Earnings Call: H2 2012

Feb 14, 2013

Good morning. Thank you for joining us today. Let me start by introducing my colleagues from the board. Mark Morris, our Chief Financial Officer, Colin Smith, Director of Engineering and Technology, and Jim Guyette, President of Rolls-Royce North America. I am going to give you a brief overview, then Mark will take you through the numbers, and then we will have Q&A. I would like to start by saying a few words about our chairman, Simon Robertson, who I know is in the audience today. Many of you will have seen that he is going to retire from Rolls-Royce at our annual general meeting in May. Simon has made an exceptional contribution over the past eight years. He has worked tirelessly on behalf of the company, and his energy and enthusiasm have been an example to us all. I wish him every success in the future. I am delighted to welcome Ian Davis as our new chairman and look forward to working closely with him. Now, turning to the results. The order book is up 4% to GBP 60.1 billion, adjusted for the sale of IAE. Underlying revenue is up 8% to GBP 12.2 billion. Underlying profit up 24% to GBP 1.4 billion, with margins improving by 150 basis points to 12.2%. Payment to shareholders up 11% to 19.5 pence. These results are a tribute to the hard work and dedication of everyone at Rolls-Royce, to the support of our partners and suppliers, and most important of all, to our customers, who continue to place their trust in our technology. You will have heard me say before, but it is worth repeating, that this is a long-term business. While a year may seem a long time, I think you get a far better view if you look at the performance over a longer period, both back and forward. I am pleased to say that today's results add to a record of consistent delivery that has been established over the past decade. Revenue, order book, and profit have all increased steadily for the last 10 years. Over that period, revenue has doubled, the order book has trebled, and profits have more than quadrupled. In the same time, the share price has risen from just over GBP 1 in January 2003 to GBP 9.84 at last night's close, and we have more than doubled our payment to shareholders. The strategy that has produced that decade of growth has been consistent and has proved itself in battle. During the last year, we have reflected on how we express our strategy, and as you can see, we have made some changes. In particular, we make it crystal clear that the customer is at the heart of our business. We have sophisticated customers with a deep understanding of our technology. Our success depends on shaping and meeting their requirements on time, at the right price, and at the right quality. Innovation is critical in creating future opportunities. For example, the Trent 1000 will offer up to 3% fuel improvement when it enters service in 2016, while the Trent XWB is proving itself to be the most efficient large jet engine in the world. To put it simply, we need to be world-class in terms of understanding and satisfying our customers' needs, and we need to be world-class innovation and execution. Of course, we need to grow profitably, not just grow. I said at last year's results presentation that the business has three priorities, deliver on the promises we've made, decide where to grow and where not to, and improve financial performance. I categorize these into the four C's of customer, concentration or focus, cost, and cash. Let me say a few words about each of these priorities. Delivering promises is principally about our customers, although it can clearly be applied to all of our stakeholders. During the year, we have worked hard to improve quality and delivery. We've made particularly good progress within civil large engines and marine, but there is still a lot to do. In terms of products, I'm delighted with the progress of the Trent XWB engine for the Airbus A350. The XWB was certified last week, and the engines for the first A350 have been delivered. Our Trent 1000 engine has had the best entry into service we have had, and we continue to work on improving it. Growth. You can see that we have chosen to grow from the investments we have made. Just a few examples are our acquisition of AEC, the XWB and the BR725 programs, the expansion of our civil nuclear business, the growth of our global network of marine service centers, along with 19 new facilities we have opened around the world in the past three years. Where we have chosen not to grow, as you know, we have sold our tidal business and a majority stake in our fuel cells business. While these businesses may both prove to be successful, they do not play to our strengths. Financial performance. We've increased profits and improved margins in 2012, and the good news is we have plenty of opportunities for further progress. We need to increase sales and continue to drive cost performance to make sure that we're not just growing, but improving our margins as well. In terms of cash, clearly reducing our costs will help, but there is also significant scope to improve inventory terms. While I'm pleased with the overall progress in 2012, we can deliver much more. But this will take time, and will need to be carefully managed. Therefore, it should not surprise you to learn that our priorities for 2013 are unchanged from 2012. Deliver on the promises we've made, decide where to go and where not to, and improve financial performance. Mark Morris will now take us through the numbers. Thanks, John, and good morning to you all. I'm going to draw out the main highlights of the group and segmented performance for 2012. I'll then provide 2013 guidance for the group. This will exclude the impact of Tognum while it continues to remain listed. Finally, I'll update you on where we are with Tognum. As usual, I will stick my comments to the underlying performance. It's been a good year for the group, with the order book, revenue and profit all growing. At a segmental level, I would summarize 2012 performance like this: Civil defense both had a good year, with more subdued performances from marine and energy. Turning to the group, the order book grew 4% with a GBP 16 billion order intake, which was marginally lower than 2011. The GBP 60 billion order book represents good top-line visibility and underpins our confidence to invest. Order cover for 2013 is around 75%. Revenue, which is up 8%, includes OE revenue growth of 12%, driven primarily by higher engine deliveries in civil defense, and aftermarket revenue growth of 5%, reflecting contributions from all businesses, with around half coming from civil. Profit, which is up 24%, is well ahead of turnover and includes a GBP 77 million contribution from Tognum, as well as an incremental GBP 92 million benefit from the revised IAE trading arrangements. Excluding these effects, profit grew 12%, so a pleasing result. Let's break down the 1.5 percentage point margin progression, 1.1 of which came from Tognum and IAE, and the remaining 0.4 from other trading in the group. I am pleased with the cash performance this year, given where we are in the investment cycle. We started the year with GBP 223 million and ended with GBP 1.3 billion of net cash. This was after generating GBP 137 million inflow from the business and receiving just under a billion from acquisition and disposal activities, including the IAE proceeds. Liquidity remains strong at GBP 3.5 billion. Finally, reflecting our confidence in the business, we've increased the full-year payment to shareholders by 11% to 19.5 pence. What are the key components of profit growth? Trading is up GBP 296 million. This reflects an 8% volume increase, that's about GBP 200 million of the uplift, and another GBP 50 million from unit cost reduction. The remaining balance is a combination of better mix and margins in civil and defense, offset by the one-off benefit of the SDSR settlement in 2011, which you're all familiar with. The R&D charge was higher for three reasons. One, higher spend of GBP 57 million, an increase of about 11%. Two, lower capitalization of GBP 55 million, reflecting the Trent 1000 entry into service at the end of 2011. And three, higher amortization of GBP 14 million, again, mainly due to the Trent 1000 entry into service. In 2013, our R&D spend will be slightly higher, but the charge will be slightly lower as we start to capitalize the Trent XWB following its certification. Our entry fees, which are primarily related to the XWB, were lower as the program moves towards entering into service. The core profit was GBP 1.26 billion. Let's have a look at the effect of Tognum and IAE on the underlying profit of GBP 1.4 billion. The revised IAE