Rolls-Royce Aktie

So good morning, everyone, and welcome to our 2025 results presentation. I'm Jeremy Bragg, and I'm Head of Investor Relations, and I'm joined today here by Tufan, our CEO; and Helen, our CFO.

So before we begin today's presentation, I'm required to show you the safe harbor statement on Slide 2. So the full results materials can be downloaded from the Investor Relations section of our website. And today, we're going to cover, firstly, our financial and strategic progress over the past 3 years, the 2025 results in detail and our guidance for '26 and our upgraded midterm targets. And after the presentation, there will be time for questions in the room and if time, from our audience online.

So for those of you in the room, there are microphones in the seat in front of you and you need to press and hold the button before you speak. And for those of you in the room also, very excitingly, and I hope you've seen this already, we've got the full-size model of our UltraFan 30 along with some of our engineers who'd be delighted to talk to you about it after the presentation. So please do go and have a look at that. It's amazing.

Okay. So before handing over to Tufan, I'd like to show you a short film that highlights some of the progress that we've made this year.

[Presentation]

Good morning, everybody. It is great to see you all here. Jeremy actually stole some of my thunder, but I was going to talk about UltraFan 30. I hope you spent some time with Simon and our great engineers, frankly. If you didn't, as Jeremy suggested, you should. So it is a narrow-body demonstrator model, I'm sure. And they actually told me, our engineers, you asked great questions. I don't know why they were surprised about that, but you ask great questions. But as Jeremy said, I think -- I'll touch on UltraFan 30 in my presentation very briefly. But also, as Jeremy said, today in the presentation, it is going to take around an hour because we are going to cover '25 results as we normally do. But we have lots of granularity the way we run the business. Therefore, we are going to talk about midterm with lots of detail, but more importantly, beyond midterm, also with lots of granularity. So then obviously, we will open up for Q&A.

So our transformation of Rolls-Royce into a high-performing, competitive, resilient and growing business continues at pace. Over the last 3 years, we have significantly improved our safety and operational capabilities and our customer service. 2025 marks another year of strong financial and strategic delivery, building on the substantial progress that we have made over the past 2 years. One year ago, we set a midterm margin target of 15% to 17%. We achieved that margin last year, 3 years earlier than planned. And we expect 2026 to be another strong year. Our 2026 guidance sees us delivering our previous midterm operating profit target 2 years earlier than planned.

Today, we are upgrading our midterm targets, which are still based on a 2028 time frame. Given our strong balance sheet and sustainably growing profit and free cash flow, we are pleased to announce a GBP 7 billion to GBP 9 billion share buyback program for the period 2026 to '28. This is the first multiyear buyback in Rolls-Royce's history and is a clear indication of our confidence in cash flow growth in the midterm and beyond. Our transformation has unlocked significant growth opportunities from both our existing and new businesses. I'm proud of what we achieved over the past 3 years, and we are not done yet. Our transformation has delivered a step change in performance across the group. This has been achieved despite a challenging external environment, including supply chain and tariffs.

Let me give you an overview of our progress over the last 3 years. In 2025, group operating profit was GBP 3.5 billion, 5x higher than in 2022. And operating margin has more than tripled to 17.3%. All divisions have contributed. In Civil Aerospace, operating profit was around 15x higher and operating margin was more than 8x higher than in 2022. This was driven by stronger aftermarket performance, a doubling of profit in Business Aviation and increased spare engine profitability.

In Defence, operating profit has grown by roughly 60% over the past 3 years, and operating margin has risen to 14.4%. This was primarily driven by higher transport aftermarket profit, stronger combat performance and submarine growth.

In Power Systems, operating profit has tripled with an operating margin more than double that of 2022. The largest driver is Power Generation, where we have restructured the business to deliver a 12x increase in operating margins since 2022, alongside governmental and battery storage, which achieved breakeven last year. The improvement in operating profit has also been supported by our efficiency and simplification program.

Group free cash flow of 3.3% is 6x higher than 2022 with stronger cash generation across all divisions. The increase has primarily been driven by higher operating profit. Strong cash flow was delivered as we continue to invest in the business with investment in 2025, doubling that of 2022. Return on capital, a key metric, has risen by almost 4x to around 19% last year. This represents a significant value creation and best-in-class ratio within the industry.

I will now focus on how we are driving higher margins and cash flows from our civil aerospace LTSA contracts. This is a key driver of performance improvement to the midterm and beyond. The chart on the left shows we are driving higher contract and LTSA margins over time across our in-production engines. The top line on the chart is the average margin across all signed contracts even if the engines are not yet delivered. This is a leading indicator for the LTSA margin that will be booked in our income statement in the future. This is the second line in the chart.

Our contract margin will increase by 19 percentage points between 2022 and 2028. This will drive around 28 percentage point increase in the income statement margin over the same period. This improvement has been driven by our 6 levers that we have mentioned before. Around 10 percentage points of this increase is driven by commercial improvements. We have a new framework, which has driven improved margins on contracts since 2022. This applies to new, renewing and renegotiated contracts. The remainder is largely driven by the operational improvements that we are making, the biggest of which is time on wing. I will talk to that later.

When I first shared this with you last year, I talked about how our actions can drive further improvements to both lines. This is exactly what has happened. We are managing our business very differently. Our new value stream framework allows us to make purposeful, proactive and granular interventions to drive stronger performance. We now expect our contract margins to be 2 percentage points higher and our LTSA margins to be 8 percentage points higher than we set out last February. The 8 percentage points improvement in LTSA margins reflects 3 things.

First, further operational improvements, notably time on wing on the Trent XWB-84, where we are systematically raising the cyclic life of the engine through a combination of compressor blade modification and critical parts life increase built on improved analysis of millions of hours operating data. We have further refined and accelerated this program and now expect it to have higher impact.

Second, new and renewing contracts coming in a better commercial terms than we previously targeted, including further progress renegotiating onerous and low-margin contracts. Third, strong execution to date, which has allowed us to release contingencies. Our actions to drive higher LTSA margins have created billions of pounds of value.

Now let me talk to you about a new chart on the right-hand side of the slide, which shows that the majority of the LTSA cash benefits are still to come. The cash value of our LTSA contracts has more than quadrupled since 2022. More than 2/3 of this increase is driven by our actions, which have resulted in billions of pounds of additional cash generation over the life of these contracts and less than 1/3 relates to volume growth. Put another way, if our LTSA aftermarket contracts had remained at '22 margin levels, the cash value of these contracts would be less than 1/3 of the size they are today. Even by the end of 2028, only 25% of the incremental cash associated with these contracts will have been achieved, which means that majority of the cash value of these improvements will come beyond the midterm.

As these contracts are extended, which is usually the case, this value will go up further. This chart focuses on the cash value that we created with our aftermarket contracts. It is worth remembering that we have also renegotiated our OE contracts, which have created billions in additional value, as I shared with you before. Only around 30% of the cash value of our OE renegotiations will be realized by the end of 2028.

Let me give you a perspective on our LTSA margins and cash improvements. The commercial and operational improvements that we are making will drive higher LTSA margins and continued LTSA balance growth for many years. A higher EFH rate and a lower density of shop visits due to time on wing improvements are both drivers of higher LTSA margin and LTSA balance growth.

Our higher LTSA margin brings a higher profit realization per shop visit in the income statement, while those shop visits happen less frequently due to our time on wing initiatives. As a result of all these, our operating profit and cash flows grow with LTSA margins increasing. The LTSA balance also continues to grow despite increasing profit realizations for as long as the installed fleet is growing. This is what we mean when we talk about driving sustainable and high-quality growing cash flows.

We continue to deliver strong disciplined progress across our 4 strategic pillars. I already talked about how we are driving higher LTSA margins. I will now selectively cover some of the other achievements last year. First, portfolio choices and partnerships. In Civil Aerospace, we are continuing to expand our MRO capacity, which has supported more than a 50% increase in shop visits since 2022. Last year, we added new capacity in Derby, Dahlewitz, and Singapore, and took steps which will grow our MRO network capacity by a further 20% by the midterm to support future fleet growth. This includes BAESL in China, our new MRO center, with Turkish Technic in Istanbul and with Emirates and Air France-KLM.

In Power Systems, we added capacity in Germany and our 2 sites in the U.S., Aiken and Mankato, to support continued power generation and governmental growth. We are also continuing to invest in upgrading our engines to enable growth. This includes both our next-generation Series 4000 engine to be released in 2028, which targets the data center market with a significantly improved power density, alongside the development of an upgraded military engine.

In Defence, the ramp-up of new programs is supported by significant investments we have made in Indianapolis totaling around $1 billion over the past decade, and we continue to invest in this site.

Second, strategic initiatives. We are making strong progress with our time on wing initiatives. We now target more than 100% increase in durability across our in-production engines, with more than half of this improvement target already delivered. This increase compared to our previous target of more than 80% reflects critical part life extensions for the Trent XWB-84. We have extended and accelerated this program and have refined the fleet-wide benefits and improvements associated with XWB-84 EP, which will offer more than a 1% fuel burn benefit and improved time on wing.

Other key time on wing milestones included the certification of the first phase of improvements for the Trent 1000 XE in June. The second phase of HPT blade improvements for both Trent 1000 and 7000 were certified in December. And our planned improvements for XWB-97 remain on track to be completed by the end of 2027. We are continuously seeking to improve time on wing of all our engines, not only those under this program. For example, we have implemented enhancements with the Trent 900 that will improve time on wing by up to 30%. This all means that we expect shop visits to approach peak in 2026 before falling to 1,300 to 1,400 in the midterm.

Beyond the midterm, shop visits will grow at a proportionately lower rate due to our time on wing improvements. We are driving down shop visit costs across our in-production engines. By the midterm, XWB-84 shop visit costs will halve versus 2029 with 44% reduction already achieved by the end of last year. We are also examining further ways to drive down shop visit costs using new digital and AI tools.

In Defence, we are seeing growing demand for our mature products, driven by rising defence spending. In the U.K. and the U.S., we secured key aftermarket contracts worth over GBP 1.5 billion covering EJ200 and AE 2100 engines. Turkey and the U.K. also signed an agreement to export 20 Eurofighter aircraft with an option for more in the future. This, combined with new aircraft orders from Italy, Germany and Spain, now provides visibility of EJ200 production into the 2030s. In addition, we saw strong order intake for new programs, including GCAP and MV-75.

Third, efficiency and simplification. As you can see from the slide, we have delivered efficiency and simplification benefits of GBP 600 million and gross third-party procurement savings of GBP 1.2 billion since 2022, which are both above our CMD targets and support a further improvement in our total cash cost to gross margin ratio.

Fourth, lower carbon and digitally enabled businesses. Rolls-Royce SMR is making progress in the U.K. and the Czech Republic, where the activity is ramping up. In digital, last year, we launched our AI platform, AiRR, AI in Rolls-Royce, which has capabilities in generative and Agentic AI. This platform is at the core of our efforts to develop and deploy high-value AI capabilities across engineering, MRO and the supply chain. AiRR will drive improved intelligent engine monitoring and planning, reducing turnaround times and the product and shop visit costs. We are creating a digital thread across our engineering and manufacturing operations to enhance product quality and shorten the time frames of new product introductions.

Turning now to our guidance for 2026. We expect underlying operating profit of GBP 4 billion to GBP 4.2 billion with a performance improvement across all core divisions. We expect free cash flow of GBP 3.6 billion to GBP 3.8 billion, driven primarily by operating profit and continued LTSA balance growth in Civil Aerospace. This guidance includes a continued supply chain headwind, which will be gone by the midterm. Helen will talk you through our cash flow guidance in detail later. We are upgrading our midterm targets, which remain based on 2028 time frame. This reflects the strong performance delivered through our transformation over the past 3 years and the increased potential we now see in the business.

We now target operating profit of GBP 4.9 billion to GBP 5.2 billion and operating margin target is 18% to 20%. Our midterm target for free cash flow is GBP 5 billion to GBP 5.3 billion. Stronger free cash flow will be driven by higher operating profit and continued LTSA balance growth. Finally, we expect to deliver a return on capital of 23% to 26%, highlighting the value creation potential of the business. We expect this to be among the highest returns on capital in the industry.

So the key drivers behind our midterm operating profit and margin targets. The increase compared to previous targets is primarily driven by 3 things: Higher aftermarket profit across LTSA and time and materials in Civil Aerospace; stronger profit in Power Generation and Governmental in Power Systems, supported by further efficiency and simplification benefits across the group.

The detail by division. The largest step-up will come from Civil Aerospace, where we now target midterm margin of 21% to 23%. Operating profit growth will be driven by 5 factors. First, stronger aftermarket performance. We are driving higher LTSA margins in the midterm and beyond through new and renegotiated contracts and operational improvements, as I covered before.

Second, improved wide-body OE profitability. We expect rising wide-body deliveries and Trent XWB installed engine deliveries will be breakeven or positive. Over the last 3 years, we captured more than 50% of wide-body deliveries. This has driven up our share of the installed fleet from 34% to 38%. We expect 6% to 7% per year growth in our installed fleet to the midterm. This is ahead of the market.

