Tag: RR

Rolls-Royce Holdings plc (LON:RR) is holding its Annual General Meeting today. In his address to shareholders, Chief Executive Tufan Erginbilgic will comment:

“Our work to transform Rolls-Royce into a high-performing, competitive, resilient and growing business is continuing with pace and intensity as we execute on the granular strategy we set out last November. We are driving growth, delivering contractual improvements and improved margins, unlocking efficiencies and creating value across the Group. We have had a strong start to the year, despite continued industry-wide supply chain challenges. This builds on our record performance in 2023 and provides further confidence in our guidance for 2024. The focused investments we are making will continue to drive growth and create value for all our stakeholders in the mid-term and beyond.”

Trading update to 30 April 2024

We continue to demonstrate a strong track record of delivery. Our operating profit and cash growth reflects an underlying performance improvement driven by the impact of our strategic initiatives, notably commercial optimisation including contractual improvements, cost efficiency actions, and the effective management of ongoing supply chain challenges. Our full year 2024 guidance is unchanged, with a broadly balanced weighting for both profit and cash flow across the year. As part of our strategy, we are also strengthening our balance sheet. This has been recognised with credit rating upgrades at Fitch (BBB-) and S&P (BBB-), where we now have an investment grade rating, and at Moody’s (Ba1), all with a positive outlook. We have reduced our gross debt position by repaying a EUR 550 million bond from underlying cash and cancelled our last remaining UKEF-supported undrawn loan facility, both enabled by our more resilient and growing cash delivery.

In Civil Aerospace, long-term service agreement large engine flying hours (EFH) have returned to 100% of 2019 levels in the four months to 30 April, driven by the continued recovery of international traffic in Asia and our growing fleet. For the full year, our expectations of large EFH at 100%-110% of 2019 levels, 1,300-1,400 shop visits and 500-550 OE deliveries are all unchanged. We have invested in our facilities in Derby and Dahlewitz to strengthen our operational and MRO capability to meet rising shop visit volumes. The momentum of new widebody business wins has continued with VietJet and Starlux orders announced during the Singapore Air show. In addition, IndiGo, one of the fastest growing airlines in the world, recently agreed to order 60 Trent XWB engines. Business aviation has also seen key milestones with the introduction of the Pearl 700 into service on the Gulfstream G700, and the Pearl 10X has taken to the sky as part of the final stages of engine certification.

In Defence, the long-term growth of the business has been underpinned by several recent contract awards. Australian funding was confirmed for the AUKUS submarine programmes, which includes Rolls-Royce reactors. The B-52 Rapid Twin Pod Test is concluding at the Rolls-Royce test facilities at NASA’s Stennis site in the US, providing critical data to inform the development program and accelerate the integration of the F130 engine onto the B-52J. We have also seen encouraging progress with the Global Combat Air Programme (GCAP), with Japan’s cabinet agreeing to permit the transfer of aircraft from Japan to countries that have signed defence partnership agreements. This marks a positive early step that helps to pave the way for future export orders.

In Power Systems, our strong position in the data centre market is providing growth opportunities as we see higher demand from artificial intelligence and cloud services providers. Demand for governmental applications also remains high as states increase their investments in defence capabilities. We also continue to win new business in Battery Energy Storage Solutions (BESS), with a new order secured for the Latvian power grid with a system capacity of 160 megawatt hours. The sale of our lower-power-range engines business to Deutz is progressing well. We have signed definitive agreements and are working towards completion by 3Q 2024.    

We announced proposed organisational changes in October 2023 and we are on track to deliver the annualised sustainable benefit of around £200 million by the end of 2025. Consultation is advanced and continued progress is expected during the remainder of the year as we implement a simpler and more strategically focused agile organisation.

Our transformation is based on building a sustainably differentiated business built on: safe and efficient operations, advantaged products and technologies, a clear and granular strategy, and a new mindset with a distinctive performance culture. We have an aligned, energised workforce and together we are building One Rolls-Royce, that can fully realise its potential to be a high performing, competitive, resilient and growing business.

Rolls-Royce Holdings plc (LON:RR) has announced its 2023 Full Year Results.

Step-change in performance driven by transformation; strong momentum into 2024

• Underlying operating profit of £1.6bn and underlying margin of 10.3%, reflecting the impact of our strategic initiatives, with commercial optimisation and cost efficiency benefits across the Group
• Record free cash flow of £1.3bn driven by operating profit and continued LTSA balance growth
• Return on capital more than doubled to 11.3% reflecting improved operating profit, disciplined capital allocation and working capital management
• Statutory net cash flow from operating activities of £2.5bn, £1.0bn higher year on year
• Net debt of £2.0bn, down from £3.3bn at the end of 2022, as we strengthen the balance sheet and build resilience
• 2024 guidance: continued progress with underlying operating profit between £1.7bn and £2.0bn and free cash flow between £1.7bn and £1.9bn

Tufan Erginbilgic, Rolls-Royce Holdings CEO said: “Our transformation has delivered a record performance in 2023, driven by commercial optimisation, cost efficiencies and progress on our strategic initiatives. This step-change has been achieved across all our divisions, despite a volatile environment with geopolitical uncertainty, supply chain challenges and inflationary pressures.

We are managing the business differently and our significant performance improvement in the year reflects the hard work and focused actions of all our teams. We are also continuing to invest to drive future sustainable growth. Our strong delivery in 2023 gives us confidence in our 2024 guidance and is a significant step towards our mid-term targets. We are unlocking our full potential as a high-performing, competitive, resilient, and growing Rolls-Royce.”  

Full Year 2023 Group continuing operations

	Underlying2023	Underlying 2022	Statutory 2023	Statutory2022
£ million
Revenue	15,409	12,691	16,486	13,520
Operating profit	1,590	652	1,944	837
Operating margin (%)	10.3%	5.1%	11.8%	6.2%
Profit/(loss) before taxation	1,262	206	2,427	(1,502)
Earnings/(loss) per share (pence)	13.75	1.95	28.85	(14.24)
Free cash flow	1,285	505
Return on capital (%) 1	11.3%	4.9%
Net cash flow from operating activities 2			2,485	1,524
Net debt			(1,952)	(3,251)

¹   Adjusted return on capital is defined on page 52 and is abbreviated to return on capital

²   Represented. See page 18 for further details

A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 49 to 52

2023 performance summary

·    Driving growth in attractive markets: Large engine flying hours (EFH) in Civil Aerospace recovered to 88% of 2019 levels, up from 65% in 2022. Large engine orders were the highest in more than 15 years, with major orders from Air India and Turkish Airlines. In Defence, the AUKUS submarine agreement was announced, which will be supported by the expansion of our submarines site in Raynesway, and work on our future programmes in the UK and US progressed well. In Power Systems, we are capturing strong demand for power generation solutions and services in the rapidly expanding data centre market.

·    Significantly improved profit and margins: Underlying operating profit rose by £0.9bn to £1.6bn supported by our transformation programme and strategic initiatives, with commercial optimisation and cost efficiency benefits across the Group. Underlying operating margin more than doubled to 10.3%. Civil Aerospace, Defence and Power Systems all delivered materially higher margins compared to last year. The largest improvement was in Civil Aerospace, which delivered an operating margin of 11.6% compared to 2.5% in the previous year. This was driven by increased aftermarket profit, in both the large engines and business aviation segments, reflecting commercial optimisation and cost efficiencies, as well as volume growth. Defence delivered an improved operating margin of 13.8% (2022: 11.8%), which primarily reflected improved pricing and cost efficiencies. In Power Systems, which reported an operating margin of 10.4% (2022: 8.4%), pricing and cost efficiency actions in the first half of the year resulted in a significantly improved operating profit and margin in the second half and in the full year.

·    Record cash generation: Free cash flow from continuing operations grew by approximately 150% to £1.3bn, principally due to higher operating profit. Civil net LTSA creditor growth net of risk and revenue sharing agreements (RRSAs) was £1.1bn (2022: £0.8bn). Continued LTSA balance growth reflects higher EFHs and the benefit of commercial optimisation, with LTSA invoiced flying hour receipts of £4.6bn (2022: £3.6bn). Our focus on working capital resulted in a release in the second half despite ongoing supply chain challenges. For the full year there was a net working capital outflow of £0.4bn (2022: £0.5bn). Inventory and debtor days both improved year on year building further confidence in the actions we are taking to improve the quality of cash delivery.  

·    Building financial resilience: Total underlying cash costs as a proportion of underlying gross margin (TCC/GM) ratio improved to 0.59x in 2023 from 0.80x in 2022. Net debt improved to £2.0bn (2022: £3.3bn). We have £4.1bn of drawn debt, of which £0.5bn matures in 2024, £0.8bn in 2025 and £2.8bn in 2026-2028, and £1.7bn of lease liabilities. We have £3.7bn in cash and cash equivalents and £3.5bn undrawn facilities, totalling £7.2bn of liquidity, and expect to repay the 2024 and 2025 bonds from cash. We cancelled a £1.0bn undrawn UK Export Finance (UKEF) backed facility in the year, and a £1.0bn undrawn bank loan facility reflecting our higher cash balance and more resilient financial position.

·    Shareholder payments: We are not making shareholder payments for 2023. As we shared at our capital markets day in November 2023, once we are comfortably within an investment grade profile and the strength of our balance sheet is assured, we are committed to reinstating and growing shareholder distributions.

Transformation programme and strategic review

The early results of our transformation programme and strategic initiatives are already evident in the step-change in performance reported for 2023, but there is more still to do. Our strategy framework is founded on four pillars:

·    Portfolio choices & partnerships: We have clear plans for the markets we will operate and invest in. In Civil Aerospace, we successfully tested our UltraFan demonstrator engine to full power and achieved certification for our Pearl 700 business jet engine. In Defence, investment continued in the growing combat, transport and submarines markets and we progressed well with testing and development on the GCAP and B-52 programmes. In Power Systems, we successfully tested a new engine prototype that will join our portfolio alongside our current Series 4000 and acquired a yacht automation and bridge specialist business to extend our Marine offering. We also identified areas for divestment, which we expect to generate £1.0bn-£1.5bn gross proceeds by 2028. We are in advanced discussions to sell the off-highway lower power range engines division in Power Systems and we decided to exit Electrical in the short term or alternatively, for the right value, reduce our position to a minority with an intention to exit fully in the mid-term.

