Rolls-Royce International Limited

Rolls-Royce International Limited

Berlin

Jahresabschluss zum Geschäftsjahr vom 01.01.2013 bis zum 31.12.2013

Company Information

Contents

Directors' report

Strategic report

Directors' responsibilities statement

Independent auditor's report

Profit and lass account

Balance sheet

Notes to the financial statements

Directors' report for the year ended 31 December 2013

The directors present their report and the financial statements for the year ended 31 December 2013.

Results and dividends

The profit for the year, alter taxation, amounted to £1,760 thousand (2012 - £3,661 thousand).

No dividend was paid during 2013 or 2012.

Directors

The directors who served during the year were:

A G Bowden (appointed 30 July 2013)

A C Cormack (appointed 12 September 2013)

D J Goma

M Harrison (resigned 30 July 2013)

M D Shipster (resigned 31 March 2013)

Events since the end of the year

Rolls-Royce Holdings plc announced an 6 May 2014 that it has signed an agreement to sell its Energy gas turbine and compressor business to Siemens for a £785 million cash consideration. This deal includes this company's Energy business.

On completion of the transaction, the company's parent, Rolls-Royce plc, will receive a further £200 million for a 25 year licensing agreement, granting Siemens access to relevant Rolls-Royce aeroderivative technology for use in the 4 to 85 megawatt power output gas turbine range. This company provides services to the Energy business in relation to supporting its employees employed an assignments relating to the Energy business,

The transaction is expected to complete before the end of December 2014, subject to closing conditions, including regulatory approvals.

Employee involvement

The company and employee representatives continue to work closely together to improve the quality of employee engagement and participation in the development of the business.

The company consults widely over changes to the Rolls-Royce Group pension schemes for UK employees. The company's policy en diversity and equality continues to develop in consultation with employee representatives. The company is committed to equal opportunities arid to developing a diverse and inclusive workforce.

The company's policy is to provide, wherever possible, employment and training and development opportunities for disabled people. lt is also committed to supporting employees who become disabled and to helping disabled employees make the best possible use of their skills and potential.

The company actively encourages employee share ownership in the ultimate parent company, Rolls-Royce Holdings plc.

The company continues to invest in training and development programmes to ensure that employees have the opportunity to attain the highest level of skills.

Employees are encouraged to take responsibility for their personal development and opportunities are available to extend their competency levels using a range of the latest education and training techniques, The use of Appraisal Systems and Personal Development Planning continues to grow and opportunities for the company to share best practice in these and other employee development and training activities are a high priority.

Qualifying third party indemnity provisions

The company has made qualifying third party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.

Disclosure of information to auditor

Each of the persons who are directors at the time when this Directors' report is approved has confirmed that:

Auditor

Our auditor, KPMG Audit Plc have instigated an orderly wind down of business. The Board has decided to put KPMG LLP forward to be appointed as auditors and resolution concerning their appointment will be proposed at the next board of directors meeting.

This report was approved by the board and signed an its behalf.

Strategic report for the year ended 31 December 2013

Introduction

The principal activities of the company comprise producing policies and strategies for the development of business opportunities in specific countries; to provide a marketing research and commercial information service; and to provide a financial administration service for overseas assignees of the Rolls-Royce Holdings plc group. During the year the company maintained registered offices in the following countries: Belgium, Bahrain, Czech Republic, France, Germany, Hong Kong, Indonesia, Italy, Kenya, Norway, Qatar, South Korea, Spain, Sri Lanka, Taiwan, Vietnam and United Arab Emirates.

Business review

There has been no change to the business of the company during the year nor is there any expectation to change the activities during the forthcoming year other than reduced support upon the anticipated successful completion of the sale of the Energy business to Siemens.

The company has continued in its activity of providing local representation, country expertise and commercial support for the Rolls-Royce Group's growing businesses worldwide. This activity is performed by regional directors and their staff who are based in the network of international offices operated by the company.

In addition, the company provides a support service to the Rolls-Royce Group with regard to the administration of employees who are required to work on assignments.

Services

Rolls-Royce International Limited's principle objective is to produce policies and strategies for the development of business opportunities in specific countries; to provide a marketing research and a commercial information service; and to provide a financial administration service for Rolls-Royce Holdings plc employees who are required to work on overseas assignments (and certain locally employed staff).

