I'm just looking for a wave from the back to let us know if we're ready. We are. Thank you. It's lovely to be back here at the Stock Exchange again. Thank you all for coming out in person on such a busy morning, and welcome to our 2022 Full Year Results presentation. I think most of you know me, but I'm Isabel Green, Head of Investor Relations. I'm joined here today by our CEO, Tufan Erginbilgic, and our CFO, Panos Kakoullis. I'm required to show you our Safe Harbor Statement on slide two. The full set of results materials can be downloaded from the Investor Relations section of our website. We're going to start today with a short introduction from Tufan, and then Panos will present the 2022 results. Tufan will come back then to talk about his observations and priorities for the future. The presentation today is going to last around 45 minutes so that we've plenty of time for your questions at the end. With that, thank you very much. Over to you, Tufan. Thanks, Isabel. Hello, everyone. To those in the room, it is good to see you in person. For everyone watching online, welcome too. As this is my first results announcement at Rolls-Royce, I will introduce myself before handing to Panos. When I was approached last year about the opportunity at Rolls-Royce, I was drawn by the strong brand and reputation and its importance as a global company. There are only a handful of companies whose products have helped shape modern society. From the development of jet engine itself to the wide range of engines and systems we make today, our ingenuity has helped bring the world closer. However, I also found a company that wasn't achieving its full potential operationally or financially. I saw an opportunity to make a real difference and take Rolls-Royce to a much stronger position. Before joining Rolls-Royce, I spent 20 years at BP. I led the downstream business and before that, the lubricants business through their turnarounds. I also spent several years on the board at GKN and most recently worked in private equity. In all my previous roles, I have driven step changes in performance, set clear strategies, and delivered sustained improvements in profit, cash flows, and returns. Everything I've seen since arriving has made me even more confident in the potential to do the same at Rolls-Royce. I'm now going to ask Panos to run through the 2022 results. You are going to hear that business has delivered improved performance last year. However, you are then going to hear from me that these results are not good enough for a company like Rolls-Royce. We have higher expectations for this business, and we are clear on how we are going to deliver on them. Over to you, Panos. Good morning, everyone, and thank you, Tufan. In 2022, group revenue increased 14% to GBP 12.7 billion. We had strong growth in revenue in civil aerospace and Power Systems, which were up 26% and 23% respectively as volumes started to recover. There was a more modest 2% growth in Defence. Operating profit increased by GBP 197 million to GBP 652 million. That was driven by three factors. Firstly, improvements in long-term contract margins in civil aerospace. Secondly, increased profit from spare engine sales, again in civil aerospace. Thirdly, significant revenue growth in Power Systems. Now, that was partly offset by the non-repeat of the GBP 140 million foreign exchange credit in 2021, which was in civil. Lower spare parts sales in Defence. Increased R&D in new markets. Also, common with many others, the impact of inflation, notably in Power Systems. Free cash flow improved by GBP 2 billion year-over-year from an outflow of GBP 1.5 billion in 2021 to an inflow of GBP 505 million in 2022. Again, that was driven by three things. Firstly, the improved cash flow in Civil Aerospace, which reflected strong growth in engine flying aero seats ahead of shop visit growth. Secondly, higher Defence cash flows. Thirdly, a reduced working capital outflow. Net debt position that improved from GBP 5.2 billion at the end of 2021 to GBP 3.3 billion at the end of 2022. That was due to the completion of our GBP 2 billion disposal program and the free cash flow that we generated during the year. Moving on now to the performance by business unit, I'll start with Civil Aerospace. We saw a continued recovery in international travel in 2022, driving up our large engine flying hours to 65% of 2019 levels. The reopening of China towards the end of the year drove a further improvement in January, up to 79% of 2019 levels. This supports our expectations for large engine flying hours to be between 80% and 90% of 2019 levels as we move in 2023. The recovery in large engine flying hours was also complemented by robust performance in business aviation. We carried out 1,044 total shop visits in 2022, which is a 10% increase against the 953 in 2021. For 2023, we expect between 1,200 and 1,300 total shop visits, with a step up in large engine shop visits as higher flying hours activity converts into increased demand for aftermarket services. Engine deliveries rose by 15%, driven primarily by business aviation. We delivered a total of 190 large engines, which is 5 fewer than the prior year. We delivered 44 large spare engines, which is eight more than the prior year. Large spare engines represented 23% of total OE deliveries, which is higher than the usual 10%-15% as we build the spare engine pool to underpin fleet health and improve resilience ahead of the anticipated increase in shop visits. We expect spare engine volumes to remain at a similar level, that's in total terms, in 2023 and 2024. As in all our businesses, supply chain management and wage inflation were more challenging in 2022. We manage this through commodity hedging, long-term supply contracts, and pricing. There have also recently been two fires at important suppliers, one in late 2022 and one in early 2023. These have put additional pressures on our operations. Whilst they did not impact 2022's results, they will impact cash flows in 2023. Civil aerospace revenue was up 25% on the prior year to GBP 5.7 billion, with OE in services up 23% and 26% respectively. Revenue is higher across all of our portfolio: large engines, business aviation, regional, and V2500. Civil aerospace profit of GBP 143 million, compared with a loss of GBP 172 million in 2021. The year-on-year increase was driven by three things. Firstly, improved profitability on LTSA contracts, reflecting commercial discipline on pricing, costs, and contractual terms. This resulted in GBP 319 million of contract catch-ups in 2022, which compared to GBP 256 million in the prior year. There was also a GBP 51 million decrease in the onerous contract provision, which compares to a charge of GBP 122 million in 2021. That reduced the expected losses on those contracts. Secondly, higher volumes and a different mix of large spare engine sales, with more third-party sales to capacity providers than in the prior year. Thirdly, higher aftermarket profit driven by V2500, business, and regional, as well as increased large engine shop visits. These were offset by GBP 140 million headwind from the one-off foreign exchange revaluation benefit in 2021, which did not repeat in 2022. Our trading cash flow was GBP 226 million, which is a GBP 1.9 billion improvement on the prior year. This reflected the recovery in engine flying hours ahead of shop visit growth, which resulted in growth in the civil net LTSA balance of GBP 792 million. Higher cash flows from spare engine sales, a smaller working capital outflow compared with the prior year, driven by a reduction in overdue debts and a lower cash outflow