THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriately authorised independent financial adviser.

If you have sold or otherwise transferred all of your shares, please pass this document, together with the accompanying form of proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, so that they can pass on these documents onto the person who now holds the shares. If you are not sure what to do, please contact an appropriate independent professional adviser. If you have sold or transferred only part of your holding of shares, please contact the stockbroker, bank or other agent through whom the sale or transfer was effected immediately for advice on what action you should take.

A Notice of a General Meeting of the Company, to be held at the Company's registered office at Kings Place, 90 York Way, London N1 9FX, is set out at the end of this document. In light of ongoing restrictions relating to COVID-19, Shareholders will not be permitted to attend, or vote at, the General Meeting in person. Shareholders are therefore asked to submit a proxy form as soon as possible and in any event so it is received by not later than 11:00 a.m. on 25 October 2020 (or, in the case of an adjournment, not later than 48 hours before the time fixed for the holding of the adjourned meeting) by either: (i) visiting https://www.investorcentre.co.uk/eproxy and following the instructions there; or (ii) completing and returning a Form of Proxy to the Registrar in accordance with the instructions printed on it. Shareholders are encouraged to appoint the Chairman of the General Meeting as their proxy for the General Meeting. If you are a member of CREST you may alternatively be able to use the CREST electronic proxy appointment service.

Your attention is drawn to the letter from the Chairman of Rolls-Royce Holdings plc in this document, which recommends you to vote in favour of the Ordinary Resolution to be proposed at the General Meeting.

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO SUBSCRIBE FOR, SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.

ROLLS-ROYCE HOLDINGS PLC

(incorporated in England and Wales under the Companies Act 2006 with registered number 07524813)

Notice of General Meeting

This document is sent to you for the purposes of inviting you to vote at the General Meeting. It does not constitute an offer to sell, or a solicitation of offers to purchase or subscribe for, securities in the Excluded Territories. This document is not a prospectus. You, as a person in an Excluded Territory, are restricted from accessing certain materials that describe further such rights offering, including the reasons for such offering.

Provisional Allotment Letters will not be sent to Qualifying non-CREST Shareholders with registered addresses, or who are resident in or located, in the Excluded Territories, nor will the CREST stock account of Qualifying CREST Shareholders with registered addresses, or who are resident or located, in the Excluded Territories be credited with Nil Paid Rights.

The New Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, resold, exercised, renounced, transferred or delivered, directly or indirectly, in or into, the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other

jurisdiction of the United States. The New Ordinary Shares, the Nil Paid Rights, the Fully Paid Rights and the Provisional Allotment Letters have not been recommended, approved or disapproved by the SEC, any state securities commission in the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the New Ordinary Shares, the Nil Paid Rights, the Fully Paid Rights or the accuracy or adequacy of the Provisional Allotment Letter or this document. Any representation to the contrary is a criminal offence in the United States. In addition, the bonds to be offered in the Bond Offering referred to herein will not be registered under the US Securities Act and will be offered and sold only pursuant to an exemption from, or in transactions, not subject to, the registration requirements of the US Securities Act and will be subject to transfer restrictions as will be described in the offering memoranda for such offering.

This document may contain projections and other forward-looking statements. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-looking statements. All statements other than statements of historical facts included in this document, including, without limitation, those regarding the Company's financial position, potential business strategy, potential plans and potential objectives, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. Further, certain forward-looking statements are based upon assumptions of future events which may not prove to be accurate. Such forward-looking statements relate to future events or the future performance of the Company and the Group but do not seek in any way to qualify the Working Capital Statement.

None of the Company, its officers, advisers or any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur, in part or in whole.

The forward-looking statements in this document speak only as at the date of this document. To the extent required by applicable law or regulation (including as may be required by the Companies Act, the Prospectus Regulation Rules, the Listing Rules, MAR, the Disclosure Guidance and Transparency Rules and FSMA), the Company will update or revise the information in this document. Otherwise, the Company assumes no obligation to update or provide any additional information in relation to such forward-looking statements. Additionally, statements of the intentions or beliefs of the Board and/or Directors reflect the present intentions and beliefs of the Board and/or Directors, respectively, as at the date of this document and may be subject to change as the composition of the Board alters, or as circumstances require.

Nothing in this document is intended as a profit forecast or estimate for any period and no statement in this document should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

LETTER FROM THE CHAIRMAN OF ROLLS-ROYCE HOLDINGS PLC

ROLLS RYCE

(incorporated in England and Wales under the Companies Act 2006 with registered number 07524813)

Directors

Sir Ian Davis (Chairman)

Warren East CBE (Chief Executive)

Stephen Daintith (Chief Financial Officer)

Sir Kevin Smith (Senior Independent Non-Executive Director)

Lewis Booth CBE (Independent Non-Executive Director)

Sir Frank Chapman (Independent Non-Executive Director)

George Culmer (Independent Non-Executive Director)

Irene Dorner (Independent Non-Executive Director)

Beverly Goulet (Independent Non-Executive Director)

Lee Hsien Yang (Independent Non-Executive Director)

Nick Luff (Independent Non-Executive Director)

Jasmin Staiblin (Independent Non-Executive Director)

Dame Angela Strank (Independent Non-Executive Director)

Registered Office

Kings Place

90 York Way

London

N1 9FX

1 October 2020

Dear Shareholder,

Proposed 10 for 3 Rights Issue of up to 6,436,651,043 New Ordinary Shares at 32 pence per New Ordinary Share

INTRODUCTION

Rolls-Royce delivered strong progress in 2019 and started 2020 with real momentum. As a result, the Board anticipated continued robust revenue and FCF growth comfortably in line with our guided target of £1bn FCF. The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry, particularly for long-haul travel. This has resulted in a sharp deterioration in the financial performance of our Civil Aerospace business and, to a much lesser extent, in our Power Systems business. We have outlined and quantified the nature and scale of this impact in our Group Consolidated Interim Financial Statements and in this document.

In response we have undertaken, or are committed to undertake, a number of significant actions to mitigate the financial and operating impact of COVID-19 in order to strengthen our financial position and seek to ensure we can deliver improved future returns. These actions included raising £4.2bn of additional liquidity, together with significant operational and capacity restructuring of our Civil Aerospace business and central functions. The intent is to return the Group to positive cash flow during the second half of 2021. We aim to create a business with a substantially lower cost base and capital requirement to reflect the forecast market demand over the next few years. We expect Power Systems to recover relatively quickly when the impact of COVID-19 eases. Our Defence business has proven very resilient through this year and we expect it will continue to be so.

Based on our latest market forecast, we are targeting reaching at least £750 million FCF (excluding disposals) as early as 2022. We believe the longer-term prospects remain strong, with further growth in cash flow and returns thereafter. We will, therefore, accelerate the transition of our Civil Aerospace business from a period of heavy investment to a phase of higher returns.

As a company, we have invested heavily over the last decade in developing new engine programmes to build a significant market share and installed base in the civil aviation widebody and business jet sectors. We do not expect a similar level of investment as we move forward, given the majority of the development of our current programmes is complete, and our relatively young installed base of engines will provide strong, annuity-style cash flows over the long term, reflecting the long in-service lives of our products and our services-oriented business model. At the same time, we see good growth opportunities in both our Defence and Power Systems businesses. We expect significantly improved margins and returns on capital in the medium to long term. We believe that, over the longer-term, our capabilities leave us well positioned to capitalise on the transition to sustainable, low-carbon power.

The pathway to strong cash flow, however, remains dependent on the timing and shape of recovery from COVID-19, notably with regards to long-haul air travel. There is significant uncertainty about the precise pace of this recovery and the possibility of delays remains a risk. As a Board, we consider it prudent to prioritise resilience and flexibility and we are therefore pursuing the Rights Issue and Bond Offering.

As a consequence, we are today announcing our intention to raise gross proceeds of approximately £2bn by way of a fully underwritten Rights Issue at a price of 32 pence per New Ordinary Share. In addition, we intend to conduct a Bond Offering, denominated in US dollars, euros and/or pounds sterling, intended to raise gross proceeds of at least £1bn and currently expected to be completed by the settlement of the Rights Issue (subject to market conditions). We believe these combined actions will provide us with improved capital resilience and liquidity headroom to navigate the current uncertain operating environment. Together with the targeted disposal proceeds of more than £2bn that we announced in our 2020 Half Year Results Announcement, these steps should result in a more resilient and more appropriate balance sheet for the Group. We have an ambition to return to a net cash position in the base case over the next few years and to secure an investment grade credit rating in the medium term.

We believe we have a clear responsibility to all our stakeholders to return the Group to strength with a sustainable and right-sized cost base, aimed at ensuring the Group's future success and the Board intends to take all appropriate actions to secure this outcome.

The purpose of the remainder of this letter and this document is to explain the background to and reasons for the Rights Issue, set out the terms and conditions of the Rights Issue and provide a notice of a General Meeting to consider and, if thought fit, approve, the Ordinary Resolution to allow us to carry out the Rights Issue.

2. BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE

2.1 Context

We are a leading global power technology company, with a portfolio spanning our Civil Aerospace (which contributed 51% of the underlying revenue generated by the Group's businesses in 2019), Power Systems (22%), Defence (20%) and ITP Aero (6%) businesses. The breadth of our business activities provides the Group with access to a wide range of growth opportunities. This, together with our large installed base of engines and the significant performance improvement we expect to deliver in the Civil Aerospace business over the coming years, will drive enhanced value for our stakeholders.