Turnover is generated through charges made to Rolls-Royce Holdings plc entities for the provision of these services.

Trading

Turnover and Operating costs remain broadly flat.

Outlook

With the increased pressure to reduce operating costs across the group, Rolls-Royce International Limited is likely to expect a reduction in turnover and profit margin in 2014. The company does not expect to make a loss in the year.

Principal risks and uncertainties

Because the company operates as a low-risk service provider and is reimbursed in Full for the actual costs it incurs, it has reasonable assurance of continuing to trade profitably with positive cash flow. Turnover growth is reliant an an increase in the provision of marketing and commercial services. There are pressures in the market which are driving reduced operating costs in relation to these services.

The company is subject to a range of legislation or other regulatory requirements in the regulated environment in which it operates (for example: export controls; offset; and anti-bribery and corruption legislation) compromising our ability to conduct business in certain jurisdictions and exposing the company to potential: reputational damage; financial penalties; debarment from government contracts for a period of time; and/or suspension of export privileges or export credit financing, any of which could have a material adverse effect. The company is supported by a variety of Rolls-Royce group risk management procedures. In addition, the group has an extensive compliance programme which is reinforced by a legal and compliance team.

Financial key performance indicators

The company's operating profit at £1,245 thousand represents a mark up on total cost of 1.1% (2012: £2,749 thousand (2.5%)). The company continues to manage the costs of staff an overseas assignment, On average, during 2013, there were 544 staff excluding directors whose costs were managed, to some degree, by the company (2012: 613).

This report was approved by the board on 11 September 2014 and signed on its behalf.

Statement of directors' responsibilities in respect of the directors` report, strategic report and the financial statements for the year ended 31 December 2013

The directors are responsible for preparing the strategic report, the directors' report and the financial statements in accordance with applicable law and regulations.

Company raw requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the 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 company and the profit or loss of the company for that period. In preparing These financial statements, the directors are required to:

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Independent auditor's report to the shareholders of Rolls-Royce International Limited

We have audited the financial statements of Rolls-Royce International Limited for the year ended 31 December 2013, set out on pages 7 to 21. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members Chose matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors' responsibilities statement as set out on page 5, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion an the financial statements in accordance with applicable law and International Standards an Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided an the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion the financial statements:

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

Profit and loss account for the year ended 31 December 2013

All amounts relate to continuing operations.

There were no recognised gains and losses for 2013 or 2012 other than those included in the profit and loss account.

^* The financial statements include adjustments male to 2012 relating to a change in accounting policy for the recharging of certain employee benefits to entities to better reflect the substance of the transactions, The effect of this updated policy in the 2012 comparative figures is to increase opening retained earnings by £1,074k, decrease profit before taxation by £530k and increase net assets by £694k. The effect in 2013 has been to increase profit before taxation by £619k and increase net assets by £263k.

The notes on pages 9 to 21 form part of these financial statements.

Balance sheet as at 31 December 2013

The financial statements were approved and authorised for issue by the board and were signed on its behalf on

The notes on pages 9 to 21 form part of these financial statements.

Notes to the financial statements for the year ended 31 December 2013

1. Significant accounting policies

The principal accounting policies are summarised below.

1.1 Basis of preparation

The financial statements have been prepared on a going concern basis, in accordance with applicable accounting standards, on the historical cost basis except where FRS requires an alternative treatment. The directors have prepared the accounts under United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

The company is a wholly owned subsidiary of Rolls-Royce plc and is included in the consolidated financial statements of Rolls-Royce plc, which are publicly available. Consequently, the company has taken advantage of the exemption from preparing a cash flow statement under the terms of FRS1.

The company has taken advantage of the exemption in FRS 8 not to disclose related party transactions with other group companies.

The company is exempt by virtue of section 399 of the Companies Act 2006 from the requirement to prepare group financial statements.

1.2 Foreign currency translation

Assets and liabilities denominated in foreign currencies are translated into sterling at the rate ruling at the year end. Exchange differences arising on foreign exchange transactions and the retranslation of assets and liabilities into sterling at the rate ruling at the year-end are taken into account in determining profit before taxation,

1.3 Turnover

Turnover represents the amounts (excluding value added tax) derived from the provision of services to customers during the year.

