Earnings Call: H2 2019

Mar 16, 2020

Hey. Good morning, everyone, and thank you for joining us here at the London Stock Exchange and for those of you joining online. My name is Peter Lathorn. I work in their Investor Relations team here at Rolls Royce, and it's my pleasure to welcome you to our 2019 results. The agenda for today's presentation is that our CEO, Warren East, will give an overview of the year's performance and some of the strategic highlights. And then our CFO, Steven Jaintith, will take you through some of the more detailed financials. Warren will then wrap up and give his view for the year ahead as well as the longer term outlook. Our presentation is expected to take around fifty minutes, and then we'll have time for q and a both from the audience and here online and online. You can do online questions through the webcast services. Finally, can I ask you to switch off mobile phones? We are not expecting any drills today. So if you do hear an alarm, please exit in an orderly manner. I think that's all of the safe harbor and and the boring stuff out of the way. So with that, I will hand over to Warren East. Thank you, Peter. Good good morning, everybody. Thank you for coming along. Hope you enjoyed the video rolling while you were having coffee and and pastries out there, a little bit of subliminal messaging, and and the picture of of the electric plane on the front cover of the little handouts we've got there. We're just one quarter away from flying that now, so some exciting highlights come in the year ahead. But before we get there, I'm going to talk about 2019 to start with. So here's a summary and we're very pleased that we ended up with very strong progress across the group. We ended up with a strong finish to the year. It was a tough first half in 2019, but we saw very encouraging behavior changes, around the group, and we could really see the effects of the transformation that has been ongoing, within the company in some of the behaviors which were necessary to drive that performance into the end of the year. So very pleasing to have an underlying operating profit strongly up and that is really, what's underpinning the quality of that cash flow number, that's delivered as well. We have, as a board held payment to shareholders. There are some environmental risks out there, which I'll be talking about in little while. But in summary, a strong set of results because 2019 was a year of delivery. In 2019, we delivered strong trading performance. We delivered significant progress on the Trent 1,000. Trent 1,000 has dominated a lot of the conversation about Rolls Royce for the last eighteen months. But actually, underneath that, and I'll show you a slide in a few moments, we've had some excellent progress on that. Restructuring has been going on for a little while, but again, we've continued with the progress on that. We've continued with delivering on portfolio simplification. And we've delivered on our forward looking strategy to capitalize on the upcoming energy transition and the journey to low carbon for the world at large. I'm very pleased with the momentum that we established, particularly in the second half of the year, particularly in Q4, particularly around the behaviors of our people. That momentum has carried forward into 2020 and that underpins our confidence in 2020. Stepping back and looking at the market environment, I'm just going to go around the three key areas of our business. So in Civil Aerospace, which is half our business, we continue to build our installed base. It's now over 5,000 large wide body engines. Passenger air traffic demand has settled back to a steady state rate. We have had a few years of of some quite superior growth, but it is in 2019, more of a steady state, long term trend. Build rates from airframers were adjusted during 2019. And as a consequence, our forward looking projections of build rates, for large wide body engines, has changed. In some ways, I think this, this build rate adjustment, from the airframers has alleviated somewhat the concerns which were growing in the industry about oversupply. And, so that's actually quite a positive, quite a positive thing from a from a market environment, point of view. And, of course, it's led by what's effectively been slower than anticipated retirements over recent years of older aircraft. And I've got a little picture later, showing, showing pictures about, about retirements and so on. In our power systems business and the sector there, you know, we have had a cyclical downturn in the markets served by our power systems business, particularly following a pull forward a year or so ago from from some of the traditional markets. However, from our point of view, we've seen encouraging growth opportunities in new applications and new geographic regions. Defense, in our defense business, after several years of pause, we're now seeing new programs coming through from the key defense customers, particularly the US Department of Defense and, here in Europe with the UK Ministry of Defense, as well. And so the new programs are getting closer in the defense environment. Down the bottom of the slide here, we're on our journey towards zero, net carbon. And across all of our markets, our customers, we found in 2019 getting much, much more receptive to our thoughts on this, and we're pleased to have, I think, established in 2019 a position of thought leadership. Before I go into detail of the business, I'll just build on that last, last point. Thought leadership in terms of in terms of leading a trend within our industry, towards zero carbon, taking, the responsibility that we need to take for this, and that's in products that face up to to the market. It's in the underlying technologies which which feed those products where we've seen, you know, great acceleration in our capabilities around, electrification. For instance, we've seen progress on on nuclear reactors with small modular nuclear reactors, great source of zero carbon, electrical power. And we've, we've seen a lot more industry engagement in the reality that the world needs to, needs to solve the synthetic sustainable fuel, challenge, ahead. Little bit of practicing what we preach on the bottom of the slide here for our own operations. This is a picture of our site in Friedrichshafen, where we have installed a microgrid. We're starting to sell microgrids, but we've installed our own microgrid. And this solar powered, microgrid is generating about 30% of, the energy requirements for our plant in Friedrichshafen. Enough of the future for the time being. I'll now have a quick update on what's been going on in the business. So in our civil aerospace business, we've seen a year of sustaining improvement in underlying operating profit. If you look, that's been happening over the last several years and 2019 was no exception, a significant increase in underlying operating profit in our Civil business driven by the usual drivers that we've been tracking for the last several years. Customer confidence is pretty good as well. So from a forward looking point of view, from orders coming in through the door, approximately nearly there you see two thirds of wide body new orders in 2019 coming to Rolls Royce. From an operational point of view, you know, our operations are getting into much better shape. We're improving performance there, improving stability, improving, improving cycle times, and generally improving, performance. It's not just about our wide body engines in civil aerospace. We do have, we do have some exciting programs in business aviation as well. And, in 2018, we launched the Pearl family of engines. The first Pearl family engine entered into service in 2019, and the second Pearl family engine was launched in 2019. That's going to power the new Gulfstream aircraft. In power systems, I mentioned, you know, from a market point of view, there's a bit of a downturn in the sectors served by our power systems, business. And so, you know, we were encouraged to be able to grow our business into into that environment, grow our business, at the top line, and and grow, the profitability of our business. And how do we do that? Well, we did that through targeting new applications, the newer applications, particularly strong in mission critical power, backup backup power, and also by pushing hard on developing our business in what's new geographic regions for us, particularly in China. And it was great on some of the new technologies as well to see progress on things like microgrids and hybrids. And that hybrid, I'll I'll probably come back to it later in the presentation. But, you know, in the space of two and a half years, we've gone from concept to proposal to MOU to order to, in the next several months, delivery of, hybrid, rail power packs. So very solid, progress from our power systems business. Defense. Defense, you know, the standouts for 2019 in defense was about orders, another year of record, book to bill, taking our order book, to a record level as well. And it was another good year for delivery of cash. In the background, I mentioned we're getting closer to those new programs. So actually, you know, our our r and d is going up a bit, so you will see the margins, coming off a bit