Full Year Results 2023

About this update from Rolls-royce Holdings Plc

[{"type":"text","content":"\n \n 22 February 2024 \n   \n ROLLS-ROYCE HOLDINGS PLC - 2023 Full Year Results \n   \n \n \n \n \n Step-change in performance driven by transformation; strong momentum into 2024 \n \n \n \n \n   \n \n \n \n \n   \n \n \n - \n \n \n 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 \n \n \n \n \n   \n \n \n - \n \n \n Record free cash flow of £1.3bn driven by operating profit and continued LTSA balance growth \n \n \n \n \n   \n \n \n - \n \n \n Return on capital more than doubled to 11.3% reflecting improved operating profit, disciplined capital allocation and working capital management \n \n \n \n \n   \n \n \n - \n \n \n Statutory net cash flow from operating activities of £2.5bn, £1.0bn higher year on year \n \n \n \n \n   \n \n \n - \n \n \n Net debt of £2.0bn, down from £3.3bn at the end of 2022, as we strengthen the balance sheet and build resilience \n \n \n \n \n   \n \n \n - \n \n \n 2024 guidance: continued progress with underlying operating profit between £1.7bn and £2.0bn and free cash flow between £1.7bn and £1.9bn \n \n \n \n \n   \n Tufan Erginbilgic, 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. \n 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 g rowth. 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.\"   \n   \n Full Year 2023 Group continuing operations \n \n \n \n \n \n \n \n Underlying \n 2023 \n \n \n Underlying 2022 \n \n \n Statutory \n  2023 \n \n \n Statutory \n 2022 \n \n \n \n \n £ million \n \n \n \n \n Revenue \n \n \n 15,409 \n \n \n 12,691 \n \n \n 16,486 \n \n \n 13,520 \n \n \n \n \n Operating profit \n \n \n 1,590 \n \n \n 652 \n \n \n 1,944 \n \n \n 837 \n \n \n \n \n Operating margin (%) \n \n \n 10.3% \n \n \n 5.1% \n \n \n 11.8% \n \n \n 6.2% \n \n \n \n \n Profit/(loss) before taxation \n \n \n 1,262 \n \n \n 206 \n \n \n 2,427 \n \n \n (1,502) \n \n \n \n \n Earnings/(loss) per share (pence) \n \n \n 13.75 \n \n \n 1.95 \n \n \n 28.85 \n \n \n (14.24) \n \n \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Free cash flow \n \n \n 1,285 \n \n \n 505 \n \n \n   \n \n \n \n \n \n \n \n Return on capital (%) 1 \n \n \n 11.3% \n \n \n 4.9% \n \n \n   \n \n \n \n \n \n \n \n Net cash flow from operating activities 2 \n \n \n   \n \n \n \n \n \n 2,485 \n \n \n 1,524 \n \n \n \n \n Net debt \n \n \n   \n \n \n \n \n \n (1,952) \n \n \n (3,251) \n \n \n \n \n   \n 1   Adjusted return on capital is defined on page 52 and is abbreviated to return on capital \n 2   Represented. See page 18 for further details \n A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 49 to 52 \n \n 2023 performance summary \n ·    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. \n   \n ·    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. \n   \n ·    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.   \n   \n ·    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. \n   \n ·    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. \n \n \n   \n Transformation programme and strategic review \n 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: \n ·    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. \n   \n ·    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. \n   \n ·    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. \n   \n ·    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. \n 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. \n \n \n   \n Outlook and 2024 Guidance \n 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. \n \n \n \n \n 2024 financial guidance \n \n \n   \n \n \n \n \n Underlying operating profit \n \n \n £1.7bn-£2.0bn \n \n \n \n \n Free cash flow \n \n \n £1.7bn-£1.9bn \n \n \n \n \n   \n 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. \n 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. \n Underlying financial performance by division \n \n \n \n \n £ million \n \n \n Underlying revenue \n \n \n Organic Change 1 \n \n \n Underlying operating profit/(loss) \n \n \n   \n Organic change 1 \n \n \n Underlying operating margin \n \n \n Organic margin change (pts) \n \n \n \n \n Civil Aerospace \n \n \n 7,348 \n \n \n 29% \n \n \n 850 \n \n \n 497% \n \n \n 11.6% \n \n \n 9.1pt \n \n \n \n \n Defence \n \n \n 4,077 \n \n \n 12% \n \n \n 562 \n \n \n 30% \n \n \n 13.8% \n \n \n 1.9pt \n \n \n \n \n Power Systems \n \n \n 3,968 \n \n \n 16% \n \n \n 413 \n \n \n 44% \n \n \n 10.4% \n \n \n 2.0pt \n \n \n \n \n New Markets \n \n \n 4 \n \n \n nm \n \n \n (160) \n \n \n (20)% \n \n \n nm \n \n \n nm \n \n \n \n \n Other businesses \n \n \n 12 \n \n \n nm \n \n \n (15) \n \n \n 52% \n \n \n nm \n \n \n nm \n \n \n \n \n Corporate/eliminations \n \n \n − \n \n \n nm \n \n \n (60) \n \n \n (49)% \n \n \n nm \n \n \n nm \n \n \n \n \n Total (continuing operations) \n \n \n 15,409 \n \n \n 21% \n \n \n 1,590 \n \n \n 143% \n \n \n 10.3% \n \n \n 5.2pt \n \n \n \n \n 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 \n 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). \n nm is defined as not meaningful \n Trading cash flow \n \n \n \n \n £ million \n \n \n 2023 \n \n \n 2022 \n \n \n \n \n Civil Aerospace \n \n \n 626 \n \n \n 226 \n \n \n \n \n Defence \n \n \n 511 \n \n \n 426 \n \n \n \n \n Power Systems \n \n \n 461 \n \n \n 158 \n \n \n \n \n New Markets \n \n \n (63) \n \n \n (57) \n \n \n \n \n Other businesses \n \n \n 5 \n \n \n 5 \n \n \n \n \n Corporate/eliminations \n \n \n (57) \n \n \n (49) \n \n \n \n \n Total trading cash flow (continuing operations) \n \n \n 1,483 \n \n \n 709 \n \n \n \n \n Underlying operating profit charge exceeded by contributions to defined benefit schemes \n \n \n (26) \n \n \n (32) \n \n \n \n \n Taxation \n \n \n (172) \n \n \n (172) \n \n \n \n \n Total free cash flow (continuing operations) \n \n \n 1,285 \n \n \n 505 \n \n \n \n \n   \n \n \n   \n Civil Aerospace \n \n \n \n \n 2023 key operational metrics: \n \n \n Large engine \n \n \n Business aviation/ regional \n \n \n Total \n \n \n Change \n \n \n \n \n Original Equipment (OE) deliveries \n \n \n 262 \n \n \n 196 \n \n \n 458 \n \n \n 29% \n \n \n \n \n LTSA engine flying hours (millions) \n \n \n 13.5 \n \n \n 3.0 \n \n \n 16.5 \n \n \n 25% \n \n \n \n \n Total LTSA shop visits \n \n \n 839 \n \n \n 388 \n \n \n 1,227 \n \n \n 18% \n \n \n \n \n …of which major shop visits \n \n \n 368 \n \n \n 363 \n \n \n 731 \n \n \n 27% \n \n \n \n \n   \n Significantly improved Civil Aerospace operating profit and margins reflect higher aftermarket profit, due to increased volumes, commercial optimisation, and cost efficiencies. \n 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. \n 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 \n(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.  \n 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). \n 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. \n 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 \n(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. \n 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). \n   \n Defence \n Higher operating profit in Defence was driven by our commercial optimisation action, cost efficiencies and volume growth in submarines. \n 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. \n Revenues increased by 12% in 2023 to £4.1bn, with year-on-year growth in all major end markets, notably \ndouble-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. \n 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. \n 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. \n   \n Power Systems \n 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. \n 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.   \n 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. \n 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. \n 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. \n   \n New Markets \n 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. \n 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. \n 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. \n \n \n   \n Statutory and underlying Group financial performance from continuing operations \n \n \n \n \n   \n \n \n 2023 \n \n \n 2022 \n \n \n \n \n £ million \n \n \n Statutory \n \n \n Impact of hedge book 1 \n \n \n Impact of acquisition accounting \n \n \n Impact of other non-underlying items \n \n \n Underlying \n \n \n Underlying \n \n \n \n \n Revenue \n \n \n 16,486 \n \n \n (1,077) \n \n \n − \n \n \n − \n \n \n 15,409 \n \n \n 12,691 \n \n \n \n \n Gross profit \n \n \n 3,620 \n \n \n (461) \n \n \n 46 \n \n \n 26 \n \n \n 3,231 \n \n \n 2,477 \n \n \n \n \n Operating profit \n \n \n 1,944 \n \n \n (475) \n \n \n 50 \n \n \n 71 \n \n \n 1,590 \n \n \n 652 \n \n \n \n \n Gain arising on disposal of businesses \n \n \n 1 \n \n \n − \n \n \n − \n \n \n (1) \n \n \n − \n \n \n − \n \n \n \n \n Profit before financing and taxation \n \n \n 1,945 \n \n \n (475) \n \n \n 50 \n \n \n 70 \n \n \n 1,590 \n \n \n 652 \n \n \n \n \n Net financing income/(costs) \n \n \n 482 \n \n \n (915) \n \n \n − \n \n \n 105 \n \n \n (328) \n \n \n (446) \n \n \n \n \n Profit before taxation \n \n \n 2,427 \n \n \n (1,390) \n \n \n 50 \n \n \n 175 \n \n \n 1,262 \n \n \n 206 \n \n \n \n \n Taxation 2 \n \n \n (23) \n \n \n 285 \n \n \n (12) \n \n \n (370) \n \n \n (120) \n \n \n (48) \n \n \n \n \n Profit for the year from continuing operations \n \n \n 2,404 \n \n \n (1,105) \n \n \n 38 \n \n \n (195) \n \n \n 1,142 \n \n \n 158 \n \n \n \n \n Basic earnings per share (pence) \n \n \n 28.85 \n \n \n   \n \n \n   \n \n \n   \n \n \n 13.75 \n \n \n 1.95 \n \n \n \n \n 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 \n 2    Taxation includes the recognition of a deferred tax asset on UK tax losses of £328m in other non-underlying items \n 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) . \n 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. \n 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. \n 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. \n \n \n   \n Free cash flow \n \n \n \n \n \n \n \n 2023 \n \n \n 2022 \n \n \n \n \n £ million \n \n \n Cash flow \n \n \n Impact of hedge book \n \n \n Impact of acquisition accounting \n \n \n Impact of other non-underlying items \n \n \n Funds flow \n \n \n Funds flow \n \n \n \n \n Operating profit \n \n \n 1,944 \n \n \n (475) \n \n \n 50 \n \n \n 71 \n \n \n 1,590 \n \n \n 652 \n \n \n \n \n Operating profit from discontinued operations \n \n \n − \n \n \n − \n \n \n − \n \n \n − \n \n \n − \n \n \n 86 \n \n \n \n \n Depreciation, amortisation and impairment \n \n \n 1,019 \n \n \n − \n \n \n (50) \n \n \n 9 \n \n \n 978 \n \n \n 953 \n \n \n \n \n Movement in provisions \n \n \n (325) \n \n \n 46 \n \n \n − \n \n \n 21 \n \n \n (258) \n \n \n (23) \n \n \n \n \n Movement in Civil LTSA balance \n \n \n 1,708 \n \n \n (377) \n \n \n − \n \n \n − \n \n \n 1,331 \n \n \n 792 \n \n \n \n \n Movement in prepayments to RRSAs for LTSA parts \n \n \n (315) \n \n \n 63 \n \n \n − \n \n \n − \n \n \n (252) \n \n \n (8) \n \n \n \n \n Settlement of excess derivatives 1 \n \n \n (389) \n \n \n − \n \n \n − \n \n \n − \n \n \n (389) \n \n \n (326) \n \n \n \n \n Interest received \n \n \n 159 \n \n \n − \n \n \n − \n \n \n − \n \n \n 159 \n \n \n 36 \n \n \n \n \n Other operating cash flows 2 \n \n \n (63) \n \n \n (8) \n \n \n − \n \n \n 3 \n \n \n (68) \n \n \n 5 \n \n \n \n \n Operating cash flow before working capital and income tax \n \n \n 3,738 \n \n \n (751) \n \n \n − \n \n \n 104 \n \n \n 3,091 \n \n \n 2,167 \n \n \n \n \n Working capital (excluding Civil LTSA balance and prepayment to RRSAs) 3 \n \n \n (236) \n \n \n (123) \n \n \n − \n \n \n (37) \n \n \n (396) \n \n \n (524) \n \n \n \n \n Cash flows on other financial assets and liabilities held for operating purposes \n \n \n (845) \n \n \n 853 \n \n \n − \n \n \n − \n \n \n 8 \n \n \n 77 \n \n \n \n \n Income tax \n \n \n (172) \n \n \n − \n \n \n − \n \n \n − \n \n \n (172) \n \n \n (174) \n \n \n \n \n Cash from operating activities \n \n \n 2,485 \n \n \n (21) \n \n \n − \n \n \n 67 \n \n \n 2,531 \n \n \n 1,546 \n \n \n \n \n Capital element of lease payments \n \n \n (291) \n \n \n 21 \n \n \n − \n \n \n − \n \n \n (270) \n \n \n (198) \n \n \n \n \n Capital expenditure \n \n \n (699) \n \n \n − \n \n \n − \n \n \n 4 \n \n \n (695) \n \n \n (504) \n \n \n \n \n Investment \n \n \n 69 \n \n \n − \n \n \n − \n \n \n − \n \n \n 69 \n \n \n 28 \n \n \n \n \n Interest paid \n \n \n (333) \n \n \n − \n \n \n − \n \n \n − \n \n \n (333) \n \n \n (352) \n \n \n \n \n Other \n \n \n 54 \n \n \n − \n \n \n − \n \n \n (71) \n \n \n (17) \n \n \n (29) \n \n \n \n \n Free cash flow \n \n \n 1,285 \n \n \n − \n \n \n − \n \n \n − \n \n \n 1,285 \n \n \n 491 \n \n \n \n \n - of which is continuing operations \n \n \n 1,285 \n \n \n   \n \n \n   \n \n \n   \n \n \n 1,285 \n \n \n 505 \n \n \n \n \n 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 \n 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 \n 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 \n Free cash flow in the year was £1.3bn, an improvement of £0.8bn compared with the prior year driven by: \n 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.   \n 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. \n 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. \n The capital element of lease payments was £(270)m , £(72)m higher than the prior year as a result of timing of lease payments. \n 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. \n 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. \n \n Balance Sheet  \n \n \n \n \n £ million \n \n \n 2023 \n \n \n 2022 \n \n \n Change \n \n \n \n \n Intangible assets \n \n \n 4,009 \n \n \n 4,098 \n \n \n (89) \n \n \n \n \n Property, plant and equipment \n \n \n 3,728 \n \n \n 3,936 \n \n \n (208) \n \n \n \n \n Right of use assets \n \n \n 905 \n \n \n 1,061 \n \n \n (156) \n \n \n \n \n Joint ventures and associates \n \n \n 479 \n \n \n 422 \n \n \n 57 \n \n \n \n \n Civil LTSA 1 \n \n \n (9,080) \n \n \n (7,372) \n \n \n (1,708) \n \n \n \n \n RRSA prepayments for LTSA parts 1 \n \n \n 1,320 \n \n \n 1,005 \n \n \n 315 \n \n \n \n \n Working capital 1 \n \n \n (1,386) \n \n \n (2,017) \n \n \n 631 \n \n \n \n \n Provisions \n \n \n (2,029) \n \n \n (2,333) \n \n \n 304 \n \n \n \n \n Net debt 2 \n \n \n (1,952) \n \n \n (3,251) \n \n \n 1,299 \n \n \n \n \n Net financial assets and liabilities 2 \n \n \n (2,060) \n \n \n (3,649) \n \n \n 1,589 \n \n \n \n \n Net post-retirement scheme deficits \n \n \n (253) \n \n \n (420) \n \n \n 167 \n \n \n \n \n Taxation \n \n \n 2,605 \n \n \n 2,468 \n \n \n 137 \n \n \n \n \n Held for sale 3 \n \n \n 54 \n \n \n - \n \n \n 54 \n \n \n \n \n Other net assets and liabilities \n \n \n 31 \n \n \n 36 \n \n \n (5) \n \n \n \n \n Net liabilities \n \n \n (3,629) \n \n \n (6,016) \n \n \n 2,387 \n \n \n \n \n Other items \n \n \n   \n \n \n \n \n \n \n \n \n \n \n US$ hedge book (US$bn) \n \n \n 15 \n \n \n 19 \n \n \n \n \n \n \n \n 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 \n 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 \n 3   Held for sale assets relate to the sale of the off-highway engines business in the lower power range based in Power Systems \n Key drivers of balance sheet movements were: \n 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. \n 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. \n 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. \n 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. \n 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). \n 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. \n 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. \n   \n \n \n   \n Results meeting and conference call \n 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 \n To register for the webcast, including Q&A partici pation, please visit the following link: https://app.webinar.net/3K4kP3kPLYx \n   \n 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 \n Enquiries: \n \n \n \n \n Investors : \n \n \n \n \n \n \n \n \n Media : \n \n \n \n \n \n \n \n Isabel Green \n Jeremy Bragg \n \n \n +44 7880 160976 \n +44 7795 840875 \n \n \n \n \n \n Richard Wray \n \n \n +44 7810 850055 \n \n \n \n \n   \n This results announcement contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. This report is intended to provide information to shareholders, is not designed to be relied upon by any other party, or for any other purpose and Rolls-Royce Holdings plc and its directors accept no liability to any other person other than under English law. \n LSE: RR.; ADR: RYCEY; LEI: 213800EC7997ZBLZJH69 \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n   \n Condensed Consolidated Financial Statements \n Condensed consolidated income statement \n For the year ended 31 December 2023 \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n   \n 2023 \n \n \n   \n 2022 \n \n \n \n \n \n \n \n \n \n \n   \n \n \n Notes \n \n \n £m  \n \n \n £m \n \n \n   \n \n \n \n \n Continuing operations \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Revenue \n \n \n \n \n \n   \n \n \n 2 \n \n \n 16,486 \n \n \n 13,520 \n \n \n   \n \n \n \n \n Cost of sales 1 \n \n \n \n \n \n   \n \n \n \n \n \n (12,866) \n \n \n (10,763) \n \n \n   \n \n \n \n \n Gross profit \n \n \n \n \n \n   \n \n \n 2 \n \n \n 3,620 \n \n \n 2,757 \n \n \n   \n \n \n \n \n Commercial and administrative costs  \n \n \n \n \n \n   \n \n \n 2 \n \n \n (1,110) \n \n \n (1,077) \n \n \n   \n \n \n \n \n Research and development costs \n \n \n \n \n \n   \n \n \n 2, 3 \n \n \n (739) \n \n \n (891) \n \n \n   \n \n \n \n \n Share of results of joint ventures and associates \n \n \n \n \n \n   \n \n \n \n \n \n 173 \n \n \n 48 \n \n \n   \n \n \n \n \n Operating profit \n \n \n \n \n \n   \n \n \n \n \n \n 1,944 \n \n \n 837 \n \n \n   \n \n \n \n \n Gain arising on disposal of businesses \n \n \n \n \n \n   \n \n \n 23 \n \n \n 1 \n \n \n 81 \n \n \n   \n \n \n \n \n Profit before financing and taxation \n \n \n \n \n \n   \n \n \n \n \n \n 1,945 \n \n \n 918 \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Financing income \n \n \n \n \n \n   \n \n \n 4 \n \n \n 1,163 \n \n \n 355 \n \n \n   \n \n \n \n \n Financing costs \n \n \n \n \n \n   \n \n \n 4 \n \n \n (681) \n \n \n (2,775) \n \n \n   \n \n \n \n \n Net financing income/(costs) 2 \n \n \n \n \n \n   \n \n \n \n \n \n 482 \n \n \n (2,420) \n \n \n   \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Profit/(loss) before taxation \n \n \n \n \n \n   \n \n \n \n \n \n 2,427 \n \n \n (1,502) \n \n \n   \n \n \n \n \n Taxation \n \n \n \n \n \n   \n \n \n 5 \n \n \n (23) \n \n \n 308 \n \n \n   \n \n \n \n \n Profit/(loss) for the year from continuing operations \n \n \n \n \n \n   \n \n \n \n \n \n 2,404 \n \n \n (1,194) \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Discontinued operations \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Profit for the year from ordinary activities \n \n \n \n \n \n   \n \n \n \n \n \n - \n \n \n 68 \n \n \n   \n \n \n \n \n Loss on disposal of discontinued operations \n \n \n \n \n \n   \n \n \n \n \n \n - \n \n \n (148) \n \n \n   \n \n \n \n \n Loss for the year from discontinued operations \n \n \n \n \n \n   \n \n \n 23 \n \n \n - \n \n \n (80) \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Profit/(loss) for the year \n \n \n \n \n \n   \n \n \n \n \n \n 2,404 \n \n \n (1,274) \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Attributable to: \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Ordinary shareholders \n \n \n \n \n \n   \n \n \n \n \n \n 2,412 \n \n \n (1,269) \n \n \n   \n \n \n \n \n Non-controlling interests (NCI) \n \n \n \n \n \n   \n \n \n \n \n \n (8) \n \n \n (5) \n \n \n   \n \n \n \n \n Profit/(loss) for the year \n \n \n \n \n \n   \n \n \n \n \n \n 2,404 \n \n \n (1,274) \n \n \n   \n \n \n \n \n Other comprehensive (expense)/income (OCI) \n \n \n \n \n \n   \n \n \n \n \n \n (171) \n \n \n 522 \n \n \n   \n \n \n \n \n Total comprehensive income/(expense) for the year \n \n \n \n \n \n   \n \n \n \n \n \n 2,233 \n \n \n (752) \n \n \n   \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Earnings/(loss) per ordinary share attributable to ordinary shareholders: \n \n \n \n \n \n   \n \n \n 6 \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n From continuing operations: \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Basic \n \n \n \n \n \n   \n \n \n \n \n \n 28.85p \n \n \n (14.24)p \n \n \n   \n \n \n \n \n Diluted \n \n \n \n \n \n   \n \n \n \n \n \n 28.70p \n \n \n (14.24)p \n \n \n   \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n From continuing and discontinued operations: \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Basic \n \n \n \n \n \n   \n \n \n \n \n \n 28.85p \n \n \n (15.20)p \n \n \n   \n \n \n \n \n Diluted \n \n \n \n \n \n   \n \n \n \n \n \n 28.70p \n \n \n (15.20)p \n \n \n   \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 1    Cost of sales includes a net release for expected credit losses (ECLs) of £48m (2022: charge of £73m). Further details can be found in note 12 \n 2   Included within net financing are fair value changes on derivative contracts. Further details can be found in notes 2, 4 and 18 \n    \n \n \n   \n Condensed consolidated statement of comprehensive income \n For the year ended 31 December 2023 \n \n \n \n \n \n \n \n \n \n \n 2023 \n \n \n 2022 \n \n \n \n \n \n \n \n Notes \n \n \n £m \n \n \n £m \n \n \n \n \n Profit/(loss) for the year \n \n \n   \n \n \n 2,404 \n \n \n (1,274) \n \n \n \n \n Other comprehensive income/(expense) (OCI) \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n    Actuarial movements in post-retirement schemes \n \n \n 20 \n \n \n 116 \n \n \n (156) \n \n \n \n \n    Revaluation to fair value of other investments \n \n \n 10 \n \n \n (4) \n \n \n (4) \n \n \n \n \n    Share of OCI of joint ventures and associates \n \n \n \n \n \n 1 \n \n \n 2 \n \n \n \n \n    Related tax movements \n \n \n \n \n \n (43) \n \n \n 89 \n \n \n \n \n Items that will not be reclassified to profit or loss \n \n \n \n \n \n 70 \n \n \n (69) \n \n \n \n \n    \n \n \n \n \n \n   \n \n \n \n \n \n \n \n    Foreign exchange translation differences on foreign operations \n \n \n \n \n \n (226) \n \n \n 452 \n \n \n \n \n    Foreign exchange translation differences reclassified to income statement on disposal of businesses \n \n \n 23 \n \n \n 1 \n \n \n 65 \n \n \n \n \n    Hedging reserves reclassified to income statement on disposal of businesses \n \n \n \n \n \n - \n \n \n 111 \n \n \n \n \n    NCI disposed of on disposal of businesses \n \n \n \n \n \n - \n \n \n 1 \n \n \n \n \n    Movement on fair values charged to cash flow hedge reserve (CFHR) \n \n \n \n \n \n (82) \n \n \n (7) \n \n \n \n \n    Reclassified to income statement from cash flow hedge reserve (CFHR) \n \n \n \n \n \n 61 \n \n \n (55) \n \n \n \n \n Costs of hedging \n \n \n \n \n \n - \n \n \n 10 \n \n \n \n \n Share of OCI of joint ventures and associates \n \n \n \n \n \n 1 \n \n \n − \n \n \n \n \n Related tax movements \n \n \n \n \n \n 4 \n \n \n 14 \n \n \n \n \n Items that will be reclassified to profit or loss \n \n \n \n \n \n (241) \n \n \n 591 \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Total other comprehensive (expense)/income \n \n \n   \n \n \n (171) \n \n \n 522 \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Total comprehensive income/(expense) for the year \n \n \n   \n \n \n 2,233 \n \n \n (752) \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Attributable to: \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Ordinary shareholders \n \n \n   \n \n \n 2,241 \n \n \n (748) \n \n \n \n \n NCI \n \n \n   \n \n \n (8) \n \n \n (4) \n \n \n \n \n Total comprehensive income/(expense) for the year \n \n \n   \n \n \n 2,233 \n \n \n (752) \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Total comprehensive income/(expense) for the year attributable to ordinary shareholders arises from: \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Continuing operations \n \n \n   \n \n \n 2,241 \n \n \n (673) \n \n \n \n \n Discontinued operations \n \n \n   \n \n \n - \n \n \n (75) \n \n \n \n \n Total comprehensive income/(expense) for the year attributable to ordinary shareholders \n \n \n   \n \n \n 2,241 \n \n \n (748) \n \n \n \n \n \n \n   \n Condensed consolidated balance sheet \n At 31 December 2023 \n \n \n \n \n \n \n \n \n \n \n 2023 \n \n \n 2022 \n \n \n \n \n \n \n \n Notes \n \n \n £m \n \n \n £m \n \n \n \n \n ASSETS \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Intangible assets \n \n \n 7 \n \n \n 4,009 \n \n \n 4,098 \n \n \n \n \n Property, plant and equipment \n \n \n 8 \n \n \n 3,728 \n \n \n 3,936 \n \n \n \n \n Right-of-use assets \n \n \n 9 \n \n \n 905 \n \n \n 1,061 \n \n \n \n \n Investments - joint ventures and associates \n \n \n 10 \n \n \n 479 \n \n \n 422 \n \n \n \n \n Investments - other \n \n \n 10 \n \n \n 31 \n \n \n 36 \n \n \n \n \n Other financial assets \n \n \n 18 \n \n \n 360 \n \n \n 542 \n \n \n \n \n Deferred tax assets \n \n \n \n \n \n 2,998 \n \n \n 2,731 \n \n \n \n \n Post-retirement scheme surpluses \n \n \n 20 \n \n \n 782 \n \n \n 613 \n \n \n \n \n Non-current assets \n \n \n \n \n \n 13,292 \n \n \n 13,439 \n \n \n \n \n Inventories \n \n \n 11 \n \n \n 4,848 \n \n \n 4,708 \n \n \n \n \n Trade receivables and other assets \n \n \n 12 \n \n \n 8,123 \n \n \n 6,936 \n \n \n \n \n Contract assets \n \n \n 13 \n \n \n 1,242 \n \n \n 1,481 \n \n \n \n \n Taxation recoverable \n \n \n \n \n \n 80 \n \n \n 127 \n \n \n \n \n Other financial assets \n \n \n 18 \n \n \n 34 \n \n \n 141 \n \n \n \n \n Short-term investments \n \n \n \n \n \n - \n \n \n 11 \n \n \n \n \n Cash and cash equivalents \n \n \n 14 \n \n \n 3,784 \n \n \n 2,607 \n \n \n \n \n Current assets \n \n \n \n \n \n 18,111 \n \n \n 16,011 \n \n \n \n \n Assets held for sale \n \n \n 23 \n \n \n 109 \n \n \n − \n \n \n \n \n TOTAL ASSETS \n \n \n \n \n \n 31,512 \n \n \n 29,450 \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n LIABILITIES \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Borrowings and lease liabilities \n \n \n 15 \n \n \n (809) \n \n \n (358) \n \n \n \n \n Other financial liabilities \n \n \n 18 \n \n \n (448) \n \n \n (1,016) \n \n \n \n \n Trade payables and other liabilities \n \n \n 17 \n \n \n (6,896) \n \n \n (6,983) \n \n \n \n \n Contract liabilities \n \n \n 13 \n \n \n (6,098) \n \n \n (4,825) \n \n \n \n \n Current tax liabilities \n \n \n \n \n \n (143) \n \n \n (104) \n \n \n \n \n Provisions for liabilities and charges \n \n \n 19 \n \n \n (532) \n \n \n (632) \n \n \n \n \n Current liabilities  \n \n \n \n \n \n (14,926) \n \n \n (13,918) \n \n \n \n \n Borrowings and lease liabilities \n \n \n 15 \n \n \n (4,950) \n \n \n (5,597) \n \n \n \n \n Other financial liabilities \n \n \n 18 \n \n \n (1,983) \n \n \n (3,230) \n \n \n \n \n Trade payables and other liabilities \n \n \n 17 \n \n \n (1,927) \n \n \n (2,364) \n \n \n \n \n Contract liabilities \n \n \n 13 \n \n \n (8,438) \n \n \n (7,337) \n \n \n \n \n Deferred tax liabilities \n \n \n \n \n \n (330) \n \n \n (286) \n \n \n \n \n Provisions for liabilities and charges \n \n \n 19 \n \n \n (1,497) \n \n \n (1,701) \n \n \n \n \n Post-retirement scheme deficits \n \n \n 20 \n \n \n (1,035) \n \n \n (1,033) \n \n \n \n \n Non - current liabilities  \n \n \n \n \n \n (20,160) \n \n \n (21,548) \n \n \n \n \n Liabilities associated with assets held for sale \n \n \n 23 \n \n \n (55) \n \n \n − \n \n \n \n \n TOTAL LIABILITIES \n \n \n \n \n \n (35,141) \n \n \n (35,466) \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n NET LIABILITIES \n \n \n   \n \n \n (3,629) \n \n \n (6,016) \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n EQUITY \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Called-up share capital \n \n \n \n \n \n 1,684 \n \n \n 1,674 \n \n \n \n \n Share premium \n \n \n \n \n \n 1,012 \n \n \n 1,012 \n \n \n \n \n Capital redemption reserve \n \n \n \n \n \n 167 \n \n \n 166 \n \n \n \n \n Hedging reserves \n \n \n \n \n \n 12 \n \n \n 26 \n \n \n \n \n Translation reserve \n \n \n \n \n \n 634 \n \n \n 861 \n \n \n \n \n Accumulated losses \n \n \n \n \n \n (7,190) \n \n \n (9,789) \n \n \n \n \n Equity attributable to ordinary shareholders \n \n \n \n \n \n (3,681) \n \n \n (6,050) \n \n \n \n \n Non-controlling interest (NCI) \n \n \n \n \n \n 52 \n \n \n 34 \n \n \n \n \n TOTAL EQUITY \n \n \n \n \n \n (3,629) \n \n \n (6,016) \n \n \n \n \n \n \n   \n Condensed consolidated cash flow statement \n For the year ended 31 December 2023 \n \n \n \n \n \n \n \n Notes \n \n \n 2023 \n £m \n \n \n Restated 1 \n 2022 \n £m \n \n \n \n \n Reconciliation of cash flows from operating activities \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Operating profit from continuing operations \n \n \n \n \n \n 1,944 \n \n \n 837 \n \n \n \n \n Operating profit from discontinued operations \n \n \n 23 \n \n \n - \n \n \n 86 \n \n \n \n \n Operating profit \n \n \n \n \n \n 1,944 \n \n \n 923 \n \n \n \n \n Loss on disposal of property, plant and equipment \n \n \n \n \n \n 18 \n \n \n 18 \n \n \n \n \n Share of results of joint ventures and associates \n \n \n 10 \n \n \n (173) \n \n \n (48) \n \n \n \n \n Dividends received from joint ventures and associates \n \n \n 10 \n \n \n 54 \n \n \n 73 \n \n \n \n \n Amortisation and impairment of intangible assets \n \n \n 7 \n \n \n 272 \n \n \n 287 \n \n \n \n \n Depreciation and impairment of property, plant and equipment \n \n \n 8 \n \n \n 423 \n \n \n 430 \n \n \n \n \n Depreciation and impairment of right-of-use assets \n \n \n 9 \n \n \n 334 \n \n \n 287 \n \n \n \n \n Adjustment of amounts payable under residual value guarantees within lease liabilities \n \n \n \n \n \n (10) \n \n \n (3) \n \n \n \n \n Impairment of and other movements on investments \n \n \n 10 \n \n \n - \n \n \n 75 \n \n \n \n \n Decrease in provisions \n \n \n \n \n \n (325) \n \n \n (197) \n \n \n \n \n Increase in inventories \n \n \n \n \n \n (200) \n \n \n (887) \n \n \n \n \n Movement in trade receivables/payables and other assets/liabilities \n \n \n \n \n \n (1,346) \n \n \n (56) \n \n \n \n \n Movement in contract assets/liabilities \n \n \n \n \n \n 2,703 \n \n \n 1,753 \n \n \n \n \n Cash flows on other financial assets and liabilities held for operating purposes 2 \n \n \n \n \n \n (845) \n \n \n (660) \n \n \n \n \n Cash flows on settlement of excess derivative contracts 1, 3 \n \n \n \n \n \n (389) \n \n \n (326) \n \n \n \n \n Interest received \n \n \n \n \n \n 159 \n \n \n 36 \n \n \n \n \n Net defined benefit post-retirement cost recognised in profit before financing \n \n \n 20 \n \n \n 41 \n \n \n 27 \n \n \n \n \n Cash funding of defined benefit post-retirement schemes \n \n \n 20 \n \n \n (69) \n \n \n (81) \n \n \n \n \n Share-based payments \n \n \n \n \n \n 66 \n \n \n 47 \n \n \n \n \n Net cash inflow from operating activities before taxation \n \n \n \n \n \n 2,657 \n \n \n 1,698 \n \n \n \n \n Taxation paid \n \n \n \n \n \n (172) \n \n \n (174) \n \n \n \n \n Net cash inflow from operating activities \n \n \n \n \n \n 2,485 \n \n \n 1,524 \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n   \n \n \n \n \n Cash flows from investing activities \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Movement in other investments \n \n \n \n \n \n 1 \n \n \n (5) \n \n \n \n \n Additions of intangible assets \n \n \n 7 \n \n \n (284) \n \n \n (237) \n \n \n \n \n Disposals of intangible assets \n \n \n 7 \n \n \n 4 \n \n \n 8 \n \n \n \n \n Purchases of property, plant and equipment \n \n \n \n \n \n (429) \n \n \n (359) \n \n \n \n \n Disposals of property, plant and equipment \n \n \n \n \n \n 10 \n \n \n 48 \n \n \n \n \n Acquisition of businesses \n \n \n 23 \n \n \n (14) \n \n \n - \n \n \n \n \n Disposal of businesses (including cash flows on disposals in prior periods) \n \n \n 23 \n \n \n (4) \n \n \n 1,398 \n \n \n \n \n Movement in investments in joint ventures and associates \n \n \n \n \n \n (9) \n \n \n (24) \n \n \n \n \n Movement in short-term investments \n \n \n \n \n \n 11 \n \n \n (3) \n \n \n \n \n Cash flows on other financial assets and liabilities held for non-operating purposes \n \n \n \n \n \n (12) \n \n \n - \n \n \n \n \n Net cash ( outflow)/inflow from investing activities \n \n \n \n \n \n (726) \n \n \n 826 \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Cash flows from financing activities \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Repayment of loans \n \n \n \n \n \n (1) \n \n \n (2,024) \n \n \n \n \n Proceeds from increase in loans \n \n \n \n \n \n 2 \n \n \n 1 \n \n \n \n \n Capital element of lease payments \n \n \n \n \n \n (291) \n \n \n (218) \n \n \n \n \n Net cash flow from decrease in borrowings and lease liabilities \n \n \n \n \n \n (290) \n \n \n (2,241) \n \n \n \n \n Interest paid \n \n \n \n \n \n (196) \n \n \n (235) \n \n \n \n \n Interest element of lease payments \n \n \n \n \n \n (85) \n \n \n (68) \n \n \n \n \n Fees paid on undrawn facilities \n \n \n \n \n \n (52) \n \n \n (49) \n \n \n \n \n Transactions with NCI 4 \n \n \n \n \n \n 77 \n \n \n 57 \n \n \n \n \n Dividends to NCI \n \n \n \n \n \n (2) \n \n \n (3) \n \n \n \n \n Redemption of C Shares \n \n \n \n \n \n (1) \n \n \n (1) \n \n \n \n \n Net cash outflow from financing activities \n \n \n \n \n \n (549) \n \n \n (2,540) \n \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Change in cash and cash equivalents \n \n \n \n \n \n 1,210 \n \n \n (190) \n \n \n \n \n Cash and cash equivalents at 1 January \n \n \n \n \n \n 2,605 \n \n \n 2,639 \n \n \n \n \n Exchange (losses)/gains on cash and cash equivalents \n \n \n \n \n \n (84) \n \n \n 156 \n \n \n \n \n Cash and cash equivalents at 31 December 5 \n \n \n \n \n \n 3,731 \n \n \n 2,605 \n \n \n \n \n 1   The cash flow statement to 31 December 2022 has been represented as a result of a change in accounting policy to disclose cash flows on settlement of excess derivative contracts as cash flows from operating activities. As a result, cash flows from operating activities during the year to 31 December 2022 have reduced by £(326)m to £1,524m with the corresponding decrease in cash outflow from financing activities by £326m from £(2,866)m to £(2,540)m. There is no impact to the total change in cash and cash equivalents or to any alternative performance measures. See note 1 for further detail \n 2    Predominantly relates to cash settled on derivative contracts held for operating purposes \n 3   In 2020, the Group experienced a significant decline in its medium-term outlook and consequently a significant deterioration to its forecast net USD cash inflows. The Group took action to reduce the size of the USD hedge book by $11.8bn across 2020-2026 to reflect the fact that at that time, future operating cash flows were no longer forecast to materialise. To achieve the necessary reduction in the hedge book, a separate and distinct set of foreign exchange derivative instruments were entered into to buy $11.8bn. The associated cash outflow of these transactions is £1,674m and occurs over the period 2020-2026. This action had the impact of fixing the fair value of the over-hedged position and provided certainty over when the cash flows to settle the position would occur in future periods. During the year, the Group incurred a cash outflow of £389m (2022: £326m) and estimates that future cash outflows of £146m will be incurred in 2024 and £175m spread over 2025 and 2026 \n 4    Relates to NCI investment received in the year, in respect of Rolls-Royce SMR Limited \n 5    The Group considers overdrafts (repayable on demand) and cash held for sale to be an integral part of its cash management activities and these are included in cash and cash equivalents for the purposes of the cash flow statement \n