·    Advantaged businesses & strategic initiatives: In Civil Aerospace, we have now retrofitted 20% of the Trent 7000 fleet with the improved HPT blade, which has doubled its time on wing, and we expect the same improvement to be certified on the Trent 1000 TEN in 2024. All key Civil Aerospace OEM and major airline contract renegotiations were either concluded or progressed. Our cost initiatives reduced total shop visit costs across large engines dispatched in 2023, which helped to deliver an improved LTSA margin. In Defence, cost efficiencies and value-based pricing helped to deliver improved performance and we delivered strong growth in combat and submarines. In Power Systems, in addition to our pricing and cost actions, we commissioned one of the largest battery and energy storage systems in Europe, helping to integrate renewable energy into the Dutch public grid and grow our power generation business.

·    Efficiency & simplification: Our actions to deliver sustainable cost efficiencies and improve competitiveness are well underway. In 2023, we delivered around £150m towards an annualised total Efficiency & Simplification savings target of £400m-£500m in the mid-term. We announced a reduction of 2,000-2,500 roles by the end of 2025 with expected annual benefits of approximately £200m and associated severance costs of £200m-£250m, which will be taken as an exceptional charge in 2024. We also have a renewed focus on third party costs, where we delivered gross savings of £130m in the year, making a strong start towards our target to save £1bn gross procurement spend by the mid-term, helping to partly offset inflationary pressures. In 2024, we have launched zero based budgeting, focusing initially on Civil Aerospace.

·    Lower carbon & digitally enabled businesses: We remain committed to becoming a net zero company by 2050 and supporting our customers to do the same. In 2023 we powered the first 100% sustainable aviation fuelled commercial flight across the Atlantic and met our target for 100% SAF compatibility testing for our in production commercial aero engines. Our S2000 and S4000 engines in Power Systems were approved for use with sustainable fuels and we also progressed our hydrogen test programmes. We invested in digital tools as we look to unlock the potential to remove 20% of repetitive tasks with digital and AI capability.

Delivery of our strategic framework and clear plans for the mid-term will realise our Rolls-Royce proposition to become a high-performing, competitive, resilient and growing business. Our people are energised and aligned to the new One Rolls-Royce ways of working and our progress to date further strengthens our confidence in the delivery of our mid-term targets.

Outlook and 2024 Guidance

As we continue to deliver our strategy, we expect further improvements towards all our mid-term targets. This is despite the impact of continued supply chain challenges, which we expect to persist for 18-24 months, geopolitical uncertainty and inflationary pressures.

2024 financial guidance
Underlying operating profit	£1.7bn-£2.0bn
Free cash flow	£1.7bn-£1.9bn

In Civil Aerospace, we expect 2024 large EFHs will grow to 100-110% of 2019’s level, 500-550 total original equipment (OE) deliveries and 1,300-1,400 total shop visits. Our 2024 free cash flow guidance is based on civil net LTSA creditor growth at the low end of the mid-term range (£0.8bn – £1.2bn), compared to £1.1bn in 2023. Additional detail is included in the results presentation and supplementary data slides.

Strong progress in the early years of our plan demonstrates a front-end loaded delivery of performance improvement. Our 2023 performance and 2024 guidance on operating profit and free cash flow means that by 2024 we will have delivered more than 50% of the improvement set out in our mid-term targets. As a reminder, we are targeting underlying operating profit of £2.5bn-£2.8bn, operating margin of 13-15%, free cash flow of £2.8bn-£3.1bn and return on capital of 16-18% in the mid-term. These targets are based upon our expectations for a 2027 timeframe.

Underlying financial performance by division

£ million	Underlying revenue	Organic Change 1	Underlying operating profit/(loss)	Organic change 1	Underlying operating margin	Organic margin change (pts)
Civil Aerospace	7,348	29%	850	497%	11.6%	9.1pt
Defence	4,077	12%	562	30%	13.8%	1.9pt
Power Systems	3,968	16%	413	44%	10.4%	2.0pt
New Markets	4	nm	(160)	(20)%	nm	nm
Other businesses	12	nm	(15)	52%	nm	nm
Corporate/eliminations	−	nm	(60)	(49)%	nm	nm
Total (continuing operations)	15,409	21%	1,590	143%	10.3%	5.2pt

¹    Organic change is the measure of change at constant translational currency applying full year 2022 average rates to 2023. All underlying income statement commentary is provided on an organic basis unless otherwise stated

All results are shown for Group continuing operations, on an underlying basis, excluding discontinued operations (ITP Aero). For more details, see note 2 of the Condensed Consolidated Financial Statements (page 22).

nm is defined as not meaningful

Trading cash flow

£ million	2023	2022
Civil Aerospace	626	226
Defence	511	426
Power Systems	461	158
New Markets	(63)	(57)
Other businesses	5	5
Corporate/eliminations	(57)	(49)
Total trading cash flow (continuing operations)	1,483	709
Underlying operating profit charge exceeded by contributions to defined benefit schemes	(26)	(32)
Taxation	(172)	(172)
Total free cash flow (continuing operations)	1,285	505

Civil Aerospace

2023 key operational metrics:	Large engine	Business aviation/ regional	Total	Change
Original Equipment (OE) deliveries	262	196	458	29%
LTSA engine flying hours (millions)	13.5	3.0	16.5	25%
Total LTSA shop visits	839	388	1,227	18%
…of which major shop visits	368	363	731	27%

Significantly improved Civil Aerospace operating profit and margins reflect higher aftermarket profit, due to increased volumes, commercial optimisation, and cost efficiencies.

Civil Aerospace large EFHs rose by 36% year on year to 88% of 2019 levels, reflecting the continued strong demand for travel coupled with a recovery in traffic in China as COVID-19 restrictions eased. Business aviation demand remained robust. In 2023, around 700 large engines were ordered, the highest level since 2007 including major orders from Air India, Emirates and EVA Air. Turkish Airlines also placed an order for new engine deliveries in 2023, which is set to make them the largest operator of Trent XWB engines in the world. In January 2024 we also received a substantial order from Delta Airlines for 40 Trent XWB-97 engines. Our large engine order book increased by almost 30% to 1,632 engines at year end with a 2023 book to bill of 2.6x.

Total OE engine deliveries rose by 29% year on year, with 196 business aviation deliveries (2022: 165) and 262 total large engine deliveries (2022: 190). In 2023 we delivered 53 large spare engines (2022: 44), which represented 20% of total large engine deliveries (2022: 23%). Total shop visits increased 18% year on year to 1,227 (2022: 1,044), of these 368 were large engine major shop visits (2022: 248). The ramp up in shop visits was achieved despite ongoing supply chain constraints. 

Underlying revenue of £7.3bn increased 29% year on year, driven by higher shop visits and OE engine deliveries and commercial optimisation. Underlying OE revenues grew by 36% in the year to £2.7bn and services revenues grew by 25% to £4.6bn. LTSA revenue catch-ups were £(104)m (2022: £360m).

Underlying operating profit was £850m (11.6% margin) versus £143m in 2022 (2.5% margin). The year on year improvement was driven by higher large engine LTSA shop visit volumes and profitability, increased time and materials profits from life limited parts sales for large engines, and higher business aviation profits, again driven by aftermarket profit growth. In each case, our commercial optimisation actions helped drive margin improvements. This was complemented by cost efficiencies, with lower indirect costs net of inflation.

Contract catch-ups were £(29)m (2022: £319m). The prior year benefitted from material positive contract catch-ups mostly associated with inflation assumption changes in 2022. Net onerous provisions/releases were £(25)m
(2022: £51m). We made good progress on onerous contracts in the year, releasing £385m of provisions taken in prior periods. However, this was more than offset by £410m new provisions taken in 2023 mostly related to industry wide supply chain constraints.

Trading cash flow was £626m versus £226m in 2022. Improved cash flows were driven by higher operating profit, continued strong growth in the LTSA balance, partly offset by net working capital movements and increased investments in the year including improving time on wing for our Trent engines, investment in the Pearl business aviation engines and the UltraFan demonstrator engine test. LTSA invoiced flying hour receipts increased to £4.6bn (2022: £3.6bn).

Defence

Higher operating profit in Defence was driven by our commercial optimisation action, cost efficiencies and volume growth in submarines.

Demand remained strong in all key markets – transport, combat and submarines – with order intake of £5.2bn in the year; a book-to-bill ratio of 1.3x. This resulted in a record order backlog of £9.2bn at the year end, with 90% order cover in 2024 and a high degree of cover in 2025 and beyond. Key awards in the year included the AUKUS agreement, which underpins the long-term growth outlook for our submarines business.

Revenues increased by 12% in 2023 to £4.1bn, with year-on-year growth in all major end markets, notably
double-digit revenue growth in combat and submarines. Combat growth was driven by the GCAP programme in the UK and the ramp-up of the F130 programme for the B-52 in the US. Total OE revenues grew by 8% in the year to £1.8bn and services revenues grew by 14% to £2.3bn.

Operating profit was £562m (13.8% margin) versus £432m (11.8% margin) in the prior year, reflecting commercial optimisation, cost efficiencies, and growth in submarines. A lower R&D charge reflected increased customer funding and our strategic focus on the most attractive future programmes.

Trading cash flow of £511m improved versus £426m last year, driven by higher underlying operating profit and our working capital initiatives which resulted in inventory reductions, and increased customer deposits.

Power Systems

In Power Systems, as we stated in our upgraded 2023 guidance at the half year, our cost and pricing actions in the first half of the year supported a significantly higher margin and profit in the second half, and a higher margin for the full year, with a material improvement in power generation profit, taking the division to a level which represents an all-time record in the 114 year history of the business.

Order intake in Power Systems was £4.3bn, flat year on year, but with a book-to-bill ratio of 1.1x and OE order coverage for 2024 of 80%. Demand remained strong with high order intake in power generation and governmental in particular.  

Underlying revenue was £4.0bn, an increase of 16% year on year with 34% growth in the power generation end market driven by data centre growth, where we have a leading position. Underlying OE revenues grew by 19% to £2.7bn. Underlying Services revenues grew by 10% to £1.3bn.

Operating profit was £413m, a 44% year on year increase. This was driven by commercial optimisation and cost efficiencies. In power generation, profitability tripled in 2023 as we took steps to ensure we are appropriately remunerated for our products and services through value-based pricing. The year on year improvement in operating margin to 10.4% in 2023 versus 8.4% in 2022 was achieved despite a slight product mix headwind in the year.

Trading cash flow was £461m with a conversion ratio of 112% versus £158m and 56% last year. The increase in trading cash flow was due to increased operating profit and working capital initiatives including a benefit from increased customer advance payments and reduced inventories in the year.

New Markets

Rolls-Royce SMR (small modular reactors) continued to progress well through stage two of the Generic Design Assessment (GDA) regulatory process in the UK. First power is still planned in the early 2030s, which will be dependent on securing orders and the outcome of the final investment decision by the UK Government. In 2023 we were successfully shortlisted in the first stage of the Great British Nuclear Small Modular Reactor technology selection process and look forward to the next steps.