over the next couple of years in defense. But we're we're capping off a period of four to five years of building the order book. And over the last five years, book to bill has been, above one. And so our future in defense, particularly driven by some of the service contracts, is in looking like very good shape. Now I know that everybody wants to hear a bit more about civil than they do about defense and power systems, so we're going to have a couple of, couple of deep dives on civil. I can't stand here and not talk about Trent one thousand. Obviously, we did a little bit of an update in November. And in the results announcement this morning, you will see no change from what we announced in December. No change in terms of projected return of AOGs to single digits, no change in exceptional costs, and so on. During the year, we made some pretty good progress, good progress in actively managing the situation, continuing to extend our MRO capability and our MRO capacity. And we are confident that that £578,000,000 of cash cost in 2019 is the peak year of cash costs for Trent 1000. So we are beyond that peak. As we look forward in 2020 to single digit position, around the mid year, then we'll be underpinning that, with with more spare engines as we announced in November. The histogram here on the bottom of the chart is about just that, reduction in aircraft on ground. You'll see in 2019, we had to take a step back, and we took a step back proactively by because we needed to pull forward replacement of intermediate pressure turbine blades on one of the variants of the engine. And having originally generated indigestion in our MRO network and having been eating off some of that indigestion, we then generated a load more and so pushed the pushed the AOGs down again and and that effectively pushed out the period, when we get back to single digits. But there has been no further deterioration on that, since we announced that in Q4, last year. So we're currently sitting around the mid thirties in terms disruption. This slide is an update of the slide that we showed in November, which summarizes the three engine marks for Trent one thousand and the three key issues. And we are now in a position of eight out of nine of the design changes are done. We've got one there, the PAC B IP compressor waiting to be certified. There's no change to that design. We're totally confident that that will get certified. It's it's simply a question of of priorities terms of the fact that that's the the last one. Other than the final box over there where, as we said in November, the design work for the high pressure turbine blade on the 10, that's still underway. As I stand here this morning, I'm a lot more confident, than I was last November about that design work. It's progressing well. And in the coming weeks, we will be, we will be running an engine with that new design. We'll be going to type test and, hopefully, then onto certification. The chart's been updated though with these little pies to show that it isn't just about doing the designs. It's about rolling those designs into the fleet. That's what minimizes the disruption and ensures a healthy fleet. And, the the pies on the left, in each box are a snapshot of where we were twelve months ago, and the pies on the right in each box represent, you know, where we are today in terms of rolling those flixes into the fleet. So I hope you get a sense of momentum here, of how the fleet is getting healthier as we go. So, moving on, it isn't all about Trent one thousand. Trent XWB, has now reached five years in service. And, the leading engines are surpassing our expectations in terms of durability. In terms of performance, it's our most reliable engine, and its efficiency holds up very well in service. So the airlines love it and actually the customers love flying on the airplane as well. The three fifty is a great airplane. Points on the XWB, it's today just over 10% of our installed fleet, but it's approximately half of our wide body deliveries, and it's on a journey to be around a third of our fleet in the midterm. So this is a very important engine for us. So it's very important that it has an outstanding record of performance. There are other programs as well. I've already talked about the Trent 1,000. Trent 700 is, is still our largest volume. It's a third of our fleet nearly. It's the major workhorse of the of the Trent fleet. We've seen great progress over the years extending the time on wing for the Trent 700. And so it's a little bit of a benchmark and barometer for the newer engines that are coming along behind. And it's an auspicious day today because it's twenty five years to the day that the first Trent engine went into service. It was a Trent seven hundred twenty five years ago, on the February 28, and, you know, it's still going strong after twenty five years. At the newer end of the spectrum, Trent 7,000, and we put this up because the Trent 700 powers the a three thirty, the Trent 7,000 powers the a 30 three thirty neo, and we're putting all the lessons we've learned from the Trent 1,000 into that engine. It is based on the same architecture as the Trent 1,010, but putting all the lessons in, then, you know, we are confident in the performance of that engine. Looking a little bit further forward, at our installed base because it's the size of our installed base that underpins the medium term business confidence. And the size of our installed base is about new airplanes going in. It's about older airplanes retiring. And this chart shows that actually if you look at the older airplanes that are going to retire, I. E. The ones on the left hand side of the the slide at the bottom, it's dominated by our competitors. And at the right hand side of the slide, the present day, you see, our market share. And you you recall our market share in terms of orders, approximately two thirds of the orders, in the last twelve months, for instance. So we think we are well positioned through this retirement cycle, that is going to be coming up over the next several years, well positioned to continue to, to grow our market share and that underpins, the installed base. Enough of deep dive on civil. By the way, the clock in the bottom in the back of the room, guys, has stopped working at 09:07. So I've just realized that, it's it's actually twenty past nine. So, sorry about that. We're now going to move on to transform I thought blindly it's going slowly. Change and transformation. Change and transformation is at the heart of creating a higher performance business with which is capable of delivering quality results. And over the last eighteen months or so, we've seen great change in the management. We've seen change in pace. We've seen change in process and the development of a forward looking strategy. So we now have a very different business than we had a few years ago to face the challenges that are around today. Just recapping some of what we talked about on the Capital Markets Day in in 2018, we talked about simplifying our organization structure, streamlining processes, and investing in automation to enable our people. So during '18, we we sorted out the structure. During '19, we made great strides in terms of reducing process, removing duplication, and installing automation to to enable our people. And that's carrying on in 2020. So A and M are continuing to help us to, actually deliver the benefits of, of this transformation. But basically, we are on track for what we set out at the Capital Markets Day, delivering what we said we were going to deliver, and, you know, that's measured in some in some ways by achieving, run rate savings. And if I look for instance at some specifics, product change process and end to end digital design, that sort of reduction in engineering hours, that sort of improvement in productivity is baked into our plans, and that frees up resource to concentrate on the future. And I talked about improvements in our operations earlier. There's a focus area there, and I think other good indications are the change in trajectory of that inventory that we saw halfway through the year, demonstrating a sharpening up, in our operations. And in our service business, we've had to grow our MRO capacity, but the good news is we're growing our MRO capacity faster than our investment in MRO because we're getting better and smarter at doing it. So improved productivity across all these three areas, these are the fundamental three areas that make our business tick. We're either developing this stuff or we're building this stuff or we're looking after it when it's in service. And why are we doing all that? Well, we're doing it to position our business for the future. At the Capital Markets Day, we talked about bending the cost curve, and this is a focus on R and D for instance, but bending the cost curve, reducing the the cost as a percentage of sales. So in the r and d domain, that means effectively keeping our r and d flat as, as the sales grows. And within that fixed envelope, you can see here how we're tilting the amount of money, spent towards future looking technology. So that's why we're doing this transformation so that we can position the business we can deliver the business performance and, position