Rolls-Royce Stock

Okay. Good morning, and welcome to our half year 2026 results. I'm Jeremy Bragg. I'm Head of Investor Relations, and I'm joined today by our CEO, Tufan and our CFO, Helen. So before we start 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 our website. And before our present -- sorry, in today's presentation, we will cover, firstly, our strategic and financial progress in the first half, the financial details of the results in detail and our guidance for 2026. And after the presentation, there will be time for questions, both in the room and also online. [Operator Instructions] So before handing you over to Tufan, we'd like to show you a short film that highlights some of the best of Rolls-Royce. Thank you.

[Presentation]

Okay. Thanks, Jeremy. Good morning. Thank you for joining us today. We are continuing to transform Rolls-Royce into a high-performing, competitive, resilient and growing business. In the first half of this year, we delivered significant operational and strategic progress, including effectively eliminating AOGs in civil aerospace for the first time in a decade, a best-in-class for the industry, which provides a significant operational benefit to our customers. We are also supporting our OEM partners as they ramp up production despite supply chain challenges.

Rolls-Royce SMR was selected in Sweden, underscoring our position as a global leader in SMRs. We also finalized our SMR contracts into the U.K. and the Czech Republic. We delivered strong first half results, driven by our strategic initiatives with commercial optimization and simplification across the group. Significant business improvements led to higher operating margins across all 3 divisions as we drive higher quality earnings and cash flows. We achieved this despite an uncertain external environment.

Our strong first half results give us confidence to raise our guidance for 2026 and also builds further confidence in midterm targets we set out in February. We are continuing to invest for the future growth and reward our shareholders. Today, we announced an interim dividend of 6p, and we remain on track to buy back GBP 2.5 billion of shares in 2026. We are creating a highly competitive and resilient Rolls-Royce with a diversified portfolio, strong balance sheet and a best-in-class total cash cost to gross margin ratio. And we have significant growth opportunities in both our existing and new businesses.

We have delivered significantly improved operational and financial performance in the first half of this year. Operating profit of GBP 2.5 billion was 46% higher than last year, and group operating margin was 22.5% compared to 19.1% last year as a result of the business improvements that we are doing.

In a challenging environment, we reacted quickly and decisively to the situation in the Middle East, fully mitigating the direct impact to the business. Together with our strong progress in the first half, this has allowed us to raise our guidance for the full year. Let me give you some insight into the drivers of our performance. We have higher operating margins in all 3 divisions. Civil Aerospace operating margin was 25.3%, reflecting 3 main factors: stronger aftermarket performance mainly driven by higher LTSA margins and increased shop visit volumes. A significant contribution from contract catch-ups, reflecting the sustainable improvements to the business we are making through commercial improvements and efficiencies alongside continued onerous provision release and increased time and materials profit.

Defense operating margin was 21%, reflecting a stronger aftermarket performance across transport and combat, supported by lower shop visit costs and manufacturing efficiencies, alongside a strong contribution from profitable international sales and an increase in flying hours. Power Systems operating margin was 20.3%, where we continue to improve the quality of the business. In Power Generation, stronger performance was driven by data centers as we captured volume growth with an improved mix and commercial optimization benefits.

And in governmental, where we have strong positions across land and naval, we drove continued aftermarket profit growth. And across the group, our cost efficiency program continues to deliver. Free cash flow of GBP 2 billion was 24% higher than last year, primarily driven by higher operating profit. And a return on capital rose by 5.1 percentage points to a best-in-class 22%, again, driven by higher operating profit.

This slide focuses on how we are driving higher Civil Aerospace LTSA margins, a key driver of performance improvement to the midterm and beyond. The left-hand chart shows that we are driving higher contract and LTSA margins over time across our in production engines. As a reminder, the top line is the average margin across all signed contracts even if the engines are not yet delivered. This is a leading indicator for the second line, which is the LTSA margin booked in our income statement. Our actions to deliver commercial and operational improvements across our aftermarket contracts are driving significant year-on-year growth in both contract and LTSA margins.

In February, we told you that we expected a 19 percentage point increase in our contract margin and a 28 percentage point increase in our LTSA margin between 2022 and 2028. We are continuing to deliver on this. And in addition, we are improving these contracts further as shown by the red dots on the chart. Compared to what we set out in February, we are driving a 3 percentage point improvement to our contract margins and a 1 percentage point improvement to our income statement margins in 2026. The 3 percentage point improvement in contract margins is mainly driven by new contracts coming in with better profitability. The 1 percentage point improvement in LTSA margin is driven by contract improvements, which are mainly operationally driven.

It is worth remembering that even by 2028, only half of our in-production LTSA contracts will be on new commercial terms, which means there will be a sustained benefit beyond 2028 as more contracts come in with higher margins. As well as improving the margins of our in-production engines, we are also driving higher margins across our mature engine portfolio and business aviation.

The right-hand chart focuses on time on wing, a key driver of LTSA margin improvements and stronger cash flows over time. Our time on wing programs is progressing well, and we continue to target more than 100% increase in durability across our in-production engines, which offers a significant operational benefit to our customers. At the end of the first half, the majority of this improvement target has already been achieved. All our time on wing improvements will be complete by the end of 2027, which will leave us with a highly competitive engine portfolio.

I will now talk to our time on wing program progress by engine. The Phase 1 and 2 HP turbine blade modifications for the Trent 1000 XE were certified last year. Phase 1 will deliver more than 100% increase in time on wing with an additional 30% increase from Phase 2. Depending on the operation, these packages can deliver up to a 3x improvement in time on wing. Almost 50% of the eligible fleet has now been upgraded with the new HPT blades, bringing them to the new Trent 1000 XE standard. The Trent 7000 also benefits from the same HPT blade improvements. We have now largely upgraded the fleet and accumulated almost 3 million engine flying hours with the new blades.