2.2 The period prior to the COVID-19 pandemic

Between 2015 and 2019 we delivered substantially improved financial performance, while simultaneously investing heavily in new civil aerospace engine programmes and addressing the in-service issues on the Trent 1000 programme. During this period:

widebody engine deliveries increased by 66%;

EFHs for the Group's engines increased by 43%;
- the Civil Aerospace business's installed large engine fleet increased by 29% to 5,000 engines;
- the Power Systems business's operating profit margins improved by two percentage points and its underlying revenue compound annual growth rate was 10%; and
- FCF increased to £873m (from £179m), despite incurring £405m of in-service cash costs relating to the Trent 1000 programme in 2019 affecting FCF.

Additionally, we worked to improve the strength of our balance sheet during this period, raising around £1bn through the disposals of Commercial Marine and L'Orange. Together with the higher FCF generation outlined above, the Group's net debt position improved from £111m in 2015 to a net cash position of £1.4bn (both excluding lease liabilities) as at 31 December 2019.

Our results published for the year ended 31 December 2019 continued to demonstrate good progress in a number of areas, including:
- strong progress in growing underlying operating profit (with growth of 25% year-on-year to £808m) and FCF with growth of 54% year-on-year;
- a record number of widebody engines delivered in 2019;
- a 14% reduction in OE unit losses;
- a 64% market share of new widebody engine orders;
- a 5% organic increase year-on-year in business aviation OE sales;
- a record order intake in our Defence business, amounting to 1.6x underlying revenue for 2019;
- an improvement in underlying operating margin of our Power Systems business of nearly one percentage point (10.1% in 2019 compared to 9.2% in 2018);
- the fixes to address the Trent 1000 durability issues. We have since brought the number of customer aircraft on the ground as a result of these issues down to zero as at 30 June 2020; and
- significant progress on our previous restructuring programme, including the simplification of processes and delivery of a more agile working culture, which resulted in run-rate savings of £269m as at 31 December 2019.

We believe that, prior to the COVID-19 pandemic, we were on track to deliver on our 2020 target of £1bn of FCF with continued growth towards our medium-term ambition of exceeding £1 of FCF per Ordinary Share (which translated into at least £1.9bn of FCF).

Further progress was still being pursued to increase cost competitiveness and improve consistency of operational and financial performance. We believe we were well positioned to deliver materially stronger shareholder returns over time and, in parallel, to invest in new technologies to address a range of market opportunities in each of our businesses.

2.3 The impact of the COVID-19 pandemic

The COVID-19 pandemic has resulted in wide-ranging measures being implemented across the world in an attempt to contain the spread of the virus. This has had a significant effect on the Group. The commercial aerospace sector in which our Civil Aerospace and ITP Aero businesses operate has been particularly affected:
- much of the global airline fleet has been temporarily grounded, resulting in a fall in global airline demand (as measured by revenue passenger kilometres) by 94%, 91%, 87% and 80% in

April, May, June and July 2020, respectively, compared to the same period in 2019 (according to IATA); and

airlines have delayed or cancelled planned deliveries and orders for new aircraft, with Airbus and Boeing responding with significant reductions in production rates of the widebody aircraft for which we supply engines.

Our Civil Aerospace business derives the majority of its cash flow from payments based on the number of hours that our engines are powering our customers' aircraft. In 2019, our large engine fleet generated approximately £4.0bn of gross cash inflow. In addition, approximately £2.7bn of gross cash inflow was derived from the delivery of widebody engines. As a result of the COVID-19 pandemic, large engine deliveries and flying hours were both down approximately 50% in the first half of 2020. We saw a 37% reduction year-on-year in underlying revenue in our Civil Aerospace business in the six-month period ended 30 June 2020, with an underlying operating loss of £1.8bn. However, business jets and regional aircraft flying hours proved to be more resilient.

Reflecting the changed market outlook, we expect lower US dollar receipts over the next seven years and, as a result, we took the decision to reduce the size of our hedge book by US$10.3bn. This resulted in a £1.46bn underlying finance charge in the first half of 2020. Additionally, as net purchasers of US dollars in this period, we were unable to utilise our hedge book over the six-month period to 30 June 2020.

The commercial aerospace activities of our ITP Aero business, which accounted for approximately 77% of its underlying revenues in 2019, have experienced a similar deterioration in end market demand.

Our Defence business has remained resilient. It experienced no material operational or financial disruption. Underlying revenue in the six-month period ended 30 June 2020 increased by 4% year-on-year with operating profit increasing by 19% on an organic basis and an order intake to underlying revenue ratio of 0.8x in that period.

Our Power Systems business has experienced varying levels of COVID-19-related disruption and utilisation, with our customers in industrial markets most affected by lower activity levels. Naval and governmental end market demand has remained robust. As a result, we saw an 11% reduction in underlying revenue with an underlying operating profit down by 79% and a 27% reduction year-on-year in orders in the six-month period ended 30 June 2020.

We have implemented a number of cost reduction actions to mitigate the effect of the COVID-19 pandemic, which are described below. However, these have not been sufficient to offset the total negative cash impact across the Group. In the six-month period ended 30 June 2020, we therefore reported an underlying operating loss in the period of £1.7bn and negative FCF of £2.8bn.

Recent trends in EFHs for the Civil Aerospace business have shown some early signs of recovery from their April low points, led by an increase in flight activity in China, Asia Pacific and the Middle East. However, uncertainty remains regarding the overall shape and timing of any recovery.

In our initial response to the COVID-19 outbreak, we rapidly implemented a number of proactive safety measures, in line with local and national guidelines, designed to ensure the safety and wellbeing of our people. At the same time, we are proud to have supported the communities in which we operate in a variety of ways, including forming an alliance of leading companies seeking to use data analytics to provide insights to support government decision making in response to the COVID-19 pandemic.

In relation to our financial position, we implemented a set of measures to conserve cash from March 2020, including:

a reduction of capital expenditure on non-critical programmes by around one third compared to our initial expectations for 2020 and cancellation of capacity expansion projects that are no longer required;

a significant reduction in spend on consulting, professional fees and subcontractors, together with a material reduction in travel expenditure;
a review of R&D and engineering expenditure, which led to expenditure reductions reflecting a re-phasing of certain programmes, such as UltraFan, over a longer period of time; and
an approximately 10% reduction in our global salary costs, largely achieved through temporary pay cuts for senior management, use of government furlough schemes and pay deferrals for staff.

These mitigating actions generated total cash savings of approximately £350m in the first half of 2020 and are expected to generate approximately £1bn in pre-tax cash savings in the full year ending 31 December 2020. In addition to these cash savings, we also moved quickly to reduce direct purchase volumes, as well as cancelling our final 2019 shareholder payment to preserve an additional £137m of cash in 2020. As announced in our 2020 Half Year Results Announcement, no interim shareholder payment was proposed for 2020.

Alongside this, we took early actions to bolster our liquidity position, allowing us time to conduct a more detailed review of the Group's capital structure and funding options. These actions included:

entering into an additional £1.9bn Liquidity Facility with a maturity date in October 2021 (which is currently undrawn and will be cancelled on completion of the Rights Issue);
issuing £300m of commercial paper through the UK Government's CCFF with a maturity date of 17 March 2021; and
entering into a £2bn five year Term Loan Facility, which is supported by an 80% guarantee from UK Export Finance.

On 20 May 2020, we also announced a major restructuring of the Group to adjust to the new level of anticipated demand from customers in certain of our end markets as a result of the impact of the COVID-19 pandemic and to seek to restore our financial performance. This is described further below in section 4.1 (Restoring financial performance).

2.4 Further actions to enhance our financial resilience and deliver a more appropriate balance sheet to position us for the post-COVID-19 environment

In response to the impact of the COVID-19 pandemic, the Board has conducted a detailed review of the Group's outlook, balance sheet and funding options. As a result of this, we are undertaking decisive and transformative action to fundamentally restructure the Group's operations, materially reduce our cost base by at least £1.3bn by the end of 2022 and improve our financial position. We have conducted a detailed review of the Group's capital structure and funding options, considering a number of different scenarios and assessing their potential impact on the Group's financial position. This included consideration of a "reasonable worst case" scenario.

Taking into account, in particular, this "reasonable worst case" scenario, alongside continued global and macro-economic uncertainty, we have determined that it is in the best interests of Shareholders to take the following actions:

to deliver a number of potential disposals (which include the ITP Aero business) to raise gross proceeds of more than £2bn, as announced in our 2020 Half Year Results Announcement; and
to seek to raise additional capital of approximately £2bn through the Rights Issue and at least £1bn by way of a Bond Offering; and
to agree commitments of £1bn under the Bridge Facility Mandate Letter, which is subject to conditions including completion of the Rights Issue (and the resulting cancellation of the Liquidity Facility) and agreement and execution of the Bridge Facility Agreement. This new term loan would have a final maturity date falling two years from entry into the Bridge Facility Agreement.

In addition, UK Export Finance has indicated that it would, in principle, support an extension of its 80% guarantee of our existing £2bn five year Term Loan Facility to support an increase in the loan amount of up to £1bn. This is subject to completion of the Rights Issue, agreement of terms with lenders and approval of those terms by UK Export Finance and HM Treasury, and there is therefore no guarantee that this increase will take place.

By raising additional capital now, we will improve our liquidity headroom, reduce our level of balance sheet leverage while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities. It will also allow us to deliver disposals in a manner that ensures value for our shareholders as we position the Group for the long term to benefit from new technologies focused on sustainable power. We believe these steps will provide the Group with improved financial resilience and a more appropriate balance sheet structure across 2021 in order to weather the macro-economic risks before we return to strong cash generation, which is expected in 2022.