ourselves for the future. So, with that, I'm going to hand over to Stephen to talk about our 2019 numbers in a bit more depth. Thank you, Warren. Good morning, everybody. So I'm going to take you through the full year results, give an update on the key drivers that we first highlighted back in the 2018 of our Capital Markets Day, Then we'll go through a quick review of each business, and then we'll go into guidance for 2020. So just running through these. So at a glance, we gave ourselves a lot to do in the second half, but we're pleased to be reporting today a strong underlying operating profit growth of 25%. And what's most encouraging about this, this is the core driver of the growth in our free cash flow, and we'll see that again in 2020. Moving on to free cash flow, £911,000,000 so driven by that growth in profits and especially strong performance in the civil aerospace aftermarket. We're going to see shortly the civil aftermarket cash margin and how that's developed over the last couple of years. We also received very late in the year some insurance receipts in respect of insurance that we had in respect of grounding of our wide body engine fleet, and we could claim against that on the Trent 1,000. At the we have been negotiating these for well over twelve months, this particular insurance arrangement, and we reached the conclusion of those negotiations towards the end of the year, towards the end of the year, and hence the receipts which arrived in right at the very end of the year as well. So, at the halfway through the year, limited visibility around that and not much certainty. Civil Aerospace, we saw a strong improvement in operating profit in Civil Aerospace as well. This is the first time that we've seen profit in Civil and IFRS 15. As a reminder, that came in at the start of 2018. We no longer capitalize the losses on the OE sales, and so very encouraged to move to operating profit in Civil Aerospace. And finally, gross debt reduction. We reduced our gross debt by £1,100,000,000 We're reporting today a net cash position that's improved to £1,400,000,000 An important priority for us, we'll come into the details a little later, to strengthen our balance sheet and return to a single A rating. Let's go to the revenue slide, revenue business by business. Our delivery in 2019 was in line or better than guidance for every business. I won't go through the exact numbers, but you can see there in the blue, just to the right of center, what we guided a year ago, and then in the middle there, the growth for each business. Really solid growth in Civil Aerospace, 10% growth driven by both OE and aftermarket, strong growth in Power Systems, and we'll go into the detail in a challenging market, defense growth in line with guidance and good growth in ITP, which we'll go through shortly when we go through the business reviews, but largely driven by increase in Civil Aerospace volumes. Moving on to profit, and there's the profit profile for each business in 2019. And again, margin guidance that we gave a year ago met or exceeded in every business. Relatively modest margin in civil aerospace, but moving into profitability. Power systems back into double digit territory. Defense, increased investments in R and D, as Warren mentioned, causing that drag. And ITP, good improvements in margin in ITP, largely around, our simplifying of the contractual relationship between ITP and Civil Aerospace, with ITP very much now as a full fledged member of the group, very much a traditional parts supplier to Rolls Royce. We simplified those contracts there. So good performance in operating profit and a strong performance in particular into the year end, especially in Power Systems that delivered on much of the projects that have been built up during the course of 2019. Moving on to free cash flow. So we had a strong end to 2019 following a challenging first half. And just three or four items here just to call out that helped us deliver this good free cash flow. Inventory reduction, we'll go through the detail very shortly, but a very significant inventory reduction in the final quarter. Disciplined spend control as well. You'll see that today we're reporting C and A costs down 4% year on year. That was another good achievement largely around discipline around discretionary spend. Capital expenditure was also down year on year and good discipline there as well, but driven largely by some large projects coming to their conclusion during the course of the year, and I'll go through that detail. And as I just mentioned, the Trent 1,000, we secured those insurance receipts. What's not included in this list is a strong civil aftermarket performance as well in the second half, and we'll see that when we go into the details of the long term contract creditor and how that moved year on year. We also saw in our cash flow an improved quality as well. There's materially lower contribution from net receivables payables, still a large contribution, but materially lower than last year. I'll talk about that in a second. Cash return on invested capital was stable at 12%, and that's despite our R and D investment being at the highest levels, of cash spend of 1,100,000,000 per annum. And the chart down the bottom shows material free cash flow improvement from the low base of 2016 when we were generating just £100,000,000 of free cash flow. So bear that £800,000,000 improvement in mind, which I'm going to come to as we go through the cash drivers of performance that we first highlighted in the 2018. So when we look at those drivers of cash flow and we break them down looking at our summary funds flow statement, looking at the balance sheet movements, time blending with operating profit, here here's the composition of our free cash flow improvement of $3.00 £5,000,000 And what's most encouraging is that $5.00 £7,000,000 of that was driven by operational cash flow improvement, increased operating profit, the growth in the civil deferred revenue balance, that long term service agreement creditor on the balance sheet representing deferred revenue cash receipts that haven't been traded through the P and L account and then lower CapEx as certain large projects have come to a conclusion. R and D cash spend is stable, so it's not through any reduction in R and D that these numbers are being delivered. A lower working capital contribution of £50,000,000 is a headwind, and the peak year for the Trent 1000 costs of £152,000,000 is also a headwind, and that includes, the insurance receipts as well. So you put all that together, you get your $3.00 £5,000,000 and it's color coded there, which matches this next table, which goes through the summary funds flow statement itself to show you how we've allocated the individual lines to deliver those numbers. That's how the maths all works. Working capital improvements. Now just on this one as well because it does attract a lot of attention, and often it's regarded as always bad, which is far from the case. First of all, in the second half, we saw a £390,000,000 reduction in inventory. That was the task that we had ahead of us at the half year after that big build of inventory in the first half of the year. Civil Aerospace and Power Systems have particularly strong fourth quarters. There's been a tight focus on supply chain management that will continue through 2020. The buffer inventory that we built up on the Series 1,600 in Power Systems as that production moves to India, that will start to unwind. The sales and operations planning process in civil aerospace, I think I've mentioned previously, a lot of room for improvement there. We're starting to see the signs of improvement It's taking place more regularly with a smaller number of people perversely working a lot better than all the various committees that often cause complications there, but that's a lot more efficient as well. And that's helping drive that inventory improvement. We expect to see the vast majority of working capital contribution in 2020 from further inventory reductions. We have just over 4,000,000,000 of inventory on our balance sheet. About half of that is in finished goods, which ought to flow through quite quickly. There was a £574,000,000 increase in net receivables and payables. Our defense business had a very good year for cash flow generation, driven by that strong order book intake of just over £5,000,000,000 and £200,000,000 contribution towards that May. And then another example here of what I regard as good working capital management, a more disciplined collection of overdue debts, reducing those from 20% to 15% of trade debtors and driving that £130,000,000 contribution. So don't be surprised that there's more of this in future years. There should be. This is good healthy discipline. And these are what I would regard as durable working capital improvements. So putting this together, we have a significantly improved cash position at the year end. We have year end net cash of £1,400,000,000 that's led by that group free cash flow number of £873,000,000 Of course, we received the Commercial, Marine and Power Development proceeds in aggregate of $453,000,000 There was a £1,100,000,000 reduction in gross debt as we repaid the £500,000,000 bond and then the EIB loan