on the Trent 1000 engines. In 2023, we expect the change in the LTSA balance to be between GBP 500 million and GBP 700 million, which reflects a slightly lower level of growth than in 2022 due to an increased number of shop visits, including more widebody refurbs. We expect to continue to collect on overdue balances and target continued contract improvements, which should result in contract catch-ups of between GBP 100 million and GBP 200 million. We now look at Defence, revenue was up 2% organically, and we expect a similar level of growth in 2023. Submarine revenues grew by 18%, which were at a relatively lower margin. Transport and combat revenues grew modestly at 4% and 2% respectively. Naval revenue fell by 19%, which reflected supply chain challenges. Defence is a long-cycle business and does not immediately benefit from rising Defence spending and geopolitical tensions. There is a supportive budgetary backdrop, and we've been successful with some large-order campaigns. In 2021, we were selected to provide the power plant for the B-52 engine replacement program. In 2022, the Bell V280, powered by our AE 1107F engines, was selected by the U.S. Army for the Future Long-Range Assault Aircraft program. Operating profit of GBP 432 million was down by 10% year-on-year. The 11.8% operating margin was 1.6 percentage points lower than 2021, but at the upper end of our expected range. The year-on-year decrease was mainly due to the non-repeat of GBP 45 million of high-margin spare parts sales in 2021 that we called out at the interim results. R&D spend increased by 9% as we invested in long-term programs that would create value in future years. Trading cash flow was up 13% from GBP 377 million to GBP 426 million. This gave a cash conversion of 99%, which is up from the 82% in 2021, mostly due to the favorable timing of a customer advance payment of around GBP 60 million, which is not expected to repeat in 2023. Moving on to Power Systems. Order intake in 2022 totaled GBP 4.3 billion, which was 29% higher than in 2021, with a book-to-bill of 1.3 times. Power generation continued to perform well, with growth in orders for power solutions to provide backup power for critical locations such as hospital and data centers. Revenue was up 23% in 2022 to GBP 3.3 billion, a significant rise despite the constraints to deliveries from the supply chain. Although absolute operating profit increased by 17% to GBP 281 million, Power Systems operating margin fell by 0.4 percentage points. That was due to higher costs, some of which were due to inflation and supply chain disruption, increased self-funded R&D, and some one-off charges, including impairments and write-down of assets due to the Russia-UKraine conflict. Trading cash flow was 28% lower in 2022. Cash conversion was only 56% due to increased inventory to manage supply chain disruption as well as meet the volume growth. That was partially offset by structurally higher advance receipts from customers. New markets. These are our early-stage businesses, Rolls-Royce Electrical, and Small Modular Reactors. In 2022, new markets reported an operating loss of GBP 132 million, which compares to a loss of GBP 70 million in 2021, and a headcount increase of around 80% to approximately 1,000 people. This is in line with the guidance we gave in 2021, and for SMR was largely covered by third-party funding. The next slide sets out our summary funds flow for 2022. We saw a GBP 505 million free cash inflow from continuing operations, compared with an outflow of GBP 1.5 billion in 2021. The GBP 2 billion difference year-over-year can be broken down into three categories. Our operating performance has improved by GBP 1.2 billion. This was driven by trading growth in our established businesses and the increase in engine flying hours receipts ahead of shop visits costs, which caused the steep increase in our LTSA balance. Working capital was an outflow of around GBP 500 million in 2022 versus GBP 800 million in 2021, which is a GBP 300 million improvement year-over-year. Inventories increased by around GBP 900 million due to supply chain challenges across the group as well as volume growth. This was partially offset by just around GBP 400 million of the inflow from receivables, payables, and contract balances. This was led by advance payments in Defence and Power Systems and a reduction of the overdue debts in civil of around GBP 180 million. Finally, other movements. That was an outflow of GBP 1.5 billion in 2022 versus an outflow of GBP 1.9 billion in 2021, a GBP 400 million improvement year-over-year. This reflected lower lease payments and derivative settlement costs, as well as similar tax and interest costs. Pension costs were lower than in the prior year as the U.K. defined benefit scheme is now fully funded and in a surplus position. Turning now to the balance sheet. We ended 2022 with GBP 3.3 billion of net debt, which is down from GBP 5.2 billion at the end of 2021. We completed our disposal program in the year and used the proceeds to pay down GBP 2 billion of debt. We retained strong liquidity. We agreed a new five-year GBP 1 billion sustainability-linked facility, which is 80% guaranteed by the U.K.EF. That remains undrawn. We've seen positive momentum this year with rating outlook upgrades for Moody's, Fitch, and S&P. There is more to be done. We're committed to returning to an investment-grade credit rating through systematically improving our underlying cash generation as well as our profitability. I'm going to hand back now to Tufan to share his observations on and priorities for the business. Thanks, Panos. In the future, I look forward to being more involved in presenting our operational and financial performance. I would like to start by sharing my early observations and some key issues that I see. I spent the last few months learning about our company with the teams, including time in our largest sites in the U.K., U.S., and Germany. We have great people who are dedicated and committed to the work we do. We have some of the best products and solutions in the world, supporting the needs of our customers in complex and heavily regulated industries with high barriers to entry. We have good market positions in our key segments. The businesses we have today are improving as our end markets recover. As Panos showed, our results improved in 2022, helped by recovering markets and some benefits that will not repeat at the same level. We cannot rely on market recovery alone to deliver better performance in the future. I have much higher expectations from the business. Improvements need to be delivered on a sustainable and underlying basis. Rolls-Royce has been underperforming for an extended period. Our five-year TSR of negative 67% is evidence of this and shows this is not just a COVID issue. Cash generation is unsatisfactory. Our debt is still too high. Too much of our gross profit is simply covering our overheads and interest payments. A weak balance sheet and sub-investment-grade credit rating limit our ability to invest in growth for the future. We have recently completed an extensive benchmarking study that confirmed our margins are below the competition on a like-for-like Adjusted basis. Our low operating margins and relatively high fixed cost base leave us financially exposed when uncertainty impacts our markets. As a result, in the last five years, even excluding 2020 due to COVID, we have averaged a return on capital employed of just 3.5%. We have also not had sufficient strategic clarity to make investment choices. Instead, we have been trying to keep too many options open. More