Earnings Call: H2 2013

Feb 13, 2014

Good morning, everyone. It's 9:00, so I'm going to suggest that we start. Thank you for joining us today. Let me start by introducing my colleagues from the board. Mark Morris, Chief Financial Officer, Colin Smith, Director of Engineering and Technology, and Jim Guyette, President, Rolls-Royce North America. I'm pleased that we are joined by our chairman, Ian Davis, who is in the audience. I said that rather hesitatingly because I haven't actually seen him this morning. I'm pleased that we are not joined by our chairman. I think our chairman, Ian Davis, is going to be here. Those of you who haven't met him, you know that we replaced Sir Simon Robertson, retired last year, and Ian Davis replaced him. I know that he'll be joining us shortly. What I would suggest at the end of the presentations, Q&As, you don't all flock around me and Mark. Ian Davis, our new chairman, who's not here at the moment, is the person you really want to speak to. I'm going to give you an overview of our performance in 2013 and provide some longer-term context. Then I'm going to cover guidance for 2014. This forecasts a pause in growth for reasons that are particular to this year, and I'm going to spend a few minutes explaining them. Mark will then talk you through the numbers, and then we'll have a Q&A. Let's start with 2013, which I would describe as a good year with plenty of positives and, as always, some areas where we need to improve. This performance required a great deal of hard work by our staff and by our partners and suppliers, so I would like to thank everyone who contributed to these results. I suggest that the first number on the slide is the most important one. Our order book increased by 19% to GBP 71 billion, or up 16% excluding Tognum. That has now been renamed Rolls-Royce Power Systems, a division that also includes Bergen. This record figure confirms our trajectory for significant long-term growth and demonstrates the confidence that our customers continue to place in our technology. The book includes orders for more than 1,600 XWBs, our best-selling Trent engine. But of course, that is in the future. Group revenue was up by 27%, 6% excluding Tognum. Profit was up 23%, 11% excluding Tognum. The 13% increase in payment to shareholders reflects the belief we have in the fundamental strength of the business, as well as its future prospects. I hope by now you are familiar with the four Cs that provide the focus for our business: customer, concentration, cost, and cash. Each of these is a journey rather than a destination, and our mindset needs to be one of continuous improvement. On customer, we've made big improvements with plenty more to do. To give you some examples, in 2013, we achieved 100% on-time delivery in civil large engines for the first time ever. The first time ever. By the end of the year, our corporate and regional jet business also achieved 100% on-time delivery, and in marine, delivery was 96% on time, up from 55% last year and just 10% two years ago. There has also been progress on quality with Airbus, one of our most important aerospace customers, registering improved quality metrics, and BP, a major customer in our energy business, now placing us among their most highly ranked suppliers. Tangible progress on quality and delivery strengthens customer relationships and makes discussions about future business much easier. It is also an essential first step to achieving better financial performance as delivering product on time and at the right quality reduces inventory and lowers cost. I am delighted with the progress on our biggest program, the Trent XWB, that has completed more than 200 test flights and more than 6,000 testing hours. The engine is performing well and will power the Airbus A350 into service later this year. Concentration means deciding where to invest for future growth and where not. I am completely clear that we need to stand on two strong legs, and that requires continued investment in both of our technology platforms: gas turbines and reciprocating engines. We clearly have a strong civil aerospace business that is already assured of substantial growth. In three years' time, we will be producing twice as many Trent engines as we are today. While we need to keep investing in gas turbines, we will also look for opportunities to expand in reciprocating engines, both to maintain balance in our portfolio and to generate the cash required in the much longer cycle gas turbine business. Back in 2011, we invested in Tognum to add scale, reach, and capability to our reciprocating engine business. This is an important business and has proved a good investment. I spend a good deal of time there, most recently last week. I have been extremely impressed by Tognum's quality of management, customer insight, and high-speed engine technology. It will not have escaped your notice that we also entered preliminary talks about the acquisition of Wärtsilä. This would have added to our portfolio of medium-speed engines with applications in marine and land power. On January 9, we announced that these talks have ended. We aim to strengthen our medium-speed engine portfolio, and we will continue to look at options to achieve that. Turning to cost. You will have heard me say before, but it is worth repeating, the aerospace industry is, quite rightly, strictly regulated. That means it takes both time and tenacity to drive cost out from the business. You will not be surprised to hear me say that we are not where we need to be. While the pace of change may be slower than we would like, there are a number of areas where progress is being made. We have reduced indirect headcount by 11%, beating our own target of 10%, with more to come in the current year. Unit cost is down in marine, energy, and power systems, although slightly higher in our aerospace divisions. We are building new, more efficient facilities and capacity that will support a doubling in production of Trent engines. We are moving production away from high-cost countries, negotiating terms. We are improving productivity and designing cost reduction into our engines. Our cash inflow was GBP 359 million. We have put great focus on inventory, so it is good to see stock turns improving from 3 to 3.4. There is more to do, but by way of context, this is among the largest one-year improvements recorded and the highest stock turn we have yet achieved. All of these actions will deliver benefits in time. Overall, we have made headway on the four Cs, and these are the areas where I will continue to focus. Because this is a long-term business, to understand it properly, you need to take a long-term view, looking back as well as forward. For example, in 2003, it is interesting to note that revenue fell by 3%. Taking the long view, you can see that revenues have almost tripled in the decade since. Profit growth over the same period has been even stronger. The order book has quadrupled, now stands at record levels, underpinning growth for years to come. We turn to 2014, where we have guided for flat revenue and profit. This is a break in a 10-year trend that will be followed by a return to growth in 2015, so it requires some explanation. Let's look at revenue and profit in turn. On revenue, there are two main drivers. First, after two years of impressive growth, we will see defense revenue decline by between 15% and 20%. This will take revenue from its current record back to 2010 levels. Growth will return in 2015. This one-year decline is the consequence of well-publicized cuts in defense spending among major customers and completion of the delivery phase of two important export programs. The $1 billion multi-year agreement announced yesterday with Lockheed Martin to supply nearly 600 engines for Super Hercules aircraft underpins our confidence that growth will resume from a new base in 2015. Second, the largest part of our Marine business, offshore, will not produce the growth we have seen in 2013. This is because customer investment decisions are being deferred, and I do believe that they are being deferred rather than lost. In terms of profit, defense profit down 15%-20% clearly has an impact, but we also find ourselves fighting headwinds of lower capitalization, lower entry fees, and negative foreign exchange, alongside higher restructuring costs that will produce cost benefits in the future. The combination of these events produces a result for 2014 that goes against the long-term trend. For the reasons I have explained and supported by our record order book, we remain confident that this is a pause in growth, not a change in direction. In summary then, 2013, a good year with a healthy increase in order book underpinning long-term growth. The four Cs, a big improvement on customer, concentration, making sure we have two strong legs to stand on. Cost, not good enough despite encouraging progress in places. Cash, an increase in stock turns and a cash inflow. 