as well. We have one maturity in 2020, a $500,000,000 bond in the second half of the year, and we'll consider whether to refinance or retire that bond in due course. That gives us, together with the cash that we have in our our revolving facility of 2 and a half billion pounds, that gives us almost £7,000,000,000 of liquidity. We do though have, a credit rating challenge right now given where we are, and we have a strong ambition to return to a single A rating. We highlighted this as a strategic priority for us in 2018, and it remains. And we are very much determined and focused to get back to that rating. It will be around operational delivery and delivering the Trent 1,000 fixes and demonstrating that we've retired that risk. So the progress on the key levers. These are the three key levers of cash flow growth, that we first highlighted in 2018 at our Capital Markets Day, and they remain as true today as they were then and they will be for the next five years as well. So what are they? First of all, reducing the loss on our OE wide body deliveries. There was a further improvement in the year of around £200,000 per engine in the reduction of the loss. The XWB 84 leads the average loss reduction. There's been a 400,000 improvement per engine since 2017, which is the base year that we're comparing against from when we first unveiled these drivers in 2018. So let's just use 500 engines, pounds 400,000 improvement per engine, that's around a £200,000,000 improvement from this particular initiative. The widebody aftermarket cash margin delivered a further £300,000,000 improvement moving from £1,600,000,000 to £1,900,000,000 aftermarket cash margin. That's a £500,000,000 increase since the two over the 2017 base. It's worth reminding ourselves as well that in 2018, our 2022 goal for the aftermarket cash margin was £2,000,000,000 and we're already at £1,900,000,000 This should grow further as aftermarket flying hours grow, but also as we extend time on wing and the gaps between shop visits as well, a core priority for us in civil aerospace. And then finally, bending the fixed cost curve on the right hand side there. And this is the aggregate of commercial and admin costs, R and D and CapEx put together. Right now, we are two eighty basis points lower as sales reduction during the course of the year, which in aggregate brings us to around 400 basis points lower since the 2017 base. So put all that together, that's about a £100,000,000 contribution there. So it's not the math isn't quite exactly the same, but the point is if you add up the £200,000,000, the £500,000,000, and the £100,000,000 from those three key drivers, you get to an £800,000,000 improvement over the last two years, which happens to conveniently be, the free cash flow improvement as well, although they are there is a mixing things a little bit here, but it gives you an idea of the direction the contribution from these three key drivers. Here's a bit more detail on the widebody engine deliveries, five ten in 2019, a record year for deliveries. That's how the profile of losses has improved over the last three years in the top right there. Worth pointing out as well on the deliveries, the big pickup in volumes of the Trent 7,000 in 2019 versus 2018. So very small, just 2% of the pie down there, Trent 7,000. And on the right hand side, 21% Trent 7,000 deliveries. Just calling out on the left hand side here, the Trent XWB 84, we saw a 22% reduction in OE losses. And by the end of next year, we expect the XWB 84 to be a breakeven engine. The aftermarket cash margin has now moved from £1,600,000,000 to £1,900,000,000 This is driven by on the above the horizontal line there is the cash coming in. It's wide body, 15,300,000 engine flying hours. And then from the 5,000 installed engine base, and then down the bottom there are the costs that go out during the course of the year in respect of the major refurbishments. That's the scheduled every five years also shop visits. The check and repair visits are the sort of more the the cases sort of ad hoc, depending on specific instances. And this one, for example, is where most of the Trent 1,000 check and repair visits in respect of the issues that Warren ran through is going through that line in there. And then there's various other costs as well. So delivering ahead of our Capital Markets Day ambition of £1,900,000,000 and within touching distance of the 2022 goal. On the right hand side there, the key drivers of growth, 7% engine flying hour growth in the year, strong time and material growth as well. We'll see this shortly in the civil aerospace profit and loss account, 14% growth, yield improvements as well, and growth in pay at shop visits events. Now this is important. There are many of our customers who prefer to be paid at the shop visit rather than through the flying hour process. That has a higher yield per flying hour than had they just paid as the hours were generated, but it's an important dynamic. This is, an important slide, and it's a reminder of the, trajectory that Rolls Royce is on to be become increasingly a services business. It's a reminder of our installed base when you add up the civil aerospace installed base of 14,000 engines, the power systems installed base of 146,000 and then 16,000 in defense. The 176,000 engines driving this service revenue, and you can see the makeup there of, long term service agreements, 3,800,000,000.0, and other services of £4,100,000,000 growing at 138%, respectively. So now representing 52% of our revenues and a growing source of revenues with recurring, visible, higher margin business. There's a lot more certainty around these revenues from this large installed base. Key initiatives for us to drive higher returns, extending the time on wing in civil and defense aerospace, the point that I mentioned earlier, which will only help improve that aftermarket cash margin, optimizing repair technologies and increasing use of digital capabilities, better predictability about the health of the engines and when they're going to be required to be serviced and how quickly to turn them around. Bending the fixed cost curve, C and A costs were down 4% year over year. Capital expenditure was down £158,000,000 year over year, beating the guidance that we gave as those large projects came to completion. C and A costs, I've mentioned, you can see the charts there. Just as a reminder, though, R and D is at its highest levels at just over £1,100,000,000 of cash spent. And then you can see the progress that we've made as a percent of sales for each of those lines of the cost curve. Trent 1,000 in service cash costs. 2019 is the peak year of those cash costs. Gross cash costs of £578,000,000 before the benefit of that £173,000,000 of insurance receipts. And you can see the profile that we're expecting and guiding to over the next three or four years. So a quick run through our businesses. Operating profit of £44,000,000 in Civil Aerospace, driven by wide body OE, sorry, driven by OE revenue growth of 4% services, growth of 14%, an equal measure across LTSA and Time and Materials, still a very healthy source of high margin business for us, delivering that 10% overall, driving gross profit improvements and subsequently the operating profit that we're reporting today. Our Power Systems business, good revenue growth in what are challenging markets. You'll see some of the others in this sector having reporting less much lower revenue growth than Power Systems has experienced. And good growth in Power Systems and Power Generation and good opportunity in China where we see good progression there as well. Our defense business, pretty much as we guided, underlying revenue broadly stable at just 1% growth, a little bit of a margin decline given that increased investment in research and development, but some good opportunities for that business in its pipeline. And we were hopeful for even more big order wins in 2020 for our defense, but a really knockout year for our defense business. And I should call out here the very high cash conversion in our defense business driven by those big order wins and a big contributor to the cash flow performance for the group. So an outstanding year for our Defence business. And then finally, ITP. ITP is a business now fully fledged member of the group, reported very good revenue growth of twenty one percent, largely driven by aerospace volumes. As a reminder, ITP is a risk and revenue sharing partner on certain Rolls Royce engines, but also on Pratt and Whitney and GE engines as well. So it's a partner to various players in the aerospace sector. The operating profit growth was partly driven by a £25,000,000 one off benefit in respect of the adjustment of those trading terms between Civil Aerospace and ITP to better simplify arrangements between the two companies. So moving on to the guidance for 2020. Underlying revenue. We're looking at Civil Aerospace revenue being stable to low single digit growth, very much driven by that revision to OE volumes, four fifty to 500 or so engines in 2020. Power Systems, low single digit growth anticipated there. Defense, stable to low single digit growth. ITP and ITP stable at £936,000,000 And then operating profit, Civil growing by 50 to 100 