Rolls-Royce Holdings plc report annual 2012 Rolls-Royce Holdings plc annual report 2012 ® ® © Rolls-Royce plc 2013 Rolls-Royce Holdings plc Registered office: 65 Buckingham Gate London SW1E 6AT T +44 (0)20 7222 9020 www.rolls-royce.com Company number 7524813 WorldReginfo - aea8a40a-4321-4974-a880-adb5991b762f 133 Glossary Business review ABC Anti-bribery and corruption IFRS International Financial Reporting Standards Introduction 01 ACARE Advisory Council for Aviation Research and ISO International Standards Organisation Group at a glance 02 Innovation in Europe LDI Liability-driven investment Chairman’s statement 04 ADR American Depositary Receipts Programme LIBOR London Inter-Bank Offered Rate Chief Executive’s review 06 AEBS All-Employee Bonus Scheme LLP Limited Liability Partnership Values, vision and strategy 08 AGM Annual general meeting LTSA Long-Term Service Agreement Future opportunity 10 ANA All Nippon Airways LNG Liquefied Natural Gas Chief Financial Officer’s review 12 APB Auditing Practices Board MoD UK Ministry of Defence Key performance indicators 16 APRA Annual Performance Related Award plan MW Megawatt Principal risks and uncertainties 18 BIS Department for Business, Innovation and Skills NCI Non-controlling interest Civil aerospace 20 CAD Canadian dollar NO Nitrogen oxides Defence aerospace 22 X CBE Commander of the Most Excellent Order of the British Empire OCI Other comprehensive income Marine 24 Energy 26 CDP Carbon Disclosure Project OE Original Equipment Excellence in technology 28 CGU Cash-generating unit OECD Organisation for Economic Cooperation and Development Excellence in operations 30 CO2 Carbon dioxide Sustainability 32 CO2e Carbon dioxide equivalent OHSAS Occupational Health and Safety Advisory Services Additional financial information 37 CPS Cash flow per share OTC Over-the-counter CRIP C Share Reinvestment Plan PAC Political Action Committee Governance DJSI Dow Jones Sustainability World and European Indexes PLC Public Limited Company Chairman’s introduction 39 DoD US Department of Defense PSP Performance Share Plan Board of directors 40 EMIR European Market Infrastructure Regulation R&D Research and development International Advisory Board (IAB) 42 EPS Earnings per ordinary share RCF Revolving credit facility The Group Leadership Team (GLT) 42 ESOP Executive Share Option Plan REACH Registration, Evaluation and Authorisation of Chemicals Corporate governance report 43 EU European Union Registrar Computershare Investor Services PLC Audit committee report 47 FAA Federal Aviation Administration RRNA Rolls-Royce North America Nomination committee report 49 Frc Financial Risk Committee RRSPs Risk and Revenue Sharing Partnerships Ethics committee report 50 FRC Financial Reporting Council RSUs Restricted stock units Risk committee report 52 FSA Financial Services Authority SCRIA Supply Chain Relationships in Aerospace Safety committee report 53 Remuneration committee report 54 GBP Great British pound or pound sterling SDSR Strategic Defence and Security Review Directors’ remuneration report 57 GDP Gross Domestic Product SFO Serious Fraud Office Shareholders and share capital 68 GHG Greenhouse gas SIP Share Incentive Plan Other statutory information 70 GLT Group Leadership Team SRN Shareholder Reference Number HS&E Health, Safety and Environment STEM Science, Technology, Engineering and Mathematics Financial statements I&C Instrumentation and control STOVL Short take-off and vertical landing Contents 73 IAB International Advisory Board TRI Total reportable injuries IAE IAE International Aero Engines AG TSR Total Shareholder Return Other information IAS International Accounting Standards UAV Unmanned aerial vehicle Subsidiaries, jointly controlled IASB International Accounting Standards Board UK GAAP UK Generally Accepted Accounting Practices entities and associates 126 IFRIC International Financial Reporting Interpretations Committee USD United States dollar Independent Auditor’s report 129 Group five-year review 130 Shareholder information 131 Glossary 133 Directors’ report The directors’ report which includes the Business review is set out on pages 1 to 72. 