2014, a pause before growth resumes in 2015 as our defense business rebases and as orders in Marine offshore take longer to come through. Mark will take you through the numbers. Well, thanks, John, and good morning to you all. I am going to talk about the group highlights and business performance, and then I will move on to provide some guidance for 2014. You will recall for most of 2013, we guided Tognum separately to the rest of the group. Today, we have split out Tognum so that you can make the right comparisons in our key metrics. As usual, I will restrict my comments to the underlying performance. As John says, 2013 has been a good year for the group, with some mixed performances in our businesses. As I step back and look at the progress that we have made in some of the key areas, such as on-time delivery, inventory, and headcount reductions, I am really pleased. There are some areas, like unit cost, where progress has been slower than I would have liked. We'll touch upon those areas in just a moment. But first, looking at the financials for 2013. We've made good progress with growth in the order book, revenue, and profit, and generated a cash inflow of GBP 359 million. The order book stands at a record GBP 71.6 billion, having grown 19% during the year, with a record order intake of GBP 27 billion. This includes a GBP 2.55 billion order intake from Tognum, and GBP 18.9 billion from our civil business, and reflects a very successful year for our Trent XWB program. Our order book provides good visibility of future growth and underpins our confidence to invest. Order cover for 2014 is around 75% and similar to last year. Revenue increased 27% to GBP 15.5 billion. GBP 2.6 billion of that was Tognum. The remaining 6% increase reflects 7% growth in OE, with good revenue growth in defense and marine, and a 4% growth in services. Profit is up 23% to GBP 1.8 billion, including GBP 180 million from Tognum. The 11% growth excluding Tognum reflects strong margins in defense, the benefit of IAE restructuring, and a lower R&D charge. These positives have been partially offset by price pressure in our marine business and slow progress on cost reduction in our civil business. Tognum did well in a challenging environment. The management team demonstrated strong market insight, calling the market exactly right, and hitting guidance. Remember that Tognum's profit contribution to the group reflects transition from a joint venture in 2012 to full consolidation in 2013. I'm pleased with our cash performance, particularly the improvements we've made in inventory turns, rising from three to 3.4 times excluding Tognum. We've had a good flow of deposits, and overall, broadly flat working capital and higher volume. We still have more work to do on working capital, and I'm confident we can get our inventory turns even higher. Finally, we've increased the full-year payment to shareholders by 13% to 22 pence, reflecting our confidence in the business underpinned by our record order book. So now let's turn to the key components of profit growth. Our trading performance was mixed. The benefit of volume growth this year has been eroded predominantly by higher costs in civil, price pressure in marine, and a number of one-offs. I will talk about these items as we go through the segments. The year-on-year benefit of the new trading arrangements with IAE, which you will recall was effective from the end of June 2012, was around GBP 112 million. On entry fees, you will remember that the year-on-year increase was GBP 76 million, and some of you may be surprised to see only GBP 26 million today. We have changed our accounting policy to match our policy for capitalized development costs, so some of those entry fees have now been deferred. You'll see the impact of this accounting change when we look at our civil results, and you can find all the details on this change in note one of the press release. On R&D, although we spent slightly more in 2013, our R&D charge was down by GBP 56 million. This was primarily because we started capitalizing the XWB development costs following certification. This will reverse in 2014 as the XWB enters service and we continue to invest in R&D. So you can expect a higher charge in 2014. Restructuring costs increased by GBP 37 million to GBP 54 million, reflecting indirect headcount reductions and facility consolidations that will improve our future financial performance. This will continue in 2014. You can expect a similar increase in restructuring charges as we drive down costs. Turning now to cash. I am going to pick out the major themes in this chart, which you are all familiar with. Net working capital improved slightly, reflecting a good second half performance on inventory and higher deposits from our growing order book. We have made good progress on inventory, and we will build on that success again this year. For 2014, the phasing of investments and trading will be weighted towards the second half, so expect a cash outflow at the half year. CapEx and software was GBP 650 million and included major projects such as new testbeds in the U.S. and Germany, new blade and disc facilities in the U.K. and U.S., and a new test and assembly facility in Brazil. The remaining balance of about GBP 400 million relates to higher development certification and recoverable engine costs. We expect CapEx to be flat in 2014. The result is a free cash flow of GBP 669 million prior to the payment of dividends. Our focus will be to further improve working capital as we drive inventory turns up. As I said earlier, we are pleased with our cash performance of GBP 312 million or GBP 359 million, including Tognum. The Tognum cash flow of GBP 47 million is after paying a GBP 60 million dividend to our joint venture partner, Daimler. Turning to the civil businesses. Our civil business has seen strong order intake, confirming the confidence our customers have in our technology and products. Our biggest program, the XWB, is performing well and will go into service in the fourth quarter of 2014. Revenue increased 3%. OE growth of 3% reflects a 20% increase in business jet engines and a small increase in Trent deliveries. This was suppressed by Trent 1000 launch pricing and lower V2500 revenue, mainly as a consequence of transferring more parts to Pratt & Whitney. Aftermarket revenue increased 3%, slightly lower than the 5% growth in the installed thrust. This reflects a 20% decline in RB211 revenue as these engines retire or fly fewer hours, resulting in fewer shop visits and parts sales. Now, turning to profit, which increased by 14%. This reflects a number of things. Higher volume, the benefit from IAE, a lower R&D charge as we capitalize XWB costs, and higher entry fees, although this benefit was reduced by our new accounting policy. The improvements were offset by higher unit costs and costs to support the XWB's entry into service. On unit cost and Civil, the performance in the year has been slower than we would have liked, but we are confident that the actions taken in 2013 will yield savings in 2014 and beyond. Changes in design and manufacturing require certification and new tooling, and this takes time. A number of our new factories are not yet running at full capacity, but we know that fixed cost absorption will improve as production ramps up. Let me give you an example. In our Singapore facility last year, we produced 41 engines. In the next few years, production capacity will be over 200, so fixed cost absorption will improve. We are also working hard with our suppliers to drive down costs. We have had some successes in 2013, and there will be more this year. There is a lot going on, and cost remains an area of intense focus that we are actively addressing on a number of fronts. Looking ahead