basis points improvement in margin in Civil Aerospace. But as a reminder, we're guiding today that our R and D capitalized R and D will will be between 100 to £150,000,000 lower in 2020 than in '19, and that will mostly be in civil aerospace. So one might think that that's a slightly, slightly low margin improvement in civil, but we should bear that into mind. Power Systems, further margin improvement there of another 100 basis points. Defense business stable, and then ITP, a small margin improvement there as well. Operating profit growth putting all this together of at least 15%, and that gets you to around £1,000,000,000 of operating profit in 2020. Core free cash flow of at least £1,000,000,000 And I should call out that this guidance excludes any material impact from COVID-nineteen in 2020. How does that bridge to cash flow, profit and so how does that bridge from profit to cash? So here are the big moving parts. Pounds 1,000,000,000 of operating profit, the core driver of the free cash flow growth. The LTSA deferred revenue, think, will be broadly stable year on year at around £750,000,000 Capital spend above depreciation and amortization, again broadly stable at £600,000,000 Working capital contribution of £600,000,000 in 2020, but reinforcing my earlier point that that will be led by inventory unwind. And I think around sort of three quarters or so of that £600,000,000 being an inventory unwind. Movement in provisions around £500,000,000 that's largely the Trent 1,000 that you would expect. And then other tax interest pension broadly stable at around £250,000,000 And that's how we get to our £1,000,000,000 of free cash flow, at least £1,000,000,000 of free cash flow in 2020. With that, I should add one more thing. There's more detailed guidance, by the way, in the appendix of the slides that you've got here around various other drivers. With that, I'll hand over to Warren. Thank you. Thanks, Dean. Okey doke. Right. I'm going to look forward a little bit more. Earlier, I talked about momentum and I talked about momentum around change behavior and change levels of performance. That continuing momentum coming in from the 2019 is what gives us the confidence in 2020. As Stephen said, a little footnote here on the left hand side of the slide, and the guidance that he just stepped through, and in fact, all the guidance that we have in our earnings release, is subject to the fact that it excludes material impact from, COVID nineteen in 2020. But that said, we would expect our operating profit growth to be around 15%, the number that Stephen mentioned, and at least £1,000,000,000 free cash flow in '20 Importantly, we look through COVID because we see the fundamental drivers of the business and that's what's driving our confidence in £1 of free cash flow per share in the midterm. Now I'm not going to ignore the COVID situation at all. We're taking it very seriously. And what's important is what we're doing to to manage the situation as far as our business is concerned. So our priority is, of course, our own people, and we have daily monitoring of the situation in all of our locations, and that's coordinated and comes into our chief medical officer who reviews that situation every day. We're also doing daily monitoring of the business risks, and the business risks break down into, you know, what's happening potentially to our revenue. And importantly, although we're not a business that is subject to lots of just in time deliveries and that sort of thing, it's important that we keep a daily track on our supply chain. And and and, you know, that is that is what we're doing at the moment through our supply chain leadership. This is clearly one of those known unknown situations. The things we don't know are how long the disruption is going to go on for and to what extent the disruption is going to spread around the world. So here on the bottom of the slide, we've got a few data points so that you can scope out some of the potential impact, to our business. I say potential impact because, of course, the third unknown is the extent to which we're able to mitigate, the the damage, should there be, material damage. Here are some parameters. You know, Chinese airline customers, it's about 10% of our backlog today. Flights touching China is about 20% of our engine flying hours. How much of that should we take into account? I can't tell you. But what I can tell you is that year to date, flights touching China are down by approximately 15, between 15 ish percent in January and 50% in February. So I can also tell you from our daily monitoring of the supply chain and our daily interaction with customers through our power systems business that operations in China are getting back to normal. Our key suppliers, we have a handful of key suppliers in China, these suppliers are all back at work, and we have had actually no interruptions in our civil aerospace supply chain as a result of, of the shutdown there. So that's kind of the scope of the situation, the monitoring of the situation that that we are doing. And in terms of contingencies and how we can mitigate against that, well, you know, we're the same as any other business. So we look at the financial impacts and what can we do about deferring expenditure? What can we do about deferring investment? What can we do about deferring or freezing hiring? And what can we do about the actual staff costs that we take on a day to day basis. And like any other business, we're pulling on all of those levers. So that's the situation as far as COVID is concerned for our business. COVID is a reality, and we have to manage through that. And I say manage through that because, you know, though it's a reality, and I mentioned earlier, think we're in better shape than we ever have been, to deal with that reality, we must look beyond. And looking beyond takes us to our priorities for 2020. Customer priorities are very clear about meeting our commitments and about getting the Trent 1,000 AOGs down. From an operations point of view, we need to continue the improvements that we've made over the last eighteen months or so, particularly driving towards achieving the £400,000,000 of of run rate savings, Having successfully changed the trajectory on inventory, we need to continue driving that forward. From a financial point of view, obviously, the emphasis is on quality of cash and strength of, of operating profit. And from a people and culture point of view, we need to build on the fantastic changes that we've seen, embedding those behavioral changes, building on the encouraging, momentum, that we have seen so that in the longer term, we can be a leader. We can be a leader in terms of behaviors. We can be a leader in terms of business performance. And we can play a leading role that we want to play in the energy transition over the coming decades in all of the sectors in which we operate because we see that as a fantastic business opportunity. And with that, I'll stop and we'll hand over to Q and A. So who wants to go first? One, we got one over there, that side. Thank you very much. Good morning. Rob Stallard from Vertical Research. A couple of questions, if I may. First one, easy one for Stephen. 2020 guidance, what sort of embedded commercial aerospace aftermarket growth rate have you built into your forecast? And if you could break it down by long term service and the time material, that would be great. And then perhaps one for Warren and a longer term question. You have cut your forecast for wide body engine deliveries going forward. So you're coming down from roughly 500 last year to potentially 400 in the out years. What sort of impact does that have particularly in terms of your target for reducing the loss per engine on OE? Thank you. JEAN Okeydoke. So the civil drivers, well, we talked about four fifty or so, four fifty to 500 engine deliveries. That's a key driver. The average loss per wide body engine, we'd hope to get that to around 1,000,000 pounds per engine. So for the 200,000 pounds improvement, that's the goal for us there. XWB, clearly on the road to breakeven by the end of the year. Average on that number will be sort of 0.2, 0.3, would expect. That's sort of that's what we're looking for. Engine flying hour growth, you should be thinking high single digits, 8%, 9% engine flying hour growth is a key driver for us. And then in number of shop visits, we did just short of 1,000 shop visits in 2019. And I would suggest that using something around 1,100, 1,200 shop visits is a good guide. Major refurbs roughly as it was in 2019 of between 300 to three fifty or so, and then about 800 also check and repair visits is the rough composition of the so those are the key drivers of the Civil profits and cash flow in 2020. And coming on to the wide body deliveries, yes, the wide body deliveries that we would expect to make over the next several years is lower than perhaps the estimates we had a year or two ago. But what drives our business is actually the size of that installed base. And so we will still be at north of 6,000 wide body engines in a few years, because the size of the installed base is about the retirements and the rate of retirement as well as the rate of new airplanes, going into the market. And the so