Planned cost increases in both Electrical and SMR to meet development milestones resulted in an increased operating loss of £(160)m a 20% increase from £(132)m in the prior year.

Trading cash flow was an outflow of £(63)m compared to £(57)m in the prior year, with SMR costs covered by third party funding.

Statutory and underlying Group financial performance from continuing operations

	2023					2022
£ million	Statutory	Impact of hedge book 1	Impact of acquisition accounting	Impact of other non-underlying items	Underlying	Underlying
Revenue	16,486	(1,077)	−	−	15,409	12,691
Gross profit	3,620	(461)	46	26	3,231	2,477
Operating profit	1,944	(475)	50	71	1,590	652
Gain arising on disposal of businesses	1	−	−	(1)	−	−
Profit before financing and taxation	1,945	(475)	50	70	1,590	652
Net financing income/(costs)	482	(915)	−	105	(328)	(446)
Profit before taxation	2,427	(1,390)	50	175	1,262	206
Taxation 2	(23)	285	(12)	(370)	(120)	(48)
Profit for the year from continuing operations	2,404	(1,105)	38	(195)	1,142	158
Basic earnings per share (pence)	28.85				13.75	1.95

¹    Reflecting the impact of measuring revenue and costs at the average exchange rate during the year and the valuation of assets and liabilities using the year end exchange rate rather than the rate achieved on settled foreign exchange contracts in the year or the rate expected to be achieved by the use of the hedge book

²    Taxation includes the recognition of a deferred tax asset on UK tax losses of £328m in other non-underlying items

Revenue: Underlying revenue of £15.4bn was up 21%, with double-digit growth in all three core divisions and particularly strong growth in Civil Aerospace. Statutory revenue of £16.5bn was 22% higher compared with 2022. The difference between statutory and underlying revenue is driven by statutory revenue being measured at average prevailing exchange rates (2023: GBP:USD 1.24; 2022: GBP:USD 1.24) and underlying revenue being measured at the hedge book achieved rate during the year (2023 GBP:USD 1.50; 2022: 1.50).

Operating profit: Underlying operating profit of £1,590m (10.3% margin) versus £652m (5.1% margin) in the prior year. This was due primarily to strong aftermarket growth in Civil Aerospace and commercial optimisation and cost efficiencies across the Group. The largest year on year improvement in margin was in Civil Aerospace, but Defence and Power Systems margins also rose materially. Statutory operating profit was £1,944m, higher than the £1,590m underlying operating profit largely due to the £475m negative impact from currency hedges in the underlying results. Net charges of £71m were excluded from the underlying results as these related to non-underlying items comprising net transformation and restructuring charges of £102m; partly offset by net impairment reversals of £8m, the write back of exceptional Trent 1000 programme charges of £21m; and a £2m pension past service credit.

Profit before taxation: Underlying profit before taxation of £1,262m included £(328)m net financing costs comprising £164m interest receivable, £(275)m interest payable and £(217)m of other financing charges and costs of undrawn facilities. Statutory profit before tax of £2,427m included £515m net fair value gains on derivative contracts, £(205)m net interest payable and net foreign exchange gains of £394m.

Taxation: Underlying tax charge of £(120)m (2022: £(48)m) reflects a tax charge on profits of £(198)m net of a tax credit arising on the recognition of a £78m deferred tax asset on previously unrecognised UK tax losses. The 2022 underlying tax charge relates to tax on overseas profits of £(175)m net of a tax credit on the increase in certain UK deferred tax assets of £127m. The statutory tax charge of £(23)m is lower than the underlying charge due to an additional £328m recognition of a deferred tax asset on UK tax losses. This is partially offset by a net tax charge of £(231)m on non-underlying items.

Free cash flow

	2023					2022
£ million	Cash flow	Impact of hedge book	Impact of acquisition accounting	Impact of other non-underlying items	Funds flow	Funds flow
Operating profit	1,944	(475)	50	71	1,590	652
Operating profit from discontinued operations	−	−	−	−	−	86
Depreciation, amortisation and impairment	1,019	−	(50)	9	978	953
Movement in provisions	(325)	46	−	21	(258)	(23)
Movement in Civil LTSA balance	1,708	(377)	−	−	1,331	792
Movement in prepayments to RRSAs for LTSA parts	(315)	63	−	−	(252)	(8)
Settlement of excess derivatives 1	(389)	−	−	−	(389)	(326)
Interest received	159	−	−	−	159	36
Other operating cash flows 2	(63)	(8)	−	3	(68)	5
Operating cash flow before working capital and income tax	3,738	(751)	−	104	3,091	2,167
Working capital (excluding Civil LTSA balance and prepayment to RRSAs) 3	(236)	(123)	−	(37)	(396)	(524)
Cash flows on other financial assets and liabilities held for operating purposes	(845)	853	−	−	8	77
Income tax	(172)	−	−	−	(172)	(174)
Cash from operating activities	2,485	(21)	−	67	2,531	1,546
Capital element of lease payments	(291)	21	−	−	(270)	(198)
Capital expenditure	(699)	−	−	4	(695)	(504)
Investment	69	−	−	−	69	28
Interest paid	(333)	−	−	−	(333)	(352)
Other	54	−	−	(71)	(17)	(29)
Free cash flow	1,285	−	−	−	1,285	491
– of which is continuing operations	1,285				1,285	505

¹    The funds flow to 31 December 2022 has been represented to disclose cash flows on settlement of excess derivative contracts as cash flows from operating activities. As a result, operating cash flows before working capital and income tax during the year to 31 December 2022 have reduced by £(326)m to £2,167m. Cash flows on settlement of excess derivative contracts were previously shown after cash from operating activities in arriving at free cash flow. There is no impact to free cash flow

²  Other operating cash flows includes profit/(loss) on disposal, share of results and dividends received from joint ventures and associates, flows relating to our defined benefit post-retirement schemes, and share based payments

³   Working capital includes inventory, trade and other receivables and payables, and contract assets and liabilities (excluding Civil LTSA balances and prepayment to RRSAs). Working capital was previously defined as inventory, trade and other receivables and payables, and contract assets and liabilities, excluding Civil LTSA

Free cash flow in the year was £1.3bn, an improvement of £0.8bn compared with the prior year driven by:

Operating cash flow before working capital and income tax of £3.1bn, £0.9bn higher than the prior year. The improvement at the Group level was principally due to our actions on commercial optimisation and cost discipline. The movement in Civil LTSA balance was £1,331m (2022: £792m) driven by higher EFH receipts. RRSA prepayments were £252m (2022: £8m). The movement in provisions of £(258)m largely related to utilisation of the Trent 1000 provision, contract loss provisions and the settlement of a legal claim. The settlement of excess derivative contracts of £(389)m was in line with expectations, with a further cash outflow of £146m expected to be incurred in 2024, £148m in 2025 and £27m in 2026. Interest received was £159m, up from £36m in 2022 due to higher cash balances and higher interest rates in the year.  

Working capital £(396)m, compared to £(524)m in the prior year. Inventory increased by £(0.2)bn in the year primarily driven by Civil Aerospace as a result of continued supply chain disruption. There was a net £(0.2)bn outflow from receivables, payables and contract liabilities reflecting the net of volume growth in receivables and an increase in advance payments from customers.

Income tax of £(172)m, net cash tax payments in 2023 were marginally lower than the prior year of £(174)m, mainly due to the receipt of refunds in respect of prior periods in the US and timing of payments in Germany.

The capital element of lease payments was £(270)m, £(72)m higher than the prior year as a result of timing of lease payments.

Capital expenditure of £(695)m, mainly £(429)m property, plant and equipment additions and £(284)m intangibles additions. The combined additions were higher than last year as a result of investment in site improvements across the Group.

Interest paid of £(333)m, including lease interest payments, has reduced by £19m as a result of the settlement of the UKEF £2bn loan facility in September 2022 slightly offset by higher interest on gross overdrafts.

Balance Sheet 

£ million	2023	2022	Change
Intangible assets	4,009	4,098	(89)
Property, plant and equipment	3,728	3,936	(208)
Right of use assets	905	1,061	(156)
Joint ventures and associates	479	422	57
Civil LTSA 1	(9,080)	(7,372)	(1,708)
RRSA prepayments for LTSA parts 1	1,320	1,005	315
Working capital 1	(1,386)	(2,017)	631
Provisions	(2,029)	(2,333)	304
Net debt 2	(1,952)	(3,251)	1,299
Net financial assets and liabilities 2	(2,060)	(3,649)	1,589
Net post-retirement scheme deficits	(253)	(420)	167
Taxation	2,605	2,468	137
Held for sale 3	54	–	54
Other net assets and liabilities	31	36	(5)
Net liabilities	(3,629)	(6,016)	2,387
Other items
US$ hedge book (US$bn)	15	19

¹   The total of these lines represents inventory, trade receivables and payables, contract assets and liabilities and other assets and liabilities in the statutory balance sheet

²   Net debt includes £23m (2022: £86m) of the fair value of derivatives included in fair value hedges and the element of fair value relating to exchange differences on the underlying principal of derivatives in cash flow hedges

³   Held for sale assets relate to the sale of the off-highway engines business in the lower power range based in Power Systems

Key drivers of balance sheet movements were:

Civil LTSA: The £(1.7)bn movement in the net liability balance was mainly driven by an increase in invoiced LTSA receipts exceeding revenue recognised in the year, this is especially prevalent on new contracts where shop visits are not immediately scheduled.

RRSA prepayments for LTSA parts: The £0.3bn increase corresponds to the increase seen in the civil LTSA balance above. RRSA prepayments typically move in line with the civil LTSA as the RRSA prepayment represents amounts that we have paid to Risk and Revenue Share Partners for the parts that they will ultimately provide in support of our contracts.

Working capital: The £(1.4)bn net working capital position decreased by £0.6bn compared to the prior year. The movement comprised £0.1bn increase in inventory, mainly in Civil Aerospace due to supply chain disruption, £0.9bn increase in receivables due to higher trading volumes and prepayments from customers, £0.5bn reduction in payables due to changes in operational volumes and timing of supplier payments, partly offset by an increase in contract liabilities of £(0.9)bn driven by advanced payments received across the divisions.

Provisions: The £0.3bn net reduction was primarily driven by the settlement of a legal claim, utilisation of the Trent 1000 provision, and a net £0.1bn reduction in contract loss provisions due to provision utilisation, renegotiations and extensions of some major contracts resulting in improved margins, partly offset by increased cost estimates from supply chain issues.

