Incorporated in Great Britain

Aerospace businesses Rolls E.L. Turbofans Limited FJ44 engine support services/holding company Industrial businesses Allen Power Engineering Limited 1 Diesel engines Clarke Chapman Limited 1 Cranes and mechanical handling equipment Cochran Boilers Limited 1 Shell boilers Derby Specialist Fabrications Limited 1 High integrity pressure vessels and fabrications Rolls-Royce Industrial Power (India) Limited 2 Power station construction Rolls-Royce Marine Power Operations Limited Nuclear submarine propulsion systems Rolls-Royce Materials Handling Limited 2 Management company Rolls-Royce Nuclear Engineering Services Limited 1 Refurbishment and modification of nuclear power plant Rolls-Royce Power Engineering plc Power generation R-R Industrial Controls Limited 1 Control systems for power station and industrial application Vickers plc Holding company Vickers Engineering plc 3 Defence systems and marine gas turbine components Corporate NEI Overseas Holdings Limited 2 Holding company Rolls-Royce Aircraft Management Limited Aircraft leasing Rolls-Royce Capital Limited 4 Sales finance and other financial services Rolls-Royce International Limited International support and commercial information services Rolls-Royce Leasing Limited Engine leasing Rolls-Royce Overseas Holdings Limited Holding company Rolls-Royce Power Ventures Limited Provision of project development capabilities Sourcerer Limited 4 Supply of goods, services and utilities to the engineering sector

1 The interests are held by Rolls-Royce Power Engineering plc and these companies act as agents of that company. 2 The interests are held by Rolls-Royce Power Engineering plc. 3 The interest is held by Vickers plc. 4 These subsidiaries act as agents of Rolls-Royce plc.

The above companies operate principally in Great Britain and the effective Group interest is 100%.

69 Rolls-Royce plc 1999 Incorporated overseas

Aerospace businesses Brazil Motores Rolls-Royce Limitada Repair and overhaul France Rolls-Royce Technical Support SARL 1 Project support Germany Rolls-Royce Deutschland GmbH BR700 series engine development and manufacture USA Allison Engine Company, Inc. 2 Design, development and manufacture of gas turbine engines USA Rolls-Royce Engine Services – Oakland Inc. 3 Repair and overhaul USA Rolls-Royce Gear Systems Inc. 3 Design and manufacture of accessory gearbox systems Industrial businesses Australia Rolls-Royce Australia Limited 1 Electrical, mechanical and construction engineering Canada Rolls-Royce Canada Limited 4 Industrial gas turbines and aero engine sales, service and overhaul Canada Rolls-Royce Holdings Canada Inc. Holding company Canada Rolls-Royce Industries Canada Inc. 5 Holding company France Caillard SA 6 Cranes and bulk materials handling equipment India Rolls-Royce Energy Systems India Pty Limited 1 Project management and customer support New Zealand Rolls-Royce New Zealand Limited 7 Electrical switchgear and industrial engineering Norway Vickers Marine AS 8 Holding company South Africa NEI Africa Holdings Limited (60.44%) 6 Holding company South Africa Northern Engineering Industries Africa Limited (55.93%) 9 Energy conversion and distribution equipment (The effective interest in South African companies is 34.99%) Sweden Kamewa Holdings AB 8 Holding company USA Rolls-Royce Energy Systems Inc. 3 Turbine generator packages USA Syncrolift Inc. 3 Shiplift systems Corporate Guernsey Nightingale Insurance Limited 1 Insurance services Saudi Arabia Rolls-Royce International Turbines (Saudi Arabia) Limited (51%) Operation and maintenance of electrical generating plant USA Rolls-Royce (USA) Holdings Co. 10 Holding company USA Rolls-Royce North America Holdings Inc. 11 Holding company USA Rolls-Royce Capital Inc. 12 Financial services

1 The interests are held by Rolls-Royce Overseas Holdings Limited. 2 The interest is held by Rolls-Royce North America Ventures III Inc. 3 The interests are held by Rolls-Royce North America Ventures I Inc. 4 The interest is held by Rolls-Royce Industries Canada Inc. 5 The interest is held by Rolls-Royce Holdings Canada Inc. 6 The interests are held by NEI Overseas Holdings Limited. 7 The interest is held by Rolls-Royce Australia Limited. 8 The interest is held by Vickers International Limited. 9 The interest is held as follows: 52.93% by NEI Africa Holdings Limited, 3% by NEI Overseas Holdings Limited. 10 The interest is held by Rolls-Royce Ireland. 11 The interest is held by Rolls-Royce (USA) Holdings Co. 12 The interest is held by Rolls-Royce North America Ventures II Inc.