We are also focused on ensuring we maintain a suitable capital structure for the markets in which we operate and believe that an investment grade credit rating is appropriate for our business. We have an ambition to return to a net cash position in the base case over the next few years and to secure an investment grade credit rating in the medium term.

Further details of our strategy and how we intend to implement it are set out in section 4 (Our strategy). We believe execution of this strategy will ultimately provide a strong platform to drive a significant improvement in FCF and deliver attractive shareholder returns. If we do not successfully execute the Rights Issue, the Bond Offering or one or more of the targeted disposals in the required timescales or if the impact of the COVID-19 pandemic is more severe than we expect, even in a "reasonable worst case" scenario, we will need to consider whether it is appropriate to pursue certain of the alternative actions outlined in section 12 (Importance of vote).

3. OUR STRENGTHS

We believe that the strengths summarised below, together with key enablers, such as the strength of the Rolls-Royce brand, our people and our global footprint, will play an important role as we emerge from the COVID-19 pandemic and implement our longer-term strategy.

(A) Our products incorporate cutting-edge technologies. We have a track record of developing commercially successful new technologies

Our products incorporate significant intellectual property, capturing cutting-edge technologies that have been developed over decades. In our Civil Aerospace and ITP Aero businesses, commercial aero engines are extremely complex mechanical engineering products, requiring significant expertise in aerodynamic, thermodynamic and materials technologies. Similarly, in our Defence business, we are one of only a handful of companies currently capable of designing, integrating and manufacturing complete military jet engines, mainly for the UK and US governments. In our Power Systems business, we have focused on demanding, high-end applications for reciprocating engines, in areas such as mission critical back-up power where start-up time and reliability are critical. We also have significant expertise in powerplants for nuclear-powered submarine applications. We have a long-established track record of developing commercially successful technology and products, which have enabled us to grow our share in key markets.

(B) We focus on developing integrated power system solutions

We integrate individual enabling technologies into complete systems and power solutions. This provides our customers with the ability to work with a single partner to provide their entire power needs for their chosen application. In our Civil Aerospace and Defence businesses, our capabilities cover end-to-end design, assembly and through-life support of complete gas turbine power solutions. Our Power Systems business is increasingly moving into the provision of complete power generation systems such as power 'gensets' as well as integrated propulsion systems for the rail and marine markets.

Many of our products have significant aftermarket and maintenance requirements during their operating lives, which typically run for decades. We provide complete through-life maintenance and support for our power solutions, including extensive use of “power-by-the-hour” LTSAs, as well as more traditional time and materials business. In 2019, 52% of our underlying revenue was generated from aftermarket services. Accordingly, we believe our substantial installed base provides a large, captive, visible, and long-term revenue and cash flow stream. The Civil Aerospace business installed base is relatively young, with approximately 9,000 small and business aviation engines in service with an average age of 19 years for small civil jets and 13 years for business jets, as well as approximately 5,000 large engines with an average age of less than 9 years. Given an average expected engine life of approximately 40 years for a small or business aviation engine and approximately 25 years for a widebody engine, we expect significant aftermarket revenue and value from this installed base. Similarly, the installed base in our Defence business of approximately 16,000 defence engines is expected to continue to operate for many decades.

(D) We enjoy strong customer relationships

We believe our focus on building complete power solutions provides the basis for strong customer relationships, with the Group acting as a single, trusted power provider for the customer. The LTSA model for through-life support further deepens these relationships. We have built strong, direct customer relationships with major aircraft manufacturers, such as Airbus, Boeing, Gulfstream and Lockheed Martin, and with more than 400 airlines and leasing customers, 160 armed forces, 70 naval forces and more than 5,000 power and nuclear customers. Globally, our largest defence customers are the US Department of Defense and the UK Ministry of Defence. These relationships have allowed the Group to continue winning business during a period of increased macro-economic uncertainty associated with the COVID-19 pandemic.

(E) We have a successful track record of partnerships globally

We have a long track record of working with external partners spanning corporations, governments and universities in order to leverage outside expertise, market access, and capital. The Civil Aerospace business makes extensive use of RRSPs to outsource components or complete engine modules to trusted suppliers, forming closer relationships and aligning the incentives of suppliers to the overall programme ambitions. In our Defence business, we act as a major partner on key European defence collaborations and are an important member of the Team Tempest fighter jet consortium. In our Power Systems business, we have significantly accelerated partnering efforts in recent years, including launching joint ventures for engine assembly in both India and China.

OUR STRATEGY

As explained above, we are undertaking a number of transformative actions in light of the impact of the COVID-19 pandemic and have refined our strategy accordingly.

Our strategy is to:

restore financial performance in order to improve returns and build a more resilient and more appropriate balance sheet;
drive growth and maximise value from our existing capabilities; and
position the Group to benefit from new technologies, with a focus on sustainable power.

We believe that the key end markets for our businesses remain fundamentally attractive. Our Civil Aerospace business benefits from a sizeable and young installed base generating a significant long-term aftermarket annuity stream. The civil aerospace industry is expected to deliver long-term growth, albeit from a lower base, as GDP recovers and an increasing proportion of the world's population travels. The industry has experienced a number of shocks in the past – including the

events of 11 September 2001 and the global financial crisis – and it has undergone a process of recovery each time.

While spending on the products manufactured and services provided by our Defence business may come under some pressure in the near term given fiscal spending priorities, we believe that governments will continue to invest in maintaining and upgrading their defence capabilities.

Finally, the range of end markets served by our Power Systems business is expected to experience cyclical recovery, including strong structural growth in mission critical power supply.

We further believe that over the longer term, the end markets in which we operate will see growing demand for cleaner and, more sustainable power, electrification and digitalisation. We will be well-positioned to play a crucial role in the world's transition towards a net-zero carbon economy.

We believe that the strengths described above and the execution of our strategy will allow us to capitalise on this, ultimately driving a significant improvement in FCF and delivering attractive shareholder returns.

4.1 Restoring financial performance in order to improve returns and build a more resilient and more appropriate balance sheet

Given the current significant uncertainty, we are today announcing the Rights Issue and the Bond Offering alongside the potential additional term loans and the targeted disposals announced as part of our 2020 Half Year Results Announcement on 27 August 2020. We believe these measures will build a more resilient and more appropriate balance sheet and provide additional liquidity headroom to navigate through the COVID-19 recovery. We have launched a major restructuring programme, the largest in the Group's history, that will re-size the cost base and capital requirements of our Civil Aerospace business and increase cost efficiency. We intend to retain a strong set of capabilities and technologies following completion of this programme, allowing us to benefit from the strong fundamentals of our businesses.

We believe this restructuring programme, alongside an anticipated recovery in our end markets, greater discipline in R&D expenditure and the absence of certain one-off cash outflows expected to be incurred this year, will help us restore financial performance and return to FCF of at least £750m (excluding disposals) as early as 2022. Further details about our expected future financial outlook are set out in section 6 (Financial outlook).

In response to the lower-demand environment in the civil aerospace market over the medium term, we are taking decisive actions to:

re-size the manufacturing footprint of the Civil Aerospace business: we are significantly reducing the scale and, therefore, fixed costs of our manufacturing footprint. This includes a proposed reduction of the headcount in the Civil Aerospace business by approximately one third (around 8,000 roles) (subject, where applicable, to consultation) as well as a major manufacturing footprint consolidation. As part of this consolidation we intend to reduce the number of global sites involved in widebody engine assembly and test from three to just one (in Derby) as well as consolidating fan blade, turbine blade and blisk production activities;
optimise our MRO capabilities: we will maintain core in-house capability at a reduced number of locations to reduce our capital intensity, while supporting longer-term growth in maintenance demand primarily through an enlarged external MRO supplier network;
implement a capital-light spare engine strategy: the Group typically commits approximately £100m-£150m each year of its own capital to spare engines, to support customers who pay for spare engine coverage under the Group's LTSAs. We intend to pursue third-party partnerships to reduce this capital intensity and increase flexibility of spare engine provision; and
reduce central functions: by the end of 2021, it is proposed that central functions headcount will be reduced by approximately 20%-25% (subject, where applicable, to consultation) to match a leaner Group structure.

This programme is intended to deliver larger, permanent savings to replace and expand on the temporary mitigating actions delivered by the Group in 2020. We anticipate a resulting total annual pre-tax cash saving of at least £1.3bn to be achieved by the end of 2022. The restructuring is expected to result in cash restructuring costs of approximately £800m, phased as approximately £400m in 2020, £300m in 2021 and £100m in 2022.

We expect the restructuring programme to result in a proposed reduction in headcount of at least 9,000 roles (subject, where applicable, to consultation) from a global workforce of 52,000, with around 8,000 of these proposed headcount reductions in our Civil Aerospace business. Headcount reductions of approximately 4,800 had taken place by the end of August, with at least 5,000 expected by the year-end. The scope of this exercise has already been determined, with specific implementation plans formed and subject to consultation currently underway with trade unions. We deeply regret the need to take these difficult decisions and steps, particularly as we consider the impact on employees directly affected by this restructuring. The Group has therefore sought voluntary severance where possible, in order to mitigate the need for compulsory redundancy, as well as putting in place a suite of measures to help employees as they transition out of the Group. There have been more than 2,500 voluntary severance and early retirement agreements in the UK, substantially reducing the need for compulsory redundancies.

In addition, within our Power Systems business, as a response to changes in global demand, the business is working actively to improve its manufacturing fixed-cost base; optimising efficiency and balancing its global footprint by moving capacity from Europe and the US to India and China. These initiatives are expected to deliver in excess of £50m of annual pre-tax cash savings by the end of 2022. In addition, the Power Systems business is also implementing a series of measures intended to reduce indirect costs through process improvements and headcount reduction.

