions and personalities together to connect,
discuss and problem solve.
Many of our people are also RRH shareholders and we encourage their participation in a variety of share plans. Following the gift to all colleagues
of 150 RRH shares (or cash equivalent where share allotment was not permitted) in 2024, these gifted shares vested for colleagues in the Global
Employee Share Purchase Plan (GESPP) in September 2025. Additionally, we successfully launched Your Shares: Matched in 2025, a new global
all-employee share purchase and match plan, where all participants receive a 1:1 match on their investment up to a maximum of £50 per month.
Customers
Why they matter
The quality of the Group’s customer relationships, based on mutual trust as well as our engineering expertise, are critical to the Group’s long-
term success. While our customers provide a sustainable revenue for the business, they also support our journey to becoming a lower-carbon
business which is firmly embedded in our strategy. By using our unique skills and expertise to develop innovative solutions we are helping the
world do things tomorrow that we cannot do today. We remain steadfast in delivering the technical solutions required to reduce the carbon
emissions of the air transportation sector through our work in developing advanced aircraft and propulsion technologies that enable net zero
carbon emissions while maintaining the safety and quality standards of our industry. This commitment underpins our strategy and ensures that
our innovation aligns with the evolving needs of the markets in which we operate.
How we engaged
Throughout the year, the Chief Executive and Executive Team continued to engage directly with customers at major industry events and strategic
forums, including at the premier aerospace event of 2025, the Paris Air Show. These discussions focused on opportunities to re-enter the
narrowbody market, improvements to time on wing and overall operational efficiency.
To ensure we deliver with urgency to armed forces around the world, our Defence team engages regularly with our global Defence customers,
including at events like the Association of the United States Army (AUSA) Annual Meeting & Exposition in North America and Defence and Security
Equipment International (DSEI) in the UK.
At every meeting, the RRH Board receives operational updates, including feedback on customer interactions, across all the divisions. This greatly
influences the RRH Board’s deliberations and its support for the Executive Team when considering opportunities and risks and our strategy.
Strategic Report Rolls-Royce plc Annual Report 2025
24
Section 172 and stakeholder engagement continued
Engagement outcomes
Customer insights and operational updates significantly influence the Chief Executive and Executive Team’s deliberations on the execution of our
strategy. These engagements strengthen partnerships, guide investment priorities, and ensure alignment with our sustainability and growth
objectives.
Suppliers and partners
Why they matter
Maintaining healthy, long-term relationships with our suppliers helps us to protect business continuity and achieve our environmental ambitions.
Strong supplier relationships ensure sustainable high-quality delivery for the benefit of all stakeholders.
How we engaged
The interests of both our suppliers and partners are a high priority for the Group and inform discussions and decisions on our manufacturing
strategy and when reviewing specific projects. The Board supports our Executive Team, who work collaboratively with our suppliers and partners,
to continue to improve operational performance through various means.
Engagement outcomes
The RRH Board received updates from the business on supplier performance and continued supply chain challenges. During 2025, discussions
took place on how we are mitigating supply chain risks by helping our suppliers across the aerospace supply chain.
We are supporting our partners in several ways, including with a dedicated and resourced taskforce which is focused on supply chain challenges
impacting the Trent 1000 engine.
Communities
Why they matter
We believe that thriving communities are a foundation of our long-term success. Our commitment goes beyond business. We are dedicated to
forging strong, progressive relationships with the communities where we operate. We understand that our success is closely linked to the
economic prosperity and wellbeing of our local communities. That is why we invest in powerful partnerships and local initiatives that create
meaningful, measurable impact where it matters most.
How we engaged
We take a proactive approach to community engagement, driven by open dialogue, active listening, and genuine collaboration. By working closely
with community leaders, social partners, and local organisations, we ensure our efforts are aligned with the unique needs and aspirations of each
location. Our investments in education and skills outreach, charitable sponsorships and donations, and encouragement of employee volunteering
are designed to create lasting value and promote sustainable development. We empower our people to make a difference, enabling them to share
their expertise, learn from others, and drive positive change both within our business and in the communities around us. Together, we define
objectives and develop initiatives that deliver tangible benefits for both our communities and our Group.
Engagement outcomes
Our people are the driving force behind our community programmes, contributing 72,163 hours (2024: 58,785) to community investment and
education outreach in 2025, a testament to our growing impact. Our global STEM ambassador network continues to inspire the next generation,
with around 1,700 accredited ambassadors in the UK alone this year, igniting curiosity and ambition in young people worldwide. We continue to
expand our global STEM ambassador network.
Governing bodies and regulators
Why they matter
The Board recognises the importance of governments and regulators as key stakeholders, customers, funders and supporters of our global
trading activity.
How we engaged
During 2025, the Chief Executive held meetings with country leaders, ministers and senior officials from governments around the world. Areas of
engagement included civil and defence nuclear via SMR and AUKUS, civil and combat air capability including civil aero engine development and
exports, sales of the EJ200 engine and the Global Combat Air Programme (GCAP), and our power-generation solutions for existing and fast-
growing markets including data centres. These engagements help strengthen our relationships with key markets including but not limited to the
UK, US, EU and member states, India, and the Kingdom of Saudi Arabia.
The General Counsel provides regular updates to the RRH Board on compliance with regulation impacting our licence to operate. The RRH Board
is updated on engagement with tax authorities and the related regulatory landscape.
Engagement outcomes
Engagement has focused on delivering the Group priorities and strategic initiatives, including growing our defence offer in and with countries
around the world, keeping our civil engines earning with existing and new customers, strengthening our global MRO capability, and seeking to
secure new markets across all our core businesses and through Rolls-Royce SMR.
Strategic Report Rolls-Royce plc Annual Report 2025
25
Section 172 and stakeholder engagement continued
Strategic Report approved by the Board and signed on its behalf on 26 February 2026 by:
..............................
Helen McCabe
Director
Directors’ Report Rolls-Royce plc Annual Report 2025
26
DIRECTORS’ REPORT
The Directors present their Directors’ Report on the Rolls-Royce plc Group (the Group), together with the audited consolidated financial
statements for the year ended 31 December 2025.
Directors
The Directors who held office during the year and up to the date of signing the Financial Statements were as follows:
Tufan Erginbilgic
Mark Gregory
Sarah Armstrong
Helen McCabe
Directors’ indemnities
The Directors have the benefit of an indemnity provision contained in the Articles. In addition, the Directors have been granted a qualifying third-
party indemnity provision which was in force throughout the financial year and remains in force. Also, throughout the year, the Company
purchased and maintained directors’ and officers’ liability insurance in respect of the Company and its subsidiaries and for their Directors and
officers.
Dividends
The Directors do not recommend the payment of a dividend (2024: £nil).
Corporate governance
The Directors are ultimately responsible for the direction, management, performance and long-term sustainable success of the Company. The
Board of RRH sets the Group’s strategy and objectives and oversees and monitors internal controls, risk management, principal risks, governance
and viability of the Group. In doing so, the Directors comply with their duties under s172 of the Companies Act 2006.
The RRH Board has established certain principal committees to assist in fulfilling its oversight responsibilities, providing dedicated focus on
particular areas. RRH is subject to the principles and provisions of the UK Corporate Governance Code 2024.
The Company operates in compliance with the Group’s policies, procedures and governance framework. Details of RRH’s compliance with the UK
Corporate Governance Code 2024 and the Group’s policies, procedures and governance framework are set out in the RRH Annual Report 2025.
Risk management and internal control
The RRH Audit Committee oversees the Group’s financial reporting, considering key accounting judgements and estimates; disclosures;
compliance with regulations; and whether the Annual Report is fair, balanced and understandable. The RRH Audit Committee also monitors the
effectiveness of the Group’s risk management and internal control environment.
In addition, the RRH Audit Committee provides oversight in respect of the scope, resources, results, and effectiveness of internal audit. It is
responsible for the relationship with, and the effectiveness of, the external auditors as well as approving their terms of engagement and fees.
Financial reporting
The Group has complex long-term contract accounting and, as in prior years, the RRH Audit Committee spent much of its time reviewing the
accounting policies and judgements implicit in the Group’s financial results. In 2025, the RRH Audit Committee considered the implications of
assumptions and key accounting judgements on the financial performance of the Group. It assessed the implications of the renegotiation of the
most significant onerous aftermarket contracts in Civil Aerospace on long-term contract accounting, as well as the impact of ongoing supply
chain challenges with a backdrop of continuing geopolitical uncertainty.
Following an investment made by ČEZ Group (ČEZ), the Group relinquished control of Rolls-Royce SMR Limited (Rolls-Royce SMR) in the first
half of 2025. Alongside the deconsolidation of Rolls-Royce SMR, the RRH Audit Committee determined that the New Markets operating segment
that was previously reported at 31 December 2024 was no longer considered to meet the definition of an operating segment. The Group’s share
of the financial results of Rolls-Royce SMR have been included in ‘All Other Businesses’. For further information on this change, see note 27 of
the Consolidated Financial Statements on page 94.
The RRH Audit Committee also considered changes in the global macro-economic and political environment. Most notably it tested with
management and supported the conclusion that the Group expected to fully offset the impact of announced direct tariffs on the Group through
the mitigating actions that were taken.
The RRH Audit Committee has ensured that the disclosures in respect of all key areas of judgement are appropriate and balanced. It assesses and
considers the sensitivity of the estimates to changes in key assumptions which are summarised in note 1 of the Consolidated Financial Statements
on page 41.
A summary of the principal matters considered by the RRH Audit Committee in respect of the 2025 Consolidated Financial Statements is set out
below.
Directors’ Report Rolls-Royce plc Annual Report 2025
27
Corporate governance continued
Area of focus
Considerations
Long-term
contract
accounting
The RRH Audit Committee considered the assessment of estimates of future revenue and costs on the Group’s long-term
contractual arrangements. This has continued to be a particular focus for the RRH Audit Committee due to the complex
nature of long-term contract accounting, ongoing geopolitical uncertainty and the potential implications of this on future
costs, as well as the ongoing supply chain challenges and the implications of this on forecasting future costs and capacity
output. Onerous contracts are particularly sensitive to changes in revenue as well as cost assumptions, therefore the
RRH Audit Committee also focused on the impact of renegotiated onerous aftermarket contracts. It reviewed contract
catch-ups to understand the changes to revenue and the cost assumptions driving them. Further, the RRH Audit
Committee reviewed the disclosures and concluded these, together with the assessments, were appropriate. See note 1
in the Consolidated Financial Statements.
Tax accounting The RRH Audit Committee discussed the recoverability of deferred tax assets and the forecasts, assumptions and
sensitivities applied in order to ascertain the recognition and recoverability of them. It also discussed the basis for the
recognition and considered the judgements and estimates necessary to assess their recoverability. This was particularly
important during the year as we moved back to full recognition of the deferred tax asset related to UK tax losses. The
RRH Audit Committee considered the recognition of the UK deferred tax assets in light of the requirements set out in IAS
12 Income Taxes to assess probable profits. It confirmed the approach, which remained consistent with that taken in 2024,
together with the disclosures set out in notes 1 and 5 to the Consolidated Financial Statements on pages 45 and 62,
respectively.
Deconsolidation
of Rolls-Royce
SMR Limited
The RRH Audit Committee discussed the deconsolidation of Rolls-Royce SMR Limited (Rolls-Royce SMR) arising from the
new equity investment by ČEZ Group in March 2025 and reflecting the terms of the revised shareholder agreement which
resulted in the Group relinquishing control of Rolls-Royce SMR. It also considered the accounting treatment of the
deconsolidation and recognition of its investment in Rolls-Royce SMR at its fair value, and the resulting gain on disposal
recognised in the year. The RRH Audit Committee concluded that it was appropriate to deconsolidate Rolls-Royce SMR
during 2025 and recognise this gain on disposal. Further detail on the deconsolidation and resulting gain on disposal
can be found in note
2
7
to the Consolidated Financial Statements
on page
94
.
Changes to the
UK defined
benefit pension
scheme
The RRH Audit Committee considered the impact of the trustee of the Rolls-Royce UK Pension Fund entering into a Buy-
in transaction with Pension Insurance Corporation plc. The RRH Audit Committee paid particular attention to asset re-
measurement loss that arose as a result of this transaction, and whether that asset re-measurement loss should be
recognised through the income statement or through other comprehensive income and expenses. It concluded that it
was appropriate to recognise the asset remeasurement loss through other comprehensive income and expenses. See
note
2
2
to the Consolidated Financial Statements on pa
ge
86
.
Going concern
As in previous years, the RRH Audit Committee reviewed the information, underlying assumptions and downside risks
modelled and presented in support of the going concern assessment. It concluded that the Group has a strong liquidity
position over the going concern period and that there is a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the next five years. The
Going conce
rn
statement
is
on page
21
.
Alternative
Performance
Measures
(APMs)
The RRH Audit Committee reviewed the clarity of the definitions and the reconciliation of each APM to its statutory
equivalent. It concluded that there was no undue prominence of the APMs in the Annual Report. See page 137 for a
reconciliation of APMs to their statutory equivalents.
Risk management and the internal control environment
Our risk management and internal control framework is described in the Principal risks section on page 13. During 2025, the RRH Audit Committee
reviewed the effectiveness of risk controls and their assurance, ensuring actions to mitigate where needed and to manage risks in relation to our
appetite for taking risk as described on page 26.
The RRH Audit Committee was satisfied that the processes for identifying and managing risks remain appropriate and that all principal risks and
mitigating actions had been subject, during the year, to a detailed review by the RRH Board or an appropriate RRH Board Committee. Based on
this and on the RRH Audit Committee’s other activities, including consideration of the work of internal and external audit and attendance at the
RRH Audit Committee meetings by divisional and functional risk owners, the RRH Board confirmed that a robust assessment of the principal risks
and emerging risks facing the Group had been undertaken. The RRH Board has allocated certain principal risks to the RRH Audit Committee and
the RRH Audit Committee considered these in detail throughout the year, as described below. The RRH Board reallocated the oversight of the
Information & data principal risk, including cyber-security, from the RRH Audit Committee to the RRH Safety, Energy Transition & Tech (SETT)
Committee in early 2025, reflecting the alignment with its other principal responsibilities and its members’ expertise. The SETT Committee report
can be found on page 110 of the RRH Annual Report.
The RRH Audit Committee is satisfied that the principal risks that it oversees have received appropriate management attention during 2025:
Business interruption: the RRH Audit Committee received updates on the status of the Group’s supply chain management, focused primarily
on civil aerospace, and considered our ability to react to, and manage crises, under the Group’s incident management framework.
Financial shock: the RRH Audit Committee considered the financial risks to which the Group is exposed including liquidity risk, credit risk,
foreign exchange and commodity risk, interest rate risk and fraud risk and the mitigations and controls that we have in place.
The RRH Audit Committee specifically reviews the Group’s internal controls over financial reporting (see page 48 of the RRH Annual Report).
During 2025, it received an update on the risk assessment to identify the controls considered to be material and in-scope from a financial reporting
perspective. It also monitored progress against the 2025 financial controls programme to strengthen the financial reporting and compliance
controls, and we confirmed completion of identified key activities. The RRH Audit Committee also considered the external auditor’s observations
on the financial control environment.
Directors’ Report Rolls-Royce plc Annual Report 2025
28
Corporate governance continued
Effectiveness of risk management and internal control systems
The RRH Audit Committee conducted a review of the effectiveness of the Group’s risk management and internal control systems, including those
relating to the financial reporting process. Where opportunities for improvement were identified, action plans have been put in place and progress
is monitored by the RRH Audit Committee. In 2025, no significant weaknesses were identified.
Employment of disabled persons
We offer additional support to candidates who declare a disability at the application stage and support our assessors and interviewers to ensure
a fair process for all. We are committed to fair and equal consideration for applicants with disabilities and actively support employees who become
disabled while working with us by making adjustments to enable their continued employment.
Employee engagement
Details of our employee engagement are set out in the Stakeholder Engagement section on page 23.
Financial instruments and risk management
Details of financial instruments and risk management are set out in note 20 to the Consolidated Financial Statements.
Post balance sheet events
Details of important events affecting the Group which have occurred since the end of the financial year are set out in note 1 to the Consolidated
Financial Statements.
Related party transactions
Details of related party transactions are set out in note 26 to the Consolidated Financial Statements.
Disclosures in the Strategic Report
The Directors have taken advantage of section 414C(11) of the Act to include disclosures in the Strategic Report including:
- the future development, performance and position of the Group;
- research and development activities; and
- engagement with suppliers, customers and others.
Disclosures in the Rolls-Royce Holdings plc Annual Report
The following disclosures are provided in the Company’s ultimate parent entity annual report:
- greenhouse gas emissions (page 204 of RRH Annual Report 2025); and
- political donations (page 214 of RRH Annual Report 2025); and
- non-financial sustainability information statement (see page 38 of RRH Annual Report 2025).
Management report
The Strategic Report and the Directors’ Report together are the management report for the purposes of Rule 4.1.8R of the DTRs.
Directors’ Report Rolls-Royce plc Annual Report 2025
29
Responsibility statements
Statement of Directors’ responsibilities in respect of the Financial Statements
The Directors are responsible for preparing the Annual Report and Audited Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the
Group Financial Statements in accordance with UK-adopted international accounting standards and the Company Financial Statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 Reduced
Disclosure Framework and applicable law).
Under company law, Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state
of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors
are required to:
- select suitable accounting policies and then apply them consistently;
- state whether applicable UK-adopted international accounting standards have been followed for the Group financial statements and United
Kingdom Accounting Standards, comprising FRS 101 have been followed for the Company financial statements, subject to any material
departures disclosed and explained in the financial statements;
- make judgements and accounting estimates that are reasonable and prudent; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue
in business.
The Directors are responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities. The Directors are also responsible for keeping adequate accounting records that are sufficient to
show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company's Financial Statements published on the RRH website. Legislation
in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions are listed in the Directors’ Report confirm that, to the best of their knowledge:
- the Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit of the Group;
- the Company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS
101, give a true and fair view of the assets, liabilities and financial position of the Company; and
- the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the
Company, together with a description of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors’ Report is approved:
- so far as the Director is aware, there is no relevant audit information of which the Group’s and Company’s auditors are unaware; and
- they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information
and to establish that the Group’s and the Company’s auditors are aware of that information.
Independent Auditors
The auditors, PriceWaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution for their re-appointment will
be put to the 2026 annual general meeting.
Directors’ Report approved by the Board and signed on its behalf on 26 February 2026 by:
.........................................
Director
Financial Statements Rolls-Royce plc Annual Report 2025
30
Consolidated Financial Statements
Company Financial Statements
Primary statements Primary statements
Consolidated income statement 31 Company balance sheet 97
Consolidated statement of comprehensive income 32 Company statement of changes in equity 98
Consolidated balance sheet 33
Consolidated cash flow statement 34
Consolidated statement of changes in equity 37
Notes to the Consolidated Financial Statements Notes to the Company Financial Statements
1 Accounting policies 38 1 Accounting policies 99
2 Segmental analysis 51 2 Employee information and emoluments of directors 105
3 Research and development 58 3 Intangible assets 105
4 Net financing 58 4 Property, plant and equipment 106
5 Taxation 59 5 Right-of-use assets 107
6 Auditors’ remuneration 63 6 Investments 107
7 Employee information 63 7 Inventories 107
8 Goodwill 64 8 Trade receivables and other assets 108
9 Intangible assets 66 9 Contract assets and liabilities 109
10 Property, plant and equipment 68 10 Cash and cash equivalents 109
11 Right-of-use assets 69 11 Borrowings and lease liabilities 110
12 Investments 70 12 Leases 110
13 Inventories 72 13 Trade payables and other liabilities 111
14 Trade receivables and other assets 72 14 Provisions for liabilities and charges 112
15 Contract assets and liabilities 73 15 Deferred taxation 113
16 Cash and cash equivalents 74 16 Post-retirement benefits 115
17 Borrowings and lease liabilities 74 17 Share capital 118
18 Leases 75 18 Share-based payments 118
19 Trade payables and other liabilities 76 19 Contingent liabilities 119
20 Financial instruments 77 20 Related party transactions 119
21 Provisions for liabilities and charges 85 21 Parent and ultimate parent company 119
22 Post-retirement benefits 86
23 Share capital 91
24 Share-based payments 91
25 Contingent liabilities 93
26 Related party transactions 93 Subsidiaries 120
27 Business disposals and businesses held for sale and
distribution
94 Joint ventures and associates 124
28 Derivation of summary funds flow statement 96
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
31
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2025
202 5 | 202 4 | ||
Notes | £m | £m | |
Revenue | 2 | ||
Cost of sales 1, 2 | ( | ( | |
Gross profit | 2 | ||
Commercial and administrative costs | 2 | ( | ( |
Research and development costs 2 | 2, 3 | ( | ( |
Share of results of joint ventures and associates | 1 2 | ||
Operating profit | |||
Gain arising on disposal of business es 3 | 2 7 | ||
P rofit before financing and taxation | |||
Financing income | 4 | ||
Financing costs | 4 | ( | ( |
Net financing income/(costs) 4 | ( | ||
Profit before taxation | |||
Taxation | 5 | ( | |
Profit for the year | |||
Attributable to: | |||
Ordinary shareholders | |||
Non - controlling interests (NCI) | ( | ( | |
Profit for the year | |||
Other comprehensive ( expense ) /income (OCI) | ( | ||
Total comprehensive income for the year |
1 Cost of sales includes a net charge for expected credit losses (ECLs) of £28 m (2024: £14 m). Further detail can be found in note 14
2 In the year ended 31 December 2025, the impact of an exceptional impairment reversal was included within both cost of sales, £179 m (2024: £132 m), and research and development, £6 m
(2024: £413 m). Further details can be found in notes 2, 3, 8 and 9
3 In the year ended 31 December 2025, the Group completed the sale of the naval propulsors business and also recognised an exceptional gain on disposal as a result of the deconsolidation of
Rolls-Royce SMR Limited during the year. Further details can be found in note 27
4 Included within net financing are fair value changes on derivative contracts. Further details can be found in notes 2, 4 and 20
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
32
CONSOLIDATED STAT EMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2025
202 5 | 202 4 | ||
Notes | £m | £m | |
Profit for the year | |||
Other comprehensive ( expense ) /income (OCI) | |||
Actuarial movements on post - retirement schemes 1 | 2 2 | ( | |
Revaluation to fair value of other investments | 1 2 | ( | ( |
Share of OCI of joint ventures and associates | ( | ( | |
Related tax movements | 5 | ||
Items that will not be reclassified to profit or loss | ( | ||
Foreign exchange translation differences on foreign operations | ( | ( | |
Foreign exchange translation differences reclassified to income statement on disposal of businesses | ( | ||
NCI disposed through disposal of business | 2 7 | ( | |
Movement on fair values charged to cash flow hedge reserve | ( | ( | |
Reclassified to income statement from cash flow hedge reserve | |||
Share of OCI of joint ventures and associates | ( | ||
Related tax movements | 5 | ( | |
Items that will be reclassified to profit or loss | ( | ( | |
Total other comprehensive ( expense ) / income | ( | ||
Total comprehensive income for the year | |||
Attributable to: | |||
Ordinary shareholders | |||
NCI | ( | ( | |
Total comprehensive income for the year |
1 This movement includes a charge of around £450 m as a result of the agreement to transfer the future pension obligations in the UK scheme to Pension Insurance Corporation plc. See note
22 for further information
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
33
CONSOLIDATED BALA NCE SHEET
As at 31 December 2025
202 5 | 202 4 | ||
ASSETS | Notes | £m | £m |
Goodwill 1 | 8 | ||
Intangible assets 1 | 9 | ||
Property, plant and equipment | 10 | ||
Right - of - use assets | 11 | ||
Investments 2 | 12 | ||
Other financial assets | 20 | ||
Deferred tax assets | 5 | ||
Post - retirement scheme surpluses | 22 | ||
Non - current assets | |||
Inventories | 13 | ||
Trade receivables and other assets | 14 | ||
Contract assets | 15 | ||
Taxation recoverable | |||
Other financial assets | 20 | ||
Cash and cash equivalents | 16 | ||
Current assets | |||
Assets held for sale and distribution | 27 | ||
TOTAL ASSETS | |||
LIABILITIES | |||
Borrowings and lease liabilities | 17 | ( | ( |
Other financial liabilities | 20 | ( | ( |
Trade payables and other liabilities | 19 | ( | ( |
Contract liabilities | 15 | ( | ( |
Current tax liabilities | ( | ( | |
Provisions for liabilities and charges | 21 | ( | ( |
Current liabilities | ( | ( | |
Borrowings and lease liabilities | 17 | ( | ( |
Other financial liabilities | 20 | ( | ( |
Trade payables and other liabilities | 19 | ( | ( |
Contract liabilities | 1 5 | ( | ( |
Deferred tax liabilities | 5 | ( | ( |
Provisions for liabilities and charges | 2 1 | ( | ( |
Post - retirement scheme deficits | 2 2 | ( ) | ( |
Non - current liabilities | ( | ( | |
Liabilities associated with assets held for sale and distribution | 2 7 | ( | ( |
TOTAL LIABILITIES | ( | ( | |
NET ASSETS / (LIABILITIES ) | ( | ||
EQUITY | |||
Called - up share capital | 2 3 | ||
Share premium | |||
Cash flow hedge reserve | |||
Translation reserve | |||
Retained earnings/(Accumulated losses) | ( | ||
Equity attributable to ordinary shareholders | ( | ||
Non - controlling interest (NCI) | |||
TOTAL EQUITY | ( |
1 Goodwill has been disclosed separately from other intangible assets at 31 December 2025 (and its comparative represented) as such presentation is deemed relevant to an understanding of
the Group’s financial position
2 An equity-accounted investment was recognised at fair value on the balance sheet as a result of the deconsolidation of Rolls-Royce SMR Limited during the year. Further details can be found
in note 27
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
34
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2025
202 5 | 202 4 | ||
Reconciliation of cash flows from operating activities | Notes | £m | £m |
Operating profit | |||
Loss on disposal of property, plant and equipment | |||
( P rofit ) /loss on disposal of intangible assets | ( | ||
Share of results of joint ventures and associates | 12 | ( | ( |
Dividends received from joint ventures and associates | 12 | ||
I mpairment of goodwill | 8 | ||
Amortisation and impairment of intangible assets | 9 | ( | |
Depreciation and impairment of property, plant and equipment | 10 | ||
Depreciation and impairment of right - of - use assets | 11 | ||
Adjustment of amounts payable under residual value guarantees within lease liabilities | ( | ||
Impairment of and other movements on investments | |||
De crease in provisions | ( | ( | |
Increase in inventories | ( | ( | |
Movement in trade receivables/payables and other assets/liabilities | |||
Movement in contract assets/liabilities | |||
Cash flows on other financial assets and liabilities held for operating purposes 1 | ( | ( | |
Cash flows on settlement of excess derivative contracts 2 | ( | ( | |
Interest received | |||
Net defined benefit post - retirement cost recognised in profit before financing | 22 | ||
Cash funding of defined benefit post - retirement schemes | 22 | ( | ( |
Share - based payments | 2 4 | ||
Net cash inflow from operating activities before taxation | |||
Taxation paid | ( | ( | |
Net cash inflow from operating activities | |||
Cash flows from investing activities | |||
Additions of intangible assets | 9 | ( | ( |
Disposals of intangible assets | |||
Purchases of property, plant and equipment | ( | ( | |
Disposals of property, plant and equipment | |||
Disposal of businesses (including cash flows on disposals in prior periods) | 27 | ||
Movement in investments in joint ventures and associates | 12 | ( | ( |
Cash flows on amounts owed from parent undertakings | ( | ||
Net cash outflow from investing activities | ( ) | ( | |
Cash flows from financing activities | |||
Repayment of loans | ( | ( | |
Settlement of swaps hedging fixed rate borrowings | ( | ||
Proceeds from increase in loans | |||
Capital element of lease payments | ( | ( | |
Net cash flow from decrease in borrowings and lease liabilities | ( | ( | |
Interest paid | ( | ( | |
Interest element of lease payments | ( | ( | |
Fees paid on undrawn facilities | ( | ( | |
Transactions with NCI 3 | |||
Dividends to NCI | ( | ( | |
Net cash outflow from financing activities | ( | ( | |
Change in cash and cash equivalents | |||
Cash and cash equivalents at 1 January | |||
Exchange gains / ( losses ) on cash and cash equivalents | ( | ||
Cash and cash equivalents at 31 December 4 |
1 Predominately relates to cash settled on derivative contracts held for operating purposes
2 In 2020, the Group took action to reduce the size of the USD hedge book by $11.8bn across 2020-2026 to reflect the fact that at that time, future operating cash flows were no longer forecast
to materialise. To achieve the necessary reduction in the hedge book, a separate and distinct set of foreign exchange derivative instruments were entered into to buy $11.8bn which had the
impact of fixing the fair value of the over-hedged position and provided certainty over when the cash flows to settle the position would occur in future periods. The associated cash outflow
of these transactions is £1,674m and occurs over the period 2020-2026. During the year, the Group incurred a cash outflow of £148 m (2024: £146 m) and estimates that future cash outflows of
£27m will be incurred during 2026
3 Relates to NCI investment received in the year, in respect of Rolls-Royce SMR Limited
4 The Group considers overdrafts (repayable on demand) to be an integral part of its cash management activities and these are included in cash and cash equivalents for the purposes of the
cash flow statement
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
35
CONSOLIDATED CASH FLOW STATEMENT CONTINUED
For the year ended 31 December 2025
202 5 | 202 4 | |
Reconciliation of movements in cash and cash equivalents to movement s in net cash | £m | £m |
Change in cash and cash equivalents | 654 | 1,903 |
Cash flow from decrease in borrowings and lease liabilities | 889 | 778 |
Less: settlement of related derivat iv es included in fair value of swaps below | 93 | (11) |
Change in net cash resulting from cash flows | 1,636 | 2,670 |
Lease additions, modifications and other non - cash adjustments on borrowings and lease liabilities | (232) | (193) |
Exchange gains/(losses) on net cash | 118 | (50) |
Fair value adjustments | 8 | (11) |
Net debt disposed of on disposal of businesses | 1 | – |
Movement in net cash | 1,531 | 2,416 |
Net cash/(debt) at 1 January excluding the fair value of swaps | 441 | (1,975) |
Net cash at 31 December excluding the fair value of swaps | 1,972 | 441 |
Fair value of swaps hedging fixed rate borrowings | (77) | 33 |
Net cash at 31 December | 1,895 | 474 |
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
36
CONSOLIDATED CASH FLOW STATEMENT CONTINUED
For the year ended 31 December 2025
| Net funds on | ||||||||
| disposal of | Exchange | Fair value | Reclassi- | Other | At 31 | |||
At 1 January | Funds flow | businesses | differences | adjustments | fications | movements | December | |
£m | £m | £m | £m | £m | £m | £m | £m | |
2025 | ||||||||
Cash at bank and in hand | 713 | 183 | – | (7) | – | (432) | – | 457 |
Money market funds | 1,900 | 484 | – | 40 | – | (65) | – | 2,359 |
Short - term deposits | 2,961 | (12) | – | (18) | – | (29) | – | 2,902 |
Cash and cash equivalents 1 | 5,574 | 655 | – | 15 | – | (526) | – | 5,718 |
| Cash and cash equivalents | ||||||||
included within assets held for sale and distribution | – | – | – | – | – | 526 | – | 526 |
Overdrafts | (2) | (1) | – | – | – | 3 | – | – |
| Overdrafts included within | ||||||||
| liabilities associated with assets | ||||||||
held for sale and distribution | – | – | – | – | – | (3) | – | (3) |
Cash and cash equivalents 2 | 5,572 | 654 | – | 15 | – | – | – | 6,241 |
Other current borrowings | (799) | 750 | – | (32) | 40 | (983) | (2) | (1,026) |
Non - current borrowings | (2,776) | – | – | 54 | (32) | 992 | (2) | (1,764) |
| Borrowings included within | ||||||||
| liabilities associated with assets | ||||||||
held for sale and distribution | – | – | – | – | – | (9) | – | (9) |
Lease liabilities | (1,555) | 232 | – | 81 | – | 503 | (228) | (967) |
| Lease liabilities included within | ||||||||
| liabilities associated with assets | ||||||||
held for sale and distribution | (1) | – | 1 | – | – | (503) | – | (503) |
Financial liabilities | (5,131) | 982 | 1 | 103 | 8 | – | (232) | (4,269) |
Net cash/(debt) excluding the fair value of swaps | 441 | 1,636 | 1 | 118 | 8 | – | (232) | 1,972 |
| Fair value swaps hedging fixed | ||||||||
rate borrowings 3 | 33 | (93) | – | (22) | 5 | – | – | (77) |
Net cash/(debt) | 474 | 1,543 | 1 | 96 | 13 | – | (232) | 1,895 |
2024 | ||||||||
Cash at bank and in hand | 739 | (16) | – | (10) | – | – | – | 713 |
Money market funds | 1,077 | 841 | – | (18) | – | – | – | 1,900 |
Short - term deposits | 1,968 | 1,027 | – | (34) | – | – | – | 2,961 |
Cash and cash equivalents 1 | 3,784 | 1,852 | – | (62) | – | – | – | 5,574 |
Overdrafts | (53) | 51 | – | – | – | – | – | (2) |
Cash and cash equivalents 2 | 3,731 | 1,903 | – | (62) | – | – | – | 5,572 |
Other current borrowings | (478) | 471 | – | – | (18) | (774) | – | (799) |
Non - current borrowings | (3,568) | (3) | – | 19 | 7 | 774 | (5) | (2,776) |
Lease liabilities | (1,660) | 299 | – | (7) | – | 1 | (188) | (1,555) |
| Lease liabilities included within | ||||||||
| liabilities associated with assets | ||||||||
held for sale | – | – | – | – | – | (1) | – | (1) |
Financial liabilities | (5,706) | 767 | – | 12 | (11) | – | (193) | (5,131) |
Net cash/(debt) excluding the fair value of swaps | (1,975) | 2,670 | – | (50) | (11) | – | (193) | 441 |
| Fair value swaps hedging fixed | ||||||||
rate borrowings 3 | 23 | 11 | – | (18) | 17 | – | – | 33 |
Net cash/(debt) | (1,952) | 2,681 | – | (68) | 6 | – | (193) | 474 |
Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
37
CONSOLIDATED STAT EMENT OF CHANGES IN EQUITY
For the year ended 31 December 2025
The following describes the nature and purpose of each reserve within equity:
Share capital – The nominal value of ordinary shares of 20p each in issue.
Share premium – Proceeds received in excess of the nominal value of ordinary shares issued, less the costs of issue.
Hedging reserves – Cumulative gains and losses on hedging instruments deemed effective in cash flow hedges and cost of hedging reserve.
Translation reserve – Gains and losses arising on retranslating the net assets of overseas operations into sterling.
Retained earnings/accumulated losses – All other net gains and losses and transactions with owners not recognised elsewhere and ordinary shares held for the
purpose of share-based payment plans.
Non-controlling interests – The share of net assets or liabilities of subsidiaries held by third parties.
Attributable to ordinary shareholders | |||||||||
| Retained | |||||||||
| Cash flow | earnings/ | ||||||||
| Share | Share | hedging | Translation | accumulated | Total | ||||
capital | premium | reserves 1 | reserve | l osses | Total | NCI | equity | ||
Notes | £m | £m | £m | £m | £m | £m | £m | £m | |
At | ( | ( | ( | ||||||
Profit/(loss) for the year | ( | ||||||||
| Foreign exchange translation differences | |||||||||
on foreign operations | ( | ( | ( | ||||||
| Foreign exchange translation differences | |||||||||
reclassified to income statement on disposal of business | 2 7 | ( | ( | ( | |||||
NCI disposed of on disposal of business | 27 | ( | ( | ||||||
| Actuarial movements on post-retirement | |||||||||
schemes 2 | 2 2 | ( | ( | ( | |||||
Fair value movement on cash flow hedges | ( | ( | ( | ||||||
| Reclassified to income statement from cash | |||||||||
flow hedge reserve | |||||||||
Revaluation to fair value of other investments | 12 | ( | ( | ( | |||||
OCI of joint ventures and associates | 1 2 | ( | |||||||
Related tax movements | 5 | ||||||||
Total comprehensive income/(expense) for the year | ( | ( | ( | ||||||
Share - based payments – direct to equity 3 | |||||||||
Dividends to NCI | ( | ( | |||||||
Transactions with NCI 4 | |||||||||
Related tax movements | 5 | ||||||||
Other changes in equity in the year | |||||||||
At | |||||||||
At 1 January 2024 | ( | ( | ( | ||||||
Profit/(loss) for the year | ( | ||||||||
| Foreign exchange translation differences | |||||||||
| on foreign operations | ( | ( | ( | ||||||
| Actuarial movements on post-retirement | |||||||||
schemes | 2 2 | ||||||||
Fair value movement on cash flow hedges | ( | ( | ( | ||||||
| Reclassified to income statement from cash | |||||||||
flow hedge reserve | |||||||||
Revaluation to fair value of other investments | 1 2 | ( | ( | ( | |||||
OCI of joint ventures and associates | 1 2 | ( | ( | ( | ( | ||||
Related tax movements | 5 | ( | ( | ||||||
Total comprehensive income/(expense) for the year | ( | ( | |||||||
Share - based payments – direct to equity 3 | |||||||||
Dividends to NCI | ( | ( | |||||||
Transactions with NCI 4 | |||||||||
Related tax movements | 5 | ||||||||
Other changes in equity in the year | |||||||||
At 31 December 2024 | ( | ( | ( |
1 Hedging reserves includes the cash flow hedge reserve of £7 m and the cost of the hedging reserve of £nil (2024: £13 m and £nil respectively)
2 This movement includes a charge of around £450 m as a result of the agreement to transfer the future pension obligations in the UK scheme to Pension Insurance Corporation plc. See note
22 for further information
3 Share-based payments - direct to equity is the share-based payment charge for the year less actual cost of vesting excluding those vesting from own shares and cash received on share-based
schemes
4 Relates to NCI investment received in the year in respect of Rolls-Royce SMR Limited
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
38
1 Accounting policies
The Company and the Group
the United Kingdom . The Consolidated Financial Statements of the Company for the year ended 31 December 2025 consist of the audited
consolidation of the Financial Statements of the Company and its subsidiaries (together referred to as the Group) together with the Group’s
interest in jointly controlled and associated entities.
The Consolidated Financial Statements have been prepared on a going concern basis as described on page 21. The historical cost basis has been used
except where IFRS require the revaluation of financial instruments to fair value and certain other assets and liabilities on an alternative basis, most
significantly post-retirement scheme obligations are valued on the basis required by IAS 19 Employee Benefits.
The preparation of the Consolidated Financial Statements requires management to make judgements and estimates that affect the statutory
amounts of assets and liabilities at the date of the Consolidated Financial Statements and the statutory amounts of revenue and expenses during
the reporting period. Actual future outcomes could differ from those estimates.
Going concern
The Directors have undertaken a comprehensive going concern review. In adopting the going concern basis for preparing these Consolidated
and Company Financial Statements, the Directors have undertaken a review of the Group’s cash flow forecasts and available liquidity, along with
consideration of possible risks and uncertainties over an 18-month period from the balance sheet date to June 2027. The Directors have
determined that the period to 30 June 2027 ('the going concern period') is an appropriate timeframe over which to assess going concern as it
considers the Group’s short- to medium-term cash flow forecasts and available liquidity. Recognising the challenges of reliably estimating and
forecasting the impact of external factors on the Group, the Directors have considered two forecasts in the assessment of going concern, along
with a likelihood assessment of these forecasts, being:
— base case, which reflects the Directors’ current expectations of future trading; and
— a downside forecast, which envisages severe but plausible downside risks.