to 2014 in Civil, we expect modest growth in revenue and good growth in profit. Revenue growth will be tempered by fewer business jet engine deliveries having come off a record year. We also expect launch pricing and RB211 retirements to further dampen growth. Revenue will return to higher growth levels in 2015, driven by significant increases in Trent engine deliveries, including the XWB. The profit growth will reflect the cost reductions I have just talked about and volume growth after taking account of lower R&D capitalization and lower entry fees. The TotalCare net debt increased by around GBP 270 million, reflecting a combination of linked sales and engine overhauls. You can expect a similar increase in 2014. Many of you have asked about TotalCare accounting, and we will be doing a briefing session this year at Farnborough. To summarize Civil, a good year, especially on new orders. On cost, progress has been slower than we had hoped, but there has been a lot of activity which will begin to flow through this year. Now let us take a look at Defense, which had a good year. Revenue was up 7% and profit increased 11%, driven by strong exports of EJ200 and Adour engines and lower R&D spend. Services revenue grew just 2%, reflecting lower flying hours and some retirements of older C-130Js. Our 2013 performance in a tight budgetary environment sets a high bar for a 2014 comparison. Against the background of a declining order book and the completion of the delivery phase of a number of our major export programs, we expect a 15%-20% decline in revenue and profit in 2014. This reflects lower deliveries of engines to power the C-130Js, V-22 Ospreys, and the Typhoon, as well as fewer Adour kits. As always, it is important to put this into perspective. We have had two good years of revenue and profit growth that outperform the market trend. For 2014, our guidance essentially brings us back to around 2010 revenue levels before revenue grows again in 2015 and demonstrates the scale and the opportunities that still exist. Even with the revenue reduction, we still expect to maintain broadly similar margins in 2014 as cost reductions kick in. Moving on to our Marine business. Marine had mixed results in a tough environment with good revenue growth of 12% offset on the profit side by price pressure. The order book grew 1%, reflecting lower order intake, particularly in offshore and submarines. Competition remains tough in both offshore and in merchant. There is considerable bid activity, but the pace has slowed on some projects because of project financing and CapEx phasing by some of our customers. Our Marine business did a good job of reducing product cost by around 2% during the year, but the benefits of volume and cost reduction have been eroded by price pressure and adverse mix, particularly in the aftermarket, and infrastructure costs as the Marine business rationalizes its footprint. Looking ahead to 2014, we expect a modest reduction in revenue and modest growth in profit. Profit rises against a declining volume because of the cost reduction actions we've taken in 2013 and continued actions in 2014. We expect 2014 revenue to reduce, driven by the lower order intake in 2013, particularly in offshore, due to deferred customer investments. Next, let's take a look at our Energy business. We've seen good growth in the order book with a GBP 1.1 billion order intake for the year, predominantly in oil and gas, which provides good visibility for 2014. We have a well-established oil and gas business that makes up around two-thirds of the revenue and more than all of the profit in our Energy business. Revenue increased 9%, driven by higher OE volumes in our oil and gas business. Profit increased GBP 7 million, reflecting higher volumes, partially offset by pricing pressure and continued investment in our civil nuclear business. In 2014, we expect further good growth in revenue and profit. But as you can see, the margins remain poor in this business, and this is an area we continue to work on. Turning to our Power Systems business. We are pleased with the contribution Tognum has made, and we are pleased with our investment. We continue to build on two strong technology platforms, and Tognum has added significantly to the breadth of our reciprocating engine portfolio. The chart shows the trading comparisons for Tognum. We saw good growth in the order book with an intake of GBP 2.7 billion. Tognum had a tough first half and a good second half, exactly as we said. That strong performance in the second half was driven by sales in marine and agricultural markets that included the effect of customers buying ahead of new emissions legislation that came into effect this year. Revenue was broadly flat. We saw good growth in our marine and industrial markets, offset by lower revenue in oil and gas, mining, and lower aftermarket sales. Profit was also broadly flat after a strong second half recovery, which is helped by unit cost reductions, too. In 2014, we expect modest growth in revenue and good growth in profit, driven by marine engines and Land Power Systems. Turning now to our financial strength. We're in good shape. We have good liquidity and a strong investment grade credit rating. Our financial strength gives us flexibility and assures us, our customers, that we'll be there for the long term. As we've said before, we are committed to maintaining a strong investment-grade credit rating. So now, before talking about our guidance for 2014, it's worth highlighting that we've created two new reporting segments, Aerospace and Marine and Industrial Power Systems, which we call MIPS. This reflects our two strong technology platforms of gas turbines and reciprocating engines. Aerospace will comprise our civil and defense businesses, while Marine Power Systems and our energy business will now sit in MIPS. Our energy business will now be called Energy and Nuclear and will include our nuclear submarines business, which transfers from Marine. Now, turning to our guidance for 2014, which will include Tognum. 2014 will be a pause in growth, not a change in direction. In 2015, growth will resume. At a group level, we expect flat revenue and profit. On cash, we are guiding on a free cash flow basis, which is more consistent with market practice. For 2014, we expect free cash flow to be similar to 2013, which is around GBP 780 million. Looking at our guidance for each of the different businesses. Civil aerospace, modest growth in revenue and good growth in profit. In defense aerospace, a 15%-20% decline in revenue and profit. In marine, a modest reduction in revenue and a modest increase in profit. In Energy and Nuclear, further good growth in revenue and profit. In Power Systems, modest growth in revenue and good growth in profit. Some additional guidance for you in 2014. Expect our cash and profit phasing to be H2-weighted, reflecting cost and restructuring initiatives underway, phasing of CapEx spend, and our MIPS business, which is traditionally more H2-weighted. CapEx for the year will be broadly flat, and on R&D, expect a modest increase in spending, but a higher P&L charge as we stop capitalizing the XWB. Lastly, we expect an underlying tax rate of around 24%. Let me close by being clear about our focus, the four Cs: customer, concentration, cost, and cash. We have a GBP 71.6 billion order book. This is a concrete measure of the confidence our customers have in our products and technology. Delivering on the promises we have made is crucial, and I am pleased with the progress. On concentration, we have a long-term strategy that has been applied consistently over many years. We will continue to invest in our two strong technology platforms to deliver long-term profitable growth. As a CFO, you would expect me to be focused on cost and cash, and I am. Progress has been slower than I would have liked, and I get this. We understand that improving financial performance is key to our long-term success, and we are engaged in many cost reduction programs. These will drive down costs as they are sustained across the business and as volume, in particular in our civil business, ramp up. Rolls-Royce is an exciting place to be right now. There is a great deal going on, including the entry into service of our biggest ever program and good momentum established towards improving our financial performance. Thank