ROLLS-ROYCE Rolls-Royce is a global company combining distinct engineering disciplines to deliver high-performing power and propulsion solutions in the air, at sea and on land, bullding long-term relationships with our customers through service packages. Te Market leaders in military alr (notably in transport and combat) Se eee Cae ce all UK Royal Navy submarines. mS CLG Leading supplier of emergency power in sa installations and integrated propulsion systems for eee ees ‘Our New Maret buses contd 8m undering revenue othe Grou 2 ‘re Groups revenue by detain ofthe itt operatorOUR BUSINESS. ‘We develop and deliver complex power and propulsion solutions for safety-critical applications in the air, at sea and fon land. The lifecycle of our products includes development, production and service. Our produets stay in production for decades and our customers use them for decades. Although there are many different products. services, customers and contracts throughout the Rolls-Royce portfolio, below Is a rough outline of how we recognise revenue, profit and cash. Original Equipment (OE) When an engine is sold, we recognise the revenue and profit/oss atthe time of sale Revenue recognised in the P&L is the price after concession (discount) Any revenue relating to Risk and Revenue Sharing Partners (RRSP) is treated as part of the ‘cost of sale Services Long Term Service Agreement (LTSA) Revenue is recognised on LTSA contracts as cost is incurred Revenue is calculated using the contract margin %, based on the estimated overall price and cost of the contract LTSA contracts have a combination of regular (e.g. engine health monitoring) and intermittent, lumpy overhaul costs Overhauls drive significant revenue recognition, which means we tend to see low revenues recognised in early stages of service agreements If the overall contract margin changes during the life of the contract, it results in a contract ‘catch-up’ in the accounts to update historically recognised revenue and profit to reflect the impact of the new margin forecasts for the overall contract Most LTSA contracts receive cash based on Engine Flying Hours (EFH). This drives a LTSA balance that connects profit and cash flow UNDERSTANDING THE LTSA BALANCE The LTSA balance Is the cash received from the customer CPt taos cet ce ar aa) Pe ee ee eer org Pee gee eee ere ny eae ean err ne roars Ga Prt Roy 46% 5d In terms of cash, we often receive deposits around. contract award and the balance at delivery (On dual-source aircraft programmes (e.9. Trent 1000 for Boeing 787) the airframer pay a list price for engines. When the aircraft is delivered, we then pay any discount to the airline customer. As a result, while the engines are sat with the airframer we hold on to a portion of the cash, Time & Material (T&M) Time & Material refers to aftermarket revenues generated at a point in time, as opposed to being part of a long-term contract This could be overhauling an engine for a customer where the engine is not on a long-term service agreement or selling Life Limited Parts (LLPs) which are not always included in LTSA contracts The customer would contact the maintenance facility (this could be within Rolls-Royce, a JV or an approved third party) and pay them directly. The maintenance facility may buy some new parts from Rolls-Royce to fit during the event Sales of time and material overhaul services are generally recognised on delivery to the customer einer nese! Reece) ere eee err Peer eee peeves see Perrier cr erg rope PenFINANCIAL PERFORMANCE FOR PAST 5 YEARS em 2022 © 201 2020S 20192018 Underiying revenue 12691 10947 “NA30—«15.450—«15.087 Underlying operating profitloss) 652 44 @008) «808 616 Prafit(os8) for the year from continuing operations 158 to (3997) «308~—=—«305 Group FCF 505 (aes) (4258) «TS 568 ‘Shareholder payments ° @ 2 a) aa GUIDANCE FOR 2023 Fv23 guidance HY23—FYZ2 Operating profit E12bn-Ehabn _-£673m £652 Free cashflow from continuing operations f0.9bn-£10bn 356m €505m DEBT fem) B1December 202230 June 2023 Net debt Credit ratings Issued Bond Notes! 3.995 3995 HY23£(2.8)bn Moody's? Baz UKEF Fb loan (undrawa) 1,000 1000 FY22.(8.3)bn Fitch? 6B UKEF Etbn loan (undrawa)? 11000 1,000 FY2TE(5.2)bn) SEPEBB Revolving Credit Facility (undrawnlt 2500 72.500 All now positive outiook Bank Loan Facility (undrawnl? 1000 May 2028 = Apri 2025 4th October 2028, “Total committed borrowing facilities 9495 8495» March 2026 + daauary 2024» Kh March 2028 ‘September 2027 ath August 2028 OUTLOOK FOR H2 2023 ree nen en eae eng CCE ann il Aerospace operating profit s expected ta Pea eee Dees eee ea ce] > % = Seen ras etree] reece Eee kn en eer eee etaryOTHER USEFUL METRICS “anslO Ob ary Saree) Employees by division te lo on Piola oe Picea) Employees by region Civil Aerospace 17700 Defence 71000 Power Systoms 9.400 Rolls-Royce recently announced plans for a simpler, more streamlined, organisation in the next phase of its multi-year transformation, which estimates that 2,000 to 2,500 roles will be removed globally. The new structure will create a more agile business that is better able to serve customers and continue to create and maintain world-class products. Gross RED expenditure: £1.3bn FY22 Net RED spend: £0.9bn FY22 We operate in highly complex and technical fields where being digitally enabled is an important differentiator. Engine design today is radically enhanced by the digitalisation of engineering, and digital manufacturing enables us to work more quickly, with less waste and with fewer defects. We are able to leverage digital and Alto customer experience, how we operate efficiently and in preparing for the future. fers Seer Terry eer uK 19,900 Germany ‘9700 US Canada 5700 Rest of World 3100 (Our sustainability approach ensures we operate our business and deliver our strategy in an ethically, environmentally and socially responsible manner. We remain committed to helping our customers embrace net zero and we remain steadfast in our opinion that Rolls-Royce has an important role to play in the energy transition. The pace and level of our investment, however, will vary across the business depending on the market ‘opportunity, fit with strategy and our capability. Net zero by 2050 In the UK, we are already using a blend of 10% SAF n our Civil Aerospace and Defence testing activities AL Civil engines in production, SAF compliant in 2023 Targets for gender and ethnic diversity by 2025, MN