that's the sort of key point. The other point to bring out, of course, as you saw in Stephen's presentation, our midterm ambition is underpinned by that aftermarket margin growth, the total aftermarket margin contribution, which we estimated at £2,000,000,000 in 2022. And as Stephen just showed, we're at £1,900,000,000 in 2019. So we're an awful long way through that process already. And in fact, we're probably going to exceed our assumptions and it's those assumptions which underpin our midterm ambition. And as for the volume and its impact on that trajectory of OE loss reduction, I don't actually see a material impact by the difference in volume. This is not a hugely sort of high volume activity anyway and the costs are dominated by the cost of those components. The cost of the components is dominated by the design of those components. We continue to spend engineering effort, on modifying designs to to take cost out. We take cost out on an annual basis and, you know, those plans are are proceeding according, you know, just unaffected by volume. You saw in the numbers that Stephen talked about, it's led by XWB. I said XWB is half of the total volume. We will ship our first breakeven XWB in the fourth quarter of this year, which takes us to the average that Stephen mentioned, and we are confident of achieving that. I think Jessica, I didn't answer your question about the LTSA split and the time and material split. I'd say time and material, I mean, great performance in 2019, probably sort of high single digits or so in 2020. And the LTSA, the number of volume of shop visits clearly is a key driver there. But one thing to watch out for is that, again, was true in 2019, where we have Trent 1,000 shop visits, check and repair visits that are, related to the exceptional cost activity, we trade those costs through the provision that we've signed. It won't therefore hit the LTC, the long term creditor balance. So the deferred revenue is not reduced. The LTC balance is not reduced by those shop visits, if you see my point, which is slightly accounting point, but it and that partly explains the growth in the long term creditor this year. Selene? Hi. Good morning. Selene Fornaro from UBS. I was just wondering if you could explain the mechanics through the civil trading cash, which had a nice improvement this year to €400,000,000 And so how do we think about that for 2020? Because potentially, it could be slightly worse depending on all the dynamics you've assumed. And then my second question would be on the $7.87 overall market share and in terms of the recent announcement from ANA to go with GE and thoughts there on your assumption on potential volume on the 10? Thank you. Okay. Do you want go at the mechanics or so? Should I do the ANA one while you're just Yes, sure. Yes. Seven eighty seven, you know, we look at it from a sort of fairly macro position, and it isn't just about share on seven eighty seven. It's about share of wide body orders. I think approximately two thirds of the wide body orders in 2019 is a reasonable result. We are taking orders on Trent 1,000 as well. Obviously, we are disappointed with the decision from ANA. We're disappointed, but realistic. ANA already, 83 of their aircraft are powered of their 787s, powered by Rolls Royce. And, to be 100% dependent on Rolls Royce when you have the choice is perhaps an unrealistic assumption when you get to a fleet that is growing at that sort of size. And so to have 15 aircraft and a few options going to GE is not something that particularly surprises us, but of course we're disappointed. We retain a very close relationship with ANA, and I think if you talk with them, you'll find that they're very pleased with the way in which we've handled, the situation for their fleet, the importance of their fleet, notwithstanding COVID, for the Japanese Olympics this year. And in fact, in the next several weeks, all of their Trent 1,000 powered aircraft will be in the air rather than on the ground. Sorry. And on improvements in the Civil Aerospace trading cash flow, well, again, going back to those drivers of cash flow growth generally across the group, original equipment losses coming down and lower volumes at the same time as well. There's going be a contribution there. The aftermarket cash margin will continue to grow, maybe think a couple of 100,000,000 or so, then maybe a £100,000,000 or so from the first one that I mentioned. I think it mentioned business jets as well. Business jets had a very strong 2019 and is well placed for 2020. So we're going to see further improvements in the business jet contribution. Trent one thousand costs coming down as gross cost, but of course, we don't have the benefit of the, insurance receipts. So that is a headwind there. And we are expecting further improvements in C and A costs generally across the group in 2020, building on the momentum that we developed in the 2019. Most of the headcount reductions in, that we're announcing today, the cumulative reductions of 2,900, I think 2,000 of those are civil aerospace. And you're gonna start to see that full year benefit of that 2,000 headcount reduction flowing through in civil aerospace. So putting all of those together gives us confidence around further improvements in trading cash flow in civil aerospace. I think we've got one in the middle. Nick Cunningham, Agency Partners. I apologize in advance because, this is in great danger of being nerdy. Both my questions, in fact. Thank you for the disclosure on factoring, which is really interesting. And I just wanted to try and understand it better in terms of how it moves across the year and what the rationale of using it is. Does it reduce cost of capital so on? And then second, think probably equally nerdy, but possibly more generally interesting. If we look at the the the decarbonization, if you like, road map, how do you see that playing out in in sort of very broad time scales and route to market? And what kind of mode of of power source do you see do you see developing? Thank you. Okay. So let me cover factoring. And are as you know, we've been very keen over the last few years to add transparency to our numbers, and our guidance is pretty detailed, and we kind of explain our numbers at length as well. And an extra piece of transparency that we're bringing today is our details of around invoice discounting or factoring as it's otherwise known. Let me just explain where we are on this. Factoring is a commonplace activity in aerospace sector. We've been doing it for over a decade now. I would say, 2016, that was the first time that we materially, got into invoice discounting, and it was that was largely around the time when the airframers changed their own settlement terms. And we introduced it to normalize the cash flows with physical delivery of engine volumes. So you've got a symmetry around those cash flows. The last three years, it's averaged at the year end at just over £1,000,000,000 as it does in this year. The way to think about it is that if we haven't done any invoice discounting this year, our cash flows will be £95,000,000 lower, which is the delta between this year's activity and last year's activity. But the average over the last three years has been, as I said, just I think it's $1,037,000,000 pounds over the last three years. That's the rationale for why we do it. It works well for us. And you're right, there is a cost of capital attached to it, but it's pretty modest. And it's only for a short period of time as well because really you're just advancing November, December invoices into current year rather than waiting until January and February. So it's only in place for a very short time. Okay. And and the other one around the decarbonization road map. I mean, obviously, I'm not going be too specific on dates here. And basic principle is that the smaller the aircraft, the more electric. And so we see, an opportunity, in the sort of helicopter size market disruption, new products for all electric to hybrid. And then in the regional space, we see an opportunity for hybrid coming sooner than we do into the narrow body space. So hybrid designs in the mid to late 20s moving through to larger airplanes in the early to mid 30s. And then in the in the larger space, we don't see an alternative to kerosene in terms of energy storage, but we do see opportunities for sustainable synthetic fuels. And there, the decarbonization bit is all about the source of the electricity to that's used in the synthesis process. So, you know, clearly, it's not very sustainable if the electricity comes from carbon rich source. But as the world electrifies in a cleaner way, then there will be opportunities for clean electricity to generate synthetic fuel. We do see a potential role for hydrogen, in that mix, and we are spending effort, with some of our partners on exploring the opportunities for hydrogen, but it is gonna be about the challenge of storing that hydrogen, and again, about the clean source of electricity to produce the hydrogen, in the first place. Synthetic fuel is going to be limited by the ecosystem, and the rate at which the ecosystem, can develop. And the faster it develops, the faster the cost will come down. The more the cost is up there, the more