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 will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. Designed and produced by Printed in the UK by PurePrint using their This report is intended to provide information to CONRAN DESIGN GROUP and environmental printing technology, using shareholders, is not designed to be relied upon by any other vegetable inks throughout. PurePrint is a CarbonNeutral® party, or for any other purpose and the Company and its The paper used in the report contains 75% recycled company. Both the paper manufacturing mill and the printer directors accept no liability to any other person other than content, of which 75% is de-inked post-consumer. are registered to the Environmental Management System under English law. All of the pulp is bleached using an elemental chlorine ISO 14001 and are Forest Stewardship Council® (FSC) free process (ECF). chain-of-custody certified. Cover: In February 2012, we celebrated the opening of our new manufacturing and assembly facility in Singapore for large civil aero engines. Image courtesy of: Bob Lee Keng Siang WorldReginfo - aea8a40a-4321-4974-a880-adb5991b762f Introduction “In the full year, underlying profits increased for the tenth consecutive year. We have established this record of consistent delivery while continuing to invest in people, technology and facilities.” John Rishton, Chief Executive Rolls-Royce is a global company, providing integrated power solutions for customers in civil and defence aerospace, marine and energy markets. We support our customers through a worldwide network of offices, manufacturing and service facilities. 2012 2011 % change Order book – firm and announced £60,146m £57,630m** +4% Underlying revenue* £12,209m £11,277m +8% Profit before financing £2,072m £1,189m +74% Underlying profit before tax* £1,429m £1,157m +24% Underlying earnings per ordinary share* 59.27p 48.54p +22% Payments to shareholders 19.5p 17.50p +11% * See explanation in note 2 on page 86 ** Restated 2011 year-end data excluding International Aero Engines (IAE) order book of £4,571 million WorldReginfo - aea8a40a-4321-4974-a880-adb5991b762f 2 Business review Group at a glance The priorities of the Group remain: deliver on the promises we have made; decide where to grow and where not to; and improve financial performance. Civil aerospace Defence aerospace £6,437m £727m £2,417m £404m Underlying revenue 2012 Underlying profit 2012 Underlying revenue 2012 Underlying profit 2012 Trent XWB achieved certification Over US$1 billion in contracts from US DoD and UK MoD Trent 1000-TEN introduced US$315 million contract for F-35B STOVL LiftSystems™ BR725 enters service and IAE restructure completed Adour engines ordered by Royal Saudi Air Force for Hawks The Civil aerospace business is a major manufacturer of Rolls-Royce is the second largest provider of defence aero engines for the airline and corporate jet market. aero-engine products and services globally with 18,000 Rolls-Royce powers more than 30 types of commercial engines in service with 160 customers in 103 countries. aircraft and over 12,500 engines are in service with customers around the world. Revenue mix Revenue mix 46% OE revenue 46% OE revenue 54% Services revenue 49% Services revenue 5% Development R olls-Royce Holdings plc annual report 2012 WorldReginfo - aea8a40a-4321-4974-a880-adb5991b762f 3 Business review Group overview 2012 2012 revenue by business segment • The order book increased to £60.1 billion, 53% Civil aerospace up four per cent, adjusted for the IAE disposal. 20% Defence aerospace Order intake was £16.1 billion in the year. 8% Energy Business review • Underlying revenue increased eight per cent to 18% Marine £12.2 billion, including 12 per cent growth in 1% Engine Holding original equipment (OE) revenue and five per cent growth in underlying services revenue. • Underlying services revenue increased in all four business segments: Civil, Defence, Marine and Energy and, in Engine Holding. • Underlying profit before tax increased 24 per cent to £1,429 million reflecting revenue growth, revenue mix, unit cost reduction, a contribution from Tognum and IAE restructuring. Marine Energy £2,249m £294m £962m £21m Underlying revenue 2012 Underlying profit 2012 Underlying revenue 2012 Underlying profit 2012 £147 million orders from Brazil for drill ships and Six RB211s ordered by PetroChina for pipeline project offshore vessels Services grew and investment 24/7 support MT7 chosen to power US Navy future hovercraft desk completed £1.1 billion order for UK naval nuclear reactor Nuclear agreements signed with AREVA and Hitachi core programme With over 4,800 gas turbines sold, and more than Rolls-Royce has a world-leading range of capabilities in 130 million hours of operating experience gained, the marine market, encompassing the design, supply and our Energy business plays a critical role in supporting support of power and propulsion systems. We provide global infrastructure. Our technology powers offshore comprehensive through-life support from a global platforms, transports oil and gas through pipelines and network of service facilities. generates dependable