Further details are given in the going concern review on page 21. After reviewing the current liquidity position and the cash flow forecasts
modelled under both the base case and downside forecast, the Directors consider that the Group has sufficient liquidity to continue in operational
existence over the going concern period to 30 June 2027 and are therefore satisfied that it is appropriate to adopt the going concern basis of
accounting in preparing the Consolidated Financial Statements.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
39
1 Accounting policies continued
Climate change (continued)
The key sources of estimation uncertainty at the balance sheet date are set out on page 41 and the Directors have considered the impact of climate
change on those estimates. The key assumptions used in this assessment are consistent with those used in the climate scenarios presented in the
Strategic Review. A summary of the assessment is set out below.
Risk | How reflected in the Financial Statements | Impact on Civil Aerospace LTSAs | |||||||||||||||||||
| Changing customer | The most likely assumptions are used in the estimates | Forecast EFH are based on customer and market data | |||||||||||||||||||
| demand | implicit in the preparation of the Financial Statements. | and therefore already include the latest expectation of | |||||||||||||||||||
| The use of sensitivity analysis ensures that any impact | the impact of climate change on demand. A sensitivity | ||||||||||||||||||||
| of climate change on demand is immaterial. | disclosing the impact of a 1% change in EFH forecasts | ||||||||||||||||||||
| over the remaining term of Civil LTSA contracts is | |||||||||||||||||||||
| disclosed on page 44. | |||||||||||||||||||||
| Changes in costs due to | The | potential | impact | of | carbon | pricing | been | has | The increase in the cost base of the current Civil LTSA | ||||||||||||
carbon pricing 1 and | estimated by applying carbon prices to the forecast | contracts due | to carbon | and commodity prices is | |||||||||||||||||
commodity price changes 2 | emissions generated | by | the | Group and | its | supply | estimated | to | be | around | 1%. | (2024: | 1%) | with | the | ||||||
| chain. This impact, together with that from estimated | incremental cost included in the cost to complete | ||||||||||||||||||||
| commodity prices under each scenario, have been | estimates that drive revenue recognition. Changes in | ||||||||||||||||||||
added/deducted | to | forecast | in | costs | the | base | estimates have not had a material impact on revenue | ||||||||||||||
| forecasts. | The analysis reflects that: decarbonisation activities | not material). | catch-ups or contract loss provisions in the year (2024: | ||||||||||||||||||
| will occur in both the Group and its supply chain; and | A sensitivity disclosing the impact of a 2% change in | ||||||||||||||||||||
| that some supplier contracts offer protection from | shop visit costs over the remaining term of Civil LTSA | ||||||||||||||||||||
| cost increases in the short- to medium-term where | contracts is disclosed on page 44. | ||||||||||||||||||||
pricing | is | fixed | or | subject | capped | escalation | to | ||||||||||||||
| clauses. | |||||||||||||||||||||
| Change in investment | Changing investment requirements may arise due to | No impact to existing LTSAs. | |||||||||||||||||||
| requirement | the introduction /acceleration of new technologies. | ||||||||||||||||||||
Research | is | expensed | and | development | costs | ||||||||||||||||
| capitalised as incurred. | |||||||||||||||||||||
1 Based on the Oxford Economics, Global Climate Service and Databank, with rates of $145 per tonne of carbon in 2025 increasing to c. $300 in 2030. Beyond 2030, the Group has considered
a range of carbon pricing data sources with an assumed increase (in outturn economics) of c. 2% per annum to c. $475 per tonne by 2050
2 Commodity prices from the Oxford Economics, Global Climate Service and Databank
Items that may be impacted by climate-related risks, but which are not considered to be key areas of judgement or sources of estimation
uncertainty in the current financial year are outlined below.
Carrying value of goodwill – The recoverable amount used in impairment testing is based on the cash flow projections of the CGUs to which the
goodwill balances relate (with the material balances being disclosed as assets held for distribution at 31 December 2025). The projections include
assumptions that are based on past experience and external sources of information in relation to sales volumes, product costs and the required
level of investment that could all be impacted by climate change. The climate scenarios prepared do not show a significant deterioration of
demand for Civil Aerospace (including Rolls-Royce Deutschland) programmes given that all commercial aero engines are compatible with
sustainable fuels, similarly the majority of the portfolio in Power Systems is compatible with alternative and more sustainable fuels. The scenarios
reflect the impact of a broad range of potential costs imposed by policy or regulatory interventions (through carbon pricing) and the investment
required to ensure new products will be compatible with net zero operation, and to achieve net zero Scope 1 + 2 GHG emission commitments. The
scenarios do not indicate the need for an impairment charge and the Directors do not consider that any reasonably possible changes in the
climate related assumptions would cause the value in use of the goodwill to fall below its carrying value.
Recoverability of programme intangible assets - The recoverable amount used in impairment testing is based on the cash flow projections of the
individual programmes. The projections include assumptions in relation to sales volumes and product costs that could be impacted by climate
change. Given the level of headroom in the programme intangible assets, with most engines being compatible with alternative or more sustainable
fuels, and with cost estimates including an allowance for the impact of carbon pricing, there is no indication of any potential impairment as a
result of climate change.
Useful lives of assets – The useful lives of property, plant and equipment and right-of-use assets could be reduced by climate-related matters, for
example, as a result of physical risks, obsolescence or legal restrictions. The change in useful lives would have a direct impact on the amount of
depreciation or amortisation recognised each year from the date of reassessment. The Directors' review of useful lives has taken into consideration
the impacts of the Group's decarbonisation strategy and climate-related matters have not had a material impact on the results for the year. The
Directors have also considered the remaining useful economic lives of material intangible assets, including the £1,993m and £814m capitalised
development spend associated with the Trent and business aviation programmes disclosed in note 9. Given the measures the Group is taking,
including demonstration that all the commercial aero-engines and majority of the portfolio in Power Systems are compatible with alternative and
sustainable fuels, the Directors judge that no adjustment is required to the useful economic lives.
Inventory valuation – Climate-related matters may affect the value of inventories as a result of a decline in selling prices or where items could
become obsolete due to a reduction in demand. After consideration of the typical stock-turns of the inventory in relation to the rate of change
in the market the Directors consider that inventory is appropriately valued.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
40
1 Accounting policies continued
Climate change (continued)
Recoverability of trade receivables and contract assets – The impact of climate-related matters could have an impact on the Group's customers in
the future, especially those customers in the Civil Aerospace business. No material climate-related issues have arisen during the year that have
impacted the assessment of the recoverability of receivables. The Group's expected credit loss (ECL) provision uses credit ratings which inherently
will include the market's assessment of the climate change impact on credit risk of the counter parties. Given the maturity time of trade receivables
and the majority of contract assets, climate change is unlikely to cause a material increase on counter party credit risk in that time.
Recoverability of deferred tax assets on UK tax losses – Deferred tax assets are recognised to the extent it is probable that future taxable profits
will be available against which the assets can be utilised. The deferred tax asset on UK tax losses primarily arises in Rolls-Royce plc and has been
recognised based on the expectation that the business will generate taxable profits and tax liabilities in the future against which the losses and
deductible temporary differences can be utilised. Recognising the longer term over which these assets will be recovered, the Group considers
climate change scenarios that could impact future taxable profits through changes in demand for our products or their cost. The variability in
taxable profits that could arise from changes in such estimates is not considered to be of sufficient magnitude that it would impact our judgement
that there will be sufficient future taxable profits available against which the assets can be utilised.
Share-based payments – The Group is committed to achieving net zero by 2050. The Group has committed to reduce the total Scope 1 + 2
greenhouse gas emissions from its facilities, operations and testing by 46% by the end of 2030 (against a baseline of 2019). This metric accounts
for 10% of the long-term incentive plan for awards granted in 2025, with performance measured against three-year cumulative targets.
Defined benefit pension plans – Having assessed the risks and opportunities of climate change and considered the nature of the assets of the fund,
climate change is unlikely to have a material impact on the position in the Consolidated Financial Statements.
Going concern – Given the short-term nature of the Group’s going concern assessment, the impact of climate change does not have a significant
impact. The Directors have considered the level of liquidity available, and the potential impact of the climate change risks, in making their assessment.
Presentation of underlying results
The Group measures financial performance on an underlying basis and discloses this information as an alternative performance measure (APM). This is
consistent with the way that financial performance is measured by the Directors and reported to the Board in accordance with IFRS 8 Operating
Segments. The Group believes this is the most appropriate basis to measure the in-year performance, as underlying results reflect the substance of
trading activity, including the impact of the Group's foreign exchange forward contracts, which economically hedge net foreign currency cash flows at
predetermined exchange rates. In addition, underlying results exclude the accounting impact of acquisition accounting and business disposals,
impairment charges where the reasons are outside of normal operating activities, exceptional items, and certain other items which are market driven
and outside of the control of management. Further details are given in note 2. A reconciliation of APMs to the statutory equivalent is provided on pages
137
to 140.
Revisions to IFRS applicable in 2025
There are no new standards or interpretations issued by the International Accounting Standards Board (IASB) that had a significant impact on these
Consolidated Financial Statements.
Revisions to IFRS not applicable in 2025
Standards and interpretations issued by the IASB are only applicable if endorsed by the UK. Other than IFRS 18 Presentation and Disclosure in Financial
Statements described below, the Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet
applicable will have a significant impact on the Consolidated Financial Statements.
IFRS 18 Presentation and Disclosure in Financial Statements
The IASB issued a new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, on 9 April 2025 that will replace IAS 1 Presentation of
Financial Statements. The purpose of the new standard is to provide more consistent presentation of financial information across preparers as it is
acknowledged that existing standards have given flexibility to present information in different ways. IFRS 18 Presentation and Disclosure in Financial
Statements will not impact the recognition or measurement of items in the Financial Statements. Many of the existing presentation principles in IAS 1
Presentation of Financial Statements are retained, but there are some more specific requirements that will require the Group to make some changes in
its future Annual Reports.
The new Standard was endorsed by the UK Endorsement Board (UKEB) and will be applicable for reporting periods beginning on or after 1 January 2027.
The Group does not anticipate its early adoption of the new Standard. Comparative information for 2026 will need to be restated when subsequent
Financial Statements are published. The Group has continued its implementation activities and expects the most significant changes post 2027 to be in
relation to the presentation of items within the Statutory Consolidated Income Statement. The changes are expected to include: 'share of results of joint
ventures and associates' being presented in the new investing category and included when arriving at a new subtotal ‘operating profit including share of
results of joint ventures and associates’; interest income will be reclassified from net financing into the new investing category; the majority of foreign
exchange differences will be reclassified from net financing into the operating category; and fair value gains/(losses) related to foreign currency contracts
and commodity contracts will be reclassified from net financing into the operating category. The process of assessing the financial impact on the
Consolidated Financial Statements will continue during 2026.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
41
1 Accounting policies continued
Area | Key judgements | Key sources of estimation uncertainty | Page |
| Revenue recognition | — Whether Civil Aerospace OE and aftermarket | — Estimates of future revenue including | 43 |
| and contract assets | contracts should be combined. | customer pricing, and costs of long-term | |
| and liabilities | — How performance on long-term aftermarket | contractual arrangements, including the | |
| contracts should be measured. | impact of climate change. | ||
| — Whether long-term aftermarket contracts contain | |||
| a significant financing component. | |||
| — Whether any costs should be treated as wastage. | |||
| — Whether the Civil Aerospace LTSA contracts are | |||
| warranty style contracts entered into in | |||
| connection with OE sales and therefore can be | |||
| accounted for under IFRS 15 Revenue from | |||
| Contracts with Customers. | |||
| — Whether sales of spare engines to joint ventures | |||
| are at fair value. | |||
| — When revenue should be recognised in relation to | |||
spare engine sales. | |||
| Risk and revenue | — Determination of the nature of entry fees received. | 44 | |
| sharing arrangements | |||
| (RRSAs) | |||
| Assets and liabilities | — Whether components of the legal entity review | 45 | |
| associated with assets | programme are considered a single integrated | ||
| held for distribution | distribution transaction and hence disclosed as | ||
| held for distribution. | |||
| Research and | — Determination of the point in time where costs | 46 | |
| development | incurred on an internal programme development | ||
| meet the criteria for capitalisation. | |||
| — Determination of the basis for amortising | |||
| capitalised development costs. | |||
Leases | — Determination of the lease term. | 47 | |
| Impairment of non- | — Determination of cash-generating units for | 48 | |
| current assets | assessing impairment of goodwill. | ||
Provisions | — Whether any costs should be treated as wastage. | — Estimates of the time and cost to incorporate | 49 |
| required modified parts into the fleet to | |||
| resolve technical issues on certain | |||
| programmes (which could be exacerbated | |||
| by prolonged supply chain challenges) and | |||
| the implications of this on forecast future | |||
| costs when assessing onerous contracts. | |||
| — Estimates of the future revenues and costs to | |||
| fulfil onerous contracts. | |||
| — Assumptions implicit within the calculation of | |||
| discount rate. | |||
| Post-retirement | — Estimates of the assumptions for valuing the | 49 | |
| benefits | net defined benefit obligation. |
Material accounting policies
The Group’s significant accounting policies are set out on pages 42 to 50. These accounting policies have been applied consistently to all periods
presented in these Consolidated Financial Statements.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
42
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
43
1 Accounting policies continued
Revenue recognition and contract assets and liabilities (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
44
1 Accounting policies continued
Revenue recognition and contract assets and liabilities (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
45
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
46
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
47
Accounting policies continued
Research and development (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
48
1 Accounting policies continued
Leases (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
49
1 Accounting policies continued
Provisions (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
50
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
51
2 Segmental analysis
The analysis by segment is presented in accordance with IFRS 8 Operating Segments, on the basis of those segments whose operating results are
regularly reviewed by the Board (who acts as the Chief Operating Decision Maker as defined by IFRS 8 Operating Segments). The Group’s three
On 4 March 2025, an investment was received by Rolls-Royce SMR Limited from ČEZ Group (CEZ), as a result the Group relinquished control of
Rolls-Royce SMR Limited and the subsidiary was deconsolidated (see note 27 for further details).
Following the decision in 2024 to exit the Group’s advanced air mobility activities and the deconsolidation of Rolls-Royce SMR Limited on 4 March
2025 (see note 27) the New Markets operating segment that was reported at 31 December 2024 is no longer regularly reviewed by the Board as
a basis for making decisions about the allocation of resources to the business or to assess its performance. In line with IFRS 8 Operating Segments,
New Markets is no longer considered to meet the definition of an operating segment.
Revenue and expenses from new electrical power solutions and the Group’s share of the financial results of Rolls-Royce SMR Limited have been
included in ‘All Other Businesses’, which also includes the trading results of the UK Civil Nuclear business. The segmental analysis for 2024 has
been restated to reflect the 2025 assessment of operating segments.
Underlying results
The Group presents the financial performance of the businesses in accordance with IFRS 8 Operating Segments and consistently with the basis
on which performance is communicated to the Board each month.
Underlying results are presented by recording all relevant revenue and cost of sales transactions at the average exchange rate achieved on
effective settled derivative contracts for the Company and its subsidiaries in the period that the cash flow occurs. The impact of the revaluation
of monetary assets and liabilities (other than lease liabilities) using the exchange rate that is expected to be achieved by the use of the effective
hedge book is recorded within underlying cost of sales. Underlying financing excludes the impact of revaluing monetary assets and liabilities to
period end exchange rates. Lease liabilities are not revalued to reflect the expected exchange rates due to their multi-year remaining term, the
Directors believe that doing so would not be the most appropriate basis to measure the in-year performance. Transactions between segments are
presented on the same basis as underlying results and eliminated on consolidation. Unrealised fair value gains/(losses) on foreign exchange
contracts, which are recognised as they arise in the statutory results, are excluded from underlying results. To the extent that the previously
forecast transactions are no longer expected to occur, an appropriate portion of the unrealised fair value gain/(loss) on foreign exchange
contracts is recorded immediately in the underlying results.
Amounts receivable/(payable) on interest rate swaps which are not designated as hedge relationships for accounting purposes are reclassified
from fair value movement on a statutory basis to interest receivable/(payable) on an underlying basis, as if they were in an effective hedge
relationship.
In the year to 31 December 2025, the Group was a net seller of USD at an achieved exchange rate GBP:USD of 1.44 (2024: 1.48) based on the USD
hedge book.
In 2020, the Group experienced a significant decline in its medium-term outlook and consequently a significant deterioration to its forecast net
USD cash inflows. The Group took action to reduce the size of the USD hedge book by $11.8bn across 2020-2026 to reflect the fact that, at that
time, future operating cash flows were no longer forecast to materialise. An underlying charge of £1.7bn was recognised within the underlying
finance costs in 2020 and the associated cash settlement costs occur over the period 2020-2026. The derivatives relating to this underlying
charge have been subsequently excluded from the hedge book and therefore are also excluded from the calculation of the average exchange
rate achieved in the current and future periods.
Underlying performance also excludes the following:
– the effect of acquisition accounting and business disposals;
– impairment of goodwill, other non-current and current assets where the reasons for the impairment are outside of normal operating activities;
– exceptional items; and
– certain other items which are market driven and outside of the control of management.
Subsequent changes in items excluded from underlying performance in a prior period will also be excluded from underlying performance. All
other changes will be recognised within underlying performance.
Acquisition accounting, business disposals and impairment
The Group exclude these from underlying results so that the current year and comparative results are directly comparable.
Exceptional items
Items are classified as exceptional where the Directors believe that presentation of the results in this way is useful in providing an understanding
of the Group's financial performance. Exceptional items are identified by virtue of their size, nature or incidence.
In determining whether an event or transaction is exceptional, the Directors consider quantitative as well as qualitative factors such as the
frequency or predictability of occurrence. Examples of exceptional items include one-time costs and charges in respect of aerospace programmes,
costs of exceptional restructuring and transformation programmes and one-time past service charges and credits on post-retirement schemes.
Exceptional items are not allocated to segments and may not be comparable to similarly titled measures used by other companies.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
52
Segmental analysis continued
| Corporate | ||||||
| Civil | Power | All Other | and Inter- | Total | ||
| Aerospace | Defence | Systems | Businesses 1 | segment 2 | Underlying | |
£m | £m | £m | £m | £m | £m | |
Year ended 31 December 2025 | ||||||
Underlying revenue from sale of original equipment | 3,21 7 | 2,228 | 3,433 | 13 | – | 8,89 1 |
Underlying revenue from aftermarket services | 7,165 | 2,544 | 1,459 | – | – | 11,168 |
Total underlying revenue | 10,38 2 | 4,772 | 4,892 | 13 | – | 20,0 59 |
Gross profit/(loss) | 2,6 75 | 93 3 | 1,52 2 | (2) | (2) | 5,1 26 |
Commercial and administrative costs | (432) | (201) | (51 8 ) | (5) | (67) | (1,22 3 ) |
Research and development costs | (267) | (45) | (16 4 ) | (21) | – | ( 497 ) |
Share of results of joint ventures and associates | 154 | 2 | 1 2 | (112) | – | 5 6 |
Underlying operating profit/(loss) | 2,1 30 | 68 9 | 85 2 | (140) | (69) | 3,4 62 |
Year ended 31 December 202 4 | ||||||
Underlying revenue from sale of original equipment | 3,105 | 1,943 | 2,942 | 15 | – | 8,005 |
Underlying revenue from aftermarket services | 5,935 | 2,579 | 1,329 | – | – | 9,843 |
Total underlying revenue | 9,040 | 4,522 | 4,271 | 15 | – | 17,848 |
Gross profit/(loss) | 1,990 | 908 | 1,199 | (3) | (3) | 4,091 |
Commercial and administrative costs | (396) | (212) | (483) | (41) | (65) | (1,197) |
Research and development costs | (252) | (55) | (165) | (133) | – | (605) |
Share of results of joint ventures and associates | 163 | 3 | 9 | – | – | 175 |
U nderlying operating profit/(loss) | 1,505 | 644 | 560 | (177) | (68) | 2,464 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
53
2 Segmental analysis continued
| Underlying | |||
| adjustments and | Group | ||
| Total | adjustments to | statutory | |
| underlying | foreign exchange | results | |
£m | £m | £m | |
Year ended 31 December 2025 | |||
Revenue from sale of original equipment | 8, 891 | 212 | 9, 103 |
Revenue from aftermarket services | 11,168 | 936 | 12,104 |
Total revenue | 20,059 | 1,148 | 21,207 |
Gross profit | 5,126 | 1,049 | 6,175 |
Commercial and administrative costs | (1, 223 ) | ( 45 ) | (1, 268 ) |
Research and development costs | (497) | 2 | (495) |
Share of results of joint venture and associates | 56 | – | 56 |
Operating profit | 3,462 | 1,006 | 4,468 |
Gain arising on the disposal of businesses | – | 809 | 809 |
Profit before financing and taxation | 3, 462 | 1, 815 | 5, 277 |
Net financing | (110) | 1,768 | 1,658 |
Profit before taxation | 3,352 | 3,583 | 6,935 |
Taxation | ( 593 ) | ( 506 ) | (1, 099 ) |
Profit for the year | 2,759 | 3,077 | 5,836 |
Attributable to: | |||
Ordinary shareholders | 2, 764 | 3, 077 | 5, 841 |
NCI | (5) | – | (5) |
Year ended 31 December 2024 | |||
Revenue from sale of original equipment | 8,005 | 384 | 8,389 |
Revenue from aftermarket services | 9,843 | 677 | 10,520 |
Total revenue | 17,848 | 1,061 | 18,909 |
Gross profit | 4,091 | 130 | 4,221 |
Commercial and administrative costs | (1,197) | (87) | (1,284) |
Research and development costs | (605) | 402 | (203) |
Share of results of joint venture and associates | 175 | (3) | 172 |
Operating profit | 2,464 | 442 | 2,906 |
Gain arising on the disposal of business | – | 16 | 16 |
Profit before financing and taxation | 2,464 | 458 | 2,922 |
Net financing | (171) | (517) | (688) |
Profit/(loss) before taxation | 2,293 | (59) | 2,234 |
Taxation | (282) | 532 | 250 |
Profit for the year | 2,011 | 473 | 2,484 |
Attributable to: | |||
Ordinary shareholders | 2,048 | 473 | 2,521 |
NCI | (37) | – | (37) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
54
2 Segmental analysis continued
| Corporate | ||||||
| Civil | Power | All Other | and Inter- | Total | ||
| Aerospace | Defence | Systems | Businesses | segment | Underlying | |
Year ended 31 December 2025 | £m | £m | £m | £m | £m | £m |
Original equipment recognised at a point in time | 3, 217 | 409 | 3,368 | – | – | 6, 994 |
Original equipment recognised over time | – | 1,819 | 65 | 13 | – | 1,897 |
Aftermarket services recognised at a point in time | 1,617 | 735 | 1,348 | – | – | 3,700 |
Aftermarket services recognised over time | 5,469 | 1,809 | 111 | – | – | 7,389 |
Total underlying customer contract revenue | 10, 303 | 4,772 | 4,892 | 13 | – | 19, 980 |
Other underlying revenue 1 | 79 | – | – | – | – | 79 |
Total underlying revenue 2 | 10, 382 | 4,772 | 4,892 | 13 | – | 20, 059 |
Year ended 31 December 202 4 | ||||||
Original equipment recognised at a point in time | 3,105 | 562 | 2,871 | 3 | – | 6,541 |
Original equipment recognised over time | – | 1,381 | 71 | 12 | – | 1,464 |
Aftermarket services recognised at a point in time | 1,258 | 918 | 1,231 | – | – | 3,407 |
Aftermarket services recognised over time | 4,594 | 1,661 | 98 | – | – | 6,353 |
Total underlying customer contract revenue | 8,957 | 4,522 | 4,271 | 1 5 | – | 17,765 |
Other underlying revenue 1 | 83 | – | – | – | – | 83 |
Total underlying revenue 2 | 9,040 | 4,522 | 4,271 | 1 5 | – | 17,848 |
| Underlying | |||
| adjustments and | |||
| adjustments to | Group statutory | ||
| Total underlying | foreign exchange | results 1 | |
£m | £m | £m | |
Year ended 31 December 202 5 | |||
Original equipment recognised at a point in time | 6, 994 | 211 | 7, 205 |
Original equipment recognised over time | 1,897 | 1 | 1,898 |
Aftermarket services recognised at a point in time | 3,700 | 123 | 3,823 |
Aftermarket services recognised over time | 7,389 | 806 | 8,195 |
Total customer contract revenue | 19, 980 | 1,141 | 21, 121 |
Other revenue | 79 | 7 | 86 |
Total revenue | 20, 059 | 1,148 | 21, 207 |
Year ended 31 December 202 4 | |||
Original equipment recognised at a point in time | 6,541 | 384 | 6,925 |
Original equipment recognised over time | 1,464 | – | 1,464 |
Aftermarket services recognised at a point in time | 3,407 | 163 | 3,570 |
Aftermarket services recognised over time | 6,353 | 501 | 6,854 |
Total customer contract revenue | 17,765 | 1,048 | 18,813 |
Other revenue | 83 | 13 | 96 |
Total revenue | 17,848 | 1,061 | 18,909 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
55
2 Segmental analysis continued
202 5 | 202 4 | |
£m | £m | |
United Kingdom | 3,103 | 2,642 |
Germany | 1, 225 | 1,048 |
Türkiye | 442 | 307 |
Spain | 410 | 282 |
Switzerland | 362 | 440 |
Italy | 357 | 318 |
France | 327 | 332 |
Ireland | 202 | 324 |
Netherlands | 199 | 130 |
Israel | 139 | 73 |
Norway | 132 | 96 |
Poland | 107 | 141 |
Sweden | 95 | 28 |
Portugal | 82 | 121 |
Latvia | 54 | 16 |
Rest of Europe | 192 | 273 |
Europe | 7, 428 | 6,571 |
United States | 5,802 | 5,477 |
Canada | 529 | 462 |
North America | 6,331 | 5,939 |
South America | 300 | 336 |
Central America | 90 | 169 |
United Arab Emirates | 543 | 255 |
Saudi Arabia | 514 | 428 |
Qatar | 374 | 196 |
Rest of Middle East | 243 | 301 |
Middle East | 1,674 | 1,180 |
China | 1,500 | 1,400 |
Japan | 733 | 634 |
Singapore | 558 | 506 |
South Korea | 404 | 359 |
Indonesia | 199 | 125 |
Philippines | 166 | 130 |
India | 152 | 147 |
Taiwan | 148 | 211 |
Thailand | 140 | 138 |
Rest of Asia | 380 | 243 |
Asia | 4,380 | 3,893 |
Africa | 587 | 406 |
Australasia | 417 | 415 |
21, 207 | 18,909 |
2025 | 2024 | |||||
| Within | After five | Within | After five | |||
| five years | years | Total | five years | years | Total | |
£bn | £bn | £bn | £bn | £bn | £bn | |
Civil Aerospace | 29.2 | 35.4 | 64.6 | 29.7 | 30.2 | 59.9 |
Defence | 14.1 | 3.3 | 17.4 | 14.0 | 3.4 | 17.4 |
Power Systems | 5.9 | 0.2 | 6.1 | 4.7 | 0.1 | 4.8 |
All Other Businesses | – | – | – | – | – | – |
49.2 | 38.9 | 88.1 | 48.4 | 33.7 | 82.1 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
56
2 Segmental analysis continued
202 5 | 202 4 | ||||||||
| Profit/(loss) | Profit/(loss) | ||||||||
| before | Net | before | Net | ||||||
| Revenue | financing | financing | Taxation | Revenue | financing | financing | Taxation | ||
£m | £m | £m | £m | £m | £m | £m | £m | ||
Underlying performance | 20, 059 | 3, 462 | ( 110 ) | ( 593 ) | 17,848 | 2,464 | (171) | (282) | |
Impact of foreign exchange differences as a result of hedging activities on trading | |||||||||
transactions 1 | A | 1,148 | 797 | 499 | (328) | 1,061 | 197 | 190 | (97) |
| Unrealised fair value changes on derivative | |||||||||
contracts held for trading 2 | A | – | – | 1,328 | (333) | – | (6) | (649) | 164 |
| Unrealised fair value change to derivative | |||||||||
contracts held for financing 3 | A | – | – | (4) | 1 | – | – | 40 | (10) |
Exceptional programme credits 4 | B | – | 83 | – | (21) | – | – | – | – |
| Exceptional transformation and restructuring | |||||||||
charges 5 | B | – | (44) | – | 4 | – | (234) | (11) | 65 |
Impairment reversals 6 | C | – | 179 | – | ( 44 ) | – | 547 | – | (157) |
Effect of acquisition accounting 7 | C | – | ( 16 ) | – | 3 | – | (45) | – | 11 |
Other 8 | D | – | 7 | ( 55 ) | 12 | – | (17) | (87) | 27 |
Gain arising on the disposals of businesses 9 | C | – | 809 | – | ( 28 ) | – | 16 | – | (6) |
Impact of tax rate change 10 | D | – | – | – | (58) | – | – | – | 10 |
Recognition of deferred tax assets 11 | D | – | – | – | 286 | – | – | – | 525 |
Total underlying adjustments | 1,148 | 1, 815 | 1, 768 | ( 506 ) | 1,061 | 458 | (517) | 532 | |
| Statutory performance per consolidated | |||||||||
income statement | 21, 207 | 5, 277 | 1, 658 | (1, 099 ) | 18,909 | 2,922 | (688) | 250 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
57
2 Segmental analysis continued
| Total | ||||
| Power | reportable | |||
| Civil Aerospace | Defence | Systems | segments | |
£m | £m | £m | £m | |
Year ended 31 December 2025 | ||||
Segment assets | 16, 613 | 1,0 2 3 | 116 | 17, 752 |
Interests in joint ventures and associates | 102 | 9 | – | 111 |
Segment liabilities | (22, 610 ) | (1, 20 8 ) | ( 1 41 ) | (2 3,959 ) |
Net liabilities | (5, 895 ) | ( 1 76 ) | ( 25 ) | (6, 096 ) |
| Investment in intangible assets, property, plant and equipment, right-of-use | ||||
assets and joint ventures and associates | 766 | 185 | 219 | 1, 170 |
Depreciation, amortisation and impairment | 493 | 73 | 167 | 733 |
Year ended 31 December 2024 | ||||
Segment assets | 19,303 | 3,495 | 3,998 | 26, 796 |
Interests in joint ventures and associates | 550 | 9 | 33 | 592 |
Segment liabilities | (26,611) | (3,315) | (1,964) | (3 1 , 890 ) |
Net (liabilities)/assets | (6,758) | 189 | 2,067 | (4,5 02 ) |
| Investment in intangible assets, property, plant and equipment, right-of-use | ||||
assets and joint ventures and associates | 650 | 164 | 198 | 1,0 12 |
Depreciation, amortisation and impairment | 210 | 85 | 199 | 549 |
202 5 | 202 4 | |
£m | £m | |
S egment assets (excluding assets held for sale and distribution ) | 17, 752 | 26,796 |
Interests in joint ventures and associates | 111 | 592 |
All other businesses | 674 | 122 |
Corporate and Inter - segment | 684 | (1,889) |
Assets held for sale and distribution | 12, 058 | 153 |
Cash and cash equivalents | 5,718 | 5,574 |
Fair value of swaps hedging fixed rate borrowings | – | 154 |
Deferred and income tax assets | 3, 025 | 3,731 |
Post - retirement scheme surplus | 286 | 790 |
Total assets | 40, 308 | 36,023 |
S egment liabilities (excluding liabilities associated with assets held f or sale and distribution ) | (23,959) | (31,890) |
All other businesses | (6) | (199) |
Corporate and Inter - segment | 1,573 | 2,227 |
Liabilities associated with assets held for sale and distribution | (8, 9 36 ) | (100) |
Borrowings and lease liabilities | (3, 757 ) | (5,132) |
Fair value of swaps hedging fixed rate borrowings | (77) | (121) |
Deferred and income tax liabilities | ( 139 ) | (348) |
Post - retirement scheme deficits | ( 30 ) | (981) |
Total liabilities | (35, 331 ) | (36,544) |
Net assets /(liabilities) | 4, 977 | (521) |
202 5 | 202 4 | |
£m | £m | |
United Kingdom | 5, 766 | 4,968 |
Germany | 15 | 2,326 |
United States | – | 1,481 |
Other | 67 | 709 |
