HELEN

McCABE
Chief Financial Officer
REFLECTIONS AND PRIORITIES
Unlocking Rolls-Royce’s potential

FOCUS AND DELIVERY

INITIAL OBSERVATIONS § Integrated performance management
§ Engineering excellence § Commercial and cost optimisation
§ Great people § Working capital discipline
§ Substantial progress in 2023 § Capital framework established
§ But more to do…

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SUSTAINABLE AND GROWING FREE CASH FLOW
Driven by higher operating profit and stronger balance sheet

£2.8bn-£3.1bn mid-term Free Cash Flow (FCF) Improvement in FCF to mid-term driven by

+£2.3bn-£2.6bn FCF growth

• Operating profit growth (£1.8bn-£2.1bn)
with an operating margin of 13-15%
£2.8bn-£3.1bn • Focused investments aligned to strategy

• Civil LTSA balance growth

• Disciplined working capital management

• Increased cash tax costs reflecting higher profit

• Lower financing costs and debt reduced

£0.5bn • Absence of over-hedge costs

2022 2023 Mid-term

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CIVIL LTSA BALANCE GROWTH
£0.8bn-£1.2bn per annum growth

Civil LTSA balance growth1 Growing cash receipts ahead of shop visits costs driven by

£0.8bn-£1.2bn p.a. growth

• Widebody EFH growth reaching 120-130% of 2019 levels

• Business Aviation growth
• Higher average EFH rate
• Time on wing improvements
• Legacy hedge book consumption drives improved FX rate

2022 2023 Mid-term

¹Civil net LTSA liability less Risk and Revenue Sharing Partners (RRSP) prepayments for LTSA parts
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WORKING CAPITAL OPTIMISATION
c.£2bn of sustainable improvements more than offset the impact of headwinds

Net Working Capital1 management Disciplined working capital management

Receivables & Portfolio INVENTORIES

2022 Inventories Payables Concessions Growth & Other Mid-term
• Significant improvement in Days
Inventories Outstanding
• Improved demand planning and
supply chain management
• Optimised buffer stock
RECEIVABLES & PAYABLES
• Improvement in Days Sales Outstanding
• New behaviours and tools drive improved
collections and billing
• Unbilled invoice backlog cleared
CONCESSIONS
• Legacy agreements outflows

GROWTH
• Modest working capital build to
c. £2bn optimisation actions support business growth

1. Net Working Capital includes inventories, receivables, payables, and contract assets and liabilities but excludes the Civil Net LTSA creditor and associated Risk and Revenue Sharing Partners prepayments for LTSA parts
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CAPITAL FRAMEWORK
Driving shareholder value

Strong balance sheet and Committed to growing shareholder Disciplined investment

investment grade credit profile returns

Improved net debt/EBITDA Rigorous capital

allocation process
Once strong balance sheet
Reduced gross debt and investment grade profile Group-wide Strategically Clear and
are assured prioritisation aligned differentiated
hurdle rates
Strong liquidity

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KEY MESSAGES

Sustainable earnings Improved Return on Strong balance sheet

and cash flow growth Capital and TCC/GM

Investment grade profile Growing shareholder Disciplined investments

returns

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