Net debt: Decreased from £(3.3)bn to £(2.0)bn driven by free cash inflow of £1.3bn. Our liquidity position is strong with £7.2bn of liquidity including cash and cash equivalents of £3.7bn and undrawn facilities of £3.5bn. Two undrawn facilities, totalling £2.0bn, were cancelled in 2023 reflecting our higher cash balance and more resilient financial position. Net debt included £(1.7)bn of lease liabilities (2022: £(1.8)bn).

Net financial assets and liabilities: A £1.6bn reduction in the net financial liabilities driven by contracts maturing in the year and a change in fair value of derivative contracts largely due to the impact of the movement in GBP:USD exchange rates.

Taxation: The net tax asset has increased by £137m. This includes an overall increase in the deferred tax asset of £267m, due to increases in the deferred tax asset recognised on UK tax losses of £422m and other deferred tax assets of £101m, partly offset by a reduction of £256m on the deferred tax on foreign exchange derivative contracts. Other tax balance movements include increases in the deferred tax liability of £44m and net current tax liabilities of £86m.

Results meeting and conference call

Our results presentation will be held at UBS, 5 Broadgate, London EC2M 2QS and webcast live at 09:00 (GMT) today. Downloadable materials will also be available on the Investor Relations section of the Rolls-Royce website: https://www.rolls-royce.com/investors/results-and-events.aspx

To register for the webcast, including Q&A participation, please visit the following link: https://app.webinar.net/3K4kP3kPLYx

Please use this same link to access the webcast replay which will be made available shortly after the event concludes. Photographs and broadcast-standard video are available at www.rolls-royce.com

Rolls-Royce Holdings plc (LON:RR) is today holding a Capital Markets Day in which we are setting mid-term financial targets that will represent a step change in our financial performance.

·	Clear vision and strategy will create a high performing, competitive, resilient and growing business
·	Mid-term targets set to deliver record future performance: operating profit of £2.5bn-£2.8bn, operating margin of 13-15%, free cashflow of £2.8bn-£3.1bn and return on capital of 16-18%
·	Improved financial performance will create a stronger balance sheet and investment grade profile for the benefit of all stakeholders
·	Focused strategy has identified investment priorities, partnership opportunities and supports a £1bn-£1.5bn gross disposal programme over next 5 years
·	Current trading is in line with expectations and guidance for 2023 reconfirmed

Chief Executive Tufan Erginbilgic said:

“Rolls-Royce is at a pivotal point in its history. After a strong start to our transformation programme, we are today laying out a clear vision for the journey we need to take and the areas where we must focus. We are creating a high performing, competitive, resilient and growing Rolls-Royce that will have the financial strength to control and shape its own destiny. We are confident in our ability to achieve these ambitions and have a clear and granular plan to deliver on our targets. We have made significant progress, with 2023 profit and cash forecast to be materially ahead of 2022.

“We are setting compelling and achievable financial targets for the mid-term which will take Rolls-Royce significantly beyond any previous financial performance. This will benefit not just our shareholders but our people, customers and partners. We are building ‘one Rolls-Royce’. A company that can fully realise its potential, ensuring the excellence and innovation that helped shape the modern world, endures long into the future.”

Mid-term targets

We aim to make Rolls-Royce financially stronger and more resilient than it has been before. In the mid-term this means achieving:

·	Operating profit of £2.5bn-£2.8bn,
·	Operating margin of 13-15% with
·	Free Cash Flow of £2.8bn-£3.1bn and
·	Return on capital of 16-18%.

We have also set divisional mid-term targets for operating margin:

·	Civil Aerospace has the biggest step change, improving from 2.5% in 2022 to 15-17%.
·	In Defence we plan to improve from 11.8% in 2022 to 14-16%.
·	In Power Systems, our shortest cycle and most diverse business, we plan to improve from 8.4% in 2022 to 12-14%.

These targets are based upon our expectations for a 2027 timeframe. We expect a progressive, but not necessarily linear, improvement year-on-year, and if we can accelerate the achievement of our ambitions we will. These targets, the performance improvements that underpin them and the actions we require to achieve them, are owned across the Group and supported through rigorous performance management and clear lines of accountability. Our strong start to 2023 provides further confidence in our ability to deliver.

Strategic update

In February, we launched our transformation programme and strategic review to set out what we needed to do to take us to a new level of performance. We are building on our strong foundations and advantaged businesses to create a Rolls-Royce that can unlock its full potential.

Our new strategy will deliver our Rolls-Royce proposition to:

·	build a high performing, competitive and resilient business with profitable growth,
·	grow sustainable free cash flows and
·	build a strong balance sheet and grow shareholder returns.

It is based on four pillars:

1.	Portfolio choices & partnerships: The markets we are choosing to operate in, businesses we want to invest in, and partnerships that will create truly winning positions.
2.	Advantaged businesses & strategic initiatives: How we will create a competitive business, expand our earnings potential and improve our performance.
3.	Efficiency & simplification: The importance of a company-wide focus to drive synergies that enable us to be more competitive and simplify the way we operate; and
4.	Lower carbon & digitally enabled businesses: Our commitment to the energy transition, building on the tangible progress we have made to date, and capturing the benefits of becoming more digitally enabled.

Portfolio choices and partnerships: We are today setting out the strategic choices that we have made across the Group and providing details of the strategic initiatives that will deliver the step change in financial performance we are targeting.

In Civil Aerospace, we will focus on the widebody commercial airline market and business aviation where we can leverage the value from our Trent and Pearl engine families while investing for the future with our world-leading UltraFan engine programme. In Defence, we have opportunities for stronger performance and an increase in customer-funded investment across Transport, Combat and Submarines, where recently announced platform wins and international co-operations will drive further future growth. We can also leverage our expertise in adjacent nuclear fields such as Small Modular Reactors (SMRs) and micro-reactors, which have both defence and civilian applications. In Power Systems, we will focus on our Power Generation, Governmental and Marine end-markets, where we see the strongest demand and an opportunity for better returns from our power-dense and reliable solutions.

In specific instances, partnerships can help to strengthen our market positions, build capability and scale, as well as de-risk and reduce capital investment. Our mid-term targets are not reliant upon securing such new partnerships and we will only partner if the potential for further value creation exists. In Civil Aerospace, we believe we are well positioned to re-enter the narrowbody market, by choosing a partnership approach for the next new engine programme, and our UltraFan technology is a vital step towards this. For our SMR venture, a broad set of partners will strengthen our position to deliver the overall solution and reduce the future capital call. In Power Systems, our focused strategy in power generation will make this business more efficient and competitive, and drive faster, profitable growth. We are also considering potential partnerships in Power Generation and Battery Energy Storage Systems to further grow our market position, broaden our offering and benefit from cross business synergies.

We are also clear where we will not invest and re-allocate capital to parts of the business where we can generate more value. We are today announcing a Group-wide divestment program, targeting gross proceeds of between £1.0bn and £1.5bn over the next five years, which do not form part of our Free Cash Flow targets. We will only sell assets at the right time and at the right price. For example, in Rolls-Royce Electrical we are looking at options to exit in the short run or alternatively for the right value, reduce our position to minority with an intention to exit fully in the mid-term. We believe, given the world-class capability we have built in Advanced Air Mobility, that this will represent good value to a third party and will allow us to focus on our core electrical engineering activities in Power Systems, Defence and Civil Aerospace.

Strategic Initiatives and Efficiency & Simplification

Our strategy is underpinned by granular strategic initiatives that are owned by each division. The largest step change in performance is in our Civil Aerospace division, where our 6 levers to improve widebody LTSA margins (extending time on wing, lowering shop visit costs, reducing product costs, keeping engines earning, implementing a new value-driven pricing strategy, and driving rigour on contractual terms and conditions) are key to achieving our targets. Time and material, spare engines and original equipment also contribute to improving profitability. Business Aviation initiatives also deliver strong performance improvement. In Power Systems, significant improvements are expected from initiatives focused on cost optimisation and key accounts in Power Generation and near-term growth in Governmental. In Defence, performance was already good, but there is still an opportunity to improve with commercial optimisation and efficiency initiatives. Across all of our businesses our efficiency initiatives and the choices we make will deliver sustainable savings of £400m-£500m in the mid-term, making us more competitively advantaged, resilient and fit for the future. 

Financial Framework

We are building a stronger balance sheet and aiming to achieve an investment grade profile in the near-term. From a leverage perspective, we will significantly improve our net debt to EBITDA ratio. This is supported by our sustainable growth in free cash flows, some of which we will deploy to reduce our gross debt. The increasing strength of our resulting liquidity position means we may look to close some of our more expensive undrawn facilities early. Once we have strengthened the balance sheet, we intend to re-establish shareholder distributions. Thereafter, we will optimise between shareholder distributions and further investing in the business.

Trading update and outlook

Our current trading is in line with the guidance provided with our Half Year results on 3 August 2023 and our guidance for the year is unchanged. Engine flying hours for large civil engines on long term service agreements were 86% of 2019 levels for the 10 months to end of October and in line with our expectation for 80%-90% for the full year. Our next scheduled update will be on 22 February 2024, when we will publish our Full Year 2023 results and provide guidance for 2024.

Due to physical capacity constraints, the Capital Markets Day event is by invitation only but there will also be a webcast starting at 12:30pm UK time today lasting for approximately four hours. The webcast details are available our website www.rolls-royce.com/investors and a replay will be made available after the event.

Rolls-Royce Holdings (LON:RR.) have today announced half year results for 2023.

●	Significantly improved first half results: higher underlying operating profit of £673m and free cash flow of £356m reflects continued end-market growth and our focus on commercial optimisation and cost efficiencies across the Group
●	Full year guidance raised: on 26 July we upgraded 2023 guidance for underlying operating profit to £1.2bn-£1.4bn and free cash flow to £0.9bn-£1.0bn; transformation efforts are accelerating our financial delivery
●	Margin improvement led by Civil and Defence: driven by higher volumes, commercial improvements, and cost efficiencies; Power Systems margins were lower, but are expected to improve in the second half due to our pricing actions
●	Accelerated financial delivery driven by transformation: our multi-year programme has started well with strong initial results
●	Delivering in an uncertain environment: an increased focus on costs and productivity has helped to offset the impact of inflation and supply chain pressures

Tufan Erginbilgic, Rolls-Royce CEO, said: “Our multi-year transformation programme has started well with progress already evident in our strong initial results and increased full year guidance for 2023. There is much more to do to deliver better performance and to transform Rolls-Royce into a high performing, competitive, resilient, and growing business. We will share the outcome of our strategy review along with medium-term goals for the Group in November.

Our people are committed, passionate and full of energy. Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our businesses. Better profit and cash generation reflect greater productivity, efficiency, and improved commercial outcomes. We have tightly managed our cost base to offset inflationary cost pressures.

