Rolls-Royce Holdings (LON:RR.) have today announced half year results for 2023.
| ● | Significantly improved first half results: higher underlying operating profit of £673m and free cash flow of £356m reflects continued end-market growth and our focus on commercial optimisation and cost efficiencies across the Group |
| ● | Full year guidance raised: on 26 July we upgraded 2023 guidance for underlying operating profit to £1.2bn-£1.4bn and free cash flow to £0.9bn-£1.0bn; transformation efforts are accelerating our financial delivery |
| ● | Margin improvement led by Civil and Defence: driven by higher volumes, commercial improvements, and cost efficiencies; Power Systems margins were lower, but are expected to improve in the second half due to our pricing actions |
| ● | Accelerated financial delivery driven by transformation: our multi-year programme has started well with strong initial results |
| ● | Delivering in an uncertain environment: an increased focus on costs and productivity has helped to offset the impact of inflation and supply chain pressures |
Tufan Erginbilgic, Rolls-Royce CEO, said: “Our multi-year transformation programme has started well with progress already evident in our strong initial results and increased full year guidance for 2023. There is much more to do to deliver better performance and to transform Rolls-Royce into a high performing, competitive, resilient, and growing business. We will share the outcome of our strategy review along with medium-term goals for the Group in November.
Our people are committed, passionate and full of energy. Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our businesses. Better profit and cash generation reflect greater productivity, efficiency, and improved commercial outcomes. We have tightly managed our cost base to offset inflationary cost pressures.
We have a strong portfolio of products and technologies in growing end markets and have secured key contract wins that will create future value and profitable growth. Our continued transformation will grow our business and allow us to play a stronger role in the energy transition.”
Half Year 2023 Group continuing operations
| Underlying2023 H1 | Underlying 2022 H1 | Statutory 2023 H1 | Statutory2022 H1 | |
| £ million | ||||
| Revenue | 6,950 | 5,308 | 7,523 | 5,600 |
| Operating profit | 673 | 125 | 797 | 223 |
| Operating margin (%) | 9.7% | 2.4% | 10.6% | 4.0% |
| Profit/(loss) before taxation | 524 | (111) | 1,419 | (1,754) |
| Basic earnings/(loss) per share (pence) | 4.90 | (2.24) | 14.70 | (19.29) |
| Free cash flow | 356 | (68) | ||
| Net cash flow from operating activities 1 | 1,135 | 597 | ||
| 1 2022 includes discontinued operations | 30 Jun 2023 | 31 Dec 2022 | ||
| Net debt | (2,845) | (3,251) |
A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 42 to 44
2023 Half Year performance summary
· Higher profitability led by Civil Aerospace: The Group’s underlying operating margin was 9.7% versus 2.4% in the prior period. This was driven by continued revenue growth coupled with early transformation benefits, notably commercial optimisation and cost efficiencies across the Group. Civil Aerospace’s operating margin was 12.4% versus (3.4)% in the prior period due to higher aftermarket profitability and increased large spare engine sales, coupled with cost efficiencies and our commercial optimisation actions. The 13.6% Defence operating margin reflected strong revenue growth and cost efficiencies. Power Systems’ margin of 7.0% was lower than the prior period but we expect better performance in the second half of the year because of pricing actions, cost efficiencies and seasonally higher volumes. Losses increased in New Markets as expected due to planned growth activities.
· Stronger cash flow: Free cash flow from continuing operations of £356m compared to an outflow of £(68)m in the prior period. Underlying operating profit improved from £125m to £673m in the period. A long-term service agreement (LTSA) balance change of £727m (2022 H1: £433m) reflected large EFH (engine flying hour) growth to 83% of 2019 levels and our commercial optimisation actions, notably increased pricing and the anticipated collection of overdue debts that had previously been provided against. A portion of our LTSA receipts are payable to our RRSPs (risk and revenue sharing partners), which reduces the amount of cash retained. Of the total LTSA balance growth of £727m, c.£0.5bn benefited our cash flows in the period. Working capital was an outflow of £(576)m in the first half of the year (2022 H1: £(269)m), mainly driven by a £(0.6)bn outflow from higher inventories as a result of supply chain challenges and to satisfy volume growth in the second half of 2023. Net debt improved to £2.8bn (2022 FY £3.3bn). We remain committed to returning to an investment grade credit rating.