importantly, let's turn now to the overall proposition we are looking to create for investors. I believe we have the potential to be a much higher quality and more competitive company, a company focusing on sustainable earnings growth and cash generation with a winning mindset and culture that drives and rewards outperformance. Underlying performance improvements will drive higher operating cash flows. This, coupled with disciplined capital allocation, will grow our sustainable free cash flow. A strong and flexible balance sheet will allow us to grow shareholder distributions and fund future growth. We will build a strong Rolls-Royce to deliver this proposition. We are already in action, and we are proceeding with a sense of urgency. This slide sets out our priorities and, in a way, our philosophy, how we are thinking about running this business, which is different from what has been done in the past. These are the priorities we need to focus on to deliver the Rolls-Royce proposition. They deliberately overlap. They will drive better performance independently and collectively. First, we will improve earnings and cash potential of the business. The focus will be on quality growth in profits and cash rather than just revenue and market share expansion. Second, we will create an efficient business with a competitive cost base and improved operating leverage. This will make us more robust to the external environment. Third, we will target sustainable cash generation and will deleverage our balance sheet at pace. We remain committed to recovering our investment-grade credit rating and resuming shareholder returns. Fourth, we are developing a clear and granular strategy to prioritize investment opportunities. We will allocate capital centrally to the attractive market opportunities and programs. Fifth, we have an important role to play in the energy transition and remain committed to achieving net zero. We will develop a robust framework to make the right choices. We will focus our investment on the most attractive market spaces and programs, evaluating all energy transition opportunities to ensure we are delivering the best value for Rolls-Royce and the shareholders. We must only invest in new technologies where we are differentiated, where the market opportunity is sufficiently large, and where there is a viable business model and synergies with our existing activities. By adding complementary capabilities, we can build winning propositions and de-risk the group. Partnerships will be a purposeful part of our strategy. All this will be underpinned by our most important priority: to ensure that our people and products are safe. This is the right thing to do. We care about our people and the people that rely on our products. We have launched a transformation program to deliver a step change in performance systematically and at pace. I'm chairing the weekly transformation planning group, and the whole executive team will spend time together each month to focus on this. Work has already started on critical work streams. To support this, we have appointed a chief transformation officer reporting to me directly. We have seven work streams. We have appointed senior leaders to the first four: efficiency and simplification, commercial optimization, working capital, and strategic review. I will talk about these in more detail on subsequent slides. The business improvement work stream is being led at the business unit level. We have set challenging targets based on rigorous peer benchmarking analysis. This identified the performance gaps, our relative position in key businesses, and scaled the potential for improvement. We are now working on the detailed plans to deliver that potential. The remaining two work streams, changing the culture and performance management, are critical to lasting change. We will drive them by building the right mindset with our teams to be proactive and timely in our actions so that we can manage performance effectively. In January, I got together with our top 80 leaders for a working session on delivering change. We focused on how we will lead the business through this transformation together as an aligned organization where everyone is mobilized and knows their role. We have also engaged the whole organization in an extensive communication effort on the opportunity ahead. This will be an ongoing activity. I'm going to share more details about some of the work streams, starting with efficiency and simplification. This is about identifying and delivering sustainable improvements across the whole group focused on three things: organizational review, footprint consolidation and optimization, direct and indirect third-party cost efficiencies. This will improve our operating leverage so that we are competitive and robust to the external environment. As you can see on the slide, our costs are high compared to our gross profit, and we are a long way from best-in-class. Across the group, we have work underway to identify synergies across all our divisions and functions and to simplify our whole organization. A significant part of the cost reductions during COVID were activity-related and largely in our civil business. These costs have been going up again as activity levels come back. Our efficiency and simplification plans look to achieve sustainable cost efficiencies across the group that take the activity increase into account. We will also be looking to capture efficiency opportunities within each division and function. We are already in action on this. For example, in Power Systems, we are already removing duplication and optimizing the organizational setup to accelerate decision-making. Commercial optimization is about getting the right reward for the risks we take and the value we create for our customers. It will focus on civil aerospace and Power Systems. A stronger Rolls-Royce will be a better partner for our customers, more able to deliver operationally and invest in product development. To support this, as part of our executive process, we established a group operating committee. I have already met with a number of our largest customers. They understand this. We have also changed our commercial discussions on new contracts and renewals. In civil aerospace, for example, we set up a task force to review all the large engine LTSA contracts. We are also working to lower our product costs and drive up the margins in contracts to ensure we achieve the returns that are aligned with the risks that we take. It is early days. Results are already starting to come in. We improved several onerous contracts on the balance sheet at the end of last year. We achieved double-digit price increases on spare parts. We will drive further improvements this year to the margins of both profitable and onerous contracts. In Power Systems, we have already been able to renegotiate the prices with a benefit to profit and cash flows. These efforts continue as we speak. We are becoming a commercially minded and capable organization. At the end of 2022, let me talk about working capital, by the way, right now, which is actually very linked to commercial optimization in a way. At the end of 2022, we had GBP 25 billion, actually, gross working capital tied up in the business. Our net working capital, GBP 2 billion, higher than our position before the pandemic despite revenues being lower. We are confident that we can deliver a significant and sustainable reduction in working capital across the group by deep diving into the operational value chain and optimizing each of the components of working capital. Our immediate focus is on