BETTER POWER FOR A CHANGING WORLD

WHO WE ARE

OUR BUSINESSES

OUR PRIORITIES

WHO WE ARE

WE ARE A POWER SYSTEMS AND SERVICES GROUP

ORDER BOOK

£74 bn

REVENUE

£14.6bn

LAND

SEA

AIR

PROFIT

£1.6bn

Trent XWBIn service on the A350. Over 1,500 engines on order.

BETTER POWER• Cleaner and more sustainable energy

• More fuel-efficient systems on land, at sea and in the air

• Helping customers to do more using less

LEADING INNOVATION

A CHANGING WORLD• Growing population and global growth creating demand for more power

• Greater affluence leading to greater mobility

• Climate change driving demand for lower emissions

LEADING TECHNOLOGY

MTU POWERPACKSAmong the most advanced in the rail industry, meeting all the latest EU regulations on emissions

TRENT XWBWorld’s most efficient large aero engine

UT DESIGN SERIESGlobal benchmark for offshore oil industry: wave-piercing hull to improve efficiency and reduce fuel consumption

OUR VISION IS TO DELIVER BETTER POWER FOR A CHANGING WORLD

BETTER POWER FOR A CHANGING WORLD

£1.2 BILLIONinvested in research and development annually

15,500engineers

MORE PATENTSfiled annually than any other UK company

31university technology partnerships

HOW WE ARE STRUCTURED

CUSTOMER SERVICES

DEFENCE AEROSPACE MARINEPOWER

SYSTEMS NUCLEARCIVIL AEROSPACE

LAND & SEAAEROSPACE

NUCLEARRECIPROCATING ENGINESGAS TURBINES

COMPLEMENTARY TECHNOLOGIES AND BUSINESS CYCLES

LAND & SEAAEROSPACE

RECIPROCATING ENGINES

LARGE & GLOBAL

MEDIUM/HIGH

LOW/MEDIUM

2-8 YEARS

20+ YEARS

GROWING

NUCLEAR

GLOBAL

HIGH

LOW/MEDIUM

20 YEARS

40+ YEARS

GROWING

GAS TURBINES

LARGE & GLOBAL

HIGH

HIGH

5-20 YEARS

40+ YEARS

SUBSTANTIAL AND GROWING

POWER SOURCE

CUSTOMER BASE

BARRIERS TO ENTRY

INVESTMENT REQUIRED

DEVELOPMENT TIME

PRODUCT LIFE

SERVICE OPPORTUNITY

BENEFITS OF A BALANCED PORTFOLIO

COMMERCIALDifferent business and investment cycles support strong balance sheet

Scale provides resilience and helps to fund R&D

Breadth increases market accessINDUSTRIAL High technology and advanced engineering applied across the Group

Deep understanding of materials, electronics, data management and services

Whole systems integration

STRATEGICAddress attractive, long-term markets where growth is driven by increasing population, affluence and trade

Rising environmental standards and demanding operating conditions play to our strengths

We invest with confidence because of our deep understanding of customer requirements

A ROBUST AND LONG-TERM GROWTH BUSINESS

Aerospace Land & Sea

2004: £5.9bn 2014: £14.6bn

REVENUE PROFIT

2004: £0.4bn 2014: £1.6bn

89%

25%

75%

10% CAGR 16% CAGR

64%

36%

75%

28%

BALANCED REVENUE STREAMS

48%52% ORIGINAL EQUIPMENT

CUSTOMERSERVICES

25%11%36% 25%

LAND & SEAPOWER SYSTEMS

MARINE

NUCLEAR

DEFENCE AEROSPACE

CIVIL AEROSPACE

AEROSPACE

OUR BUSINESSES

OVERVIEW• 13,000 engines in service powering 35 aircraft types

• Leading engine supplier in widebody aircraft and large corporate jet markets

• Trent engine on most major new twin-aisle aircraft programmes

GROWTH DRIVERS• Continuous investment in applied R&D allows us to maintain strong market position

• Requirement for quieter, more fuel-efficient engines which reduce emissions

• Increasing demand for travel in emerging markets and requirement for more fuel-efficient aircraft

MARKET OUTLOOK• Global market for equipment and services estimated at $1,900 billion over next 20 years

• Growth in engine deliveries drives $650 billion services market over next 20 years

• More than 90% of Trent engines covered by long-term service agreements

REVENUE

£6,837mPROFIT

£942m

CIVIL AEROSPACE

Advance and UltraFanOur civil aero engine designs of the future will incorporate new CTi carbon and titanium fan blades to deliver significant weight savings.