· Accelerated financial delivery: Our financial performance reflects improved end-markets helped by the early benefits of transformation and rigorous performance management. We have tightly managed our cost base which has helped to offset inflationary cost pressures. Our actions on pricing across the Group have already started to deliver results with more expected in the second half of the year. Each business has been building and delivering plans to address performance and deliver a step-change in operational and financial performance.
· Capital Markets Day: We will communicate the findings of our strategic review and set medium-term financial targets at a Capital Markets Day on 28 November in London. Further details will be provided in due course.
Outlook and 2023 Guidance
First half performance and the progress of our transformation programme give us confidence in delivering higher profit and cash flows in 2023.
| Underlying 2023 financial guidance | As set on 26 July 2023 | As set on 23 February 2023 |
| Operating profit | £1.2bn-£1.4bn | £0.8bn-£1.0bn |
| Free cash flow | £0.9bn-£1.0bn | £0.6bn-£0.8bn |
Operating profit guidance of £1.2bn-£1.4bn assumes £200m-£250m of targeted contract improvements.
Free cash flow guidance of £0.9bn-£1.0bn comprises higher underlying operating profit and assumes £1.0bn-£1.2bn growth in the Civil LTSA balance (2022 FY: £792m). Of the total LTSA creditor growth, £800m-£900m is expected to benefit our cash flows in the period. We continue to anticipate a year-on-year headwind of c.£200m associated with legacy Boeing original equipment (OE) concessions, an increased c.£150m adverse impact due to fires at two suppliers’ premises, and a new expected outflow of c.£100m in respect of the outcome of a legal judgment.
Underlying financial performance by business
| £ million | Underlying revenue | Organic Change 1 | Underlying operating profit/(loss) | Organic change 1 | Underlying operating margin | Margin change |
| Civil Aerospace | 3,257 | 38% | 405 | 479 | 12.4% | 15.8pt |
| Defence | 1,913 | 15% | 261 | 65 | 13.6% | 1.9pt |
| Power Systems | 1,774 | 24% | 125 | − | 7.0% | (1.7)pt |
| New Markets | 1 | nm | (78) | (29) | nm | nm |
| Other businesses | 5 | nm | (5) | 24 | nm | nm |
| Corporate and Inter-segment | − | nm | (35) | (8) | nm | nm |
| Total (continuing operations) | 6,950 | 28% | 673 | 531 | 9.7% | 7.3pt |
1 Organic change is the measure of change at constant translational currency applying full year 2022 average rates to 2022 and 2023. All underlying income statement commentary is provided on an organic basis unless otherwise stated
All results are shown for Group continuing operations, on an underlying basis, excluding discontinued operations (ITP Aero). For more details, see note 2 of the Condensed Consolidated Interim Financial Statements (page 22).
nm is defined as not meaningful.
Trading cash flow
| £ million | 2023 H1 | 2022 H1 |
| Civil Aerospace | 401 | 63 |
| Defence | 76 | 89 |
| Power Systems | 22 | (76) |
| New Markets | (42) | (30) |
| Other businesses | 8 | (1) |
| Corporate and Inter-segment | (34) | (24) |
| Total trading cash flow (continuing operations) | 431 | 21 |
| Underlying operating profit charge exceeded by contributions to defined benefit schemes | (16) | (1) |
| Taxation | (59) | (88) |
| Total free cash flow (continuing operations) | 356 | (68) |
Civil Aerospace
| 2023 H1 key Civil Aerospace operational metrics: | Large engine | Business aviation/ Regional | Total | Change |
| OE deliveries | 115 | 73 | 188 | 39 |
| LTSA engine flying hours (millions) | 6.2 | 1.5 | 7.7 | 1.6 |
| Total LTSA shop visits | 394 | 197 | 591 | 114 |
| …of which major shop visits | 144 | 187 | 331 | 68 |
The significantly improved Civil Aerospace margin of 12.4% (2022 H1: (3.4)%) reflects continued large engine market recovery and growth in business aviation, coupled with the early benefits of transformation, notably cost efficiencies and commercial optimisation.
Large engine flying hours were up 36% versus the prior period to 6.2m, at 83% of 2019 levels, as global travel benefited from the lifting of travel restrictions in China. We continue to expect large engine flying hours of 80%-90% of 2019 levels for the full year. Total engine flying hours were 7.7m in the period (2022 H1: 6.1m).