4.2 Driving growth and maximising value from our existing capabilities

In light of the effects of the COVID-19 pandemic, we are implementing a shift in our medium-term strategy, pursuing stronger medium-term growth opportunities. In our Civil Aerospace business, our priority is to drive higher cash returns from our existing installed base while seeking new approaches to reduce the investment requirements for the development of our next generation gas turbine technology. We are also placing a greater relative focus on investment opportunities in our Defence and Power Systems businesses.

Enhancing value in our Civil Aerospace business: there is significant value embedded in our existing installed base of approximately 5,000 large engines and 9,000 small and business aviation engines. The investment required to develop the programmes within this installed base is largely complete and the Group now has an important opportunity to realise that value. The Group's fleets are among the youngest in their respective markets, providing protection from the risk of premature aircraft retirements and driving higher utilisation than for older fleets. As investment in new product introductions continues to reduce in the coming years, we will focus on driving value through a number of initiatives, including enhanced time-on-wing, enhanced services offerings and improved engineering efficiency.

We are looking at new ways of working in order to deliver more compelling returns for Shareholders. For example, we are actively exploring new forms of industrial partnership on the UltraFan programme to optimise investment returns and risk (which we consider important to our continued investment in the UltraFan programme), in addition to a re-phasing of our investment to adapt to the likely delay in entry into service of new UltraFan powered aircraft. More broadly, we have explored new and different forms of partnerships and collaborations with industry participants in respect of our wider Civil Aerospace business. We intend to continue exploring these to deliver a new approach to investment.

Significant medium-term opportunities in our Defence business: we have invested significantly in recent years in pursuing growth opportunities in the defence market, including in two major opportunities in the US market, being the B-52 re-engine programme (where we have submitted our proposal) and the future vertical lift programme, which we believe have the potential for over 650 engines and over 4,000 engines respectively, with a combined estimated lifetime value of

approximately £7bn. We believe we are well positioned in respect of these opportunities, which will be important to the Defence business's future growth.

Delivering growth in our Power Systems business: following the COVID-19 pandemic, many of the end markets of our Power Systems business are expected to recover quickly, with some even seeing accelerated growth opportunities. As a result, we are increasing the proportional allocation of investment to the Power Systems business. Investment will also continue in new technologies such as hybrid systems, as outlined in further detail below. We see key opportunities in:

the Chinese market, where our strategy has already begun to deliver results, with growth of approximately 40% in underlying revenue from China in our Power Systems business in 2019 and expected further growth of 25% in 2020;
the mission critical back-up power market, where we expect to deliver significant growth in the medium to long term;
our recently expanded gas portfolio, with strong growth underpinned by a rising focus on carbon emissions;
our Power Systems business aftermarket offering, which has historically been a more reactive, spare parts sales focused business, but has the potential to provide a broader range of services and support; and
our integrated power systems solutions, with our focus shifting towards important developing technologies, including hybrid, hydrogen and electric power solutions.

We expect this revised approach to capital allocation to result in an overall reduction in R&D and capital expenditure from £1.9bn in 2019 to approximately £1.5bn in 2022. In the medium term, this investment strategy is expected to result in around 20% of capital and engineering expenditure directed towards our Power Systems business (compared to around 14% in 2017 to 2019), with around 20% focused on our Defence business (compared to around 9% in 2017 to 2019).

4.3 Positioning to benefit from new technologies, with a focus on sustainable power

We believe that the breadth of our engineering expertise and our established access to a range of end markets mean that we are well positioned to play a crucial role in the world's transition to a net-zero carbon economy. Once we achieve our aim of restoring financial returns and a more appropriate balance sheet, we intend to accelerate this aspect of our strategy to deliver substantial growth by 2025. In line with this strategy, we are building the capability to produce world-class, modular and scalable electric power and propulsion systems.

Due to the space and weight constraints of airborne applications, we are focusing our electrical efforts on smaller, sub-megawatt applications with faster routes to revenue, which will create new, disruptive business opportunities. For example, we have conducted a successful ground test of a hybrid M250 engine for the electric vertical take-off and landing market and have developed an all-electric aircraft through the ACCEL programme which is designed to break the world electric air speed record.

Simultaneously, we are working to enhance our megawatt scale capability, with a short-term focus on land and sea applications where markets are already electrifying. Our Power Systems business is already generating revenue in this area, with substantial growth expected by 2025. Through our Power Systems business, we were first-to-market with a hybrid system for the rail sector, are developing the first hybrid system in the yacht market and have developed a proven microgrid product offering. Longer term, we intend to leverage the expertise gained through these megawatt scale land and sea applications, and the domain expertise gained through certifying sub-megawatt scale airborne systems, in order to ready the technologies for the eventual electrification of larger regional aircraft in the 2030s.

For aircraft larger than regional jets, weight constraints pose a significant challenge to electrification. As a result, in addition to the electric power solutions described above, we are using our expertise in aviation to work with governments and industrial partners to explore the development of sustainable aviation fuels. Sustainable fuels offer a viable path to low carbon, long-haul travel and can be used with our existing gas turbine architecture. As the cost of sustainable fuels is expected to be higher than existing kerosene-based fuel, an efficient gas turbine architecture, such as our UltraFan programme, is expected to be critical to our airline customers in the future.

We are also exploring commercial applications for the production of low carbon power through development of small modular reactors, which leverage our nuclear skills and knowledge from submarine applications. In 2019, we received initial match funding from the UK Government to progress this new type of compact smart nuclear power station. We believe that our expertise puts us in a favourable position in the SMR market.

5. CURRENT TRADING

There has been no material change in our outlook for the Group since the 2020 Half Year Results Announcement published on 27 August 2020. As expected, revenue and underlying operating profit for the first eight months of the year were materially below the prior year, significantly affected by the COVID-19 pandemic and related one-off charges taken in the first half of 2020. Consistent with the trends in the first half, our Civil Aerospace and ITP Aero businesses continued to see the largest impact from COVID-19; performance in our Defence business remained resilient; and our Power Systems business experienced disruption in some end markets.

The Group continued to experience free cash outflows in July and August, albeit at a reduced level compared to the first half of 2020 and modestly better than our expectations. This reflected the ongoing management actions to control costs, large engine EFHs slightly ahead of our "base case" forecast and some cash flow timing benefits. We continue to expect a free cash outflow of approximately £4bn in the full year ending 31 December 2020, although uncertainties remain around the timing and shape of the recovery in large engine EFHs and the timing of large engine deliveries.

6. FINANCIAL OUTLOOK

As outlined above, the COVID-19 pandemic has had, and continues to have, a significant effect on our business. Despite rapid actions to conserve cash, the impact of COVID-19 on EFHs and other aftermarket activity in the Civil Aerospace business, the decision to cease invoice discounting (£1.1bn at FY19), and a large working capital outflow due to lower activity levels together means that we anticipate a free cash outflow during 2020 of approximately £4bn (with underlying revenue of approximately $25 - 30\%$ lower than 2019). The majority of this impact occurred in the first half of 2020, with a free cash outflow of £2.8bn. A reduced free cash outflow of approximately £1bn is expected in the second half of 2020, including as a result of a modest recovery in EFHs expected in the fourth quarter of 2020. In 2021 we expect a significantly reduced free cash outflow relative to 2020, as EFHs continue to recover and savings from our restructuring programme are realised, with positive cash flows targeted during the second half of 2021.

Over the long term we believe that the key markets for our businesses remain fundamentally attractive. In the Civil Aerospace business we expect aftermarket activity to gradually recover, with large engine EFHs reaching 2019 levels by 2024-2025, though remaining below the pre-COVID-19 pandemic trajectory. New widebody engine deliveries are expected to remain lower at around 250 per year in 2020-2022, but still to exceed retirements of 100 to 150 per year during the same period (excluding the one-off impact of retirements in 2020, particularly on older Trent 900 and Trent 500 fleets). In a "reasonable worst case" scenario we expect approximately 130 widebody engine deliveries in 2022. The widebody engine delivery outlook also drives a large portion of the ITP Aero business's expected demand, though we expect some growth in its non-widebody activities in narrowbody and business aviation. In the Power Systems business we anticipate a recovery in most key end markets by 2021, with particularly strong growth in mission critical power generation, and strong regional growth from China. The key markets for our Defence business, the US and UK, are expected to remain resilient.

Supported by this recovery of our end markets, as well as the decisive actions we have taken to significantly restructure the Group's cost base, we are targeting a return to annual FCF of at least £750m (excluding disposals) as early as 2022. This expected improvement of approximately £4.75bn in FCF performance from 2020 to 2022 (excluding disposals) is expected to be driven by four main factors:

No repetition of one-off working capital outflows: comprising the approximately £1.1bn of one-off cessation of invoice-factoring and approximately £1bn expected working capital movement driven by lower activity levels described above.
Recovery in our Civil Aerospace business: we expect widebody EFHs to decline by approximately 55% in 2020, compared to 2019, recovering to approximately 70% of 2019 levels in 2021 and approximately 90% of 2019 levels by 2022, before returning to GDP-driven growth. This anticipated recovery to approximately 90% of 2019 levels in 2022 is expected to drive more than £1.5bn of additional cash receipts (as compared to 2020), with further growth expected thereafter. Additionally, an FCF improvement of over £300m is expected to be driven predominantly by improved time and materials revenues and lower widebody OE losses. We also expect an ongoing reduction of Trent 1000 in-service costs of approximately £200m to £300m. In a "reasonable worst case" scenario, we expect widebody EFHs to recover to approximately 80% of 2019 levels by 2022.
Operating cost reduction: the Group's restructuring is expected to deliver Group-wide pre-tax cash savings of at least £1.3bn per annum by the end of 2022 (including remaining savings of approximately £100m from the restructuring programme announced in 2018). This will replace and expand the expected £1bn of temporary cost saving measures implemented by the Group during 2020. The reorganisation is focused on reducing the fixed cost footprint in the Civil Aerospace business, with a significant reduction in headcount and facility footprint to match the new demand outlook. This lower fixed cost base supports a continued reduction in the average losses on widebody OE engines.
Power Systems business recovery and Defence business resilience: improved performance in the Power Systems business and continued resilience in the Defence business, along with receipts from the ITP Aero business, is expected to drive approximately £200m of additional FCF compared to 2020. We expect this improvement in the Power Systems business to be driven by a cyclical recovery in key end markets as well as the Group's continued strategy to boost growth through a focus on power generation systems, aftermarket growth, and market-share gains in China.