1.4 Pension costs

Contributions to Rolls-Royce plc Group pension schemes are charged to the profit and loss account so as to spread the cost of pensions at a substantially level percentage of payroll costs over employees' service lives.

1.5 Share-based payments

The company, on behalf of its parent company, provides share-based payment arrangements to certain employees. These are 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, except where additional shares vest as a result of the Total Shareholder Return performance condition in the Performance Share Plan. The costs of these share-based payments are treated as a capital contribution from the parent company. Any payments male by the company to its parent company, in respect of these arrangements, are treated as a return of this capital contribution.

1.6 Interest

Interest receivable/payable is credited/charged to the profit and loss account using the effective interest method.

1.7 Taxation

Provision for taxation is made at the current rate and for deferred taxation at the projected rate on all timing differences which have originated, but not reversed at the balance sheet date.

Full provision is made for deferred tax assets and liabilities arising from all timing differences between the recognition of gains and losses in the financial statements and recognition in the tax computation.

A net deferred tax asset is recognised only if it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax assets and liabilities are calculated at the tax rates expected to be effective at the time the timing differences are expected to reverse.

Deferred tax assets and liabilities are not discounted.

1.8 Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost of fixed assets, less their estimated residual value, over their expected useful lives on the following bases:

1.9 Leases

As Lessee

Assets financed by leasing agreements which give rights approximating to ownership (finance leases) have been capitalised at their fair value and depreciation is provided an the basis of the company depreciation policy. The capital elements of future obligations under finance leases are included as liabilities in the balance sheet and the current year's interest element, having been allocated to accounting periods to give a constant periodic rate of Charge an the outstanding liability, is charged to the profit and loss account.

The annual payments under all other lease arrangements, known as operating leases, are charged to the profit and loss account an a straight-line basis.

As Lessor

Amounts receivable under finance leases are included within debtors and represent the total amount outstanding under the lease agreements less unearned income. Finance lease income, having been allocated to accounting periods to give a constant periodic rate of return on the net investment, is included in turnover.

Rentals receivable under operating leases are included in turnover on an accruals basis.

1.10 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. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

2. Profit an ordinary activities before taxation

Profit an ordinary activities before taxation is stated alter charging:

During the year, no director received any emoluments (2012 - £NIL).

The fees for the audit of the company financial statements were £10 thousand (2012 - £10 thousand) and were paid by Rolls-Royce plc.

Fees paid to the company's auditor, KPMG Audit pic, and its associates for services other than the statutory audit of the company are not disclosed in Rolls-Royce International Ltd's accounts since the consolidated accounts of Rolls-Royce International Ltd's ultimate parent, Rolls-Royce Holdings plc, are required to disclose non-audit fees an a consolidated Basis.

3. Staff costs and directors remuneration

Staff costs were as follows:

The average monthly number of employees, excluding the directors, during the year was as follows:

Directors' remuneration and transactions

None of the directors received any remuneration in respect of their services to the company (2012 - nil).

4. Tax on profit on ordinary activities

Factors affecting tax charge for the year

The tax assessed for the year is lower than (2012 - lower than) the standard rate of corporation tax in the UK of 23.25% (2012 - 24.5%). The differences are explained below:

Factors that may affect future tax charges

The 2013 Budget announced that the UK corporation tax rate will reduce to 21 per cent from 1 April 2014 and to 20 per cent from 1 April 2015. These reductions were substantively enacted on 2 July 2013. As the reduction to 20 per cent was substantively enacted prior to the year end, the closing deferred tax asset has been restated accordingly and the charge has been recognised in the P&L.

5. Share based payments

Share-based payment plans in operation during the year

During the year, the company participated in the following share-based payment plans operated by Rolls­Royce Holdings plc:

Performance Share Plan (PSP)

This plan involves the award of shares to participants subject to performance conditions. Vesting of the performance shares is based on the achievement of both non-market based conditions (earnings per share and cash flow per share) and a market based performance condition (Total Shareholder Return ­TSR) over a three-year period.

ShareSave share option plan (ShareSave)

Based on a three or five year monthly savings contract, eligible employees are granted share options with an exercise price of up to 20 per cent below the share price when the contract is entered into. Vesting of the options is not subject to the achievement of a performance target. The plan is HM Revenue & Customs approved.