We recorded 240 large engine orders in the first half of 2023 (2022 H1: 96), including a record order from Air India for 68 Trent XWB-97 engines to power its A350-1000 aircraft, options for 20 more, and orders for 12
Trent XWB-84 engines. Our large engine order book at 30 June 2023 was 1,405 engines up from 1,282 at 31 December 2022. This is the first time that the large engine order book has grown since 2018. Our guidance of
400-500 total engine deliveries for full year 2023 remains unchanged.
OE deliveries rose by 26%, with 73 business aviation deliveries (2022 H1: 71) and 115 total large engine deliveries (2022 H1: 78). Large engine deliveries included 18 spare large engines (2022 H1: 8). Total large spare engine deliveries in 2023 are expected to be broadly flat year on year (2022 FY: 44).
Total LTSA shop visits were 591 versus 477 in 2022 H1, roughly half of the total of 1,200-1,300 shop visits expected for the full year. There were 144 large engine major shop visits in the first half of 2023 versus 113 in 2022 H1, with a higher profitability per shop visit compared with the prior period.
Revenue of £3.3bn was up 38%. This comprised £1.1bn OE revenue, up 58% driven by higher large engine deliveries, and £2.2bn Services revenue, up 30%, due to increased large engine shop visits and higher
time & materials revenues. Contractual improvements drove £23m of LTSA catch-ups (2022 H1: £241m).
Operating profit of £405m (12.4% margin) compared to a loss of £(79m) in the prior period. The increase in operating profit was driven by higher aftermarket activity including increased large engine LTSA shop visit volumes and profitability, a greater contribution from large engine time & materials and from business aviation. Operating profit also benefited from higher spare engines sales in the period, coupled with cost efficiencies. Our actions to improve the profitability of LTSA margins resulted in contractual margin improvements in the period, with an onerous provision credit of £35m (2022 H1: £51m) and £70m of positive LTSA catch-ups (2022 H1: £219m). Civil Aerospace operating profit in the second half of 2023 is expected to be broadly similar to the first half.
Trading cash flow was £401m compared with £63m in the prior period. Operating profit improved by £479m. The LTSA balance change of £727m (2022 H1: £433m) was driven by EFH growth and our commercial optimisation actions, notably an improved average rate per flying hour driven by escalation and customer pricing negotiations and the anticipated collection of overdue debts that had previously been provided for. A portion of our LTSA receipts are payable to our RRSPs, which reduces the amount of cash retained. Of the total LTSA balance growth of £727m, c.£0.5bn benefited our cash flows in the period. LTSA EFH receipts were £2,337m versus £1,648m in the prior period. Working capital outflows increased versus the prior period, due to rising inventories as a consequence of supply chain challenges and the second half weighting of deliveries and shop visits in the year. We expect inventories to fall in the second half of the year.
Defence
Operating profit grew by 33% in Defence, our most resilient business, driven by strong revenue growth and higher margins. Strong revenue growth in the period reflected increased underlying demand and a more even delivery profile between the first half and second half of the year than in 2022. Higher margins were driven by pricing actions, a more favourable product mix and cost efficiencies.
Order intake was £2.7bn in the first half, with a book-to-bill of 1.4x. This included major contract renewals in both Combat and Transport as we focused on commercial optimisation to support profitable growth. Our order backlog at the end of the period was £8.9bn, up from £8.5bn at the start of the year.
As the single-source provider of the power and propulsion for the UK’s nuclear powered submarines, we have been chosen to provide the reactors for Australia’s nuclear powered submarines from the early 2040s, as part of the AUKUS trilateral agreement between Australia, the UK and the US. Customer funded investment to expand our submarines site in Derby has already begun, helping to grow revenue and profit.
The Bell V-280 Valor, powered by our AE1107F engines, was selected by the US Army for the Future Long Range Assault Aircraft programme in 2022, and work has begun this year. Following successful completion of the initial phase on the Future Combat Air System Acquisition Programme we secured a contract extension, which included funding for Global Combat Air Programme (GCAP) activities. Together with the UK Government and industry partners we released a series of technical updates about the first flying combat air demonstrator in a generation. This included our successful intake compatibility testing at Bristol with an EJ200 engine. These programmes, combined with robust defence budget forecasts in most western geographies underpin the long-term outlook for the business.
Revenue increased to £1.9bn, up 15% reflecting a more first half weighted delivery profile than in 2022. We anticipate modest revenue growth for the full year 2023. OE revenue was up 17% on the prior period helped by the increase from funded development programmes in Combat and Submarines. Services revenue increased 13%, also driven by increased activity in Submarines and higher delivery in Combat, Transport and Naval.