improving inventory management and recovering overdue receivables. The final work stream is our strategic review. This is already underway. Let me start by making it clear that this is not just about what businesses should stay in the portfolio and what we should sell. My early take on the portfolio is that all of our established businesses have the potential to create significant future value. One of the outcomes of the strategic review will be to determine which areas we will invest in and which we will not. To support this new strategic rigor, we will centrally allocate capital to the most attractive market spaces or programs. This is a change from the past when there was more autonomy within the individual businesses. This more disciplined approach will mean more effective resource allocation of limited available capital. We will continue to support critical safety programs as well as investment to enable the business to execute on the opportunities presented by the market recovery. We cannot continue to allocate capital to projects that have low returns. Beyond strategic clarity, a granular strategy will be an effective alignment and performance management tool as well as changing the culture. A clear strategy supported by the right performance management can be cascaded down and used as a powerful engagement tool to align the whole organization. We will have a strategy implementation plan that makes it clear and meaningful to individuals how their business performance and individual objectives contribute to the strategy and mid-term goals. With the right engagement and processes, this not only aligns the organization but also becomes a good performance management tool. We will have the new strategy and mid-term targets for you in the second half of this year along with the metrics we will be reporting against to track and measure our progress. Before I wrap up, I would like to share our view of 2023 and our guidance for financial performance this year. In 2022, our performance improved driven by good underlying progress. There are also some benefits that will not repeat at the same level. These are detailed in the supplementary slides for you along with some additional guidance detail we hope you find useful. We expect to achieve higher operating profit and cash flows this year reflecting the actions we are taking and the market growth as widebody flying recovers and as we convert our order book into profits. For 2023, we expect to deliver operating profit of GBP 800 million-GBP 1 billion, which includes a benefit of GBP 100 - 200 million from targeted contract improvements versus around GBP 300 million last year. We expect free cash flow of $600 -800 million, which factors in $500 -700 million of LTSA creditor growth versus the growth of around $800 million in 2022 as shop visits increase. It also factors around $200 million year-on-year headwind associated with the unwind of legacy OE Boeing concessions and around $100 million impact of two fires at suppliers late last year and early this year. We expect this $100 million cash impact to reverse next year. There are environmental uncertainties and challenges in this guidance. We will need to be agile and commercially minded as we manage the external risks of inflation, supply chain disruption, interest rate rises, and recession. To summarize the key takeaways, we aim to create a high-performing, competitive, resilient, and growing business. We have a significant opportunity to expand our cash generation and profitability. We are already in action to improve underlying performance. We will set a granular strategy with mid-term targets. We have a lot of hard work ahead of us. We are moving fast, and there are big potential rewards for all of our stakeholders when we get this right. Thank you for listening. I will now open the meeting for questions. When you are asking the question, please wait for the microphone to be delivered to you because otherwise, people on the line will not hear you. Thank you. Good morning. It's Nick Cunningham from Agency Partners. You've spoken about the restructuring and actually answered quite a lot of the questions that were in my mind. There's another few that come out. One is, Civil's been through a really tough, really four or five years because you had the Trent issue and then you had the pandemic, and you've cut the size of the business by a third already. How do you bring the people with you with yet another round of change? In particular, how do you avoid losing the good people that you want to keep when you're in the sort of labor market that we're in at the moment? Then a separate question, and I guess it's something you'll probably be talking about in the second half. How do we work out where the Rolls-Royce is outperforming what recovery would have brought anyway? How do we assess, if you like, your performance above what the market would have brought? Thank you. Okay. Very good. Two good questions. Let me pick them up in that order. You are absolutely right. What civil did, I guess, in COVID, you are referring to job cuts and so on, that's exactly what civil needed to do because activity disappeared in the market. Therefore, the company was bleeding cash. As a result, the company did what it needed to do in the civil business. That kind of when activity comes back, as I made it clear in my remarks, that kind of thing is necessary because you are bleeding cash. When activity comes back, those costs come back in. That has been actually happening. Now we are intervening with that because when the costs come back, I showed you the cost chart, your competitiveness doesn't change. If you are uncompetitive, and I believe facts are there that we are uncompetitive, our benchmarking study demonstrates clearly that we are underperforming on a like-for-like basis, our competition. Therefore, that process was necessary but doesn't make you a better company in a sustainable basis. What we are trying to do with our transformation program is really create a business sustainably more competitive and stronger company. That's what we are trying to do. The second part of your question is how do you bring people with you? Interestingly, I know in the press sort of some comments have been made. Reality is when we engage our people, they are actually very excited about this future because who doesn't want to work for a successful company? Who wants to work for an underperforming company? I believe we will be able to unlock the potential actually with our people. Yes, in this process, in the transformation process, everybody has a role, and we need to actually mobilize the whole force. I would say, frankly, apart from many things, I think one thing will make a big difference is to make sure and therefore, I talk about strategy and everybody knowing their role. Everybody has a role in this. That way, we will make this very different with starting with clarity why we need to change, very clear strategy, everybody knows their role in their strategy, and then performance manage in a way that actually we performance manage strategic progress. If I come to your second question, recovery, I'm sure you all have your models how much recovery would take this business to and obviously, last year, civil business gave you some numbers as well for mid-term. I would say when we come back with our targets, we can actually talk about how we are going to measure our success. I'm going to say this. I'm not going to talk about targets right now, but I'm going to say this. I have higher expectations from this business. Once we set mid-term targets, then you can measure