Third, a further increase in business aviation performance, driven by commercial optimization, efficiencies and growth. We expect continued strong growth in Rolls-Royce powered business aviation aircraft deliveries to the midterm, where we remain a clear market leader. These OE deliveries will come with improved profitability alongside continued aftermarket profit growth.

Fourth, higher profitability on spare engines, reflecting commercial optimization and mix. And fifth, these benefits will be partly offset by a reduced contribution from contractual improvements. By 2028, we will have worked through our onerous contracts. But as we are continuing to improve the business, we, therefore, expect some benefit from contract catch-ups in 2028. The next largest step-up will come from Power Systems, where we now target a midterm margin of 18% to 20%. We now see an improved growth outlook in Governmental and in Power Generation with significantly improved profitability.

Operating profit growth in Power Systems will be driven by 4 factors: First, power generation, where we still expect OE revenue growth of around 20% per year, driven by data centers. Power Generation revenues are coming at improving margins as we continue to enhance the business model. Data center demand remains very strong. A significant portion of our growth to the midterm is already underpinned by firm orders.

Second, Governmental, where we now expect OE revenue growth of around 20% per year to the midterm, above our previous guidance of 12% to 14% growth. This reflects our strong market positions and improved visibility of orders.

Third, Marine, where we still expect OE revenue growth of 5% to 7% per year. And fourth, Battery Storage, where we expect double-digit OE revenue growth.

Across Power Systems, a significant portion of our operating profit comes from services, which makes our business more robust. We expect continued strong growth in services revenues, which supports margin improvements.

In Defence, we continue to target a margin of 14% to 16%. Operating profit will be mainly driven by self-help. We expect higher operating profit across all subsegments with increased aftermarket profit and higher OE volumes, alongside productivity improvements due to capacity expansion. We see significant growth beyond the midterm as new programs ramp up. Across the group, we are already underway with the next phase of efficiencies, ensuring that we tightly manage costs and deliver disciplined growth as the group scales up. This will be supported by an increase in investment in digital alongside GBS, where we are expanding our activities and capabilities in India and Poland and zero-based budgeting.

With that, I will now pass on to Helen.

Thank you, Tufan. Good morning, everyone. Before I get into the detail, let me start by saying how pleased I am with our progress. 2025 has been another year of strong delivery. We are embedding distinctive performance management. We have real momentum as we continue on our transformation. The results, they are strong, double-digit growth across revenue, profit and free cash flow. Every division is delivering. Balance sheet resilience has been rebuilt, and we are rewarding our shareholders with growing distributions.

Group highlights. Group revenues grew by 14% to GBP 20 billion with good end market growth, especially across Civil and Power Systems. Group operating profit grew by around 40% to GBP 3.5 billion, driven by our strategic initiatives, including commercial optimization. Operating margin grew by 3.2 percentage points to 17.3%. And free cash flow, it grew by over GBP 800 million to GBP 3.3 billion. Strong cash flow in the period meant that we closed the year with a net cash position of GBP 1.9 billion. That's almost GBP 1.5 billion higher than a year ago. Return on capital, it rose to 18.9% for the year, representing significant value creation. And these results, along with our actions to further expand earnings and cash potential, have enabled us to declare a final dividend of 5p per share for 2025 and our first multiyear buyback program as we follow through on our capital frame commitments. As I said, a strong set of results.

Now the detail by division, starting with Civil Aerospace. Civil delivered the largest year-on-year improvement in profit and cash. Our strategic initiatives are delivering. Operating profit grew to GBP 2.1 billion, a 41% increase. Operating margin grew to 20.5%, an increase of 3.9 percentage points. And revenues grew to GBP 10.4 billion, an increase of 15% with strong service revenue growth of 21%. Large engine revenue growth was 30%, driven by higher LTSA shop visits and commercial optimization. OE deliveries of 483 were 9% lower than in 2024 as we align deliveries to airframe production schedules. These schedules reflected the impact of industry-wide supply chain issues, while end market demand remains strong. Deliveries comprised 259 large engines, which included a slightly lower number of spare engines compared to 2024. And business aviation deliveries of 224 were almost all Pearl engines, an increase of 26% year-on-year in Pearl, which was offset by the legacy BR engines, which are approaching end of production.

Total shop visits. They grew to 1,440, an increase of 10%. Of these, 517 were large engine refurbs. That compares to 430 last year. Higher shop visits were supported by our actions to drive stronger MRO performance as we expanded capacity, strengthened processes and leveraged AI tools across the network. For example, we are now rolling out AI tools, which more accurately predict maintenance needs for our engines using on-wing data and going well beyond what was previously possible. Higher visits were also supported by improvements in the availability of parts across the supply chain, and I'll come back to the supply chain in a moment.

Now operating profit in more detail. Three factors drove that 41% increase. First, stronger performance of large engine aftermarket, driven by a higher number of shop visits alongside higher time and material profits. Second, higher spare engine profitability, slightly lower year-on-year volumes were delivered with improved margins and mix. And third, net contractual margin improvements. They were GBP 392 million. That compares to GBP 235 million in 2024. The GBP 392 million comprised a net benefit of GBP 166 million in onerous contracts and GBP 226 million from catch-ups. We made further significant progress renegotiating onerous aftermarket contracts, continuing to find win-win solutions with our customers, allowing us to release onerous contract provisions in the year.

We also achieved key time on wing milestones, notably on the XWB-84, which resulted in a contract catch-up benefit. These 2 factors contributed to a gross benefit of GBP 553 million in the period. This was partially offset by an additional charge of GBP 161 million, which was taken mostly in the first half across both onerous and catch-ups due to ongoing product cost inflation in the supply chain.

So a few moments on the aerospace supply chain. When we spoke to you in July, we shared that we expected the supply chain to remain challenging through 2026. That is still our view. The industry continues to see product cost inflation. Availability for some parts remains constrained, but overall, it is improving. Our procurement savings and targeted supply chain programs are helping to mitigate these impacts. For example, our actions supported an increase of over 20% in finished parts delivered and an improvement of around 10% in average MRO turnaround times in the year. So despite continuing challenges, we are managing it very tightly and our actions are working.

Now turning to cash. Civil delivered a trading cash flow of GBP 2.5 billion compared to GBP 2 billion in the prior year. The increase in cash delivery was driven by higher operating profit, alongside a slightly lower LTSA balance growth. In summary, a very strong delivery from Civil on profit, margin and cash.

Defence, where we continue to make good strategic progress across key programs. We captured growing demand from both mature and new programs, ranging from the EJ200 for Eurofighter to GCAP, the next-generation combat aircraft, to the MV-75, the future long-range assault aircraft. Order intake for the year stood at GBP 5.5 billion with a book-to-bill ratio of 1.1x and order backlog was GBP 17.4 billion, equivalent to over 3 years of revenue with order cover for 2026 standing at around 90%.

Turning to the financials. And you may recall that 2024 included a one-off benefit in submarines, so masking the underlying growth we are delivering. Revenues, they stood at GBP 4.8 billion, an increase of 8% year-on-year. Excluding the one-off, growth was 14%, which was driven by all segments. Operating profit, it stood at GBP 689 million, an increase of 9%, and operating margins of 14.4% were broadly flat year-on-year. Growth in operating profit reflected improved transport OE performance with higher volumes and a more favorable mix, which included higher margins from international sales and improved combat OE profits. These were partially offset by the absence of the one-off benefit in submarines.

Cash flow. It stood at GBP 745 million compared to GBP 591 million in the prior year. Higher cash was driven by operating profit growth alongside a stronger working capital delivery. So a good delivery from Defence as we position us -- which positions us well for future growth.

Power Systems, an excellent performance as we captured profitable growth in Power Gen and Governmental. Operating profit grew to GBP 852 million, a 60% increase year-on-year. And operating margins grew to 17.4%, a 4.5 percentage point increase. Order intake was GBP 6.1 billion, a 21% increase with a book-to-bill ratio of 1.2x. OE order cover for the whole of Power Systems is now close to 80% for 2026 with a growing order cover for both '27 and '28. Demand remains particularly strong in Power Gen, which saw an order intake growth of 31% with strong growth in data centers and also in Governmental, where orders grew 15%.

Revenues, they grew to GBP 4.9 billion, an increase of 19%. Power Gen and Governmental revenue growth was 30% and 14%, respectively. Data center revenue growth was 35%. That operating profit growth of 60% was driven by 3 factors: First, a standout performance in power generation, notably data centers, where we continue to capture strong volume growth and benefit from improved mix in the high-power density sector. All this we did with strong product cost management, allowing our commercial optimization actions to flow through to the bottom line.

The second factor, a strong performance in governmental, especially services, where we are well positioned to capture growing defence spending across land and naval. And third, battery energy storage systems, which achieved breakeven in the period, an important milestone for this young and fast-growing business.

Cash flow. It increased to GBP 658 million, almost 50% higher than the prior year, driven by higher operating profit, partially offset by higher investments and working capital as we supported disciplined growth. In summary, great work from Power Systems.

Now the funds flow. We delivered GBP 3.3 billion of free cash flow, more than GBP 800 million higher than in 2024. The principal driver of increased free cash flow was operating profit, which grew by almost GBP 1 billion. Other factors included net investments. At over GBP 250 million, they were similar to last year and included a higher level of capital expenditure across what is now a more focused portfolio. We continue to invest for growth across all businesses.

Our investment approach remained disciplined, strategic and agile as we captured growth opportunities. Investments in the period included those for improving time on wing, developing UltraFan technology and growing MRO capacity in civil, boosting data center capacity across Germany and the U.S. in Power Systems and for developing future programs in our U.S. Indianapolis site in Defence.

The net LTSA balance, it grew by GBP 600 million, around GBP 100 million lower than in '24. Growth was driven by higher engine flying hours and an improved normalized EFH rate. This was partially offset by a higher number of shop visits, including a record number of Trent 1000 refurbs as well as managing supply chain headwinds.

Working capital, we released over GBP 400 million of working capital in the year. That's on top of the release of GBP 280 million in 2024, an excellent performance given industry-wide supply chain challenges and as we supported revenue growth. Working capital culture and discipline across the group is now much stronger.

Next, provisions. They were an outflow of just under GBP 300 million, around GBP 120 million higher than in 2024 as we continue to successfully renegotiate and trade through onerous contracts. Then overhedge costs. As guided, they were around GBP 150 million, broadly similar to 2024 levels.

And finally, cash tax. It increased to GBP 555 million, around GBP 170 million higher than in '24, reflecting increased profits. So a strong cash delivery in the year.

Tufan spoke to 2026 cash flow guidance. Let me give you some additional color. We expect the net LTSA balance growth to be broadly similar to the 2025 level. This reflects continued growth in large engine flying hours to 115% to 120% of 2019 levels, a higher normalized EFH rate, a higher number of shop visits to between 1,480 to 1,550 and a similar cash impact of GBP 150 million to GBP 200 million from the supply chain. In addition, we expect a higher level of net investments and outflow in provisions as we continue to progress commercial renegotiations and cash tax costs to be around GBP 200 million higher.

Now moving to midterm free cash flow. We are driving for sustainable, high-quality cash flow growth. We are targeting between GBP 5 billion and GBP 5.3 billion of free cash flow in the midterm, growth of up to GBP 2 billion compared to 2025. The main elements that underpin this growth are operating profit, growth of between GBP 1.4 billion to GBP 1.7 billion over the period is key. Every division contributes with significant profit growth, especially in Civil and Power Systems, which Tufan has already spoken to.

Then LTSA. By the midterm, we expect the net LTSA balance to grow in the GBP 0.8 billion to GBP 1.2 billion range with large engine flying hours growing to between 130% to 140% of 2019 levels, business aviation hours continuing to grow, our actions driving a higher normalized EFH rate and improved time on wing, which will see shop visits approaching peak in 2026, then fall to between 1,300 to 1,400 in 2028. In addition, we expect the cash drag from the supply chain to be gone by the midterm.

And for currency, the consumption of our legacy hedge book means our midterm guidance assumes a blended ForEx rate of $1.33 to the pound compared to $1.44 in 2025, which will drive a higher sterling equivalent for our dollar-based inflows.

Next, investments. Our new midterm plan includes a higher level of investments compared to the previous one. We will continue to prioritize safety and strategic growth. And looking across the period, we expect investments to average above depreciation and amortization.

Working capital. We will continue with a focused approach while supporting business growth. By the end of this year, we expect to have almost delivered our original 2027, GBP 2 billion gross saving target, and we have plans to go further. Across the period, we expect to release working capital with 2028 being broadly neutral. Then the cash cost of closing out overhedge positions will be gone by the end of 2026. And as our profits grow, cash tax payments will naturally increase. As I said, we are driving a higher cash delivery underpinned by quality earnings and net LTSA balance growth with a disciplined working capital mindset alongside continued investments to support future growth.