5, 848 | 9,484 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
58
202 5 | 202 4 | |
£m | £m | |
Gross research and development expenditure | (1, 417 ) | (1,475) |
Contributions and fees 1 | 814 | 700 |
Net expenditure | ( 603 ) | (775) |
Capitalised as intangible assets 2 | 2 11 | 263 |
Amortisation and impairment of capitalised costs 3, 4 | (103) | 309 |
Net amount recognised in the income statement | ( 495 ) | (203) |
Underlying adjustments 4 | (2) | (402) |
Net underlying cost recognised in the income statement | ( 497 ) | (605) |
202 5 | 202 4 | |||
| Statutory | Underlying 1 | Statutory | Underlying 1 | |
£m | £m | £m | £m | |
Interest receivable and similar income 2 | 271 | 265 | 269 | 266 |
Net fair value gains on foreign currency contracts | 1,335 | – | – | – |
Net fair value gains on non - hedge accounted interest rate swaps 3 | – | – | 40 | – |
Financing on post - retirement scheme surpluses | 32 | – | 37 | – |
Net foreign exchange gains | 499 | – | 190 | – |
Financing income | 2,13 7 | 265 | 536 | 266 |
In terest payable | (302) | (240) | (362) | (273) |
Net fair value losses on foreign currency contracts | – | – | (631) | – |
Net fair value losses on non - hedge accounted interest rate swaps 3 | (4) | – | – | – |
| Net fair value losses on revaluation of other investments | ||||
accounted for at FVTPL 4 | – | – | (24) | (24) |
| Foreign exchange differences and changes in forecast payments | ||||
relating to financial RRSAs | (4) | – | – | – |
Net fair value losses on commodity contracts | (7) | – | (18) | – |
Financing on post - retirement scheme deficits | ( 38 ) | – | (39) | – |
Cost of undrawn facilities | ( 9 ) | (9) | (17) | (17) |
Other financing charges | ( 115 ) | ( 126 ) | (133) | (123) |
Financing costs | (4 79 ) | (37 5 ) | (1,224) | (437) |
Net financing income/(costs) | 1,65 8 | (11 0 ) | (688) | (171) |
Analysed as: | ||||
Net interest ( payable ) / receivable | (31) | 25 | (93) | (7) |
Net fair value gains / ( losses ) on derivative contracts | 1,324 | – | (609) | – |
Net post - retirement scheme financing | (6) | – | (2) | – |
Net foreign exchange gains | 499 | – | 190 | – |
Net other financing | (12 8 ) | (13 5 ) | (174) | (164) |
Net financing income/(costs) | 1,65 8 | (11 0 ) | (688) | (171) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
59
UK | Overseas | Total | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | |
Current tax charge for the year | 39 | 30 | 730 | 379 | 769 | 409 |
| Current tax charge in respect of Pillar Two | ||||||
income taxes | 2 | 2 | – | – | 2 | 2 |
Adjustments in respect of prior years | (9) | – | 79 | (18) | 70 | (18) |
Current tax | 32 | 32 | 809 | 361 | 841 | 393 |
Deferred tax charge for the year | 726 | 265 | 50 | 3 | 776 | 268 |
Adjustments in respect of prior years | 12 | 17 | (25) | (47) | (13) | (30) |
Recognition of deferred tax | (563) | (1,033) | – | – | (563) | (1,033) |
Derecognition of advance corporation tax | – | 162 | – | – | – | 162 |
Deferred tax charge resulting from an decrease in the overseas tax rate | – | – | 58 | – | 58 | – |
Deferred tax credit resulting from a decrease in UK tax rate | – | (10) | – | – | – | (10) |
Deferred tax | 175 | (599) | 83 | (44) | 258 | (643) |
C harged /(credited) in the income statement | 207 | (567) | 892 | 317 | 1,099 | (250) |
OCI | Equity | |||||
| Items that will not be | Items that will be reclassified | |||||
reclassified | ||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
Deferred tax: | £m | £m | £m | £m | £m | £m |
Movement in post - retirement schemes | 115 | 61 | – | – | – | – |
Cash flow hedge | – | – | 3 | (1) | – | – |
Net investment hedge | – | – | 2 | (2) | – | – |
Share - based payments – direct to equity | – | – | – | – | 76 | 71 |
Other tax credits/(charges) | 115 | 61 | 5 | (3) | 76 | 71 |
202 5 | 202 4 | |
£m | £m | |
Profit before taxation | 6,935 | 2,234 |
Less: share of profits of joint ventures and associates (note 1 2 ) | (71) | (137) |
Profit before taxation excluding joint ventures and associates | 6,864 | 2,097 |
Nominal ta x charge a t UK corporation tax rate 25% (2024: 25%) | 1,716 | 524 |
Overseas rate differences 1 | 40 | 27 |
US state taxes | 18 | 23 |
Exempt gain on disposal of businesses 2 | (185) | – |
Tax de - grouping charge 3 | – | 102 |
Other permanent differences 4 | 5 | 12 |
Tax losses and other temporary differences not recognised in deferred tax 5 | 11 | 3 |
Derecognition of deferred tax | – | 30 |
Benefit arising from previously unrecognised other temporary differences 6 | ( 27 ) | ( 42 ) |
Recognition of deferred tax 7 | ( 563 ) | (1,033) |
Utilisation of previously unrecognised UK tax losses | (31) | – |
Adjustments in respect of prior years | 57 | (48) |
Derecognition of advance corporation tax 8 | – | 162 |
Increase in deferred taxes resulting from a change in the overseas tax rate 9 | 58 | – |
Decrease in deferred taxes resulting from a change in the UK tax rate 10 | – | (10) |
1,099 | (250) | |
Underlying items ( note 2) | 593 | 282 |
Non - underlying items | 506 | (532) |
1,099 | (250) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
60
5 Taxation continued
| 2025 | 2024 | |
| £m | £m | |
At 1 January | 3,429 | 2,668 |
Amount ( charged ) / credited to income statement | (258) | 643 |
Amount credited to OCI | 117 | 59 |
Amount credited/(charged) to hedging reserves | 3 | (1) |
Amount credited to equity | 76 | 71 |
Transferred to assets held for distribution 1 | (453) | – |
Exchange differences | (9) | (11) |
At 31 December | 2,905 | 3,429 |
Deferred tax assets | 2,980 | 3,660 |
Deferred tax liabilities | (75) | (231) |
2,905 | 3,429 |
| Transferred | |||||||
| Recognised | to held for | ||||||
| in income | Recognised in | Recognised in | sale and | Exchange | At | ||
| At 1 January | statement | OCI | equity | distribution 1 | differences | 31 December | |
£m | £m | £m | £m | £m | £m | £m | |
2025 | |||||||
Intangible assets | (613) | (8) | – | – | 220 | (16) | (417) |
Property, plant and equipment | 142 | (80) | – | – | 111 | 8 | 181 |
Other temporary differences 2 | 874 | (7) | 5 | 13 | (653) | (1) | 231 |
Net contract liabilities | 63 | (3) | – | – | – | – | 60 |
| Pensions and other post-retirement scheme | |||||||
benefits | (54) | (23) | 115 | – | (99) | (3) | (64) |
| Foreign exchange and commodity financial | |||||||
assets and liabilities | 488 | (506) | – | – | (25) | 2 | (41) |
Losses | 2,481 | 420 | – | 63 | (7) | – | 2,957 |
R&D credit | 48 | (51) | – | – | – | 1 | (2) |
3,429 | (258) | 120 | 76 | (453) | (9) | 2,905 | |
Intangible assets | (431) | (191) | – | – | – | 9 | (613) |
Property, plant and equipment | 229 | (87) | – | – | – | – | 142 |
Other temporary differences 2 | 752 | 77 | (3) | 62 | – | (14) | 874 |
Net contract liabilities | 60 | 3 | – | – | – | – | 63 |
| Pensions and other post-retirement scheme | |||||||
benefits | (123) | 10 | 61 | – | – | (2) | (54) |
| Foreign exchange and commodity financial | |||||||
assets and liabilities | 451 | 40 | – | – | – | (3) | 488 |
Losses | 1,489 | 984 | – | 9 | – | (1) | 2,481 |
R&D credit | 79 | (31) | – | – | – | – | 48 |
Advance corporation tax 3 | 162 | (162) | – | – | – | – | – |
2,668 | 643 | 58 | 71 | – | (11) | 3,429 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
61
5 Taxation continued
202 5 | 202 4 | |
£m | £m | |
Advance corporation tax 1 | 162 | 181 |
UK losses 1 | – | 629 |
Foreign exchange and commodity financial assets and liabilities | – | 27 |
Losses and other unrecognised deferred tax assets 1 | 13 | 47 |
| Deferred tax not recognised on unused tax losses and other items on the basis that future | ||
economic benefit is uncertain | 175 | 884 |
| 2025 | ||||
| Total gross losses | Foreign exchange | |||
| and deductible | and commodity | |||
| temporary | financial assets | Other | ||
| differences | UK losses | and liabilities | losses | |
£m | £m | £m | £m | |
Expiry within five years | – | – | – | – |
Expiry within six to 30 years | – | – | – | – |
No expiry | 53 | – | – | 53 |
53 | – | – | 53 |
| 2024 | ||||
| Total gross losses | Foreign exchange | |||
| and deductible | and commodity | |||
| temporary | financial assets | Other | ||
| differences | UK losses | and liabilities | losses | |
£m | £m | £m | £m | |
Expiry within five years | 75 | – | – | 75 |
Expiry within six to 30 years | 218 | – | – | 218 |
No expiry | 2,698 | 2,515 | 107 | 76 |
2,991 | 2,515 | 107 | 369 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
62
5 Taxation continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
63
| 6 Auditors’ remuneration | ||
202 5 | 202 4 | |
£m | £m | |
Fees payable to the Company’s auditors for the audit of the Company’s Annual Financial Statements | 6.2 | 7.1 |
| Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries | ||
pursuant to legislation | 5.5 | 5.3 |
Total fees payable for audit services | 11. 7 | 12.4 |
202 5 | 202 4 | |
Number 1 | Number 1 | |
United Kingdom | 22,100 | 21,900 |
Germany | 9,900 | 10,000 |
United States | 5,300 | 5,300 |
Italy | 1,000 | 900 |
Singapore | 700 | 700 |
Canada | 700 | 700 |
India | 700 | 600 |
China | 500 | 500 |
Israel | 300 | 300 |
France | 200 | 200 |
Rest of world | 1,200 | 1,300 |
Monthly average number of employees | 42,600 | 42,400 |
Civil Aerospace | 19,400 | 18,700 |
Defence | 12,800 | 12,500 |
Power Systems | 10,000 | 9,900 |
All Other Businesses 2 | 200 | 1,200 |
Corporate 3 | 200 | 100 |
Monthly average number of employees | 42,400 |
202 5 | 202 4 | |
Total | Total | |
£m | £m | |
Wages, salaries and benefits | 3,107 | 3,056 |
Social security costs | 43 7 | 369 |
Share - based payments (note 24) | 10 4 | 136 |
Pensions and other post - retirement scheme benefits (note 22) | 403 | 3 87 |
Group employment costs 4 | 4,051 | 3,948 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
64
| Rolls-Royce | Rolls-Royce | |||
| Power Systems | Deutschland Ltd & | |||
AG | Co KG | Other 1 | Total | |
£m | £m | £m | £m | |
Cost: | ||||
At 1 January 2024 | 798 | 240 | 63 | 1,101 |
Transferred to assets held for sale 2 | – | – | (25) | (25) |
Exchange differences | (19) | (11) | (1) | (31) |
At 31 December 2024 | 779 | 229 | 37 | 1,045 |
Transferred from assets held for sale 2 | – | – | 2 | 2 |
Transferred to assets held for distribution 3 | (787) | (240) | (2 4 ) | (1,0 51 ) |
Disposal of business | – | – | (2) | (2) |
Disposals | – | – | (10) | (10) |
Exchange differences | 8 | 11 | – | 19 |
At 31 December 2025 | – | – | 3 | 3 |
Accumulated amortisation and impairment: | ||||
At 1 January 2024 | – | 3 | 32 | 35 |
Impairment 4 | – | – | 13 | 13 |
Transferred to assets held for sale 2 | – | – | (12) | (12) |
At 31 December 2024 | – | 3 | 33 | 36 |
Transferred from assets held for sale 2 | – | – | 2 | 2 |
Transferred to assets held for distribution 3 | – | (3) | ( 23 ) | ( 26 ) |
Disposal of business | – | – | (2) | (2) |
Disposals | – | – | (10) | (10) |
At 31 December 2025 | – | – | – | – |
Net book value at: | ||||
At 31 December 2025 | – | – | 3 | 3 |
At 31 December 2024 | 779 | 226 | 4 | 1,009 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
65
8 Goodwill continued
| Cash-generating unit (CGU) | |||||||||
or group of CGUs | 1 | Nominal pre-tax | 2 | Downside | |||||
| Primary | Key trading assumptions | Growth rate | scenario | ||||||
| discount rate | 3 | ||||||||
| operating | weighting | ||||||||
segment | e.g. volume of equipment | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | ||
| Rolls-Royce Power Systems | Power | deliveries; pricing | |||||||
| AG | Systems | ||||||||
achieved; cost escalation | 10.7 % | 10.2% | 2 % | 2% | 2 5 % | 25% | |||
| e.g. volume of engine | |||||||||
| Rolls-Royce Deutschland | Civil | deliveries, flying hours of | |||||||
| Ltd & Co KG | Aerospace | installed fleet, cost | |||||||
| escalation | |||||||||
11.7 % | 12.6% | 2% | 2% | 25% | 25% | ||||
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
66
| Certification | Development | Customer | ||||
| costs | expenditure | relationships | Software 1 | Other 2 | Total | |
£m | £m | £m | £m | £m | £m | |
Cost : | ||||||
At 1 January 2024 | 930 | 3,763 | 498 | 1,004 | 699 | 6,894 |
Additions | – | 263 | – | 96 | 8 | 367 |
Transferred to assets held for sale 3 | – | (4) | (4) | (1) | – | (9) |
Disposals 4 | – | (3) | (13) | (77) | (2) | (95) |
Exchange differences | (1) | (63) | (12) | (4) | (17) | (97) |
At 31 December 2024 | 929 | 3,956 | 469 | 1,018 | 688 | 7,060 |
Additions | 31 | 222 | – | 105 | 6 | 364 |
Transferred from assets held for sale 3 | – | 3 | 4 | – | (4) | 3 |
Transferred to assets held for distribution 5 | (62) | (1,247) | (56) | (187) | (293) | ( 1,845 ) |
Disposals 6 | – | (422) | (415) | (26) | (122) | (985) |
Exchange differences | 2 | 62 | 2 | – | 16 | 8 2 |
At 31 December 2025 | 900 | 2,574 | 4 | 910 | 291 | 4,679 |
Accumulated amortisation and impairment : | ||||||
At 1 January 2024 | 467 | 1,976 | 433 | 718 | 357 | 3,951 |
Charge for the year 7 | 27 | 96 | 35 | 78 | 19 | 255 |
Impairment 8 | – | (405) | – | – | 17 | (388) |
Transferred to assets held for sale 3 | – | (4) | (4) | (1) | – | (9) |
Disposals 4 | – | – | (13) | (69) | (2) | (84) |
Exchange differences | (1) | (37) | (10) | (3) | (7) | (58) |
At 31 December 2024 | 493 | 1,626 | 441 | 723 | 384 | 3,667 |
Charge for the year 7 | 31 | 107 | 7 | 68 | 22 | 235 |
Impairment 9 | (3) | (4) | – | – | 13 | 6 |
Transferred from assets held for sale 3 | – | 3 | 4 | – | (4) | 3 |
Transferred to assets held for distribution 5 | (16) | (338) | (33) | (114) | (117) | (618) |
Disposals 6 | – | (422) | (415) | (23) | (122) | (982) |
Exchange differences | 1 | 18 | – | – | 6 | 25 |
At 31 December 2025 | 506 | 990 | 4 | 654 | 182 | 2,336 |
Net book value at: | ||||||
At 31 December 2025 | 394 | 1,584 | – | 256 | 109 | 2,343 |
At 31 December 2024 | 436 | 2,330 | 28 | 295 | 304 | 3,393 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
67
9 Intangible assets continued
Residual life 1 | Net book value | ||
202 5 | 202 4 | ||
£m | £m | ||
Trent programme intangible assets 2 | 1 - 15 years | 1,993 | 2,001 |
Business aviation programme intangible assets 3 | 9 - 15 years | – | 674 |
Intangible assets related to Power Systems 4 | – | 309 | |
1,993 | 2,984 |
| Impairment reversal | |||||
| Intangible | Right-of- | Property, | Pre-tax nominal | ||
| Assets | use assets | plant and | Total | discount rate at | |
equipment | 30 June 2025 1 | ||||
£m | £m | £m | £m | ||
Civil Aerospace – Trent programme assets | 10 | 129 | 46 | 185 | 12.0% |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
68
| Land and | Plant and | Aircraft and | In course of | ||
| buildings | equipment | engines | construction | Total | |
Cost : | £m | £m | £m | £m | £m |
At 1 January 2024 | 1,883 | 4,962 | 1,006 | 412 | 8,263 |
Additions | 21 | 129 | 108 | 245 | 503 |
Transferred to assets held for sale 1 | (33) | (51) | – | (2) | (86) |
Disposals/write - offs | (23) | (142) | (17) | (4) | (186) |
Reclassifications within PPE 2 | 46 | 67 | 3 | (116) | – |
Reclassification from right - of - use assets | 11 | – | – | – | 11 |
Exchange differences | (23) | (55) | (1) | – | (79) |
At 31 December 202 4 | 1,882 | 4,910 | 1,099 | 535 | 8,426 |
Additions | 56 | 1 78 | 163 | 273 | 67 0 |
Transferred to assets held for distribution 3 | (959) | (2,118) | (198) | (453) | (3,728) |
Disposal of business | – | (5) | – | – | (5) |
Disposals/write - offs | (19) | (284) | (5) | (8) | (316) |
Reclassifications within PPE 2 | 4 2 | 104 | 1 | ( 147 ) | – |
Exchange differences | – | 1 | (8) | (17) | (24) |
At 31 December 2025 | 1,00 2 | 2,78 6 | 1,05 2 | 18 3 | 5,02 3 |
Accumulated depreciation and impairment: | |||||
At 1 January 202 4 | 709 | 3,384 | 434 | 8 | 4,535 |
Charge for the year 4 | 77 | 249 | 49 | – | 375 |
Impairment 5 | 2 | 23 | – | – | 25 |
Transferred to assets held for sale 3 | (11) | (24) | – | – | (35) |
Disposals/write - offs | (16) | (123) | (10) | – | (149) |
Reclassifications within PPE 2 | 16 | (16) | – | – | – |
Exchange differences | (9) | (39) | (1) | – | (49) |
At 31 December 202 4 | 768 | 3,454 | 472 | 8 | 4,702 |
Charge for the year 4 | 7 1 | 23 9 | 70 | – | 380 |
Impairment 5 | – | 2 | (44) | – | (42) |
Transferred to assets held for distribution 3 | (376) | (1,457) | (72) | (8) | (1,913) |
Disposal of business | – | (2) | – | – | (2) |
Disposals/write - offs | (14) | (278) | (4) | – | (296) |
Exchange differences | (3) | 2 | (3) | – | (4) |
At 31 December 2025 | 446 | 1,960 | 419 | – | 2,825 |
Net book value : | |||||
At 31 December 2025 | 55 6 | 82 6 | 63 3 | 18 3 | 2, 198 |
At 31 December 2024 | 1,114 | 1,456 | 627 | 527 | 3,724 |
202 5 | 202 4 | |||||
| Land and | Plant and | Aircraft and | Land and | Plant and | Aircraft and | |
| buildings | equipment | engines | buildings | equipment | engines | |
Assets held for use in leases where the Group is the lessor: | £m | £m | £m | £m | £m | £m |
Cost | 6 | 36 | 818 | 6 | 36 | 861 |
Depreciation | (4) | (23) | (284) | (4) | (22) | (372) |
Net book value | 2 | 13 | 534 | 2 | 14 | 489 |
| 2025 | 2024 | |
£m | £m | |
Capital expenditure commitments | 106 | 177 |
Cost of fully depreciated assets | 1,300 | 2,286 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
69
| Land and | Plant and | Aircraft and | ||
| buildings | equipment | engines | Total | |
£m | £m | £m | £m | |
Cost : | ||||
At 1 January 202 4 | 513 | 194 | 1,864 | 2,571 |
Additions/modifications of leases | 28 | 73 | 37 | 138 |
Transferred to assets held for sale 1 | (2) | (1) | – | (3) |
Disposals | (8) | (17) | – | (25) |
Reclassification to PPE | (11) | – | – | (11) |
Exchange differences | (3) | (3) | (4) | (10) |
At 31 December 202 4 | 517 | 246 | 1,897 | 2,660 |
Additions/modifications of leases | 79 | 50 | 49 | 178 |
Transferred to assets held for distribution 2 | (412) | (101) | (85) | (598) |
Disposal of business | (2) | – | – | (2) |
Disposals | (11) | (49) | (54) | (114) |
Exchange differences | (14) | 1 | 3 | (10) |
At 31 December 2025 | 157 | 147 | 1,810 | 2,114 |
Accumulated depreciation and impairment: | ||||
At 1 January 2024 | 259 | 109 | 1,298 | 1,666 |
Charge for the year 3 | 42 | 43 | 172 | 257 |
Impairment 4 | 3 | 2 | 3 | 8 |
Transferred to assets held for sale 1 | (2) | – | – | (2) |
Disposals | (7) | (17) | – | (24) |
Exchange differences | (1) | (2) | (3) | (6) |
At 31 December 2024 | 294 | 135 | 1,470 | 1,899 |
Charge for the year 3 | 47 | 47 | 193 | 287 |
Impairment 4 | – | – | (129) | (129) |
Transferred to assets held for distribution 2 | (224) | (59) | (73) | (356) |
Disposal of business | (1) | – | – | (1) |
Disposals | (11) | (36) | (54) | (101) |
Exchange differences | (6) | 2 | 2 | (2) |
At 31 December 2025 | 99 | 89 | 1,409 | 1,597 |
Net book value at: | ||||
At 31 December 2025 | 58 | 58 | 401 | 517 |
At 31 December 2024 | 223 | 111 | 427 | 761 |
Right-of-use assets held for use in operating leases where the Group is the lessor : | ||||
Cost | 17 | – | 1,810 | 1,827 |
Depreciation | (8) | – | (1,409) | (1,417) |
Net book value at 31 December 202 5 | 9 | – | 401 | 410 |
Cost | 18 | – | 1,897 | 1,915 |
Depreciation | (8) | – | (1,470) | (1,478) |
Net book value at 31 December 2024 | 10 | – | 427 | 437 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
70
12 Investments
Equity accounted and other investments
| Equity | |||
accounted | Other 1 | Total | |
| Joint ventures | |||
£m | £m | £m | |
At 1 January 2024 | 479 | 31 | 510 |
Additions 2 | 17 | – | 17 |
Impairment | (4) | – | (4) |
Share of retained profit 3 | 95 | – | 95 |
Reclassification of deferred profit to deferred income 4 | (2) | – | (2) |
Revaluation of other investments accounted for at FVOCI | – | (2) | (2) |
Revaluation of other investments accounted for at FVTPL 5 | – | (24) | (24) |
Exchange differences | 11 | – | 11 |
Share of OCI | (4) | – | (4) |
At 1 January 2025 | 592 | 5 | 597 |
Transfer from subsidiary to joint venture 6 | 732 | – | 732 |
Additions 2 | 56 | – | 56 |
Share of retained loss 3 | (32) | – | (32) |
Reclassification of deferred profit to deferred income 4 | 2 | – | 2 |
Revaluation of other investments accounted for at FVOCI | – | (1) | (1) |
Transferred to assets held for distribution 7 | (502) | – | (502) |
Exchange differences | (66) | – | (66) |
Share of OCI | 1 | – | 1 |
At 31 December 2025 | 783 | 4 | 787 |
1 Other investments includes unlisted investments of £nil (2024: £nil) and listed investments of £4m (2024: £5m)
2 Additions relates to investments of £52m (2024: £nil) related to Rolls-Royce SMR Limited following its deconsolidation earlier in March 2025. Of this, £15m was recognised in July 2025 due to
a change in shareholding resulting from an additional equity investment made by ČEZ Group (ČEZ), a further £37m was recognised in December 2025 due to the purchase of shares by Rolls-
Royce Plc from an existing investor. Further details can be found in note 27. The remaining £4m (2024: £17m) of additions relates to the joint venture, Beijing Aero Engine Services Company
Limited
3 See table below
4 The Group's share of unrealised profit on sales to joint ventures is eliminated against the carrying value of the investment in the entity. Any excess amount, once the carrying value is reduced
to £nil, is recorded as deferred income
5 During 2024 the Group wrote down the value of an unlisted investment. This charge was recognised within net financing
6 In March 2025, an equity-accounted investment of £732m was recognised at fair value as a result of the deconsolidation of Rolls-Royce SMR Limited. See note 27 for further details
7 At 31 December 2025, £502m of investments were reclassified to assets held for distribution. See note 27 for further details
Reconciliation of share of retained (loss)/profit to the income statement and cash flow statement:
| 2025 | 2024 | |
£m | £m | |
Share of results of joint ventures and associates 1 | 71 | 137 |
Adjustments for intercompany trading 2 | (15) | 35 |
Share of results of joint ventures and associates to the Group | 56 | 172 |
Dividends paid by joint ventures and associates to the Group (cash flow statement) | (88) | (77) |
Share of retained ( loss) /profit above | (32) | 95 |
1 The results to 31 December 2025 include ten months of the Group’s share of the results of Rolls-Royce SMR Limited
2 During the year, the Group sold spare engines to Rolls-Royce & Partners Finance, a joint venture and subsidiary of Alpha Partners Leasing Limited. The Group’s share of the profit on these
sales is deferred and released to match the depreciation of the engines in the joint venture’s financial statements. In 2025, profit deferred on the sale of engines was higher than (2024: lower
than) the release of that deferred in prior years
The following joint ventures are considered to be individually material to the Group:
Principal location | Activity | Ownership interest | |
Alpha Partners Leasing Limited (APL) | UK | Aero - engine leasing | 50.0% |
Hong Kong Aero Engine Services Limited (HAESL) | Hong Kong | Aero - engine repair and overhaul | 50.0% |
Singapore Aero Engine Services Pte Limited (SAESL) | Singapore | Aero - engine repair and overhaul | 50.0% |
Rolls - Royce SMR Limited (SMR) | UK | Small modular reactors | 57.8 % |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
71
12 Investments continued
Summarised financial information of the Group’s individually material joint ventures is as follows:
APL | HAESL 1 | SAESL 1 | SMR 2 | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | 2025 | |
| £m | £m | £m | £m | £m | £m | £m | |
Revenue | 518 | 400 | 3,674 | 4,017 | 3,505 | 2,469 | 2 |
Profit/(loss) and total comprehensive income for the year | 168 | 114 | 93 | 70 | 48 | 46 | (193) |
Dividends paid during the year | (14) | (63) | (78) | (69) | – | – | – |
Profit/(loss) for the year included the following: | |||||||
Depreciation and amortisation | (154) | (150) | (13) | (11) | (16) | (18) | (2) |
Interest income | 13 | 12 | – | – | 5 | 8 | 6 |
Interest expense | (127) | (112) | (8) | (8) | (2) | (1) | – |
Income tax ( expense )/credit | (62) | (41) | (16) | (17) | (5) | (3) | 12 |
Current assets | 34 3 | 345 | – | 1,129 | – | 1,154 | 70 |
Non - current assets 3 | 3,776 | 3,506 | – | 100 | – | 133 | 1,032 |
Current liabilities | (242) | (360) | – | (895) | – | (950) | (57) |
Non - current liabilities 3 | (2,955) | (2,662) | – | (95) | – | (8) | (243) |
Net assets | 922 | 829 | – | 239 | – | 329 | 802 |
Included in the above: | |||||||
Cash and cash equivalents | 192 | 190 | – | 4 | – | 129 | 52 |
Current financial liabilities 4 | (114) | (244) | – | (10) | – | – | – |
Non - current financial liabilities 4 | (2,371) | (2,134) | – | (86) | – | (8) | – |
Reconciliation to the carrying amount recognised in the Consolidated Financial Statements | |||||||
Ownership interest | 50.0% | 50.0% | 50.0% | 50.0% | 50.0% | 50.0% | 57.8% |
Group share of net assets above | 461 | 415 | – | 120 | – | 165 | 463 |
Goodwill | – | – | – | 37 | – | 11 | 209 |
Adjustments for intercompany trading | (404) | (386) | – | (7) | – | (4) | – |
Included in the balance sheet | 57 | 29 | – | 150 | – | 172 | 672 |
1 At 31 December 2025, the joint venture investments in HAESL and SAESL were reclassified to assets held for distribution
2 In March 2025, an equity-accounted investment of £732m was recognised at fair value as a result of the deconsolidation of Rolls-Royce SMR Limited. A notional purchase price allocation (PPA)
exercise has been undertaken that has identified and valued the assets and liabilities of the joint venture as if the Group had acquired a business. The majority of the value of the investment
has been attributed to development expenditure related to Rolls-Royce SMR Limited’s investment in its products. Goodwill, which has not been impaired, relates to the expected future growth
of the business
3 Non-current assets includes £1,006m of intangible assets identified on acquisition relating to development expenditure and non-current liabilities including £(239)m of associated deferred
tax liabilities
4 Excluding trade payables and other liabilities
The summarised aggregated results of the Group’s share of equity accounted investments is as follows:
| Individually material joint | ||||||
ventures (above) | Other joint ventures | Total | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
| Profit and total comprehensive | £m | £m | £m | £m | £m | £m |
income for the year | 36 | 115 | 34 | 18 | 70 | 133 |
Assets: | ||||||
Non - current assets | 2,485 | 1,870 | 76 | 245 | 2,561 | 2,115 |
Current assets | 212 | 1,314 | 363 | 632 | 575 | 1,946 |
Liabilities: 1 | ||||||
Current liabilities | (154) | (1,102) | (336) | (536) | (490) | (1,638) |
Non - current liabilities | (1,619) | (1,382) | (49) | (86) | (1,668) | (1,468) |
Group adjustment for goodwill | 209 | 48 | – | – | 209 | 48 |
Adjustment for intercompany trading | ( 404 ) | (397) | – | (14) | (404) | (411) |
Included in the balance sheet 2 | 729 | 351 | 54 | 241 | 783 | 592 |
1 Liabilities include borrowings of: | (1, 345 ) | (1,241) | (267) | (113) | (1,612) | (1,354) |
2 At 31 December 2025, joint venture investments of £502m were reclassified to assets held for distribution. See note 27 for further details
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
72
13 Inventories
| 2025 | 2024 | |
| £m | £m | |
Raw materials | 103 | 544 |
Work in progress | 7 63 | 1,715 |
Finished goods | 1,98 2 | 2,833 |
2,848 | 5,092 | |
Inventories stated at net realisable value | 151 | 232 |
Amount of inventory write - down | 113 | 56 |
Reversal of inventory write - down | 75 | 15 |
At 31 December 2025, £2.9bn of inventories were reclassified to assets held for distribution, of which £85m are inventories stated at net realisable
value. See note 27 for further details.
Current | Non-current 1 | Total 2 | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | |
Trade receivables | 1,33 1 | 2,917 | 78 | 138 | 1,40 9 | 3,055 |
Prepayments | 69 9 | 829 | 48 | 89 | 74 7 | 918 |
RRSA prepayment for parts 3 | 5 69 | 486 | 1,20 2 | 1,182 | 1,771 | 1,668 |
Receivables due on RRSAs | 1, 114 | 1,118 | 91 | 119 | 1, 205 | 1,237 |
Amounts owed by joint ventures and associates | 636 | 894 | – | 2 | 636 | 896 |
Amounts due from parent undertakings | – | – | 2,192 | 337 | 2,192 | 337 |
Other taxation and social security receivable | 103 | 215 | – | 2 | 103 | 217 |
Costs to obtain contracts with customers 4 | – | 11 | – | 124 | – | 135 |
Other receivables and similar assets 5 | 443 | 530 | 72 | 58 | 51 5 | 588 |
4,895 | 7,000 | 3,68 3 | 2,051 | 8, 578 | 9,051 | |
Trade receivables and other assets are analysed as follows: | ||||||
Financial instruments ( note 20 ): | ||||||
Trade receivable and similar items | 5, 439 | 5,525 | ||||
Other non - derivative financial assets | 409 | 366 | ||||
Non - financial instruments | 2,7 30 | 3,160 | ||||
8, 578 | 9,051 |
| Trade | 2025 | Trade | 2024 | |||
| receivables | receivables | |||||
| and other | and other | |||||
| financial | Loss | Average | financial | Loss | Average | |
| assets | allowance | ECL rate | assets | allowance | ECL rate | |
£m | £m | % | £m | £m | % | |
Credit rating BBB - and above 1 | 682 | ( 19 ) | 3% | 2,179 | (74) | 3% |
Credit rating below BBB - 1 | 531 | ( 59 ) | 11 % | 28 | (4) | 14% |
Without credit rating | 2, 584 | (63) | 2% | 3,586 | (161) | 4% |
3, 79 7 | (141) | 4% | 5,793 | (239) | 4% |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
73
14 Trade receivables and other assets continued
| 2025 | 2024 | |
£m | £m | |
At 1 January | (239) | (242) |
Increases in loss allowance recognised in the income statement during the year | (83) | (130) |
Loss allowance utilised | 18 | 11 |
Releases of loss allowance previously provided | 55 | 116 |
Transferred to assets held for sale | – | 1 |
Transferred to asset s held for distribution 1 | 90 | – |
Exchange differences | 1 8 | 5 |
At 31 December | (14 1 ) | (239) |
15 Contract assets and liabilities
Current | Non-current 1 | Total 2 | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
Contract assets | £m | £m | £m | £m | £m | £m |
Contract assets with customers | 200 | 886 | 83 4 | 598 | 1,03 4 | 1,484 |
Participation fee contract assets | 18 | 38 | 123 | 291 | 141 | 329 |
218 | 924 | 95 7 | 889 | 1,17 5 | 1,813 |
1 Contract assets have been presented on the face of the balance sheet in line with the operating cycle of the business. Further disclosure of contract assets is provided in the table above,
which shows within current the element of consideration that will become unconditional in the next year
2 Contract assets are classified as non-financial instruments
The balance includes £930m (2024: £955m) Civil Aerospace LTSA assets and £35m (2024: £381m) Defence LTSA assets. At 31 December 2025,
£546m of contract assets and £176m of participation fees were reclassified to assets held for distribution. See note 27 for further details.
During the year, the Civil Aerospace balance decreased by £26m to £930m, driven by an £18m increase due to revenue recognised (when
performance obligations have been completed during the year) being greater than the amount invoiced on those contracts that have a contract
asset balance which is offset by a decrease due to contract assets of £44m reclassified to held for distribution during the year, see note 27 for
further details. Revenue recognised relating to performance obligations satisfied in previous years was £(36)m which reduced the contract asset
(2024: reduction of £42m) in Civil Aerospace.
No impairment losses in relation to these contract assets (2024: none) have arisen during the year.
Participation fee contract assets decreased by £188m (2024: increased by £102m). Movements were primarily due to contract assets being
reclassified to assets held for distribution of £(176)m (2024: £nil), amortisation of £(20)m (2024: £(23)m) and the Civil Aerospace programme asset
impairment reversal of £nil (2024: £132m), offset by foreign exchange on consolidation of £8m (2024: £(7)m).
The absolute value of ECLs for contract assets has increased by £1m to £12m (2024: increased by £5m to £11m).
Current | Non - current 1 | Total | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | |
Contract liabilities | 5,4 50 | 6,309 | 6, 896 | 9,447 | 12,34 6 | 15,756 |
Contract liabilities are analysed as follows: | ||||||
Financial instruments ( note 20 ) | 1,423 | 1,280 | ||||
Non - financial instruments | 10,92 3 | 14,476 | ||||
12,346 | 15,756 |
1 Contract liabilities have been presented on the face of the balance sheet in line with the operating cycle of the business. Contract liabilities are further split according to when the related
performance obligation is expected to be satisfied and, therefore, when revenue is estimated to be recognised in the income statement
During the year, £5,652m (2024: £5,048m) of the opening contract liability was recognised as revenue.
Contract liabilities have decreased by £3,410m. The movement in the Group balance is primarily due to £4,248m of contract liabilities that were
reclassified to liabilities associated with assets held for distribution during the year, see note 27 for further details.
Civil aerospace contract liabilities decreased by £1,338m primarily driven by £1,914m of contract liabilities reclassified to liabilities associated with
assets held for distribution. This was partly offset by an increase of £576m which was mainly a result of growth in LTSA liabilities of £231m (2025:
£11,370m, 2024: £11,139m) driven almost wholly by large engines, with customer invoicing in 2025 (based on EFH) being in advance of revenue
recognised (based on costs incurred completing performance obligations).
Defence contract liabilities decreased by £1,262 primarily driven by £1,442m of contract liabilities reclassified to liabilities associated with assets
held for distribution. This was partly offset by an increase of £180m from receipt of deposits in advance of performance obligations.
Power Systems contact liabilities decreased by £778m primarily driven by £868m of contract liabilities reclassified to liabilities associated with
assets held for distribution. This was partly offset by an increase of £90m from receipt of deposits in advance of performance obligations.
The contract liability movement includes a decrease of £(289)m (2024: decrease of £354m) as a result of revenue being recognised in relation to
performance obligations satisfied in previous years.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
74
16 Cash and cash equivalents
| 2025 | 2024 | |
£m | £m | |
Cash at bank and in hand | 457 | 713 |
Money market funds | 2,359 | 1,900 |
Short - term deposits | 2,902 | 2,961 |
Cash and cash equivalents per the balance sheet | 5,718 | 5,574 |
Cash and cash equivalents included within assets held for distribution 1 | 526 | – |
Overdrafts (note 1 7 ) | – | (2) |
Overdrafts within l iabilities associated with assets held for distribution 1 | ( 3 ) | – |
Cash and cash equivalents per cash flow statem ent (page 34 ) | 6,24 1 | 5,572 |
1 At 31 December 2025, £526m of cash and cash equivalents were reclassified to assets held for distribution and £3m of overdrafts were reclassified to liabilities associated with assets held for
distribution, see note 27 for further details
Cash and cash equivalents at 31 December 2025 includes £18m (2024: £245m) that is not available for general use by the Group, which entirely
(2024: £44m) relates to cash held in non-wholly owned subsidiaries and joint arrangements.
Balances are presented on a net basis when the Group has both a legal right of offset and the intention to either settle on a net basis or realise
the asset and settle the liability simultaneously. There is no offsetting of financial instruments in the Group's statement of financial position as at