54%

REVENUE BY MARKET

39%61%

Large engines Small & medium engines

REVENUE MIX

Original Equipment Customer Services

48% 52%

OVERVIEW• World’s second largest supplier of defence aero engines

• Presence in all major sectors – transport, combat, trainer, helicopters and unmanned aerial vehicles (UAVs)

• 16,000 engines in service with more than 160 military customers in over 100 countries

GROWTH DRIVERS• Long-term requirement for global security

• Leading position in military transport aircraft

• Requirement for innovative solutions to customer service needs

MARKET OUTLOOK• Equipment market worth up to $150 billion over next 20 years

• Services market worth up to $250 billion over next 20 years

• Customer demand for greater capability will drive growth in services

DEFENCE AEROSPACE

Vertical technologyOur LiftSystem for the STOVL version of the F-35 Joint Strike Fighter delivers 40,000 lbs of downward thrust.

REVENUE

£2,069mPROFIT

£366m

REVENUE BY MARKET REVENUE MIX

Original Equipment & Development

Customer Services

61%39%10%39%51%

Transport Combat UAV/Trainer

POWER SYSTEMS

OVERVIEW• World leader in fuel-efficient, high-speed diesel technology

• Specialises in reciprocating engines for land and sea power applications

• 800,000 power systems in service across marine, industrial, rail, defence, off-road and energy markets

GROWTH DRIVERS• Major growth potential in fuel-efficient engines for marine and power markets

• Opportunities for technology transfer and collaboration with Marine business

• Revenue growth supported by extensive distribution network and broad market presence

MARKET OUTLOOK• Total market for reciprocating engines estimated at £500 billion over next 20 years

• Scope to increase service revenues from customer care agreements

• Services market worth up to £150 billion over next 20 years

Piston powerOur MTU product range is a world-leader in diesel and gas engines for land and sea applications.

REVENUE

£2,720mPROFIT

£253m

REVENUE BY MARKET REVENUE MIX

Original Equipment Customer Services

30%70%13%39%

Marine Industrial Energy Defence/other

20% 28%

MARINE

OVERVIEW• 4,000 customers worldwide with equipment installed on 25,000 vessels

• Strength in three key markets – naval, merchant and offshore

• World’s largest portfolio of power, propulsion, complex positioning systems and deck equipment

GROWTH DRIVERS• Long-term requirement for marine support to offshore oil and gas markets

• Environmental legislation creating need for cleaner power technologies

• Vessel owners benefit from one supplier of engine, propulsion and equipment systems from bridge to stern

MARKET OUTLOOK• Equipment market worth up to £170 billion over next 20 years

• Services market worth up to £80 billion over next 20 years

• Opportunities created by growing but fragmented global market

Carrier capabilityThe 33-tonne propellers that will power the Royal Navy’s new Queen Elizabeth class aircraft carriers.

REVENUE

£1,709mPROFIT

£138m

REVENUE BY MARKET REVENUE MIX

Original Equipment Customer Services

37%63%22% 19%59%

Offshore Naval Merchant

NUCLEAR

OVERVIEW• More than 50 years’ experience in nuclear industry through UK submarine programme

• Around half the world’s civil nuclear reactors use our services or solutions

• Strong global position in nuclear instrumentation and control systems

GROWTH DRIVERS• Security of supply, environmental requirements and rising demand drive need for nuclear as part of energy mix

• Strategic relationships with range of reactor designers gives us broad customer spread across the world

• Decommissioning offers long-term growth market potential

MARKET OUTLOOK• Long-term UK MoD submarine programme provides stable, ongoing service revenue stream

• Civil nuclear equipment and services market worth £220 billion over next 20 years

• Reactor support services market potentially valued at £140 billion over 20 years

Nuclear heritageSkills and knowledge developed over the past 50 years providing nuclear propulsion for the Royal Navy’s submarine fleet are being applied to the growing global market for civil nuclear power.

REVENUE

£684mPROFIT

£48m

REVENUE BY MARKET REVENUE MIX

Original Equipment Customer Services

63%37%74%

Submarines Civil nuclear/other Power generation

20% 6 %

ADDING VALUE FOR CUSTOMERS AND SHAREHOLDERS We leverage data to improve service experience, reduce cost and drive innovation

Provides long-term visibility of income

GROUP REVENUE MIX

TOTAL SERVICES REVENUE: £7 bn

SERVICES REVENUE BY DIVISION

52% ORIGINAL EQUIPMENT 48%

SERVICES

72% AEROSPACE 28% LAND

& SEA

IMPORTANCE OF CUSTOMER SERVICES ACROSS THE GROUP

GROWING INSTALLED ENGINE BASE Drives service revenues

Provides growth opportunity across the Group

CAPTURING THE OPPORTUNITY Long-term service agreements aligns interests and deepens our connection with customers