We have a strong portfolio of products and technologies in growing end markets and have secured key contract wins that will create future value and profitable growth. Our continued transformation will grow our business and allow us to play a stronger role in the energy transition.”

Half Year 2023 Group continuing operations

	Underlying2023 H1	Underlying 2022 H1	Statutory 2023 H1	Statutory2022 H1
£ million
Revenue	6,950	5,308	7,523	5,600
Operating profit	673	125	797	223
Operating margin (%)	9.7%	2.4%	10.6%	4.0%
Profit/(loss) before taxation	524	(111)	1,419	(1,754)
Basic earnings/(loss) per share (pence)	4.90	(2.24)	14.70	(19.29)
Free cash flow	356	(68)
Net cash flow from operating activities 1			1,135	597
1   2022 includes discontinued operations			30 Jun 2023	31 Dec 2022
Net debt			(2,845)	(3,251)

A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 42 to 44

2023 Half Year performance summary

·    Higher profitability led by Civil Aerospace: The Group’s underlying operating margin was 9.7% versus 2.4% in the prior period. This was driven by continued revenue growth coupled with early transformation benefits, notably commercial optimisation and cost efficiencies across the Group. Civil Aerospace’s operating margin was 12.4% versus (3.4)% in the prior period due to higher aftermarket profitability and increased large spare engine sales, coupled with cost efficiencies and our commercial optimisation actions. The 13.6% Defence operating margin reflected strong revenue growth and cost efficiencies. Power Systems’ margin of 7.0% was lower than the prior period but we expect better performance in the second half of the year because of pricing actions, cost efficiencies and seasonally higher volumes. Losses increased in New Markets as expected due to planned growth activities.

·   Stronger cash flow: Free cash flow from continuing operations of £356m compared to an outflow of £(68)m in the prior period. Underlying operating profit improved from £125m to £673m in the period. A long-term service agreement (LTSA) balance change of £727m (2022 H1: £433m) reflected large EFH (engine flying hour) growth to 83% of 2019 levels and our commercial optimisation actions, notably increased pricing and the anticipated collection of overdue debts that had previously been provided against. A portion of our LTSA receipts are payable to our RRSPs (risk and revenue sharing partners), which reduces the amount of cash retained. Of the total LTSA balance growth of £727m, c.£0.5bn benefited our cash flows in the period. Working capital was an outflow of £(576)m in the first half of the year (2022 H1: £(269)m), mainly driven by a £(0.6)bn outflow from higher inventories as a result of supply chain challenges and to satisfy volume growth in the second half of 2023. Net debt improved to £2.8bn (2022 FY £3.3bn). We remain committed to returning to an investment grade credit rating.

·   Accelerated financial delivery: Our financial performance reflects improved end-markets helped by the early benefits of transformation and rigorous performance management. We have tightly managed our cost base which has helped to offset inflationary cost pressures. Our actions on pricing across the Group have already started to deliver results with more expected in the second half of the year. Each business has been building and delivering plans to address performance and deliver a step-change in operational and financial performance.

·    Capital Markets Day: We will communicate the findings of our strategic review and set medium-term financial targets at a Capital Markets Day on 28 November in London. Further details will be provided in due course.

Outlook and 2023 Guidance

First half performance and the progress of our transformation programme give us confidence in delivering higher profit and cash flows in 2023.  

Underlying 2023 financial guidance	As set on 26 July 2023	As set on 23 February 2023
Operating profit	£1.2bn-£1.4bn	£0.8bn-£1.0bn
Free cash flow	£0.9bn-£1.0bn	£0.6bn-£0.8bn

Operating profit guidance of £1.2bn-£1.4bn assumes £200m-£250m of targeted contract improvements.

Free cash flow guidance of £0.9bn-£1.0bn comprises higher underlying operating profit and assumes £1.0bn-£1.2bn growth in the Civil LTSA balance (2022 FY: £792m). Of the total LTSA creditor growth, £800m-£900m is expected to benefit our cash flows in the period. We continue to anticipate a year-on-year headwind of c.£200m associated with legacy Boeing original equipment (OE) concessions, an increased c.£150m adverse impact due to fires at two suppliers’ premises, and a new expected outflow of c.£100m in respect of the outcome of a legal judgment.

Underlying financial performance by business

£ million	Underlying revenue	Organic Change 1	Underlying operating profit/(loss)	Organic change 1	Underlying operating margin	Margin change
Civil Aerospace	3,257	38%	405	479	12.4%	15.8pt
Defence	1,913	15%	261	65	13.6%	1.9pt
Power Systems	1,774	24%	125	−	7.0%	(1.7)pt
New Markets	1	nm	(78)	(29)	nm	nm
Other businesses	5	nm	(5)	24	nm	nm
Corporate and Inter-segment	−	nm	(35)	(8)	nm	nm
Total (continuing operations)	6,950	28%	673	531	9.7%	7.3pt

¹   Organic change is the measure of change at constant translational currency applying full year 2022 average rates to 2022 and 2023. All underlying income statement commentary is provided on an organic basis unless otherwise stated

All results are shown for Group continuing operations, on an underlying basis, excluding discontinued operations (ITP Aero). For more details, see note 2 of the Condensed Consolidated Interim Financial Statements (page 22).

nm is defined as not meaningful.

Trading cash flow

£ million	2023 H1	2022 H1
Civil Aerospace	401	63
Defence	76	89
Power Systems	22	(76)
New Markets	(42)	(30)
Other businesses	8	(1)
Corporate and Inter-segment	(34)	(24)
Total trading cash flow (continuing operations)	431	21
Underlying operating profit charge exceeded by contributions to defined benefit schemes	(16)	(1)
Taxation	(59)	(88)
Total free cash flow (continuing operations)	356	(68)

Civil Aerospace

2023 H1 key Civil Aerospace operational metrics:	Large engine	Business aviation/ Regional	Total	Change
OE deliveries	115	73	188	39
LTSA engine flying hours (millions)	6.2	1.5	7.7	1.6
Total LTSA shop visits	394	197	591	114
…of which major shop visits	144	187	331	68

The significantly improved Civil Aerospace margin of 12.4% (2022 H1: (3.4)%) reflects continued large engine market recovery and growth in business aviation, coupled with the early benefits of transformation, notably cost efficiencies and commercial optimisation.

Large engine flying hours were up 36% versus the prior period to 6.2m, at 83% of 2019 levels, as global travel benefited from the lifting of travel restrictions in China. We continue to expect large engine flying hours of 80%-90% of 2019 levels for the full year. Total engine flying hours were 7.7m in the period (2022 H1: 6.1m).

We recorded 240 large engine orders in the first half of 2023 (2022 H1: 96), including a record order from Air India for 68 Trent XWB-97 engines to power its A350-1000 aircraft, options for 20 more, and orders for 12
Trent XWB-84 engines. Our large engine order book at 30 June 2023 was 1,405 engines up from 1,282 at 31 December 2022. This is the first time that the large engine order book has grown since 2018. Our guidance of
400-500 total engine deliveries for full year 2023 remains unchanged.

OE deliveries rose by 26%, with 73 business aviation deliveries (2022 H1: 71) and 115 total large engine deliveries (2022 H1: 78). Large engine deliveries included 18 spare large engines (2022 H1: 8). Total large spare engine deliveries in 2023 are expected to be broadly flat year on year (2022 FY: 44).

Total LTSA shop visits were 591 versus 477 in 2022 H1, roughly half of the total of 1,200-1,300 shop visits expected for the full year. There were 144 large engine major shop visits in the first half of 2023 versus 113 in 2022 H1, with a higher profitability per shop visit compared with the prior period.

Revenue of £3.3bn was up 38%. This comprised £1.1bn OE revenue, up 58% driven by higher large engine deliveries, and £2.2bn Services revenue, up 30%, due to increased large engine shop visits and higher
time & materials revenues. Contractual improvements drove £23m of LTSA catch-ups (2022 H1: £241m).

Operating profit of £405m (12.4% margin) compared to a loss of £(79m) in the prior period. The increase in operating profit was driven by higher aftermarket activity including increased large engine LTSA shop visit volumes and profitability, a greater contribution from large engine time & materials and from business aviation. Operating profit also benefited from higher spare engines sales in the period, coupled with cost efficiencies. Our actions to improve the profitability of LTSA margins resulted in contractual margin improvements in the period, with an onerous provision credit of £35m (2022 H1: £51m) and £70m of positive LTSA catch-ups (2022 H1: £219m). Civil Aerospace operating profit in the second half of 2023 is expected to be broadly similar to the first half.

Trading cash flow was £401m compared with £63m in the prior period. Operating profit improved by £479m.  The LTSA balance change of £727m (2022 H1: £433m) was driven by EFH growth and our commercial optimisation actions, notably an improved average rate per flying hour driven by escalation and customer pricing negotiations and the anticipated collection of overdue debts that had previously been provided for. A portion of our LTSA receipts are payable to our RRSPs, which reduces the amount of cash retained. Of the total LTSA balance growth of £727m, c.£0.5bn benefited our cash flows in the period. LTSA EFH receipts were £2,337m versus £1,648m in the prior period. Working capital outflows increased versus the prior period, due to rising inventories as a consequence of supply chain challenges and the second half weighting of deliveries and shop visits in the year. We expect inventories to fall in the second half of the year.

Defence

Operating profit grew by 33% in Defence, our most resilient business, driven by strong revenue growth and higher margins. Strong revenue growth in the period reflected increased underlying demand and a more even delivery profile between the first half and second half of the year than in 2022. Higher margins were driven by pricing actions, a more favourable product mix and cost efficiencies.

Order intake was £2.7bn in the first half, with a book-to-bill of 1.4x. This included major contract renewals in both Combat and Transport as we focused on commercial optimisation to support profitable growth. Our order backlog at the end of the period was £8.9bn, up from £8.5bn at the start of the year.

As the single-source provider of the power and propulsion for the UK’s nuclear powered submarines, we have been chosen to provide the reactors for Australia’s nuclear powered submarines from the early 2040s, as part of the AUKUS trilateral agreement between Australia, the UK and the US. Customer funded investment to expand our submarines site in Derby has already begun, helping to grow revenue and profit.

The Bell V-280 Valor, powered by our AE1107F engines, was selected by the US Army for the Future Long Range Assault Aircraft programme in 2022, and work has begun this year. Following successful completion of the initial phase on the Future Combat Air System Acquisition Programme we secured a contract extension, which included funding for Global Combat Air Programme (GCAP) activities. Together with the UK Government and industry partners we released a series of technical updates about the first flying combat air demonstrator in a generation. This included our successful intake compatibility testing at Bristol with an EJ200 engine. These programmes, combined with robust defence budget forecasts in most western geographies underpin the long-term outlook for the business.