31 December 2025 and 2024.
Current | Non – current | Total | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | |
Unsecured | ||||||
Overdrafts | – | 2 | – | – | – | 2 |
Bank loans | – | 4 | – | 3 | – | 7 |
3.625% Notes 2025 $1,000m 1 | – | 795 | – | – | – | 795 |
3.375% Notes 2026 £375m 2 | 372 | – | – | 364 | 372 | 364 |
4.625% Notes 2026 €750m 3 | 654 | – | – | 620 | 654 | 620 |
5.75% Notes 2027 $1,000m 3 | – | – | 741 | 795 | 741 | 795 |
5.75% Notes 2027 £545m | – | – | 543 | 543 | 543 | 543 |
1.625% Notes 2028 €550m 1 | – | – | 470 | 442 | 470 | 442 |
Other loans | – | – | 10 | 9 | 10 | 9 |
Total unsecured | 1,026 | 801 | 1,764 | 2,776 | 2,790 | 3,577 |
Lease liability – Land and buildings | 17 | 44 | 84 | 405 | 101 | 449 |
Lease liability – Aircraft and engines | 300 | 209 | 5 0 6 | 784 | 806 | 993 |
Lease liability – Plant and equipment | 28 | 43 | 32 | 70 | 60 | 113 |
Total lease liabilities | 3 45 | 296 | 6 2 2 | 1,259 | 967 | 1,555 |
Total borrowings and lease liabilities | 1,371 | 1,097 | 2,386 | 4,035 | 3,757 | 5,132 |
2025 | 2024 | |
£m | £m | |
Expiring within one year | – | – |
Expiring after one year | 2,500 | 2,500 |
Total undrawn facilities | 2,500 | 2,500 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
75
2025 | 2024 | |
£m | £m | |
Land and buildings depreciation and impairment 1 | (47) | (45) |
Plant and equipment depreciation and impairment 2 | (47) | (45) |
Aircraft and engine s depreciation and impairment 3 | (64) | (175) |
Total depreciation and impairment charge for right - of - use assets | (158) | (265) |
Adjustment of amounts payable under residual value guarantees within lease liabilities 3, 4 | – | 6 |
Expense relating to short - term leases of 12 months or less recognised as an expense on a straight - line basis 2 | (31) | (38) |
Expense relating to variable lease payments not included in lease liabilities 3, 5 | (8) | (8) |
Total operating costs | (197) | (305) |
Interest expense 6 | (74) | (83) |
Total lease expense | (271) | (388) |
Income from sub - leasing right - of - use assets | 30 | 29 |
Total amount recognised in income statement | (241) | (359) |
2025 | 2024 | |
£m | £m | |
Operating lease income 1, 2 | 91 | 99 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
76
Current | Non-current | Total 1 | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | |
Trade payables | 1,039 | 1,526 | 40 | – | 1,079 | 1,526 |
Accru ed liabilities | 1,7 70 | 2,552 | 9 7 | 109 | 1,8 67 | 2,661 |
Customer discounts 2 | 1,08 8 | 1,035 | 631 | 866 | 1,71 9 | 1,901 |
Payables due on RRSAs | 1 ,800 | 1,529 | 14 | 11 | 1, 814 | 1,540 |
| Deferred receipts from RRSA workshare | ||||||
partners | 35 | 55 | 747 | 757 | 782 | 812 |
Amounts owed to joint ventures and associates | 555 | 492 | – | – | 555 | 492 |
Government grants 3 | 38 | 26 | 8 | 24 | 46 | 50 |
Other taxation and social security | 36 | 54 | – | – | 36 | 54 |
Other payables 4 | 3 55 | 740 | 16 1 | 198 | 5 1 6 | 938 |
6, 716 | 8,009 | 1,6 9 8 | 1,965 | 8, 414 | 9,974 | |
Trade payables and other liabilities are analysed as follows: | ||||||
Financial instruments ( note 20 ): | ||||||
Trade payables and similar items | 5, 299 | 6,205 | ||||
Other non - derivative financial liabilities | 2,0 89 | 2,642 | ||||
Non - financial instruments | 1,0 2 6 | 1,127 | ||||
8, 414 | 9,974 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
77
| Basis for | Assets | Amortised | Liabilities | Total | ||||
| determining | FVPL | FVOCI | cost | FVPL | Other | |||
2025 | Notes | fair value | £m | £m | £m | £m | £m | £m |
Other non - current asset investments | 12 | A | – | 4 | – | – | – | 4 |
Trade receivables and similar items | 14 | B/C | – | 10 | 7,222 | – | – | 7,232 |
Other non - derivative financial assets | 14 | B | – | – | 484 | – | – | 484 |
Other assets | D /F | 18 | – | 14 | – | – | 32 | |
Derivative financial assets 1 | C | 773 | – | – | – | – | 773 | |
Cash and cash equivalents | 16 | B | 2,424 | – | 3,820 | – | – | 6,244 |
Borrowings | 17 | E/F | – | – | – | – | (2,802) | (2,802) |
Lease liabilities | 17 | G | – | – | – | – | (1,470) | (1,470) |
Derivative financial liabilities 1 | C | – | – | – | (680) | – | (680) | |
Financial RRSAs | H | – | – | – | – | (5) | (5) | |
Other liabilities | H | – | – | – | – | (214) | (214) | |
Trade payables and similar items | 19 | B | – | – | – | – | (6,917) | (6,917) |
| Other non-derivative financial | ||||||||
liabilities | 19 | B | – | – | – | – | (2,522) | (2,522) |
Contract liabilities | 15 | B | – | – | – | – | (1,423) | (1,423) |
3,215 | 14 | 11,540 | (680) | (15,353) | (1,264) | |||
Other non - current asset investments | 12 | A | – | 5 | – | – | – | 5 |
Trade receivables and similar items | 14 | B/C | – | 9 | 5,516 | – | – | 5,525 |
Other non - derivative financial assets | 14 | B | – | – | 366 | – | – | 366 |
Other assets | D /F | 21 | – | 16 | – | – | 37 | |
Derivative financial assets 1 | C | 298 | – | – | – | – | 298 | |
Cash and cash equivalents | 16 | B | 1,900 | – | 3,674 | – | – | 5,574 |
Borrowings | 17 | E/F | – | – | – | – | (3,577) | (3,577) |
Lease liabilities | 17 | G | – | – | – | – | (1,555) | (1,555) |
Derivative financial liabilities 1 | C | – | – | – | (2,054) | – | (2,054) | |
Financial RRSAs | H | – | – | – | – | (7) | (7) | |
Other liabilities | H | – | – | – | – | (198) | (198) | |
Trade payables and similar items | 19 | B | – | – | – | – | (6,205) | (6,205) |
| Other non-derivative financial | ||||||||
liabilities | 19 | B | – | – | – | – | (2,642) | (2,642) |
Contract liabilities | 15 | B | – | – | – | – | (1,280) | (1,280) |
2,219 | 14 | 9,572 | (2,054) | (15,464) | (5,713) |
| Basis for | 2025 | 2024 | Fair | ||
| determining | Book value | Fair value | Book value | value | |
fair value | £m | £m | £m | £m | |
Other assets | F | 1 4 | 15 | 16 | 16 |
Borrowings | E | (2,780) | (2,778) | (3,559) | (3,540) |
Borrowings | F | (2 2 ) | (23) | (18) | (21) |
Financial RRSAs | H | (5) | (5) | (7) | (7) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
78
20 Financial instruments continued
Carrying values and fair values of financial instruments (continued)
| Foreign | |||||||
| exchange | Commodity | Interest rate | Total | Financial | |||
| contracts | contracts | contracts 1 | derivatives | RRSAs | Other | Total | |
| £m | £m | £m | £m | £m | £m | £m | |
Non - current assets | 467 | 6 | 32 | 505 | – | 1 8 | 52 3 |
Current assets | 257 | 6 | 5 | 268 | – | 14 | 282 |
Assets | 724 | 12 | 37 | 773 | – | 32 | 805 |
Current liabilities | (193) | (19) | (24) | (236) | (1) | (3 5 ) | (27 2 ) |
Non - current liabilities | (382) | (17) | (45) | (444) | (4) | (179) | (627) |
Liabilities | (575) | (36) | (69) | (680) | (5) | (214) | (899) |
149 | (24) | (32) | 93 | (5) | (18 2 ) | (9 4 ) | |
Non - current assets | 10 | 1 | 110 | 121 | – | 5 | 126 |
Current assets | 25 | 4 | 148 | 177 | – | 32 | 209 |
Assets | 35 | 5 | 258 | 298 | – | 37 | 335 |
Current liabilities | (539) | (18) | – | (557) | – | (62) | (619) |
Non - current liabilities | (1,364) | (22) | (111) | (1,497) | (7) | (136) | (1,640) |
Liabilities | (1,903) | (40) | (111) | (2,054) | (7) | (198) | (2,259) |
(1,868) | (35) | 147 | (1,756) | (7) | (161) | (1,924) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
79
20 Financial instruments continued
Derivative financial instruments (continued)
| Foreign exchange | Commodity | Interest rate | instruments – hedge | Interest rate | instruments – non- | |||||
instruments | instruments | accounted 1 | hedge accounted | Total | ||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
At 1 January | (1,868) | (2,035) | (35) | (19) | 54 | 45 | 93 | 131 | (1,756) | (1,878) |
Movements in fair value hedges | – | – | – | – | (33) | (32) | – | – | (33) | (32) |
| Movements in cash | ||||||||||
flow hedges | – | – | – | – | (40) | (23) | – | – | (40) | (23) |
Movements in other derivative contracts 2 | 1,335 | (631) | (7) | (18) | – | – | (4) | 40 | 1,324 | (609) |
Contracts settled | 682 | 798 | 18 | 2 | (50) | 64 | (52) | (78) | 598 | 786 |
At 31 December | 149 | (1,868) | (24) | (35) | (69) | 54 | 37 | 93 | 93 | (1,756) |
Financial RRSAs | Other — assets | Other — liabilities | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
| £m | £m | £m | £m | £m | £m | |
At 1 January | (7) | (17) | 14 | 25 | (198) | (163) |
Exchange adjustments included in OCI | 6 | 1 | (3) | – | 3 | (5) |
Additions | – | – | – | – | (29) | (34) |
Financing charge 1 | – | – | – | (11) | (16) | (9) |
Excluded from underlying profit : | ||||||
Changes in forecast payments 1 | (4) | – | – | – | – | – |
Cash paid | – | 9 | – | – | 17 | 12 |
Other | – | – | – | – | 9 | 1 |
At 31 December | (5) | (7) | 11 | 14 | (214) | (198) |
Hedged item 1 | Hedging instrument 2 | ||||||||||
| FV | FV | FV | Hedge | ||||||||
| adjustment | adjustment | Carrying | Carrying | movement | ineffective- | ||||||
| in the | since | Carrying | amount | amount | in the | ness in the | Weighted | Weighted | |||
| Nominal | period | inception | amount | Nominal | asset | liability | period | period 3 | average FX | average | |
£m | £m | £m | £m | £m | £m | £m | £m | £m | rate | interest rate | |
At 31 December 2025 | SONIA + | ||||||||||
Sterling | (375) | (8) | 3 | (372) | 375 | – | (3) | 9 | – | 1.00 | 0.89 |
| SONIA + | |||||||||||
Euro | (484) | (28) | 14 | (470) | 484 | – | (23) | 31 | 4 | 1.14 | 1.09 |
At 31 December 2024 | SONIA + | ||||||||||
Sterling | (375) | (3) | 11 | (364) | 375 | – | (12) | 3 | – | 1.00 | 0.89 |
| SONIA + | |||||||||||
USD | (658) | (25) | (137) | (795) | 658 | 128 | – | 25 | – | 1.52 | 1.47 |
| SONIA + | |||||||||||
Euro | (484) | 13 | 42 | (442) | 484 | – | (54) | (11) | 2 | 1.14 | 1.09 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
80
20 Financial instruments continued
Effect of hedging instruments on the financial position and performance (continued)
Hedged item | Hedging instrument 1 | H edg ing reserve s | |||||||||
| FV | Carrying | FV | Hedge | ||||||||
| movement | amount | movement | ineffective | Weighted | Weighted | Amount | Recycled | Closing cash | |||
| in the | asset/ | in the | ness in the | average | average | recognised | to net | flow hedge | |||
| Nominal | period | Nominal | (liability) | period | period 2 | FX | interest | in OCI | financing | reserve | |
| At 31 December | £m | £m | £m | £m | £m | £m | rate | rate | £m | £m | £m |
2025 | |||||||||||
USD | (772) | 56 | 772 | (22) | (59) | (2) | 1.29 | 5.33 | 55 | (53) | (7) |
Euro | (677) | (23) | 677 | (21) | 24 | – | 1.11 | 5.45 | (17) | 26 | (1) |
| At 31 December | |||||||||||
2024 | |||||||||||
USD | (772) | (15) | 772 | 37 | 9 | (6) | 1.29 | 5.33 | (19) | 15 | (9) |
Euro | (677) | 28 | 677 | (45) | (28) | – | 1.11 | 5.45 | 36 | (38) | (10) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
81
20 Financial instruments continued
Expected maturity | Fair value | ||||||
| Between | Between | ||||||
| Nominal | Within one | one and | two and | After five | |||
| amount | year | two years | five years | years | Assets | Liabilities | |
At 31 December 2025 | £m | £m | £m | £m | £m | £m | £m |
Foreign exchange contracts: | |||||||
Non - hedge accounted | 21,850 | 7,559 | 5,516 | 8,775 | – | 724 | (575) |
Interest rate contracts: | |||||||
Fair value hedges | 859 | 375 | – | 484 | – | – | (26) |
Cash flow hedges | 1,449 | 677 | 772 | – | – | – | (43) |
Non - hedge accounted | 859 | 375 | – | 484 | – | 37 | – |
Commodity contracts: | |||||||
Non - hedge accounted | 392 | 146 | 110 | 126 | 10 | 12 | (36) |
25,409 | 9,132 | 6,398 | 9,869 | 10 | 773 | (680) | |
At 31 December 2024 | |||||||
Foreign exchange contracts: | |||||||
Non - hedge accounted | 20,728 | 8,018 | 5,781 | 6,929 | – | 35 | (1,903) |
Interest rate contracts: | |||||||
Fair value hedges | 1,517 | 658 | 375 | 484 | – | 128 | (66) |
Cash flow hedges | 1,449 | – | 677 | 772 | – | 37 | (45) |
Non - hedge accounted | 1,517 | 658 | 375 | 484 | – | 93 | – |
Commodity contracts: | |||||||
Non - hedge accounted | 330 | 137 | 108 | 85 | – | 5 | (40) |
25,541 | 9,471 | 7,316 | 8,754 | – | 298 | (2,054) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
82
20 Financial instruments continued
Nominal amount of currencies purchased forward | |||||
| Sterling | USD | Euro | Other | Total | |
£m | £m | £m | £m | £m | |
| At 31 December 2025 | |||||
Currencies sold forward: | |||||
Sterling | – | 1 49 | 39 | 7 | 195 |
USD | 16,11 8 | – | 4,541 | 371 | 21,0 30 |
Euro | 10 | 317 | – | 107 | 43 4 |
Other At 31 December 202 4 | 4 | 4 | 176 | 7 | 191 |
Currencies sold forward: | |||||
Sterling | – | 882 | 41 | 59 | 982 |
USD | 14,654 | – | 4,419 | 287 | 19,360 |
Euro | 35 | 290 | – | 26 | 351 |
Other | 3 | 1 | 31 | – | 35 |
| 2025 | 2024 | |
£m | £m | |
Sterling | 1,304 | 1,915 |
USD | 1,063 | 1,719 |
Euro | 1,192 | 1,179 |
| Sterling | USD | Euro | Other | Total | |
£m | £m | £m | £m | £m | |
| At 31 December 2025 | |||||
| Other non-current asset investments | – | 4 | – | – | 4 |
| Trade receivables and similar items | 2,558 | 3,903 | 662 | 109 | 7 ,232 |
| Other non-derivative financial assets | 60 | 354 | 64 | 6 | 484 |
| Other assets | – | 18 | 14 | – | 32 |
| Cash and cash equivalents | 2,922 | 911 | 2,235 | 176 | 6,244 |
| Assets | 5,540 | 5, 190 | 2,975 | 291 | 13,996 |
| Borrowings | (918) | (746) | (1,133) | ( 5 ) | (2,80 2 ) |
| Lease liabilities | (251) | (976) | (45) | (198) | (1,470) |
| Financial RRSAs | – | (5) | – | – | (5) |
| Other liabilities | (31) | (183) | – | – | (214) |
| Trade payables and similar items | (1,21 4 ) | ( 4,853 ) | (765) | (85) | ( 6,917 ) |
| Other non-derivative financial liabilities | (39 2 ) | (1,896) | (187) | (47) | (2,52 2 ) |
| Contract liabilities | – | (1,423) | – | – | (1,423) |
| Liabilities | (2,806) | (10, 082 ) | (2,130) | (33 5 ) | (15, 353 ) |
2,734 | (4,8 92 ) | 84 5 | (4 4 ) | (1,3 57 ) | |
| At 31 December 2024 | |||||
| Other non-current investments | – | 5 | – | – | 5 |
| Trade receivables and similar items | 638 | 4,346 | 460 | 81 | 5,525 |
| Other non-derivative financial assets | 73 | 242 | 40 | 11 | 366 |
| Other assets | – | 21 | 16 | – | 37 |
| Cash and cash equivalents | 2,250 | 1,283 | 1,867 | 174 | 5,574 |
| Assets | 2,961 | 5,897 | 2,383 | 266 | 11,507 |
Borrowings | (908) | (1,594) | (1,072) | (3) | (3,577) |
Lease liabilities | (237) | (1,074) | (49) | (195) | (1,555) |
Financial RRSAs | – | (6) | (1) | – | (7) |
Other liabilities | (39) | (159) | – | – | (198) |
Trade payables and similar items | (1,006) | (4,701) | (423) | (75) | (6,205) |
Other non-derivative financial liabilities | (350) | (2,084) | (158) | (50) | (2,642) |
Contract liabilities | – | (1,280) | – | – | (1,280) |
Liabilities | (2,540) | (10,898) | (1,703) | (323) | (15,464) |
421 | (5,001) | 680 | (57) | (3,957) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
83
20 Financial instruments continued
| Sterling | USD | Euro | Other | Total | |
Functional currency of Group operations | £m | £m | £m | £m | £m |
| At 31 December 2025 | |||||
| Sterling | – | – | 1 | 3 | 4 |
| USD | (7) | – | – | – | (7) |
| Euro | 2 | 4 | – | (3) | 3 |
Other At 31 December 2024 | 33 | 36 | 78 | – | 147 |
| Sterling | – | – | – | 1 | 1 |
| USD | (11) | – | – | (2) | (13) |
| Euro | – | 7 | – | 15 | 22 |
| Other | 55 | 37 | 68 | – | 160 |
| Up to three | Between three | ||||
| months | months and one | More than one | |||
| Within terms | overdue | year overdue | year overdue | Total | |
£m | £m | £m | £m | £m | |
| At 31 December 2025 | |||||
| Other non-current asset investments | 4 | – | – | – | 4 |
| Trade receivables and similar items | 6,854 | 257 | 74 | 47 | 7,232 |
| Other non-derivative financial assets | 480 | 3 | – | 1 | 484 |
| Other assets | 25 | – | 7 | – | 3 2 |
| Derivative financial assets | 773 | – | – | – | 773 |
| Cash and cash equivalents | 6,244 | – | – | – | 6,244 |
14, 380 | 260 | 81 | 48 | 14, 769 | |
| At 31 December 2024 | |||||
| Other non-current asset investments | 5 | – | – | – | 5 |
| Trade receivables and similar items | 5,075 | 324 | 82 | 44 | 5,525 |
| Other non-derivative financial assets | 331 | 32 | – | 3 | 366 |
| Other assets | 28 | 9 | – | – | 37 |
| Derivative financial assets | 298 | – | – | – | 298 |
| Cash and cash equivalents | 5,574 | – | – | – | 5,574 |
11,311 | 365 | 82 | 47 | 11,805 |
Gross values | |||||
| Between one | Between two | ||||
| Within one year | and two years | and five years | After five years | Carrying value | |
| At 31 December 2025 | £m | £m | £m | £m | £m |
Borrowings | (1,146) | (1,371) | (490) | (19) | (2,802) |
Lease liabilities | (454) | (293) | (496) | (1,050) | (1,470) |
Financial RRSAs | – | – | (1) | (3) | (5) |
Other liabilities | (35) | (19) | (28) | (131) | (214) |
Trade payables and similar items | (6,734) | (71) | (56) | (56) | (6,917) |
Other non-derivative financial liabilities | (1,807) | (131) | (294) | (291) | (2,522) |
Contract liabilities | (1,423) | – | – | – | (1,423) |
| (11,599) | (1,885) | (1,365) | (1,550) | (15,353) | |
| At 31 December 2024 | |||||
Borrowings | (961) | (1,109) | (1,893) | (16) | (3,577) |
Lease liabilities | (365) | (324) | (533) | (1,189) | (1,555) |
Financial RRSAs | (1) | – | (1) | (4) | (7) |
Other liabilities | (61) | (11) | (25) | (101) | (198) |
Trade payables and similar items | (6,054) | (21) | (67) | (63) | (6,205) |
Other non-derivative financial liabilities | (1,700) | (316) | (297) | (329) | (2,642) |
Contract liabilities | (1,280) | – | – | – | (1,280) |
| (10,422) | (1,781) | (2,816) | (1,702) | (15,464) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
84
20 Financial instruments continued
Gross values | |||||
| Within one | Between one | Between two | After five | Carrying | |
| year | and two years | and five years | years | value | |
£m | £m | £m | £m | £m | |
At 31 December 2025 | |||||
Derivative financial assets: | |||||
Cash inflows | 5,682 | 4,460 | 7,783 | – | |
Cash outflows | (5,433) | (4,260) | (7,505) | – | |
Other net cash flows 1 | 29 | 16 | 8 | – | |
278 | 216 | 286 | – | 773 | |
Derivative financial liabilities: | |||||
Cash inflows | 2,596 | 1,850 | 1,479 | – | |
Cash outflows | (3,001) | (2,059) | (1,552) | – | |
Other net cash flows 1 | (24) | (11) | (6) | – | |
(429) | (220) | (79) | – | (680) | |
At 31 December 2024 | |||||
Derivative financial assets: | |||||
Cash inflows | 1,940 | 605 | 1,089 | – | |
Cash outflows | (1,780) | (592) | (1,054) | – | |
Other net cash flows 1 | 66 | 25 | 24 | – | |
226 | 38 | 59 | – | 298 | |
Derivative financial liabilities: | |||||
Cash inflows | 6,988 | 5,866 | 7,154 | – | |
Cash outflows | (7,959) | (6,524) | (7,850) | – | |
Other net cash flows 1 | (30) | (11) | (11) | – | |
(1,001) | (669) | (707) | – | (2,054) |
2025 | 2024 | |||||
| Floating | Floating | |||||
| Fixed rate | rate | Total | Fixed rate | rate | Total | |
£m | £m | £m | £m | £m | £m | |
Cash and cash equivalents 1 | – | 6,244 | 6,244 | – | 5,574 | 5,574 |
Borrowings | (2,785) | (1 7 ) | (2,80 2 ) | (3,563) | (14) | (3,577) |
Lease liabilities | (1,2 37 ) | (233) | (1,47 0 ) | (1,298) | (257) | (1,555) |
(4,0 22 ) | 5,99 4 | 1,9 72 | (4,861) | 5,303 | 442 | |
Weighted average interest rates | ||||||
Borrowings | 4.4% | 4.7% | 4.0% | 5.0% | ||
Lease liabilities 2 | 4.8% | 5.0% | 4.9% | 5.8% |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
85
20 Financial instruments continued
| 2025 | 2024 | |
Sensitivities at 31 December (all other variables held constant) – impact on profit after tax and equity | £m | £m |
Sterling 10% weaker against the USD | (1,598) | (1,506) |
Sterling 10% stronger against the USD | 1,307 | 1,232 |
Euro 10% weaker against the USD | (318) | (358) |
Euro 10% stronger against the USD | 260 | 293 |
Sterling 10% weaker against the Euro | (27) | (27) |
Sterling 10% stronger against the Euro | 22 | 22 |
Commodity prices 10% lower | (26) | (20) |
Commodity prices 10% higher | 26 | 20 |
Interest rates 50 basis points lower | (24) | (40) |
Interest rates 50 basis points higher | 24 | 39 |
| At 1 | Charged to | Transfers to | At 31 | ||||
| January | income | held for | Exchange | December | |||
| 2025 | statement 1 | Reversed | Utilised | distribution | differences | 2025 | |
| £m | £m | £m | £m | £m | £m | £m | |
Onerous contracts | 1,433 | 433 | ( 694 ) | ( 187 ) | (72) | 1 | 914 |
Warranty and guarantees | 354 | 179 | (25) | (93) | (404) | 7 | 18 |
Trent 1000 wastage costs | 36 | – | – | (3 5 ) | – | (1) | – |
Employer liability claims | 25 | 1 | (4) | (2) | (9) | – | 11 |
Transformation and restructuring | 62 | 10 | (16) | (35) | (18) | 1 | 4 |
Tax related interest and penalties | 16 | 2 | (1) | – | (8) | – | 9 |
Claims and litigation | 25 | 30 | (12) | (7) | (18) | – | 18 |
Other | 43 | 2 2 | (3) | (7) | ( 33 ) | (1) | 21 |
1,994 | 677 | ( 755 ) | ( 366 ) | (56 2 ) | 7 | 99 5 | |
Current liabilities | 589 | 2 40 | |||||
Non - current liabilities | 1,405 | 755 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
86
21 Provisions for liabilities and charges continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
87
22 Post-retirement benefits continued
| 2025 | 2024 | |||||
| UK | Overseas | UK | Overseas | |||
| schemes | schemes | Total | schemes | schemes | Total | |
Defined benefit schemes: | £m | £m | £m | £m | £m | £m |
Current service cost and administrative expenses | 6 | 42 | 48 | 5 | 37 | 42 |
Past-service cost/(credit) and settlement loss 1 | 4 | (10) | (6) | 14 | – | 14 |
| 10 | 32 | 42 | 19 | 37 | 56 | |
Defined contribution schemes | 251 | 104 | 355 | 228 | 101 | 329 |
Operating cost | 261 | 136 | 397 | 247 | 138 | 385 |
Net financing (credit)/charge in respect of defined benefit schemes | (32) | 38 | 6 | (35) | 37 | 2 |
Total income statement charge | 229 | 174 | 403 | 212 | 175 | 387 |
| Defined | ||||||
Defined benefit | contribution | Total | ||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | £m | £m | |
Cost of sales | 37 | 30 | 252 | 227 | 289 | 257 |
Commercial and administrative costs | (3 ) | 20 | 50 | 51 | 47 | 71 |
Research and development costs | 8 | 6 | 53 | 51 | 61 | 57 |
42 | 56 | 355 | 329 | 397 | 385 |
202 5 | 202 4 | |||||
| UK | Overseas | UK | Overseas | |||
| schemes | schemes | Total | schemes | schemes | Total | |
£m | £m | £m | £m | £m | £m | |
Financing on scheme obligations | 214 | 64 | 278 | 200 | 61 | 261 |
Financing on scheme assets | (246) | (26) | (272) | (235) | (24) | (259) |
| Net financing (income)/charge in respect of defined benefit | ||||||
schemes | (32) | 38 | 6 | (35) | 37 | 2 |
Financing income on scheme surpluses | (32) | – | (32) | (35) | (2) | (37) |
Financing cost on scheme deficits | – | 38 | 38 | – | 39 | 39 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
88
22 Post-retirement benefits continued
202 5 | 202 4 | |||||
| UK | Overseas | UK | Overseas | |||
| schemes | schemes | Total | schemes | schemes | Total | |
Actuarial gains and losses arising from: | £m | £m | £m | £m | £m | £m |
Demographic assumptions 1 | (121) | – | (121) | 19 | (10) | 9 |
Financial assumptions 2 | 97 | 63 | 160 | 617 | 56 | 673 |
Experience adjustments 3 | (9) | 1 | (8) | (8) | (14) | (22) |
(Loss)/return on scheme assets excluding financing income 4 | (484) | 9 | (475) | (633) | (5) | (638) |
(517) | 73 | (444) | (5) | 27 | 22 |
202 5 | 202 4 | |||||
| UK | Overseas | UK | Overseas | |||
| schemes | schemes 1 | Total | schemes | schemes | Total | |
£m | £m | £m | £m | £m | £m | |
Present value of funded obligations | (4,040) | (19 7 ) | (4,23 7 ) | (3,958) | (986) | (4,944) |
Fair value of scheme assets | 4,324 | 188 | 4,512 | 4,737 | 531 | 5,268 |
Net asset/(liability) on funded schemes | 284 | (9) | 275 | 779 | (455) | 324 |
Present value of unfunded obligations | – | (19) | (19) | – | (515) | (515) |
Net asset/(liability) recognised in the balance sheet 2 | 284 | (28) | 256 | 779 | (970) | (191) |
Post - retirement scheme surpluses 3 | 284 | 2 | 286 | 779 | 11 | 790 |
Post - retirement scheme deficits | – | (30) | (30) | – | (981) | (981) |
202 5 | 202 4 | |||||
| Assets | Obligations | Net | Assets | Obligations | Net | |
£m | £m | £m | £m | £m | £m | |
Canada | 188 | (215) | (27) | 193 | (225) | (32) |
Germany 1 | – | – | – | 56 | (664) | (608) |
US pensions schemes 1 | – | – | – | 282 | (297) | (15) |
US healthcare schemes 1 | – | – | – | – | (312) | (312) |
Other | – | (1) | (1) | – | (3) | (3) |
Net asset/(liability) recognised in th e balance sheet | 188 | (216) | (28) | 531 | (1,501) | (970) |
202 5 | 202 4 | |
Discount rate | 5.60% | 5.50% |
Inflation assumption (RPI) | 3.05% | 3.30% |
Inflation assumption (CPI) | 2.70% | 2.90% |
Transfer take - up assumption (employed deferred/deferred) | 20%/15% | 20%/15% |
Bridging Pension Option (BPO) take - up assumption (employed deferred/deferred) | 40%/25% | 40%/25% |
Life expectancy from age 65: current male pensioner | 21.1 years | 20.8 years |
future male pensioner currently aged 45 | 21.8 years | 21.5 years |
current female pensioner | 23.0 years | 22.8 years |
future female pensioner currently aged 45 | 24.2 years | 24.1 years |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
89
22 Post-retirement benefits continued
Assumptions (continued)
202 5 | 202 4 | |
Discount rate | 4.70% | 4.50% |
Inflation assumption | 2.00% | 2.10% |
Long - term healthcare cost trend rate | 4.75% | 4.75% |
Male life expectancy from age 65: current pensioner | 20.8 years | 20.5 years |
future pensioner currently aged 45 | 23.1 years | 22.5 years |
2025 | 2024 | |||||
| UK | Overseas | UK | Overseas | |||
schemes | schemes | Total | schemes | schemes | Total | |
£m | £m | £m | £m | £m | £m | |
At 1 January | (3,958) | (1,501) | (5,459) | (4,537) | (1,540) | (6,077) |
Exchange differences | – | 13 | 1 3 | – | 38 | 38 |
Current service cost | – | (41) | (41) | – | (37) | (37) |
Past - service ( cost )/credit 1 | (4) | 10 | 6 | (14) | – | (14) |
Finance ( cost )/credit | (214) | (64) | (278) | (200) | (61) | (261) |
Contributions by employe es | – | (14) | (14) | – | (13) | (13) |
Benefits paid out | 169 | 83 | 252 | 165 | 80 | 245 |
Transferred to held for distribution 2 | – | 1,234 | 1 , 234 | – | – | – |
Actuarial (losses)/ gains 3 | (33) | 64 | 31 | 628 | 32 | 660 |
At 31 December | (4,040) | (21 6 ) | (4,25 6 ) | (3,958) | (1,501) | (5,459) |
Funded schemes | (4,040) | (19 7 ) | (4,23 7 ) | (3,958) | (986) | (4,944) |
Unfunded schemes | – | (19) | (19) | – | (515) | (515) |
2025 | 2024 | |||||
| UK | Overseas | UK | Overseas | |||
schemes | schemes | Total | schemes | schemes | Total | |
Active plan participants 1 | (1,243) | (12 1 ) | (1,36 4 ) | (1,277) | (731) | (2,008) |
Deferred plan participants | (1,067) | (10) | (1,077) | (1,064) | (98) | (1,162) |
Pensioners | (1,730) | (85) | (1,815) | (1,617) | (672) | (2,289) |
Weighted average duration of obligations (years) | 13 | 13 | 13 | 14 | 12 | 13 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
90
22 Post-retirement benefits continued
2025 | 2024 | |||||
| UK | Overseas | UK | Overseas | |||
schemes | schemes | Total | schemes | schemes | Total | |
£m | £m | £m | £m | £m | £m | |
At 1 January | 4,737 | 531 | 5,268 | 5,304 | 520 | 5,824 |
Exchange differences | – | (20) | (20) | – | (13) | (13) |
Administrative expenses | (6) | (1) | ( 7 ) | (5) | (1) | (6) |
Financing | 246 | 26 | 2 72 | 235 | 24 | 259 |
(Loss)/ r eturn on plan assets excluding financing 1 | (484) | 9 | (4 75 ) | (633) | (5) | (638) |
Contributions by employe r | – | 84 | 84 | 1 | 73 | 74 |
Contributions by employe es | – | 14 | 14 | – | 13 | 13 |
Benefits paid out | (169) | (83) | ( 252 ) | (165) | (80) | (245) |
Transferred to held for distribution 2 | – | (372) | (372) | – | – | – |
At 31 December | 4,324 | 188 | 4,512 | 4,737 | 531 | 5,268 |
Total (loss)/return on scheme assets | (238) | 35 | (203) | (398) | 19 | (379) |
2025 | 2024 | |||||
| UK | Overseas | UK | Overseas | |||
schemes 1 | schemes | Total | schemes | schemes | Total | |
£m | £m | £m | £m | £m | £m | |
Sovereign debt | – | 53 | 53 | 3,335 | 140 | 3,475 |
Corporate debt instruments | – | 5 7 | 5 7 | 1,860 | 248 | 2,108 |
Interest rate swaps | – | – | – | 197 | – | 197 |
Inflation swaps | – | – | – | 92 | – | 92 |
Cash and similar instruments 2 | – | – | – | (1,176) | – | (1,176) |
Liability driven investment (LDI) portfolio s | – | 110 | 110 | 4,308 | 388 | 4,696 |
Listed equities | – | 50 | 50 | – | 54 | 54 |
Unlisted equities | 4 | 1 | 5 | 25 | – | 25 |
Corporate debt instruments | – | – | – | 379 | – | 379 |
Cash | 2 80 | 2 | 28 2 | 25 | 11 | 36 |
Buy - in insurance policy 3 | 4,040 | – | 4,040 | – | – | – |
Other | – | 25 | 25 | – | 78 | 78 |
At 31 December | 4,324 | 188 | 4,512 | 4,737 | 531 | 5,268 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
91
22 Post-retirement benefits continued
| 2025 | 2024 | ||
£m | £m | ||
Reduction in the discount rate of 0.25% 1 | Obligation s | (140) | (145) |
Plan assets ( B uy - in policy) | 140 | – | |
Plan assets (LDI portfolio) | – | 179 | |
Increase in inflation of 0.25% 1 | Obligation s | (55) | (55) |
Plan assets ( B uy - in policy) | 55 | – | |
Plan assets (LDI portfolio) | – | 73 | |
Increase of 1% in transfer value assumption | Obligations | (20) | (25) |
Plan assets ( B uy - in policy) | 20 | – | |
One year increase in life expectancy | Obligations | (125) | (125) |
Plan assets ( B uy - in policy) | 125 | – |
| 2025 | 2024 | ||
£m | £m | ||
Reduction in the discount rate of 0.25% | Obligations | ( 7 ) | ( 46 ) |
Increase in inflation of 0.25% | Obligations | (1) | (10) |
Equity | ||
| Ordinary | ||
| shares of | Nominal | |
| 20p each | value | |
Millions | £m | |
At 1 January and 31 December 2024 | 1,6 91 | 338 |
At 31 December 2025 | 1,691 | 338 |
24 Share-based payments
Effect of share-based payment transactions on the Group’s results and financial position
| 2025 | 2024 | |
£m | £m | |
Total expense recognised for equity - settled share - based payment transactions | 98 | 95 |
Total cost recogn ised for cash - settled share - based payment transactions | 6 | 41 |
Share - based payments recognised in the consolidated income statement | 104 | 136 |
Liability for cash - settled share - based payment transactions | – | 59 |
A description of the share-based payment plans is included in the Directors' Remuneration Report on pages 104 to 105 of Rolls-Royce Holdings
plc 2025 Annual Report.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
92
24 Share-based payments continued
Movements in the Group’s share-based payment plans during the year
| ShareSave | Free | LTIP | Incentive | Matching | ||
Shares | Plan | Shares | ||||
| Weighted | ||||||
| average | ||||||
| exercise | ||||||
| Number | price | Number | Number | Number | Number | |
Millions | Pence | Millions | Millions | Millions | Millions | |
Outstanding at 1 January 2024 | 53.4 | 107 | – | 101.0 | 17.2 | – |
Granted | – | – | 6.2 | 22.8 | 5.0 | – |
Forfeited | (2.3) | 110 | (0.2) | (5.7) | (0.5) | – |
Exercised | (0.5) | 104 | – | (25.4) | (5.6) | – |
Outstanding at 31 December 202 4 | 50.6 | 107 | 6.0 | 92.7 | 16.1 | – |
Granted | – | – | – | 10.6 | 0.5 | 0.6 |
Forfeited | (0.2) | 118 | (0.7) | (3.7) | – | – |
Exercised | (50. 3 ) | 107 | (2.3) | (35.3) | (5.6) | – |
Outstanding at 31 December 2025 | 0.1 | 111 | 3.0 | 64.3 | 11.0 | 0.6 |
Exercisable at 31 December 2025 | – | – | – | – | – | – |
Exercisable at 31 December 2024 | 0.1 | – | – | – | – | – |
The weighted average share price at the date share options were exercised was 728p (2024: 420p). The closing price at 31 December 2025 was
1,150p (2024: 569p).
The weighted average remaining contractual life for the share options as at 31 December 2025 was six months (2024: one month) and all
outstanding share options have a maturity date in 2026.
Fair values of share-based payment plans
The weighted average fair value per share of equity-settled share-based payment plans granted during the year, estimated at the date of grant,
are as follows:
2025 | 2024 | |
Free Shares | n/a | 494p |
LTIP | 759p | 361p |
Incentive plan | 802p | 378p |
Matching Shares | 1,089p | n/a |
Vesting period of share-based payment plans
The vesting period for the share-based payment plans are between 6 months to 63 months. See the details below.
Vesting period | |
LTIP | 6 to 59 months |
Incentive Plan(IP) | 7 to 47 months |
Sharesave | 39 or 63 months |
Free shares | 12 or 36 months |
Matching Shares | 24 or 36 months |
Long-term incentive plan
The fair value of shares awarded is calculated using a pricing model that takes account of the non-entitlement to dividends (or equivalent) during
the vesting period and the market-based performance condition based on expectations about volatility and the correlation of share price returns
in the group of FTSE 100 and S&P Global Industrials Index companies and which incorporates into the valuation the interdependency between
share price performance and TSR vesting where market-based conditions are applicable. This adjustment decreases the fair value of the award
relative to the share price at the date of grant.
ShareSave
The fair value of the options granted is calculated using a pricing model that assumes that participants will exercise their options at the beginning
of the six-month window if the share price is greater than the exercise price. Otherwise, it assumes that options are held until the expiration of
their contractual term. This results in an expected life of the mid-point between the start of the exercise window and the date of expiration.
Incentive plan
The fair value of shares awarded is calculated as the share price on the date of the award, on the basis that awards are entitled to receive dividends
(or equivalents).
Free shares
In 2024, every Rolls-Royce employee was gifted 150 shares. The awards were granted under two plans; the 'Rolls-Royce Share Purchase Plan' for
UK employees and the 'Rolls-Royce Global Employee Share Purchase Plan' for non-UK employees; both being equity-settled schemes. The fair
value of shares awarded under the free shares scheme is calculated as the share price on the date of the award, on the basis that awards are
entitled to receive dividends (or equivalents).
Matching shares
Rolls-Royce launched the ‘Your Shares: Matched’ plan during the year. Every participant receives the free matching shares with a value of up to
£50 each month based on the number of investment shares they purchase. There are no performance conditions attached to the shares. The fair
value of the free matching shares awarded under these plans is calculated using the share price on the date of the award. Non-vesting conditions
are taken into consideration with a percentage discount applied based on the assumption of the expected forfeiture rates of the matching shares.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
93
| 2025 | 2024 | |
£m | £m | |
Sale of goods and services 1 | 8, 679 | 7,702 |
Purchases of goods and services 1 | (9,141) | (8,725) |
Lease payments to joint ventures and associates | (157) | (241) |
Guarantees of non - wholly owned subsidiaries’ borrowings | 3 | 4 |
Dividends received from joint ventures and associates | 88 | 77 |
Other income received from joint ventures and associates | 38 | 7 |
| 2025 | 2024 | |
£ m | £m | |
Salaries and short - term benefits | 3 5 | 29 |
Included in the above: | ||
Post - retirement schemes | 1 | 1 |
Share - based payments | 12 | 13 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
94
| Naval | 2025 | ||
| propulsors | Rolls-Royce | ||
business | SMR Limited | Total | |
£m | £m | £m | |
Proceeds | |||
Net cash consideration at prevailing exchange rate and at effective hedged rate | 172 | – | 172 |
Cash and cash equivalents disposed | – | (81) | (81) |
Net cash consideration | 172 | (81) | 91 |
Disposal costs paid | (7) | (4) | (11) |
Net cash inflow/ ( outflow ) on disposal per cash flow statement | 165 | (85) | 80 |
Goodwill | 12 | – | 12 |
Property, plant and equipment | 45 | 3 | 48 |
Right - of - use assets | 1 | 1 | 2 |
Inventor ies | 19 | – | 19 |
Trade receivables and other assets | 62 | 47 | 109 |
Trade payables and other liabilities | (67) | (56) | (123) |
Provisions for liabilities and charges | (3) | – | (3) |
Borrowings and lease liabilities | (1) | – | (1) |
Net assets/(liabilities) disposed | 68 | (5) | 63 |
Profit/(loss) on disposal before disposal costs and accounting adjustments | 104 | (76) | 28 |
Disposal costs | (7) | – | (7) |
Derecognition of NCI | – | 23 | 23 |
Accounting adjustment - recognition of R olls - R oyce SMR Limited at fair value | – | 732 | 732 |
Accounting adjustments - dilution of the Group’s share of R olls - Royce SMR Limited | – | 15 | 15 |
Cumulative currency translation gain | 18 | – | 18 |
Profit on disposal of business es per income statement | 115 | 694 | 809 |
Tax on disposal 1 | (28) | – | (28) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
95
27 Business disposals and businesses held for sale and distribution continued
2025 | 2024 | |||
| Legal entity | Naval | |||
| review | handling | |||
programme | business | Total | Total | |
£m | £m | £m | £m | |
Goodwill | 1,025 | – | 1,025 | 13 |
Intangible assets | 1,227 | – | 1,227 | – |
Property, plant and equipment | 1,815 | 3 | 1,818 | 51 |
Right - of - use assets | 242 | – | 242 | 1 |
Investment in associates and joint ventures | 502 | – | 502 | – |
Other financial assets | 33 | – | 33 | – |
Deferred tax assets | 480 | – | 480 | – |
Inventor ies | 2,880 | 1 | 2,881 | 24 |
Trade receivables and other assets | 2,5 61 | 11 | 2,572 | 64 |
Contract assets | 7 22 | – | 722 | – |
Taxation recoverable | 30 | – | 30 | – |
Cash and cash equivalents | 526 | – | 526 | – |
Assets held for sale and distribution | 12, 043 | 15 | 12,058 | 153 |
Borrowings and lease liabilities | (515) | – | (515) | (1) |
Other financial liabilities | (1 85 ) | – | (185) | – |
Trade payables and other liabilities | (2,216) | ( 1 9 ) | (2,235) | (96) |
Contract liabilities | (4,2 48 ) | – | (4,248) | – |
Tax Liabilities | (302) | – | (302) | – |
Provisions for liabilities and charges | (562) | – | (562) | (3) |
Deferred tax liabilities | (27) | – | (27) | – |
Post - retirement scheme deficits | (862) | – | (862) | – |
Liabilities associated with assets held for sale and distribution | (8,9 17 ) | ( 1 9 ) | (8,936) | (100) |
Net assets/(liabilities) held for sale and distribution | 3,1 26 | ( 4 ) | 3,122 | 53 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2025
96
28 Derivation of summary funds flow statement
202 5 | 202 4 | |||||
| Impact | Impact of | |||||
| of | Impact of | other non- | ||||
| Cash | hedge | acquisition | underlying | Funds | Funds | |
flow | book | accounting | items | flow | flow | |
£m | £m | £m | £m | £m | £m | |
Operating profit/(loss) | 4,468 | (797) | 16 | (225) | 3,462 | 2,464 |
Loss on disposal of property, plant and equipment 1 | 18 | – | – | – | 18 | 32 |
(Profit)/loss on disposal of intangible assets 1 | (2) | – | – | – | (2) | 6 |
Joint venture trading 1 | 32 | – | – | – | 32 | (95) |
Depreciation, amortisation and impairment | 737 | – | (16) | 179 | 900 | 853 |
Movement in provisions | (486) | 78 | – | 118 | (290) | (167) |
Increase in inventories 2 | (684) | – | – | – | (684) | (323) |
Movement in prepayments to RRSAs for parts | 90 | (19) | – | – | 71 | (219) |
Movement in cost to obtain contracts | (44) | – | – | – | (44) | (18) |
Movement in trade receivables/payables and other assets/liabilities 2 | (31) | (166) | – | 4 3 | (154) | 164 |
Revaluation of trading assets 2 | 214 | (18) | – | – | 196 | (14) |
Realised derivatives in financing | 532 | - | – | – | 532 | 652 |
Movement in Civil LTSA balance | 123 | 378 | – | – | 501 | 910 |
Movement in contract assets/liabilities (excluding Civil LTSA) 2 | 584 | (11) | – | – | 573 | (201) |
Settlement of excess derivatives | (148) | – | – | – | (148) | (146) |
Interest received | 269 | – | – | – | 269 | 269 |
Contributions to defined benefit schemes in excess of underlying operating profit charge 1 | (42) | – | – | 5 | (37) | (31) |
Cash flows on other financial assets and liabilities held for operating purposes | (578) | 532 | – | – | (46) | (24) |
Share - based payments 1 | 104 | – | – | – | 104 | 136 |
Other 1 | – | – | – | – | – | (5) |
Income tax | (590) | – | – | 35 | (555) | (381) |
Cash from operating activities | 4, 56 6 | (23) | – | 1 5 5 | 4,698 | 3,86 2 |
Capital element of lease payments | (232) | 23 | – | – | (209) | (275) |
Capital expenditure | (978) | – | – | – | (978) | (876) |
Investment s | (7) | – | – | 37 | 30 | 16 |
Interest paid | (262) | – | – | – | (262) | (298) |
Other 3 | 1 8 4 | – | – | (1 9 2) | (8) | (6) |
Free cash flow | 3,271 | – | – | – | 3,271 | 2,423 |
1 Included in other operating cash flows in the summarised free cash flow on page 7
2 Included in working capital (excluding Civil LTSA balance) in the summarised free cash flow on page 7
3 Other includes M&A related costs, exceptional transformation and restructuring costs
Free cash flow is a measure of the financial performance of the businesses’ cash flows which is consistent with the way in which performance is
communicated to the Board. Free cash flow is cash flows from operating activities, adjusted to include capital expenditure and movements in
investments, capital elements of lease payments, interest paid, cash received on maturity of share-based payment schemes and amounts paid
relating to the settlement of excess derivatives. It excludes amounts spent/received on business acquisitions/disposals, and other material
exceptional or one-off cash flows. Cash flows from operating activities is our statutory equivalent. The Board considers that free cash flow reflects
cash generated from the Group’s underlying trading.