our progress against that. It won't be only my success, though. I don't hold it that way. This will take the whole organization. That's the power of this. Thanks for your question. There is one question on the back, then I'll come here. Yes. Good morning. Chloe Lemarie from Jefferies. Had a first one for you, Tufan, actually. Your predecessor focused really on fixed costs. You seem to focus a little bit more on positioning and focused investments. First question is there more to do on the fixed cost side? In terms of positioning, etc., is there something to do in the portfolio, i.e., some areas that you've identified do not belong, or is it just a matter of steering investment where it needs to be spent? Second question would be for Panos. If we could go to the free cash flow walk between 2022 and 2023, you already gave the LTSA elements, but I wanted to see if you could give some more color on the Trent 1000 concession payments, please. Thank you. Okay. Let me pick up the first question. Fixed costs and investment. Let me start with fixed costs. Do I believe we need to reduce the cost base of Rolls-Royce? Absolutely. Therefore, if you look at the structure of our transformation program, one of the workstreams is about efficiency and simplification. I gave you for this industry, a new measure. I used that in the past, this total cash cost to gross margin. That measure is, in a way, operating leverage of the company, right? How much of our gross margin is actually consumed by our costs? That is very high right now in Rolls-Royce. We will need to reduce that. Our hope is to get it to the best-in-class levels in the graph that I demonstrated. That way, we are going to be a much more competitive company and, frankly, a much more robust company if there are external shocks is investments here and there. I think our strategic review is a pretty extensive review. I said it in my speech. I don't believe Rolls-Royce today has a granular strategy to make the choices. That will allow us to make the choices. There will be investment choices. There will be partnership choices. I don't want to right now double-guess, but it is a pretty robust process. Again, we don't run. That is not because strategy is an alignment tool as well as, obviously, a management tool. We run this strategy in a way that lots of people are actually already involved. At the end, we will make choices, and we will focus the organization. Do I believe Rolls-Royce needs to be a more focused organization and make more choices, investment choices, and so on? Absolutely. Panos, over to you. I think your question was around the walk from 2022 to 2023, so on free cash flow. A material increase in free cash flow between 2022 and 2023. You've seen in the supplementary slides, we've called out the lumpy items. We've done that both for profit and for cash year-on-year. The way I think about it, we've got increased profitability in both Defence and Power Systems, obviously driving increased cash flow there. On the civil side, higher EFH receipts driven by the 80%-90%. That's partially offset by that ramp-up in shop visit costs. You can see that coming through in the lower number on the movement in LTSA creditor of GBP 5 million-GBP 700 million. Tufan's talked about the workstream from working capital. We are anticipating within that a structural improvement in underlying working capital that comes we can talk a little bit in a minute around phasing, especially on cash flow. We have got some headwinds that we've called out again in the supplementary and Tufan called out in the guidance. The concessions, the legacy Boeing concessions, a GBP 200 million outflow on that. The GBP 100 million as a result of the fire at suppliers or the 2 fires at suppliers, which we expect to reverse in 2024. That's effectively a move from 2023 to 2024. The other lumpy items we've called out, the hedge closeout costs, that goes up slightly year-on-year. Tax is broadly flat. There's a little bit of an improvement in interest of GBP 25-GBP 75 as a result of the fact we paid down the U.K. EF debt. Other items sort of broadly similar. Material increase. Just the other point I'd highlight for you on free cash flow, we've always been a second-half-weighted business on free cash flow. That will be the case in 2023 as well, particularly driven by some of the supply chain challenges that we've highlighted, the impact of those fires. There is a heavy weighting. The benefits of transformation will likely be second-half-weighted as well. We'll increase that weighting. Thanks, Panos. There is one question here. Hi. Good morning. George Zhao from Bernstein here. First one for Tufan. You talked about turning around the subpar performance of the company from recent years. I think we can agree that Rolls-Royce certainly did try to improve itself during that stretch. Even excluding the cuts during COVID, there were numerous runs of restructuring in the last five-plus years. What do you believe was the shortfall of the company to improve the performance in the past? What will we do that is different from what has been attempted before to drive sustained improvement? Second one, just how do you assess the supply chain as you look to ramp up on the widebody new engine production? As the targets laid out by Airbus recently, do you think that's feasible? Okay. Thanks for the questions. Frankly, I don't want to comment on what was done, what wasn't done in the past in terms of structuring. I already talked about how I hold the COVID restructuring. When it comes to therefore, I would rather talk about what we are going to be doing. Frankly, as I shared with you before, I have some experience in turnarounds. I'm afraid I'm going to repeat. In any turnaround, at least three things are very important. Really get the organization to understand the reality and why they need to change. Second thing is get a very clear strategy that you can make it relevant to everybody. I talk about that being an alignment tool as well as a performance management tool. I actually seen it in action. It can be very powerful. Very good performance management, which we need to improve in Rolls-Royce. We need to improve performance reporting as well as performance management. All those three areas, frankly, sort of need to take place in Rolls-Royce. You need to go at pace. Therefore, we create a transformation program. In these things, you need to be very systematic and go at pace. We could have chosen to say, "We are going to improve the performance and deploy it to the business units with no central governance," etc. That was one way of doing that. I didn't think that was going to create the right outcome. One difference I'm going to overemphasize, this is a group-wide program, not civil aerospace. Obviously, civil aerospace is included in it with a very clear transformation program, which is very holistic. It goes from performance management and culture to all the way clear actions on efficiency, optimization, and so on. You need to have those components in place and then align the whole organization. Interesting things happen in a positive sense. That's what we are looking to do. That's the journey we are on. On supply chain point, yes. I think we have I would say we have slightly two different supply chains because the Power System supply chain is slightly different than civil aerospace and Defence because of activity disappearing in aerospace with COVID, as you know. The whole supply chain really reduced the capacity, reduced labor. Now, they are all trying to bring that up while activity is recovering. That is becoming a challenging