you very much for listening, and now we'll take your questions. Thank you. Thanks, Mark. Okay, as usual, I will point to people, and we'll go around. Everyone will get a chance at the questions. If you could say, your name and your affiliation before you start, and then we will take your questions. So we'll start right at the front, maybe with Ben. Yes, Ben from Deutsche here. Maybe kick us off with a couple of questions. The first one just on partly your slide, Mark, I guess, on capital allocation, but also build again maybe with your comment, John, about your desire to grow in medium-speed engines. What should we think about capital allocation, about M&A, about leverage, and about your comment about continuing to want to grow in medium-speed engines? Does that mean M&A, or is there organic opportunity to do that? That is the first question. I can come up with the second one, or do you want me to ask it now? I will ask the second one now. Go on, otherwise you will lose the microphone. Oh, well. Shocking. Which may be a good idea. The second one is just, and I recognize it's probably a slightly delicate topic, but just on this FRC issue, is the FRC looking into any other accounting issues, or does this draw a line under absolutely everything, there's no other issues we should be concerned about? Just if you can update us on what's actually going on there in discussions with the FRC. Thank you. Okay. Well, why don't I make a couple of comments and then ask Mark to speak on both of those topics. In terms of capital allocation, a couple of fundamentals that you're all familiar with. First of all, we think it's essential that we have a strong credit rating. We're a very long-term business, and we need to maintain that. In terms of M&A, it won't surprise you in the slightest that I'm not going to get sucked into any discussions or speculation about what we are or are not doing there. We've never talked about it in the past. I'm not going to talk about it today. I won't talk about it in the future. What I would say is, as we look at the business, and again, shouldn't be a great surprise, we look at it in terms of the gas turbines and the reciprocating engine businesses. We've got those two platforms, and they have some similar characteristics in terms of the fact that they are complex integrated power systems in the sense of an OE and an aftermarket. They're also, I think, important in terms of the balance that they bring to the group, in terms of the different nature of the financials and the industries that they're in, with shorter cycle, longer cycle, earlier cash generation, longer cash generation, more capital intensive, less capital intensive. So there is a mix there that I think is important. It's important to get that balance right. In terms of the medium speed, as we look at our portfolio in Marine, which is a strong portfolio, in terms of what we can offer to Marine, an area that I think we need to strengthen is our medium speed diesel portfolio, where we are relatively small. If you look at the medium speed diesel, the big players, clearly Wärtsilä is a big player there. If we look at our Marine business, an attractive part of that portfolio that we need to strengthen is medium speed, and it's important in terms of pull-through of other products. How do we strengthen that? Well, as I said, there are various options there. Clearly, you're well aware that we considered an M&A approach, and as I said, those talks have stopped. In terms of other approaches, we can certainly, and we are working, Colin can comment on this, on developing engines, more engines, in the medium speed in-house. So the dual-fuel engines, different medium-speed engines. We're working on that as well. Mark, I don't know if you want to make some more comments on capital allocation or whether you'd like to talk about the FRC. Well, I can do both. On capital allocation, I think one of the main drivers will be our sensitivity and desire to retain a strong investment-grade rating, and I think from that you can infer some leverage levels. There's always a quantitative element that's put on these things, but there's a qualitative element that goes with the rating agencies as well. Of course, it's important to understand that like all these things, whilst we desire to maintain a certain rating, it's not ultimately our gift to give. But obviously that sits in the context of them understanding our business and what we're doing. That's an important driver, having a strong rating for us, as you know, just because we're a long-term business and we want to ensure that governments and customers know that we're going to be around to continue servicing them in 5, 10, 15, 20 years' time. As John said, look, there are a number of factors we have to think about in capital allocation in terms of how we look across our businesses, where we've invested, where we haven't, whether it's long versus short versus medium term, and all around the areas of how the capital is deployed, and the sorts of return on capital employed and so forth. So that gives you some idea, I think, on that. Just turning now to the FRC. You sort of made a reference and I think the question was, are there any other ongoing inquiries, or do you want me to explain a little bit first about the FRC? I think I have. The accounting change that we have done. I am happy for you to, because it is more around looking at further issues, whether it goes into widening this one. Well, look, a couple of things. I do not think it is unusual for companies from time to time to get inquiries from the FRC, and we are no exception. Clearly, we are not going to comment on any private discussions that we have with the FRC, until such time as, like on all these things, there is something to say. On the FRC, that is what I would say. If there was some specific question around the change in policy, which I think is explained in quite a lot of detail in Note 1, I am happy to talk about that as well. No? Okay. Okay. The next, at the front again. Let us take the front on this side. We will kind of wind our way a little bit up and come back. I know Sandy likes to be at the end. Thank you. Christian Laughlin from Bernstein. Just one question regarding around the profit strength phasing next year, if you will. Just wondering if you could provide some commentary on where you expect to see some tailwinds, some margin tailwinds in H2, just given that we should expect to see XWB ramping up and then, of course, Trent 1000 running at higher production rates this year. Well, we do not normally get into detailed breakdown of half year phasing, but what I would say is this, and as I alluded to in the presentation, a number of restructuring and cost reduction initiatives, how we are spending CapEx, some movements in R&D, but also just when we look at our Marine and Industrial Power Systems business, generally the volume load is generally a bit more second half weighted, and that is what will drive some of the profit pacing as well. Could I just pick up a part there? You kind of threw in there the XWB ramp-up. Just to be clear, XWB engine volumes in 2014 are very small. Enter into services this year, and XWB really starts ramping up 2015 and particularly in 2016. So, this is a small volume of engines next year in terms of XWB. So that is still coming. Just to be clear on that point. Next, can we just go back one more, I think it is. Yep. Gentleman just behind Christian. Thank you. Steven Cahall from Royal Bank of Canada. Maybe just a couple questions on what we are expecting next year in civil versus some of the trends this year. So maybe first on IAE, do we expect any uplift next year? It looks like we did not have any uplift versus 2012 and H2 of 2013. So maybe just what your assumption is there, and then similarly on the RB211, if you can give us maybe any color about what retirement rates were in 2013, and what is the expectation for that trend in 2014, because it does look like it accelerated in terms of retirements in 2013. Thank you. Mark, why don't you. Okay. On IAE, let us try and put this one to bed. For the full year, as I said, there is 112 million uplift. Again, if you will recall, if you go back to 2012, we had a half year of what I will call the old world and then half year of the new world. Your observation is right, there was no uptick in the second