The Phase 1 improvements have been performing very well in service for over 3 years, delivering up to a 3x increase in time on wing. This gives us further confidence in the Trent 1000 XE upgrades. On to XWB-84. We have split the improvement program to accelerate its delivery. We pulled forward the planned life extensions for critical LLPs and remain on track to certify the remaining LLP life extensions by the year-end. The XWB-84 EP builds on the performance of the world's most efficient large engine in service today. The first EP engine entered service last year with Delta Airlines. The EP delivers a fuel burn improvement of 1.8% compared to the baseline XWB-84, far above the planned 1% improvement as well as building on it is industry-leading time on wing.

For an airline, this fuel burn improvement represents an annual saving of $450,000 per aircraft. Actually, in the current environment, it is going to be higher than $450,000. The XWB-97 engine is already the most utilized engine in the industry in terms of average hours flown per day. Our improvement program remains on track with the enhanced engine to enter service in 2028. These improvements have been subject to a rigorous testing program with more than 20 rig tests completed alongside evidence analyzed from more than 300 shop visits of the current in-service engines. Key pieces of technology, such as the combustor and the ceramic metric composite seal segment have been proven through testing. This was the TRL 6 stage.

We are now proving out the durability of the whole engine, including a durability test representative of the harsh and sandy operations that it will face. Following this ground test program, we will flight test and certify the engine next year ahead of a 2028 entry into service. We are continuing to evolve the XWB-97 engine, including for Project Sunrise. Our partnership with Airbus and Qantas, where our engines will power ultra long-range services with the A350.

The first nonstop Project Sunrise test flight from Australia to Europe landed earlier this week. The full cash benefits of our time on wing program will not be realized until significantly beyond the midterm as we have set out before. In total, only 25% of the cash value that we created through improving our LTSA contracts and only 30% of the cash value of our OE renegotiations will be realized by the end of 2028. Most of the cash flow will come after that.

We continue to deliver strong disciplined progress across our 4 strategic pillars. I have already talked about how we are driving higher LTSA margins. I will now cover some of our other key achievements. First, Power Systems. We are continuing to capture profitable growth in power generation and governmental. In power generation, we are seeing increasing demand for both backup engines and gas engines for use as a prime power source for data centers. As a result, we now expect 25% per year growth in power generation OE revenues to 2030 compared to our previous target of 20% growth to 2028. This reflects strong backup growth alongside growing demand for our gas engines for prime power use.

Prime power today represents less than 10% of our power generation business. But this percentage will rise because we expect a significantly faster growth in prime power sales compared to backup. This is supported by our continued investment in capacity expansion. These gas engines for prime power will generate significantly more aftermarket revenues over the course of their life than an engine that is used for backup power. This will support strong aftermarket growth beyond the midterm.

We are continuing to invest in our next-generation engine to replace Series 4000 that targets the data center market with increased power density. This remains on track to launch in 2028. In governmental, we now expect growth of 20% per year to 2030 compared with our previous target of 20% growth to 2028, supported by continued strong order inflow.

Second, operational effectiveness, where we have delivered significant improvements in the first half. In civil aerospace, we effectively eliminated AOGs, which provides a significant operational benefit to us and to our customers. Here, we are setting a new standard for the industry and differentiating ourselves from competition. This has been supported by improved operational performance across our MRO network, where we are driving towards best-in-class performance.

In the first half, we increased large engine MRO output by 13% with a 35% year-on-year increase in refurbs. We have restructured our aftermarket operations to build greater operational resilience for our customers and optimize costs through network efficiencies. We are expanding our repair portfolio to reduce cost of ownership and improve turnaround times. We also launched our first XWB-84 near wing line in Hong Kong, enabling targeted repairs that maximize time on wing.

Third, Trent 1000 XE. Here, our time on wing investment is already starting to deliver clear commercial benefits. Improved durability and our good aftermarket service offering have resulted in positive commercial momentum. Trent 1000 XE has now been selected by 3 airlines, including LATAM, who we are welcoming back as a Trent 1000 XE customer. In addition, we have several significant ongoing sales campaigns for the Trent 1000 XE.

Fourth, in defense, where we are a clear beneficiary from the recent U.K. defense investment plan. We are cementing our position as a global leader in autonomous propulsion, a market with significant growth potential. The U.K. defense investment plan, which includes a GBP 9 billion multiyear commitment to GCAP, gives us strong visibility of GCAP's funding to 2030. It also further underpins the outlook for AUKUS.

In autonomous, there were a number of important milestones in the period. The U.S. Navy conducted the successful first flight of the MQ-25A Stingray, unmanned aerial refueler vehicle powered by our AE engines. And in the U.K., the defense investment plan included a commitment to spend GBP 5 billion on autonomous platforms over the next 4 years. We are also under contract in Germany to design a scalable core engine concept capable to be adapted for multiple autonomous platforms in medium CCA class, which we aim to complete towards the end of the year.

Finally, Rolls-Royce also benefits from the commitments made at the recent NATO Summit, including for SAAB, Global Eye and MQ-4C Triton. Fifth, efficiency and simplification. The first phase of our efficiency and simplification delivered GBP 600 million of benefits between 2023 and 2025. We are now underway with the second phase of the program. This includes more than 20 work streams.

Let me talk about a few of them. We are accelerating the rollout of group business service centers and progressing our transformation of sales, inventory and operational planning, alongside going further in lean manufacturing to drive higher productivity. Work streams are also focused on other multiple different cost lines, including logistics and increased efficiencies from further digitizing our business.