Capital frame. It's worth taking a few moments to reflect on the progress we've made over the last 3 years. It's significant. Rolls-Royce today is in a fundamentally different position. We are resilient and have financial flexibility to invest and to reward our shareholders. Since the start of our transformation, we have materially improved operating leverage, taking our total cash cost to gross margin ratio to 0.36x, a best-in-class ratio. We have rebuilt the balance sheet, reducing gross debt by around GBP 1.5 billion and improving net debt by over GBP 5 billion to end 2025 in a net cash position. We have taken the company from sub-investment grade to strong investment grade with all 3 of our rating agencies. This increased resilience allowed us last year to pay our first dividend in over 5 years and complete our first share buyback in 10 years, returning GBP 1.9 billion to our shareholders. And all this we did as we continue to increase investments to support growth for years to come.

And to close 2025, we are happy to share that the Board is recommending a final dividend of 5p per share, representing a full year dividend of 9.5p per share, a 60% increase year-on-year and a payout ratio of 32%, competitive and evidence of our commitment to growing shareholder returns.

Looking forward, we will continue to strike the right balance between preserving a strong balance sheet, delivering competitive returns to shareholders and retaining flexibility for further investment opportunities, both organic and inorganic. Tufan will touch on some of the long-term growth opportunities that we see and where we have built and earned the right to win.

With a strong balance sheet, significant investments to support long-term growth and confidence in our future, we are pleased to announce our first multiyear buyback program, a 3-year program to 2028, which will total between GBP 7 billion and GBP 9 billion. Taken together with our commitment to regular and growing dividends, this represents a return to shareholders of over 75% of free cash flow between 2026 and 2028 based on our midterm targets. We will update you annually on the amount we intend to return each year.

For 2026, the buyback will total GBP 2.5 billion, which includes the GBP 200 million interim tranche already completed.

As I pass to Tufan, let me say thank you to our teams. I know many of you are watching today. It is your hard work that has made all we have achieved possible. Thank you and well done. And as we turn to 2026, it will be busy. There is lots we want to do, and we are very excited by what lies ahead. Thank you.

Okay. Thanks, Helen. I want to talk about beyond midterm because we believe we can talk about beyond midterm with lots of granularity that not many people will be able to do. So our transformation is taking the company to a place which has opened up growth opportunities which were not there before. We have positioned Rolls-Royce to benefit from several positive long-term trends, including world GDP growth with a rising middle class, higher defence spending, digitalization and AI and the energy transition, including nuclear renaissance. In addition, the actions we have taken and continue to take will drive profitable growth.

We have unlocked significant opportunities within our existing businesses. In Civil Aerospace, we hold leading positions in wide-body and business aviation. In wide-body, we expect growing deliveries beyond the midterm with improved OE profitability. We are also continuing to improve our LTSA margins beyond the midterm, as you have heard. By '28, only half of our LTSA contracts will be on new terms, which means there will be a sustained benefit beyond the midterm as more contracts come in with higher margins. Our time on wing initiatives conclude at the end of 2027, leaving us with a highly competitive engine portfolio and the full cash benefits will not be realized until beyond the midterm.

Our fleet is relatively young and our initiatives to keep engines earning has been highly successful. Take, for example, the Trent 700, our largest mature engine fleet. This engine has been in service more than 30 years, but around actually a little bit more than 40% of programs, total flying hours are still to come. Over the last 3 years, only 6% of Trent 700 have been retired. Almost 40% of the fleet have been extended or transitioned to new passenger operators and a further 4% transitioned to freighter contracts.

The A330 is a popular aircraft for freighter conversions, with Rolls-Royce capturing almost 90% of all A330ceo conversions over the life of the program. Growing new engine deliveries, coupled with efforts to keep engines earning will drive continued installed fleet growth significantly beyond the midterm. Looking further out, UltraFan will secure our position on the next generation of wide-body aircraft.

In Business Aviation, we are cementing our position in the growing and resilient long-range and ultra-long-range segment. We have strong positions on the latest large cabin jets, including G700, G800 and Falcon 10X. Deliveries of these platforms are just starting to ramp up and will remain in production for many years.

Thanks to our actions, we generate positive OE margins on all new business aviation deliveries. All this means that our wide-body and business aviation fleet will continue to generate substantial OE and aftermarket revenues for many years with growing operating margins and cash flow.

In Defence, we hold leading positions in transport and combat. We expect sustained demand for our mature profitable products such as the EJ200 for Eurofighter, where we now have visibility of deliveries into the 2030s, the LiftSystem for the F-35B and our AE family of engines. We are investing to enhance and extend our leading position in transport engines.

Beyond the midterm, growth accelerates as several major programs ramp up. GCAP will be a leading combat aircraft program with a significant export potential. Rolls-Royce will hold a significant share in this program, which will potentially be larger than Eurofighter. GCAP production ramps up in the mid-30s.

In submarines, we expect long-term growth driven by the AUKUS partnership alongside the renewal of the U.K. fleet. MV-75, previously known as FLRAA, will also ramp up from '28 from a life of 30 to 40 years, including OE and aftermarket. This will be a very large program, leading to production of thousands of engines and expanding to additional opportunities over and above the initial U.S. Army contract. On the B-52, we expect to deliver around 600 engines with production starting by 2030.

We are also actively pursuing combat growth opportunities in international markets. We see a growing trend toward autonomous in defence. Given our capabilities, we are well placed to capitalize on this multibillion pound opportunity. Rolls-Royce will power the U.S. Navy's MQ-25, the first autonomous aerial refueler in aviation history. And we already power the Global Hawk, unmanned aerial surveillance aircraft. We are investing further to position Rolls-Royce for future autonomous opportunities. For example, in 2 years, we developed and tested our Orpheus engine demonstrator.

In Power Systems, we anticipate sustained power generation growth driven by data centers. Rolls-Royce is uniquely positioned to help the hyperscalers with their future data center power demands, including backup power, prime power and with SMRs. Our next-generation Series 4000 engines, which will be released in 2028, targets the ever-increasing power demands of AI data centers with a 20% higher power density. This differentiated product will create commercial opportunities and a new market access.

In Governmental, rising defence spending supports both land and naval applications where we are the incumbent supplier on the main European NATO platforms. In the U.S., where we have had notable success with the U.S. Coast Guard and Navy, and we are also finding new opportunities to support on land and naval. In addition, we see attractive opportunities with battery storage, marine and in industrial applications like mining and rail.

To summarize, our existing businesses are well positioned to deliver significant growth with rising operating margins and growing cash flows well beyond the midterm. This growth will be delivered by a combination of market growth and self-help actions.

Now I will focus on 2 additional and significant growth opportunities that our transformation has unlocked. The first is nuclear. Rolls-Royce has unique nuclear capabilities that positions us extremely well in this fast-growing market. We are already the leading SMR player in Europe, following success in the U.K. and Czech Republic and have started the regulatory process in the U.S. We see a total addressable market of more than 400 SMRs by 2050. We expect to be a leading player in this market.

Our first projects have already started to generate revenues and profits. Cash flows will be positive on a project basis throughout. The SMR business will be profitable and cash generative by 2030 with strong profit and cash flow growth thereafter. Our aim is to commission 2 SMRs per year by the mid-2030s, rising to 8 per year at maturity. Our business model is highly differentiated as the largest SMR available on the market where we offer the whole power plant with truly modular construction. This business will be cash generative with a high return on capital employed.

We see an adjacent opportunity in advanced modular reactors, which further leverages our deep nuclear capability and power conversion experience. AMRs are smaller, more flexible power plants with potential commercial and defence applications.

The second opportunity is narrow-body. Our UltraFan technology positions us strongly for the next generation of narrow-body aircraft. The narrow-body market is large and would offer meaningful synergies with our wide-body and business aviation activities. We are building a narrow-body size demonstrator with up to 30,000 pounds of thrust, which will be ground tested by 2028. We expect UltraFan to deliver a significant improvement in fuel burn versus today's narrow-body engines as well as meeting the time on wing expectations for customers in this market. We have already invested significantly into UltraFan and will continue to do so as we look to reenter the narrow-body market in partnership.

To summarize, the growth outlook for our existing businesses is very strong. In addition, these new opportunities, which we have unlocked through our transformation further enhance that trajectory, uniquely positioning Rolls-Royce for a profitable growth.

To close, we are delivering on our proposition to transform Rolls-Royce into a high-performing, competitive, resilient and growing business. We have achieved a step change in financial performance over the past 3 years. We expect further strong progress this year, and we have set new upgraded midterm targets for 2028. These targets are already significantly underpinned by the actions that we have taken and the investments that we have made. Our strong balance sheet and sustainably growing free cash flow gives us the confidence to announce a multiyear buyback program from '26 to '28. This is in addition to our regular and growing dividends. We remain committed to increasing shareholder distributions in line with our profitable growth. We are also excited about Rolls-Royce's growth prospects beyond the midterm.

I would like to finish today's presentation by giving you a perspective on the resulting business that we have been building from the first day actually. We are transforming Rolls-Royce into a highly competitive and sustainably distinctive business, a business with advantaged products and technologies, with significantly improved safety and operational capabilities and excellence in customer service with a differentiated mindset and a distinctive performance culture with a strong balance sheet and best-in-class efficiency and with high quality of earnings. This, in turn, opens up more opportunities for profitable growth.

We believe our growth potential is now unmatched as we have more optionality for further growth than many other companies. We expect significant continued profitable growth from our existing businesses through a combination of market growth and self-help actions and are unlocking new opportunities such as nuclear and narrow-body. Because of this, we expect continued expansion in operating profit, margins and cash flows well beyond the midterm. This will benefit all the Rolls-Royce stakeholders.

I'm very proud of the Rolls-Royce team and what we delivered so far. And I am even more excited about what we will deliver in the future.

Thank you for listening. Now we are going to open it up for questions.

I already see some -- can I start there and I can -- I think you have the microphone there.

Sam Burgess, Goldman Sachs. Two questions. Starting with one for you, Tufan. Any color on your latest thinking on the program share Rolls-Royce might like on any future narrow-body partnership? And how might this discussion look given most of the narrow-body program partners probably don't want to lose share would be helpful.

And then for Helen, are the benefits of AI engine diagnostic tools built into your new midterm LTSA margin improvement forecast? Or is the technology today too nascent to build this in at the moment?

Okay. Thanks for the narrow-body. I think here is the way to think about that, frankly. We have a good capability, engineering capability. And on top of that, I think given the developments we made with UltraFan, we already spent, by the way, more than GBP 1 billion on UltraFan. And the new technologies we are incorporating and continue to incorporate in UltraFan, that positions us really well for narrow-body. So therefore, yes, we prefer partnership. We are talking to multiple parties. I said it in the past, I'm going to say it because it is correct. More importantly, they want to talk to us. And 2 airframers, obviously, we work with them, Airbus and Boeing. And they're actually keen that we participate in narrow-body.

So I think -- I'm afraid I cannot comment on -- at the right time, we can talk about it, but I cannot comment on which partnerships, et cetera, but that's our preference. But at the same time, we continue to develop our demonstrator, et cetera. We are not actually waiting for partnership. You've seen the demonstrator model outside, but that actually continues. Over to you, Helen.

Fantastic. Thank you. So in relation to AI, so it's probably worth standing back. I mean there's lots happening in this space. But what we've spoken to you about is where we have very deliberate concrete plans. Yes, so there is substance behind it. And those we have built into our midterm projections going forward. So maybe just a couple of examples because there is a lot happening in this area.

I shared with you the example about on-wing maintenance and how we actually can better predict while the engine is still flying, if we actually can do the repairs on wing or it needs to be brought into an MRO shop. Combined with that, we're actually developing and it's been rolled out -- I think it's actually beginning of March, we're rolling out another AI agent, which allows us along with the ongoing data analysis to actually plan more effectively how we take the flow of work through the MRO. So you imagine a scenario where you understand the scope of work that needs to be done and then you combine that with how you actually plan MRO scheduling.

And I think Simon is with us today. I see Alan -- Simon. Simon is up there. So in Simon and Alan, so we've got our Chief Engineers with us today. And there's one AI agent, and we were the first to actually get this certified from EASA. If you want to know more about it, Simon is your man. And it's to do with technical variations -- yes, technical variance. And this is where you need to make a particular change, as you can imagine, very, very labor-intensive. So we've actually put AI across that. And we've reduced the effort by 75%, yes. And it's the first AI agent that has EASA approval.

So we have got very specific use cases, which we have developed. Simon and the team, particularly from an engineering perspective, are all over those. And where they are that detailed and they have the KPIs to support them and there's governance around them, those we have built into the plan. Something that we continue to track and monitor very carefully, but also what's happening in the back office as well. Tufan spoke about GBS. As an example, we have rolled out across some of our back office work, a new tool, which automates balance sheet reconciliations, not the most exciting, but a very important thing. And it's now highly automated, more than 90% of those. I mean, can you imagine the efficiency that things like that drives. So those are just some of the very practical real things that we're doing in a purposeful way.

I believe NVIDIA talked about strategic partnership in the back office with us yesterday. So I think digital is going to play a bigger role. I promise you, so I'm coming, but there are some hands there.