Revenue increased to £1.9bn, up 15% reflecting a more first half weighted delivery profile than in 2022. We anticipate modest revenue growth for the full year 2023. OE revenue was up 17% on the prior period helped by the increase from funded development programmes in Combat and Submarines. Services revenue increased 13%, also driven by increased activity in Submarines and higher delivery in Combat, Transport and Naval.

Operating profit was £261m (13.6% margin) versus £189m (11.7% margin) in the prior period. Higher operating profit was a result of higher revenues, pricing actions, a favourable mix due to the timing of high margin spare parts in the first half of the year and cost efficiencies.

Trading cash flow of £76m was 15% lower than in the first half of last year, with higher operating profit offset by the absence of an advance payment of £63m received in the comparative prior period. We expect stronger trading cash flow in the second half of 2023 as a result of key milestone payments on newer programmes and actions to reduce inventory despite the ongoing supply chain challenges. 

Power Systems

Power Systems operating profit was broadly flat versus last year but at a lower operating margin. We anticipate a higher year on year margin for the full year, with an increase in the second half due to the impact of pricing actions, cost efficiencies and seasonally higher volumes.

Order intake in the Power Systems business was £1.9bn, 14% lower than the prior period. Book to bill was 1.1x, with a record level of order cover for the remainder of 2023 and 32% covered for 2024. Key awards in the period included a second contract to supply mtu generator packs for the US Navy frigate program, follow-up orders for rail power packs from Hitachi and marine engines under a frame agreement with yacht builder Ferretti.

Revenue was £1.8bn, up 24%. OE revenue grew by 33%, driven by strong order execution for stationary PowerGen equipment and continued strong sales of mobile power solutions in the marine and mining segments. Services revenues were up 10% reflecting increased end-market activity.

Operating profit was £125m with a 7.0% margin down 1.7% points on the prior period. The decrease in margin reflected the negative impacts of product mix effects and higher costs partly offset by the benefit of pricing increases.

Trading cash flow was £22m, a conversion ratio of 18% versus (64)% last year. The improvement in trading cash flow reflected reduced working capital outflows versus the prior period. An increase in inventories during the period reflected strong volume growth in the first half of the year and in advance of seasonally higher revenues in the second half. We expect improved cash conversion in the second half as a result of higher revenues and operating profit and our working capital initiatives.

New Markets

In Electrical, testing began on a new small gas turbine developed to power hybrid-electrical flight as part of a turbogenerator system for advanced air mobility.

Rolls-Royce SMR is progressing well through the regulatory process in the UK, entering stage 2 of the Generic Design Assessment (GDA) process. First power is still planned in the early 2030s, which will be dependent on securing orders and the outcome of the final investment decision by the UK Government.

Planned cost increases in both Electrical and Small Modular Reactors (SMR) to meet development milestones resulted in an increased operating loss of £(78)m versus £(48)m in the prior period.

Trading cash flow was an outflow of £(42)m versus an outflow of £(30)m in the prior period, with SMR costs largely covered by third party funding.

Statutory and underlying Group financial performance from continuing operations

	2023 H1					2022 H1
£ million	Statutory	Impact of hedge book 1	Impact of acquisition accounting	Impact ofnon-underlying items	Underlying	Underlying
Revenue	7,523	(573)	−	−	6,950	5,308
Gross profit	1,657	(162)	25	(5)	1,515	942
Operating profit	797	(165)	24	17	673	125
Gain arising on disposal of businesses	1	−	−	(1)	−	−
Profit before financing and taxation	798	(165)	24	16	673	125
Net financing income/(costs)	621	(817)	−	47	(149)	(236)
Profit/(loss) before taxation	1,419	(982)	24	63	524	(111)
Taxation	(196)	140	(6)	(58)	(120)	(77)
Profit/(loss) for the period from continuing operations	1,223	(842)	18	5	404	(188)
Basic earnings/(loss) per share (pence)	14.70				4.90	(2.24)

¹   Reflecting the impact of measuring revenue and costs at the average exchange rate during the period and the valuation of assets and liabilities using the period end exchange rate rather than the rate achieved on settled foreign exchange contracts in the period or the rate expected to be achieved by the use of the hedge book

–	Revenue: Underlying revenue of £7.0bn was up 28%, largely driven by increases across Civil Aerospace, Defence and Power Systems. Statutory revenue of £7.5bn was 34% higher compared with the prior period. The difference between statutory and underlying revenue is driven by statutory revenue being measured at average prevailing exchange rates (2023 H1: GBP:USD 1.23; 2022 H1: GBP:USD 1.31) and underlying revenue being measured at the hedge book achieved rate during the year (2023 H1: GBP:USD 1.50; 2022 H1: GBP:USD 1.50).
–	Operating profit: Underlying operating profit was £673m (9.7% margin) versus £125m (2.4% margin) in the prior period. The growth was led by Civil Aerospace and Defence, partly offset by increased investment in New Markets. Statutory operating profit was £797m, higher than the £673m underlying operating profit largely due to the £165m negative impact from currency hedges in the underlying results. Net charges of £17m were excluded from the underlying results as these related to non-underlying items comprising: reversals of exceptional contract loss provisions of £21m, £(35)m of exceptional restructuring and transformation charges, including £(31)m related to the multi-year transformation programme launched in the period, and £(3)m of other items.
–	Profit before taxation: Underlying profit before tax of £524m included £(149)m net financing costs primarily related to net interest payable. Statutory profit before tax of £1,419m included £415m net fair value gains on derivative contracts, £(117)m net interest payable and a net foreign exchange gain of £396m.
–	Taxation: Underlying tax charge of £(120)m (2022 H1: £(77)m) reflects an overall tax charge on profits of Group companies and a tax credit of £8m relating to the re-recognition of some of the deferred tax asset on UK tax losses. These are also reflected in the statutory tax charge of £(196)m (2022 H1: tax credit £143m) together with additional tax credits on the re-recognition of £44m UK deferred tax assets relating to UK tax losses. In addition, included in the £(196)m tax charge was £(140)m related to unrealised foreign exchange derivatives which included the re-recognition of £57m, and £20m tax credit related to other non-underlying items.

Free cash flow

	2023 H1					2022 H1
£ million	Cash flow	Impact of hedge book	Impact of acquisition accounting	Impact of other non-underlying items	Funds flow	Funds flow
Operating profit	797	(165)	24	17	673	125
Operating profit from discontinued operations	−	−	−	−	−	68
Depreciation, amortisation and impairment	513	−	(24)	−	489	455
Movement in provisions	(142)	26	−	21	(95)	(116)
Movement in Civil LTSA balance	857	(130)	−	−	727	433
Other operating cash flows 1	(4)	(7)	−	(3)	(14)	(14)
Operating cash flow before working capital and income tax	2,021	(276)	−	35	1,780	951
Working capital (excluding Civil LTSA balance) 2	(311)	(256)	−	(9)	(576)	(269)
Cash flows on other financial assets and liabilities held for operating purposes	(516)	522	−	−	6	35
Income tax	(59)	−	−	−	(59)	(88)
Cash from operating activities	1,135	(10)	−	26	1,151	629
Capital element of lease payments	(167)	10	−	−	(157)	(85)
Capital expenditure	(287)	−	−	2	(285)	(167)
Investments	17	−	−	−	17	6
Interest paid	(159)	−	−	−	(159)	(172)
Settlement of excess derivatives	(210)	−	−	−	(210)	(265)
Other	27	−	−	(28)	(1)	(23)
Free cash flow	356	−	−	−	356	(77)
– of which is continuing operations	356				356	(68)

¹   Other operating cash flows includes profit/(loss) on disposal of property, plant and equipment, share of results and dividends received from joint ventures and associates, interest received, flows relating to our defined benefit post-retirement schemes, and share-based payments

²   Working capital includes inventory, trade and other receivables and payables, and contract assets and liabilities (excluding Civil Aerospace LTSA balances)

Free cash flow in the period was £356m, an improvement of £424m compared with the prior period driven by:

Operating cash flow before working capital and income tax of £1.8bn, £0.8bn higher than the prior period. The improvement at the Group level was principally due to a stronger trading performance and higher cash receipts as a result of EFH receipts in Civil Aerospace exceeding revenue recognised. The movement in provisions of £(95)m largely related to utilisation of the Trent 1000 provision and contract loss provisions.

Working capital £(576)m, compared to £(269)m in the prior period. Inventory increased by £(0.6)bn as a result of the build-up of inventory in line with requirements to meet demand in Civil Aerospace and Power Systems, along with continued supply chain disruption. There was a net £(0.3)bn outflow from receivables and payables, which reflected increases of receivables of £(0.4)bn due to volumes partly offset by increases in payables that included a £0.2bn cash flow benefit from timing of net payments to joint ventures. In addition, there was a £0.3bn inflow from advance payment receipts during the period.

Income tax of £(59)m, net cash tax payments for the first half of 2023 were lower than the prior period (£(88)m) due to timing. Tax payments in the second half of 2023 will be higher, with full year payments expected to be broadly in line with the prior year.

The capital element of lease payments was £(157)m, £(72)m higher than the prior period as a result of timing of lease payments.

Capital expenditure of £(285)m, mainly £(175)m property, plant and equipment additions and £(123)m intangibles additions. The combined additions were higher than last year as a result of investment in site improvements across the Group.

Interest paid of £(159)m, including lease interest payments, has decreased by £13m as a result of the settlement of the UKEF £2bn loan facility in September 2022 slightly offset by higher interest on gross overdrafts.

Settlement of excess derivative contracts of £(210)m, down from £(265)m in the first half of 2022. An additional cash outflow of £179m will be incurred in the second half of 2023, £146m will be incurred in 2024 and £175m expected over the 2025-2026 period.