The above companies operate principally in the country of their incorporation and the effective Group interest is 100% unless otherwise stated.

A list of all subsidiary undertakings will be included in the Company annual return to Companies House.

70 Rolls-Royce plc 1999 Incorporated in Great Britain

% of class % of total held by equity held by Class Rolls-Royce plc Rolls-Royce plc Aerospace businesses Rolls-Royce Turbomeca Limited (England & France) A Shares — ü ý 50 Adour and RTM322 engines collaboration B Shares 100 þ RoSec Limited 1 A Ordinary — ü ý 50 Digital engine controls B Ordinary 100 þ Turbo-Union Limited (England, Germany & Italy) Ordinary 40 ü ý 40 RB199 engine collaboration A Shares 37.5 þ Industrial businesses Clarke Chapman Portia Port Services Limited 2 A Ordinary — ü ý 50 Port development and port management B Ordinary 100 þ Rolls Wood Group (Repair and Overhauls) Limited A Ordinary 100 ü ý 50 Repair and overhaul B Ordinary — þ Corporate Alpha Leasing Limited Ordinary 50 50 Engine leasing Rolls-Royce & Partners Finance Limited Ordinary 50 50 Engine leasing

Incorporated overseas

% of class % of total held by equity held by Class Rolls-Royce plc Rolls-Royce plc Aerospace businesses China Xian XR Aero Components Co Limited Ordinary 49 49 Manufacturing facility for aero-engine parts Germany EUROJET Turbo GmbH (England, Germany, Italy & Spain) Ordinary 33 33 EJ200 engine collaboration Germany MTU, Turbomeca, Rolls-Royce GmbH (England, France & Germany) Ordinary 33.3 33.3 MTR390 engine collaboration Hong Kong Hong Kong Aero Engine Services Limited 3 Ordinary 50 50 Repair and overhaul Israel TechJet Aerofoils Limited 3 A Ordinary 50 ü ý 50 Manufacture of compressor aerofoils B Ordinary 50 þ Saudi Arabia Middle East Propulsion Company 4 Foreign 16.7 ü ý 16.7 Repair and overhaul Ordinary — þ Singapore Singapore Aero Engine Services Limited 3 (effective interest 40%) Ordinary 30 30 Repair and overhaul Singapore International Engine Components Overhaul Pte Limited 3 Common 50 50 Repair and overhaul Spain Industria de Turbo Propulsores SA Ordinary 46.9 46.9 Manufacture and maintenance of aero engines Switzerland IAE International Aero Engines AG (England, Germany, Japan & USA) A Shares 100 ü ï V2500 series engine collaboration B Shares — ï ý 32.5 C Shares — ï ï D Shares — þ USA Texas Aero Engine Services, LLC 5 Ordinary 50 50 Repair and overhaul USA Williams-Rolls Inc. 6 (Europe & North America) Common 15 15 FJ44 engine collaboration

71 Rolls-Royce plc 1999 Incorporated overseas continued

% of class % of total held by equity held by Class Rolls-Royce plc Rolls-Royce plc Corporate Isle of Man Pembroke Group Limited 7 (Eire) Ordinary 50 50 Aircraft leasing USA Data Systems & Solutions, LLC 8 (England and USA) Common 50 50 Advanced controls and predictive data management

Unincorporated overseas

Aerospace businesses USA Light Helicopter Turbine Engine Company (LHTEC). Allison Engine Company, Inc. has a 50% interest in this unincorporated partnership which was formed to jointly develop and market the T800 engine.

1 The interest is held by Rolls-Royce Engine Controls Limited. 2 The interest is held by Rolls-Royce Power Engineering plc. 3 The interests are held by Rolls-Royce Overseas Holdings Limited. 4 The interest is held by Middle East Equity Partners Limited. 5 The interest is held by Rolls-Royce Engine Services Holdings Co. 6 The interest is held by Rolls E.L. Turbofans Limited. 7 The interest is held by Rolls-Royce Partners Finance (Netherlands) BV. 8 The interest is held by Rolls-Royce Control Systems Holdings Co.