So Nick Cunningham from Agency Partners. I wanted to carry on pursuing the narrow-body strategy question, if possible. I realize you're limited what you can say about partners, but all the other engine makers seem to offer various problems and obstacles in terms of partnering with them. Should we think about you going perhaps outside of the engine makers, particularly because I think the big issue is going to be having the capacity in this very high-volume segment?

And then second question on that is there's been a lot of discussion in the press about you looking for potential launch date, risk and revenue sharing government loans. Do you actually need that? I mean, because that -- typically in the past, that's been very -- produce a very good return to the government. So it's been expensive for the borrower. You have very strong cash flows and you have a lot of technical confidence. Do you need to share that risk at that expense?

And then a very final question. The expensive bit of developing engines at the back end of it when you're prototyping and certificating. So do we need to think about this as being somewhere out in the 2030s in terms of where the actual cost is incurred?

Okay. Lots of questions there. I think your government question, let me be very clear. We are not asking for any loan from anybody, not to mention government, okay? We are not that Rolls-Royce. We just announced sort of our midterm targets to you. But here's actually -- it's a lot simpler than that, okay?

Industrial strategy of U.K. said, narrow-body, entering narrow-body is once-in-a-generation opportunity for U.K. because it will create up to 40,000 jobs, significant sort of gross value add initially will be GBP 100 billion. But if you think generations, a lot more than that contribution to the economy, big economic growth, the single biggest economy -- this is actually -- if you read the industrial strategy, that's what you will read.

So it is not actually uncommon that governments support R&T and R&D. And our competitors get 2, 3x what we do. They are not actually loans, as you know, like ATI type of stuff. So we are talking about that kind of support rather than loan this, loan that, et cetera. We don't need any loan. But we are in a competitive world. If my competitors are getting 2, 3x I do, I think that support, we will appreciate.

In terms of partners beyond engine makers, we are talking to more people. But as you accept it yourself, I cannot comment on it. In terms of spend, obviously, this has multiple spends in it, like R&T spend, we have been obviously investing already. R&D spend will -- we are now building demonstrator by 2028. Obviously, it is in all the budgets that you see, by the way. It's not in addition to that. It will be there. And if you actually think about -- it will depend on core engine commonality and how many variants airframers choose to have. Cost will vary. But let's say, with partnership, it may vary for us GBP 3 billion to GBP 5 billion, GBP 6 billion in the next 12 years. So that's how you may want to think about it. And then there is some investment with industrialization, but that is absolutely the far end of it because why would I invest right now for that. But hopefully, that answers that question.

Ian Douglas-Pennant with UBS. Thinking about the long term on Civil, is there a possibility now that you can exceed peer margins given enough time? Or is the ambition to get in line with them? And if so, what gives you confidence that you do have the potential to exceed?

The second question is on Power Systems. To what extent are you limited by your own industrial capacity in terms of growth from here? Can you give us any insight on where your industrial capacity is and where it's going to?

Great. So nobody called me actually so far, thanks Ian, that I want to be in line. So -- because that was never the aspiration in my life. So get in line is not a great aspiration for me, frankly. So that hopefully answers a part of your question, but I'm going to answer it more.

So I would say this, I think we made strong progress. Everybody was worrying about our wide-body margins should be lower. No, you don't have scale. Do you remember those days? Nobody ask me anymore. So there, we proved all that wrong effectively. And here is how I will answer. Our midterm targets are strong targets, definitely. If you look at comparatively, our operating profit and cash growth targets actually strong targets.

On Civil Aerospace, if I can answer the question, do I see potential to grow the margins beyond the midterm target, my answer would be yes, okay? So I think that's how I would answer it.

On industrial capacity for power gen specific, we are not limiting, frankly, because we don't want to speculatively get ahead of it. But actually, we are putting some slack in the system. Therefore, if you go to Mankato because I was actually there last year, and Aiken, you will see we are effectively power gen -- effectively, we are doubling power gen capacity. We have some plants -- we call them system plants like Mankato is in that category, then the engine plants, Aiken in that category. So we are actually doubling the capacity of both because one of our differentiation actually, we don't sell single engine. We sell gensets with control systems around that.

So I think we are not limited. You asked how much. Last time you wrote saying, I'm not sure market share. I think our market share to be specific in deliveries because you can go to market share in installed. And that will be different because our market share in installed lower, but in deliveries, it's around 25%. So what's our capacity deliveries per year, around 9 gigawatts, we believe total deliveries around 36 gigawatts. So that's where 25% comes, obviously. But that's right now. But next year, I may tell you different capacity because we are investing to grow, right, on this.

It's nice to hear that somebody reads my research, I appreciate it.

Thanks, Ian.

Chloe Lemarie from Jefferies. I have a first follow-up and then two questions, please. The first very quick one on narrow-body. Should we understand that you're ruling out going -- like re-entering the market on your own and just strictly looking for partnership?

And then my first question is on pricing power. So we've seen great pricing power in Power Gen over the recent years. On Governmental, we keep hearing about risks that government seek pricing reduction as volumes grow and some OEMs are seeing margin expand. So on those 2 segments, how are you seeing pricing evolve to your midterm targets?

And last question, can we talk about shop visit costs because you've been talking in the past about XWB average cost reduction, but the mix might actually skew that to the upside. So net-net, how should we think about average cost per visit?

That was one question, was it? So I think narrow-body is -- I'm not ruling out anything, but our strong preference is partnership, and there are opportunities for partnership, and it's not one.

On Power Gen, here's how you may want to think. In my presentation, I deliberately talk about Power Gen will come with improving margins because of 3 things. I think pricing power -- in a way, we would like to be competitive on pricing. So therefore, given the competitive intensity, there is a limit. But I think our product is really good. And frankly, with new product that will come in '28 -- because it is going to be so differentiated that you can price accordingly. That's one thing you should think about.

Second thing is, I think Helen mentioned in her presentation, she said 2 things. For aerospace, she said, we still see product cost increase, which is true because supply chain environment is challenging. She also said, we manage well in Power Systems because supply chain is not equally challenging in Power Systems, and we built a totally new team in supply chain in Power Systems. And they've done a spectacular job that actually we hardly get any product cost inflation there. And therefore, whatever pricing you do, that flows through. And then the mix, we have been increasing higher power density sales to data centers, obviously, higher power has higher margins. But that's Power Gen.

I think Governmental, you are always within your guardrails even the deal starts, frankly. So I think we will continue to be in those guardrails. But the strong contribution, governmental contracts are actually good in Power Systems. But the real sort of value creation even more aftermarket because in governmental, services tends to be strong, whether it is spare parts, whether it is overhaul, sort of all that actually is there.

In terms of shop visit costs, we talk about XWB-84 definitely. And that's important, right, because that's an engine scaling up, right? Why did I focus on OE XWB deliveries since the beginning. In fact, some of you asked 2 meetings ago, I think, here, why only XWB, you pick and choose these things. No, we don't pick and choose and present to you. We run the business by making choices rather than pick and choose the good news to you. We focus a deliberate effort with priority to make XWB OE deliveries breakeven and positive because we knew that's where the scale-up was coming. Why waste your effort, right? Same thing applies here. We are actually also thinking about, especially digital that Helen talked about, will help reduce our shop visit costs, definitely.

Across all engines.

Yes, across all engines.

Rory Smith from Oxcap. I just want to come back to this point on Civil Aero margins. You've upgraded the medium-term target. It's now closer to my number than it was before. So that's sort of personally reassuring. But I just wanted to...

You are ahead of the curve, clearly.

I just wanted to come back to some of the moving pieces. The LTSA slide, in particular, is very helpful. So thank you for that. I did want to ask about time and materials. I note the sort of V2500 service revenues are down year-on-year. Is there a risk that there is some moderation in '27 before we get to a sort of [indiscernible] in 2028? That's my first question.

So I think -- so I mean, in terms of margins, I didn't know you were ahead of the curve, but it is good to get there. So I think those LTSA slides we obviously do it on purpose. It should give you lots of granularity more than any other company will provide to you, sort of where this business is going. And David and I had a good chat on that in our romantic trip to Paris, I say. Romantic trip, I say, because David, as you know, he was on cell at that time. And I'm going to Paris Air Show. I sit in Eurostar. I'm doing whatever I'm doing, waiting for the train to depart. And somebody shows up and says -- I don't know you remember, David, somebody says, probably I am the last person you would like to see, but this is my seat. So he actually sits just across me. And at that time, I don't know what happened. Eurostar -- probably on purpose -- normally, trip takes 2 hours and a bit. It took this time 3 hours and a bit. So that's the trip. He was questioning me how bad our LTSA contracts are and so on and so forth.

But -- therefore, whenever I hear LTSA margins, David, I remember you in the best possible way. But anyway, I think we have been actually improving these margins. Obviously, that has a lot to do with operating margin improvement, especially if you add to that OE profitability improving. And if you add to that business aviation profitability improving, which I told you, sort of -- I think it all adds up to effectively -- therefore, we are talking about even beyond midterm with lots of granularity because one thing you guys probably appreciate by now, but power of our -- we keep talking about performance culture. Power comes from so embedded in the organization. Everything we present to you, it is bottom up embedded, owned and performance managed.

This is my fourth company. I'm not sure every company can say that, I think. But those margins, T&M, we continue to improve T&M, frankly. So we told you in midterm, we expect sort of aftermarket to grow and T&M is obviously part of that, but I'm not going to say more than that.

I mean now, it's more of an answer than I could have hoped for.

You didn't expect David's story, didn't you?

You [indiscernible] Paris. Are you talking to Boeing about 777X, given the delays on that program and the latest durability concerns on GE9X?

So I think individual conversations, I'm sure you appreciate, I'm not in the liberty to comment here. But we work with Boeing on multiple things very closely, absolutely.

Jeremy has a question. But Jeremy, I'll go there first, then I'm going to come to you. Sorry, David. okay. Jeremy, I'll come to you just there and then David.

Ross, Morgan Stanley. Two questions, please. First, on Power Systems margin target. If we look at one of your peers, they're now quite consistently generating margins in excess of 20% in their equivalent business. So should we think about that for Power Systems? Or given your earlier comment about not wanting to be in line, is it potentially higher than that?

And then just secondly, on SMR, any update on the timing of the U.K. contract?

So I think, I really encourage you guys because we do look at it even for us with all the respect to you, we know our numbers probably better. But it is hard to take out portfolio to make the comparison with our peers because actually, both -- if you look at 2 main competitors, Caterpillar and Cummins, they have same portfolio, but they have very different portfolios, and they break them apart. But what we call Power Systems shows up Power Systems and Distributions in them, and a part of Power Systems and Distributions.

So therefore, when you are comparing -- because some part of like industrial turbines is a very, very profitable place right now, which we don't have, right? So some comparison, I really encourage you to be careful about. If you look at our margins, 18% to 20% we gave you midterm, do we see improvement on that? Yes, my answer would be, we do, okay? When the scale goes up -- some of the dynamics I explained before that I'm not going to explain again, but also scale obviously helps in these things. So David?

Tufan, all I can say is we'll always have Paris. So just two questions. On Civil Aero, you've given us very clear positives driving the margin, the LTSA, where I was wrong, and lower losses on OE. But what about headwinds? Are there headwinds in there like rising R&D in the next few years or less spare engines that we should think about?

I mean, yes, I think in terms of investments, obviously, what Helen said in midterm when she was describing cash of midterm, she said investments in midterm higher than last year's midterm targets. Yes, we continue to invest in the business, and that's the right thing to do. But they are already there. I wouldn't call them headwinds, frankly. They are part of doing business, I would say.

Actually, in terms of the only -- if you are thinking profit, which I gave you already, David, only thing which won't be in midterm is the -- because by that time, we will have been done by onerous contracts. You are not going to have that benefit. I don't call it headwind because cash benefits will continue to come because when you renegotiate a contract, you know how our accounting works, you book the profit, but actually cash benefit comes up and quite a few contracts we renegotiated. Actually, there is a step-up in cash, right? EFH rate, for example, steps up because obviously, the other party wants lower impact early years than future years, and that dynamic causes that.

So it's not a headwind for cash, but it is a headwind definitely for -- when you look at our '28 targets, you need to take that into account. I would like to think they are very strong targets like 50% increase in spite of onerous benefit not being there, right? You need to think in terms of -- actually, cash has more going for it because also supply chain hit will not be there because that's actually strictly speaking. But it is right now cash hit, although it was also profit hit at some point.

And just on your onerous, as you said, you won't have that benefit by the midterm, but you'll still have a level of catch-up because of what we are doing from an operational and commercial perspective.

Yes. And the other one I was just wondering about was spare engines. I don't know if you commented on it, but current in the mix and where you expect it to be in the next few years?

Spare engines are very similar in terms of quantity. But we said our profitability went up. That's what we said, and that's true. Some of it with mix because, for example, 97 has better margins on it. So that's the mix element, but some of it sort of our framework helping.

Okay. Can I just throw one in on Defence? If the U.S. does do a large increase in its defence budget, which Trump has proposed, what sort of opportunities do you see for Rolls-Royce?