Operating profit was £261m (13.6% margin) versus £189m (11.7% margin) in the prior period. Higher operating profit was a result of higher revenues, pricing actions, a favourable mix due to the timing of high margin spare parts in the first half of the year and cost efficiencies.
Trading cash flow of £76m was 15% lower than in the first half of last year, with higher operating profit offset by the absence of an advance payment of £63m received in the comparative prior period. We expect stronger trading cash flow in the second half of 2023 as a result of key milestone payments on newer programmes and actions to reduce inventory despite the ongoing supply chain challenges.
Power Systems
Power Systems operating profit was broadly flat versus last year but at a lower operating margin. We anticipate a higher year on year margin for the full year, with an increase in the second half due to the impact of pricing actions, cost efficiencies and seasonally higher volumes.
Order intake in the Power Systems business was £1.9bn, 14% lower than the prior period. Book to bill was 1.1x, with a record level of order cover for the remainder of 2023 and 32% covered for 2024. Key awards in the period included a second contract to supply mtu generator packs for the US Navy frigate program, follow-up orders for rail power packs from Hitachi and marine engines under a frame agreement with yacht builder Ferretti.
Revenue was £1.8bn, up 24%. OE revenue grew by 33%, driven by strong order execution for stationary PowerGen equipment and continued strong sales of mobile power solutions in the marine and mining segments. Services revenues were up 10% reflecting increased end-market activity.
Operating profit was £125m with a 7.0% margin down 1.7% points on the prior period. The decrease in margin reflected the negative impacts of product mix effects and higher costs partly offset by the benefit of pricing increases.
Trading cash flow was £22m, a conversion ratio of 18% versus (64)% last year. The improvement in trading cash flow reflected reduced working capital outflows versus the prior period. An increase in inventories during the period reflected strong volume growth in the first half of the year and in advance of seasonally higher revenues in the second half. We expect improved cash conversion in the second half as a result of higher revenues and operating profit and our working capital initiatives.
New Markets
In Electrical, testing began on a new small gas turbine developed to power hybrid-electrical flight as part of a turbogenerator system for advanced air mobility.
Rolls-Royce SMR is progressing well through the regulatory process in the UK, entering stage 2 of the Generic Design Assessment (GDA) process. First power is still planned in the early 2030s, which will be dependent on securing orders and the outcome of the final investment decision by the UK Government.
Planned cost increases in both Electrical and Small Modular Reactors (SMR) to meet development milestones resulted in an increased operating loss of £(78)m versus £(48)m in the prior period.
Trading cash flow was an outflow of £(42)m versus an outflow of £(30)m in the prior period, with SMR costs largely covered by third party funding.
Statutory and underlying Group financial performance from continuing operations
| 2023 H1 | 2022 H1 | |||||
| £ million | Statutory | Impact of hedge book 1 | Impact of acquisition accounting | Impact ofnon-underlying items | Underlying | Underlying |
| Revenue | 7,523 | (573) | − | − | 6,950 | 5,308 |
| Gross profit | 1,657 | (162) | 25 | (5) | 1,515 | 942 |
| Operating profit | 797 | (165) | 24 | 17 | 673 | 125 |
| Gain arising on disposal of businesses | 1 | − | − | (1) | − | − |
| Profit before financing and taxation | 798 | (165) | 24 | 16 | 673 | 125 |
| Net financing income/(costs) | 621 | (817) | − | 47 | (149) | (236) |
| Profit/(loss) before taxation | 1,419 | (982) | 24 | 63 | 524 | (111) |
| Taxation | (196) | 140 | (6) | (58) | (120) | (77) |
| Profit/(loss) for the period from continuing operations | 1,223 | (842) | 18 | 5 | 404 | (188) |
| Basic earnings/(loss) per share (pence) | 14.70 | 4.90 | (2.24) | |||
1 Reflecting the impact of measuring revenue and costs at the average exchange rate during the period and the valuation of assets and liabilities using the period end exchange rate rather than the rate achieved on settled foreign exchange contracts in the period or the rate expected to be achieved by the use of the hedge book