delay there is in that. And suspect as with any new technology, there will be a bit of a hysteresis, a tipping point, and then we'll get there. And it's important that we do things like our ultra fan and more efficient gas turbines because whether we're burning hydrogen or whether we're burning synthetic fuel, there's still a cost associated with producing that. And so the less of it that we can use, the better. And so we see a very firm role for ultra fan and more efficient gas turbines, whether they're used directly for the ultra fan propulsion or whether the core out of ultra fan, more efficient core, is used in hybrid application in a smaller aircraft. The project is absolutely vital. Thanks. Hi. It's Harry Breach here from MainFirst. Could I just ask you, Warren, you touched on coronavirus in the slide earlier on. Can you just say, have you had any deferrals of delivery dates for on wing or spare engines that have been cited to be coronavirus capacity related? Secondly, if I remember well, and I I probably don't, back in July at the interims, if I remember, you were saying that the breakeven date across the large engine deliveries, including spares, if I remember, was 2023. Firstly, have I got that number right? And secondly, is there any change given your lower wide body delivery expectations? And then just final one, maybe for Stephen. Stephen, just in 2019, for the Civilera LTSA revenue stream, is it possible for you to give us an idea of the pet shop visit versus the sort of pay per flying hour monthly settlement? Please. Yeah. Sure. Let me kick off. We haven't seen any deferrals attributed to the impact of COVID yet. But, you know, of course, that is a phenomenon which is in the realm of our our sort of planning and, you know, our sort of scoping the size of the potential, impact, from COVID. But as of today, we haven't seen any of that. The breakeven point and, and the volumes, I mean, first of all, the volumes don't make any difference, as the answer to the previous question. Do you I'll jumping in. Put goal on this one is a is a 400,000 pound average loss per engine by 2022. So I'm sorry. What was the number you said quoted? 2023 I it was across the portfolio for installed engine deliveries. Mhmm. Mhmm. Mhmm. In 2015. I'm not sure remember that date well. We haven't actually I mean, I think I remember a little bit the conversation where there was a slight bit of miscommunication from from the presentation. As Stephen says, the line that we're sticking to is just under half a million pounds across the portfolio by 2022. And the other data point that we're sticking with is breakeven on XWB 84 ks by the 2020. And as I said, we will achieve that second one. It's close. We're going to get there in 2020. Okay. And and on the sorry. The mix of come back. On the mix of of shop visits as well, and and I'm talking here around the sort of the major refurb shop visits. Revenues by pet shop visit versus? Sorry, say that again. I think my question's I been just was to get at the for Civilera LTSA revenues, what the mix there was between the pay at shop visit part and the I would Okay. I'd say at least 20% pay at shop visit, perhaps sort of mid mid high teens, and then the the rest would be, would fly. It's a relatively the important point dynamic in 2019 was we had three times the number of pay at shop visits in the second half of the year than we had in the first half of the year, which somewhat explains the strong second half performance from cash generation on the long term creditor that we're seeing in the numbers today. That's an important dynamic. Thank Thank you. One, yeah, just pass it along, think, is the best answer. Couple of questions. First of all, presumably, the 97 k is one of the big lose big loss makers at the moment. Mhmm. Is there any reason why it shouldn't get to breakeven like the '84? The you're right. The '97 k is two years younger than, than than '84 in terms of entry into service. And so, you know, that is one of the loss making contributors. It will follow the trajectory. We I I can't commit today that that will actually get to zero. I mean, what you've seen because it depends how how far out you take these, these things, and we put a lot of effort into, extending the time on wing. It's possible that we don't want that to get to breakeven because it's possible that we actually want to spend the money and have the components that improve the durability and the time on wing for service of an a given engine, because we actually make more profit out of that than we make from, trying to squeeze a a technical profit on the, on on on the OE. So, you know, generally, it's a good idea to make as little loss as possible on the OE. But when you get in the detail and you get get to the small the the the smaller numbers, then, it might actually be better not to do that economically for the for the program and for the for our overall profit. The next question is group request is you've tripled the number of spare engines on the Trent 1,000. How come it was so low? Capacity. Capital. Simple as that. I mean, we it it it's an it's a new engine. It's obviously had had issues. And, you know, the reason that we we were able to, improve the spare engines a little bit last year, and we're going to take another big step forward, this year is because we now have the capacity to do that. Maybe related to that, the it must be a bit a pretty tough job being the Trent one thousand salesman at the moment. Why on earth would any airline sign up to buy one right now? This is kind of a to Slings question. Mhmm. Are you is there enough in your backlog to see you through to h one? There any chance of us seeing a Trent $1,000 this year? Mhmm. Yeah. Well, I mean, there are Trent 1,000 opportunities for us this year, and, and, you know, we do hope to take orders this year. Why would anybody do it? Well, because of the overall, performance of the engine, the overall actual reliability of the engine, and the fact that actually, you know, our competitor, while having spare engines to protect against the the disruption that we've seen, you know, when you get in the detail, you know, there are issues with our competitors' engine as well. Now I'm not gonna stand on a platform and talk about that. You can talk to Boeing. You can talk to airlines about about their experiences of the engines on on July. But, you know, the answer is we wouldn't be taking the orders we're taking now if, you know, our engine was so bad that, you know, it was such a tough job being a salesman. And and the following one is a bit of a philosophical one. A couple of years ago, you said that you typically had four in service problems at any one time. It would take a couple of years to sort out each. One would be to solve one, and another would pop up. So there's probably 200,000,000 of costs underlying. With the Trent 1,000, you've had three problems, and it cost you 2 and a half billion. There will be undoubtedly in service problems with your all over their engines at some stage. How can you give us any reassurance that it's gonna be a 100,000,000 problem, not a 2 and a half billion problem? Well and and the answer, of course, is that we can't give any guarantees, but we can give assurances based on, you know, the very data that generated that original assumption in the first place. It wasn't based on thin air. It was based on our experience of twenty five years of the Trent engines. And, you know, that is the experience we've had. And some of it, you know, does come of our own making when we're trying to actually sort of extend the life, you know, of of the time on wing of the of the engine. And we've made great progress on Trent July, over twenty five years, in in doing that, but it hasn't all been linear. And sometimes, you know, we end up with a great idea to extend the life or reduce the cost. And then two years later in in service, we find some some issue, and those are the sorts of issues that that I'm talking about that that crop up regularly. The Trent 1,000 has been absolutely unprecedented in in our history. That's what everybody every everybody tells me. And, you know, we we are grinding through it. Obviously, we've spent a lot of time and effort learning from those lessons. So, you know, we can take steps to minimize the probability of that happening again. I think if you look at the later engines, you know, XWB is our example of the later engine, then, you know, as I said, we're fleet leaders at at, you know, five years now, achieving the number of cycles that that they set out to achieve. And, the airlines seeing excellent reliability during that process and excellent hanging on to the engine performance as well as it goes through time. Quickly here with a couple from the webcast. We've had two on the LTSA creditor inflow, from David Perion from Zafar Khan both asking, you know, was an encouraging inflow in 2019. We're guiding to a similar level in 2020. What might 2021 look like? And what are the drivers around that being a bit higher than than previously thought? And then secondly, a quick a second one from David on, delivery guidance and whether we think 400 to four fifty is a floor for wide body deliveries. Thanks. Do you want do the first one or shall