I think -- I mean, we have great programs in the U.S. like MV-75. That's a very, very large program. So we cannot talk about the number because we are not allowed to talk about the number, therefore, I'll say it. But 30, 40 years, it is a very, very big program. And then B-52, and we are working on autonomous. My answer to you, I think apart from combat and transport, because some of that spend, David, will be, what, Golden Dome. And frankly, we are not a weapon company. Golden Dome, we will not necessarily participate.

But I think we are in great programs both in the U.K. and in the U.S. and quite a few of those programs have enormous export potential that they are very, very big programs. And our focus right now, I said it, MV-75, '28. By 2030, B-52 will come. We are actually on track fully on that. GCAP will scale up mid-30s and obviously, AUKUS and the U.K. fleet. If you look at -- and then autonomous will come on top because autonomous, right now, I see as a new opportunity that, frankly, we haven't made money. We had enormous capability. We are actually ahead of competition. Therefore, we are doing MQ-25, right? But contribution to us was almost 0. So therefore, that is one opportunity, which will not be only in the U.S., but also in the U.K. that maybe beyond midterm, it will actually come.

Jeremy?

So three questions. The first of which is from Ben Heelan of Bank of America, and that pertains to the LTSA balance growth, which is a little bit lower than expected in '25 and '26. Can you help us understand why and the outlook for the longer term and how that plays into what you're doing with LTSA margins? So that's question one.

Question two, I'm consolidating a few here, is around SMRs, which is at what point do you reach maturity when you're doing 8 a year? And do you plan to remain the majority owner of that business?

And then question three is around Trent 1000, the great work we've been doing on time on wing and will that translate to market share improvements?

I'm going to ask Helen to answer LTSA balance growth. On SMRs, yes, I said in my presentation, Ben, that we are going to get to 8, probably you are talking about 2040 maturity time on the SMRs. Trent 1000, Ben, that is definitely the sort of ambition we have. That's why we improved the engine. Right now, we have an engine. First of all, I will say, hopefully, you guys follow this, that when we say something, we actually deliver. When I first talked to leasing companies on Trent 1000, some of the very prominent leasing company CEOs told me, "Okay, 2 more CEOs before you told us about Trent 1000. And now you are talking about it." Actually, he sent me all sorts of takes saying, "Actually, I don't believe what you are talking about." Did we actually deliver? Yes. We delivered what we call BoM B, 25% of our fleet is already on BoM B, okay? We not only delivered, we are executing at pace.

Did we actually deliver BoM C? Yes, it was certified last year. We are starting to apply. So between BoM B and BoM C, that's more than 130% improvement on time on wing. So that takes Trent 1000 to 4 to 6 years, right, if you think about cycle times before they come to the shop visit as opposed to 9 months to 12 months, which is -- I mean, our -- some of our supply chain issues, because -- none of you ask, but I'm going to say it, why do you think it is going to disappear by midterm, this supply chain issues, because there is the generic supply chain issues that Helen talked about. I'm not going to repeat.

Then every company has slightly specific supply chain issue, like Airbus talks about something, and I'm not going to speculate on what they talk about, but you know. But for us, Trent 1000 was the biggest issue because when the supply chain is limited, your shop visit capability is limited, which we are improving. Every 9 months, 12 months, engines come back, that's a problem for us. So therefore, when we say it is going to disappear by midterm, we say it with some confidence because of BoM B and BoM C applications. Therefore, that's where it comes from. But 4 to 6 years, this is a very competitive engine right now. Yes, our ambition, Ben, is to sell that more. Over to you. I think I covered the SMR.

So LTSA, so thank you for the question, Ben. So I mean, 2025, it came in at 0.6. I mean, so not too far away from the range. And as you know, there are lots of things, which contribute to LTSA, particularly shop visit mix. So particularly in the second half, I referenced record number of Trent 1000s. Tufan, when he spoke actually, also spoke about -- and it gets back to this romantic weekend that we keep coming back to. It gets back to the quality of LTSA that we're actually driving as well. We've got what we call higher realizations because we're driving better margins. So you actually pull down more of your LTSA as well. So that's good because you're keeping more of that profit. So that's really 2025.

In relation to 2026, we expect it to be around the same level as 2025. And that's because particularly because of BoM B, we've got higher number of shop visits. We see approaching peak, yes, as we get more of that fleet through complete BoM B, it was 25%, as Tufan said, at the end of the year. It's actually now more than 25% at the end of February, and we still got that drag from supply chain.

And then as you think about how we drive LTSA growth going forward, those 5 key factors, which we've spoken about before. Engine flying hours continue to grow, both across wide-body and business aviation; engine flying hour rate, as Tufan spoke to around how we're driving better margins; time on wing, we get the full benefit of that beyond the midterm; supply chain drag is gone, so that feeds into LTSA and then, of course, currency also helps that.

And one thing I would say on currency, I know a couple of you are very eagle eyed, and you'll probably look at the supplemental. These midterm targets that we've delivered have actually got a slightly worse currency in them than our previous ones. I was expecting a question on that. It's about $0.02 worse by 2028, yes, just because of the way that the blended rate falls out. But we still get a benefit from that. But where I go with that is actually our midterm cash flow targets, yes, are still incredibly, incredibly compelling with that slight drag from the currency. But that's how you should think about LTSA.

Jeremy, do you want to know more? Okay. Great. I think we are done. So I'm going to close. First of all, thanks for listening. I know it was a long presentation, but we wanted to give you more insight into not only midterm, but also beyond midterm. But thanks for your great questions as well.

So I think I will say this, we made great progress. And that progress, you can look at financials, you made this much money, this much cash. Yes, that's one way of looking at it. But I really encourage you to also look at what growth potential that created profitable growth potential, which I really said in my presentation because I meant it. It is actually unmatched, that kind of growth -- sort of profile. All the slides I showed you, we obviously took the numbers off, but they are not markups. I will tell you that. Beyond midterm, they are not markups. So I think that is -- now our task is to go and execute on that as well as we have done last 3 years. In fact, actually, our aspiration is to do even better. So with that, thanks for coming. Have a great day.

Good morning, everyone. I'm Jeremy Bragg, Head of Investor Relations, and I'm joined today by our CEO, Tufan and our CFO, Helen. So welcome to our 2025 results.

Before we begin, I'm required to show you the safe harbor statement on Slide 2. So in today's presentation, we're going to cover our first half results in detail and our guidance for the full year. So after the presentation, we will take questions from the room and if there's time from our online audience. For those of you in the room, there are microphones in the seat in front of you, you need to press and hold to the button before you speak.

Before I hand over to Tufan, we'd like to show you a short video that highlights the strong progress we've made over the half. So thank you.

[Presentation]

Good morning. We continue to transform Rolls-Royce into a high-performing, competitive, resilient and growing business. We are creating a sustainably distinctive business in terms of safety, operational effectiveness, customer service, advantage technologies and products and a distinctive performance culture.

We continue to expand the earnings and cash potential of Rolls-Royce despite the challenges of supply chain and tariffs. Our first half results have been strong with significantly improved financial performance across the group. This has been driven by our transformation program and builds on what we have delivered over the past 2 years.

We made strong operational and strategic progress in the first half of 2025. This includes achieving key time on wing improvements, delivering strong aftermarket performance and contractual margin improvements in Civil Aerospace, capturing data center growth in Power Systems with improved profitability, strong order intake in Defence plus the selection of Rolls-Royce's SMR as the preferred provider of the U.K.'s small module reactors.

Our strong first half results gives us confidence to raise our guidance for 2025. It also builds further confidence in midterm targets for 2028 that we set out February. These mid-term targets are significantly underpinned by our strategic initiatives and the actions we have taken. As the first half shows, execution of our strategic initiatives continues to deliver strong results.

We are continuing to invest for growth across the group in a focused and disciplined way. Investments have increased every year since 2022 and will grow again this year. We are also growing shareholder returns. Today, we announced an interim dividend of 4.5p, our GBP 1 billion share buyback is progressing to plan with GBP 500 million of share buyback as of today.

We have achieved a lot over the past 2.5 years, and there is still more to do. We continue to see strong growth to the midterm and beyond. Despite an uncertain environment, our financial performance has improved significantly in the first half 2025, driven by our transformation program.

Operating profit of GBP 1.7 billion was 50% higher than last year, driven by the following items: in Civil Aerospace, we delivered strong aftermarket profit with higher volumes and margins across LTSA and time and materials. In large engines, our aftermarket revenue grew by 28% in the first half with even higher growth in aftermarket operating profit as a result of improved margins in both LTSA and time and materials.

Contractual margin improvements were higher than last year, driven by onerous contract renegotiations and the achievement of key time-on-wing milestones on the XWB-84. Spare engine profit was also higher reflecting improved margins and mix. In Defence, transport, OE and aftermarket, profit improved. And in Power Systems, we continue to capture growth in the data center market with improved margins. Plus, governmental performance was also strong.

Our performance continues to be impacted by industry-wide supply chain constraints, which understate the true impact of our transformation. The actions that we have taken have driven an improvement in the supply chain, particularly in the availability of finished parts with a 15% increase in parts delivered to us in the period. This has supported a higher number of shop visits and reduced turnaround times, particularly for the Trent XWB-84 and Trent 700, both have fallen significantly.

Despite an improvement in the availability of parts, we have continued to see product cost inflation as a result of supply chain challenges. We have been quick to react to the tariffs, where we have fully mitigated the drag impact across the group, as we transform Rolls-Royce into a more proactive, agile business.

All of this resulted in a group operating margin of 19.1%, 4.9 percentage points higher than last year. Civil Aerospace's operating margin rose by 7.1 percentage points to 24.9%. Defence's operating margin was 15.4%, similar to last year's. And in Power Systems, operating margin rose 5.6 percentage points to 15.3%.

Turning now to free cash flow for the group, which was GBP 1.6 billion, 37% higher than last year. Strong free cash flow was largely driven by strong operating profit and continued LTSA balance growth. The growth was supported by higher engine flying hours and an improved EFH rate, partly offset by higher number of shop visits.

The actions we are taking to improve are large engine LTSA contracts. The 6 levers of improvement that we have often talked about are driving higher LTSA margins and stronger cash flows. Return on capital rose by 3.1 percentage points to around 17%, driven primarily by operating profit. That shows distinctive value creation by Rolls-Royce and provides us with a competitive advantage. Our strong first half results were driven by the continued execution of strategic initiatives.

I will talk to 3 key initiatives that have driven significant profit and cash growth, which we first showed you in February. In widebody, our installed fleet has grown at 10% per year since 2022 versus 5% for the market, as we have captured more than 50% of the deliveries. We continue to expect installed fleet growth of 7% to 9% per year to the mid-term, driven by rising aircraft deliveries, as we continue to capture market share. This is underpinned by our large order backlog of more than 2,000 engines.

The first graph shows the multibillion cash benefits of renegotiating OE and aftermarket contracts in Civil Aerospace. We made great progress in the first half of 2025. The contracts that we renegotiated in the first half alone will benefit cash flows by GBP 1.4 billion over their contract life.

As shown on the graph, only 30% of these OE and aftermarket cash benefits will be realized by 2028, with the remainder being delivered progressively over time. We have now renegotiated all of our OE contracts, which means that our business aviation OE deliveries are now profitable. We remain on track for the Trent XWB installed engine deliveries to be breakeven or positive by the midterm.

We also made strong progress with onerous aftermarket contracts in the first half, which supported gross contractual margin improvements of GBP 402 million. We continue to find win-win solutions for our customers. We have now completed the renegotiation of all our significant onerous airline contracts and expect to largely conclude the remainder this year and 2026.

The second graph shows we are driving higher contract margins, and therefore, higher LTSA margins over time. To remind you, from February, our contract margin, the top line on the chart is the average LTSA margin across all signed contracts, even if the engines are not delivered yet. This is a leading indicator for the LTSA margin that will be booked in our income statement in the future. This is the second line in the chart.

In the first half of 2025, we have driven around 1 percentage point further improvement to both contract and LTSA margins compared to what we set out in February. Improved contract and LTSA margins are both driven by time on wing improvements on Trent XWB-84 and lower shop visit costs. In addition, higher contract margin also reflected benefits of new LTSA contracts, which are coming in with better terms.

Shop visit costs continued to improve during the first half. For the Trent XWB-84, shop visit costs remain on track to fall by 50% between 2020 -- 2019 and the midterm. We are also making good progress with time on wing. We hit the significant milestones on the Trent XWB-84 in the first half of 2025, which supported contractual margin improvements and will drive higher LTSA margins going forward.

The upgraded Trent 1000 HPT blade was certified in June, which will more than double the time on wing on these engines. Our Trent XWB-84EP engine deliveries also commence with Delta Airlines in the first half. These engines offer a more than 1% improvement in fuel burn and improved durability. In February, we set a target of improving the time on wing of our in-production engines by more than 80% by the end of 2027. As a result of the progress we made to date, more than half of the targeted improvement is not delivered or secured. Most of the cash benefits from our time on wing improvements will come after 2026 and will support cash flow growth to the midterm and beyond.