| – | Revenue: Underlying revenue of £7.0bn was up 28%, largely driven by increases across Civil Aerospace, Defence and Power Systems. Statutory revenue of £7.5bn was 34% higher compared with the prior period. The difference between statutory and underlying revenue is driven by statutory revenue being measured at average prevailing exchange rates (2023 H1: GBP:USD 1.23; 2022 H1: GBP:USD 1.31) and underlying revenue being measured at the hedge book achieved rate during the year (2023 H1: GBP:USD 1.50; 2022 H1: GBP:USD 1.50). |
| – | Operating profit: Underlying operating profit was £673m (9.7% margin) versus £125m (2.4% margin) in the prior period. The growth was led by Civil Aerospace and Defence, partly offset by increased investment in New Markets. Statutory operating profit was £797m, higher than the £673m underlying operating profit largely due to the £165m negative impact from currency hedges in the underlying results. Net charges of £17m were excluded from the underlying results as these related to non-underlying items comprising: reversals of exceptional contract loss provisions of £21m, £(35)m of exceptional restructuring and transformation charges, including £(31)m related to the multi-year transformation programme launched in the period, and £(3)m of other items. |
| – | Profit before taxation: Underlying profit before tax of £524m included £(149)m net financing costs primarily related to net interest payable. Statutory profit before tax of £1,419m included £415m net fair value gains on derivative contracts, £(117)m net interest payable and a net foreign exchange gain of £396m. |
| – | Taxation: Underlying tax charge of £(120)m (2022 H1: £(77)m) reflects an overall tax charge on profits of Group companies and a tax credit of £8m relating to the re-recognition of some of the deferred tax asset on UK tax losses. These are also reflected in the statutory tax charge of £(196)m (2022 H1: tax credit £143m) together with additional tax credits on the re-recognition of £44m UK deferred tax assets relating to UK tax losses. In addition, included in the £(196)m tax charge was £(140)m related to unrealised foreign exchange derivatives which included the re-recognition of £57m, and £20m tax credit related to other non-underlying items. |
Free cash flow
| 2023 H1 | 2022 H1 | |||||
| £ million | Cash flow | Impact of hedge book | Impact of acquisition accounting | Impact of other non-underlying items | Funds flow | Funds flow |
| Operating profit | 797 | (165) | 24 | 17 | 673 | 125 |
| Operating profit from discontinued operations | − | − | − | − | − | 68 |
| Depreciation, amortisation and impairment | 513 | − | (24) | − | 489 | 455 |
| Movement in provisions | (142) | 26 | − | 21 | (95) | (116) |
| Movement in Civil LTSA balance | 857 | (130) | − | − | 727 | 433 |
| Other operating cash flows 1 | (4) | (7) | − | (3) | (14) | (14) |
| Operating cash flow before working capital and income tax | 2,021 | (276) | − | 35 | 1,780 | 951 |
| Working capital (excluding Civil LTSA balance) 2 | (311) | (256) | − | (9) | (576) | (269) |
| Cash flows on other financial assets and liabilities held for operating purposes | (516) | 522 | − | − | 6 | 35 |
| Income tax | (59) | − | − | − | (59) | (88) |
| Cash from operating activities | 1,135 | (10) | − | 26 | 1,151 | 629 |
| Capital element of lease payments | (167) | 10 | − | − | (157) | (85) |
| Capital expenditure | (287) | − | − | 2 | (285) | (167) |
| Investments | 17 | − | − | − | 17 | 6 |
| Interest paid | (159) | − | − | − | (159) | (172) |
| Settlement of excess derivatives | (210) | − | − | − | (210) | (265) |
| Other | 27 | − | − | (28) | (1) | (23) |
| Free cash flow | 356 | − | − | − | 356 | (77) |
| – of which is continuing operations | 356 | 356 | (68) | |||
1 Other operating cash flows includes profit/(loss) on disposal of property, plant and equipment, share of results and dividends received from joint ventures and associates, interest received, flows relating to our defined benefit post-retirement schemes, and share-based payments
2 Working capital includes inventory, trade and other receivables and payables, and contract assets and liabilities (excluding Civil Aerospace LTSA balances)
Free cash flow in the period was £356m, an improvement of £424m compared with the prior period driven by:
Operating cash flow before working capital and income tax of £1.8bn, £0.8bn higher than the prior period. The improvement at the Group level was principally due to a stronger trading performance and higher cash receipts as a result of EFH receipts in Civil Aerospace exceeding revenue recognised. The movement in provisions of £(95)m largely related to utilisation of the Trent 1000 provision and contract loss provisions.