thing for the whole industry. I'm talking about industry. Therefore, my view is actually that supply chain will only stabilize between 12-18 months from now. Power systems didn't have the same level of dip with COVID. That supply chain is actually stabilizing more. It will stabilize and improve much earlier than the other one. That's how I hold it. Airbus targets, they are in line with our production targets as well. We are totally aligned. There is one question there. I'll come here. Good morning. Charlotte Keyworth from Barclays. I've just got one question. It was just picking up on your comments around opportunities for better terms on LTSA contracts. Obviously, you can start that endeavor straight away with the new ones. For the renewals, I think the average length is about 12 years. I just wondered if you could give us some idea in terms of phasing of when the roll-off of those contracts would peak and when you get the opportunity to renegotiate. Okay. Panos, you may want to sort of talk about the average life of the contracts. Let me pick up the question on sort of here is how I hold it, right? Obviously, any new contracts and renewals, we want to make sure that actually everything in commercial terms reflects the value we create. When I say the value we create, I take it seriously. We have some things to do to improve our operating efficiency and effectiveness, right? Therefore, we can actually serve better to customers. Therefore, I'm actually thinking about this win-win. For existing contracts, though, it is clear that some of our contracts are not good, as you know. In the balance sheet, we have an onerous contract provision. Therefore, we are actually engaged even for those contracts to find win-win solutions with our key customers. I already met, as I said in my speech, some of our key customers. The key here is we need to improve our operational effectiveness and create more value for them and then get better terms. That's the win-win because any sustainable partnership will have to be a win-win. That's my experience. That's how we are actually going about it, Panos, in terms of how much left in our sort of. The average unexpired term is a little bit lower than the number you set. It's closer to sort of 8, 9 years rather than the 12. The other bit I would add as well, it doesn't just have to be a pricing discussion on an existing contract. There's also effectively contract management. How an engine is flown, is it flown in the way that's contractually agreed? Because there are different rates depending on how it's flown. Maybe in the past, people were more forgiving on how it was flown with being much tougher on making sure the contractual terms are enforced within that. Very good. Thanks, Panos. There was one question here. Hi. This is Alexander Ossipov-Grodier from J.P. Morgan. I'd like to ask Tufan two questions on behalf of David Perry and one question to Panos, please. The first question, Rolls-Royce has a net LTSA liability of GBP 7.4 billion on its balance sheet. Have you done a specific audit of the contracts behind this liability? In other words, are you happy with the pricing charge for future shop visits and expected future profitability as this liability converts into actual work revenue and profit? Second question is, Rolls-Royce has a net debt of GBP 3.3 billion plus a number of other liabilities on its balance sheet. Why are you confident that organic leverage is the right solution? The question for Panos. Apologies if I've missed it, but I can't see any 2023 guidance for divisional EBITDA. Please, can you help us here? Thank you. Very good. Best regards to David, by the way. Let me pick your in the order you ask, actually. LTSA GBP 7.4 billion. My answer would be, first of all, we have obviously margin in that LTSA creditor balance that you are referring to, GBP 7.4 billion. Secondly, our commercial optimization workstream, specifically targeting actually, multiple workstreams play into this. Let me talk to that. Specifically targeting improving we already have a margin in LTSA creditor balance, just to be clear. Second thing is commercial optimization and some of the things we shared on the earlier question will obviously look to improve commercial terms and our take from those contracts. Also, we are focusing on efficiency and cost because by doing two I always believe you need to play on both ends if you are going to have a turnaround, gross margin improvement as well as cost. We are going to be focusing on the efficiency, as I articulated in my presentation. That cost efficiency actually includes shop visit cost as well. There is the product cost out on OEE. There is also shop visit cost as well as sort of cost of the whole organization. Both of them will actually improve our margin on LTSA credit. On your second question, we have why do I believe organic cash generation? I think I see the potential of the business. This business, if it is managed in the right way and that is what we are looking to do, I believe has good potential to generate cash. That will require, as I said, we are now already into performance improvement effectively agenda. The way you should think about what we presented is because we presented lots of things. The way we structured this with transformation program and business initiative plans at business unit level, we are looking to drive performance improvement as we speak. We are actually in action as we speak because we didn't want to wait even for one day. There is a huge sense of urgency there, right? Strategic clarity will follow that. We are going to combine the two. You have a very clear strategy, which will allow you to make choices. Performance improvement transformation program is already progressing. Both of them will actually come together, what we will call a strategy implementation plan with mid-term targets. We will push that plan down to the level that actually the whole organization can relate to that. They know their role in it. That's the game plan here. We are already on the performance improvement side of it. Strategic clarity will follow that, Panos. I think the last question was around divisional guidance. We haven't given divisional guidance, so he didn't miss it. The guidance we've given around operating profit is the GBP 800 million to GBP 1 billion for 2023. We've called out within that GBP 100 - 200 million of targeted contractual improvements. We will come back later this year, as Tufan has said, around medium-term targets. Thanks, Panos. There's one question. Thank you. Thank you. Hello. It's Harry Breach here from Stifel. Maybe one for each of you. Panos, hopefully, the easy one. Forgive my ignorance and lack of time earlier on. Can you help us with the dollar revenue increase in 2022 for the T&M side and then the LTSA side separately? Whether, when we look to 2023, we should be thinking about similar numbers. I won't embarrass you by asking for the number. If you could give us a sense of that. Maybe for Tufan. Tufan, as I'm sure you know, one of the tremendous challenges is in trying to normalize for differences versus peers at Rolls in currency exposure and hedge book in store-based maturity and aftermarket intensity with fewer takeoff and landing cycles, the more narrow-body focused competitors, and in the broader portfolio outside civil and the comparative R&D burden on the business as it is today. How confident are you that you normalize for them? Then, secondly, can you share at all where you think the normalized margin was in 2022 and where the peers were like for like in their businesses in 2022 so we can see what the gap is