The targeted return of FCF of at least £750m (excluding disposals) as early as 2022 includes the expected impact of temporary outflows in that year, including approximately £300m of foreign exchange cash costs relating to our decision to reduce the size of the Group's hedge book.

Having restored financial performance as early as 2022, we believe that thereafter the Group has an attractive medium-term outlook. We expect our target FCF of at least £750m (excluding disposals) described above to continue to grow in the future, as the temporary negative outflows relating to the reduction in the Group's hedge book and ongoing Trent 1000 costs unwind over time. This expected FCF growth after 2022 is expected to lead to continued deleveraging. In addition, our underlying businesses are expected to deliver growth. The Civil Aerospace business is expected to return to a growing installed base and we expect to deliver additional growth in FCF as we improve cash returns from the current installed base. Our Defence business is expected to continue delivering resilient performance, with important growth opportunities over time as major projects are awarded. The Power Systems business is expected to return to 2019 underlying revenue levels by 2022 and to deliver growth in excess of GDP given the tailwinds the business benefits from, including low carbon opportunities over time.

This letter, including, in particular, sections 4 (Our strategy) and 6 (Financial outlook), contains forward-looking statements – please see page 2 of this document in relation to such forward-looking statements.

USE OF PROCEEDS

Together with the other significant actions being taken, we aim to position the Group to navigate through an uncertain operating environment and to support the Group in realising its longer term strategy. We intend to use the proceeds from the Rights Issue to enhance our financial resilience to deliver a more appropriate balance sheet in order to position us for the post-COVID-19 environment by:

improving our liquidity headroom as we continue to navigate an uncertain outlook for the commercial aviation industry. Proceeds will also address upcoming debt and RCF maturities, including the required cancellation of the Liquidity Facility (which is currently undrawn) on completion of the Rights Issue and through repayment of the Group's maturing debt facilities as they become due (principally: (i) the US$500m 2.375% notes due 14 October 2020; (b) the €750m 2.125% notes due 18 June 2021; and (c) the £300m Commercial Paper issued under the CCFF due 17 March 2021);
delivering a step-change in the leverage profile of the Group post-COVID-19 and continued improvement with the targeted return of FCF of at least £750m (excluding disposals) as early as 2022; and
supporting disciplined execution and investment, enabling the Group to maximise value from its existing capabilities and deliver disposals in a manner that ensures enhanced value for our Shareholders.
PAYMENTS TO SHAREHOLDERS

We announced on 6 April 2020 that the Board had decided that, in light of the uncertain macro-economic outlook resulting from the COVID-19 pandemic, it would not be recommending or making a final payment to Shareholders in respect of the financial year ended 31 December 2019. In addition, and as announced in our 2020 Half Year Results Announcement, no interim Shareholder payment was proposed in respect of the financial year ended 31 December 2020.

There is considerable uncertainty regarding the duration, extent and ultimate impact of the COVID-19 pandemic. While we recognise the importance of payments to Shareholders and intend to make them when appropriate, at this time it is not possible to predict when we will be able to resume these payments while we undergo the process of strengthening the Group's balance sheet and restoring financial performance.

In addition, under the terms of the Term Loan Facility Agreement, we are prevented from declaring, making or paying distributions to Shareholders up to and including 31 December 2022. From 1 January 2023, we may declare, make or pay distributions to Shareholders, provided certain conditions are satisfied. We are also permitted, at any time, to declare, make or pay a distribution to Shareholders if we simultaneously repay any outstanding balance under the Term Loan Facility Agreement in an amount equal to the value of the distribution (or, where no utilisation has occurred, cancel an amount of the available commitment equal to the value of the distribution). The restrictions on distributions to Shareholders under the Term Loan Facility Agreement do not prevent Shareholders from redeeming C Shares in issue prior to the date of the Term Loan Facility Agreement (20 August 2020). In addition, under the terms of the Bridge Facility Mandate Letter, the Bridge Facility Agreement will contain the same restrictions.

PRINCIPAL TERMS OF THE RIGHTS ISSUE

9.1 Overview

We are proposing to raise aggregate gross proceeds of approximately £2,059,728,334bn from the Rights Issue (approximately £1,979,728,334bn after deduction of estimated commissions, fees and expenses).

(A) Pricing

The Rights Issue Price represents a 75.4% discount to the Closing Price of 130 pence per Existing Ordinary Share on 30 September 2020 and a 41.4% discount to the theoretical ex-rights price of 54.6 pence per Existing Ordinary Share based on that same Closing Price.

The Rights Issue Price has been set, following discussions with major Shareholders, at the level which the Board considers necessary to ensure the success of the Rights Issue, taking into account the aggregate proceeds to be raised. The Board believes that the Rights Issue Price, and the discount which it represents, is appropriate.

(B) Dilution

The Rights Issue will result in up to 6,436,651,043 New Ordinary Shares being issued and the number of Ordinary Shares being increased from a total of 1,930,995,313 Ordinary Shares to a total of up to 8,367,646,356 Ordinary Shares, representing an increase of approximately 333%, assuming no Ordinary Shares are issued due to the vesting or exercise of any awards under the Share Plans or otherwise between the Latest Practicable Date and the completion of the Rights Issue.

If a Qualifying Shareholder does not (or is not permitted) to take up any New Ordinary Shares under the Rights Issue, such Qualifying Shareholder's shareholding in the Company will be diluted by approximately 76.92% as a result of the Rights Issue, assuming no Ordinary Shares are issued due to the vesting or exercise of any awards under the Share Plans or otherwise between the Latest Practicable Date and the completion of the Rights Issue.

9.2 Key terms

On and subject to, among other things, the terms and conditions of the Rights Issue, up to 6,436,651,043 New Ordinary Shares will be offered by way of rights at the Rights Issue Price of 32 pence per New Ordinary Share to Qualifying Shareholders on the basis of:

10 New Ordinary Shares for every 3 Existing Ordinary Shares

held and registered in their name on the Record Date (and so in proportion for the number of Existing Ordinary Shares then held, subject to fractional entitlements).

Qualifying Non-CREST Shareholders with registered addresses in the United States or in any of the other Excluded Territories will not be sent Provisional Allotment Letters and will not have their CREST stock accounts credited with Nil Paid Rights, except where the Company and the Underwriters are satisfied that such action would not result in the contravention of any registration or other legal or regulatory requirement in such jurisdiction.

Entitlements to New Ordinary Shares under the Rights Issue will be rounded down to the nearest whole number and fractions of New Ordinary Shares will not be provisionally allotted to Qualifying Shareholders. Holdings of Existing Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.

The Rights Issue has been fully underwritten by the Underwriters in accordance with the terms and subject to the conditions of the Underwriting Agreement.

The Rights Issue is conditional upon (among other things): (i) the passing of the Ordinary Resolution at the General Meeting without material amendment; (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission of Nil Paid Rights); and (iii) Admission of Nil Paid Rights becoming effective by not later than 8.00 a.m. on 28 October 2020 (or such later date as the Company and the Underwriters may agree).

Application will be made to the FCA for the New Ordinary Shares (nil and fully paid) to be admitted to listing on the premium listing segment of the Official List and to the London Stock Exchange for

the New Ordinary Shares (nil and fully paid) to be admitted to trading on its main market for listed securities. It is expected that Admission of Nil Paid Rights will become effective, and that dealings in the New Ordinary Shares, nil paid, on the London Stock Exchange's main market for listed securities will commence, at 8:00 a.m. on 28 October 2020. It is also expected that Admission of the New Ordinary Shares (fully paid) will become effective, and dealings in New Ordinary Shares, fully paid, on the London Stock Exchange's main market for listed securities will commence, at 8:00 a.m. on 12 November 2020.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with, and will carry the same voting and dividend rights as, the Existing Ordinary Shares.

You are a person in an Excluded Territory. Due to restrictions under the securities laws of the Excluded Territories subject to certain exceptions, no prospectus or provisional allotment letter will be sent to, and Nil Paid Rights will not be credited to a stock account in CREST of, Qualifying Shareholders with registered addresses in any other Excluded Territories. Accordingly, subject to certain exceptions, neither this document nor any prospectus or provisional allotment letter in relation to the Rights Issue constitutes or will constitute an offer or an invitation to apply for, or an offer or an invitation to subscribe for or acquire, any New Ordinary Shares, Nil Paid Rights or Fully Paid Rights in any other Excluded Territory.

10. GENERAL MEETING

A notice convening the General Meeting to be held at 11.00 a.m. on 27 October 2020 at the Company's registered office at Kings Place, 90 York Way, London, N1 9FX is set out at the end of this document.