The reconciliation between free cash flow and cash flow from operating activities can be found on page 139.
Company Financial Statements Rolls-Royce plc Annual Report 2025
97
COMPANY BALANCE SHEET
At 31 December 2025
202
5
202
4
Notes
£m
£m
ASSETS
Intangible assets
3
2,341
2,336
Property, plant and equipment
4
1,564
1,543
Right
-
of
-
use assets
5
119
130
Investments
-
subsidiary undertakings
6
255
1,461
Investments
-
joint ventures and associates
6
30
1
52
Investments
-
o
ther
6
4
5
Loan receivable from subsidiary undertaking
8
1,30
0
1,552
Other financial assets
505
127
Deferred tax assets
15
2,756
2,949
Post
-
retirement schemes surplus
16
284
779
Non
-
current assets
9,4
29
10,934
Inventories
7
2,671
2,494
Trade receivables and other assets
8
9,
636
8,194
Contract assets
9
1,126
1,134
Taxation recoverable
45
2
Other financial assets
278
291
Cash and cash equivalents
10
5,547
4,981
Current assets
19,303
17,096
Assets held for
distribution
6
1,437
–
TOTAL ASSETS
30,
169
28,030
LIABILITIES
Borrowings and lease liabilities
11
(1,078)
(848)
Other financial liabilities
(334)
(621)
Trade payables and other liabilities
13
(11,
382
)
(11,421)
Contract liabilities
9
(5,357)
(4,209)
Current tax liabilities
(4)
(7)
Provisions for liabilities and charges
14
(206)
(285)
Current liabilities
(18,
361
)
(17,391)
Borrowings and lease liabilities
11
(1,867)
(2,895)
Other
financial liabilities
(492)
(1,576)
Trade payables and other liabilities
13
(1,687)
(1,872)
Contract liabilities
9
(6,647)
(7,244)
Deferred tax liabilities
15
(71)
(195)
Provisions for liabilities and charges
14
(747)
(1,165)
Non
-
current liabilities
(11,511)
(14,947)
TOTAL LIABILITIES
(
2
9
,
8
72
)
(32,338)
NET
ASSETS/(
LIABILITIES
)
297
(4,308)
EQUITY
Called
-
up share capital
17
338
338
Share premium
631
631
Other reserves
181
182
Accumulated losses
(853)
(5,459)
TOTAL EQUITY
297
(4,308)
The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company income
statement. The profit for the Company for the year was £4,864m (2024: £1,278m). The comprehensive income for the Company for the year was
£4,474m (2024: £1,338m).
The Financial Statements on pages 97 to 119 were approved by the Board and signed on its behalf on 26 February 2026 by:
Tufan Erginbilgic Helen McCabe
Chief Executive Chief Financial Officer
Company’s registered number: 01003142
Company Financial Statements Rolls-Royce plc Annual Report 2025
98
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2025
Share
capital
Share
premium
Other
reserves ¹
Accumulated
losses
Total
equity
Note £m £m £m £m £m
At 1 January 202
4
338
631
183
(6,924)
(5,772)
Profit for the year
–
–
–
1,278
1,278
Actuarial movement in post
-
retirement schemes
1
6
–
–
–
(5)
(5)
Reclassified to income statement from cash flow hedge
reserve
–
–
22
–
22
Fair value on movement on cash flow hedges
–
–
(17)
–
(17)
Revaluation to fair value of other investments
–
–
–
(2)
(2)
Foreign exchange translation differences on foreign
operations
–
–
(5)
–
(5)
Related tax movements
1
5
–
–
(1)
68
67
Total comprehensive
(expense)/
income for the year
–
–
(1)
1,339
1,338
Share
-
based payments
–
direct to equity
2
1
8
–
–
–
60
60
Related tax movements
1
5
–
–
–
66
66
Other changes in equity in the year
–
–
–
126
126
At
31 December 2024
338
631
182
(5,459)
(4,308)
At 1
January
202
5
338
631
182
(5,459)
(4,308)
Profit for
the year
–
–
–
4,864
Actuarial movement in post
-
retirement schemes
1
6
–
–
–
(517)
(517)
Reclassified to income statement from cash flow hedge
reserve
–
–
27
–
27
Fair value on movement on cash flow hedges
–
–
(38)
–
(38)
Revaluation to fair value of other investments
6
–
–
–
(1)
(1)
Foreign exchange translation differences on foreign
operations
–
–
7
–
7
Related tax movements
1
5
–
–
3
129
132
Total comprehensive
(expense)/i
ncome
for the year
–
–
(1)
4,475
4,474
Share
-
based payments
–
direct to equity
2
1
8
–
–
–
57
57
Related tax movements
1
5
–
–
–
74
74
Other
changes in equity in the year
–
–
–
131
131
At 31 December
2025
338
631
181
(853)
297
1 Other reserves includes a translational reserve of £6m (2024: £(1)m) and £159m (2024: £159m) relating to the premium which arose on shares issued on a 1989 acquisition. This also includes the
cash flow hedge reserve of £10m (2024: £18m)
2 Share-based payments ‒ direct to equity is the share-based payment charge for the year less the actual cost of vesting excluding those vesting own shares and cash received on share-based
schemes vesting
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
99
1 Accounting policies
The Company
Rolls-Royce plc (the ‘Company’) is a public company limited by shares incorporated under the Companies Act 2006 and domiciled in
England in the United Kingdom. The Company’s registered number is 01003142 and its registered address is at Kings Place, 90 York
Way, London, N1 9FX, United Kingdom.
Basis of preparation
In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the UK (UK-adopted international accounting standards). The Company is
included within the Consolidated Financial Statements of Rolls-Royce plc. The Consolidated Financial Statements are prepared in
accordance with IFRS and are publicly available. In these Financial Statements, the Company is considered to be a qualifying entity and
has applied the exemptions available under FRS 101 in respect of the following disclosures:
– IAS 7 Statement of Cash Flows;
– transactions with wholly owned subsidiaries;
– the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
– the requirements of paragraphs 52 and 58 of IFRS 16 Leases;
– the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect
of:
(i) paragraphs 53(a), (h) and (j) of IFRS 16 Leases;
(ii) paragraph 79(a)(iv) of IAS 1 Presentation of Financial Statements;
(iii) paragraph 73(e) of IAS 16 Property, Plant and Equipment;
(iv) paragraph 118(e) of IAS 38 Intangible Assets;
– the requirements of paragraphs 134 to 136 of IAS 1 Presentation of Financial Statements;
– compensation of key management personnel; and
– IAS 24 Related Party Disclosures
As the Consolidated Financial Statements of Rolls-Royce plc include the equivalent disclosures, the Company has taken the exemptions
available under FRS 101 in respect of the following disclosures:
– IFRS 2 Share Based Payments relating to group settled share-based payments;
– IFRS 7 Financial Instruments: Disclosures; and
– the requirements of paragraphs 91 to 99 of IFRS 13 Fair Value Measurement.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Financial
Statements.
The Financial Statements are presented in sterling, which is the Company’s functional currency.
As permitted by Section 408(3) of the Companies Act 2006, a separate income statement for the Company has not been included in these
Financial Statements. As permitted by the audit fee disclosure regulations, the disclosure of non-audit fees information is not included in
respect of the Company. For details of audit fees, see note 6 of the Consolidated Financial Statements.
These Financial Statements have been prepared on a going concern basis. Further details are given in the Going Concern Statement on
page 21. After due consideration, the Directors consider that the Company has sufficient liquidity to continue in operational existence
for a period of at least 18 months from the balance sheet date and are therefore satisfied that it is appropriate to adopt the going
concern basis of accounting in preparing the Financial Statements.
In preparing the Company Financial Statements, the Directors have considered the potential impact of climate change, please see pages
38 to 40 for further details.
Revisions to IFRS applicable in 2025
There are no new standards or interpretations issued by the International Accounting Standards Board (IASB) that had a significant
impact on these Financial Statements.
Revisions to IFRS not applicable in 2025
Standards and interpretations issued by the IASB are only applicable if endorsed by the UK. Other than IFRS 18 Presentation and
Disclosure in Financial Statements (described below), the Company does not consider that any other standards, amendments or
interpretations issued by the IASB that are not yet applicable will have a significant impact on the Financial Statements.
IFRS 18 Presentation and Disclosure in Financial Statements
The IASB issued a new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, on 9 April 2025 that will replace IAS 1
Presentation of Financial Statements. The new Standard was endorsed by the UK Endorsement Board (UKEB) and will be applicable for
reporting periods beginning on or after 1 January 2027. The purpose of the new standard is to provide more consistent presentation of
financial information across preparers as it is acknowledged that existing standards have given flexibility to present information in
different ways. IFRS 18 Presentation and Disclosure in Financial Statements will not impact the recognition or measurement of items in
the financial statements. Many of the existing presentation principles in IAS 1 Presentation of Financial Statements are retained, but
there are some more specific requirements that may require the Company to make some changes in its future Financial Statements
although, given the FRS 101 exemptions applied, the impact is expected to be minimal.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
100
1 Accounting policies continued
Material accounting policies
The Company’s material accounting policies are set out below. These accounting policies have been applied consistently to all periods
presented in these Financial Statements.
Key areas of judgement and sources of estimation uncertainty are disclosed below and further details, together with sensitivities, are
included within the significant accounting policies section where applicable.
Accounting policies related to the income statement are included within note 1 of the Consolidated Financial Statements (including
under the revenue recognition and contract assets and liabilities heading on page 42).
Risk and revenue sharing arrangements (RRSAs)
Cash entry fees received are initially deferred on the balance sheet as deferred receipts from RRSA workshare partners within trade
payables and other liabilities. The cash entry fee is a transaction with a supplier and is recognised as a reduction in cost of sales incurred.
Individual programme amounts are allocated pro rata to the estimated number of units to be produced. Amortisation commences as
each unit is delivered and then recognised on a 15-year straight-line basis.
The payments to suppliers for their shares of the programme cash flows for their production components are charged to cost of sales
when OE sales are recognised or as LTSA costs are incurred. These prepayments are initially recognised within trade receivables and
other assets.
The Company also has arrangements with third parties who invest in a programme and receive a return based on its performance, but
do not undertake development work or supply parts. Such arrangements (financial RRSAs) are financial instruments as defined by IAS
32 Financial Instruments: Presentation and are accounted for using the amortised cost method.
Key judgements related to RRSAs are disclosed within note 1 of the Consolidated Financial Statements.
Taxation
The tax charge/credit on the profit or loss for the year comprises current and deferred tax:
– Current tax is the expected tax payable for the year, using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years; and
– Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts
of the assets and liabilities for financial reporting purposes and the amounts used for tax purposes and is calculated using the
enacted or substantively enacted rates that are expected to apply when the asset or liability is settled. The deferred tax liability on
the pension scheme surplus is recognised consistently with the basis for recognising the rate applicable to refunds from a trust.
Tax is charged or credited in the income statement or OCI as appropriate, except when it relates to items credited or charged directly
to equity in which case the tax is also dealt with in equity.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint arrangements,
except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future. Deferred tax is not recognised on taxable temporary differences arising from the initial
recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable
profit.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits, which include the reversal of taxable
temporary differences, will be available against which the assets can be utilised. Further details on the Company’s tax position can be
found on pages 113 to 114.
Foreign currency translation
Transactions denominated in currencies other than the functional currency of the Company are translated into the functional currency
at the average monthly exchange rate when the transaction occurs. Monetary assets and liabilities denominated in foreign currencies
are translated into sterling at the rate prevailing at the year end. Exchange differences arising on foreign exchange transactions and
the retranslation of assets and liabilities into sterling at the rate prevailing at the year-end are included in profit/(loss) before taxation.
The trading results of foreign operations are translated into sterling at the average exchange rates for the year. Their assets and
liabilities are translated at the exchange rates prevailing at the year end. Exchange adjustments arising from the retranslation of the
opening net assets, and from the translation of the profits or losses at average rates, are recognised in OCI.
Financial instruments – Impairment of financial assets and contract assets
IFRS 9 Financial Instruments sets out the basis for the accounting of Expected Credit Losses (ECLs) on financial assets and contract
assets resulting from transactions within the scope of IFRS 15 Revenue from Contracts with Customers. The Company has adopted the
simplified approach to provide for ECLs, measuring the loss allowance at a probability weighted amount that considers reasonable and
supportable information about past events, current conditions and forecasts of future economic conditions of customers. These are
incorporated in the simplified model adopted by using credit ratings which are publicly available or through internal risk assessments
derived using customer’s latest available financial information. The ECLs are updated at each reporting date to reflect changes in credit
risk since initial recognition. ECLs are calculated for all financial assets in scope, regardless of whether or not they are overdue.
Certification costs
Costs incurred, in respect of meeting regulatory certification requirements for new Civil Aerospace aero-engine/aircraft combinations,
including payments made to airframe manufacturers for this, are recognised as intangible assets to the extent that they can be recovered
out of future sales. They are charged to the income statement over the programme life. Individual programme assets are allocated pro-
rata to the estimated number of units to be produced. Amortisation commences as each unit is delivered and then charged on a 15-year
straight-line basis.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
101
Accounting policies continued
Research and development
Expenditure incurred on research and development is distinguished as relating either to a research phase or to a development phase.
All research phase expenditure is charged to the income statement. Development expenditure is recognised as an internally generated
intangible asset (programme asset) only if it meets strict criteria, relating in particular to technical feasibility and generation of future
economic benefits. More specifically, development costs are capitalised from the point at which the following conditions have been
met:
– the technical feasibility of completing the programme and the intention and ability (availability of technical, financial and other
resources) to complete the programme asset and use or sell it;
– the probability that future economic benefits will flow from the programme asset; and
– the ability to measure reliably the expenditure attributable to the programme asset during its development.
Capitalisation continues until the point at which the programme asset meets its originally contracted technical specification (defined
internally as the point at which the asset is capable of operating in the manner intended by the Directors). Subsequent expenditure is
capitalised where it enhances the functionality of the programme asset and demonstrably generates an enhanced economic benefit to
the Company. All other subsequent expenditure on programme assets is expensed as incurred.
Individual programme assets are allocated pro rata to the estimated number of units to be produced. Amortisation commences as each
unit is delivered and then charged over a maximum of 15 years. In accordance with IAS 38 Intangible Assets, the basis on which
programme assets are amortised is assessed annually.
Software
Software that is not specific to an item of property, plant and equipment is classified as an intangible asset, recognised at its acquisition
cost and amortised on a straight-line basis over its useful economic life up to a maximum of ten years to reflect the expected useful lives
of the assets. The amortisation period of software assets is reviewed annually. The cost of internally developed software includes direct
labour and an appropriate proportion of overheads.
Other intangible assets
These include the costs incurred testing and analysing engines with the longest time in service (fleet leader engines) to gather technical
knowledge on engine endurance, which are amortised on a straight-line basis over a maximum of 15 years.
Investment in subsidiaries, joint ventures and associates
Investments in subsidiaries, joint ventures and associates are held at cost less accumulated depreciation.
Joint arrangements
The Company accounts for joint operations by consolidating their results on a proportional basis.
Key judgement – Determination of the point in time where costs incurred on an internal programme development meet the criteria
for capitalisation
The Company incurs significant research and development expenditure in respect of various development programmes. Determining
when capitalisation should commence and cease is a critical judgement, as is the determination of when subsequent expenditure on
the programme assets should be capitalised. During the year, £110m (2024: £200m) of development expenditure was capitalised.
Within the Company, there are established processes in place e.g. the Product Introduction and Lifecycle Management process
(PILM). Within these processes, the technical feasibility, the commercial viability and financial assessment of the programme is
assessed at certain milestones. When these are met, development expenditure is capitalised. Prior to this, expenditure is expensed
as incurred.
The Company continues to invest in new technologies as a result of its decarbonisation commitments. As these are new technologies,
there is a higher level of uncertainty over potential outcomes and, therefore, this could impact the level of expenditure that is
capitalised or recognised in the income statement in future years.
Subsequent expenditure after entry into service, which enhances the performance of the engine and the economic benefits to the
Company is capitalised. This expenditure is referred to as enhanced performance and is governed by the PILM process referred to
above. All other development costs are expensed as incurred.
Key judgement – Determination of the basis for amortising capitalised development costs
The economic benefits of the development costs are primarily those cash inflows arising from LTSAs, which are expected to be
relatively consistent for each engine within a programme. Amortisation of development costs is recognised on a straight-line basis
over the period of operation of the engine by its initial operator.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
102
1 Accounting policies continued
Property, plant and equipment
Property, plant and equipment are stated at acquisition cost less accumulated depreciation and any provision for impairment in value.
The cost of self-constructed assets includes the cost of materials, direct labour ,an appropriate proportion of overheads and, where
appropriate, interest.
Depreciation is provided on a straight-line basis to write off the cost, less the estimated residual value, of property, plant and equipment
over their estimated useful lives. No depreciation is recorded on assets in the course of construction. Estimated useful lives are
reassessed annually and are as follows:
— Land and buildings, advised by the Group’s Company’s professional advisers:
no depreciation is provided on freehold land
freehold buildings - five to 50 years; and
– Plant and equipment – five to 25 years
– Aircraft and engines – five to 20 years
Leases
Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the following lease payments:
– fixed payments less any lease incentive receivable;
– variable lease payments that are based on an index or a rate;
– amounts expected to be payable by the Company under residual value guarantees;
– the exercise price of a purchase option if the Company is reasonably certain to exercise that option; and
– payments of penalties for termination of the lease, if the lease term reflects the Company exercising that option.
Where leases commence after the initial IFRS 16 Leases transition date, the lease payments are discounted using the interest rate implicit
in the lease. If that rate cannot be determined, the Company’s incremental borrowing rate is used, being the rate that the Company
would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms
and conditions. Where appropriate, lease liabilities are revalued at each reporting date using the spot exchange rate.
Right-of-use assets are measured at cost comprising the following:
– the amount of the initial measurement of lease liability or a revaluation of the liability;
– any lease payments made at or before the commencement date less any lease incentives received;
– any initial direct costs; and
– restoration costs.
Each right-of-use asset is depreciated over the shorter of its useful economic life and the lease term on a straight-line basis unless the
lease is expected to transfer ownership of the underlying asset to the Company, in which case the asset is depreciated to the end of
the useful life of the asset. Short-term leases are leases with a lease term of 12 months or less. Payments associated with short-term
leases and low value leases are recognised on a straight-line basis as an expense in the income statement.
Key judgement – Determining the lease term
In determining the lease term, the Company considers all facts and circumstances that create an economic incentive to exercise an extension
option or not exercise a termination option. Extension options (or periods after termination) are only included in the lease term if the lease
is reasonably certain to be extended (or not terminated). Certain land and building leases have renewal options although there are no
renewal dates for any of the most significant property leases in the next 12 months. The most significant renewal is in 2038. The Company
reviews its judgements on lease terms annually, including the operational significance of the site, especially where utilised for manufacturing
activities
Impairment of non-current assets
Impairment of non-current assets is considered in accordance with IAS 36 Impairment of Assets. Where the asset does not generate
cash flows that are independent of other assets, impairment is considered for the cash-generating unit (CGU) to which the asset belongs.
Goodwill, indefinite life intangible assets and intangible assets not yet available for use are tested for impairment annually. Other
intangible assets (including programme-related intangible assets), property, plant and equipment, right-of-use assets and investments
are assessed for any indications of impairment annually. If any indication of impairment is identified, an impairment test is performed to
estimate the recoverable amount.
If the recoverable amount of an asset (or CGU) is estimated to be below the carrying value, the carrying value is reduced to the
recoverable amount and the impairment loss is recognised as an expense. The recoverable amount is the higher of value in use or fair
value less costs of disposal. The value in use is the present value of future cash flows using a pre-tax discount rate that reflects the time
value of money and the risk specific to the asset (or CGU). Fair value less costs of disposal (FVLCOD) reflects market inputs or inputs
based on market evidence if readily available. If these inputs are not readily available, the fair value is estimated by discounting future
cash flows modified for market participants views. The relevant local statutory tax rates have been applied in calculating post-tax to pre-
tax discount rates.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
103
1 Accounting policies continued
Inventories
Inventories are valued on a first-in, first-out basis, at the lower of cost and net realisable value. Cost comprises direct materials and,
where applicable, direct labour costs and those overheads, including depreciation of property, plant and equipment, that have been
incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling prices
less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. All inventories are classified as
current as it is expected that they will be used in the Company’s operating cycle, regardless of whether this is expected to be within 12
months of the balance sheet date.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, investments in money market funds and short-term deposits with a maturity
of three months or less on inception. Where the Company operates pooled banking arrangements across multiple accounts, these are
presented on a net basis when it has both a legal right and intention to settle the balances on a net basis.
The Company’s suppliers have access to a supply chain financing (SCF) programme through partnership with banks. This is to enable
smaller suppliers, including joint ventures (90-day standard payment terms), who are on our standard 75 day or more payment terms
to receive their payment sooner. The election to utilise the programme is the sole decision of the supplier. As the Company continues
to have a contractual obligation to pay its suppliers under commercial terms, which are unaffected by any utilisation of the programme
and it does not retain any ongoing involvement in the SCF, the related payables are retained on the Company’s balance sheet and
classified as trade payables. Further details are disclosed in note 13.
Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event, and it is probable that the Company
will be required to settle that obligation and are discounted to present value where the effect is material.
The principal provisions are recognised as follows:
– onerous contracts based on an assessment of whether the direct costs to fulfil a contract are greater than the expected revenue;
– warranty and guarantees based on an assessment of future claims with reference to past experience and recognised at the earlier
of when the underlying products and services are sold and when the likelihood of a future cost is identified; and
– transformation and restructuring when the Company has approved a detailed and formal restructuring plan, and the restructuring
has either commenced or has created a valid expectation to those affected.
Key judgement – Whether any costs should be treated as wastage
In rare circumstances, the Company may incur costs of wasted material, labour or other resources to fulfil a contract where the level
of cost was not reflected in the contract price. The identification of such costs is a matter of judgement and would only be expected
to arise where there has been a series of abnormal events which give rise to a significant level of cost of a nature that the Company
would not expect to incur. As the Company is an owner of an engine Type Certificate, it has a present obligation to develop
appropriate design changes to address certain engine conditions that have been noted in issued Airworthiness Directives. The
Company is also required to ensure engine operators can continue to safely operate engines within the terms of their LTSAs, and
this requires the engines to be compliant with the requirements of those issued Airworthiness Directives. Where Airworthiness
Directives are issued, requirements cannot be met without the Company incurring significant costs in the form of replacement parts
and customer claims. Given the significant activities of the Company in designing and overhauling aero engines it is very experienced
in making the required estimates in relation to the number and timing of shop visits, parts costs, overhaul labour costs and customer
claims.
During the year, the Company has utilised the remaining £35m of the Trent 1000 wastage costs provision.
Key estimates – Estimates of the time to incorporate required modified parts into the fleet to resolve technical issues on the Trent
1000, and the implications of this on forecast future costs when assessing onerous contracts
The Company considers that at 31 December 2025 the Trent 1000 onerous contract provisions are most sensitive to changes in
estimates. Our forecast increases in shop visit capacity could be impacted by several factors, including prolonged supply chain
challenges. If forecast increases in shop visit capacity are not achieved, this could have the impact of reducing planned output of
engine overhauls. A 20% reduction in Trent 1000 planned output during the first half of 2026 (and thus delayed incorporation of
modified parts into the fleet) could lead to around a £20m to £30m charge.
Key estimates – Estimates of the future revenues and costs to fulfil onerous contracts
The Company has provisions for onerous contracts at 31 December 2025 of £915m (2024: £1,384m). An increase in Civil Aerospace
large engine estimates of LTSA costs of 1% over the remaining term of the contracts could lead to around a £50m to £70m increase
in the onerous contract provisions across all programmes.
Key estimates – Assumptions implicit in the calculation of discount rates
The onerous contract provisions are sensitive to changes in the discount rate used to value the provision. The rate used for each
contract is derived from bond yields (i.e. risk-free rates) with a similar duration and currency to the contract that they are applied to.
The rate is adjusted to reflect the specific inflation characteristics of the contract. The forecast rates are determined from third-party
market analysis and average 5%. A 1% change in the discount rate used could lead to around a £20m to £30m change in the provision.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
104
1 Accounting policies continued
Insurance contracts and financial guarantees
The Company enters into: financial guarantees where the Company guarantees payment in case of its subsidiary defaulting on a debt;
and performance guarantees where the Company guarantees certain subsidiaries or its joint ventures performance to a customer. The
Company has reviewed and concluded that its arrangements meet the accounting definition of an insurance contract under IFRS 17
Insurance Contracts. The Company has assessed the probability of losses on its financial and performance guarantees and has
determined that the probability is remote after consideration of forward-looking triggers and as such the estimated liability is immaterial.
As a result, as the estimated liability is immaterial at 31 December 2025, no liability has been recognised in the Company Financial
Statements.
At 31 December 2025, financial guarantees amounted to £4,028m (2024: £1,350m) and performance guarantees amounted to £2,328m
(2024: £2,208m). During the year, Rolls-Royce plc guaranteed a new external revolving facility of £2,500m that was entered into by
Rolls-Royce Holdings plc. As at 31 December 2025, this facility was undrawn. Under IFRS 17 Insurance Contracts the Company must
recognise any obligation at the inception of the contract for the expected fulfilment cash flows under the contract on a best estimate
basis (liability for remaining coverage). No amounts (2024: no amounts) are included in the Financial Statements for contracts within the
scope of IFRS 17 Insurance Contracts as the probability-weighted estimated fulfilment cash flows are immaterial. The amounts disclosed
above are consistent with the information provided to key management personnel to enable consideration of the company's exposure
to risk and includes the default cash flows in relation to performance guarantees, guaranteed lease rentals, trade finance balances and
the present value of lease related decommissioning costs.
Customer financing support
In connection with the sale of its products, the Company will, on occasion, provide financing support for its customers. Credit-based
guarantees are disclosed as commitments or contingent liabilities dependent on whether aircraft have been delivered or not. As
described on page 119, the Directors consider the likelihood of crystallisation in assessing whether provision is required for any liabilities.
The Company’s contingent liabilities relating to financing arrangements are spread over many years and relate to a number of
customers and a broad product portfolio and are reported on a discounted basis.
Post-retirement benefits
Pensions and similar benefits are accounted for under IAS 19 Employee Benefits.
For defined benefit plans, obligations are measured at discounted present value whilst plan assets are recorded at fair value. Surpluses
in schemes are recognised as assets only if they represent economic benefits available to the Company in the future. Actuarial gains
and losses are recognised immediately in OCI. The service and financing costs of such plans are recognised separately in the income
statement:
– current service costs are spread systematically over the lives of employees;
– past-service costs and settlements are recognised immediately; and
– financing costs are recognised in the periods in which they arise.
UK pension obligations include the estimated impact of the obligation to equalise defined benefit pensions and transfer values
respectively for men and women.
Payments to defined contribution schemes are charged as an expense as they fall due.
Key estimate – Estimates of the assumptions for valuing the defined benefit obligation
The Company’s defined benefit pension schemes and similar arrangements are assessed annually in accordance with IAS 19 Employee
Benefits. The valuations, which are based on assumptions determined with independent actuarial advice, resulted in a net surplus of
£284m before deferred taxation being recognised on the balance sheet at 31 December 2025 (2024: £779m). The size of the net
surplus is sensitive to the actuarial assumptions, which include the discount rate, price inflation, pension and salary increases,
longevity and, in the UK, the number of plan members who take the option to transfer their pension to a lump sum on retirement or
who choose to take the Bridging Pension Option. Following consultation, the UK scheme closed to future accrual on 31 December
2020.
A reduction in the discount rate of 0.25% from 5.60% could lead to an increase in the defined benefit obligations of the Rolls-Royce
UK Pension Fund (RRUKPF) of approximately £140m and an increase in the assumed rate of inflation of 0.25% (RPI of 3.05% and CPI
of 2.70%) could lead to an increase in the defined benefit obligations of the RRUKPF of approximately £55m. In August 2025 the
scheme completed a Buy-in, with the purchase of a bulk insurance annuity policy, with the effect that the majority of scheme liabilities,
and therefore these potential risks, are now covered by this policy. See further details in note 16.
Share-based payments
The Company provides share-based payment arrangements to certain employees, which are settled in Rolls-Royce Holdings plc shares.
These are principally equity-settled arrangements and are measured at fair value (excluding the effect of non-market based vesting
conditions) at the date of grant. The fair value is expensed on a straight-line basis over the vesting period. The amount recognised as
an expense is adjusted to reflect the actual number of shares or options that will vest based on expected performance, except where
additional shares vest as a result of market-based conditions, such as the total shareholder return (TSR) performance condition in the
long-term incentive plan (LTIP), where no adjustment is required as allowance for these performance conditions are included in the
initial fair value.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
105
1 Accounting policies continued
Post balance sheet events
Rolls-Royce plc and the Trustee of the UK pension scheme signed an agreement on 2 February 2026 triggering the wind up of the UK
scheme. The Company’s current expectation is that the residual surplus on the scheme will be shared between the Company and the
scheme’s members, and communications to this effect have been made to members. This is subject to a statutory consultation process
between the Trustee and the members, expected to be completed in 2026. Subject to the outcome of that process, it is currently
expected that this will result in a constructive obligation of around £100m being recognised as a past service charge in the income
statement in 2026.
As part of the Group’s legal entity review programme, the Company sold its investment in Rolls-Royce Overseas Holdings Limited to
Rolls-Royce US Holdings Limited (a subsidiary of Rolls-Royce Holdings plc) on 1 January 2026 for £4.4bn. The associated assets were
included within assets held for distribution to owners as at 31 December 2025. To facilitate the transaction the Company issued two
loans on 1 January 2026; these being £1.9bn to its ultimate parent company Rolls-Royce Holdings plc; and £2.5bn to Rolls-Royce US
Holdings Limited.
On 16 February 2026, the Company repaid €750m of borrowings on their contractual maturity date which, along with the associated
cross currency interest rate swaps, resulted in a cash outflow of £677m.
The Company has taken the latest legal position in relation to any ongoing legal proceedings and reflected these in the 2025 results as
appropriate.
2 Employee information and emoluments of Directors
The total amount of remuneration paid to Directors for the year ended 31 December 2025 was £12,168,021 (2024: £8,822,558). £5,819,361
of this was attributed to the highest paid Director (2024: £4,078,266). A cash allowance in lieu of company contributions to a pension
scheme was also paid to four Directors (2024: four), which totalled £389,611 (2024: £352,679). No Directors exercised share options
during the year (2024: none) and four Directors received vested shares or were granted shares that will vest in the future under the
Long-Term Incentive Plan (2024: four).
The aggregate employment costs were as follows:
2025 2024
£m
£m
Wages, salaries and benefits
1,012
957
Social security costs
164
138
Share
-
based payments (note
18
)
57
60
Pensions and other post
-
retirement scheme benefits
192
1
74
Employment costs
1,425
1,329
The monthly average number of persons employed by the Company during the year was 16,100 (2024: 15,700), of which 15,700 (2024:
15,300) were based in the United Kingdom.
3 Intangible assets
Development
costs
£m
Certification
costs
£m
Software
and other
1
£m
Total
£m
Cost
At 1 January
2025
2,447
899
1,142
4,488
Additions
110
–
68
178
Disposals
–
–
(16)
(16)
At 31 December
2025
2,557
899
1,194
4,650
Accumulated amortisation and impairment
At 1 January
2025
893
478
781
2,152
Charge for the year
2
88
30
62
180
Impairment
3
(6)
(3)
(1)
(10)
Disposals
–
–
(13)
(13)
At
31 December
2025
975
505
829
2,309
Net book value
At 31 December
2025
1,582
394
365
2,341
At
31 December 2024
1,554
421
361
2,336
1 Includes £127m (2024: £89m) of software under course of construction which is not amortised
2 Charged to cost of sales and commercial and administrative costs except development costs, which are charged to research and development
3 The 2025 impairment reversal relates to a partial impairment reversal of a Civil Aerospace – Trent programme asset that had been fully impaired by 30 June 2020. A reversal of
£10m has been credited, with £4m recognised in cost of sales and £6m in research and development within the income statement
At 31 December, the Company had expenditure commitments for software of £16m (2024: £15m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
106
3 Intangible assets continued
The carrying amount and the residual life of the material intangible assets for the Company are as follows:
Residual life
1
Net book value
2025
£m
2024
£m
Trent programme intangible assets
2
One
to 15
years
1,993
2,001
1 Residual life reflects the remaining amortisation period of those assets where amortisation has commenced. As per page 101, the amortisation period of 15 years will commence
on those assets which are not being amortised as the units are delivered
2 Included within the Trent programmes are the Trent 1000, Trent 7000 and Trent XWB
Intangible assets (including programme intangible assets) have been reviewed for impairment in accordance with IAS 36 Impairment of
Assets. Assessments have considered potential triggers of impairment such as external factors including climate change, significant
programme changes and by analysing latest management forecasts against those prepared in 2024 to identify any change in
performance. Where a trigger event has been identified, an impairment test has been carried out. Where an impairment test was
required, it was performed on the following basis:
- the carrying values have been assessed by reference to value in use. These have been estimated using cash flows from the most
recent forecasts prepared by the Directors, which are consistent with past experience and external sources of information on market
conditions over the lives of the respective programmes; and
- the key assumptions underpinning cash flow projections are based on estimates of product performance related estimates, future
market share and pricing and cost for uncontracted business. Climate-related risks are considered when making these estimates
consistent with the assumptions above.
There have been no other individually material impairment charges or reversals recognised during the year (2024: none).
4 Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
£m
Aircraft and
engines
£m
In course of
construction
£m
Total
£m
Cost or valuation
At 1 January
2025
918
2,501
214
123
3,756
Additions
5
79
–
117
20
1
Reclassifications
1
22
54
–
(76)
–
Disposals/write
-
offs
(17)
(141)
(3)
–
(161)
Exchange differences
–
(1)
–
–
(1)
At 31 December
2025
928
2,49
2
21
1
164
3,79
5
Accumulated depreciation
At 1 January
2025
370
1,751
92
–
2,213
Charge for the year
2
36
109
24
–
169
Impairment
3
–
2
1
–
3
Disposals/write
-
offs
(13)
(138)
(2)
–
(153)
Exchange differences
–
(1)
–
–
(1)
At 31 December
2025
393
1,72
3
115
–
2,23
1
Net book value
At 31 December
2025
535
7
69
9
6
164
1,56
4
At
31 December 2024
548
750
122
123
1,543
1 Primarily includes reclassifications from assets under construction into the other categories of property, plant and equipment when the assets become available for use
2 Depreciation is charged to cost of sales or commercial and administrative costs or included in the cost of inventory as appropriate
3 The carrying values of property, plant and equipment have been assessed during the period in line with IAS 36 Impairment of Assets. Material items of plant and equipment and
aircraft and engines are assessed for impairment together with other assets used in individual programmes – see assumptions in note 3. Land and buildings are generally used
across multiple programmes and are considered based on future expectations of the use of the site, which includes any implications from climate-related risks as explained in
note 3. As a result of this assessment, there are no individually material impairment charges or reversals in the year
Property, plant and equipment includes:
2025
£m
2024
£m
Capital expenditure commitments
105
62
Cost of fully depreciated assets
1,089
1,125
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
107
5 Right-of-use assets
Land and
buildings
£m
Plant and
equipment
£m
Aircraft
and
engines
£m
Total
£m
Cost
At 1 January
2025
126
149
21
296
Additions/modifications of leases
9
33
12
54
Disposals
–
(36)
–
(36)
At 31 December
2025
135
146
33
314
Accumulated depreciation and impairment
At 1 January
2025
69
82
15
166
Charge for the year
1
1
6
31
6
53
Disposals
–
(24)
–
(24)
At
31 December
2025
8
5
89
2
1
195
Net book value
At 31 December
2025
50
57
1
2
119
At
31 December 2024
57
67
6
130
Right
-
of
-
use assets held for use in operating leases
Cost
16
–
33
49
Depreciation
(7)
–
(2
1
)
(2
8
)
Net book value at 31 December
2025
9
–
12
2
1
1 Depreciation is charged to cost of sales and commercial and administrative costs as appropriate
6 Investments
Subsidiary
undertakings
1
Joint ventures
and associates
1
Other
investments
2
Shares at cost
£m
Shares at cost
£m
Total
£m
At 1 January
2025
1,461
52
5
Transfer from subsidiary to joint venture
3
(107)
107
–
Return of capital
4
(125)
–
–
Additions
5
465
142
–
Disposals
6
(2)
–
–
Revaluation
of investments accounted for at FVOCI
7
–
–
(1)
Reclassification to assets held for
distribution
8
(1,437)
–
–
At 31 December
2025
255
301
4
1 Subsidiary and joint venture undertakings and associates are listed on pages 120 to 125. The Company has uncalled share capital in Nightingale Insurance Limited, one of its
subsidiaries, at 31 December 2025 of £30m (2024: £30m)
2 Other investments includes listed investments of £4m (2024: £5m)
3 On 29 October 2024 Rolls-Royce SMR Limited announced that ČEZ Group (ČEZ) would make an equity investment into the Rolls-Royce SMR Limited business and establish a
strategic partnership to deploy up to 3GW of electricity in the Czech Republic. This investment from ČEZ was received by Rolls-Royce SMR Limited on 4 March 2025. As a result,
the Company's shareholding in Rolls-Royce SMR Limited was diluted from 70.5% at 31 December 2024 to 61.7%, and the entity was reclassified from a subsidiary to a joint venture.