Balance Sheet 

£ million	30 Jun 2023	31 Dec 2022	Change
Intangible assets	4,019	4,098	(79)
Property, plant and equipment	3,807	3,936	(129)
Right of use assets	965	1,061	(96)
Joint ventures and associates	485	422	63
Contract assets and liabilities	(11,776)	(10,681)	(1,095)
Working capital 1	3,112	2,297	815
Provisions	(2,172)	(2,333)	161
Net debt 2	(2,845)	(3,251)	406
Net financial assets and liabilities 2	(2,512)	(3,649)	1,137
Net post-retirement scheme deficits	(411)	(420)	9
Taxation	2,326	2,468	(142)
Other net assets and liabilities	36	36	−
Net liabilities	(4,966)	(6,016)	1,050
Other items
USD hedge book (US$bn)	16	19
Civil LTSA asset	684	885
Civil LTSA liability	(8,913)	(8,257)
Civil net LTSA liability	(8,229)	(7,372)

¹   Net working capital includes inventory, trade receivables and payables and similar assets and liabilities

²   Net debt includes £(49)m (2022 FY: £86m) of the fair value of derivatives included in fair value hedges and the element of fair value relating to exchange differences on the underlying principal of derivatives in cash flow hedges

Key drivers of balance sheet movements were:

Contract assets and liabilities: The £(1.1)bn movement in the net liability balance was mainly driven by an increase in invoiced LTSA receipts in Civil Aerospace exceeding revenue recognised in the year and increase in deposits in both Civil Aerospace and Defence.

Working capital: The £3.1bn net working capital position was £0.8bn higher than prior year, with the movement comprising £0.4bn increase in inventory, mostly in Civil Aerospace due to supply chain disruption and Power Systems to support sales, and £0.4bn increase in net receivables/payables due to higher trading volumes and the timing of payments. The difference between the movements in working capital on the statutory balance sheet compared to those described earlier in relation to the funds flow statement largely relate to the impact of foreign exchange and other non-cash movements.

Provisions: The £0.2bn reduction related to contract loss provisions and reflected changes in contract terms, pricing and expected future costs.

Net debt: Decreased from £(3.3)bn to £(2.8)bn driven by free cash inflow of £0.4bn. Our liquidity position is strong with £7.4bn of liquidity including cash and cash equivalents of £2.9bn and undrawn facilities of £4.5bn. Net debt included £(1.7)bn of lease liabilities (2022 FY: £(1.8)bn).

Net financial assets and liabilities: A £1.1bn reduction in the net financial liabilities driven by contracts maturing in the year and a change in fair value of derivative contracts largely due to the impact of the movement in GBP:USD exchange rates.

Taxation: The net tax asset reduced by £0.1bn. The decrease primarily reflects the movement on foreign exchange derivative contracts, resulting in a net reduction in the associated deferred tax asset of £163m. This is partially offset by an increase in other UK deferred tax assets including the re-recognition of £52m relating to UK tax losses.

Rolls-Royce Holdings plc (LON:RR) is holding its Annual General Meeting today. In his address to shareholders, Chief Executive Tufan Erginbilgic will comment:

“We are transforming Rolls-Royce into a high quality and competitive business with a strong balance sheet and growing profit, cash flows and returns. We are already benefitting from the actions we are taking as well as recovery and growth in our end markets. We announced several changes to the executive team in March to support the transformation, adding leaders with proven track records of delivery and high-performance. We are making good progress and our financial performance year-to-date is in line with expectations. I’d like to thank everyone at Rolls-Royce for their hard work and commitment so far. I am confident that, together, we can achieve great results.”

Trading update to 30 April 2023

Our financial performance is improving reflecting positive changes driven by our transformation programme workstreams and good end market demand for our products and services. Supply chain management remains a key operational challenge for us as original equipment and aftermarket services volumes increase, especially in Civil Aerospace. Our financial performance is in line with our expectations at the time of the full year results on 23 February. Our underlying operating profit guidance of £0.8-£1.0bn and free cash flow guidance of £0.6-£0.8bn in 2023 is unchanged. We anticipate our free cash flow generation will be seasonally weighted in the second half of the year, as previously indicated.

In Civil Aerospace, long term service agreement large engine flying hours (EFH) were 83% of 2019 levels in the four months to 30 April, and on track for the 80% to 90% range for the full year, as guided in February. Shop visit volumes and OE deliveries are also on track with expectations. We have continued to win new business including our biggest ever order of Trent XWB-97 engines in the period, with an MoU for 68 engines (plus 20 options) for Air India.

In Defence, we continued our successful run of key programme awards with the announcement that the AUKUS submarine programme will be powered by Rolls-Royce nuclear reactors. In the US, Bell’s V-280 Valor, powered by our AE1107F engines, cleared the protest period, enabling our teams to progress to the next phase, with the first aircraft due to enter into service in 2030. Bell’s V-280 Valor was selected last year by the US Army’s Future Long Range Assault Aircraft programme to replace its Black Hawk helicopters.

In Power Systems, revenue growth is being driven by demand for aftermarket services and exceptionally high order intake in the prior year, especially for power generation solutions. We are getting improved pricing on new orders which will drive margins up with the benefits expected to start showing in the second half of the year. High order intake year-to-date included strong demand from marine customers, including an order for Series 4000 gensets for the U.S Navy’s Constellation Class frigate programme.

Work on the transformation programme is moving at pace. Our increased focus on efficiency and simplification is helping to keep costs down and has already identified savings, for example the closure of our R² Factory venture. We are encouraged by the early progress of our commercial optimisation and working capital workstreams, with positive results expected to build as the year goes on. Our strategic review is on track and as previously indicated, we will communicate the findings and medium term targets in the second half of 2023.

Rolls-Royce’s Half Year 2023 results will be announced on 3 August 2023.

Rolls-Royce Holdings plc (LON:RR) has announced changes to the Board and Executive Team, adding leaders with proven track records of delivering success and a strong commitment to creating a high-performing, competitive, resilient and growing business. This follows the launch by Chief Executive Tufan Erginbilgic, on 23 February 2023, of a transformation programme requiring a winning culture and shared determination to deliver sustainable earnings growth and cash generation. The changes announced today include the addition to senior leadership of extensive multinational experience in finance and performance management, and the appointment of presidents with substantial industry experience in both Civil Aerospace and Defence.

Helen McCabe will be joining the Board later this year as Chief Financial Officer, bringing more than 25 years of experience in senior finance and performance management roles within complex multinational engineering organisations. Helen is currently Senior Vice President, Finance for the Customer & Products division of BP, which runs the company’s customer-focused business which reported EBITDA of $13.7bn last year. Its wide-ranging global operations include lubricants, specialist fuels, bioenergy and electric vehicle charging, alongside a global network of more than 20,000 fuel stations. She also holds accountabilities for BP’s global refining portfolio. Helen has considerable international experience having previously been Chief Financial Officer of BP Downstream’s fuels and refining Europe & Southern Africa businesses. Prior to that, she spent four years as Head of Planning and Performance Management for the downstream division, helping to drive the successful transformation of the business and dramatically improve its financial returns. There are no details to disclose relating to Helen McCabe under paragraph 9.6.13 of the Listing Rules. The exact date on which she will take up her new executive role and position on the Board of Rolls-Royce will be announced subsequently.

Tufan Erginbilgic, Chief Executive, said: “I look forward to welcoming Helen to my leadership team. Her track record of promoting rigorous financial discipline and experience of delivering performance management to achieve dramatic improvements will be invaluable as we move, at pace, to transform Rolls-Royce. I have experienced her abilities first-hand and her skillset will complement the existing capabilities of the Executive Team, contributing to Rolls-Royce delivering on its significant potential. I would also like to extend my thanks to Panos for his dedication to Rolls-Royce and support to me since my arrival.”

Panos Kakoullis will remain as Chief Financial Officer and a member of the Board until at least 31 August 2023 in order to ensure the successful delivery and reporting of the Group’s half year performance.

Anita Frew, Chair, said: “I would also like to extend the thanks of the whole Board to Panos for his hard work. It has been my pleasure to work alongside him over the last 18 months as he has helped us deliver on the short-term commitments made to shareholders during the difficult times of the pandemic and return the business to positive free cash flow. We look forward to Helen joining and working with her and the rest of Tufan’s leadership team as we transform Rolls-Royce into a high-quality, sustainable, stronger business for employees, customers and shareholders.”

Rob Watson has been appointed as President – Civil Aerospace with immediate effect. He has spent the past five years building our capabilities in electric aviation and during that time has demonstrated his ability to develop new technologies and products within a tight budgetary framework. In addition, he brings innovative business insights, coupled with robust commercial discipline, as well as a proven ability to develop and maintain strong customer and supplier relationships. He will help bring a fresh perspective and energy to Civil Aerospace as the business focuses on delivering increased cash, profitability and returns. Rob joined the Executive Team last year as President – Rolls-Royce Electrical. He has been with Rolls-Royce for 13 years and previously held leadership positions in Defence aerospace as well as working as Chief of Staff to the Chief Executive. He has experience of dealing with customers in critical, growing, international aviation markets having previously been Regional Director, Middle East, and responsible for Defence customers in Asia Pacific.

As previously announced, Chris Cholerton is moving from his position as President – Civil Aerospace to become Group President, having successfully led the Civil Aerospace business through some of the greatest challenges in its history. As part of this role, Chris will take on executive responsibility for the Group’s nuclear operations. This includes Rolls-Royce Submarines, and the role of Interim CEO of Rolls-Royce SMR while a search is conducted for a successor to Tom Samson who, it has been agreed, will be leaving with immediate effect. Rolls-Royce SMR, which has a nuclear power plant design based upon tried and tested technology, is well placed to succeed in the current selection process being organised by the UK Government. As Group President, Chris will also provide oversight of certain Group-wide operational activities including health and safety.

Adam Riddle has been appointed President – Defence, and Chairman & CEO – Rolls-Royce North America with immediate effect. Adam has spent nearly a decade in Defence and played a pivotal role in the recent success of the division in clinching key contracts which will generate multi-year returns. He most recently led its successful global services operations, which account for over half of annual revenues for Defence. In his previous role as Director of Strategy & Future Programmes, he was instrumental in the business securing the strategically important long-term contracts to re-engine the US Air Force’s B-52 aircraft and provide the propulsion system for the V-280 Valor for the US Army’s Future Long-Range Assault Aircraft (FLRAA) Program. Prior to Rolls-Royce, Adam worked within the defence operations of Boeing. He is a graduate of the United States Military Academy, West Point, and served as an Armor Officer in the US Army.

Tufan Erginbilgic, Chief Executive, added: “I would like to congratulate both Rob and Adam as they take up their new roles. Both are highly experienced leaders and will bring renewed energy and a determination to succeed to Civil Aerospace and Defence. Their appointments are also evidence of the pipeline of senior talent which exists within Rolls-Royce. With the leadership changes announced today we are acting at pace and gaining the momentum we need to transform Rolls-Royce. Together, my leadership team has a winning mindset, strong strategic alignment and a shared ambition to make Rolls-Royce a company that delivers for all stakeholders.”