In addition to driving cost efficiencies using digital and AI, we are also building a digital thread across Rolls-Royce from engineering and MRO through to the supply chain. We are gathering dispersed engineering data into a strategic asset for better, faster decision-making and deploying tools to improve our operational execution. We are rolling out AI agents in our MRO network to predict work scopes and schedule shop visits to reduce turnaround times and shop visit costs.

Finally, Rolls-Royce SMR was selected in Sweden for 3 units. We have been successful in every competitive tender in Europe and are uniquely positioned to become a global leader in SMR. In the U.K. and Czech Republic, we have now signed the contracts and entered the execution phase. In July, we signed an MoU with CEZ and the Czech government to enable the preparation of 2 further sites. We see significant demand from other countries, including the U.S. This supports our ambition to scale up to commissioning 2 SMRs per year in the mid-2030s, rising to 8 per year at maturity. Rolls-Royce SMR has more firm contractual commitments and a clearer order pipeline than any of it is listed or unlisted competitors and is already starting to generate revenues and profits.

Now I'm going to turn over to Helen.

Thank you, Tufan. Good morning, everyone. We've had a very strong start to the year across all 3 of our businesses, and they have responded to the dynamic environment with agility and pace. We have continued to execute on strategic initiatives, continued to improve operational performance and continue to drive rigorous performance management, a clear demonstration that we are sustainably transforming Rolls-Royce into a high-performing, competitive, resilient and growing business.

Let's look at the financial highlights. Double-digit profit and cash growth across every division with all 3 delivering strong margin expansion. The balance sheet is resilient, and we continue to reward our shareholders with growing distributions. Group revenues, they grew by 26% to GBP 11.3 billion with strong end market growth across all divisions.

Group operating profit grew by 46% to GBP 2.5 billion, driven by our strategic initiatives, including commercial optimization and cost efficiencies. Operating margin grew by over 3 percentage points to 22.5%. And free cash flow, it grew by close to GBP 400 million to GBP 2 billion, with cash delivery primarily driven by higher operating profit. Strong cash flow in the period meant that we closed the half year with a net cash position of just over GBP 2 billion. That's a resilient position to operate from given the current macroeconomic environment. Then return on capital, it was 22%, a best-in-class performance. And the strength of these results has enabled us to declare an interim dividend of 6p per share as we follow through in our capital frame commitments.

Now let's go to the detail by division, starting with Civil Aerospace. Civil delivered the largest year-on-year improvement in operating profit and cash. And as you can see on the bottom right of the slide, all key operating metrics grew as we continue to focus on operational execution. OE deliveries of 279 were 18% higher as we further improved supply chain resilience and supported our OEM partners as they ramped up production. End market demand also remained strong. These deliveries included 157 large engines, almost 30% higher than last year and 122 in business aviation, 6% higher than last year, which were all peril as we ramped up new platforms.

Large engine flying hours or EFH. They grew to 113% of 2019 levels, a 4% increase year-on-year despite some disruption from the Middle East conflict. And in the first half, our fleet has continued to grow faster than the wide-body market, an important driver of future EFH growth. Then business aviation and regional flying hours. They remained strong throughout the period, 9% higher than last year and in fact, ahead of budget.

Shop visits. They grew to 712. Of these, 294 were large engine refurbs. That's 35% higher than last year. Higher shop visits were supported by our actions to further strengthen the supply chain and our MRO network improved, where we drove improved operational performance and benefited from our investments to expand capacity, all of which supported a 3-week improvement in turnaround times for first refurbs in our main overhaul bases compared to last year.

You can see this strong operational performance in Civil's financial results. Operating profit grew to GBP 1.6 billion, a 31% increase year-on-year. Operating margins grew to 25.3%. Three key factors drove that higher operating profit. First, strong large engine aftermarket profits, where service revenues grew by more than 30%. Profit growth was driven by a higher average LTSA margin, a higher number of large engine shop visits, which included substantially more refurbs and higher time and material profits. It's worth pausing for a moment on the benefits of our total service model and how it gives us strong visibility and control over shop visits. Under this model, we have discretion over when engines come into the shop and the work scope to be done. This gives us flexibility to optimize MRO schedules and adapt to different scenarios, all of which we do working closely with our customers to keep their fleet serviced and flying.

The second driver of profit growth was net contractual margin improvements. They were GBP 497 million. That compares to GBP 288 million in the first half of '25. The GBP 497 million comprised a net benefit of GBP 125 million in onerous contracts and GBP 372 million from catch-ups. We made good progress renegotiating onerous aftermarket contracts, allowing us to release provisions in the period. And as we drove commercial and operational improvements across both wide-body and business aviation, we benefited from contract catch-ups. All of this contributed to a gross benefit of GBP 574 million in the period. This was partially offset by an additional charge of GBP 77 million, which was taken across both owners and catch-ups due to supply chain-related product cost inflation. And just to be clear, we don't expect such a high level of contractual margin improvements in the second half.

It's worth a moment on the supply chain. Product availability is continuing to improve, but product cost inflation remains an industry-wide challenge, especially in areas such as rare earths and elementals. We continue to proactively strengthen our supply chain. For example, we have forward bought to build buffer stocks, and we are also opening alternative sources of supply for specific products and materials.

And finally, the third driver of profit growth was Business Aviation with higher aftermarket profitability driven by a stronger mix of shop visits and higher time and material profits.

Moving to cash. Civil delivered a trading cash flow of GBP 1.5 billion. That compares to GBP 1.1 billion in the prior period, a very strong performance in the current environment. Increased cash flow was primarily driven by higher operating profit. Working capital was well managed and the LTSA balance growth was lower than last year, which I will come back to in a moment.