normalized? Okay. We actually done that work, normalization work, in the benchmarking that I talk about in my speech. What that study did is really because you are right. There are structural differences between the peers. We actually look at Power Systems as well. That benchmarking was not only about civil aerospace. It included all three divisions, all big three divisions, I should say. What we did in that study, we said, "Okay. What are the structural differences?" We know what they are because I want to know, frankly, because some of the structural differences, you can do something about as well. We look at the performance gap outside that. It is very clear. I won't give you numbers right now. When we come back with mid-term targets, sort of you will see the signs of it there. It is very clear we have a performance gap. I mean performance gap rather than total gap in all divisions, especially in civil aerospace and Power Systems, to a lesser extent in Defence, partly because of the nature of that business. We actually done that work. Obviously, it is informing already, as I mentioned in my speech, our performance actions. What we did with that, not only are we putting that into sort of transformation program, i.e., what we need to go with that, but actually, we created at business unit level targets based on that so that business units are already working on it. That is how actually we have done that. You are right. There are differences. I think the other question was on time materials. I'll give it to you in pounds rather than dollars. The time materials increased in terms of revenues from GBP 629 million to GBP 865 million. It's still around about 20% of service revenues within that. The primary driver of that increase was the V2500. The other elements of the increase will relate to LTSA customers for those elements that aren't covered by LTSA, I think, as we've talked about in the past. As you look at 2023, you can expect sort of a continued recovery in V2500. That will be sort of the main driver of 2023 revenue growth in that area. Great. Thank you both. Any other question? I'm looking at there's no questions on the line. Any questions? There is one. There will be questions on the line. Okay. Tufan first. Okay. Fine. I can put it up on the screen. I think we've heard. Okay. Okay. David. Two further questions, please. The first one is, do you think the Power Systems is a core business for Rolls-Royce? Does it have synergies with the rest of the group? The second question is, how committed are you to the new markets strategy? Okay. Two good questions, as I should expect. Let me start with Power Systems. When that business is properly managed, it is actually a very good business. It got a structural advantage from the previous question, actually, that when we did the structural part of it in benchmarking, it got a structural advantage versus competition. It got really good potential to be a growth, really good growth business with very good returns and therefore create value. I think that is where my focus is because that will create value for Rolls-Royce and shareholders. Also, I'm not sure that business fully understood in terms of two other things. Actually, I spent seven years of my life, last seven years of my life, on energy transition, looking at everything, frankly. Pace of energy transition in Power Systems, in the key segments of it, will be slow. Second thing is even more important, some of the really most profitable key segments in Power Systems because Power Systems is not one thing, really. Some of that, actually, not a new engine development, but actually modification. Let me give you an example. Take marine, which is a very profitable, good business, commercial marine as well as yachts for Power Systems. Take that. Everybody is talking about energy transition. I spent lots of time on it even long before I joined Rolls-Royce. Methanol or ammonia will be the net-zero solution for marine. Either of them can run in diesel engines. All you have to do is a modification and some tests rather than a new development, new this, new that. It is the same business model with some modification. That's actually important for this business. In summary, it is really good business. That doesn't mean we are not going to, some aspects of it, partnering with somebody may be a good idea. That's all part of strategic review. I will never rule out anything like that. That's not what I am talking about. At the end, this is about actually creating the winning positions for every business we have out there. That would be my power. Your second question was new markets. I think we are going to have a strategic review, definitely. That will tell us for those businesses what the right answer is, what's the best way forward. I would say the following for SMR, definitely. I mean, if you look at SMR, it is actually very proven technology and interesting technology. It definitely creates four things for the U.K., I would say, because the U.K. is a big factor in the success of that program, frankly. Definitely, it can play a big role in net-zero for the world, but also for the U.K. Given the world we live in, I think supply security is increasingly important. For the U.K., it will be important from a supply security perspective. Then, two other things. I believe it will actually contribute to the U.K. economy significantly because it has the potential to create significant employment and create significant exports. For that to happen, obviously, we are working with other countries as well. Naturally, all the countries are expecting first the U.K. government to support it, i.e., for the first project. That will give confidence to all other countries to go there. Therefore, we have been engaging with the U.K. government and will continue to engage. There is an urgency there because we built a very capable team on SMR. It's a big team and capable team. It is important to sustain that team. Without the project, it is going to be difficult to sustain. Second thing is there's competition. We are not in an isolated world. In a new technology, first-mover advantage is important. Therefore, there are other competitors. Therefore, actually, we need to land this as quickly as possible with the U.K. government so that we can go ahead with the project. That's what I would say there. Isabelle. Can I have some questions from the website? Yeah. Sure. I've got a few questions that have been submitted online. Firstly, a three-parter from Benjamin Heelan from Bank of America. Ben has asked, he said, "Tufan, you talked about a high fixed cost base versus peers, but Rolls has been through three large restructuring programs since 2015. How easy is it going to be to improve this?" He also asks how we feel about the makeup of Rolls-Royce's portfolio. Does it make sense in its current form? The third part of his question, "Airbus announced production increases. How confident are you on the ability to manage the production increase? How should we think about the medium-term headwind to earnings and cash from the production ramp-up?" I do have more questions, but that's all from Ben. Thank you. Yeah. Okay. Let's deal with this. Cost reductions was the first question, I believe. I mean, in a way, I covered that, Ben, in some of the questions. Effectively, I'll say that GBP 1.3 billion cost reduction was mainly in civil aerospace. It didn't actually include other divisions or the group to a great extent. Second thing is that was activity-driven, i.e., activity demand disappeared. Therefore, Rolls-Royce did what it needed to do. Actually, they've done the