In light of the ongoing restrictions relating to COVID-19, Shareholders will unfortunately not be permitted to attend the General Meeting in person. However, Shareholders will be able to view and listen to the meeting remotely by visiting https://www.rolls-royce.com/investors and will also be able to listen to and ask questions at the General Meeting remotely by calling 0800 022 9009 (from inside the UK) or 0330 336 0036 (from outside the UK), followed by the guest PIN 505173. Please be aware that the remote connectivity described cannot be guaranteed but we will use our best efforts to ensure that it is available. Shareholders accessing the General Meeting remotely will not be counted as being present and, therefore, will not be able to vote at the meeting. You are strongly encouraged to register your votes as soon as possible, and further details of how to do this are set out below.

Shareholders are encouraged submit any questions they wish to ask in relation to the business of the General Meeting to the Company Secretary by email to [email protected]. Please submit your question(s) by 11:00 a.m. on 25 October 2020. Alternatively, Shareholders will be able to ask questions at the General Meeting remotely by calling 0800 022 9009 (from inside the UK) or 0330 336 0036 (from outside the UK), followed by the guest PIN 505173. We hope that we will be able to answer your questions at the meeting but, if not, the questions and answers will be made available on our website after the meeting. Please note that the General Meeting is being held specifically to seek approval in relation to the Rights Issue, so questions should relate only to the business of the meeting rather than the general business of the Company.

The purpose of the General Meeting is to seek approval for the Ordinary Resolution to provide the Directors with the power and authority, until the conclusion of the next annual general meeting of the Company, to allot up to 6,436,651,043 Ordinary Shares (representing approximately $333\%$ of the Ordinary Shares in issue as at the Latest Practicable Date), in order to facilitate the Rights Issue.

As at the date of this document, the Company holds no Ordinary Shares in treasury.

11. ACTION TO BE TAKEN IN RESPECT OF GENERAL MEETING

As Shareholders are not able to attend, or vote at, the General Meeting in person, you are strongly encouraged to submit a proxy form appointing the chair of the General Meeting as their proxy, in

order to register your votes. Please do this as soon as possible and in any event so it is received by not later than 11.00 a.m. on 25 October 2020 (or, in the case of an adjournment, not later than 48 hours before the time fixed for the holding of the adjourned meeting) by either: (i) visiting https://www.investorcentre.co.uk/eproxy and following the instructions there; or (ii) completing and returning the enclosed Form of Proxy to the Registrar in accordance with the instructions printed on it. If you are a member of CREST you may alternatively be able to use the CREST electronic proxy appointment service.

12. IMPORTANCE OF VOTE

The Rights Issue is conditional and dependent upon, amongst other things, the Ordinary Resolution being passed at the General Meeting.

As explained above, we have been significantly impacted by the COVID-19 pandemic, in particular in our Civil Aerospace business. While we have taken significant measures to re-structure our Group, reduce our costs and bolster our liquidity, we believe that the Rights Issue is essential to ensure we have the financial flexibility we need to support us in an operating environment that continues to be uncertain and to implement our strategy.

We have conducted a detailed review of the Group's capital structure and funding options. This involved considering both a "base case" scenario (which reflects our current expectations of future trading) and a "reasonable worst case" scenario (which envisages a "stress" or "downside" situation). We assessed the potential impact of these scenarios on the Group's future financial position both on the basis of the Rights Issue taking place and if it does not proceed. We have not taken into account any proceeds from targeted disposals referred to in the 2020 Half Year Results Announcement, the Bond Offering or any potential new Bridge Facility or increase in the size of the Term Loan Facility when modelling these scenarios.

These projections indicate that on a "reasonable worst case" scenario, if the Ordinary Resolution is not passed and the Rights Issue does not proceed, we would need to draw down the Liquidity Facility (in addition to the Term Loan Facility) and/or take one or more of the alternative actions set out below in order to maintain sufficient levels of liquidity to fund our operations and continue to implement our strategy.

If drawn down, the Liquidity Facility would become repayable in October 2021 (and any equity or debt capital markets issuances before that time would trigger a requirement to prepay and cancel the Liquidity Facility by the amount of such issuance). We believe that we would need to take various alternative actions in the period up to October 2021 to ensure that we have sufficient liquidity to fund our operations and repay maturing debt facilities following repayment of the Liquidity Facility on a "reasonable worst case" scenario. Even on a "base case" scenario, if the Rights Issue does not proceed, we may decide that it is desirable to take some of these alternative actions in order to maintain prudent amounts of liquidity headroom. Alternative actions could include:

Seeking additional debt funding or extending the Liquidity Facility. The consequent leverage profile may result in a further downgrade of the Group's credit rating, increased borrowing costs and more restrictive financial and non-financial covenants being included in any future debt funding arrangements. It may also impact our customers' and suppliers' perceptions as to our creditworthiness. It is also possible that the Group may not be able to source such additional debt financing, as highlighted by the fact that the commitments in relation to the Bridge Facility and the indications of support, in principle, from UK Export Finance in relation to an increase in the Term Loan Facility are both conditional upon completion of the Rights Issue.
Seeking alternative equity funding. Equity funding on a smaller scale than is envisaged by the Rights Issue could be sought through a placing of Ordinary Shares, to support other actions taken by the Company. This would not be undertaken on a fully pre-emptive basis so would result in the dilution of existing Shareholders' interests in the Company and may not, on its own, raise the amount we believe is needed to restore the financial strength of the Group.
Pursuing further disposals. We may need to undertake further disposals in addition to those potential disposals currently contemplated in the 2020 Half Year Results Announcement. This

could include full or partial disposals or partnerships in respect of strategically significant parts of our business.

Significant reduction in future investments. Given we have already undertaken measures to reduce or re-phase such expenditure, additional measures would likely involve further scaling back of R&D and engineering programmes and significant additional restriction of capital expenditure. This would potentially limit our ability to progress key product developments, invest in new technologies and take advantage of key identified growth opportunities (in particular in our Power Systems and Defence businesses).
Further major restructuring of our workforce and footprint. As a result of the above actions, there would be further reductions to our employee headcount and closure of additional sites, in addition to those currently underway as part of our ongoing restructuring.

We would, of course, look to take such alternative actions that are appropriate in the circumstances and in the best interests of the Group and we believe that, if required, it is likely that we could implement one or more of such alternative actions at the required scale and within the necessary timeframe to mitigate the effects of not proceeding with the Rights Issue. However, if such actions cannot be carried out in that timeframe, our "reasonable worst case" projections indicate that the Group would not have sufficient liquidity to continue to fund its operations following October 2021 if the Rights Issue does not proceed.

Importantly, taking these actions would also detrimentally impact our ability to implement the strategy for the Group that we have set out in this letter and deliver the expected growth in shareholder returns. The Rights Issue is ultimately designed to support us in implementing our strategy of restoring financial performance, driving disciplined, broader growth and maximising value from our existing capabilities, and positioning the Group to benefit from new technologies (with a focus on sustainable power). We believe this will ultimately drive a significant improvement in FCF levels and attractive shareholder returns.

13. RECOMMENDATION AND DIRECTORS' INTENTIONS

Accordingly, the Board considers that the Rights Issue is in the best interests of Shareholders taken as a whole and unanimously recommends that Shareholders vote in favour of the Ordinary Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings, amounting in aggregate to 667,680 Ordinary Shares, which represent approximately 0.0346% of the total voting rights in the Company as at the Latest Practicable Date.

Each Director who is a Shareholder and who is able to participate in the Rights Issue has confirmed his or her intention to take up, in full or in part, his or her entitlement to subscribe for New Ordinary Shares under the Rights Issue in respect of his or her respective holding of Existing Ordinary Shares.

Yours sincerely,

Sir Ian Davis

Chairman

NOTICE OF GENERAL MEETING

Rolls-Royce Holdings plc

(Incorporated in England and Wales with registered number 07524813)

Notice is hereby given that a General Meeting of Rolls-Royce Holdings plc (the "Company") will be held at the Company's registered office at Kings Place, 90 York Way, London N1 9FX on 27 October 2020 at 11:00 a.m. (London time) for the purpose of considering and, if thought fit, passing the following resolution:

(Ordinary Resolution)

That, subject to and conditional upon admission to the premium listing segment of the Official List and to trading on the London Stock Exchange plc's main market for listed securities, respectively, of the new ordinary shares of 20 pence each to be issued by the Company in connection with the issue by way of rights of up to 6,436,651,043 new ordinary shares at a price of 32 pence per new ordinary share to qualifying shareholders on the register of members of the Company at close of business on 23 October 2020 (the "Rights Issue") and in addition to the existing authority conferred on the Directors by Article 9 of the Company's articles of association and the resolutions passed by shareholders of the Company at the AGM of the Company held on Thursday 7 May 2020, the Directors be generally and unconditionally authorised, pursuant to and in accordance with section 551 of the Companies Act 2006, to:

(i) exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £1,287,330,208.60 pursuant to or in connection with the Rights Issue, such authority to expire (unless previously renewed, varied or revoked by the Company in general meeting) at the conclusion of the next AGM of the Company; and

(ii) make an offer or agreement in connection with the Rights Issue which would or might require shares to be allotted, or rights to subscribe for or to convert any security into shares to be granted, after expiry of this authority, and the directors of the Company may allot shares and grant rights in pursuance of that offer or agreement as if this authority had not expired.