In summary, highly competitive results across all financial and operational metrics in Civil. Defense, where we saw strong profit and cash growth in the first half, driven by aftermarket and self-help actions. As you can see from the slide, revenue growth was strong across all sectors as we captured growing demand for both mature and new programs. Order intake in the period stood at close to GBP 2.5 billion with a book-to-bill ratio of 1 and order backlog was GBP 17.5 billion, equivalent to over 3 years of revenue with order cover for the remainder of the year approaching 90%

Strong order backlog alongside recent commitments made in the U.K., U.S. and Europe give us confidence over future demand for our existing portfolio of profitable products, including the EJ200 and AE engine family, alongside the new ramp-up of platforms such as the growing opportunity from autonomous that Tufan spoke to earlier.

The financials. Operating profit grew to GBP 522 million. That's almost 60% higher than last year. Operating margins grew to 21%, with our highest margin sales to markets outside of the U.K. and the U.S. Three factors drove that increase in operating profit. First, strong aftermarket performance across both transport and combat, supported by our actions to reduce shop visit costs and drive manufacturing efficiencies, a stronger contribution from profitable international sales and a benefit from higher flying hours.

Second, the benefits of continued self-help, including sustainable cost efficiencies as we drove improved productivity and tighter operating cost control. And third, good submarines growth as activity continued to ramp up. Cash flow. It stood at GBP 615 million. That compares to GBP 327 million in the prior period. Higher cash flow was driven by operating profit growth as well as some benefit from customer advances. So a very strong delivery from Defense, capturing demand from existing portfolio of profitable products while positioning us well for future growth.

Now Power Systems. Another very strong performance in the first half as we continue to drive profitable growth across both power generation and governmental. Our differentiated products and services are enabling us to capture strong market demand. Order intake of GBP 4.6 billion was more than 50% higher than last year with a book-to-bill ratio of 1.8x. power gen order growth was even higher, driven by data centers, which included growing demand for gas engines for prime power use.

Looking at our order book for the remainder of the year, we are fully covered with a growing firm order cover for 2027 and '28. And with Power Gen's multiyear framework deal structure, we have increasing visibility on growing orders up to 2030.

Now looking at the financials. Operating profit grew to GBP 528 million. That's a 72% increase year-on-year with operating margins growing to 20.3%. That 72% increase was driven by an excellent performance in power gen, where we continue to capture strong volumes with growing revenues of 41%. And within this, data center revenue grew even faster. We are capturing this growth with higher profitability due to continued commercial optimization and an improved product and customer mix. Indeed, we are seeing stronger growth from hyperscalers who want our higher power density engines with additional systems across multiple regions. And with our global account management approach, it means we are well positioned to be their partner of choice.

Next, a strong performance in governmental, where we are on key NATO platforms and continue to capture growing European defense spending. Governmental revenues grew by 25%, driven by both OE and aftermarket growth. And finally, we continue to manage costs well, including product costs.

Then cash flow. It grew to GBP 507 million, around GBP 100 million higher than last year, driven by higher operating profit alongside higher investments and working capital as we supported disciplined business growth. In summary, another very strong performance from Power Systems.

Turning to the funds flow. We delivered GBP 2 billion of free cash flow in the period. That's almost GBP 400 million higher than last year. The principal driver of increased free cash flow was operating profit, which grew by GBP 800 million. Other factors included net investments, they were over GBP 100 million higher than last year. Investments in power systems and engine development and capacity expansion are just some of the areas where we continue to invest to underpin future growth.

Then the civil net LTSA balance. It grew by just under GBP 100 million. That compares to nearly GBP 500 million in the prior period. There are a number of moving parts that drove that lower LTSA balance growth, a higher number of engine flying hours and growth in the normalized engine flying hour rate, which were largely offset by a higher number of shop visits, which included a higher number of refurbs, a higher LTSA margin, which led to higher realizations in the P&L. And finally, a high level of catch-ups in the period as we drove sustainable operational and commercial improvements across aftermarket contracts.

It's important to remember that positive catch-ups reduce the LTSA balance and that those improvements ultimately drive higher LTSA margins and sustainable cash generation.

Then turning to working capital. It was broadly similar to last year with inventory and receivable days both improving year-on-year, a strong performance in the current environment and as we continue to build supply chain resilience forwarded by key products and support revenue growth. Cash tax, it increased to GBP 525 million, GBP 270 million higher than the prior period, reflecting higher profits and the timing of payments. And we have now worked through the last of the remaining overhedge position, which was a minimal outflow in the period.

Tufan will talk to 2026 guidance, but let me give you some detail on our cash outlook. We expect the 2026 net LTSA balance growth to be below the 2025 level. This reflects large engine flying hours towards the lower end of the 115% to 120% range of 2019 levels, a higher normalized engine flying hour rate, the impact of a higher number of shop visits growing to between 1,480 to 1,550 with more refurbs, including Trent 1000s and XWBs and a higher level of catch-ups year-on-year. In addition, we still expect a cash impact of GBP 150 million to GBP 200 million from the supply chain.

Other cash items to note. Year-on-year, we expect a higher level of net investments with them more weighted to the second half as we continue to invest for growth, including additional capacity in power gen given the stronger outlook we now see. An outflow in provisions as we continue to progress commercial renegotiations and with higher profits, we now expect higher cash tax costs for them to be around GBP 300 million higher for the year.

Capital frame. Our approach to capital frame remains unchanged. We continue to strike a balance between preserving a strong balance sheet, delivering competitive returns to shareholders and retaining financial flexibility for investment opportunities.