trading contributed profit of GBP 92 million for the second half, higher than our original estimate of GBP 70 million. This was mainly due to a higher volume and more favorable mix of parts than originally envisaged. Tognum's GBP 77 million contribution reflects full year, compared with only four months for 2011. In arriving at the 24% increase in full year profit of GBP 1.4 billion, approximately half of the increase is from IAE and Tognum, and the rest is from the group. Of course, IAE and Tognum have a bigger effect on margin progression because they mostly add to profit, not revenue. Turning to cash flow, I'm just going to pick out the major themes from this chart, which you're all familiar with. Firstly, net working capital, which increased by GBP 175 million, reflects a number of moving parts. Inventory was up GBP 156 million, as we prepare to ramp up production and net debt has increased by GBP 116 million. These increases were partially offset by a higher level of deposits at GBP 99 million, mainly in civil and marine. Second, CapEx and intangibles reflect continued investment to meet the rising load of delivering 2,000 Trent engines over the next five years. CapEx accounted for about GBP 550 million of the spend and included major projects such as Seletar, the new disc facilities in the U.K., and a new facility in Brazil for our energy business. The remaining balance of about GBP 130 million relates to higher development and certification costs. Expect CapEx to be about GBP 100 million higher in 2013. Our trading cash flow of GBP 914 million represents 64% cash conversion, slightly down on last year, as we continue to invest for the rise in load. Our return on capital of about 18% would indicate this is a good return on investment and the right thing to do. Going forward, my focus will be on improving working capital. Finally, we've spent just under GBP 800 million in 2012 in payments to our main stakeholder groups of shareholders, pensioners and taxation. This leaves us with an underlying cash flow of GBP 137 million. The underlying cash flow performance is slightly better than where we expect it to be at this point in the cycle. In summary, a pleasing result. Turning to the business segments. Our civil business is seeing strong top and bottom-line growth. The order book increased by 5% to GBP 50 billion and with an intake of over GBP 10 billion. This was slightly down on 2011, but we continue to grow our wide body market share, with Trent engines now making up 75% of the civil order book. Revenue rose by 16% in the year, driven by 31% increase in OE revenue of 23% more deliveries of higher thrust engines. Remember, you know the correlation between thrust and revenues. Services grew by 5%. This was in line with the growth in the installed thrust base. Turning to profit. The 46% increase includes the impact of the new IAE trading arrangements, which contributed GBP 92 million and 1.4 percentage points of the margin improvement. Excluding IAE, profit increased by 27% and the underlying margin by 0.9 percentage points. This was due to improvements in volume, mix and unit cost that more than offset a higher R&D charge and lower entry fees. Let's take a look at Defense. The 15% reduction in the order book reflects a slightly lower intake than in 2011, as budgetary constraints played out, together with some cancellations, mainly related to the C-27J contract. As you're aware, Defense budgets remain under pressure, so we are pleased with our revenue performance this year, which is up 8%. This reflects good OE performance, especially from our combat and trainer exports, and incremental deliveries from civil helicopter engines. Services revenue grew 5% with a good contribution from our transport business that makes up well over half of the revenue. Profit, which is up 7%, reflects volume increase, higher margin exports, lower R&D spend and cost reduction. We expect a modest reduction in profits for 2013 as budget constraints continue to put pressure on pricing, engine flying hours and new opportunities, along with some adverse mix issues. Our Marine business has three sectors, as you know. Offshore, which makes up around half of the business. Naval, which is around a third, with the balance in Merchant. I'd characterize Marine's performance this way. Offshore had a good year in terms of OE and aftermarket growth, offset by more subdued performances in naval and merchant. OE revenue was down overall, reflecting lower activity, some delays by customers, and a 3% adverse foreign exchange impact. Revenue-wise, this was partially offset by some improvement in services as our expanded network starts to capture more business. In Offshore, there continues to be encouraging signs of recovery driven by high oil prices. You can see this in the rising order intake, and we expect this to continue in 2013. In Naval, our customers face budgetary pressures similar to our Defense Aerospace business, but we're pleased to have secured some important wins during the year. Firstly, the $1 billion contract to power the U.K.'s nuclear submarines. Then the ship-to-shore connector contract for the US Navy, and also a new customer with the South Korea Navy. All of these leave us well-placed for the future. In Merchant, demand remains subdued and there isn't much sign of any pickup yet. The modest uplift in profit is mainly due to cost reduction improvements that have offset the lower OE volume and the pricing pressure we continue to see in the market. Finally, to our Energy business. There are some big percentage movements here, but remember, the absolute numbers are small in the context of the group. Similar to Marine, Energy revenue performance has been subdued by lower OE deliveries due to less volume and customer delays, partially compensated by good growth in services revenues. Importantly, the level of bid activity has risen both in our oil and gas and PowerGen businesses. We have a well-established oil and gas business that makes up around two-thirds of the revenue and nearly all the profit in our Energy segment. The four less mature businesses of PowerGen, civil nuclear, fuel cells and tidal have suppressed financial performance with continued investment. As you're aware, we have now sold our tidal business and a 51% stake in our fuel cells business as we focus on the areas we want to grow. We'll carry on investing in the civil nuclear business, where we see significant opportunities ahead. Returning to the group, we continue to place considerable importance on retaining a strong investment-grade credit rating, and we're pleased to have received an upgrade from Standard & Poor's during the year. A strong credit rating provides assurance to our customers that we are here for the long term and ensures continued access to funding. Our liquidity is strong at GBP 3.5 billion, representing GBP 1.3 billion of net cash and GBP 2.2 billion of committed facilities, and there are no material maturities over the next few years. Looking ahead to 2013 and turning to our guidance. As I said earlier, and as usual, we provide our guidance on an underlying basis, and for 2013, this will exclude Tognum while it remains listed. For the full year, we expect the group to see modest growth in revenue and good growth in profit, with cash flow around breakeven as we continue to invest for future growth. For the businesses, Civil Aerospace, modest growth in revenue and strong growth in profits. In defense aerospace, modest growth in revenue and a modest reduction in profit. In marine, modest growth in revenue and profit, and in energy, some improvement in revenue and profit. To help you with your modeling, we provided some additional areas of guidance, which are shown up on the slide here. It's what you'd expect from where we are in the cycle. Before we move on to Q&A, let's just remind ourselves where we are with Tognum. As of the 1st of January this year, we now have management control through our Engine Holding joint venture with Daimler and will consolidate Tognum for the full year. What does this mean? It will enable us to work more closely with the Tognum management and to realize the planned synergies. The legal process to squeeze out the remaining minority interest continues, and we expect this process to continue during the year. In summary, I'd say it's been a good year, and I'm pleased with our performance. However, there is more work to do in order to deliver the margin progression and the cash performance that I expect. With that, we'll move on to Q&A. Thank you. Okay. Why don't we start at the beginning and start at the front on this side and we'll move around. If you could maybe just introduce