In July 2025, the Company's shareholding in Rolls-Royce SMR Limited was further diluted to 55.3%. This was due to a second equity investment being made by ČEZ into Rolls-
Royce SMR Limited. In December 2025 the Company made a further investment of £38m into the joint venture, increasing its shareholding to 57.8% at 31 December 2025
4 During the year, Rolls-Royce Overseas Holdings Limited, a direct subsidiary of the Company, distributed all of its shares, with a carrying value of £25m, in its subsidiary Nightingale
Limited and all of its shares, with a carrying value of £100m, in its joint venture Alpha Partners Leasing Limited to the Company. This was recorded as a return of capital
5 Subsidiary additions of £465m in the year relate to a £50m investment in Rolls-Royce SMR Limited in January 2025, a £390m increase in the Company's investment in Rolls-Royce
Overseas Holdings Limited, and a £25m distribution from Rolls-Royce Overseas Holdings Limited of its subsidiary investment in Nightingale Insurance Limited as detailed above.
Additions to investments in joint ventures and associates include a £100m distribution from Rolls-Royce Overseas Holdings Limited of its joint venture investment in Alpha Partners
Leasing Limited detailed above, a £38m joint venture investment in Rolls-Royce SMR Limited detailed above and £4m relating to the final instalment of investment due for the joint
venture, Beijing Aero Engine Services Company Limited
6 Disposals relate to the sale of the Company's investment in Rolls-Royce Controls and Data Services (UK) Ltd
7 The Company has elected to value the listed investments at fair value through other comprehensive income
8 At 31 December 2025, subsidiary investments of £1,437m were reclassified to assets held for distribution
7 Inventories
2025
£m
2024
£m
Raw materials
80
65
Work in progress
736
726
Finished goods
1,855
1,703
2,671
2,494
Inventories stated at net realisable value
150
118
Amount of
inventory write
-
down
55
24
Reversal of inventory write
-
down
31
–
Inventories are stated after provisions for impairment of £265m (2024: £234m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
108
8 Trade receivables and other assets
Current Non-current
1
Total
2025
£m
2024
£m
2025
£m
2024
£m
2025
£m
2024
£m
Trade receivables
1,238
1,476
78
138
1,316
1,614
Prepayments
6
91
487
48
24
73
9
511
RRSA prepayment for parts
2
569
486
1,202
1,182
1,771
1,668
Receivables due on RRSAs
1,
114
1,118
91
119
1,
205
1,237
Amounts owed by:
Subsidiary undertakings
1,1
65
995
1,31
2
1,993
2,
477
2,988
Joint ventures
634
778
–
–
634
778
Parent undertaking
3
–
–
2,192
337
2,192
337
Other taxation and social security
receivable
100
131
–
–
100
131
Costs to obtain contracts with customers
4
–
1
–
–
–
1
Other receivables
and similar assets
5
43
0
426
72
55
50
2
481
5,941
5,898
4,995
3,848
1
0,936
9,746
1 Trade receivables other assets have been presented on the face of the balance sheet in line with the operating cycle of the business. Further disclosure is included in the table
above and relate to amounts not expected to be received in the next 12 months, in line with specific customer payment arrangements, including customers on payment plans, or
formal payment terms on balances with related undertakings. Included within non-current is the Vinters International Limited loan principal and interest receivable of £1.3bn (2024:
£1.6bn), which is presented on the face of the balance sheet as loan receivable from subsidiary undertakings
2 These amounts reflect the contractual share of EFH flows and original equipment deposits from customers paid to RRSA partners in return for the supply of parts in future periods
under long-term supply contracts. During the year £597m (2024: £262m) has been charged to cost of sales in relation to parts supplied and used in the year
3 Amounts due from parent undertakings are interest free and repayable on demand. Whilst the Company could demand repayment, the Directors consider that the intention would
be to not call upon this balance for repayment in the next 12 months but is expected to be settled within the normal operating cycle
4 These are amortised over the term of the related contract in line with engine deliveries, resulting in no amortisation (2024: £nil) in the year. There were no impairment losses
(2024: none)
5 Other receivables include unbilled recoveries relating to completed overhaul activity where the right to consideration is unconditional
All amounts owed by non-wholly owned subsidiary undertakings (except those listed below) are unsecured, interest free, have no fixed
date of repayment and are repayable on demand.
– €3m (£3m) balance receivable from Aero Gearbox International SAS (2024: €5m (£4m)). This incurs interest at the higher of EURIBOR
+ 0.5%, and 0%, and has a repayment date of 29th September 2028.
– €11m (£10m) balance receivable from Aerospace Transmission Technologies GmbH (2024: €11m (£9m)). This incurs interest at
EURIBOR + 2% and has a repayment date of 31 December 2037.
The ECLs on amounts due to group undertakings reduced to £1m (2024: £3m). The assumptions and inputs used for the estimation of
the allowance takes into account their market credit ratings.
The ECLs for trade receivables and other financial assets have decreased by £35m to £123m (2024: decreased by £5m to £158m).
The Company has adopted the simplified approach to provide for ECLs, measuring the loss allowance at a probability weighted amount
incorporated by using credit ratings which are publicly available, or through internal risk assessments derived using the customer’s
latest available financial information. The assumptions and inputs used for the estimation of the ECLs are shown in the table below:
2025
20
24
Trade
receivables
and other
financial
assets
Loss
allowance
Average
ECL
rate
Trade
receivables
and other
financial
assets
Loss
allowance
Average
ECL
rate
£m
£m
£m
£m
Credit rating BBB
-
and above
1
674
(
1
8)
3%
1,355
(55)
4%
Credit rating below BBB
-
1
507
(
4
3)
8
%
–
–
0%
Without credit rating
2,
494
(62)
2%
2,719
(103)
4%
3,
675
(123)
3%
4,074
(158)
4%
1 During the year, there has been a change to the classification used for investment gradings. In 2024, the ratings were reported using credit ratings C and above, credit ratings
C and below and without credit rating. In 2025, the ratings have been reported using credit rating BBB- and above, credit rating below BBB- and without credit rating
The movements of the Company’s ECLs provision are as follows:
2025
£m
2024
£m
At 1 January
(1
58
)
(163)
Increases in loss allowance recognised in the income statement during the year
(38)
(84)
Loss allowance utilised
13
5
Releases of loss allowance
previously provided
44
82
Exchange differences
16
2
At 31 December
(123)
(158)
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
109
9 Contract assets and liabilities
1 Contract assets have been presented on the face of the balance sheet in line with the operating cycle of the business. Further disclosure of contract assets is provided in the
table above, which shows within current the element of consideration that will become unconditional in the next year
2 Contract assets are classified as non-financial instruments
The balance includes £883m (2024: £869m) of Civil Aerospace LTSA assets and £35m (2024: reduction of £36m) Defence LTSA assets.
The increase in the Civil Aerospace balance is driven by revenue recognised (when performance obligations have been completed
during the year) being greater than the amount invoiced on those contracts that have a contract asset balance. Revenue recognised
relating to performance obligations satisfied in previous years was £(36)m which reduced the contract asset (2024: £(36)m decrease).
Participation fee contract assets have reduced as balances are amortised. No impairment losses (2024: none) of contract assets have
arisen during the year. The absolute value of expected credit losses for contract assets has increased by £1m to £12m (2024: increased
by £6m to £11m).
Current Non-current
1
Total
2025
£m
2024
£m
2025
£m
2024
£m
2025
£m
2024
£m
Contract liabilities
5,3
57
4,209
6,6
47
7,244
12,004
11,453
1 Contract liabilities have been presented on the face of the balance sheet in line with the operating cycle of the business. Contract liabilities are further split according to when
the related performance obligation is expected to be satisfied and, therefore, when revenue is estimated to be recognised in the income statement
During the year £3,748m (2024: £3,078m) of the opening contract liability was recognised as revenue.
Contract liabilities have increased by £551m. The movement in the balance is largely as a result of increases in Civil Aerospace of £515m.
This is mainly as a result of growth in LTSA liabilities of £132m (2025: £9,185m, 2024: £9,053m) driven almost wholly by large engines,
with customer invoicing in 2025 (based on EFH) being in advance of revenue recognised (based on costs incurred completing
performance obligations). The contract liability movement includes a decrease of £119m (2024: £46m decrease) as a result of revenue
being recognised in relation to performance obligations satisfied in previous years.
10 Cash and cash equivalents
2025
£m
2024
£m
Cash at bank and in hand
379
226
Money
market
funds
2,276
1,834
Short
-
term deposits
2,892
2,921
Cash and cash equivalents
5,547
4,981
Overdrafts (
note 11)
–
–
Balances are presented on a net basis when the Company has both a legal right of offset and the intention to either settle on a net basis
or realise the asset and settle the liability simultaneously. There is no offsetting of financial instruments in the Company’s statement of
financial position as at 31 December 2025 and 2024.
Current Non-current
1
Total
2
2025
£m
2024
£m
2025
£m
2024
£m
2025
£m
2024
£m
Contract assets
Contract assets with
customers
191
552
794
434
985
986
Participation fee contract assets
19
19
122
129
141
148
210
571
916
563
1,126
1,134
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
110
11 Borrowings and lease liabilities
Current
Non
-
current
Total
2025
£m
2024
£m
2025
£m
2024
£m
2025
£m
2024
£m
Unsecured
3.625% Notes 2025 $1,000m
1
–
795
–
–
–
795
3.375% Notes 2026 £375m
2
372
–
–
364
372
364
4.625% Notes 2026
€750m
3
654
–
–
620
654
620
5.75% Notes 2027 $1,000m
3
–
–
741
795
741
795
5.75% Notes 2027 £545m
–
–
543
543
543
543
1.625% Notes 2028
€550m
1
–
–
470
442
470
442
Total unsecured
1,026
795
1,754
2,764
2,780
3,559
Lease liability
–
Land and buildings
14
13
77
90
91
103
Lease liability
–
Aircraft and engines
10
10
4
2
14
12
Lease liability
–
Plant and equipment
28
30
32
39
60
69
Total lease liabilities
52
53
113
131
165
184
Total borrowings and lease liabilities
1,078
848
1,867
2,895
2,945
3,743
Less than
one year
£m
Between
one and
five years
£m
After five
years
£m
Total
£m
At 31 December
202
5
Borrowings
1,026
1,754
–
2,780
Lease liabilities
52
69
44
165
1,078
1,823
44
2,945
At 31 December
202
4
Borrowings
795
2,764
–
3,559
Lease liabilities
53
80
51
184
848
2,844
51
3,743
All outstanding items described as notes above are listed on the London Stock Exchange.
1 These notes are the subject of cross-currency interest rate swap agreements under which the Company has undertaken to pay floating rates of GBP interest, which form a fair
value hedge. They are also subject to interest rate swap agreements under which the Company has undertaken to pay fixed rates of interest, which are classified as fair value
through profit and loss
2 These notes are the subject of interest rate swap agreements under which the Company has undertaken to pay floating rates of interest, which form a fair value hedge. They are
also subject to interest rate swap agreements under which the Company has undertaken to pay fixed rates of interest, which are classified as fair value through profit and loss
3 These notes are the subject of cross-currency interest rate swap agreements under which the Company has undertaken to pay fixed rates of GBP interest, which form a cash flow
hedge
During the year to 31 December 2025, the Company repaid a loan note of $1bn in October 2025 in line with its maturity date.
The Company has access to the following undrawn committed borrowing facilities at the end of the year:
202
5
202
4
£m £m
Expiring within one year
–
–
Expiring after one year
2,500
2,500
Total
undrawn facilities
2,500
2,500
Further details can be found in the going concern and liquidity statements on page 21.
In December 2025 the Company signed a new £2.5bn Revolving Credit Facility maturing December 2030 and cancelled the existing
facility. These facilities have not been drawn during the year and remain undrawn at 31 December 2025 (2024: £2.5bn).
12 Leases
Leases as lessee
The net book value of lease right-of-use assets at 31 December 2025 was £119m (2024: £130m), with a lease liability of £165m (2024: £184m)
(per notes 5 and 11 respectively). Leases that have not yet commenced to which the Company is committed have a future liability of
£214m (2024: £nil). The financial statements include the following amounts relating to leases:
2025
£m
2024
£m
Land and buildings depreciation and impairment
(16)
(11)
Plant and equipment depreciation and impairment
(31)
(29)
Aircraft and engines depreciation and impairment
(6)
(5)
Total depreciation and impairment for right
-
of
-
use assets
(53)
(45)
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
111
12 Leases continued
The total cash outflow for leases in 2025 was £81m (2024: £70m). Of this £68m related to leases reflected in the lease liability, £13m to
short-term leases where lease payments are expensed on a straight-line basis and £nil for variable lease payments where obligations
are only due when the assets are used. The timing difference between income statement charge and cash flow relates to costs incurred
at the end of leases for residual value guarantees and restoration costs that are recognised within depreciation over the term of the
lease, the most significant amounts relate to engine leases.
Interest expense on lease liabilities in 2025 was £8m (2024: £9m).
Leases as lessor
The Company acts as lessor for engines to Civil Aerospace customers when they require engines to support their fleets. Lease
agreements with the lessee provide protection over the Company’s assets. Usage in excess of specified limits and damage to the engine
while on lease are covered by variable lease payment structures. Lessee bankruptcy risk is managed through the Cape Town Convention
on International Interests in Mobile Equipment (including a specific protocol relating to aircraft equipment), an international treaty that
creates common standards for the registration of lease contracts and establishes various legal remedies for default in financing
agreements, including repossession and the effect of particular states' bankruptcy laws. Engines are only leased once the Company can
confirm that appropriate insurance documentation is established that covers the engine assets to pre-agreed amounts. All such
contracts are operating leases. The Company also leases out a small number of properties, or parts of properties, where there is excess
capacity under operating leases.
Total non-cancellable future operating lease rentals receivables (undiscounted) receivables (undiscounted) of £2m (2024: £4m), are
predominantly due after five years.
In a limited number of circumstances, the Company sublets properties that are treated as a finance lease when the arrangement transfers
substantially all the risks and rewards of ownership of the asset. At 31 December 2025, the total undiscounted lease payments receivable
is £32m (2024: £37m) on annual lease income of £5m (2024: £5m). The discounted finance lease receivable at 31 December 2025 is £25m
(2024: £30m).
13 Trade payables and other liabilities
Current Non-current Total
2025
£m
2024
£m
2025
£m
2024
£m
2025
£m
2024
£m
Trade payables
978
736
40
–
1,018
736
Accruals
1,911
2,228
97
89
2,008
2,317
Customer discounts
1
1,087
993
631
852
1,718
1,845
Payables due on RRSAs
1,
800
1,529
14
1
1
1,
814
1,
5
40
Deferred receipts from RRSA workshare
partners
35
55
747
757
782
812
Amounts owed to:
Subsidiary undertakings
4,697
5,156
–
–
4,697
5,156
Joint ventures and associates
548
471
–
–
548
471
Government grants
2
37
19
9
3
46
22
Other
taxation and social security
31
–
–
–
31
–
Other payables
3
258
234
149
16
0
407
39
4
11,
382
11,421
1,687
1,872
13,
069
13,293
1 Customer discounts include customer concession credits. Revenue recognised comprises sales to the Group’s customers after such items. Customer concession credits are
discounts given to a customer upon the sale of goods or services. A liability is recognised to correspond with the recognition of revenue when the performance obligation is met
as set out on page 42. The largest element of the balance, approximately £1.2bn (2024: £1.4bn) arises when the Civil business delivers its engines to an airframer. A concession is
often payable to the end customer (e.g. an airline) on delivery of the aircraft from the airframer. The concession amounts are known and the payment date is reasonably certain,
hence there is no significant judgement or uncertainty associated with the timing of these amounts
2 During the year £2m (2024: £12m) of government grants were released to the income statement
3 Other payables includes payroll liabilities and HM Government levies
The Company is part of the Rolls-Royce group banking arrangements and the Company’s main bank accounts are subject to offset and
pooling arrangements with cash balances acquired from other group entities. As a result of these arrangements the balances are
presented as intercompany payables as funds are pooled by the Company on the last working day of the month with funds returned the
next day. The amounts owed by the Company of £1,285m as at 31 December 2025 (2024: £1,561m) are interest bearing and repayable on
demand.
Amounts owed to subsidiary undertakings and to joint ventures and associates are repayable on demand as either no formal loan
agreement is in place or no final due date has been set - therefore all remain in the current classification.
The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature.
The Company’s payment terms with suppliers vary on the products and services being sourced, the competitive global markets the
Company operates in and other commercial aspects of suppliers' relationships. Industry average payment terms vary between 90 to 120
days.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
112
13 Trade payables and other liabilities continued
The Company offers reduced payment terms for smaller suppliers, who are typically on 75-day payment terms, so that they are paid in
30 days. In line with civil aviation industry practice, the Company offers a supply chain financing (SCF) programme in partnership with
banks to enable suppliers, including joint ventures, who are on standard 90-day payment terms to receive their payments sooner. The
SCF programme is available to suppliers at their discretion and does not change rights and obligations with suppliers nor the timing of
payment to suppliers.
At 31 December 2025, £646m (2024: £594m) of trade payables and other liabilities were within the scope of SCF arrangements of which
suppliers had drawn £536m (2024: £506m), with £128m (2024: £159m) drawn by joint ventures. In some cases the Company settles the
costs incurred by joint ventures as a result of them utilising SCF arrangements and, during the year to 31 December 2025, the Company
incurred costs of £2m (2024: £2m) doing so with these costs included within the cost of sales.
14 Provisions for liabilities and charges
At 1
January
2025
£m
Charged to
income
statement
1
£m
Reversed
£m
Utilised
£m
Exchange
Differences
£m
At
31 December
2025
£m
Onerous contracts
1,384
417
(731)
(155)
–
915
Warranty and guarantees
13
7
(1)
–
–
19
Trent 1000 wastage costs
36
–
–
(35)
(1)
–
Transformation and restructuring
1
6
–
(4)
–
3
Other
16
12
(7)
(5)
–
16
1,450
442
(739)
(199)
(1)
953
Current liabilities
285
206
Non
-
current liabilities
1,165
747
1 The charge to the income statement includes £27m (2024: £47m) as a result of the unwinding of the discounting of provisions previously recognised and £16m (2024: £36m) as a
result of changes in discount rates during the year
Onerous contracts
Onerous contract provisions are recorded when the direct costs to fulfil a contract are assessed as being greater than the expected
recoverable amount. Onerous contract provisions are measured on a fully costed basis and during the year £155m (2024: £214m) of the
provisions have been utilised. Additional contract losses for the Group of £417m (2024: £539m) have been recognised. These are mainly
a result of increases in the estimate of future LTSA costs due to prolonged supply chain challenges and inflationary cost increases.
Contract losses of £731m (2024: £382m) previously recognised have been reversed following improvements to the forecast revenue, to
cost estimates and time on wing across various engine programmes as a result of operational improvements, contractual renegotiations
and extensions. The Group continues to monitor the onerous contract provisions for changes in the market and revises the provision
as required. The value of the remaining onerous contract provisions reflect, in each case, the single most likely outcome. The provisions
are expected to be utilised over the term of the customer contracts, typically within eight to 15 years.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a company to recognise any impairment loss that has occurred
on assets used in fulfilling the contract before recognising a separate provision for an onerous contract. No impairments were required
for any of the assets solely used in the fulfilment of onerous contracts.
Warranty and guarantees
Provisions for warranty and guarantees relate to products sold and are calculated based on an assessment of the remediation costs
related to future claims based on past experiences. The provision generally covers a period of up to three years.
Trent 1000 wastage costs
During the year, the Group has utilised the remaining £35m (2024: £82m) of the Trent 1000 wastage costs provision. This represents
customer disruption costs and remediation shop visit costs.
Transformation and restructuring
The Group announced a major multi-year transformation programme in 2023. During the year £4m (2024: £26m) was utilised, £nil
reversed (2024: £6m) and a further provision of £6m (2024: £31m) has been recorded and recognised in cost of sales and commercial
and administration costs. The remaining provision is expected to be utilised by 31 December 2027.
Other
Other items are individually immaterial and include provisions for employer liability claims of £3m (2024: £3m) as a result of historical
insolvency of a previous provider.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
113
15 Deferred taxation
Other tax credits/(charges)
OCI
Equity
Items that will not be
reclassified
Items that will be
reclassified
2025
£m
2024
£m
2025
£m
2024
£m
2025
£m
2024
£m
Deferred tax:
Movement in
post
-
retirement schemes
129
68
–
–
–
–
Cash flow hedge
–
–
3
(1)
–
–
Share
-
based payment
–
direct to equity
–
–
–
–
74
66
Other tax credits
/
(charges)
129
68
3
(1)
74
66
Deferred taxation assets and liabilities
The analysis of the deferred tax position is as follows:
2025
£m
2024
£m
Property, plant and equipment
76
128
Intangible assets
(413)
(409)
Other temporary
differences
1
1
8
0
292
Pensions and other post
-
retirement scheme benefits
(71)
(195)
Foreign exchange and commodity financial assets and liabilities
(4
1
)
425
Losses
2,95
4
2,472
R&D credit
–
41
2,68
5
2,754
Unrecognised deferred tax assets
2025
£m
2024
£m
Advance
c
orporation
t
ax
2
162
162
Foreign exchange and commodity financial assets and liabilities
–
26
Losses
–
594
16
2
782
Gross amount of losses and other deductible temporary differences for which no deferred tax has
been recognised on which there is no expiry
2025
£m
2024
£m
Foreign exchange and commodity financial assets and liabilities
–
103
Losses
–
2,376
–
2,479
1 Other temporary differences mainly relate to the deferral of relief for interest expenses and share-based payments
2 Prior to 1999 advance corporation tax ("ACT") was paid to the UK Tax Authority when cash dividends were paid by the Group. This was a payment on account which was available
to offset against UK corporation tax liabilities. Any unused balance remaining after 1999 can be carried forward indefinitely and utilised against future UK corporation tax liabilities.
See page 114 for further details
Advance corporation tax was derecognised in 2024 following the Group's announcement to reinstate shareholder distributions via cash
dividends. In addition to the gross balances shown above, advance corporation tax of £162m (2024: £162m) has not been recognised as
a result of the assessment performed considering the time period over which this could be recovered, when taking into account both
shadow and surplus advance corporation tax. Advance corporation tax has no expiry. See below for developments following the 2025
Autumn Budget.
The total deferred tax asset of £2,756m (2024: £2,949m) is made up as follows:
– £2,954m (2024: £2,472m) relating to tax losses;
– £(41)m (2024: £425m) arising on unrealised losses on derivative contracts; and
– £(157)m (2024: £52m) relating to other deductible temporary differences, in particular tax depreciation, relief for capitalised
development costs and relief for interest expenses.
The deferred tax assets have been recognised based on the expectation that the business will generate taxable profits and tax liabilities
in the future against which the losses and deductible temporary differences can be utilised.
2025
£m
2024
£m
At
1 January
2,754
1,929
Amount
(charged)/
credited
to income statement
(27
5
)
691
Amount
credited
to statement of OCI
132
67
Amount
credited
to equity
74
66
On acquisition of businesses
–
1
At 31 December
2,68
5
2,754
Deferred tax assets
2,75
6
2,949
Deferred tax liabilities
(71)
(195)
Deferred tax
2,68
5
2,754
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
114
15 Deferred taxation continued
Most of the tax losses relate to the Civil Aerospace large engine business which makes initial losses through the investment period of a
programme and then makes a profit through its contracts for services. The programme lifecycles are typically in excess of 30 years.
Deferred tax assets are recognised only to the extent it is probable that future taxable profits will be available against which the assets
can be utilised. Where necessary, this is based on management’s assumptions and probability assessments relating to the amounts and
timing of future taxable profits. The Directors continually reassess the appropriateness of recovering deferred tax assets, which includes
a consideration of the level of future profits and the time period over which they are recovered. A recoverability assessment has been
undertaken, taking account of deferred tax liabilities against which the reversal can be offset and using latest UK forecasts, which are
mainly driven by the Civil Aerospace large engine business, to assess the level of future taxable profits.
The recoverability of deferred tax assets has been assessed on the following basis:
– using the most recent UK profit forecasts, covering the next five years which are consistent with external sources on market
conditions;
– the long-term forecast profit profile of existing large engine programmes which are typically in excess of 30 years from initial
investment to retirement of the fleet, including the aftermarket revenues earned from airline customers;
– the long-term forecast is adjusted to exclude engine programmes which are in the development stage with no confirmed orders;
– taking into account the risk that regulatory changes could materially impact demand for our products;
– consideration that although all Civil Aerospace large engines are compatible with sustainable fuels, there is a risk that in the longer
term demand will shift towards more sustainable products and solutions;
– the long-term forecast profit and cost profile of the other parts of the business;
– taking into consideration past performance and experience, including the fact that the business returned to profitability in 2023;
and
– reflecting the sustained profitability and continued growing financial resilience of the Company, modelling is based on 100%
probability of a base case forecast (31 December 2024: 75% base case and 25% downside forecast). It also reflects the fact that the
Company’s multi-year transformation continues to deliver despite the current volatility in macro-economic variables and an external
environment that remains challenging, including geopolitical tensions, the uncertainty introduced by tariffs and supply chain
challenges. Delivery against the Group’s strategic initiatives continues to expand the earnings potential of the business.
The assessment takes into account UK tax laws that, in broad terms, restrict the offset of carried forward tax losses to 50% of current
year profits. In addition, the amounts and timing of future taxable profits incorporate:
– the impact of significant Civil Aerospace large engine orders in 2025 and improvements in large engine LTSA business plans;
– latest assessment of the time period over which future probable profits are expected to arise for Civil large engine programmes;
– the outcomes of strategic initiatives, including contractual margin improvements and cost reduction;
– the continued growth in Civil Aerospace engine flying hours; and
– management’s assumptions on the impact of macro-economic factors and climate change on the business.
The climate change scenarios previously prepared to assess the viability of our business strategy, decarbonisation plans and approach
to managing climate-related risks remain consistent with those at 31 December 2024. The scale up of sustainable aviation fuel is expected
to play a crucial role in reaching net zero carbon emissions by 2050 and the Company has demonstrated that all the commercial aero
engines it produces are compatible for use with sustainable fuels. The impact that this could have on our costs and customer pricing is
factored into the deferred tax assessment. However, benefits that may arise in the future from the development of breakthrough new
technologies are not taken into account.
Based on the assessment, a deferred tax asset of £2,756m (2024: £2,949m) has been recognised, which includes the recognition of a
£563m (2024: £1,033m) deferred tax asset relating to previously unrecognised tax losses. This reflects the conclusions that:
- based on current financial results and an improved outlook it is probable that the UK group will generate taxable income and tax
liabilities in the future against which these losses can be utilised; and
– using current forecasts and various scenarios these losses will be used in full within 8-15 years, which is within the expected
programme lifecycles.
As stated above, the ACT balance of £162m remains unrecognised at 31 December 2025. The Company is closely monitoring
developments following the announcement in the 2025 Autumn Budget that the shadow ACT regime will be repealed, effective from 1
April 2026. The statutory instrument is not yet published so the legislation is not substantively enacted at the balance sheet date. This
will be considered for future accounting periods.
Any future changes in tax law or the structure of the Company could have a significant effect on the use of losses and other deductible
temporary differences, including the period over which they can be used. In view of this and the significant judgement involved, the
Board continuously reassesses this area.
The Company is within the scope of the OECD Pillar Two (Global Minimum Tax) model rules, which came into effect from 1 January 2024.
For the period to 31 December 2025, the Company has continued to apply the mandatory exception to recognising and disclosing
information about deferred tax assets and liabilities related to Pillar Two income taxes.
The temporary differences associated with investments in subsidiaries, joint ventures and associates, for which a deferred tax liability
has not been recognised, aggregate to £2,825m (2024: £1,558m). No deferred tax liability has been recognised on the potential
withholding tax due on the remittance of undistributed profits as the Company is able to control the timing of such remittances and it
is probable that consent will not be given in the foreseeable future.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
115
16 Post-retirement benefits
The Company operates a funded UK defined benefit scheme, with the assets held in a separate trustee administered fund. Employees
are entitled to retirement benefits based on either their final or career average salaries and length of service.
The UK defined benefit scheme is funded, with the assets held in a separate UK trust. The scheme closed to future accrual on 31
December 2020 for all active members and there are no new defined benefit accruals in the UK scheme. In August 2025 the scheme
completed a Buy-in, with the purchase of a bulk insurance annuity policy, with the effect that the majority of scheme liabilities are now
covered by this policy. For further details see below.
The valuation of the defined benefit scheme is based on the results of the most recent funding valuation from 31 March 2023, where
relevant, updated by the scheme actuaries to 31 December 2025.
Virgin Media
A UK High Court legal ruling that took place in June 2023 between Virgin Media Limited and NTL Pension Trustees II Limited, found
that certain historic rule amendments were invalid if they were not accompanied by actuarial certifications. The ruling was subject to
an appeal with a judgement delivered on 25 July 2024. The Court of Appeal unanimously upheld the decision of the High Court and
concluded that the pre-April 2013 conditions applied to amendments to both future and past service. Whilst this ruling was in respect
of another scheme, its relevance and hence the potential impact of this to the RRUKPF scheme, and other UK schemes was unclear.
On 5 June 2025 the Government announced that in light of this uncertainty, it would introduce legislation to give potentially affected
pension schemes the ability to retrospectively obtain written actuarial confirmation that historic rule amendments met the necessary
standards. As a result of this Government intervention the Company does not anticipate any scheme amendments or additional liabilities.
Buy-in of Rolls-Royce UK Pension Fund
In August 2025, the Trustee of the Rolls-Royce UK Pension Fund entered into a Buy-in transaction with Pension Insurance Corporation
plc (PIC), whereby the Fund purchased a bulk purchase annuity policy in exchange for consideration of £4.3bn. This was paid from the
Fund's existing assets, with no additional funding required by the Company. This transaction resulted in substantially all the benefits
and liabilities under the Fund being insured. The Buy-in was undertaken in anticipation of entering into a full Buy-out during 2026,
upon which the liabilities and management of benefits will be transferred to PIC. A charge of £517m has been recognised within the line
‘Actuarial gains/(losses) recognised in OCI’ in the Statement of Comprehensive Income for the year ended 31 December 2025 comprising
around £450m relating to the impact of the Buy-in.
Following the transaction, the bulk purchase annuity policy has been treated as an asset of the Fund and has been valued on the same
basis as the liabilities to which it relates, as until a Buy-out takes place, the legal responsibility to pay benefits remains with the Trustee.
The Company and the Trustee of the UK pension scheme agreed on 2 February 2026 to terminate and wind up the UK scheme. See
further details in note 1.
Amounts recognised in OCI in respect of defined benefit schemes
2025
£m
2024
£m
Actuarial gains and losses arising from:
Demographic assumptions
1
(121)
19
Financial assumptions
2
97
617
Experience adjustments
3
(9)
(8)
Loss
on scheme assets excluding financing income
4
(484)
(633)
(517)
(5)
1 This reflects latest available CMI mortality projections, and a charge of around £100m in relation to the Buy-in of the scheme due to updates to the assumptions relating to transfer
values, and alignments made to insurer factors post Buy-in
2 Actuarial gains and losses arising from financial assumptions arise primarily due to changes in interest rates and inflation
3 This reflects an experience loss as a result of realised inflation being higher than expected over the period meaning that actual and projected increases are now higher than
previously expected
4 Includes an asset remeasurement loss estimated at £350m recognised in respect of the Buy-in of the Scheme that took place during the year
Amounts recognised in the balance sheet
in respect of defined benefit schemes
2025
£m
2024
£m
Present value of funded obligations
(4,040)
(3,958)
Fair value of scheme assets
4,324
4,737
Net asset recognised in the balance sheet
–
Post
-
retirement surplus
1, 2
284
779
1 The surplus is recognised as, on an ultimate wind-up when there are no longer any remaining members, the Company would be entitled to receive any surplus and has the power
to determine how any remaining surplus is used
2 The decrease in the net asset in the UK Schemes is largely as a result of the Buy-in of the scheme in August 2025, which has resulted in a charge estimated at £450m being
recognised within the line ‘Actuarial gains/(losses) recognised in OCI’ in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2025
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
116
16 Post-retirement benefits continued
Assumptions
Significant actuarial assumptions used at the balance sheet date were as follows:
2025
£m
2024
£m
Discount rate
5.60%
5.50%
Inflation assumption (RPI)
3.05%
3.30%
Inflation assumption (CPI)
2.70%
2.90%
Transfer assumption (employed deferred/deferred)
20%/15%
20%/15%
Bridging Pension Option (BPO)
take
-
up
assumption (employed deferred/deferred)
40%/25%
40%/25%
Life expectancy from age 65:
current male pensioner
21.1 years
20.8 years
future male pensioner currently aged 45
21.8 years
21.5 years
current female pensioner
23.0 years
22.8 years
future female pensioner currently aged 45
24.2 years
24.1 years
Discount rates are determined by reference to the market yields on AA rated corporate bonds. The rate is determined by using the
profile of forecast benefit payments to derive a weighted average discount rate from the yield curve.
The inflation assumption is determined by the market-implied assumption based on the yields on long-term index-linked government
securities.
The mortality assumptions adopted for the UK pension schemes are derived from the SAPS S3 'All' actuarial tables, with future
improvements in line with the CMI 2024 core projections updated to reflect use of an ‘A’ parameter of 0.25% for future improvements
and long-term improvements of 1.25%. Where appropriate, these are adjusted to take account of the scheme's actual experience.
The assumption for transfers and the BPO is based on actual experience and actuarial advice, and has been updated for changes
following the Buy-in of the scheme.
Other assumptions have been set on advice from the actuary, having regard to the latest trends in scheme experience, the assumptions
used in the most recent funding valuation and any updates required to insurer factors. The rate of increase of pensions in payment is
based on the rules of the scheme, combined with the inflation assumption where the increase is capped.
Changes in present value of defined benefit obligations
2025
£m
2024
£m
At 1 January
(3,958)
(4,537)
Past
-
service
cost
1
(4)
(14)
Finance cost
(214)
(200)
Benefits paid out
169
165
Actuarial
(losses)/
gains
2
(33)
628
At 31 December
(4,040)
(3,958)
Funded schemes
(4,040)
(3,958)
1 Following the signing of the framework agreement with the scheme’s trustees, which was signed alongside the Buy-in agreement, adjustments have been made to align the
methodology for the calculation of certain benefits with the pricing methodology used by the insurer. These have resulted in an additional past service charge of £4m being
recognised in the income statement in 2025. In 2024, a past service charge of £14m was recognised in respect of the scheme as a result of further work carried out by the pension
scheme administrators and the Scheme Actuary in 2024 to review all relevant data points and make further changes to member records and required payments under the Barber
judgement which sought to equalise normal retirement ages between men and women
2 The actuarial loss of £(33)m includes a charge of around £(100)m in respect of the Buy-in of the scheme detailed above
The defined benefit obligations are in respect of:
2025
£m
2024
£m
Active plan participants
1
(1,243)
(1,277)
Deferred plan participants
(1,067)
(1,064)
Pensioners
(1,730)
(1,617)
Weighted average duration of obligations (years)
13
14
1 Although the UK scheme closed to future accrual on 31 December 2020, members who became deferred as a result of the closure and remain employed by the Company retain
some additional benefits compared with other deferred members. The obligations for these members are shown as active plan participants
Changes in fair value of scheme assets
2025
£m
2024
£m
At 1 January
4,737
5,304
Administrative expenses
(6)
(5)
Financing
246
235
Loss
on plan assets excluding financing
1
(484)
(633)
Contributions by employer
–
1
Benefits paid out
(169)
(165)
At 31 December
4,324
4,737
Total
loss
on plan
a
ssets
(238)
(398)
1 Includes an asset remeasurement net loss estimated at £350m recognised in respect of the Buy-in of the Scheme that took place in the year, for further details see page 115
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
117
16 Post-retirement benefits continued
Fair value of scheme assets
2025
1
£m
2024
£m
Sovereign debt
–
3,335
Corporate debt
instruments
–
1,860
Interest rate swaps
–
197
Inflation swaps
–
92
Cash and similar instruments
2
–
(1,176)
Liability driven investment (LDI) portfolios
–
4,308
Unlisted equities
4
25
Corporate debt instruments
–
379
Buy
-
in insurance policy
3
4
,
04
0
–
Cash
2
80
25
At 31 December
4,324
4,737
1 Following the Buy-in in August 2025, described on page 115, the Company entered into a bulk purchase annuity policy with PIC for consideration of £4.3bn. The consideration
was paid by transferring certain existing RRUKPF’s assets and cash to PIC
2 UK cash and similar instruments include repurchase agreements on UK Government bonds amounting to £nil (2024: £(1,203)m)
3 Following the transaction, the bulk purchase annuity policy has been treated as an asset of the scheme and has been valued on the same basis as the liabilities to which it relates,
as until a Buy-out takes place, the legal responsibility to pay benefits remains with the Trustee
The investment strategy for the UK scheme is controlled by the Trustee in consultation with the Group. The scheme assets do not
include any of the Group’s own financial instruments, nor any property occupied by, or other assets used by, the Group (2024: none).
Future contributions
The Company does not expect to contribute to its defined benefit scheme in respect of 2025 (2024: £nil).
In the UK, any cash funding of RRUKPF is based on a statutory triennial funding valuation process. The Company and the Trustee
negotiate and agree the actuarial assumptions used to value the liabilities (Technical Provisions); assumptions which may differ from
those used for accounting set out above. Once each valuation is signed, a Schedule of Contributions (SoC) must be agreed which sets
out the cash contributions to be paid. The most recent valuation, as at 31 March 2023, agreed by the Trustee in October 2023, showed
that the RRUKPF was estimated to be 115% funded on the Technical Provisions basis. All cash due has been paid in full and the current
SoC does not require any cash contributions to be made by the Company. Following the Buy-in of the scheme in August 2025
substantially all the scheme liabilities have been insured and it is expected that no further funding will be required by the company: any
further liabilities arising are expected to be funded from the scheme’s existing assets.
Sensitivities
The calculations of the defined benefit obligations are sensitive to the assumptions set out above. The following table summarises how
the estimated impact of a change in a significant assumption would affect the UK defined benefit obligation at 31 December 2025, while
holding all other assumptions constant. This sensitivity analysis may not be representative of the actual change in the defined benefit
obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be
correlated.
The UK scheme previously hedged interest rate and inflation risk based on UK Government bond yields without any adjustment for any
credit spread, however as a result of the Buy-in that took place in August 2025, the majority of the scheme’s assets were either liquidated
or transferred to PIC during the year. The majority of the assets at 31 December 2025 represent the value of the bulk purchase annuity
policy, which aligns exactly to the liabilities to which it relates, hence any movement in the assets will result in an equal and opposite
movement in the liabilities.