We invest in service capability to meet their needs

OUR PRIORITIES

STRATEGIC INVESTMENTWIDEBODY AIRCRAFT

NARROWBODY AIRCRAFT

MEDIUM-SPEED RECIPROCATING ENGINES

CHANGE OUR CULTURE

THE 4Cs CUSTOMER CONCENTRATION COST CASH

FIX THE BASICS

CHANGE OUR CULTURE

THE 4Cs CUSTOMER CONCENTRATION COST CASH

FIX THE BASICS

CUSTOMER Place the customer at the heart of our businessCONCENTRATION Focus on where we add valueCOSTEnsure our costs are competitiveCASHFor shareholder returns and to invest in future growth

FIX THE BASICSTHE 4Cs

CHANGE OUR CULTURE

THE 4Cs CUSTOMER CONCENTRATION COST CASH

FIX THE BASICSFIX THE BASICSCHANGE OUR CULTURE

Customer requirements driving innovation

Lean philosophy creating value for our customers

High Performance Culture enabling employees to be at their best

Strong ethics guiding standards and behaviours

WIDEBODY AIRCRAFTDefend and build market shareNARROWBODY AIRCRAFTRe-enter single aisle marketRECIPROCATING ENGINESGrow capability in medium-speed market

STRATEGIC INVESTMENTWIDEBODY AIRCRAFT

NARROWBODY AIRCRAFT

MEDIUM-SPEED RECIPROCATING ENGINES

OUR PRIORITIESSTRATEGIC INVESTMENT

20-YEAR GROWTH IN WIDEBODY FLEET

STRONG MARKET GROWTH DRIVEN BY CUSTOMER DEMAND• Rolls-Royce has more than 50% share of engines on order for new widebody aircraft

• Shift to modern fuel-efficient models• Increasing travel in emerging markets

RISING OUTPUT• Engine delivery more than doubling in the next 10 years: - Last decade 1,600 - Next decade 4,000

CUSTOMER SERVICES POTENTIAL• Service and support worth up to four times the value of original equipment over the lifetime of the engine

INVEST TO STAY AHEAD• Pipeline of new products and technologies, e.g. Advance and Ultrafan

WIDEBODY AIRCRAFTDEFEND AND BUILD MARKET SHARE

2,000

0

8,000

4,000

6,000

10,000

2014 2033

Source: Airbus Global Market Forecast ‘Flying on demand 2014-2033’

Heritage fleet

New deliveries

SIGNIFICANT AND GROWING SEGMENT OF CIVIL AEROSPACE MARKET• 70% of all deliveries by volume, and 50% by value

• Technology transfer from expertise in widebody aircraft

• Access to greater market opportunity in the long term

SUPPORTS FULL PRODUCT RANGE REQUIRED BY CUSTOMERS• Strengthens customer relationships

PREPARE TO EQUIP NEXT GENERATION• New narrowbody aircraft not anticipated before mid-2020s

NARROWBODY AIRCRAFTRE-ENTER SINGLE AISLE MARKET

20-YEAR NEW DELIVERIES OF PASSENGER AND FREIGHTER AIRCRAFT

4,000

0

16,000

8,000

12,000

24,000

20,000

Single aisle/Narrowbody Large body Very large aircraft

Source: Airbus Global Market Forecast ‘Flying on demand 2014-2033’

MEDIUM-SPEED ORIGINAL EQUIPMENT MARKET FORECAST (£BN)

MEDIUM-SPEED RECIPROCATING ENGINESGROW CAPABILITY IN MARKET

GROWING MARKET FOR MEDIUM-SPEED ENGINES• Marine and land power market anticipated to grow to £35 billion by 2023

• Fragmented market presents growth opportunities

CUSTOMER BENEFITS• Latest medium-speed engine: less fuel, lower emissions, 20% more power per cylinder than previous product

• At sea: engine selection can influence choice of other propulsion equipment, important for systems integration where we have expertise

• On land: meeting increasing global demand for local distributed power from diesel or gas-fuelled medium-speed engines

1

0

2

3

4

5

2014 2015 2018 201920172016 2020 2021 20232022

CONFIDENCE IN THE FUTURE

CONFIDENCE IN THE FUTURE

STRONG ORDER BOOKOriginal equipment and long-term service contracts give us visibility of revenues and demonstrate future growth potential of the business

GROWTH MARKETS The fundamentals of the business are strong. We have the technology and the skills to remain at the forefront of markets that will grow over the long term

R&D COMMITMENTInvesting more than £1 billion per year in innovation and technology to address new markets and meet current and future customer needs

02014

10

20

30

40

50

80

70

60

£BN

Group order book

2005 2006 2007 2008 2009 2010 2011 2012 2013

TRUSTED TO DELIVER EXCELLENCE