yourself and the institution that you represent, and then ask your question, that'll be great. Thank you. Sure. Good morning. Christian Lachmann from Barclays. Just a couple general questions around patterns and trends that you see emerging as old TCAs come up for renewal or roll-off. Do you find some customers increase or decrease their level of service contract on subsequent renewals? Is there a certain subset of customer who are more likely to let their TCAs roll off and revert to a T&M construct, or is it heavily depends on the individual situation? Yeah, look, I think every situation is unique. I mean, the first thing to recognize is that once an airline looks to outsource its servicing, and capabilities, at the end of it, if it doesn't want to carry on, it's got some decisions about whether it does it itself or whether it puts it to other third-party markets. We have experience of all outcomes. Those that continue with TCA, those that switch to T&M, and that tends to be driven by how short they plan to keep their servicing fleet. We certainly look and seek to extend TCA contracts and generally the way we do that is by using our economies of scale to help make it cost effective and share some of that benefit with the customer. We see all outcomes, but generally we've been quite successful at continuing to extend TCA contracts. Okay. Great, and just a quick question on margin progression, particularly in civil aerospace. I have noticed in 2012, about 40 basis points, I think, of the overall margin improvement were attributed to cost-cutting measures and initial gains realized. Did you see an acceleration from the first half to the second half? Is this expected to continue or accelerate in 2013? Said another way, are you in a phase where you are picking low-hanging fruit, so to speak, and we can expect some jumps here and there over the next several halves? Do you want to say that again? You want me again? Sure, please. Yeah, I mean, firstly, we don't measure things in halves. I just don't think we have the granularity to pick up trends over from one half to the other. I think as both John and I have alluded to, when we talk about our four C's, cost and cash are big drivers of those and clearly unit cost reduction is a key part of that. Of course, now as we're larger and we have far more larger share, our ability to leverage our supply chain, and deploy far higher levels of TCA contracts in terms of the amount of capture we take, which enables us to schedule how we do overhauls and the work scope, all of that helps us with efficiency and therefore cost improvements as well. It's an ongoing journey. I wouldn't sort of take draw any conclusions from any blips you see between one half to the other than a strong desire and determination from us to continue to take unit cost down. Yeah, thanks. If I can add just in sort of more general terms, as you see, one of the four C's that we have is around cost. One of the things that we're all aware of is that we need to improve our margin performance, and specifically, I think in civil. Couple of observations. One, as Mark says, these things take time. It isn't sort of a quick journey. It takes time, and it takes time for a number of reasons. First of all, we're trying to grow and expand our civil business significantly at the moment, so we have a lot of new facilities coming into play. We've got new engines being launched. All of those are very important issues for us. So balancing the determination to reduce cost, improve margin, alongside execution and satisfying our customers is something that we're playing with all the time. How we balance those is a challenge for the business, and we spend a lot of time and energy on those. The direction of travel for civil in particular is driving margins and improving the profitability whilst bearing in mind the point that I'm making, which is one of our other four C's, is about making sure we satisfy our customers and deliver to our customers at a time when we have new engines being launched and developed, new facilities being launched and developed. So this takes some time. As I said in my little set piece, it has to be carefully managed and will take time. Okay, why don't we stick with the front? Maybe Ben, you want the front? Ben Fidler from Deutsche. Couple of questions. Firstly, on the TCA net debtor, which that GBP 360 million increase looked quite a sizable increase. I guess that was driven by the strong growth in OE deliveries, was it? Also, how should we think of that increase going forwards, and where you see that TCA debtor number at GBP 1.3 billion maybe settling out at? That's the first one. I'll come back with the others if you want to answer that. What are you asking, so I fall over more? Go for all three, and then we'll test our memory to see whether we're good at- Indeed memorizing the questions. Yeah. The other one was the earn-out expectation. That clearly did a little bit better than you were anticipating, and we were all anticipating in 2012 H2. Wondered where that leaves you with your prior commentary, about GBP 140 million as a full year type of number. Has that also gone up? The final one was just looking at the marine services side. 1% growth in the marine services revenues, where you think that could well get to this year, particularly with further rollout in your marine service centers, which presumably are now coming on stream in a bigger way. Thank you. Thank you. Mark, I am going to ask you- Do all three. Indeed, that would be absolutely ideal. I said to Mark before we started this morning that one of the joys of not being the CFO anymore is that any difficult questions, I can give to him, and I can take the easy ones. So they are all yours, Mark. Okay. Well, let me start with the TCA net debtor, the increase of GBP 360 million. I think you've alluded to part of the right answer. Obviously, we've got rising OE deliveries that you saw, particularly in civil of 23%, higher thrust engines. Generally, we're sort of getting about 85%-90% penetration on TotalCare and sort of linked contracts. Again, at this phase, where you tend to have gaining market share at the front, deeper discounting, it can accentuate a little bit of the TCA debt. That's one half of the equation. The other half of the equation is, of course, the number of overhauls that you do. Of course, as the overhauls come in, and they can be quite lumpy sometimes, they reduce the size of the creditor and, of course, that results in the net debtor growing. So there's two parts to that element. I think the second subpoint of that first question was, is there a sort of end in sight? I think the short answer is it will move up and down and grow in line with engines in the service, I think would be a sort of natural and of course, the combination also between where we are in the cycle and which engines are on TotalCare and which ones are not. So there's lots of moving parts. But I would expect it to grow broadly in line with our installed base. Your next question, I think, was on the IAE uplift. If we just sort of re-datum ourselves for a second, the guidance I gave back in 2012 was that we would see a full-year impact of about GBP 140 million for IAE. Of course, we sold our equity share at the half year, so you got half of that GBP 70 million, which you would have plugged into your models. We've ended up with GBP 92 million. That was higher than our own original estimate and reflects a number of things. It reflects the change of the trading arrangements, but in particular, what we're seeing as a supplier, sales of more volumes of certain parts that had higher margins. Again, when we think about us as a supplier now selling parts and spare parts, the order lead cycle is much shorter. It's typically 30 to 60 days. So our ability to forecast that accuracy is a little bit more difficult. So we saw an uplift. Whether it repeats itself this year, we don't know. But in short, we don't plan to break out IAE in the civil reporting going forward for 2013. It's now part and parcel of our new trading arrangements. Question three, this was marine services progression. I think the short answer is yes, we're expecting services margin. The services Sorry, was it services or services margin? Let's just to be clear. Services, the revenue. Services volume. Services volume. Yeah, we expect services to increase this year for 2013. I think that's the question you were asking. Yeah. Yeah. Okay. Is that sort of in line with, I guess, what's going on in the market? My question was more around where I'm finding it a bit tricky to keep track of is where you're at with the growth of the services network. Because you obviously have