The third graph shows operating profit and margins in Power Generation, where we have restructured our business model to profitably capture strong data center growth. As a result, since 2022, Power Generation's operating margin has increased by 11x. Demand for our backup power generators for data centers remains very strong, and we now expect revenue growth of around 20% per year to the midterm in the Power Generation segment. This was previously, if you remember, 15% to 17%.

Power Generation has now become one of the most profitable segments within the Power Systems. This is making our financial delivery more evenly balanced through the year, which you can see in our first half results. All these initiatives are driving stronger performance to the midterm and beyond. We have made significant strategic progress across our 4 pillars. I already covered some of the key strategic initiatives. Let me talk about the rest very briefly.

First, portfolio choices and partnerships. In March, CEZ Group made a strategic investment into Rolls-Royce SMR, alongside a commitment to buy up to 6 SMRs. CEZ is an experienced operator of the existing nuclear fleet in the Czech Republic with a strong established supply chain. In May, we announced that Rolls-Royce and Turkish Technic will establish a new MRO center in Istanbul. This will be operated by the end of 2027 and will eventually support up to 200 shop visits per year.

In Power Systems as well as developing our next generation engine, we are also significantly upgrading our military engines with higher power density to capture growing demand. Our governmental business is also well positioned to capture strong market growth and increase European defense spending. As a result, we now expect higher governmental revenue growth of 12% to 14% per year to the midterm. Previously, again, this was 5% to 7%. In July, we completed the disposal of our naval propulsors business to Fairbanks Morse, and we expect to close the disposal of the naval handling business at a later date.

Second, strategic initiatives. Our Pearl business jet engines hit important milestones in the first half. The Gulfstream G800, powered by our Pearl 700 engine, was certified in April, ahead of the aircraft's entry into service later this year. In addition, our Pearl 10x engine for the forthcoming Dassault Falcon 10x aircraft has completed flight testing, and we are on track to complete all major engine certification test.

In Defence, we signed 2 key aftermarket services contracts worth over GBP 1.5 billion in total with the U.K. MoD and U.S. DoD. These contracts cover the continued maintenance of EJ200 engines for the Eurofighter Typhoon and AE 2100 engines for a variety of aircraft, notably the C130J Hercules.

Third, efficiency and simplification. We have a TCC/GM ratio of 0.35x. This is a best-in-class ratio, which represents a competitive advantage for Rolls-Royce amongst its peers. We have now delivered more than GBP 400 million of efficiency and simplification benefits since the start of 2022, and we remain on track to deliver more than GBP 500 million by the end of this year.

Since the start of 2022, we delivered over GBP 850 million of gross procurement savings and remain on track to deliver more than GBP 1 billion by the end of this year. Our efficiency and simplification targets are supported by zero-based budgeting and our GBS strategy, where efficiencies are scaling up. We have opened a new GBS center in Poland and are expanding our center in India.

Fourth, lower carbon and digitally enabled businesses. In June, Rolls-Royce SMR was selected as the preferred bidder to build 3 SMR units in the U.K. We expect to enter a 2-stage contract with GBEN in the fourth quarter of this year. Stage 1 will cover the site-specific design activity and the preparations for the site build, leading up to the final investment decision. Stage 2 will see us deliver 3 Rolls-Royce SMR units to go on grid by mid-2030s.

The U.K.'s decision also paves the way for further export orders with our next opportunity being in Sweden, where we expect a decision soon. As Rolls-Royce SMR activities ramp up in the U.K. and in the Czech Republic, these projects will start to generate revenues and profit from late 2025. Cash flows will be positive on a project basis throughout. We expect the Rolls-Royce SMR business will be profitable and free cash flow positive by 2030. We have unique capabilities in nuclear with a leading and highly differentiated position in a growing market. Therefore, we expect the value of this business to grow significantly from now.

In Power Systems, we won major new battery storage orders, including the Ignitis Group in Lithuania. These orders support strong revenue growth and our ambition to achieve the breakeven in the near term. We are increasingly adopting AI across the group. Rolls-Royce is testing its generative AI platform for a variety of use cases, including accelerating new product introductions and creating a more efficient MRO process. Work is underway in providing greater transparency across the supply chain through digital, data and AI. We are deploying AI capabilities in cybersecurity and improving the IT support services.

With that, let me pass it to Helen, who will tell you in more detail our first half results.

Thank you, Tufan. Good morning, everyone. Before I get into the detail, let me start by saying how pleased I am with our progress. It's real evidence of our transformation. The results, they are strong, double-digit growth across revenue, profit and cash flow with balance sheet resilience continuing to be built. Every division is delivering, and we're rewarding our shareholders with growing distributions.

A reminder of the group highlights. Group revenues grew by 13% to GBP 9.1 billion with good end market growth, especially across Civil and Power Systems. Group operating profit grew by 50% to GBP 1.7 billion, driven by our strategic initiatives, including commercial optimization and cost efficiency benefits. Operating margin grew by 4.9 percentage points to 19.1%, and free cash flow, it grew by over GBP 400 million to GBP 1.6 billion. Cash delivery was driven by higher operating profit and continued LTSA balance growth.

Strong cash flow in the period meant that we closed the half year with a net cash position of over GBP 1 billion. That's around GBP 2 billion higher than a year ago. Return on capital, it rose to 16.9% for the rolling 12 months, representing significant value creation. And these results have enabled us to declare an interim dividend of 4.5p per share, following through on our capital frame commitments and rewarding our shareholders. So a strong set of results across all key financial metrics with every part of the organization delivering, results that demonstrate we are making continued strategic, operational and financial progress, a real team effort.

Now the detail by division, starting with Civil Aerospace. Civil delivered the largest year-on-year improvement in profit and margin with the impact of our strategic initiatives being very evident. Operating profit grew to GBP 1.2 billion an increase of 63% compared to last year. Operating margin grew to 24.9%, an increase of 7.1 percentage points compared to last year. Revenues grew to GBP 4.8 billion, an increase of 17%, driven by higher shop visits and commercial optimization. OE deliveries of 237 were broadly flat year-on-year. Of these, 122 were large engines, of which 23 were spares, as we continue to increase our operational flexibility and support our customers. Business aviation deliveries of 115 were almost all Pearl engines.

Shop visits, they grew to 696, an increase of 12% year-on-year. Of these, 217 were large engine refurbs. That compares to 195 last year. The increase in shop visits was supported by stronger MRO performance as we expand capacity, strengthen processes and leverage AI tools across the network. It was also supported by improvements in parts availability across the supply chain, driven by air interventions, which I will come back to in a moment.

Now, operating profit in more detail. Three key factors drove that 63% increase. First, stronger large engine aftermarket profits. LTSA aftermarket profit grew as a result of a higher average LTSA margin and a higher number of shop visits alongside higher time material profits. Second, increased spare engine profits. Similar year-on-year volumes were delivered with improved margins and mix. And third, net contractual margin improvements. They were GBP 288 million. That compares to GBP 223 million in the first half of 2024. The GBP 228 million comprised a net benefit of GBP 181 million in onerous contracts and GBP 107 million from catch-ups.

You've heard how we have made significant progress renegotiating onerous aftermarket contracts, finding win-win solutions with our customers, allowing us to release onerous contract provisions in the period. We also achieved key time on wing milestones on the XWB-84, which resulted in a contract catch-up benefit. These 2 factors contributed to a gross benefit of GBP 402 million in the period. This was partially offset by an additional charge of GBP 114 million, which was taken across both onerous and catch-ups due to ongoing product cost inflation associated with supply chain challenges.

It's worth pausing for a few moments on Aerospace supply chain. When we spoke to you in February, we shared that we expected the supply chain to remain challenging during 2025 and '26. That is still our view. The industry continues to see product cost inflation, and we have our procurement savings program to help us mitigate the impact of it. We continue to manage the supply chain very tightly. Dedicated teams across the organization and teams we have embedded in our suppliers are driving meaningful improvement. Indeed, the number of critical suppliers on our watch list has fallen from around 15 to 10, and you've heard how MRO turnaround times are improving. So despite the continuing challenges, our actions are having an impact.

Now turning to cash. Civil delivered a trading cash flow of GBP 1.1 billion compared to GBP 1 billion in the prior period. Cash delivery was driven by operating profit and continued net LTSA balance growth, supported by large engine flying hours, which grew to 109% of 2019 levels, and a higher normalized engine flying hour rate. In summary, a very strong delivery from Civil on profit, margin and cash. As we look to the second half for Civil, we expect a lower operating profit and cash flow compared to the first half due to a lower contribution from contractual margin improvements, an increased number of OE deliveries and higher MRO investment-related costs. And in addition, for cash, the impact of higher shop visits, notably Trent 1000 refurbs.

Defence, where we continue to make good strategic progress. Key milestones included the first engine delivery for the MQ-25 development program, that's the U.S. Black Hawk helicopter replacement. Order intake for the period stood at GBP 4 billion with a book-to-bill ratio of 1.8x. And importantly, new orders came with improved profitability. Order backlog was GBP 18.8 billion, a record level, and equivalent to around 4 years of revenue. Order cover for the remainder of the year stands close to 100%.

Now turning to the financials. You may recall that the first half of 2024 included a one-off benefit in submarines, so masking the underlying progress we are making. Revenues, they stood at GBP 2.2 billion, broadly flat year-on-year. Excluding the one-off, revenue growth was 10%, driven by double-digit growth across transport OE and aftermarket.

Operating profit stood at GBP 342 million and operating margin at 15.4%, both broadly flat year-on-year. This reflected improved performance in transport across both OE and aftermarket, again, offset by the absence of the one-off benefits in submarines and continued supply chain constraints, notably in the Naval business.

Cash flow in Defence stood at GBP 327 million. Delivery was driven by operating profit alongside tight working capital management. In summary, a good delivery from our Defence team, which continues to position us well for future growth. Power Systems, a very strong performance in the period, as we continue to capture profitable growth in data centers and governmental.

Operating profit grew to GBP 313 million, an 89% increase year-on-year. And operating margin grew to 15.3%, a 5.6 percentage point increase year-on-year. Order intake was GBP 2.9 billion, with a book-to-bill ratio of 1.4x, a 32% increase year-on-year. Order cover for the remainder of the year is 100% with growing order coverage for both 2026 and '27. Demand remains particularly strong in Power Generation, which saw an order intake growth of 68%, primarily driven by data centers, where orders grew by 85% year-on-year. Revenues, they grew to GBP 2 billion, an increase of 20%. Power Gen and Governmental revenues grew by 26% and 19%, respectively. Data center revenue growth was 45%.

Operating profit growth of 89% was driven by 3 factors: first, a standout performance in power generation, notably data centers, where we are capturing profitable growth with a stronger mix in the high-power density sector, and all at higher margins, following the restructuring of this business.

Second, strong performance in governmental with higher volumes and commercial optimization benefits and where we are well positioned to capture growing European defense spending. And third, good momentum in Battery Energy Storage Systems with improving profitability and where we remain on track to break even in the near term.

Cash flow, it increased to GBP 425 million, driven by higher operating profit and tight working capital management as well as some timing benefits from early customer receipts. Simply put, a very strong performance from the whole of the Power Systems' team.

Looking to the second half, although we still expect Power Systems' profit and cash to be seasonably balanced to the second half that weighting wouldn't be as pronounced as in the past. This is due to the significant growth we have driven in power generation, which is now one of Power Systems most profitable businesses and one which has less seasonality. We also expect some reversal of the early customer receipts that came in the first half.

Before turning to group cash flow, the eagle eyes amongst you may have noticed that we are no longer reporting a New Markets division. As you know, last year, we wind down the Electrical Advanced Air Mobility business, and this year, with the CEZ Group now a strategic partner in Rolls-Royce SMR, in which we remain the majority shareholder, the equity accounted results of Rolls-Royce SMR now sit within all other businesses.

The funds flow, we delivered GBP 1.6 billion of free cash flow in the first half, more than GBP 400 million higher than last year. The principal driver for increased -- of this increased free cash flow was operating profit, which grew by almost GBP 600 million. Other factors included the Civil net LTSA balance. It was broadly similar to last year, standing at GBP 472 million. Growth was driven by higher engine flying hours alongside an improved engine flying hour rate, offset by a higher number of shop visits.

Net investments, they were similar to last year, with investment spend in the period standing at more than GBP 400 million. We continue to make purposeful strategic investments that drive growth to the midterm and beyond. This includes investments in time on wing and UltraFan in Civil. And in Power Systems, investments in additional capacity in the U.S., our next-generation engine for the growing data center market and in significant upgrades to our military engines.

Working capital, it was broadly neutral in the period. This compares to a build of more than GBP 200 million last year. We continue to drive sustainable improvements in working capital management, and we are making good progress. Compared to the same period last year, inventory days improved by 14 and days sales outstanding by 4, a strong performance given a tight supply chain and while we supported revenue growth.

Then provisions, they were an outflow of nearly GBP 300 million, around GBP 200 million higher than the same period last year. They included outflows, as we continue to successfully renegotiate and trade through our onerous contracts. Overhead costs, they were GBP 116 million, slightly higher than last year and in line with expectations. Net interest, it was slightly positive compared to a small outflow last year. And finally, cash tax costs, they increased to GBP 259 million.