The sensitivity analysis set out below has been determined based on a method that estimates the impact on the defined benefit obligation
as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
2025
£m
2024
£m
Reduction in discount rate of 0.25%
1
Obligation
s
(140)
(145)
Plan assets (
B
uy
-
in policy
)
140
–
Plan assets (LDI portfolio)
–
179
Increase in inflation rate of 0.25%
1
Obligation
s
(55)
(55)
Plan assets (
B
uy
-
in policy
)
55
–
Plan assets (LDI portfolio)
–
73
Increase of 1% in transfer value assumption
Obligations
(20)
(25)
Plan assets (
B
uy
-
in policy
)
20
–
One year
increase in life expectancy
Obligations
(125)
(125)
Plan assets (
B
uy
-
in policy
)
125
–
1 The differences between the sensitivities on obligations and plan assets in 2024 arise largely due to differences in the methods used to value the obligations for accounting
purposes and the adopted proxy solvency basis
Defined contribution schemes
The Company operates a number of defined contribution schemes. The total expense recognised in the income statement was £214m
(2024: £190m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
118
17 Share capital
Equity
ordinary
shares of
20p each
(m
illions
)
Nominal
value
£m
Authorised
At 1 January and 31 December 202
5
2,000
400
Issued and fully paid
At 1 January and 31 December 202
5
1,691
338
Rights, preferences and restrictions
Each member has one vote for each ordinary share held. Holders of ordinary shares are entitled to receive the Company’s Annual
Report; attend and speak at general meetings of the Company; to appoint one or more proxies or, if they are corporations, corporate
representatives; and to exercise voting rights. The ordinary shares are not listed.
18 Share-based payments
Effect of share-based payment transactions on the Company’s results and financial position
2025
£m
2024
£m
Total expense recognised for
equity
-
settled share
-
based payment transactions
57
60
Share-based payment plans in operation during the year
During the year, the Company participated in the following share-based payment plans operated by Rolls-Royce Holdings plc:
Long-term incentive plan (LTIP)
The fair value of shares awarded is calculated using a pricing model that takes account of the non-entitlement to dividends (or
equivalent) during the vesting period and the market-based performance condition based on expectations about volatility and the
correlation of share price returns in the group of FTSE 100 companies and S&P Global Industrials Index companies and which
incorporates into the valuation the interdependency between share price performance and TSR vesting where market-based conditions
are applicable. This adjustment decreases the fair value of the award relative to the share price at the date of grant.
ShareSave
The fair value of the options granted is calculated using a pricing model that assumes that participants will exercise their options at the
beginning of the six-month window if the share price is greater than the exercise price. Otherwise, it assumes that options are held until
the expiration of their contractual term. This results in an expected life of the mid-point between the start of the exercise window and
the date of expiration.
Incentive plan
The fair value of shares awarded is calculated as the share price on the date of the award, on the basis that awards are entitled to
receive dividends (or equivalents).
Free shares
In 2024, every Rolls-Royce employee was gifted 150 shares. The awards were granted under two plans; the 'Rolls-Royce Share Purchase
Plan' for UK employees and the 'Rolls-Royce Global Employee Share Purchase Plan' for non-UK employees; both being equity-settled
schemes. The fair value of shares awarded under the Free shares scheme is calculated as the share price on the date of the award, on
the basis that awards are entitled to receive dividends (or equivalents).
Matching shares
Rolls-Royce launched the ‘Your Shares: Matched’ plan during the year. Every participant receives the free matching shares with a value
of up to £50 each month based on the number of investment shares they purchase. There are no performance conditions attached to
the shares. The fair value of the free matching shares awarded under these plans is calculated using the share price on the date of the
award. Non-vesting conditions are taken into consideration with a percentage discount applied based on the assumption of the expected
forfeiture rates of the matching shares.
The weighted average share price at the date share options were exercised was 728p (2024: 420p). The closing price at 31 December
2025 was 1,150p (2024: 569p).
ShareSave (millions)
Grant
-
vest
Expiry date (31
January)
Exercise price in
pence per share
option
202
5
202
4
2019
-
2025
2025
232
–
1.6
2021
-
2025
2025
97
0.1
29.8
0.1
31.4
The weighted average remaining contractual life for the share options as at 31 December 2025 was six months (2024: one month) and
all outstanding share options have a maturity date in 2026.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2025
119
19 Contingent liabilities
In January 2017, after full cooperation, the Company concluded deferred prosecution agreements (DPA) with the Serious Fraud Office
and the US Department of Justice and a leniency agreement with the Ministério Público Federal, the Brazilian federal prosecutor. The
terms of both DPAs have now expired. The Company has also met all its obligations under a two-year leniency agreement with Brazil’s
Comptroller General (CGU), signed in October 2021, relating to the same historical matters. In April 2024, the CGU confirmed that the
Company would no longer be subject to compliance monitorship. Certain authorities are investigating members of the Company for
matters relating to misconduct in relation to historical matters. The Company is responding appropriately. Action may be taken by
further authorities against the Company or individuals. In addition, the Company could still be affected by actions from other parties,
including customers, customers’ financiers and the Company’s current and former investors, including certain potential claims in respect
of the Company’s historical ethics and compliance disclosures which have been notified to the Company. The Directors are not currently
aware of any matters that are likely to lead to a material financial loss over and above the penalties imposed to date, but cannot anticipate
all the possible actions that may be taken or their potential consequences.
The Company has, in the normal course of business, entered into arrangements in respect of export finance, performance bonds, grant
funding, countertrade obligations and minor miscellaneous items, which could result in potential outflows if the requirements related
to those arrangements are not met. Various Company undertakings are party to legal actions and claims (including with tax authorities)
which arise in the ordinary course of business, some of which are for substantial amounts.
In connection with the sale of its products the Company will, on some occasions, provide financing support for its customers, generally
in respect of civil aircraft. The Company's commitments relating to these financing arrangements are spread over many years, they
relate to a number of customers, a broad product portfolio and are generally secured on the asset subject to the financing. These
include commitments of $339m (2024: $405m) (on a discounted basis) to provide facilities to enable customers to purchase aircraft (of
which approximately $67m could be called during 2026). These facilities may only be used if the customer is unable to obtain financing
elsewhere and are priced at a premium to the market rate. Significant events impacting the international aircraft financing market, the
failure by customers to meet their obligations under such financing agreements, or inadequate provisions for customer financing
liabilities may adversely affect the Company's financial position.
Customer financing provisions would be made to cover guarantees provided for asset value and/or financing were it probable that a
payment would be made. These would be measured on a discounted basis at the Company’s borrowing rate to reflect the time span
over which these exposures could arise. The values of aircraft providing security are based on advice from a specialist aircraft appraiser.
There were no provisions for customer financing provisions at 31 December 2025 or 31 December 2024.
The Company has responded appropriately to the Russia-Ukraine conflict to comply with international sanctions and export control
regime, and to continue to implement the business decision to exit from Russia. The Company could be subject to action by impacted
customers, suppliers and other contract parties.
While the outcome of the above matters cannot precisely be foreseen, the Directors do not expect any of these arrangements, legal
actions or claims, after allowing for provisions already made, to result in significant loss to the Company.
20 Related party transactions
2025
£m
2024
£m
Sale of goods and services
1
8,
454
7,500
Purchases of goods and services
1
(8,824)
(8,350)
Guarantees of non
-
wholly owned subsidiaries’ borrowings
3
4
1 Sales of goods and services to related parties and purchases of goods and services from related parties, including joint ventures and associates, are included at the average
exchange rate, consistent with the statutory income statement
The Company is a wholly owned subsidiary of its ultimate parent Rolls-Royce Holdings plc, and is included within the consolidated
results of Rolls-Royce Holdings plc and therefore has taken advantage of the exemption in FRS 101 not to disclose related party
transactions with its parent company and other wholly owned group companies. The aggregated balances with joint ventures are shown
in notes 8 and 13.
Included in the sales of goods and services to related parties are sales to Rolls-Royce SMR Limited amounting to £7m (2024: £9m) during
the year.
At 31 December 2024, Rolls-Royce SMR Limited was a non-wholly owned subsidiary of the Company. In March 2025, there was an equity
investment into the business, resulting in deconsolidation of Rolls-Royce SMR Limited. See note 6 for further information.
21 Parent and ultimate parent company
The Company’s direct parent at 31 December 2025 is Rolls-Royce Group Limited.
The ultimate parent undertaking and the smallest and largest group to consolidate these financial statements is Rolls-Royce Holdings
plc. Copies of the Rolls-Royce Holdings plc Consolidated Financial Statements can be obtained from the Company Secretary at Kings
Place, 90 York Way, London, N1 9FX, United Kingdom.
Post balance sheet event – change in direct parent undertaking
As part of an internal legal entity review programme, on 1 January 2026, the Company’s direct parent undertaking changed from Rolls-
Royce Group Limited to Rolls-Royce Holdings plc. This is a non-adjusting post balance sheet event. There is no change to the Company’s
ultimate parent undertaking or controlling party.
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2025
120
Subsidiaries
As at 31 December 2025, the companies listed below and on the following pages were indirectly held by Rolls-Royce plc, except those
indicated as being held directly by Rolls-Royce plc. The financial year end of each company is 31 December unless otherwise indicated.
| % of | ||||
| Class of | class | |||
Company name | Address | shares | held | |
| Aerospace Transmission Technologies | Adelheidstrasse 40, D-88046, Friedrichshafen, Germany | Capital Stock | 50 | |
GmbH * 1 | ||||
| Amalgamated Power Engineering | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Deferred | 100 | |
Limited 2 | Ordinary | 100 | ||
Bristol Siddeley Engines Limited * 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
Brown Brothers & Company, Limited | Inchinnan Drive, Inchinnan, United Kingdom, PA4 9AF | Ordinary | 100 | |
C A Parsons & Company Limited | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
Derby Specialist Fabrications Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
| Europea Microfusioni Aerospaziali | Zona Industriale AS1, 83040 Morra de Sanctis, Avellino, Italy | Ordinary | 100 | |
S.p.A. * | ||||
Heaton Power Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
John Thompson Cochran Limited 2 | Inchinnan Drive, Inchinnan, United Kingdom, PA4 9AF | 6% | 100 | |
| Cumulative | ||||
| Preference | 100 | |||
Ordinary | ||||
Karl Maybach - Hilfe GmbH i.l. 3 | Maybachplatz 1, 88045, Friedrichshafen, Germany | Capital Stock | 100 | |
Kinolt Immo SA | Rue de l’Avenir 61, 4460, Grace - Hollogne, Belgium | Ordinary | 100 | |
Kinolt Sistemas de UPS SpA | Bucarest No 17 Oficina, No 33, Previdencia, Santiago, Chile | Ordinary | 100 | |
Kinolt UK Ltd 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
LLC Rolls - Royce Solutions Rus 2 | Shabolovka Street 2, 119049, Moscow, Russian Federation | Ordinary | 100 | |
| MTU Cooltech Power Systems Co., | Building No. 2, No. 1633 Tianchen Road, Quingpu District, | Equity | 50 | |
Limited 1 | Shanghai, China | |||
MTU India Private Limited 4 | 6th Floor, RMZ Galleria, S/Y No. 144 Bengaluru, Bangalore, | Ordinary | 100 | |
Kamataka 560 064, India | ||||
MTU Polska Sp. z o.o. | ul. Hoża 86, lokal 410, 00 - 682 Warsawa, Polska | Ordinary | 100 | |
NEI International Combustion Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
NEI Mining Equipment Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
NEI Nuclear Systems Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
NEI Parsons Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
NEI Peebles Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
NEI Power Projects Limited 3 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
Nightingale Insurance Limited * | PO Box 33, Dorey Court, Admiral Park, St Peter Port GY1 4AT, | Ordinary | 100 | |
Guernsey | ||||
No - Break Power Limited 3 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
Powerfield Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
PT Rolls-Royce | Secure Building Blok B, Jl. Raya Protokol Halim, | Ordinary | 100 | |
Perdanakusuma, Jakarta, 13610, Indonesia | ||||
PT Rolls Royce Solutions Indonesia | Secure Building Blok B, Jl. Raya Protokol Halim, | Ordinary | 100 | |
Perdanakusuma, Jakarta, 13610, Indonesia | ||||
| Rolls-Royce (Ireland) Unlimited | Ulster International Finance, 1st Floor, IFSC House IFSC Dublin, | Ordinary | 100 | |
Company 5 | Dublin, Co. Dublin, D01R2P9, Ireland | |||
| Rolls-Royce (Thailand) Company | 101 | True Digital Park, Pegasus Building, 5th Floor, Unit 558 | Ordinary | 100 |
| Limited | Sukhumvit Road, Bangchak, Pharakhanong, Bangkok, 10260, | |||
| Rolls-Royce Aero Engine Services | Thailand | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Limited * 3 | ||||
Rolls - Royce Australia Pty Limited 5 | Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia | Ordinary | 100 | |
| Rolls-Royce Australia Services Pty | Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia | Ordinary | 100 | |
Limited 5 | ||||
Rolls-Royce Brasil Limitada * | Rua Jose Versolato, No. 111, Torre B, Sala 2502, Centro, São | Quotas | 100 | |
Bernando do Campo, Sao P ã ulo, CEP 09750 - 730, Brazil | ||||
Rolls-Royce Canada Limited | 9500 | Côte de Liesse, Lachine, Québec H8T 1A2, Canada | Common | 100 |
Stock | ||||
Rolls-Royce Chile SpA 5 | Rosario Norte #407 Depto. #1601 Comuna Las Condes Ciudad | Ordinary | 100 | |
Santiago, Chile | ||||
Rolls-Royce China Holding Limited * | 305 | Indigo Building 1, 20 Jiuxianqiao Road, Beijing, 100016, | Ordinary | 100 |
| Rolls-Royce Commercial Aero Engines | China | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Limited * 3 | ||||
| Rolls-Royce Controls and Data Services | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
Limited * | ||||
Rolls-Royce Corporation 5 | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | |
Wilmington, Delaware 19808 , United States | Stock | |||
Rolls-Royce Crosspointe LLC 5 | Corporation Service Company, 251 Little Falls Drive, | Partnership | 100 | |
Wilmington, Delaware 19808 , United States | ||||
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2025
121
Subsidiaries continued
| % of | |||||
| Class of | class | ||||
Company name | Address | shares | held | ||
| Rolls-Royce Defense Products and | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Solutions Inc. 5 | Wilmington, Delaware 19808 , United States | Stock | |||
Rolls-Royce Defense Services Inc. 5 | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Wilmington, Delaware 19808 , United States | Stock | ||||
| Rolls-Royce Deutschland Ltd & Co KG | Eschenweg 11, 15827 | Blankenfelde-Mahlow OT Dahlewitz, | Partnership | 100 | |
Germany | |||||
Rolls - Royce Electrical Norway AS * | Jarleveien 8A, 7041, Trondheim, Norway | Ordinary | 100 | ||
Rolls-Royce Energy Angola, Limitada 5 | Municipality of Ingombota, Angola | Casa no. 174, Largo Leite Duarte, Bairro Miramar, Luanda, | Quota | 100 | |
Rolls-Royce Energy Systems Inc. 2, 5 | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Wilmington, Delaware 19808 , United States | Stock | ||||
| Rolls-Royce Engine Services Holdings | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Co. 5 | Wilmington, Delaware 19808 , United States | Stock | |||
| Rolls-Royce Engine Services Limitada | Bldg. 06 Berthaphil Compound, Jose Abad Santos Avenue, | Capital Stock | 100 | ||
Inc. 3, 5 | Clark Special Economic Zone, Clark, Pampanga, Philippines | ||||
Rolls-Royce Erste Beteiligungs GmbH * | Eschenweg 11, 15827 | Blankenfelde-Mahlow OT Dahlewitz, | Capital Stock | 100 | |
Germany | |||||
Rolls-Royce Finance Company Limited 3 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Deferred | 100 | ||
Ordinary | 100 | ||||
Rolls-Royce Finance Holdings Co. 5 | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Wilmington, Delaware 19808 , United States | Stock | ||||
Rolls - Royce Fuel Cell Systems Limited * | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
| Rolls-Royce General Partner (Ireland) | 29 Earlsfort Terrace, Dublin 2, Dublin, D02AY28 Ireland | Ordinary | 100 | ||
Limited * | |||||
Rolls - Royce General Partner Limited * 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | ||
| Rolls-Royce High Temperature | Corporation Service Company, 2710 Gateway Oaks Drive, Suite | Ordinary | 100 | ||
Composites Inc. 5 | 150N, | Sacramento, California 95833, United States | |||
Rolls - Royce Holdings Canada Inc. * | 9500 | Côte de Liesse, Lachine, Québec H8T 1A2, Canada | Common C | 100 | |
Rolls - Royce Hungary Kft. “v.a.” * 3 | Kacsa utca 15 - 23. 1. ép. Fsz. , Budapest , 1027 , Hungary | Cash shares | 100 | ||
Rolls - Royce India Limited 4 | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
Rolls-Royce India Private Limited 5 | Birla Tower West, 2nd Floor 25, Barakhamba Road, New Delhi, | Equity | 100 | ||
110001, | India | ||||
| Rolls-Royce Industrial & Marine Power | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | ||
Limited | |||||
| Rolls-Royce Industrial Power (India) | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
Limited 4 | |||||
| Rolls-Royce Industrial Power | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
| Engineering (Overseas Projects) | |||||
| Limited | |||||
Rolls - Royce Industries Limited * | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
Rolls - Royce International Limited * | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
Rolls-Royce Japan Co., Limited | 31st Floor, Kasumigaseki Building, 3-2-5 Kasumigaseki, | Ordinary | 100 | ||
Rolls - Royce Leasing Limited * | Chiyoda - Ku, Tokyo, 100 - 6031, Japan | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
Rolls-Royce Malaysia Sdn. Bhd. 5 | Unit A-3-6 TTDI Plaza, Jalan Wan Kadir 3, Taman Tun Dr Ismail, | Ordinary | 100 | ||
6000 | Kuala Lumpur, Malaysia | ||||
| Rolls-Royce Military Aero Engines | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | ||
Limited * 4 | |||||
| Rolls-Royce New Zealand Limited | Deloitte Centre, Level 20, 1 Queen Street, Auckland, 10103, | Ordinary | 100 | ||
New Zealand | |||||
| Rolls-Royce North America (USA) | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Holdings Co. 5 | Wilmington, Delaware 19808 , United States | Stock | |||
| Rolls-Royce North America Holdings | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Inc. 5 | Wilmington, Delaware 19808 , United States | Stock | |||
Rolls-Royce North America Inc. 5 | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Wilmington, Delaware 19808 , United States | Stock | ||||
| Rolls-Royce North America Ventures | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Inc. 5 | Wilmington, Delaware 19808 , United States | Stock | |||
| Rolls-Royce North American | Corporation Service Company, 251 Little Falls Drive, | Common | 100 | ||
Technologies Inc. 5 | Wilmington, Delaware 19808 , United States | Stock | |||
Rolls-Royce Oman LLC 5 | Bait Al Reem, Business Office #131, Building No 81, Way No | Ordinary | 100 | ||
3409, | Block No 234, Al Thaqafa Street, Al Khuwair, PO Box 20, | ||||
| Rolls-Royce Operations (India) Private | Postal Code 103, Oman | Birla Tower West, 2nd Floor, 25 Barakhamba Road, New Delhi, | Ordinary | 100 | |
Limited 2, 4, 5 | 110001, | India | |||
| Rolls-Royce Overseas Holdings Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | ||
Ordinary A | 100 | ||||
*
6
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2025
122
Subsidiaries continued
| % of | ||||
| Class of | class | |||
Company name | Address | shares | held | |
| Rolls-Royce Overseas Investments | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
Limited 7 | ||||
Rolls - Royce Placements Limited 3 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 | |
| Rolls-Royce Power Engineering Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
Rolls - Royce Power Systems AG | Maybachplatz 1, 88045, Friedrichshafen, Germany | Ordinary | 100 | |
| Rolls-Royce Retirement Savings Trust | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
Limited * 2, 4 | ||||
Rolls - Royce Saudi Arabia Limited | 3010 – Al Arid, Riyadh 13332 – 7663, Saudi Arabia | Cash shares | 100 | |
Rolls-Royce Singapore Pte. Ltd. 5 | 6 Shenton Way, #33-00 OUE, Downtown Singapore 068809, | Ordinary | 100 | |
Singapore | ||||
| Rolls-Royce Solutions (Suzhou) Co. Ltd | 9 Long Yun Road, Suzhou Industrial Park, Suzhou 215024, | Ordinary | 100 | |
Jiang Su, China | ||||
| Rolls-Royce Solutions Africa (Pty) | 36 Marconi Street, Montague Gardens, Cape Town, 7441, South | Capital Stock | 100 | |
Limited | Africa | |||
Rolls-Royce Solutions America Inc. | 100 | West Tenth Street, Wilmington - Delaware DE 19808, | Ordinary | 100 |
United States | ||||
Rolls - Royce Solutions Asia Pte. Limited | 10 Tukang Innovation Drive, Singapore 618302 | Ordinary | 100 | |
Rolls - Royce Solutions Augsburg GmbH | Dasinger Strasse 11, 86165, Augsburg, Germany | Capital Stock | 100 | |
Rolls - Royce Solutions Benelux B.V. | Merwedestraat 86, 3313 CS, Dordrecht, Netherlands | Ordinary | 100 | |
Rolls - Royce Solutions Brasil Limitada | Via Anhanguera, KM 29203, 05276 - 000 Sao P ã ulo – SP, Brazil | Quotas | 100 | |
| Rolls-Royce Solutions Enerji Deniz Ve | Hatira Sokak, No. 5, Ömerli Mahellesi, 34555 Arnavutköy, | Ordinary | 100 | |
Savunma Anonim Şirketi | Istanbul, Türkiye | |||
Rolls-Royce Solutions France S.A.S. | Immeuble Colorado, 8/10 rue de Rosa Luxembourg-Parc des | Ordinary | 100 | |
Bellevues 95610, Erangy - sur - Oise, France | ||||
Rolls - Royce Solutions GmbH | Maybachplatz 1, 88045, Friedrichshafen, Germany | Capital Stock | 100 | |
| Rolls-Royce Solutions Hong Kong | 14/F, Chinabest International Centre, 8 Kwai On Road, Kwai | Ordinary | 100 | |
Limited | Chung, N.T., Hong Kong | |||
Rolls - Royce Solutions Ibérica s.l.u. | Paseo de las Flores 46, 28823 Coslada, Madrid, Spain | Ordinary | 100 | |
Rolls - Royce Solutions Israel Limited | 6 Meir Ariel St., Natanya, Israel | Ordinary | 100 | |
Rolls - Royce Solutions Italia S.r.l. | Via Aurelia Nord, 328, 19021 Arcola (SP), Italy | Capital Stock | 100 | |
| Rolls-Royce Solutions Japan Co. | 14-3, Nishitenma 4-chome, Kita-ku, Osaka 530-0047, Japan | Ordinary | 100 | |
Limited | ||||
Rolls-Royce Solutions Korea Limited | Unit 301, The Square, 9 Mulgeum-ro, Mulgeum-eup, Yangsan- | Ordinary | 100 | |
si, Gyeongsangnam - do 50657, Republic of Korea | ||||
| Rolls-Royce Solutions Liège Holding | Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium | Ordinary | 100 | |
S.A. | ||||
Rolls - Royce Solutions Liège S.A. | Rue de l’Avenir 61, 4460, Grace - Hollogne, Belgium | Ordinary | 100 | |
| Rolls-Royce Solutions Magdeburg | Friedrich-List-Strasse 8, 39122 Magdeburg, Germany | Capital Stock | 100 | |
GmbH | ||||
| Rolls-Royce Solutions Malaysia Sdn. | Office no. B329, Spaces Platinum Sentral, Lot G02-G07, Level 3 | Ordinary | 100 | |
| Bhd. | Platinum Sentral, Jalan Stesen Sentral 2, 50470 Kuala Lumpur, | |||
| Rolls-Royce Solutions Mexico City S.A. | Malaysia | Xochicalco 620, Colonia Letran Valle, Delegacion Benito | Common | 100 |
de C.V. 2 | Juarez, Mexico City 03650, Mexico | Shares | ||
Rolls-Royce Solutions Middle East FZE | S3B5SR06, Jebel Ali Free Zone, South P.O. Box 61141, Dubai, | Ordinary | 100 | |
Rolls - Royce Solutions Ruhstorf GmbH | United Arab Emirates | Rotthofer Strasse 8, 94099 Ruhstorf a.d. Rott, Germany | Capital Stock | 100 |
| Rolls-Royce Solutions South Africa (Pty) | 36 Marconi Street, Montague Gardens, Cape Town, 7441, South | Ordinary | 100 | |
Limited | Africa | |||
| Rolls-Royce Solutions Trading and | REGUS Service Office, Office No. 1034, Shoumoukh Tower, 10th | Ordinary | 49 | |
Contracting LLC 8 | Floor, Tower B, C-Ring Road, Al Sadd, PO Box 207207, Doha, | |||
Qatar | ||||
Rolls - Royce Solutions UK Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
Rolls - Royce Solutions Willich GmbH | Konrad - Zuse - Str. 3, 47877, Willich, Germany | Capital Stock | 100 | |
Rolls - Royce Sp z.o.o. * | Opolska 100 31 - 323, Krakow, Poland | Ordinary | 100 | |
Rolls-Royce Submarines Limited * | United Kingdom | Atlantic House, Raynesway, Derby, Derbyshire DE21 7BE, | Ordinary | 100 |
Rolls-Royce Technical Support Sarl | Site Motoristes Vendor-Village , 46 avenue Jean Monnet, | Ordinary | 100 | |
31770, | Colomiers, France | |||
| Rolls-Royce Total Care Services Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
| Rolls Royce Turkey Güç Çözümleri San. | Cumhuriyet Mah. Yakacık D-100 Kuzey Yanyol Cad. No: 25 | Cash shares | 100 | |
ve Tic.Ltd.Şti. | Kartal, Istanbul, Türkiye | |||
| Rolls-Royce UK Pension Fund Trustees | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 | |
Limited * 2 | ||||
| Rolls-Royce Zweite Beteiligungs GmbH | Eschenweg 11, 15827 | Blankenfelde-Mahlow OT Dahlewitz, | Capital Stock | 100 |
Germany | ||||
*
*
*
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2025
123
Subsidiaries continued
| % of | |||
| Class of | class | ||
Company name | Address | shares | held |
Ross Ceramics Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 |
Servowatch Systems Limited 3 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Sharing in Growth UK Limited 9 | Moor Lane, Allenton, Derby, England, DE24 9HY, United | Limited by | 100 |
Kingdom | guarantee | ||
Spare IPG 20 Limited | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Spare IPG 21 Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Spare IPG 24 Limited | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Spare IPG 32 Limited | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Spare IPG 4 Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Team Italia Marine S.R.L. | Kampanien, Via Luigi Einaudi 114/B, 61032 Fano, Pesaro and | Ordinary | 100 |
Urbino, Italy | |||
The Bushing Company Limited | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Timec 1487 Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
| Turbine Surface Technologies Limited * | Unit 13a, Little Oak Drive, Sherwood Park, Annesley, | Ordinary A | Nil |
| 1 | Nottinghamshire NG15 0DR, United Kingdom | Ordinary B | 100 |
Vessel Lifter Inc. 2, 5 | Corporation Service Company, 1201 Hays Street, Tallahassee, | Common | 100 |
Florida 32301, United States | Stock | ||
Vinters Defence Systems Limited 2 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Vinters Engineering Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 |
Vinters International Limited | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 |
Vinters Limited * | Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom | Ordinary | 100 |
| Vinters-Armstrongs (Engineers) Limited | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
| 2 | |||
Vinters - Armstrongs Limited 5 | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary B | 100 |
Yocova Private Ltd * | Kings Place, 90 York Way, London N1 9FX, United Kingdom | Ordinary | 100 |
Yocova PTE. Ltd. * 2 | 6 Shenton Way, #33-00 OUE, Downtown Singapore 068809, | Ordinary | 100 |
Singapore |
On 8 January 2026, Rolls-Royce Holdings plc contributed its 100% direct holding in Rolls-Royce Group Limited to the Company, so
Rolls-Royce Group Limited is now a wholly-owned direct subsidiary of the Company.
* Owned directly by the Company
1 Although the interest held is 50%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records a
non-controlling interest
2 Dormant entity
3 Entity in liquidation
4 Reporting year end is 31 March 2026
5 On 1 January 2026, the Company transferred its interest in a parent company of this entity, Rolls-Royce Overseas Holdings Limited, to Rolls-Royce US Holdings Limited. As a
result, this entity is no longer a subsidiary of the Company
6 On 1 January 2026, the Company transferred its interest in this entity to Rolls-Royce US Holdings Limited. Therefore, the entity is no longer a subsidiary of the Company
7 On 1 January 2026, Rolls-Royce Overseas Holdings Limited transferred its interest in this entity to the Company. Therefore, the entity is now a direct subsidiary of the Company
8 Although the interest held is 49%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records a
non-controlling interest
9 The entity is not included in the consolidation, as the Company does not have a beneficial interest in the net assets of the entity
10 The entity is accounted for as a joint operation (see note 1 to the Consolidated Financial Statements)
11 Reporting year end is 30 June 2026
12 Entity is accounted for as a joint venture as approval is required from the other shareholder for operationally running the affairs of the entity
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2025
124
| % of | Group | ||||
| class | interest | ||||
Company name | Address | Class of shares | held | held % | |
| Aero Gearbox International SAS | 18 Boulevard Louis Sequin, 92700 Colombes, | Ordinary | 50 | 50 | |
| 10 | France | ||||
Airtanker Services Limited * | Airtanker Hub, RAF Brize Norton, Carterton, | Ordinary | 23.5 | 23.5 | |
Oxfordshire OX18 3LX, United Kingdom | |||||
Alpha Leasing (US) (No.2) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
Alpha Leasing (US) (No.4) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
Alpha Leasing (US) (No.5) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
Alpha Leasing (US) (No.6) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
Alpha Leasing (US) (No.7) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
Alpha Leasing (US) (No.8) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
Alpha Leasing (US) LLC 5 | Corporation Service Company, 251 Little Falls | Partnership | – | 50 | |
Drive, Wilmington, Delaware 19808 , United States | |||||
| Alpha Partners Leasing Limited | 1 Brewer’s Green, London SW1H 0RH, United | Ordinary A | 100 | 50 | |
Kingdom | Ordinary B | Nil | |||
| Beijing Aero Engine Services | No.12 Jinhang Middle Road, Shunyi District, | Capital | 50 | 50 | |
| Company Limited * | (Tianzhu Comprehensive Bonded Zone Bonded | ||||
Function Zone 2), Beijing , China | |||||
CFMS Limited | 43 Queen Square, Bristol BS1 4QP, United | Limited by | – | 33.3 | |
Kingdom | guarantee | ||||
| Clarke Chapman Portia Port | Maritime Centre, Port of Liverpool, Liverpool L21 | Ordinary A | 100 | 50 | |
Services Limited 2 | 1LA, United Kingdom | Ordinary B | Nil | ||
| Egypt Aero Management | Maintenance and Technical Works Company | Ordinary | 50 | 50 | |
Services 3, 5 | Building, Room No. 204, Second Floor, Airport | ||||
Road, El Nozha, Cairo | |||||
| EPI Europrop International | Pelkovenstr. 147, 80992 München, Germany | Capital Stock | 28 | 28 | |
GmbH * | |||||
Eurojet Turbo GmbH * | Lilienthalstrasse 2b, 85399 Halbergmoos, | Ordinary | 33 | 33 | |
Germany | |||||
| Force MTU Power Systems | Mumbai Pune Road, Akurdi, Pune, Maharashtra | Capital Stock | 49 | 49 | |
Private Limited | 411035, | India | |||
Genistics Holdings Limited * 11 | Moor Lane, Derby, Derbyshire DE24 8BJ, United | Ordinary A | 100 | 50 | |
Kingdom | Ordinary B | Nil | |||
Glacier L.P. | 66 Wellington Street West, Toronto Dominion, | Partnership | 49.9 | 49.9 | |
| Bank Tower, Suite 300, Toronto, ON M5K 1E6, | |||||
Canada | |||||
| Global Aerospace Centre for | 1000 | Marie-Victorin Boulevard, Longueuil | Ordinary | 50 | 50 |
| Icing and Environmental | Québec J4G 1A1, Canada | ||||
Research Inc. 10 | |||||
Hoeller Electrolyzer GmbH 3, 12 | Alter Holzhafen, 23966 Wismar, Germany | Ordinary | 54.2 | 54.2 | |
| Hong Kong Aero Engine | 33rd Floor, One Pacific Place, 88 Queensway, | Ordinary | 50 | 50 | |
Services Limited 5 | Hong Kong | ||||
| International Aerospace | Survey No. 3 Kempapura Village, Varthur Hobli, | Ordinary | 50 | 50 | |
Manufacturing Private Limited 4, | Bangalore, KA 560037, India | ||||
| 5, 10 | |||||
| ITP Next Generation Turbines | Parque Tecnologico Edificio 300, 48170, | Ordinary A | Nil | 25 | |
SL * | Zamudio, Vizcaya, Spain | Ordinary B | 100 | ||
| Light Helicopter Turbine | Suite 119, 9238 | Madison Boulevard, Madison, | Partnership | – | 50 |
| Engine Company | Alabama 35758, United States | ||||
(unincorporated partnership) 5 | |||||
| Manse Opus Management | Third Floor Queensberry House, 3 Old | Limited by | 33.3 | 33.3 | |
Company Limited * 4 | Kingdom | Burlington Street, London 3 W1S 3AE, United | guarantee | ||
MEST Co., Limited | 97 Bukjeonggongdan 2-gil, Yangsan-si, | Normal | 46.8 | 46.8 | |
| Gyeongsangnam-do, 50571, Republic of Korea | |||||
MTU Power Systems Sdn. Bhd. | 32 Floor, UBN Tower 10 Jalan P Ramlee, 50250 | Ordinary A | 100 | 49 | |
| Kuala Lumpur, Malaysia | Ordinary B | Nil | |||
| MTU Turbomeca Rolls-Royce | Am Söldnermoos 17, 85399 Hallbergmoos, | Capital Stock | 25 | 25 | |
| ITP GmbH * | Germany | ||||
| MTU Turbomeca Rolls-Royce | Am Söldnermoos 17, 85399 Hallbergmoos, | Capital Stock | 33.3 | 33.3 | |
GmbH * | Germany | ||||
| MTU Yuchai Power Company | No 7 Danan Road, Yuzhou, Yulin, Guangxi, China, | Capital Stock | 50 | 50 | |
Limited | 537005, | China | |||
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2025
125
Joint Ventures and Associates continued
| % of | Group | |||
| class | interest | |||
Company name | Address | Class of shares | held | held % |
| N3 Engine Overhaul Services | Gerhard-Höltje-Strasse 1, D-99310, Arnstadt, | Capital Stock | 50 | 50 |
| GmbH & Co KG | Germany | |||
| N3 Engine Overhaul Services | Gerhard-Höltje-Strasse 1, D-99310, Arnstadt, | Capital Stock | 50 | 50 |
Verwaltungsgesellschaft Mbh | Germany | |||
| Rolls Laval Heat Exchangers | Moor Lane, Derby, Derbyshire DE24 8BJ, United | Ordinary | 50 | 50 |
Limited * 2 | Kingdom | |||
| Rolls-Royce & Partners Finance | 66 Wellington Street West, Toronto Dominion, | Partnership | – | 50 |
(US) (No 2) LLC 5 | Bank Tower, Suite 300, Toronto, ON M5K 1E6, | |||
Canada | ||||
| Rolls-Royce & Partners Finance | 66 Wellington Street West, Toronto Dominion, | Partnership | – | 50 |
(US) LLC 5 | Bank Tower, Suite 300, Toronto, ON M5K 1E6, | |||
Canada | ||||
Rolls-Royce SMR Limited * 12 | Moor Lane, Derby, Derbyshire DE24 8BJ, United | Ordinary | 57.8 | 57.8 |
Kingdom | ||||
SAFYRR Propulsion Limited * 2 | Moor Lane, Derby, Derbyshire DE24 8BJ, United | Ordinary A | Nil | 50 |
Kingdom | Ordinary B | 100 | ||
| Singapore Aero Engine | 11 Calshot Road, 509932, Singapore | Ordinary | 50 | 50 |
Services Private Limited 5 | ||||
Techjet Aerofoils Limited 5, 10 | Tefen Industrial Zone, PO Box 16, 24959, Israel | Ordinary A | 50 | 50 |
Ordinary B | 50 | |||
TRT Limited * | 2 Bramble Way, Clover Nook Industrial Estate , | Ordinary A | Nil | 50 |
| Somercotes, Derbyshire, England, DE55 4RH, | Ordinary B | 100 | ||
United Kingdom | 1 C | Nil | ||
Turbo-Union GmbH * | Lilienthalstrasse 2b, 85399 Halbergmoos, | Capital Stock | 40 | 40 |
Germany | ||||
| X R Aero Components Limited * | Xujiawan, Beijiao, Xian 710021, Shaanxi, China | Ordinary | 49 | 49 |
| 10 |
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
126
Independent auditors’ report to the members of Rolls-Royce plc
Report on the audit of the financial statements
Opinion
In our opinion:
● Rolls-Royce plc’s group financial statements and company financial statements (the “financial statements”) give a true and fair view
of the state of the group’s and of the company’s affairs as at 31 December 2025 and of the group’s profit and the group’s cash flows
for the year then ended;
● the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as
applied in accordance with the provisions of the Companies Act 2006;
● the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and applicable law); and
● the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Audited Financial Statements (the “Annual Report”),
which comprise:
● the consolidated and company balance sheets as at 31 December 2025;
● the consolidated income statement, the consolidated statement of comprehensive income, the consolidated cash flow statement,
the consolidated and company statements of changes in equity for the year then ended; and
● the notes to the financial statements, comprising material accounting policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee of Rolls-Royce Holdings plc (the company's ultimate parent
company).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in Note 6, we have provided no non-audit services to the company or its controlled undertakings in the
period under audit.
Our audit approach
Overview
Audit scope
● Following our assessment of the risks of material misstatement of the financial statements, including the impact of climate change,
we subjected 31 individual components (including three joint ventures) to full scope audits for group reporting purposes, which,
with an element of sub-consolidation, equates to 14 group reporting opinions. In addition, nine components performed targeted
specified audit procedures contributing to audit coverage.
● The group engagement team audited the company and other centralised functions and balances, including those relating to group
treasury operations, corporate taxation, post-retirement benefits, and certain goodwill and intangible asset impairment assessments.
The group engagement team also performed audit procedures over the group consolidation and the financial statements
disclosures.
● The components on which we performed full scope audit procedures, together with the work performed by the group engagement
team as identified above, accounted for 93% of revenue and 79% of profit before taxation.
● For non–full scope components that were not considered inconsequential, we either performed audit procedures over specific
account balances or targeted risk assessment procedures.
● Some centralised audit testing was performed for certain reporting components that are supported by Group Business Services
(GBS).
● As part of the group audit supervision process, the group engagement team met with the component teams to discuss the approach
and results of their audit procedures, and reviewed their audit files and final deliverables. In person site visits to components in the
UK, Germany and the US were also performed.
Key audit matters
● Long-term contract accounting and associated provisions (group and company)
● Translation of foreign currency denominated transactions and balances (group and company)
● Presentation and accuracy of underlying results and disclosure of other one-off items (including exceptional items) (group)
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
127
Materiality
● Overall group materiality: £200m (2024: £178m) based on approximately 1.0% of underlying revenue.
● Overall company materiality: £107m (2024: £92m) based on approximately 1.0% of revenue.
● Performance materiality: £150m (2024: £110m) (group) and £80m (2024: £65m) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Deferred tax asset recognition and recoverability (group), which was a key audit matter last year, is no longer included because of the
full recognition of the deferred tax asset relating to UK tax losses in Rolls-Royce plc reflecting the sustained profitability of the group
and an improved outlook. Accordingly, the recognition and recoverability of the deferred tax asset is no longer considered a significant
risk. Otherwise, the key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Long-term contract accounting and associated provisions
(group and company)
Directors’ Report and note 1 to the consolidated and company
financial statements – Accounting policies – Revenue
recognition and contract assets and liabilities, note 15 and note
9 to the consolidated and company financial statements
respectively – Contract assets and liabilities and note 21 and
note 14 to the consolidated and company financial statements
respectively – Provisions for liabilities and charges
The Civil Aerospace and Defence businesses operate primarily
with long-term customer contracts that span multiple periods.