increased that network by- Yeah, we've got- in theory, it should give us a sort of step change in growth from that point. Well, yeah. Careful. If we just dial back for a little bit. We've increased the number of service centers to about 37 now, and it's quite important strategically where you place them. But the marine market tends to be far more reliant on time and materials because ships just turn into the nearest relevant port and overhaul center where they can go to. So whilst there is some penetration, and obviously that's an area that we're keen to develop, you've got to have the logistics and the supporting network to deliver that. So the investment has been going there. Certainly, the more centers we have, the more ability that we have to capture revenue. And of course, we saw that in part for the second half of marine in 2012, and we expect that to continue in 2013. I don't think you can draw straight correlations just between adding a servicing center. Intuitively, to a first order, you'd expect to be able to capture more revenue. But whether it goes up at the same sort of rate, I think remains to be seen. You remember at the half year, one of the comments that we made about the marine services was what we were seeing to a certain extent was owners and operators being more specific about what they wanted repaired rather than fix everything. Fix this, and this, but don't look at it or don't worry with anything else. We saw some of that. So there are other dynamics that go on in this business, but certainly, overall, having more service centers will result in us getting more service business. Okay. Yep. Stick on the front row, and then we're going to move backwards, and then come forwards. Thanks. Nick Cunningham from Agency Partners. I thought I'd follow the three-question trend. Not compulsory. I'll ask them all together. Just back to the TCA issue, just to clarify, Mark said that 85%-90% of OE sales were linked. I think linked hasn't been that big a percentage in the past. Is that now what you expect to achieve going forward? Is that an underlying assumption? That's one question. Secondly, on cash. Cash has flowed into inventory to some degree over the last few years. I think part of that's been to do with Seletar and other new facilities. Should we expect a lump of cash to flow back out of inventory at some point in the next few years? Are you going to surprise us at some point, or will widebody engine growth absorb that? Finally, in defense, on the service side, clearly the services in the U.S. are talking about a full year's continuing resolution impacting on their overhauls in the second half of their fiscal. What's your assumption about CR for the rest of the year? Thank you very much. Thank you. Well, I'm going to spread things out a bit. I'm going to ask Mark to take the first one. I'll maybe take the second, and I'm going to ask Jim Guyette at the end to take the third one on the state of the American economy. Your first question, TCA capture rather than just TCA linked. We can have contracts that will have a long-term contract that's not linked to the OE. We haven't broken out and don't break out what is linked. Aftermarket capture in terms of where we have got some type of contract to ensure that we can either divert overhauls to our bases and ensure that we capture the spares on new product typically seems to be up in those sorts of levels. They're not all linked. That's question one. Yeah. I don't think you should assume 85% is a trend or something that is for the future. Yeah, absolutely. Yeah. Be careful with that thought process. As Mark says, you've got linked and unlinked and the difference in the two. On cash, surprises are frequently good. I'm not going to try to disappoint you with the potential for surprises. What I would say is that the inventory that we have is not simply, well, we will sell later on, and that is once you've sorted that out, it'll be okay. The scale of the changes that we've got coming at us in terms of the growth potential of the business that we've got built in and the potential growth means that we have to be thoughtful about inventory. If I look at our turn rate across the group, for the sake of argument, it's around 3. That is too low. We need to work at driving that inventory turn rate up, but it will be, as I've said about cost, take us some time and will have to be carefully managed. Because again, what we're trying to balance there is delivery to customer and execution, where I do not want to fail, and we will not fail, against the financial benefits of releasing cash. In my simple world, we have lots of parts that are out to build an engine, and we're missing a couple of parts. That means we can't build the engine, therefore, I've got all these parts hanging around. How do I get focused on the couple of parts that are missing to make sure that we can build the engine at the right time so I can plan more efficiently and effectively so that I can drive the inventory performance while still meeting the customer, which is unrelated in some ways to when you've got more facilities, therefore, you've got more inventory. The focus is how do I drive inventory turns? How do I get more specific and detailed in our inventory planning to make sure that I've got the right bits at the right time to deliver the plan, to deliver the customer so that I can drive the inventory turn right. That will take us some time. Jim, do you want to talk about continuing resolutions and U.S. budgetary constraints? Yes. Thank you. The simple answer to your question is yes. However, it's much more complex. Perhaps three points of context. First, as a business, we have worked our way through the cuts on this side of the Atlantic, the SDSR. We have worked our way through the first series of cuts in the U.S. that were brought about by the Budget Control Act introduced in August of 2011. What we now have to face is this much more difficult circumstance. The other point that I would mention is with the background of a very challenging defense environment, I think our defense team posted some fairly positive results in light of all of that. I mention that for purposes of perspective. Now to two things. One is the sequester, and two is a continuing resolution. Whether or not there is a sequester or not, a continuing resolution or not, I think we all know that budgets in the developed world for defense are going down. We have that kind of challenging environment. What makes this much more difficult for us is a sequester, because a sequester, and by the way, our opinion, not necessarily it's going to be fact, but our opinion is it will kick in on March 1. That will bring with it a lot of chaos. Chaos because the Department of Defense and the various service chiefs have no ability to move money. They can't change the priority. All they can do is simply take a cut. What makes it even worse is because of the way the law works, they're going to have to take a year's worth of cut in seven months, and they can't do this with a running start. Again, significant chaos. It's been described as a shave with a chainsaw. I suspect that that's probably an accurate representation. Now, you asked the specific question of continuing resolution, and that the current continuing resolution expires on March 27. In light of everything that's going on, I just don't see how the Congress is going to be able to enact a budget to take us from that point until the end of the fiscal year, the end of September. Again, a continuing resolution. That just adds to the drama because here again, the service chiefs and the Department of Defense do not have the ability to move money around. It is less money because all they can do is last year's budget, less inflation, again, applied to the same programs. It is quite difficult. Having said that, I just don't see how a sequester survives. I may be wrong here. A great quote by the number two person in the Pentagon in front of the Senate Armed Services Committee this week, and his quote was, "Sequester, it's a self-inflicted wound." We have the ability to stop this and right it, because if it continues on, forget defense for a moment, the impact on the U.S. economy is staggering. It probably means over 2 million jobs, and it probably means a couple of points off of GDP. That can't stand in my view. I may be wrong. To sum it up, yes, I think sequester will take effect. It's unfortunate. We'll go through the chaos. It will be painful, but I think we're all going to have to come to our senses after the fistfight is over and resolve it. The question you didn't ask me is have we baked some of this into our assumptions? Yes, we have, as best we