The countries of principal operations, if other than the country of registration, are stated in brackets after the name of the company.

Joint arrangements that are not entities at December 31, 1999

% of class % of total held by equity held by Class Rolls-Royce plc Rolls-Royce plc Cayman Islands SAMA Leasing Company Limited 1 A Ordinary — ü ý 50 Aircraft leasing B Ordinary 100 þ Jersey RS Leasing Limited 2 A Ordinary 100 ü ý 50 Aircraft leasing B Ordinary — þ

1 The interest is held by Rolls-Royce Aircraft Management Limited. 2 The interest is held by Rolls-Royce Leasing Limited.

72 Rolls-Royce plc 1999 Company law requires the directors to prepare financial statements for each We have audited the financial statements on pages 40 to 72. We have also financial year which give a true and fair view of the state of affairs of the examined the amounts disclosed relating to emoluments, share options, Company and of the Group and of the profit or loss for that period. long-term incentive plan interests and directors’ pension entitlements which form part of the remuneration report on pages 32 to 39. In preparing those financial statements, the directors are required to: i) select suitable accounting policies and then apply them consistently; Respective responsibilities of directors and auditors ii) make judgements and estimates that are reasonable and prudent; The directors are responsible for preparing the Annual Report. As described iii) state whether applicable accounting standards have been followed, on this page, this includes responsibility for preparing the financial statements subject to any material departures disclosed and explained in the in accordance with applicable United Kingdom law and accounting standards. financial statements; Our responsibilities, as independent auditors, are established in the United iv) prepare the financial statements on the going concern basis unless it is Kingdom by statute, the Auditing Practices Board, the Listing Rules of the inappropriate to presume that the Company and the Group will London Stock Exchange, and by our profession’s ethical guidance. continue in business. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the The directors are responsible for keeping proper accounting records which Companies Act. We also report to you if, in our opinion, the directors’ report disclose with reasonable accuracy at any time the financial position of the is not consistent with the financial statements, if the Company has not kept Company and to enable them to ensure that the financial statements proper accounting records, if we have not received all the information and comply with the Companies Act 1985. They have general responsibility for explanations we require for our audit, or if information specified by law or taking such steps as are reasonably open to them to safeguard the assets of the Listing Rules regarding directors’ remuneration and transactions with the Group and to prevent and detect fraud and other irregularities. the Group is not disclosed. We review whether the statement on page 28 reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by the Stock Exchange, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.

Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at December 31, 1999 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985.

KPMG Audit Plc Chartered Accountants, Registered Auditor London March 1, 2000

73 Rolls-Royce plc 1999 Profit and loss account 1999 1998 1997 1996 1995 £m £m £m £m £m Group turnover 1 4,744 4,496 4,348 3,912 3,233 Trading profit 3 591 489 487 424 358 Operating exceptional items — — — (101) — Research and development (net)* (215) (173) (216) (199) (206) Group operating profit 2 376 316 271 124 152 Share of operating profit of joint ventures 31 17 17 12 13 Non-operating exceptional items 6 9 1 (147) 32 Net interest payable (53) (17) (13) (17) (22) Profit/(loss) on ordinary activities before taxation 360 325 276 (28) 175 Taxation (74) (65) (51) (16) (31) Profit/(loss) on ordinary activities after taxation 286 260 225 (44) 144 Equity minority interests in subsidiary undertakings (2) (2) (1) (3) (2) Profit/(loss) attributable to ordinary shareholders 284 258 224 (47) 142 Dividends (112) (99) (88) (78) (73) Transferred to/(from) reserves 172 159 136 (125) 69

*Research and development (gross) (626) (668) (595) (527) (492)

1 Group turnover Continuing operations 4,744 4,326 3,944 3,422 2,774 Discontinued operations — 170 404 490 459

2 Group operating profit/(loss) Continuing operations 376 326 266 229 170 Discontinued operations — (10) 5 (105) (18)

Earnings/(loss) per ordinary share Underlying 19.52p 16.91p 15.16p 12.70p 7.94p Basic 18.86p 17.25p 15.16p (3.19)p 10.25p Dividends per ordinary share 7.25p 6.55p 5.90p 5.30p 5.00p

3 Trading profit represents gross profit less commercial, marketing, product support, general and administration costs but is stated before operating exceptional items.