Condensed consolidated cash flow statement continued \n For the year ended 31 December 2023 \n In deriving the condensed consolidated cash flow statement, movements in balance sheet line items have been adjusted for non-cash items. The cash flow in the year includes the sale of goods and services to joint ventures and associates - see note 22. \n   \n \n \n \n \n \n \n \n 2023 \n £m \n \n \n 2022 \n £m \n \n \n \n \n Reconciliation of movements in cash and cash equivalents to movements in net debt \n \n \n   \n \n \n \n \n \n \n \n Change in cash and cash equivalents \n \n \n 1,210 \n \n \n (190) \n \n \n \n \n Cash flow from decrease in borrowings and lease liabilities \n \n \n 290 \n \n \n 2,241 \n \n \n \n \n Cash flow from (decrease)/increase in short-term investments \n \n \n (11) \n \n \n 3 \n \n \n \n \n Change in net debt resulting from cash flows \n \n \n 1,489 \n \n \n 2,054 \n \n \n \n \n Lease additions, modifications and other non-cash adjustments on borrowings and lease liabilities \n \n \n (191) \n \n \n (170) \n \n \n \n \n Exchange gains/(losses) on net debt \n \n \n 57 \n \n \n (150) \n \n \n \n \n Fair value adjustments \n \n \n 7 \n \n \n 70 \n \n \n \n \n Debt disposed of on disposal of businesses \n \n \n - \n \n \n 53 \n \n \n \n \n Movement in net debt \n \n \n 1,362 \n \n \n 1,857 \n \n \n \n \n Net debt at 1 January \n \n \n (3,337) \n \n \n (5,194) \n \n \n \n \n Net debt at 31 December excluding the fair value of swaps \n \n \n (1,975) \n \n \n (3,337) \n \n \n \n \n Fair value of swaps hedging fixed rate borrowings \n \n \n 23 \n \n \n 86 \n \n \n \n \n Net debt at 31 December \n \n \n (1,952) \n \n \n (3,251) \n \n \n \n \n The movement in net debt (defined by the Group as including the items shown below) is as follows: \n \n \n \n \n \n \n \n At 1 January \n \n \n Funds flow \n \n \n Net debt on disposal \n \n \n Exchange differences \n \n \n Fair value adjustments \n \n \n Reclassifi-cations    \n \n \n Other movements \n \n \n At 31 December \n \n \n \n \n \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n \n \n 2023 \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n Cash at bank and in hand \n \n \n 847 \n \n \n (79) \n \n \n - \n \n \n (29) \n \n \n - \n \n \n - \n \n \n - \n \n \n 739 \n \n \n \n \n Money market funds \n \n \n 34 \n \n \n 1,043 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 1,077 \n \n \n \n \n Short-term deposits \n \n \n 1,726 \n \n \n 297 \n \n \n - \n \n \n (55) \n \n \n - \n \n \n - \n \n \n - \n \n \n 1,968 \n \n \n \n \n Cash and cash equivalents \n (per balance sheet) \n \n \n 2,607 \n \n \n 1,261 \n \n \n - \n \n \n (84) \n \n \n - \n \n \n - \n \n \n - \n \n \n 3,784 \n \n \n \n \n Overdrafts \n \n \n (2) \n \n \n (51) \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (53) \n \n \n \n \n Cash and cash equivalents \n (per cash flow statement) \n \n \n 2,605 \n \n \n 1,210 \n \n \n - \n \n \n (84) \n \n \n - \n \n \n - \n \n \n - \n \n \n 3,731 \n \n \n \n \n Short- term investments \n \n \n 11 \n \n \n (11) \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Other current borrowings \n \n \n (1) \n \n \n (1) \n \n \n - \n \n \n - \n \n \n (13) \n \n \n (462) \n \n \n (1) \n \n \n (478) \n \n \n \n \n Non-current borrowings \n \n \n (4,105) \n \n \n - \n \n \n - \n \n \n 59 \n \n \n 20 \n \n \n 462 \n \n \n (4) \n \n \n (3,568) \n \n \n \n \n Lease liabilities \n \n \n (1,847) \n \n \n 291 \n \n \n - \n \n \n 82 \n \n \n - \n \n \n - \n \n \n (186) \n \n \n (1,660) \n \n \n \n \n Financial liabilities \n \n \n (5,953) \n \n \n 290 \n \n \n - \n \n \n 141 \n \n \n 7 \n \n \n - \n \n \n (191) \n \n \n (5,706) \n \n \n \n \n Net debt excluding fair value of swaps \n \n \n (3,337) \n \n \n 1,489 \n \n \n - \n \n \n 57 \n \n \n 7 \n \n \n - \n \n \n (191) \n \n \n (1,975) \n \n \n \n \n Fair value of swaps hedging fixed rate borrowings 1 \n \n \n 86 \n \n \n - \n \n \n - \n \n \n (59) \n \n \n (4) \n \n \n - \n \n \n - \n \n \n 23 \n \n \n \n \n Net debt \n \n \n (3,251) \n \n \n 1,489 \n \n \n - \n \n \n (2) \n \n \n 3 \n \n \n - \n \n \n (191) \n \n \n (1,952) \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n 2022 \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n Cash at bank and in hand \n \n \n 795 \n \n \n 17 \n \n \n - \n \n \n 35 \n \n \n - \n \n \n - \n \n \n - \n \n \n 847 \n \n \n \n \n Money market funds \n \n \n 49 \n \n \n (15) \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 34 \n \n \n \n \n Short-term deposits \n \n \n 1,777 \n \n \n (171) \n \n \n - \n \n \n 120 \n \n \n - \n \n \n - \n \n \n - \n \n \n 1,726 \n \n \n \n \n Cash and cash equivalents \n (per balance sheet) \n \n \n 2,621 \n \n \n (169) \n \n \n - \n \n \n 155 \n \n \n - \n \n \n - \n \n \n - \n \n \n 2,607 \n \n \n \n \n Cash and cash equivalents included within assets held for sale \n \n \n 25 \n \n \n (26) \n \n \n - \n \n \n 1 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Overdrafts \n \n \n (7) \n \n \n 5 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (2) \n \n \n \n \n Cash and cash equivalents \n (per cash flow statement) \n \n \n 2,639 \n \n \n (190) \n \n \n - \n \n \n 156 \n \n \n - \n \n \n - \n \n \n - \n \n \n 2,605 \n \n \n \n \n Short-term investments \n \n \n 8 \n \n \n 3 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 11 \n \n \n \n \n Other current borrowings \n \n \n (2) \n \n \n 2 \n \n \n - \n \n \n (1) \n \n \n - \n \n \n - \n \n \n - \n \n \n (1) \n \n \n \n \n Non-current borrowings \n \n \n (6,023) \n \n \n 2,000 \n \n \n - \n \n \n (125) \n \n \n 72 \n \n \n - \n \n \n (29) \n \n \n (4,105) \n \n \n \n \n Borrowings included within liabilities held for sale \n \n \n (59) \n \n \n 21 \n \n \n 40 \n \n \n - \n \n \n (2) \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Lease liabilities \n \n \n (1,744) \n \n \n 217 \n \n \n - \n \n \n (179) \n \n \n - \n \n \n - \n \n \n (141) \n \n \n (1,847) \n \n \n \n \n Lease liabilities included within liabilities held for sale \n \n \n (13) \n \n \n 1 \n \n \n 13 \n \n \n (1) \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Financial liabilities \n \n \n (7,841) \n \n \n 2,241 \n \n \n 53 \n \n \n (306) \n \n \n 70 \n \n \n - \n \n \n (170) \n \n \n (5,953) \n \n \n \n \n Net debt excluding fair value of swaps \n \n \n (5,194) \n \n \n 2,054 \n \n \n 53 \n \n \n (150) \n \n \n 70 \n \n \n - \n \n \n (170) \n \n \n (3,337) \n \n \n \n \n Fair value of swaps hedging fixed rate borrowings 1 \n \n \n 37 \n \n \n - \n \n \n - \n \n \n 125 \n \n \n (76) \n \n \n - \n \n \n - \n \n \n 86 \n \n \n \n \n Net debt \n \n \n (5,157) \n \n \n 2,054 \n \n \n 53 \n \n \n (25) \n \n \n (6) \n \n \n - \n \n \n (170) \n \n \n (3,251) \n \n \n \n \n 1    Fair value of swaps hedging fixed rate borrowings reflects the impact of derivatives on repayments of the principal amount of debt. Net debt therefore includes the fair value of derivatives included in fair value hedges (2023: £34m, 2022: £38m) and the element of fair value relating to exchange differences on the underlying principal of derivatives in cash flow hedges (2023: £(11)m, 2022: £48m) \n   \n Condensed consolidated statement of changes in equity \n For the year ended 31 December 2023 \n \n \n \n \n   \n \n \n   \n \n \n Attributable to ordinary shareholders \n \n \n   \n \n \n   \n \n \n \n \n \n \n \n Notes \n \n \n Share capital \n \n \n Share premium \n \n \n Capital redemption reserve \n \n \n Hedging reserves 1 \n \n \n Merger reserve \n \n \n Translation reserve \n \n \n Accum-ulated losses 2 \n \n \n Total \n \n \n NCI \n \n \n Total equity \n \n \n \n \n \n \n \n   \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n £m \n \n \n \n \n At 1 January 2023 \n \n \n   \n \n \n 1,674 \n \n \n 1,012 \n \n \n 166 \n \n \n 26 \n \n \n - \n \n \n 861 \n \n \n (9,789) \n \n \n (6,050) \n \n \n 34 \n \n \n (6,016) \n \n \n \n \n Profit/(loss) for the year \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 2,412 \n \n \n 2,412 \n \n \n (8) \n \n \n 2,404 \n \n \n \n \n Foreign exchange translation differences on foreign operations \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (226) \n \n \n - \n \n \n (226) \n \n \n - \n \n \n (226) \n \n \n \n \n Foreign exchange translation differences reclassified to income statement on disposal of businesses \n \n \n 23 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 1 \n \n \n - \n \n \n 1 \n \n \n - \n \n \n 1 \n \n \n \n \n Actuarial movements on post-retirement schemes \n \n \n 20 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 116 \n \n \n 116 \n \n \n - \n \n \n 116 \n \n \n \n \n Fair value movement on CFHR \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n (82) \n \n \n - \n \n \n - \n \n \n - \n \n \n (82) \n \n \n - \n \n \n (82) \n \n \n \n \n Reclassified to income statement from CFHR \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 61 \n \n \n - \n \n \n - \n \n \n - \n \n \n 61 \n \n \n - \n \n \n 61 \n \n \n \n \n Revaluation to fair value of other investments \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (4) \n \n \n (4) \n \n \n - \n \n \n (4) \n \n \n \n \n OCI of joint ventures and associates \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 2 \n \n \n - \n \n \n (1) \n \n \n 1 \n \n \n 2 \n \n \n - \n \n \n 2 \n \n \n \n \n Related tax movements \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 5 \n \n \n - \n \n \n (1) \n \n \n (43) \n \n \n (39) \n \n \n - \n \n \n (39) \n \n \n \n \n Total comprehensive (expense)/income for the year \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n (14) \n \n \n - \n \n \n (227) \n \n \n 2,482 \n \n \n 2,241 \n \n \n (8) \n \n \n 2,233 \n \n \n \n \n Issue of ordinary shares \n \n \n \n \n \n 10 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 10 \n \n \n - \n \n \n 10 \n \n \n \n \n Redemption of C shares \n \n \n   \n \n \n - \n \n \n - \n \n \n 1 \n \n \n - \n \n \n - \n \n \n - \n \n \n (1) \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Shares issued to employee share trust \n \n \n   \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (10) \n \n \n (10) \n \n \n - \n \n \n (10) \n \n \n \n \n Share-based payments - direct to equity 3 \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 49 \n \n \n 49 \n \n \n - \n \n \n 49 \n \n \n \n \n Dividends to NCI \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (2) \n \n \n (2) \n \n \n \n \n Transactions with NCI 4 \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 57 \n \n \n 57 \n \n \n 28 \n \n \n 85 \n \n \n \n \n Related tax movements \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 22 \n \n \n 22 \n \n \n - \n \n \n 22 \n \n \n \n \n Other changes in equity in the year \n \n \n \n \n \n 10 \n \n \n - \n \n \n 1 \n \n \n - \n \n \n - \n \n \n - \n \n \n 117 \n \n \n 128 \n \n \n 26 \n \n \n 154 \n \n \n \n \n At 31 December 2023 \n \n \n \n \n \n 1,684 \n \n \n 1,012 \n \n \n 167 \n \n \n 12 \n \n \n - \n \n \n 634 \n \n \n (7,190) \n \n \n (3,681) \n \n \n 52 \n \n \n (3,629) \n \n \n \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n At 1 January 2022 \n \n \n \n \n \n 1,674 \n \n \n 1,012 \n \n \n 165 \n \n \n (45) \n \n \n 650 \n \n \n 342 \n \n \n (9,189) \n \n \n (5,391) \n \n \n 26 \n \n \n (5,365) \n \n \n \n \n Loss for the year \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (1,269) \n \n \n (1,269) \n \n \n (5) \n \n \n (1,274) \n \n \n \n \n Foreign exchange translation differences on foreign operations \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 452 \n \n \n - \n \n \n 452 \n \n \n - \n \n \n 452 \n \n \n \n \n Hedging reserves reclassified to income statement on disposal of businesses \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 111 \n \n \n - \n \n \n - \n \n \n - \n \n \n 111 \n \n \n - \n \n \n 111 \n \n \n \n \n Foreign exchange translation differences reclassified to income statement on disposal of businesses \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 65 \n \n \n - \n \n \n 65 \n \n \n - \n \n \n 65 \n \n \n \n \n NCI disposed of on disposal of businesses \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 1 \n \n \n 1 \n \n \n \n \n Actuarial movements on post-retirement schemes \n \n \n 20 \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (156) \n \n \n (156) \n \n \n - \n \n \n (156) \n \n \n \n \n Fair value movement on CFHR \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n (7) \n \n \n - \n \n \n - \n \n \n - \n \n \n (7) \n \n \n - \n \n \n (7) \n \n \n \n \n Reclassified to income statement from CFHR \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n (55) \n \n \n - \n \n \n - \n \n \n - \n \n \n (55) \n \n \n - \n \n \n (55) \n \n \n \n \n Costs of hedging \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 10 \n \n \n - \n \n \n - \n \n \n - \n \n \n 10 \n \n \n - \n \n \n 10 \n \n \n \n \n Revaluation to fair value of other investments \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (4) \n \n \n (4) \n \n \n - \n \n \n (4) \n \n \n \n \n OCI of joint ventures and associates \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 2 \n \n \n 2 \n \n \n - \n \n \n 2 \n \n \n \n \n Related tax movements \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 12 \n \n \n - \n \n \n 2 \n \n \n 89 \n \n \n 103 \n \n \n - \n \n \n 103 \n \n \n \n \n Total comprehensive expense for the year \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n 71 \n \n \n - \n \n \n 519 \n \n \n (1,338) \n \n \n (748) \n \n \n (4) \n \n \n (752) \n \n \n \n \n Redemption of C Shares \n \n \n \n \n \n - \n \n \n - \n \n \n 1 \n \n \n - \n \n \n - \n \n \n - \n \n \n (1) \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Share-based payments - direct to equity 3 \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 46 \n \n \n 46 \n \n \n - \n \n \n 46 \n \n \n \n \n Dividends to NCI \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (3) \n \n \n (3) \n \n \n \n \n Transactions with NCI 4 \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 42 \n \n \n 42 \n \n \n 15 \n \n \n 57 \n \n \n \n \n Transfer to realised profit 5 \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n (650) \n \n \n - \n \n \n 650 \n \n \n - \n \n \n - \n \n \n - \n \n \n \n \n Related tax movements \n \n \n \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n - \n \n \n 1 \n \n \n 1 \n \n \n - \n \n \n 1 \n \n \n \n \n Other changes in equity in the year \n \n \n \n \n \n - \n \n \n - \n \n \n 1 \n \n \n - \n \n \n (650) \n \n \n - \n \n \n 738 \n \n \n 89 \n \n \n 12 \n \n \n 101 \n \n \n \n \n At 31 December 2022 \n \n \n \n \n \n 1,674 \n \n \n 1,012 \n \n \n 166 \n \n \n 26 \n \n \n - \n \n \n 861 \n \n \n (9,789) \n \n \n (6,050) \n \n \n 34 \n \n \n (6,016) \n \n \n \n \n \n \n   \n Condensed consolidated statement of changes in equity continued \n For the year ended 31 December 2023 \n 1   Hedging reserves include the cash flow hedge reserve of £12m and the cost of hedging reserve of £nil (2022: £26m and £nil respectively) \n 2   At 31 December 2023, 52,912,406 ordinary shares with a net book value of £22m (2022: 11,402,796 ordinary shares with a net book value of £27m) were held for the purpose of share-based payment plans and included in accumulated losses. During the year: \n -      7,875,240 ordinary shares with a net book value of £15m (2022: 18,488,558 ordinary shares with a net book value of £39m) vested in share-based payment plans; \n -      the Company issued 49,100,000 (2022: none) new ordinary shares to the Group's share trust for its employee share-based payment plans with a net book value of £10m (2022: £nil); and \n -      the Company acquired none (2022: none) of its ordinary shares via reinvestment of dividends received on its own shares and purchased 284,850 \n(2022: 486,163) of its ordinary shares through purchases on the London Stock Exchange \n 3   Share-based payments - direct to equity is the share-based payment charge for the year less the actual cost of vesting excluding those vesting from own shares and cash received on share-based schemes vesting \n 4   Relates to NCI investment received in the year in respect of Rolls-Royce SMR Limited \n 5   On disposal of ITP Aero on 15 September 2022, the premium recognised on issue of shares for the previous acquisition became realised on receipt of qualifying consideration. As such, the total merger reserve has been transferred to accumulated losses \n   \n Notes to the Condensed Consolidated Financial Statements \n   \n \n 1     Basis of preparation and accounting policies \n \n Reporting entity \n Rolls-Royce Holdings plc (the 'Company') is a public company limited by shares incorporated under the Companies Act 2006 and domiciled in the UK. These Condensed Consolidated Financial Statements of the Company as at and for the year ended 31 December 2023 consist of the consolidation of the financial statements of the Company and its subsidiaries (together referred to as the 'Group') and include the Group's interest in jointly controlled and associated entities. \n The Consolidated Financial Statements of the Group as at and for the year ended 31 December 2023 (2023 Annual Report) are available upon request from the Company Secretary, Rolls-Royce Holdings plc, Kings Place, 90 York Way, London, N1 9FX.  \n Statement of compliance \n These Condensed Consolidated Financial Statements have been prepared in accordance with UK adopted International Accounting Standards (IAS) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under UK adopted IFRS. They do not include all the information required for full annual statements and should be read in conjunction with the 2023 Annual Report. \n The Board of Directors approved the Condensed Consolidated Financial Statements on 22 February 2024. They are not statutory accounts within the meaning of section 435 of the Companies Act 2006. \n The Group's Financial Statements for the year ended 31 December 2023 were approved by the Board on 22 February 2024. They have been reported on by the Group's auditors and will be delivered to the registrar of companies in due course. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. \n The comparative figures for the financial year 31 December 2022 have been extracted from the Group's statutory accounts for that financial year. The Board of Directors approved the Group financial statements on 23 February 2023. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. \n Revisions to IFRS applicable in 2023 \n IFRS 17 Insurance Contracts \n IFRS 17, issued in May 2018, establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The Standard is effective for years beginning on or after 1 January 2023 with a requirement to restate comparatives. \n The Group has reviewed whether its arrangements meet the accounting definition of an insurance contract. While some contracts, including Civil Aerospace LTSAs, may transfer an element of insurance risk, they relate to warranty and service type agreements that are issued in connection with the Group's sales of its goods or services and therefore will remain accounted for under the existing revenue and provisions standards. The Directors have judged that such arrangements entered into after the original equipment sale remain sufficiently related to the sale of the Group's goods and services to allow the contracts to continue to be measured under IFRS 15 Revenue from Contracts with Customers and \nIAS 37 Provisions, Contingent Liabilities and Contingent Assets . \n The Group has identified that the Standard will impact the results of its captive insurance company as it issues insurance contracts, however, since the contracts insure other group companies, there is no impact on the Condensed Consolidated Financial Statements. \n The Group has assessed that its parent company guarantee arrangements in the form of financial or performance guarantees, that meet the IFRS 17 definition of insurance contracts, have no impact on the Consolidated Financial Statements of the Group for the year to 31 December 2023, however there could be an impact on individual sets of financial statements of companies within the Group. \n The Directors are not aware of any other contracts where IFRS 17 would have an impact on the Condensed Consolidated Financial Statements. \n Other \n IAS 12 Income Taxes has been amended to incorporate the following revisions for 'Deferred Tax related to Assets and Liabilities arising from a Single Transaction' and 'International Tax Reform: Pillar Two Model Rules'. There is no material impact on the Group as a result of the amendments relating to Deferred Tax related to Assets and Liabilities arising from a Single Transaction. \n The Group is within the scope of the OECD Pillar Two (Global Minimum Tax) model rules. The legislation has been substantively enacted in some of the material jurisdictions in which the Group operates, including the UK and Germany, where the rules will be effective from 1 January 2024. Further information can be found in note 5. \n There are no other new standards or interpretations issued by the IASB that had a significant impact on the Condensed Consolidated Financial Statements. Standards and interpretations issued by the IASB are only applicable if endorsed by the UK. \n \n \n   \n \n 1     Basis of preparation and accounting policies continued \n \n Change in accounting policy \n At 31 December 2023, cash flows on settlement of excess derivatives have been reclassified from cash flows from financing activities to cash flows from operating activities in the cash flow statement as a result of a change in accounting policy. In line with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors , a change in accounting policy can be made either where it is required by an IFRS or results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, performance or cash flows. \n The previous classification as cash flows from financing activities was based on the Directors' judgement of the economic nature of the activities as the cash flows relate to cash payments deferred in connection with the Group's action taken in 2020 to reduce the size of the USD hedge book by $11.8bn across 2020 to 2026. The Directors have reassessed their judgement in line with IAS 7 Statement of Cash Flows and have concluded that it would be more appropriate to classify these cash flows as cash flows from operating activities. \n As a result of the above, cash flows from operating activities during the year to 31 December 2022 have reduced by £(326)m to £1,524m with a corresponding decrease in cash outflow from financing activities from £(2,866)m to £(2,540)m. There is no impact to the total change in cash and cash equivalents or to any alternative performance measures. \n The above change resulted from a review which was prompted by an enquiry arising from a review of the Group's 2022 Annual Report and Accounts by the Corporate Reporting Review team of the Financial Reporting Council (FRC). The FRC review was part of a regular review and assessment of the quality of corporate reporting in the UK undertaken by the FRC. Further information regarding the review of the Group's 2022 Annual Report and Accounts is set out in the Audit Committee report in the 2023 Annual Report. The Group agreed to make the above change within its 2023 Annual Report and Accounts. The FRC review was limited to the published 2022 Annual Report; it did not benefit from a detailed understanding of underlying transactions and provides no assurance that the 2022 Annual Report is correct in all material respects. \n Post balance sheet events \n The Group has taken the latest legal position in relation to any ongoing legal proceedings and reflected these in the 31 December 2023 results as appropriate. \n Climate change \n In preparing the Condensed Consolidated Financial Statements, the Directors have continued to consider the impact of climate change, particularly in the context of the disclosures made in the Strategic Report within the 2023 Annual Report. The following specific points were considered: \n -       The Group continues to invest in: onsite renewable energy installations; the procurement of green energy for its facilities; and in energy efficiency improvements to reduce its overall energy demands and operating costs. An estimate of the investment required to meet these scope 1 and 2 emission improvements is included in the forecasts that support the Condensed Consolidated Financial Statements; \n -       The Group is enabling its customers to operate their products in a way that is compatible with low or net zero carbon emissions and has demonstrated that all the commercial aero engines it produces, and the most popular reciprocating engines (that represent 80% of the Power Systems product portfolio) are compatible for use on sustainable fuels; \n -       The Group has invested in delivering new products and solutions that can accelerate the global energy transition, including in battery energy storage solutions in Power Systems, and in small modular reactors (SMRs). Future investment required to deliver these technologies is included in the forecasts that support the Consolidated Financial Statements. \n The Directors have considered the impact of climate change on a number of key estimates within the financial statements. The climate-related estimates and assumptions that have been considered to be key areas of judgement or sources of estimation uncertainty for the year ended \n31 December 2023 are those relating to: \n -       long-term service agreement revenue recognition and onerous contract provision assumptions, such as the level of EFHs which recognises the future expectations of consumer and airline customer behaviour, and changes in costs due to carbon pricing and commodity price changes; \n -       the estimates of future cash flows considered for trigger assessments or used in impairment assessments, where applicable, of the carrying value of non-current assets (such as programme intangible assets and goodwill); and \n -       the estimates of future profitability used in assessing the recoverability of deferred tax assets in the UK (see note 5). \n As details of what specific future intervention measures will be taken by governments are not yet available, carbon pricing has been used to quantify the potential impact of future policy changes on the Group. The approach is consistent with that disclosed in note 1 in the 2023 Annual Report. \n There have been no significant changes to assumptions, including the potential impact of carbon prices on the Group's cost base, since the year ended 31 December 2022. This is consistent with the assessment that climate change is not expected to have a significant impact on the Group's going concern assessment to August 2025, nor on the viability of the Group over the next five years. \n \n \n 1     Basis of preparation and accounting policies continued \n \n Going concern \n Overview \n In accordance with the requirements of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Group, taking into account its current position, the Group's principal risks and the Group's mid-term