By order of the Board

Pamela Coles
Company Secretary

1 October 2020

Rolls-Royce Holdings plc
Kings Place
90 York Way
London N1 9FX

Registered in England and Wales
Registered Number: 07524813

NOTES TO THE NOTICE OF GENERAL MEETING

Attendance at the General Meeting

In light of the ongoing restrictions relating to COVID-19, shareholders will unfortunately not be permitted to attend the General Meeting in person. However, shareholders will be able to view and listen to the meeting remotely by visiting www.rolls-royce.com/investors and will also be able to listen to and ask questions at the General Meeting remotely by calling 0800 022 9009 (from inside the UK) or 0330 336 0036 (from outside the UK), followed by the guest PIN 505173. Please be aware that the remote connectivity described cannot be guaranteed but we will use our best efforts to ensure that it is available. Shareholders accessing the General Meeting remotely will not be counted as being present and, therefore, will not be able to vote at the meeting. All of the notes to this notice of General Meeting and, in particular, any reference to attendance at the General Meeting, whether by a Shareholder, its proxy or its corporate representative, shall be construed accordingly.

Voting

As shareholders are not able to attend, or vote at, the General Meeting in person, you are strongly encouraged to do the following as soon as possible:
register your vote online by visiting www.investorcentre.co.uk/eproxy and following the instructions; or
lodge your vote by completing and returning the proxy form to our Registrar (Computershare) in the reply-paid envelope enclosed.

Please appoint the Chairman of the General Meeting as your proxy for the meeting.

Votes cast either online or by post will be counted in the votes for the meeting. The Registrar must receive your vote by 11:00 a.m. on 25 October 2020 for it to be counted.

Shareholders are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact the Registrar's helpline on +44 (0370) 703 0162.
To be entitled to vote online or by post, shareholders must be registered on the Company's register of members as at 6:00 p.m. on 23 October 2020 (or, in the event of an adjournment, on the register of members 48 hours before the time of any adjourned meeting). Changes to the register of members made after the deadline will be disregarded in determining the rights of any person to attend or vote at the General Meeting.
Voting on the resolution will be conducted by way of a poll and not by a show of hands. On a poll, every member shall have one vote for every ordinary share held. The results of the poll will be announced to the London Stock Exchange once the results have been verified and will also be published at www.rolls-royce.com.
A vote withheld option is provided to enable you to abstain on the resolution. It is not a vote in law, which means that the vote will not be counted in the calculation of the percentage of votes for or against the resolution.

Asking Questions at the General Meeting

Shareholders are encouraged submit any questions they wish to ask in relation to the business of the General Meeting to the Company Secretary by email to [email protected]. Please submit your question(s) by 11:00 a.m. on 25 October 2020. Alternatively, shareholders will be able to ask questions at the General Meeting remotely by calling 0800 022 9009 (from inside the UK) or 0330 336 0036 (from outside the UK), followed by the guest PIN 505173 (although please be aware that the remote connectivity described cannot be guaranteed but we will use our best efforts to ensure that it is available). We hope that we will be able to answer your questions at the meeting but, if not, the questions and answers will be made available on our website after the meeting. Please note that the General Meeting is being held specifically to seek approval in relation to the Rights Issue, so questions should relate only to the business of the meeting rather than the general business of the Company.
If you have questions relating to the mechanics of the Rights Issue or the General Meeting, you should contact the Registrar in the first instance using the details set out in note 16 below.

Issued share capital and total voting rights

As at 30 September 2020, being the latest practicable date prior to the publication of this notice, the issued share capital of the Company consisted of 1,930,995,313 ordinary shares of 20 pence each, 27,540,015,227 C Shares of 0.1 pence each and one Special Share of £1.

Holders of ordinary shares will be entitled to one vote for each ordinary share held. The Special Shareholder (as defined in the articles of association of the Company) is entitled to receive notice of and (except in the case of this General Meeting on account of restrictions resulting from COVID-19, described above) to attend and speak, but has no right to vote, at a general meeting. C Shares do not carry the right to receive notice of any general meeting of the Company nor to attend, speak or vote at any general meeting except one at which a resolution to wind up the Company is to be considered.

Therefore, the total number of voting rights in the Company as at 30 September 2020 was 1,930,995,313.

Nominated persons and corporate representatives

The main point of contact for Nominated Persons remains the registered shareholder (or the custodian or broker who administers the investment on their behalf). Any person who has been nominated under section 146 of the Companies Act 2006 to enjoy Information Rights (a "Nominated Person") may, under an agreement with the registered shareholder by whom they were nominated, have a right to be appointed (or to have someone else appointed), as a proxy for the General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, the Nominated Person may, under any such agreement, have a right to give instructions to the shareholders as to the exercise of voting rights, but you cannot yourself appoint a proxy. Alternatively, if you do not have such a right, or do not wish to exercise it, you may have the right under such an agreement to give instructions to the registered shareholder as to the exercise of voting rights.
The Companies (Shareholders' Rights) Regulations 2009 allow multiple representatives appointed by the same corporate member to vote in different ways on a poll (provided they do not do so in relation to the same shares).

American depositary receipt (ADR) holders

Registered holders should contact the depositary:

J.P. Morgan Chase Bank N.A.
PO Box 64504
St Paul, MN 55164-0504
USA

Email: [email protected]

Phone: +1 800 990 1135 (from outside the USA +1 651 453 2128)

If you are a broker or institutional investor, please contact:

J.P. Morgan Depositary Receipts
383 Madison Ave, Floor 11
New York, NY 10179

Email: [email protected]

Phone: +1 866 576 2377

ADR holders who do not hold their investment directly should contact the registered shareholder, custodian or broker, or whoever administers the investment on their behalf in relation to any rights under agreements with them to be appointed as a proxy to vote at the General Meeting.

Information available on our website

A copy of this Notice, and other information required by section 311A of the Companies Act 2006, can be found at www.rolls-royce.com.

Questions about the General Meeting

Except as provided above, shareholders who have general queries about the General Meeting should call the Registrar's helpline on +44 (0370) 703 0162. The helpline is available from 8:30 a.m. to 5:30 p.m. (London time) Monday to Friday (excluding United Kingdom public holidays). Calls from outside the United Kingdom will be charged at the applicable international rate. Please note that, for legal reasons, the helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, investment or taxation advice. No other methods of communication will be accepted.

DEFINITIONS

The following definitions apply throughout this document other than in the Notice of General Meeting section.

"2020 Half Year Results Announcement"
means the announcement of the Company's results for the six months ended 30 June 2020 made on 27 August 2020;

"Admission"
means admission of the New Ordinary Shares (nil paid or fully paid, as the case may be) to the premium listing segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange;

"Admission of Nil Paid Rights"
means admission of the Nil Paid Rights to the premium listing segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange;

"Airbus"
means Airbus SE;

"BNP PARIBAS"
means BNP PARIBAS;

"Board"
means the board of directors of the Company from time to time;

"Boeing"
means The Boeing Company;

"BofA"
means Merill Lynch International;

"Bond Offering"
means the proposed offering or offerings by Rolls-Royce plc of notes guaranteed by the Company, in each case on a private placement basis to eligible institutional investors, and denominated in US dollars, euros and/or pounds sterling, currently expected to be completed by the settlement of the Rights Issue (subject to market conditions) and intended to raise gross proceeds of at least £1bn;

"Bridge Facility"
means a term loan facility to be made available pursuant to the Bridge Facility Agreement;

"Bridge Facility Agreement"
means a facility agreement to be entered into between Rolls-Royce plc (as borrower), the Company (as guarantor) and certain banks pursuant to, and on the terms set out in, the Bridge Facility Mandate Letter;

"Bridge Facility Mandate Letter"
means the mandate letter dated 29 September 2020 for a £1bn term facility entered into between Rolls-Royce plc and the Bridge Underwriters;

"Bridge Underwriters"
means BNP PARIBAS, London Branch; Citibank, N.A., London Branch and HSBC Bank plc;

"C Shares"
means the non-cumulative redeemable preference shares of 0.1 pence each in the share capital of the Company;

"CCFF"
means the joint Bank of England and HM Treasury lending facility, named Covid Corporate Financing Facility;

"certificated" or "in certificated form"
refers to a share or other security which is not in uncertificated form (that is, not in CREST);

"Chairman"
means the chairman of the Company;

"Citigroup"
means Citigroup Global Markets Limited;

"Closing Price"
means the closing, middle market quotation of an Existing Ordinary Share, as published in the Daily Official List;

"Commercial Marine"
means the commercial marine business previously operated by the Group and purchased by Kongsberg Gruppen ASA in 2019;

"Companies Act"
means the Companies Act 2006 of England and Wales, as amended, modified or re-enacted from time to time;

"Company" or "Rolls-Royce"
means Rolls-Royce Holdings plc, a public limited company incorporated in England and Wales with registered number 07524813;

"Crédit Agricole CIB"
means Crédit Agricole Corporate and Investment Bank;

"CREST"
means the system for the paperless settlement of trades in securities and the holding of uncertificated securities in accordance with the CREST Regulations operated by Euroclear UK;

"Directors"
means the directors of the Company as at the date of this document, and "Director" means any one of them;

"Disclosure Guidance and Transparency Rules"
means the disclosure guidance and transparency rules made under Part VI of FSMA (as set out in the FCA Handbook), as amended;

"DSBP"
means the Rolls-Royce plc Deferred Share Bonus Plan (as amended);

"EFH"
means engine flying hour;

"EU" or "European Union"
means the European Union first established by the treaty made at Maastricht on 7 February 1992;

"Excluded Territories"
means New Zealand, South Africa the United Arab Emirates and the United States and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law or regulation and "Excluded Territory" means any one of them;