74 Rolls-Royce plc 1999 Balance sheet 1999 1998 1997 1996 1995 £m £m £m £m £m Fixed assets 2,808 1,374 1,276 1,171 1,166 Current assets 3,951 3,407 3,265 2,902 2,641 6,759 4,781 4,541 4,073 3,807 Liabilities and provisions (4,758) (3,064) (3,079) (2,748) (2,447) 2,001 1,717 1,462 1,325 1,360

Share capital 309 301 296 295 292 Reserves 1,679 1,404 1,147 1,008 1,053 Equity shareholders’ funds 1,988 1,705 1,443 1,303 1,345 Minority interests in subsidiary undertakings 13 12 19 22 15 2,001 1,717 1,462 1,325 1,360

Cash flow 1999 1998 1997 1996 1995 £m £m £m £m £m Cash inflow from operating activities 359 285 320 176 117 Interest, dividends and taxation (152) (98) (113) (102) (87) Capital expenditure and financial investment (199) (309) (203) (96) (19) Acquisitions and disposals (666) 87 42 (21) (180) (658) (35) 46 (43) (169) Cash flow from financing 622 113 13 64 229 (Decrease)/increase in cash and liquid resources (36) 78 59 21 60

75 Rolls-Royce plc 1999 Financial calendar Shareholder enquiries Ex dividend date for final dividend April 25, 2000 If you would prefer to receive new shares instead of cash dividends, please Calculation period for scrip dividend April 25-May 2, 2000 ask the Registrar for a scrip dividend mandate. If you have any queries on Qualifying (record) date for final dividend May 2, 2000 the following: Last date for new scrip dividend instructions May 23, 2000 i) Transfer of shares Annual General Meeting, The Queen Elizabeth II ii) Change of name or address Conference Centre, Broad Sanctuary, London SW1 11am May 25, 2000 iii) Lost share certificates Payment of final/scrip dividend July 3, 2000 iv) Lost or out of date dividend cheques Press advertisement of 2000 interim results* August 25, 2000 v) Death of a registered holder of shares Ex dividend date for interim dividend October 16, 2000 vi) Any other query relating to Rolls-Royce plc shares Calculation period for scrip dividend October 16-20, 2000 please write to, or telephone, the Registrar at the following address: Qualifying (record) date for interim dividend October 20, 2000 Computershare Services PLC Last date for new scrip dividend instructions November 10, 2000 PO Box 82 Financial year end December 31, 2000 The Pavilions Payment of interim/scrip dividend January 8, 2001 Bridgwater Road Press advertisement of 2000 preliminary results* March, 2001 Bristol BS99 7NH 2000 Annual Report published April, 2001 Helpline: 0870 702 0111

*Note: Preliminary and interim results are notified by press advertisements and will also be The Company operates a free-of-charge service for consolidating the available on the Company’s website http://www.rolls-royce.com. individual shareholdings of immediate members of a family. Please ask the Registrar for details if you are interested.

Low-cost share dealing Details of special low-cost dealing services in the Company’s shares may be Analysis of ordinary shareholders at December 31, 1999 obtained from Hoare Govett Limited (telephone 020 7601 0101) and from NatWest Stockbrokers Limited (telephone 020 7895 5489). Both are Number of % of total % of total members of the Securities and Futures Authority and NatWest Stockbrokers Number of shares holdings holdings shares is also a member of the London Stock Exchange. 1 – 150 125,157 36.94 1.06 You can obtain the current market price of the Company’s shares by 151 – 500 172,649 50.95 2.80 telephoning 0839 500 232 or alternatively by viewing teletext or similar 501 – 10,000 39,186 11.57 4.47 services. 10,001 – 100,000 1,157 0.34 2.34 100,001 – 1,000,000 505 0.15 11.72 Internet 1,000,001 and over 166 0.05 77.61 The Annual Report, Company announcements and other information are 338,820 100.00 100.00 available through the Internet on http://www.rolls-royce.com

76 Rolls-Royce plc 1999 ®

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