If we look at the balance sheet, we're in a net cash position of just over GBP 2 billion at half year, a resilient place for us to operate from. In the period, we repaid GBP 1.1 billion of bonds. We also issued EUR 1 billion of new bonds, allowing us to extend maturities and maintain a presence in the bond market. We were delighted by the level of support for our first bond issuance since 2020, which was significantly oversubscribed. Thanks to all who participated.

The credit rating agencies continue to recognize our progress with Moody's and Fitch both upgrading us to A3 and A-, respectively, in March and with S&P recently reaffirming our BBB+ rating and moving us to a positive outlook.

Then distributions. We're announcing an interim dividend of 6p per share, representing a distribution to shareholders of approximately GBP 0.5 billion. And as of today, we are more than halfway through our GBP 2.5 billion share buyback for 2026, the remainder of which will be executed across the balance of the year. Taken together, the dividend paid to shareholders in June and the interim dividend that we're announcing today, along with the 2026 share buyback represents a return to shareholders of GBP 3.4 billion. That's a distribution of almost 90% of our 2026 free cash flow, all of which we are delivering as we continue to increase net investments across the group.

To close, first half results have been strong across all divisions and all key metrics. Our strategy is delivering, and the teams are doing an outstanding job. I would like to thank them for all their hard work and commitment. And there is still much more to do as we realize our full potential and continue transforming Rolls-Royce into a high-performing, competitive, resilient and growing business.

With that, let me pass you back to Tufan.

Thanks, Helen. A strong first half delivery across all divisions gives us confidence to raise our guidance for 2026. We now expect underlying operating profit of GBP 4.7 billion to GBP 4.9 billion with a year-on-year improvement across all 3 divisions. The increase in guidance is driven by, first, higher LTSA margins and increased level of contract catch-ups driven by the commercial and operational improvements that we are making across Civil Aerospace, then stronger power generation profitability and higher defense aftermarket growth. As Helen mentioned, we expect a lower contribution in the second half of the year from commercial improvements in Civil Aerospace. We expect free cash flow of GBP 3.8 billion to GBP 4 billion. This includes a GBP 150 million to GBP 200 million supply chain headwind, which will be lower in 2027 and will be gone by the midterm.

To close, let me now talk to how we are well positioned to step up on delivering on the Rolls-Royce proposition. I just want to give you a different lens into what we have been doing. We are creating a resilient, competitive and diversified business with significant growth potential. This is being driven by transforming Rolls-Royce operationally, financially and strategically and embedding a distinctive performance culture. Operationally, we are creating a business with best-in-class safety and operational effectiveness. We are improving our products and technologies to their best in a relatively short period of time and therefore, delivering the best customer service. We have effectively eliminated AOGs and are meeting the needs of our airline and airframmer customers and improving products and operational focus. This differentiates us from our competitors and delivers value to Rolls-Royce.

Next, financially, we are building a highly competitive, resilient and diversified business with a high quality of earnings across all our businesses, if you look at our operating margins of our businesses. In the first half of 2026, we delivered significant underlying performance improvement. This has resulted in increased operating margins across the group alongside a higher return on capital and has been delivered despite a challenging external environment. These results and our raised guidance for 2026 gives us increased confidence in the delivery of our midterm targets. I want to pause here because many of you probably now reflecting on our midterm targets, just to give you a sense how you may want to hold it, okay?

So first of all, it is very clear that all 3 businesses are delivering underlying performance improvement. When I say underlying, that means sustainable. That is happening. Second, though, we have some contract improvements in civil aerospace, and you need to actually differentiate them. If you are comparing year-on-year onerous ones, actually, this year, onerous is lower than last year. But onerous comes with 0 revenue, therefore, has a big leverage on operating margin. We told you, I think, onerous contracts, I expect some more next year, but not in midterm.

Catch-ups on the other hand, which was the majority this time, as long as we continue to improve the business, and I believe we will, catch-ups at least at some level will continue to be there, right? Hold it that way. But I also said it many times, I don't know how much it is sinking in. If you are looking at what we do, ignore how we run the business, you will never understand our results. How do you actually exceed these things? So we run -- we changed the way we run the business. We -- teams are not running after a budget. They are tasked, they are incentivized to deliver strategic progress year-on-year. That means improve the business every day. Proxy to that is year-on-year profit improvement, obviously, right, if you are doing that, all underlying though, right? This way, we are expanding the potential accelerating the delivery. I always said for the same reason, they are not linear.

With this context is important in the sense of what we are doing. But given the progress we made in the first half, and therefore, we actually increased the guidance, we may revisit our midterm targets. That's how I would like you to hold it.

The majority of the benefits of our strategic initiatives are still to come, for example, LTSA margin improvement and contract renegotiations. Finally, strategically, we have delivered significant strategic progress this year. For example, the selection of Rolls-Royce SMR in Sweden and 2 contracts already signed in the U.K. and Czech Republic, underscores our position as a global leader in SMRs.

Our transformation has created a business with significant growth potential in the midterm and beyond. I really believe we have unmatched potential for growth for the following reasons: we have positioned Rolls-Royce to benefit from key global trends, including world GDP growth, higher defense spending, digitalization and AI and energy transition, including a nuclear renaissance.

To further support this agenda, 2 more things I will mention. We are now underway with the second phase of efficiencies and the implementation of a digital thread across the group, including generative and agentic AI to unlock significant value as the business grows. I am proud of the Rolls-Royce team and what we have delivered so far. 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.

It's Ian Douglas-Pennant, UBS. Congratulations on another good set of results. Are you -- look, thinking about the civil market, are you seeing any indication of behavioral changes at the customers, at the airlines in response to the higher fuel price? And given the way, as you say, you've structured the business slightly differently to the contracts slightly differently to other engine makers, what would be the early indicators that you would look at internally to give you an idea of what might be coming next year?