These long-term contracts require a number of assumptions to
be made in order to determine the expected lifetime revenue
and costs of the contract and the amounts of revenue and
profit/loss that are recognised in each reporting period.
Small adjustments in assumptions can have a significant impact
on the results of an individual financial year. Changes to the
profile of shop visits or operating conditions of engines can
result in different performance assumptions and hence cost
profiles. Some contracts include inflation linked price
escalations which require judgement to determine the extent to
which future price increases are highly probable not to reverse
and therefore can be recognised. These changes to forecasts
can result in revisions to the revenue previously recognised.
For Defence, long-term contracts tend to be for a fixed price or
based on a cost plus or target cost reimbursement for qualifying
costs and there are also some flying hours arrangements. For
Civil Aerospace aftermarket contracts, income is earned based
on engine flying hours (EFH). Management is required to
estimate this to determine the total revenue expected over the
life of a contract.
In addition, the profitability of Civil Aerospace aftermarket
contracts typically assumes that there will be lifecycle cost
improvements over the term of the contracts. Significant
assumptions need to be made in determining time-on-wing,
whether incremental costs should be treated as wastage or are
part of the ongoing cost of servicing a contract, future
exchange rates used to translate foreign currency income and
costs and other operating parameters used to calculate the
projected life cycle. These future costs are also risk adjusted to
take into account forecasting accuracy which represents an
additional judgement.
We focused our work on a number of contracts where we
consider there to be the highest degree of management
judgement or estimation and designed specific procedures over
the long-term contract accounting targeted at the associated
risks. We also sample tested the remaining population of
contracts. The audit procedures performed included:
We attended meetings with Civil Aerospace and Defence
engine programme and customer contract managers in
order to understand the operational matters impacting the
performance of specific contracts and any amendments to
contractual arrangements that could have an impact on
performance;
We obtained and read the relevant sections of a sample of
contracts to understand the key terms including
performance obligations and pricing structures;
We assessed how management had forecast engine flying
hours including by considering the downside scenarios
modelled and comparing the assumptions to industry data;
We challenged management’s judgements and associated
risk adjustments relating to the risk of engine flying hours,
costs and technical items;
We re-performed the calculations used to determine the
degree of completion for a sample of contracts and this was
also used in assessing the magnitude of any catch-up
adjustments;
We compared the previously forecast results of a sample of
contracts with the actual results to assess the performance
of the contract and the historical accuracy of forecasting;
We verified a sample of costs incurred to third party
documentation to assess the validity of the forecast costs to
complete;
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
128
Key audit matter How our audit addressed the key audit matter
At the development stage of a programme, agreements are
entered into with certain Civil Aerospace suppliers to share in
the risk and rewards of the contracts (Risk and Revenue Sharing
Agreements – ‘RRSA’). This can involve upfront participation
fees from the RRSA that are amortised over the engine
production phase. In addition, certain revenue and costs are
recorded in the consolidated income statement net of the
amounts received from the RRSA.
The nature of the Civil Aerospace business gives rise to a
number of contractual guarantees, warranties and potential
claims, including the in-service issues of the Trent 1000
programme. The accounting for these can be complex and
judgemental and may impact the consolidated income
statement immediately or over the life of the contract. The
valuation of provisions for the associated amounts are
judgemental and need to be considered on a contract by
contract basis.
Management have modelled the potential impact of climate
change on its forecasts and has incorporated these estimates
into the long-term contracts for Civil Aerospace, which is the
business with the highest expected exposure to the impact of
climate change. This included incorporating the potential
impact of carbon prices on the group’s direct emissions
including engine testing and those of its suppliers and the
potential impact of climate change on commodity prices in cost
estimates. The impact of climate change on long-term contracts
is highly uncertain and requires estimates on carbon prices, the
cost and speed of decarbonisation, the ability of the group and
its suppliers to pass on incremental costs and assessing the
associated impact on aviation demand.
We assessed the assumptions relating to life cycle cost
reductions to determine the likelihood of realisation and
where relevant the speed at which they would be achieved,
including the impact on the number of shop visits, validating
these assumptions directly with the senior programme
engineers;
We obtained support for the risk adjustments made in
respect of future costs and challenged management’s
assumptions through assessment against historical
performance, known technical issues and the stage of
completion of the programme;
We recalculated the price escalation included within the
contracts;
We challenged the assessment of provisions for onerous
contracts to determine the completeness of the unavoidable
costs to fulfil the contractual obligations. We also validated
the rates used to discount the future cash flows;
We assessed the sensitivity of the Trent 1000 programme to
reasonable changes in estimates, particularly in respect of
the repair and overhaul facility capacity, technical cost creep
on the known issues and cost outturns against previous
similar matters, including whether any costs should be
treated as wastage, in determining whether the judgements
were supportable;
We read and understood the key terms of a sample of RRSA
contracts to assess whether revenue and costs had been
appropriately reflected, net of the share attributable to the
RRSA in the consolidated income statement;
We considered the appropriateness of the key assumptions
used by management to model the impact of climate change,
including assessing the reasonableness of the carbon and
commodity price forecasts utilised through sensitivity
analysis. We validated management’s assertions on the ability
of suppliers and the group to pass on incremental costs by
reviewing supplier and customer contracts for price change
mechanisms. Where appropriate we performed independent
sensitivity analysis to determine to what extent reasonably
possible changes in these assumptions could result in
material changes to the revenue recorded in the year and
assessed the appropriateness of the associated disclosures;
We read and challenged management’s accounting papers
that were prepared to explain the positions taken in respect
of their key contract judgements;
We considered whether there were any indicators of
management bias in arriving at their reported position; and
We assessed the adequacy of disclosures in note 1 of the key
judgements and estimates involved in long-term contract
accounting.
Based on the work performed, we concur that management’s
estimates for long-term contract accounting and associated
provisions are materially appropriate, in the context of the
financial statements taken as a whole.
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
129
Key audit matter How our audit addressed the key audit matter
Translation of foreign currency denominated transactions and
balances (group and company)
Note 1 to the consolidated and company financial statements –
Accounting policies – Foreign currency translation
Foreign exchange rate movements influence the reported
consolidated income statement, the consolidated cash flow
statement and consolidated and company balance sheet. One
of the group’s primary accounting systems that is used by a
number of their subsidiaries translates transactions and
balances denominated in foreign currencies at a fixed budget
rate for management information purposes. Foreign currency
denominated transactions and balances are then re-translated
to actual average and closing spot rates through manual
adjustments. Due to the manual nature of the process and
significance of the recurring adjustments needed there is a risk
that transactions and balances denominated in foreign
currencies are incorrectly translated in the consolidated and
company financial statements.
We performed the following specific audit procedures over this
area:
Obtained an understanding of the process employed by
management to correctly record the translation of foreign
currency balances and transactions;
Obtained an understanding of the process employed by
management at a group level to identify any unusual
movements or balances;
Tested the reports identifying transactions and balances in
transaction currency by agreeing these to general ledger
balances;
Tested, on a sample basis, the manual calculations of the
adjustment needed to correctly record the translation of the
foreign currency denominated transactions and balances;
Sampled balances and transactions requiring adjustment by
transaction currency and tested to source data and assessed
the completeness of these balances and transactions; and
Agreed the exchange rates used in management’s translation
adjustments to an independent source.
There were no material uncorrected errors from our audit work.
Presentation and accuracy of underlying results and disclosure
of other one-off items (including exceptional items) (group)
Note 1 to the consolidated financial statements – Accounting
policies – Presentation of underlying results, note 2 to the
consolidated financial statements – Segmental analysis and
note 28 to the consolidated financial statements – Derivation of
summary funds flow statement
In addition to the performance measures prescribed by
International Financial Reporting Standards, the group also
presents their results on an underlying basis, as the Directors
believe this better reflects the performance of the group during
the year. The group also presents a free cash flow metric which
the Directors believe reflects the cash generated from
underlying trading. This differs from the cash flows presented
in the consolidated cash flow statement.
The underlying results differ significantly from the reported
statutory results and are used extensively to explain
performance to shareholders. Alternative performance
measures can provide investors with additional understanding
of the group’s performance if consistently calculated, properly
used and presented. However, when improperly used and
presented, these non-GAAP measures can mislead investors
and may mask the real financial performance and position.
There is judgement in determining whether items should be
excluded from underlying profit or free cash flow.
A key adjustment between the statutory results and the
underlying results relates to the foreign exchange rates used to
translate foreign currency transactions and balances. The
underlying results reflect the achieved rate on foreign currency
derivative contracts settled in the period and retranslates assets
and liabilities at the foreign currency rates at which they are
expected to be realised or settled in the future. As the group
can influence which derivative contracts are settled in each
reporting period it has the ability to influence the achieved rate
and hence the underlying results.
We have considered the judgements taken by management to
determine what should be treated as an exceptional item and the
translation of foreign currency amounts and obtained
corroborative evidence for these.
We also considered whether there were items that were
recorded within underlying profit that are exceptional in nature
and should be reported as an exceptional item. No such material
items were identified. As part of this assessment we challenged
management’s rationale for the designation of certain items as
exceptional or one-off and assessed such items against the
group’s accounting policy, considering the nature and value of
those items.
Within underlying results, foreign currency transactions are
presented at rates achieved on derivative contracts hedging the
net operating cash flows of the group and monetary assets and
liabilities are retranslated at rates forecast to be achieved on
derivative contracts when the associated cash flows occur. We
have agreed these forecast rates to the profile of the derivatives
that are expected to mature in the future and tested their
application to the relevant monetary assets and liabilities.
We tested the reconciling items between the operating profit
and free cash flow disclosed in note 28 including verifying that
the items adjusted for are consistent with the prior year. This
included validating a sample of restructuring costs and verifying
that the costs were sufficiently related to the transformation
programme. We also considered whether free cash flow contains
material one-off items which require further disclosure.
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
130
Key audit matter How our audit addressed the key audit matter
One of the items excluded from underlying profit is exceptional
restructuring costs associated with the transformation
programme. Judgement is required to determine what costs are
related to this programme to warrant exclusion from underlying
profit.
We assessed the appropriateness and completeness of
disclosures of the impact of one-off or non-underlying items
primarily in notes 1, 2 and 28 to the consolidated financial
statements and found them to be appropriate. This included
assessing the explanations management provided on the
reconciling items between underlying performance and
statutory performance in note 2.
Overall we found that the classification judgements made by
management were in line with their policy for underlying results
and exceptional items, had been consistently applied and there
are no material uncorrected misstatements resulting from our
testing.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry
in which they operate.
Our scoping is based on the group’s consolidation structure. We define a component as a single reporting unit which feeds into the
group consolidation. Of the group’s approximately 350 reporting components, 31 individual components (including three joint ventures)
were subject to full scope audits which, with an element of sub-consolidation, equates to 14 group reporting opinions. A further nine
components performed targeted specified audit procedures contributing to audit coverage.
Under our audit methodology, we test both the design and operating effectiveness of relevant business process controls over significant
risks and perform substantive testing over each financial statement line item.
The group operates Group Business Services (GBS) to bulk process financial transactions in Derby (UK), Indianapolis (US), Bengaluru
(India) and Krakow (Poland). Based on our assessment it is not possible to fully test revenue and profit centrally as certain key processes,
such as long‑term contracting, remain within the business due to their nature and are not handled by GBS.
Further specific audit procedures over central functions, the group consolidation and areas of significant judgement, including group
treasury operations, corporate taxation, post-retirement benefits, and certain goodwill balances and intangible assets impairment
assessments were performed by the group engagement team.
This scope of work, together with the additional procedures performed at a group level as identified above, covered 93% of revenue
and 79% of profit before taxation.
Where work was performed by component auditors, we determined the level of involvement required in the audit work at those
reporting units to enable us to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on
the consolidated financial statements.
We issued formal written instructions to all component auditors setting out the audit work to be performed by each of them and
maintained regular communication with the component auditors throughout the audit cycle. These interactions included attending
certain component clearance meetings and holding regular conference calls, as well as reviewing and assessing any matters reported.
The group engagement team also reviewed selected audit working papers for certain component teams to evaluate the sufficiency of
audit evidence obtained and to fully understand the matters arising from the component audits.
In addition, senior members of the group engagement team have visited component teams across all the group’s major segments in the
UK, Germany and the US. They included meetings with the component auditor and with local management.
The company comprises a number of businesses and we leveraged the testing performed over the largest of these that was obtained
for the group audit. In addition, we centrally tested certain items such as derivatives as part of our treasury operations, defined benefit
obligations, as well as corporate taxation. We audited company level adjustments including intercompany balances and the
recoverability of investments in subsidiaries.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the process they adopted to assess the extent of the potential
impact of climate risk on the group’s and the company’s financial statements and to support the disclosures made within the
Sustainability section of the Strategic report in Rolls-Royce Holdings plc's Annual Report 2025. In addition to our enquiries with
management, we understood the governance processes in place to assess climate risk, reviewed the group’s assessment of climate-
related risk including both physical and transition risks and read additional reporting made on climate related matters, including the
group’s disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework.
We held meetings with management, including the group’s sustainability team, to consider the completeness of management’s climate
risk assessment and its consistency with internal climate plans and board minutes, including whether the time horizons used by
management take account of all relevant aspects of climate change, such as transition risks. We also considered the consistency of this
assessment with the group’s communications on climate-related impacts. We challenged management on the carbon prices used within
their modelling and how these have been applied, as well as on the alignment of the longer‑term forecast period to 2050 with the
company’s transition plan and its associated metrics and targets.
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
131
We considered the following areas, which depend on medium to long-term profit or cash flow forecasts to be potentially materially
impacted by climate risk and consequently we focused our audit work in these areas: long-term contract accounting in the UK Civil
business (including contract loss provisions); the recoverability of deferred tax assets in the UK and the recoverability of the carrying
value of goodwill and certain intangible assets. Our findings were reported to and discussed with the Audit Committee of Rolls-Royce
Holdings plc (the ultimate parent company) and management. Where significant, further details of how climate change has been
considered in these areas and our audit response is given in the key audit matters above.
To respond to the audit risks identified in these areas we tailored our audit approach to address these, in particular, we:
- Validated the carbon prices used by management by benchmarking them against external forecasts and performed sensitivity analysis
over their application. The carbon prices have been incorporated by management in their forecasts of the group’s future cost base for
long-term contract accounting and associated provisions as well as scenarios utilised in assessing the recoverability of deferred tax
assets, goodwill and other assets;
- Considered the reasonableness of management’s assertion that climate change is unlikely to have a material impact on aviation demand
by comparing management’s EFH forecasts against other industry benchmarks and by considering the sensitivity of EFH to different
GDP growth rates expected under differing climate scenarios;
- Verified that estimates of capital and cash costs from reductions to the group’s scope 1 and scope 2 emissions have been incorporated
in the group’s forecasts including those used for going concern and the disclosures around the viability of the group that are included
in the Strategic Report of the Rolls-Royce Holdings plc Annual Report;
- Validated management’s judgement that climate change is unlikely to have a material impact on other estimates at 31 December 2025,
including the recoverability of inventory or the expected credit loss provision associated with trade receivables and contract assets, by
considering the short timeframe these assets are expected to be utilised in compared to the period over which transition and physical
risks are expected to arise; and
- Where appropriate, performed independent sensitivity analysis to determine to what extent reasonably possible changes in the climate
related assumptions in the group’s forecasts could result in material changes to the impacted balances and assessed the appropriateness
of the associated disclosures.
We also considered the consistency of the disclosures in relation to climate change (including the disclosures in the Sustainability
section of the Strategic Report) within the Rolls-Royce Holdings plc Annual Report 2025 and our knowledge obtained from our audit.
This included considering the models management used in the TCFD scenario analysis and if the assumptions in those models are
consistent with the assumptions used elsewhere in the financial statements.
As disclosed within the Sustainability section of the Strategic Report of the Rolls-Royce Holdings plc Annual Report 2025, the
achievement of net zero by 2050 will require significant change across the aviation sector in particular, including widespread adoption
of Sustainable Aviation Fuels or other alternative fuel sources.
Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole for the year ended
31 December 2025. The future estimated financial impacts of climate risk are inherently uncertain given the medium to long-term time
frames involved and their dependency on how governments, global markets, corporations and society respond to climate change, as
well as the speed of technological advancements that may be required. Accordingly, financial statements cannot capture all possible
future outcomes as these are not yet known.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements - group Financial statements - company
Overall
materiality
£200m (2024: £178m). £107m (2024: £92m).
How we
determined it
Approximately 1.0% of underlying revenue Approximately 1.0% of revenue
Rationale for
benchmark
applied
We have consistently used underlying revenue to
determine materiality as opposed to a profit-based
benchmark. This is because there is considerable
volatility in profit before tax as a result of revenue
recognition under IFRS 15 and from the fair value
movement in the group's derivatives. Underlying
revenue continues to be a key performance metric
for the group and is more stable than the profit
metric. We have applied a 1.0% revenue benchmark,
consistent with prior year. This is also a commonly
used benchmark for revenue based materiality.
Consistent with the group financial statements, we
have used revenue to determine materiality as
opposed to a profit-based benchmark. We have used
statutory revenue rather than underlying revenue
because underlying revenue is not disclosed for the
company.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The
range of materiality allocated across components was £8m to £110m. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
132
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% (2024: 62.5%) of overall materiality, amounting to £150m (2024: £110m) for the group
financial statements and £80m (2024: £65m) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee of Rolls-Royce Holdings plc (the company's ultimate parent company) that we would report to
them misstatements identified during our audit above £8m (group audit) (2024: £7m) and £5.4m (company audit) (2024: £4.4m) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of
accounting included:
● Testing the model used for management’s going concern assessment which is primarily a liquidity assessment given there are no
significant financial covenants in its committed debt facilities. Management’s assessment covered the 18 months from the balance
sheet date to 30 June 2027. We focused on this period and also considered the subsequent six months to the end of 2027;
● Management’s base case forecasts are prepared through its normal budget and forecasting process for each of its businesses over
the next five years. We understood and assessed this process including the assumptions used for 2026 and 2027 and assessed
whether there was adequate support for these assumptions. A similar assessment was performed on the downside cash flows,
including gaining an understanding of the scenarios modelled by management and how they were quantified in the downside cash
flow forecast;
● We have read and understood the key terms of all committed debt facilities to understand any terms, covenants or undertakings
that may impact the availability of the facility;
● We considered the potential mitigating actions available to management to reduce costs, manage cash flows, limit share buybacks
or raise additional financing and assessed whether these were within management's control and feasible within the period of the
assessment; and
● We assessed the adequacy of disclosures in the Going concern statement and statements in note 1 of the consolidated and company
financial statements and found these appropriately reflect the key areas of uncertainty identified.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the
company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required
to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of
the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors' report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors' report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors'
report for the year ended 31 December 2025 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic report and Directors' report.
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
133
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the Financial Statements, the directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to the regulations of country aviation authorities such as the Civil Aviation Authority, import and export restrictions including
sanctions, and the UK Bribery Act, and we considered the extent to which non-compliance might have a material effect on the financial
statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Listing
Rules of the UK Financial Conduct Authority, the Companies Act 2006 and tax legislation. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that
the principal risks were related to (1) posting inappropriate journal entries to manipulate financial results; (2) management bias in
significant accounting estimates such as long-term contract accounting and associated provisions; (3) the sale of Civil engines to joint
ventures for no clear commercial purpose or above market prices; and (4) inappropriately including or excluding transactions from the
group's underlying or free cash flow alternative performance metrics. The group engagement team shared this risk assessment with the
component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures
performed by the group engagement team and/or component auditors included:
● Discussions throughout the year with management, internal audit, the group’s legal counsel, and the head of ethics and compliance,
including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;
● Assessment of 'speak-up' matters reported through the group's Speak Up Line and the results of management's investigation of such
matters;
● Verifying sales of spare engines to joint ventures are in line with the approved timetable and are at a price supported by external
valuation;
● Reading the minutes of Board meetings to identify any inconsistencies with other information provided by management;
● Reviewing legal expense accounts to identify significant legal spend that may be indicative of non-compliance with laws and
regulations;
● Challenging assumptions and judgements made by management in determining significant accounting estimates (because of the
risk of management bias), in particular in relation to long-term contract accounting and associated provisions;
● Identifying and testing unusual journal entries, in particular journal entries posted with unusual account combinations, and testing
all material consolidation journals; and
● Challenging why certain items are excluded or included from underlying profit or free cash flow and review of disclosures included
in the Annual Report explaining and reconciling alternative performance measures to statutory metrics.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also,
the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We
will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling
to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. In our engagement letter, we also agreed to
describe our audit approach, including communicating key audit matters.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Independent Auditor’s Report Rolls-Royce plc Annual Report 2025
134
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
● we have not obtained all the information and explanations we require for our audit; or
● adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
● certain disclosures of directors’ remuneration specified by law are not made; or
● the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
We were first appointed by the company for the financial year ended 31 December 2018. Our uninterrupted engagement covers eight
financial years.
Other matter
The company is required by the Financial Conduct Authority Disclosure Guidance and Transparency Rules to include these financial
statements in an annual financial report prepared under the structured digital format required by DTR 4.1.15R - 4.1.18R and filed on the
National Storage Mechanism of the Financial Conduct Authority. This auditors’ report provides no assurance over whether the
structured digital format annual financial report has been prepared in accordance with those requirements.
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
Other Financial Information Rolls-Royce plc Annual Report 2025
135
OTHER FINANCIAL INFORMATION
Foreign exchange
Foreign exchange rate movements influence the reported
income statement, the cash flow and closing net cash/(debt)
balance. The average and spot rates for the principal trading
currencies of the Group are shown in the table below:
£m
2025 2024 Change
USD per
GBP
Year
-
end spot rate
1.35
1.25
+
8
%
Average spot rate
1.32
1.28
+3%
EUR per
GBP
Year
-
end spot rate
1.15
1.21
-
5%
Average spot rate
1.17
1.18
-
1%
The Group’s global corporate income tax
contribution
The Group’s total corporation tax payments in 2025 were
£590m. Around 96% of this was paid in the US, Germany, UK,
Singapore and Canada. The balance of tax payments were
made in around 40 other countries.
In common with most multinational groups, the total profits for
corporate income tax purposes are not the same as the
consolidated profit before taxation reported on page 31.
The main reasons for this are:
(i) the consolidated income statement is prepared under IFRS,
whereas the corporate income tax profits and losses for
each company are determined by local tax accounting
rules;
(ii) accounting rules require certain income and costs relating
to our commercial activities to be eliminated from, or
added to, the aggregate of all the profits of the Group
companies when preparing the consolidated income
statement (consolidation adjustments); and
(iii) specific tax rules including exemptions or incentives as
determined by the tax laws in each country.
In most cases, paragraphs (i) and (ii) above are only a matter of
timing and therefore tax will be paid in an earlier or later year.
The impact of paragraph (iii) above will often be permanent,
depending on the relevant tax law. Further information on the
tax position of the Group can be found as follows:
— Rolls-Royce Holdings plc Audit Committee Report (page 78
of the Rolls-Royce Holdings plc Financial Statements) –
updates were given to the Audit Committee during the
year;
— note 5 to the Consolidated Financial Statements (pages 59
to 62); and
— details of the tax balances in the Consolidated Financial
Statements together with a tax reconciliation. This explains
the main drivers of the tax rate and the impact of our
assessment on the recovery of UK deferred tax assets.
Information on the Group’s approach to managing its tax affairs
can be found at www.rolls-royce.com.
Investments and capital expenditure
The Group subjects all major investments and capital
expenditure to a rigorous examination of risks and future cash
flows. Investments and capital expenditure must align to the
Group’s strategy and create shareholder value. All major
investments, including the launch of major programmes,
require Board approval.
The Group has a portfolio of projects at different stages of their
lifecycles. All of our major investments and projects are
assessed using a range of financial metrics, including
discounted cash flow and return on investment.
Financial risk management
The Board has established a structured approach to financial
risk management. The Financial risk committee (Frc) is
accountable for managing, reporting and mitigating the
Group’s financial risks and exposures. These risks include the
Group’s principal counterparty, currency, interest rate,
commodity price, liquidity and credit rating risks outlined in
more depth in note 20. The Frc is chaired by the Chief
Financial Officer. The Group has a comprehensive financial risk
policy that advocates the use of financial instruments to
manage and hedge business operations risks that arise from
movements in financial, commodities, credit or money markets.
The Group’s policy is not to engage in speculative financial
transactions. The Frc sits quarterly to review and assess the key
risks and agree any mitigating actions required.
Capital structure
£m
202
5
202
4
Total equity
4,977
(521)
Cash flow hedges
(7)
(13)
Group capital
4,970
(534)
Net
cash
1,895
474
Operations are funded through various shareholders’ funds,
bank borrowings, bonds and notes. The capital structure of the
Group reflects the judgement of the Board as to the
appropriate balance of funding required. Funding is secured
by the Group’s continued access to the global debt markets.
Borrowings are funded in various currencies using derivatives
where appropriate to achieve a required currency and interest
rate profile. The Board’s objective is to retain sufficient
financial investments and undrawn facilities to ensure that the
Group can both meet its medium-term operational
commitments and cope with unforeseen obligations and
opportunities.
The Group holds cash and short-term investments which,
together with the undrawn committed facilities, enable it to
manage its liquidity risk.
Other Financial Information Rolls-Royce plc Annual Report 2025
136
During the year to 31 December 2025, the Group repaid a $1bn
bond at its maturity and cancelled its undrawn £2.5bn revolving
credit facility, which was due to mature in November 2027. This
facility had remained undrawn during the year. The Group
replaced this facility with a new £2.5bn revolving credit facility,
maturing December 2030.
At the year end, the Group retained aggregate liquidity of
£8.2bn, including cash and cash equivalents of £5.7bn and
undrawn borrowing facilities of £2.5bn.
The Group has two material debt maturities in February and June
2026. The maturity profile of the borrowing facilities is regularly
reviewed to ensure that refinancing levels are manageable in the
context of the business and market conditions. There are no
rating triggers in any borrowing facility that would require the
facility to be accelerated or repaid due to an adverse movement
in the Group’s credit rating. The Group conducts some of its
business through a number of joint ventures. A major proportion
of the debt of these joint ventures is secured on the assets of the
respective companies and is non-recourse to the Group. This
debt is further outlined in note 17.
Credit rating
£m
Rating
Outlook
Moody’s Investors Service
Ba
a
1
Positive
Standard &
Poor’s
BB
B
+
Stable
Fitch
BB
B
+
Positive
The Group subscribes to Moody’s, Standard & Poor’s and Fitch
for independent long-term credit ratings, with the ratings in the
table above being applicable at the date of this report.
Alternative Performance Measures Rolls-Royce plc Annual Report 2025
137
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES (APMs) TO THEIR STATUTORY
EQUIVALENT
Alternative Performance Measures (APMs)
Business performance is reviewed and managed on an underlying basis. These alternative performance measures reflect the economic
substance of trading in the year. In addition, a number of other APMs are utilised to measure and monitor the Group’s performance.
Definitions and reconciliations to the relevant statutory measure are included below. All comparative periods relate to 31 December
2024.
Underlying results
Underlying results are presented by recording all relevant revenue and cost of sales transactions at the average exchange rate achieved
on effective settled derivative contracts in the period that the cash flow occurs. Underlying results also exclude: the effect of acquisition
accounting and business disposals, impairment of goodwill and other non-current assets where the reasons for the impairment are
outside of normal operating activities, exceptional items and certain other items which are market driven and outside of management’s
control. Further detail can be found in note 2.
2025
£m
2024
£m
Revenue
Statutory revenue
21,207
18,909
Derivative and FX adjustments
(1,148)
(1,061)
Underlying revenue
20,059
17,848
Gross
profit
Statutory
gross
profit
6,175
4,221
Derivative and FX adjustments
(799)
(
186
)
Programme exceptional
credits
(83)
–
Exceptional transformation and restructuring
(credits)/
charges
(9)
147
Acquisition accounting and M&A
14
43
Impairment
charge/(
reversal
)
6
(2)
Civil Aerospace programme asset impairment reversal
(179)
(132)
Other underlying adjustments
1
–
Underlying
gross
profit
5,126
4,091
Commercial and administrative costs
Statutory
commercial and administrative (C&A) costs
(1,268)
(1,284)
Exceptional transformation and restructuring
charges
53
70
Other underlying adjustments
(
8)
17
Underlying C&A
c
osts
(1,223)
(1,197)
Research and development costs
Statutory research and development (R&D) costs
(495)
(203)
Derivative
and
FX adjustments
2
(8)
Exceptional transformation and restructuring charges
–
17
Acquisition accounting
2
2
Civil Aerospace programme asset impairment reversal
(6)
(413)
Underlying R&D costs
(497)
(605)
Operating
profit
Statutory operating
profit
4,468
2,906
Derivative and FX adjustments
(797)
(191)
Programme exceptional
c
redits
(83)
–
Exceptional transformation and r
estructuring
charges
44
234
Acquisition accounting and M&A
16
45
Civil Aerospace programme asset impairment reversal
(185)
(545)
Impairment
char
ge/
(
reversal
)
6
(2)
Other underlying adjustments
(7)
17
Underlying operating
profit
3,462
2,464
Underlying operating
margin
17.3%
13.8%
Alternative Performance Measures Rolls-Royce plc Annual Report 2025
138
Organic change
Organic change is the measure of change at constant translational currency applying full year 2024 average rates to 2025 and excludes
M&A changes and business disposals. The movement in underlying change to organic change is reconciled below.
All amounts below are shown on an underlying basis and reconciled to the nearest statutory measure on page 137. All comparative
periods relate to the year ended 31 December 2024.
Total group income statement
2025
£m
2024
£m
Change
£m
FX
£m
M&A
1
£m
Organic
Change
£m
Organic
change
%
Underlying r
evenue
20,059
17,848
2,211
(115)
(164)
2,490
14%
Underlying gross profit
5,126
4,091
1,035
(16)
(22)
1,073
26%
Underlying operating profit
3,462
2,464
998
(21)
14
1,005
38%
Net financing costs
(110)
(171)
61
2
–
59
(35%)
Underlying
profit
before taxation
3,352
2,293
1,059
(19)
14
1,064
44%
Taxation
(593)
(282)
(311)
(5)
24
(330)
128%
Underlying profit
for the year
2,759
2,011
748
(24)
38
734
34%
1 During 2025, the sale of the naval propulsors business completed and the Group relinquished control of Rolls-Royce SMR Limited. As a result, organic change excludes these
results from 2025 and 2024. During 2024, the sale of the lower power range engines business completed and the Group exited the advanced air mobility activities. As a result,
organic change excludes these results from 2024
Civil Aerospace
2025
£m
2024
£m
Change
£m
FX
£m
M&A
£m
Organic
change
£m
Organic
change
%
Underlying
revenue
10,382
9,040
1,342
16
–
1,326
15%
Underlying OE revenue
3,217
3,105
112
11
– 101
3%
Underlying services revenue
7,165
5,935
1,230
5
– 1,225
21%
Underlying
gross profit
2,675
1,990
685
6
–
679
34%
Commercial and
administrative costs
(432)
(396)
(36)
1
–
(37)
9%
Research and development costs
(267)
(252)
(15)
–
–
(15)
6%
Joint ventures and associates
154
163
(9)
(3)
– (6)
(4%)
Underlying
operating profit
2,130
1,505
625
4
– 621
41%
Defence
2025
£m
2024
£m
Change
£m
FX
£m
M&A
1
£m
Organic
change
£m
Organic
change
%
Underlying revenue
4,772
4,522
250
(71)
(48)
369
8%
Underlying OE revenue
2,228
1,943
285
(27)
(24)
336
18%
Underlying services revenue
2,544
2,579
(35)
(44)
(24)
33
1%
Underlying
gross
profit
933
908
25
(12)
(3)
40
4%
Commercial and administrative costs
(201)
(212)
11
2
(1)
10
(5%)
Research and development costs
(45)
(55)
10
1
–
9
(16%)
Joint ventures and associates
2
3
(1)
–
–
(1)
33%
Underlying
operating
profit
689
644
45
(9)
(4)
58
9%
1 On 1 July 2025 the sale of the naval propulsors business completed. As a result, organic change excludes the naval propulsors results from 2025 and 2024
Power Systems
2025
£m
2024
£m
Change
£m
FX
£m
M&A
1
£m
Organic
change
£m
Organic
change
%
Underlying revenue
4,892
4,271
621
(60)
(113)
794
19%
Underlying OE revenue
3,433
2,942
491
(46)
(104)
641
23%
Underlying services revenue
1,459
1,329
130
(14)
(9)
153
12%
Underlying
gross
profit
1,522
1,199
323
(10)
(23)
356
30%
Commercial and administrative costs
(518)
(483)
(35)
–
3
(38)
8%
Research and development costs
(164)
(165)
1
(2)
–
3
(2%)
Joint ventures and associates
12
9
3
(1)
–
4
44%
Underlying
operating
profit
852
560
292
(13)
(20)
325
60%
1 On 31 July 2024 the sale of the lower power range engines business completed. As a result, organic change excludes the lower power range engines results from 2024
Alternative Performance Measures Rolls-Royce plc Annual Report 2025
139
Trading cash flow
Trading cash flow is defined as free cash flow (as defined below) before the deduction of recurring tax and post-employment benefit
expenses. Trading cash flow per segment is used as a measure of business performance for the relevant segments.
2025
£m
2024
£m
Civil Aerospace
2,512
2
,
030
Defence
745
591
Power Systems
658
452
Total reportable segments trading cash flow
3,915
3
,
073
All
O
ther
B
usinesses
1
10
(176)
Corporate
and Inter
-
segment
(62)
(6
2
)
Trading cash flow
3,86
3
2
,
83
5
Underlying operating profit charge
exceeded by
contributions to defined benefit schemes
(
37
)
(31)
Tax
2
(555)
(381)
Free cash flow
3
,2
71
2
,
42
3
1 All Other Businesses include the financial results of small modular reactors, electrical power solutions and the UK Civil Nuclear business (see note 2 for further details)
2 See page 96 for tax paid in the derivation of summary funds flow statement
Free cash flow
Free cash flow is a measure of the financial performance of the businesses’ cash flows which is consistent with the way in which
performance is communicated to the Board. Free cash flow is cash flows from operating activities, adjusted to include capital
expenditure and movements in investments, capital elements of lease payments, interest paid, cash received on maturity of share-based
payment schemes and amounts paid relating to the settlement of excess derivatives. It excludes amounts spent/received on business
acquisitions/disposals, and other material exceptional or one-off cash flows. Cash flows from operating activities is our statutory
equivalent.
2025
£m
2024
£m
Statutory cash flows from operating activities
4,566
3,78
0
Capital expenditure
(9
78
)
(876)
Cash received on maturity of share based payment schemes
from
Rolls
-
Royce Holdings
plc
40
–
Investment (including investment from NCI and movement in joint ventures, associates and other investments)
(7)
16
Capital element of lease payments
(232)
(299)
Interest paid
(262)
(298)
Exceptional transformation and restructuring costs
78
104
M&A costs
70
1
Other
(4)
(5)
Free cash flow
3,2
71
2,42
3
Group R&D expenditure
In year gross cash expenditure on R&D excludes contributions and fees, amortisation and impairment of capitalised costs and amounts
capitalised during the year. For further detail, see note 3.
Gross Capital expenditure
Gross capital expenditure during the year. All proposed investments are subject to rigorous review to ensure that they are consistent
with forecast activity and provide value for money. The Group measures annual capital expenditure as the cash purchases of PPE
acquired during the year.
2025
£m
2024
£m
Purchases of PPE (cash flow statement)
621
519
Alternative Performance Measures Rolls-Royce plc Annual Report 2025
140
Key performance indicators
The following measures are key performance indicators and are calculated using alternative performance measures or statutory results.
See below for calculation of these amounts.
Order backlog
Total value of firm orders placed by customers for delivery of products and services where there is no right to cancel. Further details
are included in note 2 of the Consolidated Financial Statements.
Total underlying cash costs as a proportion of underlying gross margin (abbreviated to TCC/GM)
Total underlying cash costs during the year (represented by underlying research and development (R&D) expenditure and underlying
commercial and administrative (C&A) costs) as a proportion of underlying gross profit. This measure provides an indicator of total cash
costs relative to gross profit. A reduction in total cash costs relative to gross profit indicates how effective the business is at managing
and/or reducing its costs.
2025
£m
2024
£m
Underlying R&D expenditure
1
598
745
Underlying C&A
1,223
1,197
Total cash costs
1,821
1,942
Underlying gross profit
5,126
4,091
Total cash costs as a proportion of underlying gross profit
0.36
0.47
1 Excludes £4m derivatives and FX (2024: £30m impact of acquisition accounting, exceptional transformation costs, derivatives and FX)
Glossary Rolls-Royce plc Annual Report 2025
141
GLOSSARY
APM
alternative performance measure
IFRS
International Financial Reporting Standards
Articles
Articles of Association of Rolls
-
Royce plc
KPIs
key performance indicators
AUKUS
Australia, United Kingdom, United States
ktCO
z
e
kilotonnes of carbon dioxide equivalent
BESS
battery energy
storage system
LTIP
long
-
term incentive plan
C&A
commercial and administrative
LTSA
long
-
term service agreement
C Shares non-cumulative redeemable preference
shares
M&A mergers and acquisitions
Our Code
Global Code of Conduct
MRO
maintenance repair and overhaul
Company
Rolls
-
Royce plc
NCI
non
-
controlling interest
DPAs deferred prosecution agreements net zero
company
net zero carbon emissions from our
operations and facilities and our products
are compatible with net zero operations by
2050
DTR the FCA's Disclosure Guidance and
Transparency Rules
OCI other comprehensive income
EFH
engine flying hours
OE
original equipment
EU European Union OECD Organisation for Economic Cooperation and
Development
EUR
euro
PPE
property, plant and equipment
FCA
Financial Conduct Authority
R&D
research and development
FLRAA
Future Long Range Assault Aircraft
RRH
Rolls
-
Royce Holdings plc
FRC Financial Reporting Council Rolls-Royce
SMR
Rolls-Royce SMR Limited
FVOCI fair value recognised through other
comprehensive income
RRSAs risk and revenue sharing arrangements
FX
foreign exchange
SAF
sustainable aviation fuel
GBP Great British pound or pound sterling Scope 1 + 2
emissions
Group Scope 1 + 2 greenhouse gas emissions
GCAP
Global Combat Air Programme
SETT
Safety, Energy Transition & Tech Committee
GDP
gross domestic product
SMRs
small modular reactors
GESPP Global Employee Share Purchase Plan STEM science, technology, engineering and
mathematics
GHG
greenhouse gas
TCC
total cash costs
Group Rolls-Royce plc and its subsidiaries TCC/GM total underlying cash costs as a proportion
of underlying gross margin
GW gigawatt TCFD Task Force on Climate-related Financial
Disclosures
HPT
high pressure turbine
TRI
total reportable injuries
HSE
health, safety and environment
TSR
total shareholder return
IASB
International Accounting Standards Board
USD/US$
United States dollar