Annual Performance Related Award (APRA)

A proportion of the APRA annual incentive scheme is delivered in the form of a deferred share award. The release of deferred share awards is not dependent on the achievement of any further performance conditions other than that participants remain employed by the company for two years from the date of the award in order to retain the Full number of shares. During the two year deferral period, participants are entitled to receive dividends, or equivalent, on the deferred shares.

The movements in awards under the various share plans are shown in the tables below:

As share options are exercised throughout the year, the weighted average share price during the year of 1123p (2012 - 836p) is representative of the weighted average share price at the date of exercise.

Share options outstanding

The range of exercise prices of options outstanding at 31 December 2013 was between 387p and 962p (2012 - 387p and 525p).

Fair values of share-based payment plans

The weighted average fair values per share of equity-settled share-based payment plans granted during the year, estimated at the date of grant are as follows:

In estimating these fair values, the following assumptions were used:

Expected volatility is based on the historical volatility of Rolls-Royce Holdings plc's share price over the seven years prior to the grant or award date. Expected dividends are based on Rolls-Royce Holdings plc's payments to shareholders in respect of the previous year.

PSP

The fair value of shares awarded under the PSP is calculated using a pricing model that takes account of the non-entitlement to dividends (er 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, which incorporates into the valuation the interdependency between share price performance and TSR vesting. This adjustment increases the fair value of the award relative to the share price at the date of grant.

ShareSave

The fair value of the options granted under the ShareSave plan is calculated using a binomial 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 that falls somewhere between the start and end of the exercise window.

APRA

The fair value of shares awarded under APRA is calculated as the share price on the date of the award, excluding expected dividends.

6. Tangible fixed assets

7. Fixed asset Investments

Subsidiary undertakings

The following were subsidiary undertakings of the company:

8. Debtors

^* In addition to the restatement the 2012 figures include a reclassification between Other debtors and Amounts owed by group undertakings for fairer presentation.

9. Creditors: Amounts falling due within one year

10. Deferred taxation

The deferred tax asset is made up as follows:

11. Provisions for liabilities and charges

The provision relates to severance payments and retirement benefit payments to Korean employees.

12. Share capital

13. Reserves

14. Reconciliation of movement in shareholders' funds

15. Operating lease commitments

At 31 December 2013 the company had annual commitments under non-cancellable operating leases as follows

16. Pension arrangements

The company is a participating employer of The Rolls-Royce Pension Fund and Rolls-Royce Group Pension Scheme, which are multi-employer defined benefit schemes. The assets of the schemes are held in separate funds administered by trustees and invested in (hem independently of the finances of the Group. The schemes are funded by annual contributions from the company and scheme members.

The employer is unable to identify the share of the underlying assets and liabilities of the schemes and in accordance with FRS17 Retirement Benefits, has accounted for contributions as if the schemes were defined contribution schemes.

On this basis, the amount of employer contributions for 2013 were £3,306 thousand (2012: £3,542 thousand).

The FRS 17 disclosure relating to the schemes is given in the group financial statements of Rolls-Royce plc.

17. Contingent liabilities

On 6 December 2012, Rolls-Royce Holdings plo (the ultimate parent company of the company) announced that it had passed information to the Serious Fraud Office (SFO), an independent United Kingdom government department, relating to concerns in overseas markets. Since that date Rolls-Royce Holdings plc has continued its investigations and is engaging with the SFO and other authorities in the UK, the USA and elsewhere.

In December 2013, Rolls-Royce Holdings plc announced that it had been informed by the SFO that it had commenced a formal investigation. The consequence of these disclosures will be decided by the regulatory authorities. lt remains too early to predict the outcomes, but these could include the prosecution of individuals and of the Rolls-Royce Holdings plc group. Accordingly, the potential for Eines, penalties or other consequences (including debarment from government contracts, Suspension of export privileges and reputational damage) cannot currently be assessed. As the investigation is ongoing, it is not yet possible to identify the timescale in which these issues might be resolved.

18. Ultimate parent company

The immediate parent undertaking is Rolls-Royce plc.

The ultimate parent undertaking and controlling party is Rolls-Royce Holdings plc, which is the parent undertaking of the largest group to consolidate these financial statements. Rolls-Royce plc is the parent undertaking of the smallest group to consolidate these financial statements.

The consolidated accounts of these groups are available to the public and may be obtained from 65 Buckingham Gate, London, SW1E 6AT.