And secondly, on the catch-ups, so these are somewhat larger than I think you expected. Why is that? And maybe you could, Helen, give us an outline of the process by which you review the accounting assumptions here? Like is that an annual process? Or just give us some idea.

Okay. So I think sort of civil improvements. I think your first question is sort of how do I see the field business? Is that -- I think field cancellations frankly, once Middle East happened and fuel prices went up, et cetera, we actually -- I get twice a week report. It tells me everything going on in the world. So how many fuel cancellations in what geography, obviously, ours market. So I have a pretty good idea sort of on an ongoing basis, what is going on.

We said it in trading update, and that continues to be true. Vast majority of fuel price cancellations actually narrow body. Yes, there was a smaller percentage, much smaller percentage also widebody. But our -- if you -- if I take it to Rolls-Royce, our big impact was more some of the Middle East players, and you know which airlines, obviously, especially March, April, then there was a recovery period after that.

So given I look at weekly report, I look at yesterday, Middle Eastern players mostly recovered, okay? So therefore, I think fuel cancellations, yes, it impacts us, but not as much as narrowbody impact. So I think when you say, okay, what do you think about next year, obviously, we are in an uncertain world. So depending on scenario, my answer may change. But I think a couple of things I will say.

We actually manage our destiny ourselves because of the total care contracts. For example, we said it in trading update. We don't expect any shop visit schedule change because of Middle East. We now actually stabilize the business. We optimize the business. We will continue to optimize. I actually chair an optimization meeting every 2 weeks that optimize the whole system. I don't mean we are in constant sort of shop visits, but we optimize it.

And because you actually stabilize the business because so far, our -- admittedly, our only focus was on customers. Let's eliminate AOGs. When you stabilize the business, you actually optimize it for profit and cash as well better. So when I -- what are the early signs sort of -- as I said, I mean, it's not even weekly. Every other day, I get this. And we look at it holistically. I look at even the fuel price and so on given my history, all that, how is the aviation fuels market is going, all that stuff.

But we look at multiple things. Obviously, we will look at retirement. So far, there is no hint of it. And I have a view that you extrapolate retirements from the early experience, I think you will end up in the wrong place because economics of retiring a plane right now is very different than what it was because in supply chain constrained environment, economics is very different than nonconstrained environment. Therefore, I don't actually expect retirements and their level is very low. Fuel cancellations, we continue to look at. But frankly, that is a factor, but I don't worry about it. If I was running narrowbody, probably I would worry about it a lot more.

Catch-ups, I think -- yes, it was -- they were actually more than we expected, but we expected them. So let me give you an example, and I'm not going to go into accounting because actually, this is business proposition rather than accounting. I really believe that. These are genuine business improvements. I'll give you an example. Because you stabilize the system, now you can optimize your lease engines, you had to allocate previously to eliminate an AOG, now you don't have to. That improves that contract. Yes. Did I expect that? No, because that's sort of dynamic optimization you go into, right?

I'll give you another example. Yes, you see only onerous contracts, but I said it in one of the presentations, we have low-margin negotiations that team actually does. Some of that come through, okay, i.e., commercial improvements in the contract. Some -- when they come, they sort of create catch-up, not onerous. Turtingam, Business aviation is a big part of catch-ups this half. We had this program that we put in place to upgrade our customers to the next corporate level, and that came more than we expected.

When you high grade, your margins improve, your contract improve, obviously, you give them better service and more service, et cetera. But those are some of the -- so therefore, going forward, how should I think about catch-ups? You should think that we will continue to have catch-ups. I cannot tell you they are going to be at this level, at that level because it is -- when you are continuing to optimize the business with value stream framework, I said it last time, we run the business very differently. You intervene in the business constantly, constantly. So some people think, this is long-cycle business, how do you actually -- yes, it's not long cycle, if you design engine and so on, it's not long cycle in this optimization. It's actually every 15 days. It is there. So that's how I would actually answer that. I promised here, I'll come to you, but...

Sam burgess at Goldman Sachs. Maybe one for Helen and one for Tufan, if that's okay. Firstly, can you just give us an update on supply chain, what you're seeing and the level of confidence that GBP 150 million to GBP 200 million cash headwind will reduce in 2027? And then the second question, you've got an increasingly broad and strong portfolio now in the data center power market. And you've just spoken to the growing opportunity in prime power. How important could this market become to Rolls-Royce? And is the long-term plan to evolve a really holistic offering that incorporates SMR?

Okay. So I think let me start with that one. I think short answer is absolutely. We are already -- when we actually meet with hyperscalers today, even SMR and Power System team shows up together. Yes, SMR still has some mileage to go in terms of execution. But definitely, it will -- because when we started, frankly, SMRs are 470 megawatts. I thought this is actually grid. But what happened during the process, still -- I mean, what we are doing in the U.K. will go to grid. But what happened in the process is data centers got bigger and bigger and bigger. Right now, they are even -- they are building 500-megawatt data centers. So they are now between 200 to 500.

In that kind of setup, yes, you can actually put an SMR, then you not only have continuous power, but it is also net zero, obviously. So it will definitely play that role. In fact, I was think AMRs may play that role, but AMR is smaller. They will actually more focused on space, defense and industrial setup if you have an industrial complex and so on.