forecasts that considered a range of internal and external factors as part of the strategic review to support setting the Group's new mid-term targets which are set out on pages 10 to 12 of the 2023 Annual Report. \n The Strategic Report in the 2023 Annual Report on pages 10 to 12 sets out the activities of the Group and the factors likely to impact its future development, performance and position. \n The Financial Review on pages 19 to 23 of the 2023 Annual Report sets out the financial position of the Group, its cash flows, liquidity position and the Group's capital framework. The notes to the accounts include the objectives, policies and procedures over financial risk management including financial instruments and hedging activities, exposure to credit risk, liquidity risk, interest rate risk and commodity price risk. \n In adopting the going concern basis for preparing the Consolidated and Company Financial Statements, the Directors have undertaken a review of the Group's cash flow forecasts and available liquidity, along with consideration of possible risks and uncertainties over an 18-month period from the date of this report to August 2025. The Directors have determined that an 18-month period is an appropriate timeframe over which to assess going concern as it considers the Group's short to medium-term cash flow forecasts and available liquidity. \n Forecasts \n Recognising the challenges of reliably estimating and forecasting the impact of external factors on the Group, the Directors have considered two forecasts in their assessment of going concern, along with a likelihood assessment of these forecasts. The base case forecast reflects the Directors current expectations of future trading. A stressed downside forecast has also been modelled which envisages a 'stressed' or 'downside' situation that is considered severe but plausible. Both forecasts have been modelled over an 18-month period. \n Industry forecasts predict a return to 2019 large engine flying levels in 2024, which is reflected in the Group's base case forecast. Macro-economic assumptions have been modelled using externally available data based on the most likely forecasts with general inflation at around 2%-3%, wage inflation at an average of 3%-5%, interest rates at around 3%-4% and GDP growth at around 2%-3%. \n The stressed downside forecast assumes Civil Aerospace large engine flying hours remain at average fourth quarter 2023 levels throughout the 18-month period to August 2025, reflecting slower GDP growth in this forecast when compared with the base case. It also assumes a more pessimistic view of general inflation at around 1%-2% higher than the base case covering a broad range of costs including energy, commodities and jet fuel. Wage inflation in the stressed downside is 1%-5% higher than the base case and interest rates in the stressed downside are 1%-2% higher than the base case. These macro-economic pressures have been modelled across the whole going concern period. The stressed downside also considers lower demand as a result of slower market growth and potential output risks associated with increasing volumes and possible ongoing supply chain challenges. \n The future impact of climate change on the Group has been considered through climate scenarios. The climate scenarios modelled do not have a material impact on either the base case or stressed downside forecast over the 18-month period to August 2025.  \n Liquidity and borrowings \n During 2023, the Group cancelled a £1bn undrawn UKEF-supported loan facility that was due to mature in March 2026 and a £1bn undrawn bank loan facility due to mature in January 2024. The £2.5bn undrawn revolving credit facility that was due to mature in April 2025 was refinanced in November 2023 with the new facility having a term of  three years with the banks having the option to extend with two one-year extension options (3+1+1). \n At 31 December 2023, the Group had liquidity of £7.2bn including cash and cash equivalents of £3.7bn and undrawn facilities of £3.5bn. The \n18-month going concern period includes the maturity of a €550m bond repayable in May 2024 which the Group does not intend to refinance given the Group's cash and liquidity position, our assessment of the Group's cash flow forecasts and available liquidity over the 18-month period.   \n Based on borrowing facilities available at the date of this report the Group's committed borrowing facilities at 31 December 2023 and 31 August 2025 are set out below. None of the facilities are subject to any financial covenants or rating triggers which could accelerate repayment. \n \n \n \n \n £m \n \n \n 31 December 2023 \n \n \n 31 August 2025 \n \n \n \n \n \n \n Issued bond notes 1 \n \n \n 3,995 \n \n \n 3,511 \n \n \n \n \n UKEF £1bn loan (undrawn) 2 \n \n \n 1,000 \n \n \n 1,000 \n \n \n \n \n Revolving credit facility (undrawn) 3 \n \n \n 2,500 \n \n \n 2,500 \n \n \n \n \n Total committed borrowing facilities \n \n \n 7,495 \n \n \n 7,011 \n \n \n \n \n 1 The value of issued bond notes reflects the impact of derivatives on repayments of the principal amount of debt. The bonds mature by May 2028 \n 2 The £1bn UKEF sustainability-linked loan matures in September 2027 (currently undrawn) \n 3 The refinanced £2.5bn revolving credit facility matures in November 2026 (currently undrawn) \n Taking into account the maturity of these borrowing facilities, the Group has committed facilities of at least £7bn available throughout the period to 31 August 2025. The next debt maturity is a $1bn bond that is due to be repaid in October 2025, which is outside the 18-month going concern period. \n Conclusion \n After reviewing the current liquidity position and the cash flow forecasts modelled under both the base case and stressed downside, the Directors consider that the Group has sufficient liquidity to continue in operational existence for a period of at least 18 months from the date of this report and are therefore satisfied that it is appropriate to adopt the going concern basis of accounting in preparing the Consolidated and Company financial statements. \n \n \n 1     Basis of preparation and accounting policies continued \n \n Key areas of judgement and sources of estimation uncertainty \n The determination of the Group's accounting policies requires judgement. The subsequent application of these policies requires estimates and the actual outcome may differ from that calculated. The key areas of judgement and sources of estimation uncertainty as at 31 December 2023, that were assessed as having a significant risk of causing material adjustments to the carrying amount of assets and liabilities, are set out in \nnote 1 to the Consolidated Financial Statements in the 2023 Annual Report and are summarised below. Sensitivities for key sources of estimation uncertainty are disclosed where this is appropriate and practical. \n \n \n \n \n Area \n \n \n Key judgements \n \n \n Key sources of estimation uncertainty \n \n \n Sensitivities performed \n \n \n \n \n \n \n Revenue recognition and contract assets and liabilities \n \n \n Whether Civil Aerospace OE and aftermarket contracts should be combined. \n How performance on long-term aftermarket contracts should be measured. \n Whether long-term aftermarket contracts contain a significant financing component. \n Whether any costs should be treated as wastage. \n Whether the Civil Aerospace LTSA contracts are warranty style contacts entered into in connection with OE sales and therefore can be accounted for under IFRS 15. \n Whether sales of spare engines to joint ventures are at fair value. \n When revenue should be recognised in relation to spare engine sales. \n   \n \n \n Estimates of future revenue, including customer pricing, and costs of long-term contractual arrangements, including the impact of climate change. \n \n \n Based upon the stage of completion of all large engine LTSA contracts within Civil Aerospace as at 31 December 2023, the following changes in estimate would result in catch-up adjustments being recognised in the period in which the estimates change (at underlying FX rates): \n -  A change in forecast EFHs of 1% over the remaining term of the contracts would impact LTSA income and to a lesser extent costs, resulting in an impact of around £20m. \n -  A 2% increase or decrease in our pricing to customers over the life of the contracts would lead to a revenue \ncatch-up adjustment in the next 12 months of around £280m. \n -  A 2% increase or decrease in shop visit costs over the life of the contracts would lead to a revenue catch-up adjustment in the next 12 months of around \n£80m. \n   \n \n \n \n \n Risk and revenue sharing arrangements (RRSAs) \n   \n \n \n Determination of the nature of entry fees received. \n \n \n \n \n \n \n \n \n \n \n Taxation \n \n \n \n \n \n Estimates necessary to assess whether it is probable that sufficient suitable taxable profits will arise in the UK to utilise the deferre...

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