know how. But again, I want to reflect back to my comments on perspective. I think we have managed through this environment very well, given circumstances. And we're preparing ourselves for this challenging environment, which means we're going to be looking for other areas of growth, and of course, we're going to be looking to where we can reduce our costs. I hope that is responsive to what was a rather simple question. Okay. Let's progress a little bit down. Yep, we will come to the left-hand side. You're not forgotten. Steven Gaha from Royal Bank of Canada. Just two questions on civil aerospace. The first, in terms of margin trends, I was wondering if you could talk a little bit about the margin trend in OE versus services. We get the impression with the cost unit reduction in OE, and I think we have a good idea of what's going on there with leverage. I guess the question is more focused on what the margin trend has been at services. Are we seeing more contingency release on TotalCare because of better cost accounting and forecasting? Is there anything that's going on in the RB211 fleet that affects that trend? And then relatedly, if you could talk maybe a little bit about what the installed thrust looked like in the second half. It looks like the services revenues took a sequential change. If you could speak a little bit to that, again maybe contrast what's going on in Trent versus RB211. Thank you. Mark, you're up again. Okay. I will try and answer those multiple questions. I mean, margin on OE and aftermarket. I mean, at one element they're both linked because at the end of the day, whether it's a spare part or a part that goes into an installed engine, the cost of the part is the cost of the part. I think we've talked about margin progression. John gave you some color and I did too, so I won't cover that on the OE stuff again, other than that unit cost remains a key focus for us. Aftermarket, of course, one of the things that we try and seek to do to improve margins is that if you have a T&M model where at short notice engines are coming in and a work scope may be declared by somebody else that's going into your shop or even someone else's shop, the ability to sweat the assets that you have in terms of your shop utilization, the loading that goes through it, designing the work scope is not yours. In the aftermarket world, in TCA capture, we would typically set the work scope, and we can decide when and where we're going to pull engines off. So it allows us to optimize the loading into the shop. So that should help and of course, that's a focus that we remain on in addressing. And of course, in driving those costs down to ensure that we incentivize customers to come back, some of that is shared, but net it should help drive margins. I think you then sort of dipped into having described that what's happened in H2 and you're comparing H2 of 2012 to H2 of 2011 and sort of said, why is that flat? I think is that the comment you were driving at? Well, that was the sequential change in services- Yep sales looked like we were- Yeah, I would just say a couple of things. Just step back a little bit. There's a lot of moving parts that go on in aftermarket revenues, and you can't draw any conclusions just by looking at one half. Remember, what drives these are where new engines go in and whether they have a TCA contract attached to them. So a TCA contract that starts in December will get 1 month's worth of revenues, whereas one that starts in January will get 12 months. So if it started in June, you get 6 months. So you've got the movement of where engines are coming in and engine deliveries aren't always just constant. You'll have customers who switch from time and material to TCA, and of course that will drive. So any half you can get some sort of movements that will make it drive up and down. And then, of course you raised the issue about RB211. Again, some of the older fleet as it starts to come out, two things to remember in our total aftermarket, which includes time and materials and spare sales, is that our older engines, we typically have a far lower level of TCA penetration, sort of 40%-50%. Although engines may grow in a much more predictable pattern, when we look at retireals of engines, they don't typically just go at a straight line. It depends on where the fleets are and what people are doing with them. So two things are happening. If you don't have the level of TCA capture on old product, which we don't, and you start to get some lumpy retireals, which we're starting to see in 524, which is totally expected by the way. You will get those engines being torn down and the service will use material going back into the system and stopping some new spare sales. That's one of the reasons, as I wind the clock forward to another question that I'm sure someone's going to ask in a minute, which is civil revenue progression, in terms of being modest for 2013, looks low, and part of that is being driven by some of those retireals. I think I've captured all your questions now, have I? Thanks. Okay. Let's take one on this side, just to be difficult. Yeah. Good morning. It's David from- Colin Smith, by the way, needs to answer a question at some point in time. I'll try and think of one. The base that we're a technology company, and he's responsible for it. Okay. Up the town. Sorry. I've got a bunch of questions. First one, Mark, sorry. Just following up on what you just said. Are you able or willing to give us a guidance on civil aero aftermarket assumption overall for 2030? Second question is, I'm just a little bit confused on the guidance for the full year. Does the tax rate, which looks nicely down to 22%-23%, is that including Tognum, or is that excluding Tognum? Just to clarify that, and I'll try and think of a question for Colin when you answer. Okay. Well, a short answer to your first question is, no, we don't break out aftermarket guidance on civil. The guidance we've given is excluding Tognum. When we add Tognum to the results, it will drive the effective tax rate higher. Okay. I was hoping you'd talk longer so I could think of a question as well. That's all right. Somebody else, I'm confident, will get Colin. I will ask Colin the question if necessary, so we'll be fine. Hi there. Céline Fornaro, Bank of America Merrill Lynch. I actually have one question for Colin. Excellent. It is my first one, related to CapEx as well. It is just if you could explain- Colin is great if it is anything to do with finance as well. He really does. It is if you could explain, looking at the cash R&D, and also the CapEx, what is driving the increase on 2013 against 2012. So where is that going again, I would say. My second question is on the energy division. I thought we had a GBP 26 million charge in 2011 related to an industrial Trent. So actually, the improvement in margin in 2012 is actually probably slightly lower than anticipated. Is that fair point? Thirdly, is related to the 787 grounding situation. There are a lot of ANA's engines out there that are grounded. How should we think about that in terms of the impact for the group if that was to continue another couple of months? Thank you very much. Okay. Why don't I ask maybe Mark to start on the R&D, and Colin to make a few comments about what we're actually doing in terms of research and development. Mark, you may want to comment on energy, and then I'll maybe pick up the 787, and Jim add a few comments on that as well. On R&D, as I sort of guided during my presentation, spend will be up this year. Modestly up is what we said. But the charge is going to be down, and that really reflects as the Trent XWB has been certified now. We start to capitalize, if you remember, between certification and entry into service. In effect, what we create is a sort of headwind and tailwind, depending on when you start and stop capitalizing and expensing, and that creates the volatility. But the R&D is still being driven at predominantly, remember, Trent XWB-97, Trent 1000-TEN, continued R&D still on XWB as you bring it into service, and still some more work on Trent 1000 and Trent 900. With that, I'll hand over for Colin to give you the details. Well, as the R&D, as Mark said, what we actually do, the amount of work is broadly consistent, a little bit up this year. Underneath that, and part of that is the research and technology, which is the very long-term technology, sometimes up to 25 years out, where we try and be broadly consistent because we've got technology centers and universities working on this stuff, and you can't keep turning it on and off. As new programs come in, you pull it off the shelf and implement it. I think that's probably