So yes, answering that, but gas engines is very interesting for us because anything Helen presented, we don't actually benefit from that, because I said it less than 10%, but that's non-data center. And it has been actually off-grid applications. Now we see enormous demand coming, enormous. Good news is we actually have some capacity in our plan. Without investment, we can scale up, then we need to invest, obviously, for that. But that gives us -- and also, we really very strong service, almost 50% of our profit comes from services in Power Systems. And this will increase that because a gas engine, which obviously runs all the time versus a diesel like backup engine, aftermarket profit is exponentially higher, exponentially. And it comes in 3 years. So it's not like 15 years. 3 years, you need to -- because they run so much. Do you want to pick up supply?

Yes, I can do. So Sam on supply chain. So we definitely see an improvement in that, and we have put a lot of effort into it. As I said, product availability has improved. We've invested with our suppliers. We've sent hundreds of people in there to strengthen their supply chain. We've opened up additional sources. We've put in new tooling, machinery, second source supply. So we are seeing the benefit of that come through as a result of our actions. You can see that in some of our stats, large engine OE deliveries up 30% year-on-year, turnaround time on our main basis. 3 weeks, yet quicker. That's a lot compared to this time last year.

Where we're still seeing some of the crunch points is particularly in cost inflation. The Middle East environment hasn't helped with that. If you think of how much product, particularly some of those rare earth elements and elementals that I spoke to that transit through the straits. But we have got a set of actions, and they are both tactical to deal with here and now and strategic to sustainably build up resilience. So we've got good visibility into it. We've got confidence that as the environment stands at the moment, that charge will reduce in 2027 and be gone by 2028 based on the current environment.

Just to add sort of to give you further confidence -- thanks, Helen. Supply chain has some generic issues. And then every company has some specific issues, right? I won't give company names, but if you think about it, you will figure it out. Our issue has been, therefore, we are confident that's going to disappear 150 to 200. Our big issue was Trent 1000. When the engines supply -- think about parts availability and issue, engines come back every 9 to 12 months in that environment, that creates all sorts of issue, including customer disruptions and the implications of that financially, right? So by upgrading those engines, therefore, we are actually confident that I mean that was a big part of how we are eliminating AOGs. So that's why our particular issue disappears. That's why we are talking with confidence that that's what's going to happen.

Ross from Morgan Stanley. So 3, if I may. One quick follow-up to Sam's question on power gen. And I think you said primary power was kind of 10% contributor to sales. What do you think that could be medium term? Secondly, on the A350 and the potential rate increase that Airbus has flagged. And what CapEx would be required there? And is that included in your outlook? And lastly, on narrow-body and the potential partner, and does that partner need to be an operational partner that actually brings technical expertise to the table? Or can it be simply a financial partner?

Okay. I think less than 10% if I start with gas engines, less than 10%, yes, given the visibility of orders right now, here's how you should think about our growth. We said 25%. But within that, you think about backup engines still growing and gas engines are growing even more. Therefore, both of them are growing, but even more. And as a result, we expect by 2030, that number will be 15% to 20% but both of them growing. So therefore, it will more than double by definition, right?

So -- and the good news is really because OE margin profile very similar, but you have very big aftermarket coming. Therefore, I said in my presentation, after midterm, they will come because it's normally 3 years, okay? So that's first question.

A350, frankly, first, Airbus needs to decide. And I don't want to elaborate or sort of comment on what they will do, what they will not do. It's a good question for them. I think -- but we are very closely working with them. And I would like to highlight our great success with A350, right? I mean 84, XWB-84 is the best engine durability fuel efficiency in the whole market right now and 97 has 99.9% -- more than 99.9% actually dispatch reliability. And it is the most utilized engine in wide-body.

So obviously, we will bring that understanding and expertise to that. But first, they need to decide, a, are they going to do it; b, what kind of thing they will do. Narrow-body, I think pure financial, I'm not really interested in. So I think there needs to be a sort of strategic dimension of the partnership. And all the parties we are talking to, and there are multiple parties, I can assure you, has that profile. Jeremy?

Thanks, Tufan. So I've got some online questions here, including from Ben Heelan at Bank of America. A couple of his questions have been answered, but one to sort of focus on here is A350-2000. Would you think about could you provide an engine that's a derivative of an existing XWB? And what sort of investment would that require is the first one. And the second one is a follow-on or an additional question on narrow-body, which is would you be willing to sort of pair up with an airframer in term -- for that program in return for giving them a stake in the program?

Okay. Thanks. I think -- 2000, I'm afraid, Ben. I'm going to give the same answer I gave. So I think on 2000, first, Airbus needs to make the choice, then obviously, we are working with them to help make that decision, then we can talk about it. I think on narrowbody, as I said, we are talking to multiple partners. At this point, it's not appropriate to talk about this kind of player, that kind of player. I already answered that it's not financial players. So I would like to leave it at that because is there any other in the room at the back?

Colin Moody from RBC here. Just maybe another 1 or 2 on the power systems and power generation opportunity. You talked about potential to expand more capacity yourself. Clearly, there's a lot of capacity coming online from your 2 other main competitors as well as a slew of others. How do you think about the risk of overcapacity in the industry? And then maybe just another question. Clearly, you gave a view on what a primary power generation opportunity could go to in the midterm. Do you think it's a duration -- kind of a limited duration to that potentially? When you look at the comments from the larger gas turbine manufacturers, a lot of them have a view that as they get their capacity up, engines will kind of retire again to sort of being backup power solutions. So how do you view that risk?

So it's a great question. I think -- so here's what I don't actually see on the first part of your question, I'll come to the second part of your question in a minute. But I don't actually see that risk because here's a couple of data points for you. We already said in our presentation that actually order intake increased 50%. That was total Power Systems. Actually, if you look at data centers and power gen, it is more than 50%. So number one, this EUR 8 billion order book is very unusual in this industry. If you are aerospace analyst with all the respect, you may not appreciate it saying, okay, what is this? But for this industry, it is unbelievable.