half. Going forward, we are not going to break out IAE anymore. It just gets too difficult. We are working off assumptions that the old model back from 2012, and we do not know what they really were. What I will say is that generally, as we move forward, the uplift will reduce, and I think we have given you that guidance before. On RB211 retirements for this year, sorry, for 2013, we said the impact was a reduction in RB211 revenues of about 20%. That sort of will continue as we go forward. Again, this isn't a surprise to us. We factored in. There's always some movements, a little bit backwards and forwards, but we're anticipating that as it goes up, we'll start to see some retirements. Of course, one of the things that we're keen to do is ensure that by lowering the cost of overhauls and so forth, we can extend the lives of those, but it's in our planning. Right at the front of this side. It's Nick Cunningham from Agency Partners. I hope it doesn't seem too aggressive, but it sort of falls to me- If you're aggressive, I'm not the one- Well, you can always shut me up. Yeah. But the defense has been sort of, if you like, almost anomalously strong for several years, and we've kept on asking about that, can this go on? You haven't been specific in response, but I think the takeaway has been that it's sort of sustainable. But now we're looking at a 15%-20% decline at sort of one-year notice, which is unusual for a large company to do that. So I'm just wondering what happened. Why was it not flagged earlier? I have another couple. Shall I ask them all at once? Please ask them all. Yeah. Thanks. On the change in RSP treatment, I was just wondering why the FRC recommendation was only sort of half adopted. What's the thinking behind your decision to adopt a different treatment from them? Finally, this probably just displays my own ignorance, but why is the minority so small? One would've thought that half of Tognum would generate a much bigger P&L minority. So that's probably just me. Okay. I am going to ask Jim on defense. I think, in part, the answer to the defense question, though, is we have given in-year guidance, and you kind of run into that, which is, well, how do you handle that? We give in-year guidance. Clearly this time, we started talking a little bit about the future, and I think that that has made us think a little bit more carefully about how we manage that. What I would say is, what we are trying, and we are heading in the direction of, and I know, again, it was slower than many we would like, is try to get more transparent about a whole variety of issues, including length of time, potentially, and details around it. As Mark said, we will have a session on TCA accounting at Farnborough. I think, in a nutshell, that is sort of the answer to that. Jim, maybe if you can make a few comments on defense, that may be helpful. Fine. Thank you. What I would like to do, if I may, is take your narrow question and maybe provide a little more color to the defense story because I think it would be helpful to all of you, and I suspect it is one of the primary issues of concern. Let us start with a couple of points of background. Let us go back 5 years, and let us look at our revenue and profits. Our revenue improved 54% over the last 5 years, profits 96%. This is against a backdrop of a very, very difficult defense budget situation, U.S., U.K., and a couple of other jurisdictions as well. So it is outsized performance given the backdrop of a tough, turbulent environment. The reason that we were able to do so well is product portfolio mix and also some contracts that served us through that difficult period. What we are now finding is that the defense reductions are beginning to bite, and they did not begin to bite just this year. If we go back and look, our order book has been decreasing over the last 3 years. So I think quite a signal that things were going to catch up with us, and they have. Last year, it was the aftermarket business that did not do as well as one would have hoped or as we have done in the past. If you look, it only increased 2%. So that is where we took the first hit, and it was in reduced flying, and it was also with respect to some airplanes that had been retired. This year, it is now manifesting itself in OE, and I will cover that in just a second. I would like to provide a couple of other points that might be helpful to you. If you look at the U.S. for a moment, last year, I provided a tutorial on sequestration. My colleagues have asked that I do not do that again this year, but we can do it later if you would like. We do have a defense budget for the first time in several years in the U.S., and that is good news. The other good news is it, for this one year, it put aside the effects of sequestration, only for one year. The other good news is that it is a $12 billion improvement over where sequestration would have been. The bad news is the defense budget is $40 billion less than the President requested. Again, a little bit of gain here, but not as much as the Defense Department thought it needed to run its business. The other thing that I would point out to you, again, for background, is you look at the political situation in the U.S. Yesterday, House of Representatives passed legislation on debt ceiling, another signal of stability, and that will carry us through March of next year. I think that is helpful. The other point that I would raise is this is a year of midterm elections, so every member of the House is up for re-election, a third of the Senate, and I think it means that there is probably less room for political mischief. People are going to be on their better behavior. Now, what does that mean for sequestration next year? Do not know, but I suspect, again, better behavior. If I could then move to another aspect of this. We have, in my view, good clarity on 2014, and we are having increased clarity on 2015. The next bit of information that we will have will come on March 4 when the President releases his budget to the Congress. We will have a much better sense of what is in, what is out. Usually, we know about this in February. It has been delayed a month. We are a month behind in all of that. Still, I think we understand pretty well what 2015 will look like. There are gives and takes, but a better understanding. If I were to, again, walk you through now the OE side of what is happening to us, again, we are going to concentrate on the U.S. because that is where the volatility is today. The C-130J. It is our bread and butter airplane. We have been at a high watermark on deliveries of C-130s. This year, it will drop approximately 30%. You heard the announcement of the new order, a five-year order that will bring us up above this year, but not back up to the high watermark. V-22 Osprey has been an award winner for us over the last couple of years, and that drops by more than half this year, and we would anticipate that that levels off. Now, there is going to be some prospect for perhaps some sales to Israel and some other countries. That would be nice upside. But for us, we think we know where we are. Of course, A400M is delivering. We have now JSF starting to deliver. There are some opportunities in the tanker world that we are also having a look at. The other side of this equation is cost, and a very, very important element of what is happening in defense. Simply said, we are resizing the business. We are attacking every single element of cost. Overheads. Over the last three years, we pulled overhead down 20%. This year, we are bringing our production costs, our manpower on the shop floor down 15%. That is almost 500 people. Most of that is in the U.S., and almost all of those people will be off the payroll within two weeks. It is not a plan; it is a reality. We are now moving on product cost. What can we do to reduce product cost? Aggressive actions there as well. They will take time to implement, but they are underway. We are looking at production footprint. How do we consolidate? How do we reduce? Again, actions underway. There is a cost element to this. We have got to resize, reshape the business to today's defense reality. Lastly, John, I would also mention just for the group that we are out in the international marketplace looking to see what we can do, too, to sell equipment, and we are working with our platform suppliers. Then