right things. In any way, I'm not saying they didn't do the right things. They absolutely did the right things. It was activity-driven. When activity recovers, those costs have been actually coming in even last year. What we are now trying to do is really intervene with that starting from this year and then create a more sustainable and more competitive cost base but improved cost base going forward because the idea here is to make Rolls-Royce more competitive. There is a purpose. It's not about managing liquidity, managing this. Actually, taking Rolls-Royce to a much better level. That's what we are trying to do. Is there room? Yes, because there is another angle on that. I already talked about how I hold civil costs. Also, let's face it, Rolls-Royce has been run as three decentralized divisions. We are not going to run it that way. We are one team, one company, and we will take all the synergies not only between divisions but divisions and group and the functions the same because even within functions, actually, we have synergies. There is a big synergy opportunity because it has never been actually looked at because of the operating model and the mindset being very different. There is a simplification opportunity beyond that, I believe. Yes, I believe there is room for efficiencies for the reasons I mentioned. On the portfolio question, in a way, I tackled that, Ben, in my speech as well, how I hold established businesses at this point. We will do the strategy review. As a result, we will come back where we need to do what and how we are going to prioritize investment opportunities. I don't want to repeat the same thing there. Airbus production. Airbus production increase. Yes, our plans are aligned with their plans. Yes, supply chain is challenging, as I covered that earlier. Our plans are aligned to Airbus plans. Apologies, some of these questions get submitted earlier in, but I didn't want to edit them out. I've also got a multi-part question from Ian Douglas-Pennant at UBS. He asks, "When can we expect the revised medium-term targets from the strategic review? What does engine flying hours at 80%-90% of 2019 levels in 2023 imply in terms of the China recovery? Are you expecting a slow ramp-up? When you did the benchmarking exercises on efficiency versus peers, what do you think the potential for the business is at Rolls-Royce for cash flow and margins?" Finally, from Ian, "Do you have the right senior team around you and more hires needed similar to the transformation officer already hired? Well, Ian, you got some questions. I think this flying hours, I'm going to also ask Panos for his views. On the targets, mid-term targets, I mean, as we said, we are going to complete this strategic review and come back to you in the second half of this year with mid-term targets as well as the findings of strategic review. That is that. 80%-90% flying hours, let me say this. January number is 79%. In that context, Ian, we are actually confident if China doesn't go backwards in terms of COVID, it will continue to improve. Therefore, 80%-90% looks good in terms of assumption. Obviously, within that number, we still expect sort of Europe and U.S. almost 100% levels and China slightly lower. Therefore, more room for China to improve because in some other regions like Europe, actually, we may be higher than 100%. Do you want to add anything? Yeah. That's the right numbers, I would say. Yeah. I would add in 2022, China was around about 10% of total engine flying hours compared to 2019. It was about 18%. You can sort of see the scope for increase. That 80%-90% is a combination of China getting up towards that level but coming from a low base and the stronger than that performance in Europe and Americas. Thanks, Panos. On your last two questions, i.e., on the benchmarking efficiency versus peers, I can categorically tell you there was efficiency potential in all of our divisions. Some are more than others. Definitely, in all of them in the benchmarking study, that also supports the comments I made earlier. I am not going to give you any numbers at this point. Again, when we come back with our mid-term targets, hopefully, all this will come together. I don't want to go into the numbers at this stage. I think on senior team, I will say as an executive team, they all embraced the change. They all embraced the transformation program. They are actually driving it. Therefore, we are able to go fast. I wouldn't say anything more than that, Ian. Over to you. Okay. In the interest of time, because we are sort of running up against the clock now, I'm going to apologize to those who have submitted questions by pulling a few together into my own multi-part version of a question. Otherwise, I think we'll never get to the next stage of the day. The questions that have come in include any timeline we have in mind for getting back to an investment-grade credit rating and also any timeline for resumption of shareholder payments? Do we expect to take any restructuring charges related to the strategy review? Also, any guidance we can give on the phasing of free cash flow in 2023, particularly in regard to that earlier part about any restructuring charges we might need to take? Okay. Lots of questions there. I think starting sort of let's do the work. Once we do the work, we will obviously, if restructuring charges are necessary, absolutely, we are going to come back to you. At this point, we need to do the work. That is definitely potentially be there. At the right time, we are going to be informing you. Other questions? Time line for investment-grade time line for some other things. Yeah. I think our priority is articulated in a way in the press release as well as in the script. Our priority at this point is to get to obviously, cash generation. With that, get to investment-grade at pace. I'm not going to give you a time on that at this point. We would like to go there at pace because strong balance sheet will allow us, which is your second part of your question, to resume shareholder returns as well as invest in the future. The way you may want to hold, and I have it in 1 slide, actually. In terms of obviously, cash generation is our focus. The way you may want to hold the priorities, with that first, we are going to deleverage the balance sheet and get to investment-grade. Then, we are going to look to reestablish shareholder distributions. It will be between shareholder distributions and investment in the future. We will make those choices. That's how you may want to think about how we are proceeding. I think the final part of that question was around phasing of free cash flow. I think we've picked that up in one of the earlier. Yeah. I think Panos covered that, I believe. Okay. First of all, it was one and a half hours. You have been very generous with us. Thanks for listening. Thanks for your questions. Thanks for your engagement. I think my key messages are there. We are really looking to create a very competitive, growing, and resilient company here. Secondly, we believe in the potential for cash generation as well as for profitability and to take Rolls-Royce to a much higher level. Third point there is very important because we are really in action. We designed this in a way that performance improvement actions are happening as we speak right now. Obviously, strategy and mid-term targets, we will come back to you. One thing personally, I should say, I'm really excited about the opportunity. We have a great team. I'm looking forward to engaging with you at the right time. I'm sure we will have lots of conversations. With that, have a great day.