"Existing Ordinary Shares"
means, the existing Ordinary Shares in issue immediately preceding the Rights Issue;

"FCA"
means the Financial Conduct Authority;

"FCA Handbook"
means the FCA's Handbook of Rules and Guidance, as amended from time to time;

"FCF"
means free cash flow;

"Form of Proxy"
means the form of proxy for use in connection with the General Meeting which accompanies this document;

"Fully Paid Rights"
means rights to acquire New Ordinary Shares, fully paid;

"FSMA" means the Financial Services and Markets Act 2000, as amended from time to time;

"GDP" means gross domestic product;

"General Meeting" means the general meeting of the Company to be convened pursuant to the notice set out in this document (including any adjournment thereof);

"Group" means the Company and each of its direct and indirect subsidiaries from time to time (where "subsidiary" shall have the meaning ascribed to it in the Companies Act);

"Group Consolidated Interim Financial Statements" means the unaudited condensed consolidated financial statements of the Company, and the notes prepared in accordance with IFRS, as at and for the six months ended 30 June 2020 (and comparative financial information for the six months ended 30 June 2019);

"HSBC" means HSBC Bank plc;

"IASB" means the International Accounting Standards Board;

"IFRS" means the International Financial Reporting Standards issued by the IASB, as adopted for use in the EU;

"International Sharesave" means the Rolls-Royce plc International Sharesave Plan 2011 (as amended);

"Latest Practicable Date" means 30 September 2020, being the latest practicable date prior to publication of this document;

"Liquidity Facility" means the revolving credit facility made available pursuant to the Liquidity Facility Agreement;

"Liquidity Facility Agreement" means the £1,900m revolving credit facility between, among others, Rolls-Royce plc (as borrower), the Company and Rolls-Royce plc (each as original guarantors), certain financial institutions (as lenders) and J.P. Morgan Europe Limited (as agent), dated 29 April 2020;

"Listing Rules" means the listing rules made under Part VI of FSMA (as set out in the FCA Handbook), as amended;

"L'Orange" means L'Orange GmbH, now named Woodward L'Orange GmbH;

"London Stock Exchange" means London Stock Exchange Group plc or its successor(s);

"LTIP" means the Rolls-Royce Long Term Incentive Plan (as amended);

"LTSAs" means long-term servicing agreements;

"MAR" means Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, in the form retained in the English law and as amended from time to time;

"MRO" means maintenance, repair and overhaul;

"New Ordinary Shares" means the Ordinary Shares to be issued by the Company pursuant to the Rights Issue;

"Nil Paid Rights" means rights to subscribe for New Ordinary Shares, nil paid;
"Notice of General Meeting" means the notice of the General Meeting contained in this document;
"OE" means original equipment;
"Official List" means the official list maintained by the FCA pursuant to FSMA;
"Ordinary Resolution" means the ordinary resolution to be proposed at the General Meeting, as set out in the Notice of General Meeting;
"Ordinary Shares" means the ordinary shares of 20 pence each in the share capital of the Company;
"Prospectus Regulation Rules" means the Prospectus Regulation Rules of the FCA made under section 73A of FSMA;
"Provisional Allotment Letter" means a provisional allotment letter to be issued in connection with the Rights Issue;
"Qualifying CREST Shareholders" means Qualifying Shareholders holding Ordinary Shares in uncertificated form;
"Qualifying Non-CREST Shareholders" means Qualifying Shareholders holding Ordinary Shares in certificated form;
"Qualifying Shareholders" means holders of Ordinary Shares on the register of members of the Company at the Record Date;
"R&D" means research and development;
"Record Date" means close of business on 23 October 2020;
"Registrar" means Computershare Investor Services PLC;
"Revolving Credit Facility" or "RCF" means the revolving credit facility made available pursuant to the Revolving Credit Facility Agreement;
"Revolving Credit Facility Agreement" means the revolving credit facility agreement between, among others, Rolls-Royce plc (as borrower), the Company and Rolls-Royce plc (each as original guarantors), certain financial institutions (as lenders) and J.P. Morgan Europe Limited (as agent), dated 3 October 2011, as amended and/or restated from time to time including by way of an amendment and restatement agreement dated 3 April 2018;
"Rights Issue" means the offer by way of rights to Qualifying Shareholders to subscribe for New Ordinary Shares, on the terms and conditions set out in this document and, in the case of Qualifying Non-CREST Shareholders only, also in the Provisional Allotment Letter;
"Rights Issue Price" means 32 pence per New Ordinary Share;
"RRSP" means a risk and revenue sharing partner;
"Santander" means Banco Santander, S.A.;

"SEC" means the United States Securities and Exchange Commission;

"Share Plans" means the DSBP, LTIP, International Sharesave, UK Sharesave and SIP;

"Shareholders" means the holder(s) of Ordinary Shares from time to time and "Shareholder" means any one of them;

"SIP" means the Rolls-Royce Sharepurchase Plan (as amended);

"SMBC Nikko" means SMBC Nikko Capital Markets Limited;

"SMRs" means small modular nuclear reactors;

"Société Générale" means Société Générale;

"Term Loan Facility" means the term loan facility made available pursuant to the Term Loan Facility Agreement;

"Term Loan Facility Agreement" means the £2,000m term facility consisting of a £1,600m term facility guaranteed by UK Export Finance and a £400m commercial term facility entered into between Rolls-Royce plc (as borrower), the Company (as guarantor), Banco Santander, S.A.; Bayerische Landesbank; BNP PARIBAS, London Branch; Citibank N.A., London Branch; Crédit Agricole Corporate and Investment Bank; Deutsche Bank Luxembourg S.A.; HSBC Bank plc; JPMorgan Chase Bank N.A., London Branch; Lloyds Bank, plc; Mizuho Bank, Ltd.; Skandinaviska Enskilda Banken AB (publ); Societe Generale, London Branch and Standard Chartered Bank (each as original lenders) and J.P. Morgan Europe Limited (as agent), dated on 20 August 2020;

"UK Sharesave" means the Rolls-Royce plc UK Sharesave Plan 2011 (as amended);

"uncertificated" or "in uncertificated form" refers to a share or other security recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;

"Underwriters" means BNP PARIBAS, Citigroup, Goldman Sachs, HSBC, Jefferies, Morgan Stanley, Crédit Agricole, Santander, SMBC Nikko and Société Générale;

"Underwriting Agreement" means the underwriting agreement dated 1 October 2020 between the Company and the Underwriters in relation to the Rights Issue;

"United Kingdom" or "UK" means the United Kingdom of Great Britain and Northern Ireland;

"United States" or "US" means the United States of America, its territories and possessions, any state of the United States and the District of Columbia; and

"US Securities Act" means the US Securities Act of 1933, as amended.

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Donnelley Financial Solutions 106768

AI assistant

Rolls-Royce Holdings PLC Proxy Solicitation & Information Statement 2020

5271_rns_2020-10-06_570a3897-838e-4ab1-8bf7-b306472f029a.pdf

2. BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE

2.1 Context

2.2 The period prior to the COVID-19 pandemic

2.3 The impact of the COVID-19 pandemic

2.4 Further actions to enhance our financial resilience and deliver a more appropriate balance sheet to position us for the post-COVID-19 environment

3. OUR STRENGTHS

(A) Our products incorporate cutting-edge technologies. We have a track record of developing commercially successful new technologies

(B) We focus on developing integrated power system solutions

4.1 Restoring financial performance in order to improve returns and build a more resilient and more appropriate balance sheet

4.2 Driving growth and maximising value from our existing capabilities

4.3 Positioning to benefit from new technologies, with a focus on sustainable power

5. CURRENT TRADING

6. FINANCIAL OUTLOOK

10. GENERAL MEETING

11. ACTION TO BE TAKEN IN RESPECT OF GENERAL MEETING

12. IMPORTANCE OF VOTE

13. RECOMMENDATION AND DIRECTORS' INTENTIONS

Attendance at the General Meeting

Voting

Please appoint the Chairman of the General Meeting as your proxy for the meeting.

Asking Questions at the General Meeting

Issued share capital and total voting rights

Nominated persons and corporate representatives

DEFINITIONS

AI assistant

Rolls-Royce Holdings PLC — Proxy Solicitation & Information Statement 2020

5271_rns_2020-10-06_570a3897-838e-4ab1-8bf7-b306472f029a.pdf

2. BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE

2.1 Context

2.2 The period prior to the COVID-19 pandemic

2.3 The impact of the COVID-19 pandemic

2.4 Further actions to enhance our financial resilience and deliver a more appropriate balance sheet to position us for the post-COVID-19 environment

3. OUR STRENGTHS

(A) Our products incorporate cutting-edge technologies. We have a track record of developing commercially successful new technologies

(B) We focus on developing integrated power system solutions

4.1 Restoring financial performance in order to improve returns and build a more resilient and more appropriate balance sheet

4.2 Driving growth and maximising value from our existing capabilities

4.3 Positioning to benefit from new technologies, with a focus on sustainable power

5. CURRENT TRADING

6. FINANCIAL OUTLOOK

10. GENERAL MEETING

11. ACTION TO BE TAKEN IN RESPECT OF GENERAL MEETING

12. IMPORTANCE OF VOTE

13. RECOMMENDATION AND DIRECTORS' INTENTIONS

Attendance at the General Meeting

Voting

Please appoint the Chairman of the General Meeting as your proxy for the meeting.

Asking Questions at the General Meeting

Issued share capital and total voting rights

Nominated persons and corporate representatives

DEFINITIONS

More from Rolls-Royce Holdings PLC

Rolls-Royce Holdings PLC Proxy Solicitation & Information Statement 2020