covered the R&D conference discussion. On the 787, maybe a little bit of a double act. Boeing are working very hard to try and get the aircraft back up in the air. As far as we're aware, they're making good progress. We've got 22 aircraft out there powered by Rolls-Royce engines, and we would expect, like aerospace always does, it to fix the problem relatively soon. We're not going to speculate quite on the timing of that, but they are making progress. The impact for us is negligible, frankly. John, I might comment that I'll admit this. I have spent 46 years in this industry and have a view on how this industry deals with safety. You'll note that last year was the safest year ever in air travel. It is in the interest of the manufacturers, be they airframe manufacturers, engine manufacturers, the operators or the regulators, to dial in the highest level of safety that we can. It's in our interest, and we have always done that. I think this is an example of the industry working together to determine the cause and to get these airplanes back up in the air with safety and confidence. In our view, Boeing and Airbus and the other manufacturers are very, very, very highly skilled companies. This will get fixed, it will be fixed properly, and we support the Boeing company. You said something about energy? Right. Energy. As I said in the presentation, we look at energy and profit and margin progression. The oil and gas business really drives this business, and the other businesses continue to take in investment and therefore drag its financial performance. As we've said, we've removed two of those, so the R&D associated with those would expect to go down, and the associated investment with that will start to go down. We continue to see price pressure in the oil and gas business, but a lot of good inroads are being made on cost reduction. So we do expect some progression in profit and margin for next year. But again, it's just worth remembering that these are small numbers, and the energy business has low volumes of relatively expensive package units. If something slips over the year, the ability to move the numbers can be a bit more accentuated than it can in other businesses. But certainly, we are expecting both revenue and profit growth during 2013. Let me just add what I said last year. The finance performance of the energy division is not acceptable. We know that. We are taking steps to address it. You have seen some of the steps we have taken during the course of 2012. We will continue to work on that. The CapEx spend in 2013 is going up on 2012. Yes Despite seats are maybe coming down, so where is it going? Yeah, I think, again, there's this belief in some places that, well, you've done three big engines, so R&D should come down. You've got this new place in Singapore, so CapEx should come down. That's just simply not the case. As Colin and Mark have said, we'll continue to spend money on research and development, and as I've said in the past, if you see us spending less, then I think you should be concerned. The nature of this business is very long-term and very long cycle. We need to continue to invest for the future success of the business. It's the same with CapEx. We've got huge growth. The spend that we've got, just to pick out a couple of things, we've got a new turbine facility in the U.K., we've got a new disc facility in the U.K., we've got new test facilities, we're expanding Crosspointe, and we continue to invest in the expansion of our Singapore facility as well, just to pluck a few items out of the air. The CapEx spend and the CapEx requirements for the business are significant, and they won't be going down rapidly anytime soon, because we continue to invest for that growth. We continue to invest for the fact that we're going to double our revenue over the next decade. We have significant increases in deliveries. I want to dispel this belief that R&D is suddenly going to go down and CapEx is suddenly going to stop and everything's going to be fine. We will drive our cash performance, if I can bring you back to that, by getting the cost down over time and by driving working capital, in particular inventory turns. That's what we need to do. Okay, let's go a little bit further back on this side, and we'll come back down this side, and we'll get to you. Don't worry. We'll get there. Even shaking your head, we'll get there. Don't worry. Willie from Morgan Stanley. Just two questions. Perhaps one for Mark first. John just mentioned cash. Outside of inventory, obviously, that's the focus area. Can you just tell us where do you see potential for improvement there, be it the other line items in working capital? Where is the area that you think you can perhaps do most in, if you like, outside of inventory? Then for John, perhaps, when we think about the four C's, how is the pace of the four C's progressing versus what you thought it would be when you first took over as CEO? Just an idea of, is it progressing in line, is it going slightly better, et cetera. Thank you. Yeah. Just for your first question, where else in working capital can we get improvement? Yeah, absolutely. Well, as John said, we focused inventory first and foremost, but when we look at the other part, the other elements that make up working capital, clearly, we focus continually on overdue debtors. Another key area. Looking at usual trade debtors and creditors, that will just tend to rise and flow with the sink of where we are. Deposits clear a key driver. Beating the drum to ensure we get orders with good deposits will be another part that we will be focusing on. I think the various components you would expect, it is not that we are just focusing on one, we are looking at all of them. Of course, as we start to drive out unit cost and improve the ability to make more margin on OE, then of course, that will also help as well. In terms of the four C's, the pace, I think if I just run through them, customer, I think we have made good progress through the course of this year. Still got a long way to go, made good progress. As I referred to, I think in terms of focus on quality, during the course of the year, we introduced something called stop and fix in the facility. So we actually stop production if we think we have got any issue. In other words, stop it, fix it, and move on. That is an important mindset change for the business. In terms of delivery, a lot of focus on delivery, and Jim has been leading a particular focus on customers. So I would say good progress on that. Still more to do. In terms of concentration, I think if I take it to the kind of things that I've been concerned about, I think the evidence around getting sharper on that is what do we do and what don't we do, and tidal and fuel cells would be examples of where we decide that we're not going to do those. But that never really goes away. I think the nature of the business that we have and the kinds of people we employ who are naturally curious, inquisitive, and trying to make them focus on what we really want them to focus on is always going to be a challenge. So it will probably remain one. But I would say some progress there with the evidence I've given you. Cash and cost, I would say less progress. Much more to do. I was saying to somebody before we came in this morning that one of the differences as far as I'm concerned with this company and some of the others that I've worked for is, what's the burning platform to be able to get people motivated to work on cost and cash? Because most people don't come to work and say, "Yippee, I've got to reduce cost today," and, "Wouldn't it be great if we drove the inventory turns a bit faster?" The companies I've worked for previously, there's been a burning platform of some kind or another. Within our organization, we're in the fortunate position where we've got great growth prospects, we've got a strong share price, very high levels compared to history. We've got profits that are at record levels. It's difficult to get people's attention. I think we've made a slower start on cost and cash than I would have hoped for. But we're starting to get there. We're starting to get some traction, and we're starting to get the folks an understanding within the business that the ability to get our cost down isn't simply that John Rishton thinks it's important to reduce cost to make him happy. It actually goes to our competitors have an advantage if they have better costs. That means they can price more aggressively than we can. That means they can invest in more product than we can. That means they can invest in more training for people than we can, better facilities, better infrastructure. Getting people