Working capital £(576)m, compared to £(269)m in the prior period. Inventory increased by £(0.6)bn as a result of the build-up of inventory in line with requirements to meet demand in Civil Aerospace and Power Systems, along with continued supply chain disruption. There was a net £(0.3)bn outflow from receivables and payables, which reflected increases of receivables of £(0.4)bn due to volumes partly offset by increases in payables that included a £0.2bn cash flow benefit from timing of net payments to joint ventures. In addition, there was a £0.3bn inflow from advance payment receipts during the period.
Income tax of £(59)m, net cash tax payments for the first half of 2023 were lower than the prior period (£(88)m) due to timing. Tax payments in the second half of 2023 will be higher, with full year payments expected to be broadly in line with the prior year.
The capital element of lease payments was £(157)m, £(72)m higher than the prior period as a result of timing of lease payments.
Capital expenditure of £(285)m, mainly £(175)m property, plant and equipment additions and £(123)m intangibles additions. The combined additions were higher than last year as a result of investment in site improvements across the Group.
Interest paid of £(159)m, including lease interest payments, has decreased by £13m as a result of the settlement of the UKEF £2bn loan facility in September 2022 slightly offset by higher interest on gross overdrafts.
Settlement of excess derivative contracts of £(210)m, down from £(265)m in the first half of 2022. An additional cash outflow of £179m will be incurred in the second half of 2023, £146m will be incurred in 2024 and £175m expected over the 2025-2026 period.
Balance Sheet
| £ million | 30 Jun 2023 | 31 Dec 2022 | Change |
| Intangible assets | 4,019 | 4,098 | (79) |
| Property, plant and equipment | 3,807 | 3,936 | (129) |
| Right of use assets | 965 | 1,061 | (96) |
| Joint ventures and associates | 485 | 422 | 63 |
| Contract assets and liabilities | (11,776) | (10,681) | (1,095) |
| Working capital 1 | 3,112 | 2,297 | 815 |
| Provisions | (2,172) | (2,333) | 161 |
| Net debt 2 | (2,845) | (3,251) | 406 |
| Net financial assets and liabilities 2 | (2,512) | (3,649) | 1,137 |
| Net post-retirement scheme deficits | (411) | (420) | 9 |
| Taxation | 2,326 | 2,468 | (142) |
| Other net assets and liabilities | 36 | 36 | − |
| Net liabilities | (4,966) | (6,016) | 1,050 |
| Other items | |||
| USD hedge book (US$bn) | 16 | 19 | |
| Civil LTSA asset | 684 | 885 | |
| Civil LTSA liability | (8,913) | (8,257) | |
| Civil net LTSA liability | (8,229) | (7,372) |
1 Net working capital includes inventory, trade receivables and payables and similar assets and liabilities
2 Net debt includes £(49)m (2022 FY: £86m) of the fair value of derivatives included in fair value hedges and the element of fair value relating to exchange differences on the underlying principal of derivatives in cash flow hedges
Key drivers of balance sheet movements were:
Contract assets and liabilities: The £(1.1)bn movement in the net liability balance was mainly driven by an increase in invoiced LTSA receipts in Civil Aerospace exceeding revenue recognised in the year and increase in deposits in both Civil Aerospace and Defence.
Working capital: The £3.1bn net working capital position was £0.8bn higher than prior year, with the movement comprising £0.4bn increase in inventory, mostly in Civil Aerospace due to supply chain disruption and Power Systems to support sales, and £0.4bn increase in net receivables/payables due to higher trading volumes and the timing of payments. The difference between the movements in working capital on the statutory balance sheet compared to those described earlier in relation to the funds flow statement largely relate to the impact of foreign exchange and other non-cash movements.
Provisions: The £0.2bn reduction related to contract loss provisions and reflected changes in contract terms, pricing and expected future costs.
Net debt: Decreased from £(3.3)bn to £(2.8)bn driven by free cash inflow of £0.4bn. Our liquidity position is strong with £7.4bn of liquidity including cash and cash equivalents of £2.9bn and undrawn facilities of £4.5bn. Net debt included £(1.7)bn of lease liabilities (2022 FY: £(1.8)bn).
Net financial assets and liabilities: A £1.1bn reduction in the net financial liabilities driven by contracts maturing in the year and a change in fair value of derivative contracts largely due to the impact of the movement in GBP:USD exchange rates.
Taxation: The net tax asset reduced by £0.1bn. The decrease primarily reflects the movement on foreign exchange derivative contracts, resulting in a net reduction in the associated deferred tax asset of £163m. This is partially offset by an increase in other UK deferred tax assets including the re-recognition of £52m relating to UK tax losses.