there is the aftermarket. One of the things that we are focused on in this kind of an environment is how do we help our customers do more with less. An example of that, we have a new product upgrade for the T56 engine that serves the legacy C-130s. It is now a program of record in the U.S. Very, very helpful. What we do is upgrade the engine, and what it provides the customer is somewhere between a 10% and 15% reduction in fuel. With a small investment there is a big gain. We are looking for every opportunity, again, to help those customers that we have do more with less in a budget-constrained environment. I apologize for a long answer, but I did think that since defense was kind of a headline item, that perhaps it might be helpful to handle it in a comprehensive way. To answer your direct question, yes, we saw it coming, reflected in order book declining. Thanks, Jim. Mark. Right. FRC. Look, I think the key thing here is that risk and revenue-sharing partnerships, which you are familiar with, Nick, are not directly covered by any particular standard under IFRS. So it requires judgment in arriving at what we believe is the right treatment. Ultimately, it is like all these things. There is a level of interpretation. As we have alluded to, we have been in discussions with the FRC. We have a view on how we think it should be interpreted. They have another. There are both good arguments for both. But when we looked at it and looked at the difference in terms of where we ended up, we concluded that it was relatively immaterial. But for us, it is important that we stand behind what we believe is the right accounting treatment. That is the position that we have taken, and for us, it is consistent with what the rest of the industry does. I think what we found was the discussions with the FRC were extremely constructive and helpful, and they made us really reflect on what we saw and how it works. So I think it was really helpful in terms of getting us to think clearly about something that we had not perhaps thought as clearly about in the past. So they were good discussions. I think very constructive and useful. Absolutely. Mark, you had a question on minorities as well. Yes. I'm not quite sure I fully understood the question, but obviously, Tognum has moved from being JV accounted to fully accounted. I think if it's a techie question, we'll sort of take it offline. Okay. We'll do that. Next. Let's just go back to this side. Those of you sitting at the back will learn you have to sit at the front in future. It's David Perry from JP Morgan. Two questions, please. The first one, John, just this issue of medium-speed diesel engines where you think Rolls needs to become stronger. When we were given the presentation on Tognum, that was the major raison d'être, if I understood it correctly. Can you just explain why Tognum isn't meeting the need and why you felt the need to have talks with Wärtsilä, please? The second one goes back to Ben's question right at the beginning about the FRC talks because I think we can't really ignore it, and for you, Mark, to their private discussions. Are you absolutely rock solid sure that there will be no forced changes to TotalCare accounting going forward? Okay, let me take the first one. What has become clear, and maybe it's been clear all along, is that we need to do a much better job explaining our non-civil business to many people, which is an issue for us rather than an issue for you, if that makes sense. One of the things that we'll be doing later this year is we will have an investor meeting on our Marine and reciprocating engine business. It isn't just about marine, there's a land power part to it as well. So we need to make sure that you understand that business, I think, much more clearly than you do, and we recognize that that's something that we haven't been particularly good at doing. To clarify that point, Tognum is sort of a high-speed diesel engine company rather than a medium speed. If you look at reciprocating engines in simple terms, you've got three speeds, low, medium, and high. Low is something you put in huge vessels, and you build them into the vessel at the place where the vessel is, in simple terms. I'm making this overly simple. Medium speed is what we make at Bergen and what Wärtsilä was good at, has a very large market share. Tognum is a high-speed diesel engine, and if you look at the different engines that it makes there, I think Mark, in total, it goes about 28,000 engines, 20,000 of which are what we would call low power, high-speed engines, which are primarily for Daimler. And there's 8,000, which go to a variety of different sources and do different sizes, whether that's agricultural equipment, construction equipment, the oil and gas industry, et cetera, et cetera. They've got a very diversified customer base. But the fundamental difference is high speed, medium speed, low speed. Tognum high speed, medium speed is an area that we need to build our portfolio in. Can you just clarify? Sorry, because clearly I've phrased the question wrongly. I think back at the Tognum meeting, the point was you were not interested in that medium speed area. I know it was your predecessor, but the point was always about the niche boats, not in the commodity market. And you wanted the Tognum high speed to clarify the gas turbine capability that Rolls had already in Marine. So if I asked the question correctly, why the need to move into the medium speed market that previously, maybe by previous management, wasn't perceived as important? Okay. I'll answer that slightly differently. I think that, one, Tognum is a good acquisition. As I said in my presentation, the management team are doing a terrific job. They did a terrific job last year. I'm sure they will this year. And we are getting the benefits that we foresaw when we made that acquisition. As I said, I was there last week, and one of the things that I go through when I go there is to look at where we're getting the revenue synergies that we spoke about and how well they're progressing, and we're doing well. And we've got a detailed plan on that with lots of detailed examples of where that's working. So as an acquisition, I am comfortable that was a good acquisition and a good plan. In terms of medium speed, though, it does not address some of the issues that I think we have, we think we have, in terms of Marine and the growing Land Power business. Irrespective of what was understood or said in the past, to be clear, we believe that we need to strengthen our medium-speed diesel engine businesses. FRC, Mark. Okay. Look, we have a huge number of accounting policies that we apply. We are confident with all the ones that we apply. They are viewed and vetted by our auditors. In relation to TCA accounting, we are confident with that one. Like I said to Ben, in terms of conversations or inquiries with the FRC, it is not unusual for companies to have them. But like I said, in any respect, conversations that go on between companies and the FRC are private. Okay. Let's go back one more at this side. Hi, this is Ed Stacey from Espirito Santo. Just one question, which is cost savings in 2014. When I look at both Civil and Marine, you are talking about some kind of margin negative effects. In Civil, you are saying you have got the RB211s coming out of service and you have got launch pricing, so both pricing and mix problems. In Marine, you are saying your offshore is the bit that is a bit weaker than you thought, so that is, I guess, mix negative. And you are seeing this fierce competition, so I guess we are worried about pricing there as well. I could imagine if you were doing nothing on cost savings, then your margins would actually be down for both of those businesses. Then when I look at, okay, you are saying actually both of them have decent profit growth, it must be a lot of cost savings. Can you tell me, am I right that it's a really pretty big number? If so, what is it that is nailed down and I can be confident that it comes through the cost savings? Mark? Okay. Yes. Look, obviously, our guidance for Civil, we've guided modest growth in revenue and good growth in profits. I think what you're seeing there is, as I alluded to in my presentation, is that obviously you're going to start seeing cost benefits coming through. Interestingly in Civil, that's against the headwind of lower