Tufan will talk to the full-year guidance, but let me give you some additional color on the cash flow. Large engine flying hours are expected to be within the guided range of 110% to 115% of 2019 levels. The net LTSA balance growth for the full year is expected to be at the low end of the GBP 0.8 billion to GBP 1.2 billion range, in line with what we previously shared. This means, we expect a lower growth in the second half of the year as shop visits, including Trent 1000 refurbs increase. Net investments, we expect them to be higher in the second half of the year. Overhead costs for the year will be GBP 148 million. Net interest payments will be broadly neutral for the year, and cash tax is expected to be around GBP 200 million higher year-on-year.

Capital frame and progress against our priorities. First, the balance sheet, which we continue to strengthen. We remain in a modest net cash position, GBP 1.1 billion at the half year, which provides us with flexibility and enhanced resilience, which are even more important in an uncertain macro environment. The credit rating agencies have continued to recognize our progress with further upgrades in the first half, and all still hold us on a positive outlook. Gross debt, as previously shared, we will reduce it further by repaying from available cash, the $1 billion bond, which matures in October.

Then, distributions. In June, we paid our first dividend since 2019. Today, we're announcing an interim dividend of 4.5p per share in respect of the half year 2025, representing a distribution to shareholders of approximately GBP 380 million. As a reminder, we target an annual payout ratio of 30% to 40% of underlying profit after tax. And as of today, we are halfway through our GBP 1 billion share buyback. The remainder of which will be executed across the balance of the year.

Taken together, the full year buyback along with the 2024 full year and 2025 interim dividends represents a total cash distribution to shareholders of GBP 1.9 billion to be paid this year. Competitive and evidence of our commitment to growing shareholder returns. And all of this was delivered while we continued to strategically invest in the business to support growth to the midterm and beyond.

To close, a strong first half result across all divisions and against all key metrics. The strategy is delivering. We are performing as we transform. We know there is more to do, and we also know there is more to come. The teams have done a great job, a huge thanks to everyone.

And with that, let me pass you back to Tufan.

Thanks, Helen. Turning to our guidance now. Strong first half delivery gives us confidence to raise our 2025 guidance. We now expect underlying operating profit of GBP 3.1 billion to GBP 3.2 billion with a year-on-year improvement in all core divisions. Compared to an operating profit of GBP 1.7 billion in the first half, we expect slightly lower delivery in the second half of 2025, notably in Civil Aerospace. Here, we expect a lower contribution from contractual margin improvements, an increased number of OE deliveries and higher MRO expansion investment-related costs. We now expect free cash flow of GBP 3 billion to GBP 3.1 billion. Stronger free cash flow will be primarily driven by higher operating profit alongside continued LTSA balance growth.

We expect a slightly lower free cash flow in the second half compared to the first half. This reflects the lower operating profit in the second half of the year, more large engine refurbs with a significant step-up in Trent 1000 refurbs alongside higher net investment. Our free cash flow guidance includes a GBP 150 million to GBP 200 million impact from the supply chain, as previously guided. Our transformation plan is delivering strong results, as is evident this half. And we feel confident about the remainder of the year.

I will conclude today's presentation with key takeaways. We shared a lot with you. I actually thought I should give you the key takeaways. I'm sure you will take yours, but hopefully, this is helpful. We continue to expand the underlying earnings and cash potential of the Rolls-Royce in a challenging environment. Across the group, all divisions have delivered underlying performance improvement in the first half. Civil Aerospace's strong underlying operating profit and cash flow is driven by continued LTSA margin improvements and continued market share growth. We have renegotiated all of our significant contracts and achieved major progress in our time on wing program. These initiatives will both contribute significantly to our profit and cash flow delivery to the midterm and beyond.

In Power Systems, we continue to improve our profitability, and now see higher growth potential in Power Generation, driven by data centers. We also see higher growth in governmental. In Defence, where we have delivered a year-on-year improvement in underlying performance with a record order book, our significant programs will scale up in the late 2020s. All these, which are driven by our strategic initiatives, continue to improve our operating margin and return on capital. As a result, we see good profit and cash flow growth in our existing businesses to the midterm and beyond, while we are taking concrete steps to generate further long-term profitable growth in new areas such as narrow body, SMRs and AMRs.

Rolls-Royce's SMR business will be profitable and free cash flow positive by 2030. Strong delivery in the first half of the year gives us confidence to raise our guidance for the full-year 2025 and also builds further confidence in our midterm targets for 2028. These midterm targets are a milestone, not a destination. I am confident and excited about our growth prospects beyond the midterm.

We are continuing to reward our shareholders with GBP 1.9 billion to be returned to shareholders through 2025, in line with our capital framework, as Helen talked about. This shows our commitment to shareholder distributions. There is a lot we achieved in the first half and still so much more we can deliver. I'm very proud of all that the Rolls-Royce team has done and look forward to all that we will continue to accomplish together.

Thank you for listening. Now, I'm going to open it for your questions.

It's Nick Cunningham from Agency Partners. Some of your customers, airlines and lessors have been vocal recently, complaining perhaps that Rolls isn't as nice as them now as it has been for most of the last 30 or 40 years. But you've renegotiated all those key onerous contracts. You just told us that. So does that mean that there's no real practical effect from their grumbling that, if you like, the deal is done? And then linked to that, the -- your narrow-body colleagues have been enjoying an exceptional windfall from the lack of supply of new engines and new aircraft, so it's keeping older ones in the air for longer with more scope on the overhauls and so on. Presumably, the same dynamics apply to the large engine market, and so are you seeing that effect in your T&M in particular? And has that helped you with your onerous contract renegotiations?

Okay. There is a lot there. I'm not sure it is 2 questions, but more than 2. But I think -- so let me start, first of all, I think, I don't know, some of our customers have been disappointed with Trent 1000 time on wing issues. And we have a big task force dealing with it. We actually have improved relations with customers. I can categorically tell you, there isn't any contract we renegotiated. Actually, relationship didn't improve relative to where it was, I can categorically tell you, because every time we were able to find win-win solutions.

So there is some noise because of Trent 1000 time on wing issues. Now with BoM B upgrading, obviously, certification, frankly, that will go away because by the end of this year, we will have an engine very, very competitive, let me tell you this. By the end of this year, actually Trent 1000, depending on how it is operated, obviously, different airlines will operate differently, but we expect 46 years' time on wing relative to where we have been, right? That was creating the sort of -- we are actually serving our customers better than before. And you can hear it from airframers easily if you are following that.

We are actually improving our customers service, and there is a big focus on it. This was the sort of issue. Now, we solved that issue. We have a very, very competitive engine. So I think that's the way to think about. In renegotiations, that was -- yes, if somebody is experiencing AOG, it's not a brilliant start to renegotiation, obviously. But we were able to do all the significant renegotiations, and we were all -- we have done it in a style that actually relationship improved.

Why is that? Because they now know when we commit something, we honor it. We are that company. We don't commit that easily. But when we commit, you hear some noise because we are not committing some things. I actually tell them when we commit, we will deliver. So until I am sure we will deliver, I'm not committing. So actually, that's not a bad noise. That's actually good noise because, frankly, this industry doesn't have a great track record on that one. So we don't want to contribute to that. We want to change that.

Your question around sort of whether we are actually -- yes, I think when you look at our best, obviously, Trent 700, right, if you create parallels with narrow body, yes, we are seeing, and it is -- if you remember, that's 1 of our 6 levers. We kept saying earning -- actually flying those things longer, we have a deliberate program on that, whether with the current customers, obviously, if they want to continue with that or with freight conversions or with sort of transfers to other commercial customers.

Yes, I think Trent 700, frankly, doing well, and we believe our projections suggest it will continue to do well. In fact, in February, if you remember, I said our Trent 700 LTSA balance growth didn't peak yet. I don't know any of you remember that, but that was there. So your question, is it helping our renegotiations? Not really, because, frankly, none of our renegotiations are around Trent 700. It is pretty profitable engine. You guys well know that.

So was that -- yes, Ben? And then, Ian. Yes, I'll come to you.

Can I ask 3? First one, you've given us some outlines on capital allocation. Can you talk a little bit about that in 2026 and 2027? Are there parts of the portfolio, I'm thinking maybe Power Systems, that you want to add to given the balance sheet that you have now? Or can we assume that there could be more buybacks down the line? That's the first question.

Second question, you haven't talked today about UltraFan narrow body. Can you give us an update there? You made some noise at the air show about this, so just an update there would be great. And then in terms of the Civil business, you talked and guided historically for margins to be in the 18% to 20% range. Now, in H1, you've already achieved the 19% on an underlying basis, stripping out the catch-ups. Are we not going to grow margins from here? How can we think about that?

Thanks, Ben. Three good questions. I'm going to ask Helen to capture the capital allocation. Let me answer the others, second and third, and Helen will pick up the first one. So I think UltraFan narrow-body is -- we are actually making good progress in multiple dimensions. One is continue to work on the UltraFan demonstrator. We are actually on UltraFan, Ben, doing 2 things. We are doing further tests on wide-body UltraFan just to progress that, at the same time, working on the demonstrator for narrow-body, which may take 2 years to build a demonstrator. So that's the current plan. So that's one sort of technology angle, if you like, and product angle.

The other angle is our preference continues to be partnerships. Therefore, we are in active dialogue with almost all the parties, I should say. So that is also progressing well. So that's where we are. I'm actually very optimistic definitely for the next generation of narrow-body and our participation in that given all that.

So if I go to your Civil question, your math is absolutely spot on. So if you adjust for commercial improvements, it is 19%. So it is what I'm going to say. I mean, I said it, Helen said it, hopefully, it was clear. We are making underlying performance improvement, right, beyond sort of what we shared with you in February. Otherwise, how would we upgrade the guidance for this year if that's not true. So that's actually factually true. So we are -- we were expecting obviously improvement when we gave the midyear guidance and everything. And we are now ahead of that progress, which is great to see, frankly, in that.

But you need to obviously look at a couple of things sort of in that -- when you look at -- I always say sometimes our competitors, they issue 1 quarter I got 30% margin so that you cannot really look at, because our targets are sustainable targets as opposed to touch and go, if you like, right? So we just told you that effectively second half we have significant step-up on shop visits. That's not the issue for operating margin, but step-up comes with Trent 1000. And therefore, full year will equalize somewhere lower than 19% because those are the engines where we have the lowest shop visit profitability if you like. So they will a little bit dilute that picture.

But big point is underlying performance is improving, and that's very encouraging for me. And as a result, we are ahead of the plan. When you go to midterm targets, we are in an uncertain world, right, an increasingly uncertain world, sort of tariffs, supply chain challenges, impact of tariffs on world GDP, all that live conversation. So if we continue to manage those risks well, given our mindset, which I will come back to, yes, we are ahead of the sort of plan, but we need to manage those things. So those risks are real.

So I take you -- final comment I'm going to make, then I'll pass to Helen for capital framework. But -- so you guys get surprised sort of what's going on because our mindset change. Every time I talk about it, we are not after a bunch of budget numbers. We are after improving the business every day. And that means improving the underlying performance every day, every year. That excites me, frankly.

Now when you do that, you combine it with your strategic initiatives very granular and embedded in the organization, i.e., 42,000 people on them. Suddenly, that mindset, combined with that clarity, you go as fast as you can go because we are -- we increased the pace and intensity in the company. That's understood by everybody. So that is actually causing these things. But there are big risks that we need to be thoughtful. Therefore, I'm thinking, Ben, maybe it's too early to talk about midterm targets, but I'll leave you with a thought that we are making great underlying improvement.

Fantastic. Thanks, Ben. So I think 2 elements to your question. There was one around investments, and then, one is tied into capital frame. So in relation to investments, maybe just a couple of data points to help you there. So actually, Tufan referenced that since 2022, we've increased our investments in the business every year. And you will see that for 2025 as well.

When we took you through in February, our midterm targets, we shared then that we expected over the midterm net investments on average to be higher than they were at 2024. So again, you can see the confidence building that we're continuing to invest in this business, not just for the midterm, but beyond the GBP 1 billion on time on wing. A classic example of that, we don't see by any means the full benefit of that beyond the midterm.

You specifically mentioned in Power Gen -- in our Power Systems, Ben. Power Systems last year had a record level of capital spend in 2024. 2025, expect to see the same, very strong positions in data centers and governmental. So investment is going in to support that business. In fact, just in the last 3 or 4 weeks, we announced $100 million investment in the U.S. across 2 of our sites there, specifically to support that build-out in production for data centers. So purposeful, strategic investments happening. And that is very important, purposeful and strategic investments happening.

In relation to capital frame and buyback, we've always been quite consistent around how we look to strike that balance between ensuring that we protect that balance sheet and then being very thoughtful about how we drive for additional investment, be that organic or inorganic or additional shareholder returns. And we've been clear that buybacks are in our tool kit.

And Tufan spoke about, we don't promise and not deliver. We were clear that we have a very clear capital frame, GBP 1.9 billion in cash distribution in our first year of cash distributions in more than 5 years, I think, is a demonstration that we follow through on our commitments, yes. And actually, that's in an environment where we're also repaying a $1 billion bond. So that's how you should hold that going forward. Thank you, Ben.