Notes

1.   Upon joining Rolls-Royce, Helen McCabe will receive a base salary of £725,000, 20% of which will be paid as shares deferred for two years, a pension allowance of 12% of base salary (aligned to the wider workforce rate) and an incentive opportunity in line with the Remuneration Policy. Full details of her remuneration, including details of compensation for remuneration opportunities lost as a result of her leaving her former employer, will be announced at a later date and included in the 2023 Directors’ Remuneration Report. Her arrangements are in-line with the Rolls-Royce existing Remuneration Policy.

2.  In accordance with his service agreement and the Directors’ Remuneration Policy, Panos Kakoullis will be paid in lieu of any remaining part of his notice period that he is not required to serve. Any incentive award he receives in respect of the financial year ending 31 December 2023 will be time pro-rated by reference to the date on which he leaves the Company. A statement concerning particulars of remuneration payments and payments for loss of office in accordance with section 430(2B) of the Companies Act 2006 will be released when the date of his departure is known.

Rolls-Royce Holdings plc (LON:RR) has announced that the Spanish government has approved the sale of ITP Aero to a consortium of investors led by Bain Capital Private Equity. This follows the approval of all other relevant regulatory authorities. As a result, the completion of the transaction, at an enterprise value of approximately €1.8 billion, is expected in the coming weeks.

This sale, which was announced on 27 September 2021, completes our disposal programme announced on 27 August 2020, to raise proceeds of at least £2.0 billion. Upon completion, sale proceeds (excluding any cash retained by Rolls-Royce) of approximately €1.7 billion will be used to help rebuild the Rolls-Royce balance sheet, in support of our ambition to return to an investment grade credit profile in the medium term.

ITP Aero will remain a key strategic supplier and partner for Rolls-Royce across both Civil Aerospace and Defence programmes.

Rolls-Royce Holdings plc (LON:RR) has announced that Tufan Erginbilgic has been appointed Chief Executive Officer and an executive director of Rolls-Royce Holdings plc. Tufan will take up his new role on 1 January 2023, succeeding Warren East who, on 24 February 2022, announced his intention to step down at the end of this year.

Tufan, who has a background in engineering, has built his career in international business including over 20 years with BP, with five years as part of its executive team. In his last role before leaving in 2020, he led BP’s downstream business, which included Refining, Petrochemicals, Service Station Network, Lubricants, Midstream operations and the Air BP jet fuel operation. During Tufan’s tenure, the business was transformed, achieving record profitability and delivering record-setting safety performance. He has held several non-executive directorships in heavy industry and manufacturing companies, including at aerospace technology group GKN. He is currently a partner at Global Infrastructure Partners (GIP), a private equity firm which focuses on large-scale investments in infrastructure businesses and manages $81bn for investors.

Tufan Erginbilgic is currently a non-executive director of multinational transport vehicle manufacturer Iveco Group NV; energy, healthcare and technology group DCC plc; and energy company Türkiye Petrol Rafinerileri A.Ş (Tupras). Tufan will be reviewing his involvement in these positions.

There are no other details to disclose relating to Tufan Erginbilgic under paragraph 9.6.13 of the Listing Rules.

Anita Frew, Chair, Rolls-Royce, said: “I am delighted to announce the appointment of Tufan Erginbilgic as chief executive. He is a proven leader of winning teams within complex multinational organisations, with an ability to drive a high-performance culture and deliver results for investors. He has extensive strategic and operational experience and a firm understanding of safety critical industries, including aerospace, as well as the challenges and commercial opportunities presented by the drive for low carbon technologies. He has a strong track record for execution, delivery and the creation of significant value. I look forward to him building on the strategic foundations that Rolls-Royce has laid over recent years.”

Tufan Erginbilgic said: “I am honoured to be joining Rolls-Royce at a time of significant commercial opportunity and strategic evolution as its customers embrace the energy transition. I am determined to deliver the full potential of the market positions which the company has built over many years, through its engineering excellence and innovative technology, and to build a platform for growth in order to create value for all stakeholders. I look forward to working with customers, partners and the Rolls-Royce team across the world on the next successful chapter for this iconic global engineering brand.”

Rolls-Royce Holdings plc (LON:RR) has signed an agreement to sell its Bergen Engines medium speed liquid fuel and gas engines business to global engineering group Langley Holdings plc for an enterprise value of €63m. Langley is funding the deal, together with working capital requirements for the Bergen business going forward, from existing cash reserves.

The agreed sale of Bergen Engines is a part of our ongoing portfolio management to create a more focused group and follows a strategic review of Bergen Engines. It contributes towards our target to generate at least £2bn from disposals, as announced last year. Sale proceeds of €70m from the transaction together with €40m of cash currently held within Bergen Engines which is to be retained by Rolls-Royce, will be used to help rebuild the Rolls-Royce balance sheet in support of our medium-term ambition to return to an investment grade credit profile.

The agreed sale includes the Bergen Engines factory, service workshop and foundry in Norway; engine and power plant design capability; and a global service network spanning more than seven countries. Bergen Engines employs more than 900 people worldwide including 650 in the main factory in Hordvikneset. In 2020, the business generated revenues of approximately €200m with the assets and liabilities of the business presented as held for sale in the Rolls-Royce Holdings plc consolidated balance sheet.  

Langley Holdings, headquartered in the UK, is a diverse, global, engineering group with its main operations in Germany, Italy, France and the UK, alongside a substantial presence in the US. The group employs around 4,600 people. Its activities range from the production of uninterruptible power systems, packaging machinery and electric motors and generators, to the manufacture of safety-critical mechanical handling equipment including for the UK Ministry of Defence’s submarine missile loading facility at Coulport, Scotland. Established in 1975 by Anthony Langley, Chairman and CEO, the Langley Group is financially independent and remains under family ownership. Bergen Engines will be operated by Langley Group as a stand-alone business.

The agreement is subject to the satisfaction of certain closing conditions. We have notified the Norwegian government of the agreed sale and effective completion is scheduled for the 31 December 2021. Bergen Engines’ long-term relationship with Kongsberg Maritime, distributor of Bergen medium speed engines to the maritime market, is planned to continue as is.

Anthony Langley, Chairman and CEO of Langley Holdings plc, said: “We are very pleased to have reached this agreement with Rolls-Royce. The acquisition of Bergen Engines is a strategic step in the development of our power solutions division, and I am looking forward to welcoming the 900 plus employees of Bergen Engines to our family of businesses.”

Jon Erik Røv, Managing Director, Bergen Engines, said: “Today marks the beginning of a new era for Bergen Engines. Through the investments made by Rolls-Royce in our business, together with our dedicated and skilled workforce, and worldwide reputation for quality, I’m confident that Bergen Engines will prosper with Langley Holdings as our new owners.”

Warren East, CEO of Rolls-Royce, said: “We believe that this agreement will provide Bergen Engines and its skilled workforce with a new owner able to take the business on the next step of its journey. The sale of Bergen Engines is a part of our ongoing portfolio management to create a simpler, more focused group and contributes towards our target to generate at least £2bn from disposals, as announced last year.”

Rolls-Royce Holdings plc (LON:RR) has announced that it has appointed Anita Frew as a Non-Executive Director and Chair Designate. Anita will join the Board with effect from 1 July 2021 and will succeed Sir Ian Davis as Chair on 1 October 2021. Sir Ian will retire from the Board on 30 September 2021, after nearly nine years as Chairman. On joining the Board, Anita will be appointed to the Nominations & Governance Committee and will succeed Sir Ian as Chair of that Committee on 1 October 2021. Rolls-Royce also today announces the appointment of Mike Manley as a Non-Executive Director.

Anita Frew is currently chair of Croda plc, the science, technology and chemicals group and a non-executive director of BHP Group, a global resources company. Until recently she was the deputy chairman and senior independent director of Lloyds Banking Group PLC and has also held chair and board roles in companies in industrial, engineering and utilities sectors.

Sir Kevin Smith, Senior Independent Director, said: “Anita is the unanimous and clear choice of the Nominations & Governance Committee and her proposed appointment has been warmly endorsed by the entire Board.

The Company conducted a comprehensive search and Anita emerged as the outstanding candidate. She brings a wealth of experience from two decades of Board appointments both in the UK and internationally and her skills, and reputation with investors and government institutions will be invaluable to the Group. I am delighted to welcome Anita to the Board and as Chair Designate.

On behalf of the Board I would like to thank Ian for his outstanding contribution as Chairman over almost nine years of service. His leadership, guidance and resilience has been integral to the Group’s progress and ongoing transformation. He has brought the Board much closer to the employees and will be missed by people at all levels of the organisation. Ian has been an exceptional ambassador for Rolls-Royce.”

Sir Ian Davis said: “Rolls-Royce is a pioneering company with tremendous potential and it has been a huge privilege and responsibility to be its Chairman. I am immensely grateful to my fellow Board members for their support and hard work during my tenure as Chairman. I wish Anita every success as she joins the Board at a very exciting time for Rolls-Royce as we deliver a more sustainable agenda.”

Anita Frew commented: “It is an honour and privilege to join the Board of Rolls-Royce and to succeed Sir Ian as Chairman. I look forward to working with the Board, Warren East and the leadership team to support the next stage of the Group’s development.”

Warren East, CEO, said: “I would like to thank Ian for his steadfast leadership, guidance and unwavering support during a crucial period for the Group, both strategically and operationally. Ian has played a key role in contributing to Rolls-Royce’s future and on behalf of the Executive Team and all our employees, I would like to wish him well for the future. I am delighted to welcome Anita to Rolls-Royce, with her extensive experience and leadership I look forward to working with her.”

The Directors have determined that upon appointment Anita Frew will be independent.

Mike Manley will join the Board with effect from 1 July 2021 and, on appointment, he will become a member of the Nominations & Governance Committee and the Science & Technology Committee. He is currently head of Americas of Stellantis N.V. and a member of their executive team. He joined Fiat Chrysler Automobiles N.V. in 2011 and has held a number of senior executive positions, including chief operating officer for both the APAC region and NAFTA regions. He was chief executive officer of Fiat Chrysler Automobiles N.V. from July 2018 to January 2021, prior to its merger with Groupe PSA. Prior to joining Fiat, Mike held roles with Daimler/Chrysler, RAC, General Motors and Renault.

Sir Ian Davis said: “I am delighted to welcome Mike to our Board. He is highly international in both his experience and approach, having led businesses in Europe, Asia and the US. His experience of driving a digitally-focused transformation programme, alongside his insights into electrification and power management more generally will undoubtedly add value to the Board’s discussions.”

Mike Manley added: “I am delighted to be joining the Rolls-Royce Board. I am looking forward to being part of such an icon of global engineering at a time of significant change and opportunity.”

Anita Frew is a UK national. In accordance with the Listing Rules, there are no additional matters that would require disclosure under 9.6.13R of the Listing Rules of the UK Financial Conduct Authority in respect of her appointment.