RSP entry fees and lower capitalization. So there are a number of things. As usual, there's a number of moving parts in this which will include mix and various other things as well. On the Marine side, yes, absolutely. They took 2% out in 2013, which continued cost reduction on that front, along with some restructuring and rationalization. Again, those will start to flow through as well. But that doesn't mean that the price pressure is coming off. That's obviously something that is still with us in the Marine side in particular, and in particular Commercial Marine. Yeah. Yes, Rupert Victor from Morgan Stanley. Just two questions, perhaps one for John first. Just when I think about defense, and perhaps Jim can kind of weigh in with this as well, what is the right long-term margin in your defense business? After we have this reset in 2014, are we going to go back to a period over time where we get towards a low kind of teens margin, or can we maintain the margins where they are? Then perhaps one for Mark around cash. When I look at the 2014 guidance, obviously you're saying roughly the same sort of level, but if we have a good or some improvement, should I say, in working capital, is there a chance that the cash actually comes a little bit better or especially if you've got flat CapEx as well? Thank you. Well, I am very impressed that you managed to find a topic that Jim didn't cover in his explanation of defense, so congratulations on that. I am not sure that I can answer you what the right long-term margin is in our defense business. Clearly, it depends on a whole variety of things. What we are clear about and what Jim did cover is that we need to manage the things that we can manage, which in this specific instance will be costs, and we need to make sure that we are as efficient as we possibly can be, and that's where our focus is. Yeah, look, I think in terms of cash, I think the key thing to recognize obviously is the improvements, and certainly flat CapEx and on working capital. What we've got to recognize there is, and I've signaled that is when we look at the TCA net debt arising by similar levels again. So that's really what's bringing down some of the effect we've got on cost reduction, other stuff in cash is being countered by obviously a rise in net TCA debt. So that's why we're signaling around similar levels. Let's just keep going back and then we'll come back down to the front here. We'll get there. Trust me. It's Zafar Khan from Soc Gen. Just on the headcount reduction, the 11% you mentioned. Could you give a little bit more detail on that, please? Where that actually happened and what the numbers are in the different divisions now, and how they compare with 2012 year end? Yeah, Mark, I think you're. Yes, Mark. I can't break it down by division. I don't think it's. As we've indicated, this is all around, so what we call indirect. A large chunk of it would have been in the U.K., but it's everywhere we are in indirect. The 11% is the number we did from where we started back in October in 2012. As our benchmark, and it will continue. We're not going to break it down by division. Roughly, how many people in total do we think that was, Mark? About 1,100, yeah. Yeah. About 1,100 people. As Mark said, this is in the overhead area. As I think I've explained to you, my view is that we've carried too much overhead. Like many mature businesses, we've grown and we've carried too much overhead. We need to improve our efficiency a lot in this area, so we're driving process improvements in a whole variety of ways, and we'll continue to do that. If I look at simple things like transaction processing, where do we do that? How do we do it? How many people have we got doing it? How efficient are we doing it? Those are the areas that we're getting to. I think in terms of the cost, you didn't see huge change in the costs in the year because, of course, we had the cost of restructuring offsetting the savings, and we should start to see the benefits of that coming through this year. But we're putting more restructuring in this year to drive more cost savings in the future. We'll drive similar numbers again this year. Okay, next. Okay, why don't you come right down to the front again, and the change with policy. Morning, it's Chris Hallam here from Goldman Sachs. Just one very quick question about your 2014 profit guidance, just how confident you are on that guidance. Because if defense is down 15%-20% and you're guiding for flat, it implies your non-defense segment is growing low single digits, but 85% of that non-defense segment you've said is good profit growth. So it seems you must be very confident on flat for the group for this year. Well, as I said, we give guidance every year, and I think the track record at a group level has been pretty good, which is a dangerous thing to say, obviously. It's our best view as we look out into the future. As with all these things, it's a projection into what's going to happen in the future, but it's certainly our best view, which we've been reasonably good at doing at the total level. I think as you look into today's divisions, you get some ups and downs, which you inevitably do as you break down into the detail. But you wouldn't expect me to say anything other than we're pretty confident, otherwise we wouldn't have given it. We'll go to Sandy, who's just twitched. Oh my God, that tired me out. Actually, Wellington boots on just in terms of our cost base and civil. The simple average number of employees in 2012 was 21,500, and in 2013 it was 23,400. I know you've taken overhead out. We are clearly sitting on a massive chunk of production capacity that we aren't using. Yes. I'm sort of assuming that engine deliveries aren't going trends, aren't going up markedly in 2014 versus 2013, despite 787. Is that right? Okay, let me make a comment on that. Mark referenced this, and your point is well made, Sandy. If we take the most obvious example, in Singapore last year, we made 41 engines, and it has the capacity to make an engine a day. Clearly, that is a cost burden for us in the way that you're talking about. Next year, there will be a small ramp-up in Singapore, but in total, Trent engines do start to pick up next year. Although there's a mix issue there in terms of Trent's large ones going up and the smaller ones going down a little bit, which is the way that we're forecasting it. The issue for us is in terms of balancing that, is preparing Singapore to take over the build of the Trent 1000 and the Trent 900. At the moment, last year, it just built 900. It'll start building 1000s this year. Then the buildup of the XWB, which as I was saying earlier, is very small this year, starting in 2015 and then really ramping up 2015, 2016 in particular. That's when we'll start to see that change in mix. So if your question is, am I carrying too much fixed cost and fixed overhead at the moment for the level of production? The answer is yes. That's what Mark was saying, which is as production ramps up, particularly in civil, that will bring us benefits, if that's your question. Well, it is almost precisely because we can muck about with unit cost in civil, but I mean, God sakes, give us a break. We're carrying a massive amount. If you then were to confer- Don't worry about this, Andy. You're doing a good job for me. Oh, God. What's the share price if that happened? Therefore, if you tell me that actually, notwithstanding the change is difficult, we are content with the progress we're making, so that when we hit the button, the business is in the shape you want it to be, then I would regard that as a very encouraging comment. Are you going to make it? Yeah, I would. For us, it's about shaping the business for the future, and in the future, we're going to get extra benefits of volume. When we start getting the capacity and the demand in balance, we get that as a windfall. But if we right-costed the business before we get there, then we're in great shape, which I think is the point that you're making. That's what we're striving to do. Are you happy? Yep. Right. Then a crude, bold question. Happy is not a word I ever use, by the way. Less miserable. Happy was 1974, about an hour and a half, and that was it. It is over. I am confident that is a much better word. God, you have had a charmed life. Then look, just blundering into TotalCare, where