to understand that that's why we need to do it is very important. That's, if you like, my performance card would say, I think, good on customer outcome concentration, room for improvement on cost and cash. Okay. Yep. Hi, Andrew Gollan from Investec. Two questions. First one, on Engine Holding. I understand why you cannot talk about the future, perhaps, until that situation is resolved. But the number that came through for the current year was slightly below my number, and I know we are all adjusting to the new world. But within that, can you say what has happened maybe between Tognum and Bergen in terms of financial performance? Is that relative to the association of Rolls-Royce starting to benefit from that relationship? Because we have no idea. There are some fairly big numbers that go in to make that number that falls into the P&L. Just a better understanding of Tognum and Bergen within the Engine Holding venture. Okay. Thank you. First one. Let me make a couple of general observations about Tognum and then maybe I will just pass over to Mark. The process of getting control of a company has been quite long. When we have lived through it, I think if we fast-forward 5 or 10 years, it will be irrelevant. So the good news is we have got to a place, January the 1st, as Marcus said, we have got control of the company. We will finish, I hope, the squeeze-out during the course of this year. That means that we can exert far more influence on the company. That means we can get in some of the details, and we can start trying to drive those revenue benefits. As we have always said around the benefits, they are mostly revenue and with revenue, as opposed to cost, they take longer to get at because you have to get at them by country, by customer, by product, rather than cost, which tends to be, well, let us close the head office or let us close this factory. Once you have done it, you have got them. So these benefits take longer to get at. As we reflect on it, what I would say is we still think there is significant benefit as we have got to understand their business more, as is always the case in these things. Some of the assumptions we made at the start, we said, well, actually, that was not quite right, negatively. Some of the assumptions we made at the start were not quite right, positively. Overall, we still think this is absolutely fine, some less, some more, and we need to get driving those benefits during the course of this year and into the future. Overall, I would say we're satisfied with where we are on Tognum. Tognum's business is subject, as all business are, to the ups and downs of the market, and they've had a, I would say, a tougher time during the course of the last year in some areas of their business than we would have anticipated about a year ago. But Mark, maybe you want to talk to specifics? Right. I think you asked some questions really about what's in Engine Holding and the financial, presumably looking and comparing 2011 with 2012. Is that right? Just to be clear. Right. Let's just remind ourselves. Engine Holding is the vehicle, the joint venture through which Rolls-Royce and Daimler have sought to acquire Tognum. We have also put in our Bergen Diesel's business that went in from effectively our marine and energy businesses into Engine Holding. Now, there are some funny movements in Engine Holding, which I'm sure the IR people can take you through in detail at some stage. But in essence, the only thing that is in there for 2012 on the revenue side is Bergen revenue. Bergen was put into Engine Holding at the beginning of January in 2012. And although Engine Holding now has Bergen in it and the 99% share that we have of Tognum, because Tognum is still equity accounted, we only have the profit effects. If I just go between 2011 and 2012, just to try and help you quickly. Bergen profit was GBP 44 million in 2011 and a GBP 32 million contribution in 2012. And that predominantly reflects lower OE deliveries of Bergen diesels, again, reflecting the sort of market that we've seen in energy marine, suppressed sales of original equipment. And the contribution from Tognum in both years was GBP 36 million for 2011. And again, that's only four months, remember, because that's the point at which we started to acquire Tognum. And of course, you've got a full year's contribution of GBP 77 million for 2012. Now I'm just going to sort of wind the clock a little bit forward now because, of course, as we go into 2013, we're going to fully consolidate Engine Holding or Tognum Engine Holding. And of course, that will move from being equity accounted to being above the line effectively. If you want check from verse, I am sure Simon and the team can take you in detail on that. Thank you. Just one other question, please. On civil aftermarket, you have already given some answers on that, but at the half year, you gave a split in terms of growth rates on TCAs and time and materials. Can you do the same for the second half, given the question that came earlier on? I cannot remember who from. Off the top of my head, I cannot actually. I am sure if we are prepared to give it to you, we will provide that to you. I have not got that off the top of my head. I would assume that TCAs will continue to grow steadily and time and materials was negative. Yes. The key thing to recognize is that the T&M model will tend to be far more volatile as market, whereas the stability of getting annuity of flow means that you don't see necessarily the step ups or the step downs that you see with T&M. But of course, we do have both, but a heavier weighting towards- Mark, you're right in saying, I think in the half year, we talked a little bit about that because it distorted the picture. H1, H2, yeah. H1, H2. But in the second half, that wasn't the case. But Mark's already commented a little bit about next year in terms of some of the time materials as the 524s and 535s- Correct come out. So we're trying to give you the significant changes. Okay. Please, on this side. Yep, that's it. Jeremy Bragg from Citi. Predictably, another one on cash, I'm afraid. We like it, yeah. Good. Now, I appreciate there's lots of moving parts, and it's a long-term business, but I guess my question is, when's the first year when we're going to start to see these improvements? Because if it's going to be a matter of cash break even until 2017 or 2018, then the investment case is very different from one where we see steady improvements from 2014 onwards. You're not going to be surprised when I tell you that I'm not going to tell you when we would anticipate the kind of clarity that you would like. What I would say is, as I tried to say, is one, we're well aware of the views on cash from numbers of people. Two, we'll be working hard to reduce our costs, which will drive our margins and help our cash position. Three, we'll work very hard in terms of driving inventory turn rates, which will improve our cash position. We will continue to invest in R&D and CapEx to support the execution and growth of the business. Exactly when you start to see the benefits of that, when you take into account the actual model that we have, and you're very familiar with the model we have, especially in terms of civil, which is where a large part of this sits. You've got the OE element of civil, which is growing rapidly, and the TotalCare that grows behind that. The margins that we make on the OE equipment, the margins that we make on the aftercare, the way that the accounting works with that in terms of the profit versus the cash, these are things that you're familiar with, so you'll be able to model how you expect that to play out. But I'm not going to give you this year or that year. We're well aware of the views on cash. We did what we said we would do in 2012. We're clear where we think we'll be in 2013. As we get to the next year, we'll give you clarity about where we'll be in the future. Thanks. Let's go to the next one. That's perfect. Gordon Hunting of Fisk. Question mainly for Colin. Excellent. At the moment, all your big engines are three shaft. On the premise that two shaft engines less likely to have dangerous oil leaks, are you going to switch over to carbon blades and also to two shafts for your 777 replacement engines? Are you already doing R&D for the 777 replacement? The second thing is the question mainly for the Chief Executive. Has SFO given you a timetable? Also, is it affecting order flow in the Far East? Okay. The simple answer, Gordon, to the first question is no. We're really comfortable with the three-shaft concept for a whole host of technical reasons that I could bore the ears off you, but I won't in the interest of time. We