I do the second one? I'll first do one. I'll get the long term creditor out of the way. So as a reminder, this is the balance on our balance sheet. The credit balance is to deferred revenue from flying out cash going in there and then revenue gets traded through as the shop visits take place. We had a very strong second half, 500,000,000 better than the first half in fact. There's three or four key drivers of it. So first of engine flying hour receipts, good flying hour growth, But we also, as know, we reconcile at the end of each quarter, the actual engine flying hours compared to the invoiced engine flying hours, and we do often see upside there. The it's not so straightforward. It's just number of flying hours flown. It's the it's the type of flying hours as well. There are different prices around different parts of the flight experience. So that is a pretty complicated reconciliation. We run that through, and we saw some good upside from that activity in the second half. Pay at shop visits, we have three times the volume of shop visits in the second half as we had in the first half. I talked to her about the higher yield. That was a driver of growth as well. Particularly strong business jet performance in the second half, which gives us encouragement for 2020. And then finally, the well, penultimate point, the 100,000,000 revenue catch up that we had, that suppresses the drag the pull out of revenue as well that we reported. And then the final piece is the number of Trent 1,000 check and repair visits in the second half that goes through the provision, again, which isn't hitting the creditor, but you're still getting cash generated from those flying hours flowing through in any event. So those are the four or five key drivers. 2020, you'll be thinking about the same sort of drivers. I think it's too early to talk about 2021. What I would say though is that flying hour growth, high single digits sort of approaching double digit flying hour growth is it remains the fundamental principal driver of cash flow generation in 2021. And on the question of build rate and is our current estimate the floor, Well, what I can say is that the current run rate supports the demand, final demand. We have seen the demand fall to what appears to be more of a long term run rate growth in demand. And I think if I go back six, twelve, eighteen months even, there was a lot more noise about overcapacity in the industry and overcapacity being ahead of that underlying demand and therefore there's been a little bit of an overhang and I think build rate adjustments have been pretty well sort of expected. Obviously, short term, we don't know the impact in 2020 of the virus outbreak and the disruption that results from that and to what extent that might spill over into some deferrals. I already answered that question. And so technically, there might be a little bit of deferral there. But actually, I can see more indicators to increase that demand for build rates. The underlying demand is going to carry on growing along with economic growth. And I think with the changes in sort of public opinion around flying, airlines are going to want to deploy cleaner, more efficient airplanes as and when they can afford to do so. So if anything, I can see a little bit of sort of of demand increase signal, but we're not going to call that just yet. I think we've got one oh, we've got the microphone over there, so we'll come back. We've got about four minutes. Yeah. This is really, really swift. Just, Sandy. If if I've paid you for a flying hour, is there any way I can get the money back from you? No. Not technically. Seen around the back of the bike sheds. No. I mean, it's a it's a very good point because I know what you're getting at here with the question because there there is some commentary that we we should regard the credit balance as debt. Well well, that the the cash is contractually ours and remains ours even if the airline stopped flying the the planes forever. The cash is still our cash contractually. So that's the way we should regard it. But it's not even a creditor. That's a loan debt. No. It's deferred revenue. It's on the balance sheet. It's deferred income. Yeah. Yeah. Hi, guys. It's, it's Ben from Bank of America. Just one on the credit rating. You said you want to get back to A rating. What sort of metrics do you think we should be looking at in terms of that path and what you think you need to get to A? Thank you. We've had a lot of dialogue, as you might imagine, with the rating agencies with both Standard and Poor and Moody's on this one. I mean, what is very clear, their priorities align with our priorities, operational performance improvement, delivering a high quality operating profit growth and cash flow generation. If you're looking for a metric, Standard and Poor in particular, looking for a 14%, 15% EBITDA margin, so that's to get us to sort of move us into that single A rating category. What I can say is that when we look at our plans and then we look at the numbers that we're talking around in the midterm, we can see good progress over the course of the next two years on that ambition. And what is critical though is clearly derisking the Trent 1,000. Warren talked about delivering that final fix on the high pressure turbine blade on the 10, getting it the design through in 2019 and certified in early twenty twenty one. And then we can start installing those blades and we get the Trent 1,000 back to a healthy engine. So that's very much how the rating agencies are looking at it, we know what we need to do and we're absolutely focused on it. And we had one in the middle. Hi. George Dow from Bernstein. Could you talk about the CapEx spend needed in 2020 to build this stair lease pool engines support the Trent one thousand? Sure. And given that not all the fixes will be done by 2020, is there concerns that you may need to continue to build more spares beyond next year? Thank you. So our CapEx was around £750,000,000 in 2019, and that includes an element about £100,000,000 in round numbers of investments in Trent in spare engines, large proportion of which is Trent one thousand. In 2020, we're going to be maintaining the underlying spend. That's before the Trent 1,000 build. But we're going to be increasing overall capital expenditure by 100,000,150 million pounds or so in respect of that additional engine build for the Trent 1,000. And the way to think about this is that let's use a proxy of £4,000,000 £5,000,000 per engine. That's about sort of 20 engines or so that we're building in addition in 2020, in addition to the 20 or so that we built in 2019, if that makes sense. To answer, is there a danger that we are going to have to build some more? What we're effectively doing is pulling forward spares that we would otherwise have built anyway as the size of the fleet grows. And so I don't think we're going to need to do an extraordinary number of spare engines. Certainly from an operational point of view, if we do the spares that we plan to do in 2020, then we should be able to protect the fleet and then over the subsequent years we'll grow back into that volume And then we will continue to build spares as the size of the fleet grows. So I don't anticipate any 2021 enormous step up in the CapEx for for more Trent one thousand spares. But as it stands today, this build of Trent 1,000 engines will be a very good return on capital when we consider the cost that we're currently seeing for every day that an aircraft is on the ground. Okay. It's 10:30 on the clock, so let's assume the clock is, now telling us the right time. So thank you all for coming. I mean, the key takeaway messages here, I think it's a strong set of results for 2019. Our performance to deliver on that, particularly after a very tough first half, as Stephen said, we left ourselves a lot of things to do in the second half, but the team has delivered and shows what this organization is capable of doing in terms of delivery. I think COVID-nineteen and the disruption which flows from that, this is a macro for everybody. It's a known unknown at the moment. We will keep you updated with the implications. But we're in pretty good shape on that at the moment with daily monitoring of the situation, daily contact with the supply chain. And we're already seeing our suppliers and the customers with whom we deal in regions which were first affected by the virus, I. E, Greater China, we're seeing a return to levels of normality there. But we look through that and we can see the fundamental drivers of our business performance having improved. The fundamental levers that we talked about at our Capital Markets Day and before, we can see progress on that, we can see momentum and we can see those drivers continuing. And that's what underpins confidence in the medium term. And we also want you to take away the fact that we're not ludicrously short term focused on £1,000,000,000 in 2020 and a pound per share of free cash flow in 2023, we are thinking beyond that as well and developing a future for this business to build on that platform through the energy transition. And with that, we'll be back in July, late July, to tell you about how we've got on in the first half of this year. Thank you. Thank you.