Thanks. Ian, I see you well. Thanks for sitting there.

I think that the episode Tufan was referring to is when he didn't take my question. I think that was 2 years ago now. It's still holding you.

I -- that was scars on me, if you...

Yes. It's Ian Douglas-Pennant at UBS. First on 2028 guidance. I mean, it sounds churlish, but why not upgrade the 2028 guidance today? I mean, you -- as Ben points out, your Civil margins are already there -- they are actually already there, and Defence and Power Systems as well. Clearly, your expectations for Power Systems growth have increased since you gave that guidance. I mean, why not upgrade the 2028 guidance at the same time?

Yes. I got you. You have more questions, so go ahead.

Just one more. And then the outperformance that you've seen this year, to what extent is that market? I mean, it seems like what you're seeing in Power Systems seems to -- sorry, forgive me if I'm wrong, but it sounds like the majority of that is just faster market growth than expected. Civil, clearly, the situation is better than a lot of you and your competitors expected at the beginning of the year. Or is there still -- you're just achieving more internally than you expected?

Okay. Very good. So let me go in that order. My answer to your question will sound very similar to my answer to Ben's question because they were similar questions. But yes, underlying performance improvement is happening, and it is driven by transformation. When we come to your second question, hopefully, I can bring it to life a little bit more, but -- and that's happening. Therefore, we upgraded our guidance. That should signal to you, if our previous guidance was in line with midterm, then we are ahead of it, by definition. That's for sure. So therefore, I'm actually happy with the progress we are making. But at the same time, there are risks out there.

And remember, midterm targets we set out only in February, if you remember, which was, I don't know, 5 months ago, you can count. So that is the -- I think it is too early, given -- frankly, if anything, world got more uncertain than certain. I think we are a lot more agile, a lot more responsive company; therefore, we are dealing with it. It may look easy to you guys. But actually, that needs to continue, okay? But world definitely, I'm not sure anybody in the room can tell what tariffs and what economic growth and what supply challenges will be hitting any business, frankly, going forward. So that's the world you are dealing with, and you need to take that into account.

We manage those risks because of the company we are becoming, a lot better, therefore, you are sitting and saying what's the problem? So -- but we need to continue to manage them. If we continue to manage them well, yes, but given the mindset -- I'm not going to repeat again what I said to Ben's question. Given that mindset, given that process in the company, if we can deliver midterm targets earlier, we will, because that's how we operate. But you need to actually hold it in that way.

Coming to your point, so there is a clear transformation impact, okay? I'll come to Power Gen, but let me start with Civil. I think -- look at today's results, one of the big drivers of those results, even if cash impact is not there profit-wise, was time on wing improvement. Remember, one of our strategic initiatives out of 17 is that, right? So that -- we allocated GBP 1 billion investment in 4 years. This is not like we are talking about UltraFan development. This is not like in 15 years GBP 1 billion. This is actually 4 years, right?

So you allocate that kind of resource, very rigorous execution, it is driving that. That's not market. That has nothing to do with the market. Again, that is improving LTSA margins, shop visit cost reduction. Think about improving shop visit cost at an inflationary supply chain challenge environment. It is counterintuitive. It is very much counterintuitive. Shop visits is one of our strategic initiatives. There is the driving of that, right? I'm talking about OE, XWB will be breakeven or positive in midterm, that is counterintuitive. So I can keep going how much time you got, but the sort of -- our market share capture is coming, right?

So Civil Aerospace, we gave you some LTSA margins. And in 5 months' time, I came and said, actually, whole pack profitability went up 1 percentage point in 5 months. Don't think 1%, like it is increasing the whole contract margins, whole LTSA margins of the company. So let's talk about Power Gen. How long have you been following Rolls-Royce? Probably longer than I've been here. Here's the breaking news for you. Data center volumes were always there. They didn't show up last 2 years, okay? Suddenly AI was not discovered last 2 years, trust me. We can all follow that. They were there, nobody talked about it, because what are you going to say? My biggest business is Power Gen, I have the biggest volumes, I'm not making money. Normally, results presentations don't go like that, right?

So -- but -- by fixing the business model, we enabled profitably capturing that growth. If we didn't, I said it last year this time, probably or whenever it was, 0 times 1 million, it is still 0, so -- but that is big underlying, yes, from none on top of that, so we fixed the business model, right? But if you look at my chart, after fixing, it is still going up. Why is it going up? There are 3 factors. We are pushing the mix to higher power density, Helen talked about that, in data centers.

It is good for customers. It is good for us, but don't make any mistake, it is our initiative. And then, pricing continues to -- plays a role. I think Helen talked about commercial optimization. Those 2 like-for-like improving, then you have the volume effect, obviously, further improving, because your fixed cost, we are managing, that's the last thing I'm going to say. You see all that, it is coming with improved profitability.

These results are saying to you the following: Civil and Power Systems, profitability unit base is improving. That's what it's selling, right? Hopefully, you could get that. So that sort of -- that is big distributor there is the cost initiatives we have, and they continue -- GBS initiatives, we didn't yet benefit. I mean, I talk about we are scaling up, but really early days. It can be very big. So that's my answer to your question.

And actually, last point, I was talking to Ben sort of before we showed up here. I said the difference between Rolls-Royce and many of our peers, they are talking about market growth, we are talking about transformation benefits plus market growth. If you actually think that way, you may understand our results better.

Jeremy has a question. Okay, Jeremy, I thought we'll work this together.

Very good.

Okay. I'm kidding. I think digital question.

Okay. Quite a few digital questions. So going to turn to those. So firstly, from David Perry. Congratulations on excellent results. Three questions. First one on SMR, which was, the prior CEO said that this could be a business that generates GBP 3 billion to GBP 4 billion of revenues by the mid-2030s. Is this still the case? And what sort of equity contribution? And by that, he means the equity accounted share of the results. Could we expect by that point? So that's question one.

Question 2 is on Power Systems, which is, again, on the theme of the midterm targets, which is given that data centers is the highest margin bid and the fastest growing, isn't it mechanical that you will achieve a higher margin than your midterm target range for Power Systems?

And then question 3 is also on Power Systems, which is, why was the cash generation so strong in the first half? Is that something we should expect to continue?

I think the third one, Helen talked about that, but I'm -- therefore, I'm going to pass to Helen again to capture it. I think on SMR, so I don't want to sort of comment on who said what, but here is how I see it, David, I think. We now have tangible 2 sort of initiatives. One is with GBEN for 3 units, but actually, hopefully, we are going to run them in a way that actually sort of we will change the nuclear track record on that. And that will actually mean that we can create a lot more than that as a Fleet Solution for U.K. beyond 3.

And then CEZ, same time frame, really, we are going to be up to 6 SMRs. So -- and both of them -- I said it in my speech, both of them have similar commissioning target dates, i.e., mid 2030s, okay, '34, '35. That's the target for both CEZ and -- frankly, that is I'm going to actually go beyond any revenue number.

Yes, given that every unit is sort of GBP 2.5 billion, GBP 3 billion, so you can start to think about revenue numbers in that context. But I'm going to go further to say, today, actually, we told you this business will be free cash flow positive business and positive profit business by 2030s, which is actually before the commissioning because revenues don't come when you sort of commission.

Equity accounting, we own more than 50%. And obviously, we continue to be a very big player on this one. So we should benefit from that. I said it in my speech, frankly. I expect, given we can be given where things are. I think if we are not market leaders in SMRs globally, I think we did something wrong, because we are the leading company right now. So that's the potential you may want to think about in this business. That's definitely the potential I think about.

On your Power Systems margin, yes, it is one of the most profitable. By the way, governmental is profitable because of the service angle of governmental, David. So you need to think that way. It is not only Power Generation, but it is one of the profitable businesses, definitely. And yes, though I actually expect -- I mean, it's Ben's question, Ian's question, you guys get sort of similar questions, it's sort of different angles, but similar questions. Yes, we just -- what did we tell you today on Power Systems? We said 2 things in my takeaways. We are improving the margins. I talk about, when I answered Ian's question, how we are doing that. And we now see higher growth. That's what we said to you today.

And we also upgraded the guidance. Yes, therefore, we see an upside. But talking about OP's margins for midterm with all the uncertainties in the world, I really find it, at this point, too early to talk about it. So again, I'm going to go back to my mindset question, David. Probably when you raised that question, you didn't know my answer. So I think if we can achieve it earlier, we will, obviously.

Do you want to pick up?

Fantastic. So thanks, David. We miss you here today. So in relation to your question, so we have this period seen a more even cash distribution in Power Systems. In the past, the cash delivery was very second and H2 weighted. We're seeing that more even distribution. We still always expect it to be more weighted towards the second half, but it wouldn't be as pronounced. And in this period, that's because of 2 primary reasons.

Tufan spoken at length around how we're driving growth in Power Generation. That has got a much more consistent growth and delivery pattern during the year. So governmental, which used to be the one which actually brought in the seasonality, is much more muted, yes, because we're seeing that Power Generation business be a much more substantial part of the portfolio. Its delivery is more ratable. You heard how we've improved the margins in that business by 11x compared to 2022.

So more substantial and ratable delivery from Power Generation, particularly data centers. And then, in the first half of this year, we also did have some benefits from early receipts of customer advances. So we are seeing a little bit of a timing impact between H1 and H2. But I think going forward we should expect to see a slightly different balance in relation to profit and cash flow between H1 and H2 in Power Systems because we have that much more substantial Power Generation business in the portfolio now.

Jeremy, more questions from you?

Yes. These from Ross Law of Morgan Stanley. So first question is, congratulations on the achievements on the time on wing program, could you update us on how much of the GBP 1 billion has been spent? And how much is still to go?

And then the second question is, could you elaborate on the product cost inflation that you've seen as a result of the supply chain? Is it in a particular area? And what's causing it? And how should we hold that versus your comments about parts availability getting better?

Okay. Very good. So I think -- Ross, thanks for the questions. So time on wing sort of program, we are actually making great progress. Remember that GBP 1 billion was between '23, '27 period, and we are obviously -- I'm not going to talk about how much of it we spent, how much of it we didn't spend yet. But we are making good progress in that. So what I am going to tell you what is -- what we have done, what is left to do and that may give you a sense of how much we spent, how much we didn't spend, but that's the time period. So actually, that GBP 1 billion will stop after '27 with all the implication of that.

Time on wing, the big elements of that when we started, there are small elements, by the way, but I'm only focusing on the big ones. Definitely, Trent 1000, what we call 2 upgrades, BoM B and BoM C, and we obviously did BoM B, which is more than doubling time on wing. By the end of this year, we will do BoM C. It is already -- product is already on test. By the way, it is going well.

So once we do BoM C, so Trent 1000 time on wing program in a way is finished, and that will create by the end of this year, highly competitive engine. You need to think about time on wing sort of -- depending on how the operator sort of uses these engines and aircraft, 4 to 6 years type of time on wing, which is actually competitive, okay? And so that's going to be done by the end of this year.

XWB-84, we hit milestones, therefore, we actually secured that, and we are looking -- that's sort of not completely done, some to go, but we are making great progress there. The remaining big one that we continue to invest is this 97. In non-benign environments, we are going to double the time on wing. And in benign environments, we are going to increase time on wing by 50%. That is progressing, but that won't be completed before 2027. And so we will continue to invest in that. By the way, this engine is a very good engine in benign environments. In fact, orders -- actually airlines, especially hub airlines love it because of the distance and capacity and so on. But we -- that is how I would articulate our -- where we are on time on wing.

I think on product cost, effectively, it is in aerospace because that's where the supply chain -- in Power Systems, frankly, because supply chain is more stable, and there is a hint there for you and for us, frankly. When supply chain stabilizes, you can actually improve procurement initiatives a lot more, right? We are actually almost fully mitigating, almost, in Power Systems any product cost, i.e., inflationary effects. So therefore, this is exclusively aerospace.

Obviously, aerospace includes Defence as well because it is the same supply chain when I say aerospace. But how does it work with 15% parts improvement? It's actually different things. Our initiatives make sure that 15% is improving. But at the same time, given constrained environment, some suppliers are able to increase their prices. We are obviously -- that doesn't -- if you are thinking, is it hitting your underlying numbers, are they going to get worse? No, we are not that company anymore. We are obviously reflecting that in our prices. So that is how I would like you to think about.

Thanks. I suggest we take one more in the room if there is one, and then, we close.

Okay. In that case, I'm going to close. Thanks for coming here, and thanks for listening to us if you are on the digital. So I think we believe we are making great progress in the company. And we are -- actually what is interesting for me -- interesting in a positive sense, for me is actually, our execution is getting better. We are hitting operational milestones. We are making great strategic progress. That drives underlying performance because today's financials are today's financials. I worry about tomorrow's financials. And as long as you continue to improve the business, underlying performance, tomorrow's financials will be secured. And that's the journey we are in, and that's how we run the business, frankly.

So thanks for listening. Have a great day.