have put an offer into Boeing with an engine that's based on the technology we've been developing, which does include carbon fiber fan blades, as I think we've discussed in the press. All engines have oil in the middle of them, and all engines have a propensity to leak, and each person resolves that in their own way, but I know what you're alluding to. In terms of the SFO, I think you had two parts. The second part I remember was the order flow, and the first part was? First, the timetable. Have SFO said they are going to take it a year? Okay. Got it. Yep. Got it. No. In broad terms, I have nothing really to add to what we said in our announcement on December the 6th. So we provide the information to the SFO. We have told you what the potential consequences could be, and that now sits with the SFO, and they will decide what and when they want to do it. That is clearly nothing that I can comment on, and I wouldn't want to comment on what they should or could do. But we haven't heard anything explicitly from them about their plans. In terms of the order inflow, I think that the answer really is no, we have not seen any change. Okay. Next. Okay, let's go back. That is the one. Yep. Then we will come back to the front again because you are on your second dibs, and we will just make sure that- Charles Arnold at UBS. First of all, can you talk through the average cash, which seemed to having been improving for the last few years to go backwards, particularly when you got a slug of cash in at the mid-year for IAE? I think it is a problem with paying for Tognum. That was the main reason. I thought that came in last. Yeah. Let me just close that one off. So it is purely the effect of how averaging works. So in Tognum, quarter four, we made a payment of about GBP 1.5 billion. So in the previous year, you would have only got a quarter's worth of that in the averaging effect, where you got the full year, and then we have only had half a year's benefit of the IAE proceeds. So it is maths. Perfect. And just on the 777X, how big a change does it need to be for it not to be exclusive to GE? When you say how big a change? From the current 777, which is exclusive of the ERs and LRs. Okay. Look, Colin. To Colin. Boeing decide what they do or don't want to do. Because this is a big engine on a large aircraft, which plays to our strengths, we're obviously very interested, and we are putting in what we believe to be a very competitive bid to get on that aircraft. We don't decide what the outcome's going to be, but Boeing decide that. So irrespective of whether we've made a change of this much, this much, or this much, it's still Boeing's decision as to what they want to do. We think we've got a compelling offer, but they'll decide on their own. Alan and Colin? The only thing I'd add is that, as John said, the Trent XWB engine that we've just certified is the most efficient engine in the world. So there's external validation of the capabilities that we've got, and we've built on that with technology. So we've got the best engine currently flying. GE have got to chase to catch up with us, would be the way I'd describe it, and we'll see if Boeing feel the same way. Any ideas on when they might make a decision on the bid? No. Again, that's with them. As you would expect, I think, no, it's with them. Yeah. We're back at the front. We're getting towards a conclusion as we get to second questions. Now you've worked out all the details, now you've got more difficult questions that we don't want to go to those. No, hopefully this isn't. I think you said at the last meeting you'd give us an update on your plans for fixing PowerGen. Can you just give us some detail on that, please? What I would say is the energy business in total we've talked about. You break it down as Mark Morris has done. It had the five parts. Fuel cells we've dealt with, tidal we've dealt with, civil nuclear is a business we're investing in, oil and gas is doing well, PowerGen is a challenge for us in a number of ways. What I would say in that area is, one, we have addressed a number of customer satisfaction issues. Two, we've addressed a number of product issues. So we're in a better place than we were a year ago. But we're still a small niche player in that market, and we've just only got our heads around what's the best approach to address that issue. I don't have any more to say on that today, but it's certainly something that I and others are spending time on. Yeah. So why is it taking longer? Because I think you were fairly clear in the last meeting you'd come back to us, I think you said by year-end with your plan. I'm absolutely sure I didn't give any date. If I said I was going to fix something, I wouldn't have given you a date. If I gave you a date, I wouldn't have promised to fix it. I wouldn't have put the two things together. I'll have a look at the transcript. Maybe I'm wrong. I've learned a few lessons, but that's certainly one of them. Look, no, I am absolutely sure I never said that we would come back by year-end. The progress that we made in the energy in total is the ones that we've talked about, and we have made some progress on some issues in PowerGen. I'm not going to get hung up on a timetable for this because that undermines some of the things that we may or may not want to do. But we're well aware of the issue, and as I said, we're well aware that the financial performance of the energy division in total is not where it needs to be, and we need to address it. Thank you. 2 minutes. We've got time for just two more, please. Two more. Okay. Maybe just one then. Ben. Okay, I'll just ask one. Okay, make it a good one, all right? Well, apologies because it's probably a fairly basic one, but it's one thing I'm struggling with. I look back on your second slide in your presentation. You've doubled the scale of the business in the last decade. Through the early 2000s and mid-2000s, you generated a lot of cash flow, about 70-ish percent EBIT free cash conversion. We're doubling the business again, and we're not generating very much cash flow because we're having to invest. I remember when I first visited Derby in 1997, the amount of facility renewal that's gone on there has been huge. So the question is a fairly basic one, apologies, but basically, why is this second phase of doubling the business proving so much more cash and capital intensive than the first phase of doubling the business? My superficial answer would be, let's wait for 10 years' time and look back and see what our perspective is, which is the point that I was trying to make in terms of the time frame, which is, if you fast-forward 10 years and look back, we may be surprised at where we are. We may be asking exactly the same question about why you want to double the business, why is it going to cost so much cash again? But you have a different perspective on the journey that we've been on. Had we told you 10 years ago that we would quadruple our profits, the share price would go from a pound to GBP 9.84, that we would double our revenues, and triple our order book. I suspect there would have been some skepticism about that. My superficial answer is, when we look back in 10 years' time, we'll be able to see the cash generation of the business, where the investment was made, and what happens. In all businesses, when you look at the fixed structure, things happen in steps. You have a factory, you've got nothing in it, you fill it, you need a new factory, you spend a lot more money. You go along, you fill it again, you need another factory, you fill it again. As you go through those bottlenecks or those big steps, that's when you have to spend more money. If I take a specific example for us at the moment, which isn't to do with directly with production, IT. We spent a huge amount of money on IT in the last 12, 18 months, and we'll spend quite a lot more because we hadn't spent much on it for the previous 10 years. We had got through the previous 10 years substantially under-investing in that. We got to a point where we had to make this big step change. Bang, you've got to spend a lot of money. There's a slightly superficial answer, which is let's look back and reflect on it in 10 years' time. Secondly, how do you go through the bottlenecks? Mark, I don't know if you want to add anything. No, I think you've summarized it nicely. Take it as a date. What, 10 years? Yeah. Count on it. The good news is that the rate I'm aging, I'll be 173 by then. I'll have caught you up. Okay, good. Well, thank you very much for joining us this morning. It has been great to have a chance to talk to you again. I look forward to seeing you in six months' time. Thank you.