actually the disclosure has gone up a lot. Now, the liabilities are a bit smaller than I had imagined, and it is just part of this accruals and spend. Just in broad terms, how much did engine overhauls go up last year, and what is the trend in engine overhauls? Just so we can capture the cash spend, please. Yeah. I think the trouble is that there are so many moving parts here. You have alluded, last year, GBP 270 million, and interestingly, about GBP 240 of which was in the first half and only GBP 30 of which was in the second half. That really just reflects the various moving parts we have in, and what contributes to the net TCA debtor. Again, we will get into a little bit more of this when we get into Farnborough. But yes, we had more shop visits and overhauls in H1 than we did in H2. That is the sort of main driver, just because that drives the creditor down, which in turn creates the net debtor being higher. That is the main reason behind it, Sandy. But you had a pretty good go at answering it yourself just then, so Yeah, I do that, and I go wrong. Yeah. Well, you're right. Did they go up again? Or have we hit a maturity average level? Because my sense is the spend's gone up a lot for the last two or three years as the fleet matured. In levels of H1 and everything, it will continue. Obviously, they will ebb and flow from one H to another, just depending on how they're scheduled and where the aircraft are delivered, and more importantly, how the aircraft are used, because you can't say that every aircraft has one coming in every five years. If the aircraft's being worked hard, it'll be four years. There's lots of moving parts that drive that. And of course, as you know, shop visits and overhaul costs are just one part of what makes up the net TCA debtor. But they will ebb and flow. But of course, as you've got more volume under management, they are going to grow over time. That's the reality. Okay. There is one more here. Morning. Andrew Gollan from Berenberg. Two questions, one on aftermarket and one on revenue drivers. Civil aftermarket. Could you possibly tell us the split or broad split now between TotalCare and time and materials? Within the time and materials, a broad indication of how important the RB211 program is. Secondly, on revenue drivers, a couple of sub-questions here. The launch pricing issue on Trent 1000, presumably we knew about that, because these are agreements that were made some time back. Is it a factor that is becoming more of a headwind than we thought? Do we know where we are going with this issue for 2014 and 2015? I guess the same applies for when we get into Trent XWB down the line. Secondly, on V2500, I believe that was down year-on-year, and I understand that to be part of the services supplied into the platform. Why was that lower, given that industry volumes were up, please? Okay. You have three questions there. On aftermarket, the split is about 70/30. On the issue about launch costs, yes, of course, we know about them. They are contracted a number of years in advance. Lead times are typically 18 months, two years, and right out to five, six, seven as the set of deliveries will go through. Again, when we guide on profit, that is just one element, along with where we are on If you are just looking at the OE element, what all the other deliveries are doing, and in particular within civil, you have not just got civil large, you have also got the business jet engines, which traditionally have higher margin anyway because they fly less hours in the aftermarket. The logical business analysis is you get more on the OE. V2500, again, let us just remind ourselves of what we are doing. We continue to manufacture and supply parts, and there's a transitioning process that's going on. Over time, some of the parts that where we have sourced and supply will eventually transfer through to Pratt & Whitney. We will continue manufacturing a number of parts, and again, even over time, some of those will start to drift as well, which is why when we originally guided, it will start to come down over time. So that's the driver behind it. It's just as time's gone on, there's been some parts transfers of what was coming in through us and now what's been transferred and goes straight to Pratt & Whitney. So that's the driver. Previously, obviously, some of the parts where we've had more volume, it's just a function of what part sales are being driven, and you can forecast them, but what actually turns out may be different. Last year, for instance, we had a number of cases where more expensive parts were being ordered and more of them, which drove part of that revenue. The RB211 within time and materials? I said it's about 30. Sorry, RB211. Within. Off the top of my head, I haven't got that, but we'll get that for you. It's obviously quite a significant- Yes, it is. Within time and materials, RB211 is going to be- Almost all of it. Yeah. I was going to say 70%, 80%, I should think. Yeah. The 70/30 margin, just to be clear, is the total- Total the total as opposed to the split of sales that we are getting at the moment where we have got higher TotalCare and less time and materials. That is correct. Yeah. It is just on the existing installed base. That is the total. Yeah. Now it is different. Anything else from Just one more from, last one from Ben. This is last of the last. Sorry to come back with a few more, and end on a low point maybe. Just a couple of follow-ups. Firstly, you mentioned there was some quite good deposit inflows that helped or deposit inflows, an item in the cash flow in 2013. Maybe you do disclose it, and I just cannot find it, but I wondered if you could share with us what that scale of deposit inflows was that helped in the free cash flow number in 2013. The second question, and I guess it builds partly on this launch pricing point, but you clearly have good visibility about the launch pricing effects. But on XWB, as those volumes rise in 2015 and 2016, just how that plays out and how we should think about the headwinds that may or may not create. And maybe the final one is just your comfort level on Trent 500 TotalCare net debtors. Trent 500 is 12% of your installed base. We've got 10% of the aircraft on the ground. You're offering, understandably, an improved package for the airlines of overhaul one, overhaul the other three. I'm just wondering how that plays out in terms of your view on whatever the TCA net debtor is on Trent 500. Thank you. Mark is delighted I had one last question. Mark, deposits. On deposit flows, it won't surprise you, the bulk of that has really come from civil and the massive growth in the order inflow, order intake, and order book. At the same time, of course, defense has been running down as the production delivery phase has been coming through, but one's more than offset the other. I don't think we reveal the sort of net difference between the two, but that's what's been driving it, Ben. On launch pricing on XWB, look, we're not going to get staked out in the sun program by program. In giving you the guidance from 2014 and what I'll call a bit of finger painting for 2015, we factored that in into our thought process. And again, ditto on Trent 500 net debtor. It's a small contribution to the overall net debtors. As you know, the Trent 500, as a four-engined aircraft, is not doing as well given the high fuel price environment. Again, that's factored into our calculations, but I'm not going to break it out specifically. But again, it's reflected in the total rise in net TotalCare debtor that I gave you for 2014. Thank you. As you can see, if you have one extra question, the answers tend to get a bit less answers, I think is the way I would describe it. Less specific, maybe. Thank you very much for joining us this morning. It is very good to see you all again today. If I leave you with just a couple of thoughts. First of all, cost, cash, concentration, and customer. Really, really important for us in the business. That is where our focus is, that is where my focus is, that is where the board's focus is to make sure that we can do as Sandy was suggesting. Really important that we get the customer elements right. We are making good progress on that, but we have still got a ways to go. 2014, pause for growth, not a change in direction. Growth comes back in 2015. Thanks very much for your time this morning.