So we are already taking orders for data centers for '28. And with hyperscalers, actually, our -- we have framework agreements with penalties. They go all the way to 2030, okay? So I think this data is important. And I know yesterday, today, AI growth this and that the whole world is sort of obsessed by that. And every other day, they changed their mind, by the way, it's interesting. But today is the down day, I guess. But so -- but I have a perspective on that, frankly. Sometimes we miss -- we confuse companies' valuation, which I'm not going to comment on, they are all great companies on technology space. Companies' valuation, are they higher valued, lower valued versus what digital transformation in the world will continue, okay?

I'm not going to comment on the first one. I'm going to comment on the second one. Second one tells me actually the following because we are -- I just talked about digital thread. We are actually going big time. Think about companies like us, right? Digital transformation in the world will continue because it enables effectiveness, it enables efficiency. There is no doubt. Therefore, with digital infrastructure to support that will continue. It will have to continue because world needs it. That's very different than companies value too much. I'm not going to even comment on it. But sometimes people confuse the 2 and make conclusions from that, is it a bubble? I don't think digital transformation is a bubble, right?

And therefore, people actually investing in data center infrastructure because they are thinking that way. And we look at -- we talk to our customers, hyperscalers. But if you look at NVIDIA product road map, their chips are requiring more and more power. Why? Because AI models are getting more and more complex. Just look at their product road map. So therefore, we still don't want to -- we actually signed a framework agreement. I can assure you, early next week, in investment committee, we are going to sign another big hyperscaler sort of deal, we will, in the investment committee authorize, hopefully.

So -- and that gives you a framework agreement with penalties. It gives you multiyear sort of visibility. Then we actually go and invest, right? And we optimize our operations a lot more like 2 years ago versus now, we are optimizing a lot more because volume allows you to do that. Your gas engines, I think you are right. There is a good visibility for gas engines to 2030. And our investments target that as opposed to how about 2050, this will happen and let's have speculative investment, et cetera. But it will be very interesting.

Frankly, I was actually reflecting on this. It will be very interesting because most -- almost exclusively all of these gas engines will go to U.S. because of the off-grid -- grid situation in the U.S. So therefore, U.S. market is actually the market to talk about here. You are right. At some point, grid may come. It will be interesting once you paid for these engines, given how cheap gas is in the U.S., would some companies rather than grid will continue with this because maybe operating costs may be lower. I'm not going to speculate on it, but I wouldn't totally rule that out either, right? So you need to think about it that way as well.

Some of these engines can switch to backup power as well.

That's what...

Yes, exactly. Yes.

Jeremy?

Last one, I think, from David Perry. So congrats on the great results. Focusing on the defense performance, which is really standout at a 21% margin. Obviously, that compares to the midterm guidance of 14% to 16%. So how should we be thinking about defense margins going forward for both 2026 and the midterm? And how much of that improvement is sustainable?

David, as usual, great question. But with one correction, if I may, stand out not only defense, all other 2 divisions also stand out, just small correction. But -- so -- but I would say, let me characterize that for you because there may be a background conversation, Middle East is that. I think what we did, this value stream framework, we first applied the way to run the business in Civil. Then we went to other divisions. Now we actually run it that way. And Power Systems were sort of there.

And as part of that, there was an aftermarket project. And as a result of that, we look at aftermarket I talked about 6 levers for Civil. I didn't talk about it today, but you know what they are. Same 6 levers actually there as well, different dynamics, same 6 levers. A big aftermarket profitability improvement was driven by lower shop visit costs. They are sustainable. So therefore, David, the way to think about it, yes, I think 21%, you know David, this really well, 6 months is 6 months, right? In that 6 months, there was this aftermarket versus OE percentage, which will not be there in full year. Therefore, some of it is like aftermarket. I always say our targets are sustainable operating margin targets. Therefore, 1 quarter -- sometimes people come to me, this competitor delivered this margin in 3 months. I mean it's 3 months. You are not -- lots of dynamics drive that. If I don't deliver any OE, lots of aftermarket, I may deliver 40% margin.

So I think you need to sort of think about it. There is that in defense first half. But there is also this underlying performance improvement in aftermarket coming, as I explained. Therefore, you should expect not 21%, but relative to where we were, you should expect increased underlying operating margin improvement in this.

And also, we said actually combat and transportation aftermarket and the international sales. If there is a background conversation in the first half, how about Middle East impact, Middle East, most of it was underlying and there was some Middle East profit impact, okay? So that's how you should actually hold it. Going forward, we will have higher operating margins, not 21%, but higher than we used to have because of what I just said.

Okay. I think there are no more questions. So I think -- thanks for your questions. As usual, they are great questions. I think we are making great. What am I delighted about these results? Lots of underlying performance improvement came from every division. That's why I'm delighted because I'm not worrying about this 6 months, I'm actually worrying about moving the bar and building on it and capture the ground, build on it. And in that sense, all 3 divisions did exactly that and created, therefore, continuous underlying performance improvement, which is actually sustainable.

So therefore, we are making great progress in that. And as I said, we created -- if you think about it, whether it is portfolio mix of high-performing 3 divisions and how they are actually lined up to major growth trends and our underlying performance improvement coming, that diversified portfolio and the agility in the company and frankly, how much we lowered cash breakeven of the company, this is a very resilient company. Sometimes resilience come at the expense of growth. We have actually unmatched growth potential, but at the same time, a lot more resilient than our competitors. If you think 5 minutes, you will find the answer. So I think that mix is a brilliant sweet spot actually for Rolls-Royce that we will continue to build on it and deliver. Thanks for listening. Have a great day.

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.