Earnings Call: H1 2017

Aug 1, 2017

Okay. I think we are ready to kick off. It is just coming up to 9:00 A.M. So thank you all very much for joining us here at the London Stock Exchange and for those of you joining us online. My name is John Dawson. I am the Head of Investor Relations at Rolls-Royce. It is my pleasure to welcome you here to our half-year results presentation for 2017. The agenda for today's presentation is as follows. Warren East, our Chief Executive, will share his perspectives on the first half from an operational point of view. Stephen Daintith, our new CFO, will then run through the financial results in a little more detail and share some of his perspectives on the business in his first 6 months. Warren will then return to give you some perspectives on the second half of the year and other challenges going forward. Our presentation should last around 45 minutes. We will then take questions from the audience and also online. If you wish to ask a question online, please submit that through the webcast service on the webpage, and we will endeavor to ask those questions if they have not already been answered in the room. Finally, if I could ask you all to please turn off your mobile phones, and make sure there is no interference in the presentation. We are not expecting any emergencies this morning, so if the alarms do go, then we just need to exit in a normal way out to the front in Paternoster Square. Thank you, and I will now hand you over to Warren. Good. Thank you, John. Good morning, everyone. As John said, I will just make some initial comments, and then we will have Stephen go through the numbers in some detail. Good news, clicker works. I think for the first half of 2017, it is a good set of results. There are clearly positive trends year-on-year, in our financial performance. It is always good to be standing here with that context. A good performance in terms of revenue and margin leading to profit growth. I think for me, what is encouraging is that sat behind these numbers are some genuine encouraging operational progress in all parts of our business. Obviously, there are some significant movements, but some of that is the law of small numbers. For the time being, our board has decided to hold the dividend where it is. Now, let us look at some of the highlights from my perspective, the sort of standouts in the first half. Clearly, we are in the midst of, and we have been talking about it for some time, a period when we are ramping our volumes of large engines that we deliver. Clearly, this has been a question mark, are we going to be able to ramp up sufficiently or not? Last year, we grew volumes year-on-year from the previous year. This year, we have a big step-up to do. We are halfway through the year. We are achieving a step-up volume productions up, volumes produced up 37%, deliveries up 27%. So I think we are addressing that question. Importantly, behind that, and we have been fairly open, the new engines are still from an OE perspective, we lose cash every time we ship one of those engines out of the door. But there has been good progress, in particular on XWB, around the economics there. And that is driven not just by the effect of launch pricing running out, as we said would happen during this year and during next year, but also there are cost reduction initiatives and cost reduction results coming through behind that general improvement. It's particularly encouraging for me to see a strong first half in Power Systems. The new leadership there is addressing some of the issues that we've had, and in particular addressing things like the rather skewed seasonality that's been happening in that business over recent years. And that, amongst other things, has led to a strong first half for Power Systems. At the group level, our transformation program continues, and we are three-quarters now of the way through the two years that we set out at the end of 2015, and we're still ahead of plan on that. Shifting the balance of technology and engineering was important for me, and in the first half of this year, we did some organization change, which shifts that balance so that as we look to the future, we're feeding our excellent engineering with the best technology. And that's a change which we've made. I'm putting on the slide successful organization changes. Very early days at the moment, but I can already see a change in emphasis inside the company, which is quite encouraging. That said, of course, we are continuing to concentrate on engineering delivery and delivering important milestones on our future programs around UltraFan, the big gearbox. And later this month, yes, it's August the 1st. So later this month, we'll be testing our Advance3, which is the engine that sits behind UltraFan. Now it's not all glorious. We do have some challenges, and certainly some of the challenges that the Marine business faces are still very evident in the numbers that we talk about today. And there it's a sort of balance between restructuring and market conditions I'll talk about in a moment. And I think a big issue for us right now is the in-service challenges that we're facing in our Civil Aerospace business. Now, this is a scheduled program of maintenance, particularly around our Trent 1000 engine, which is powering the Dreamliner, causing some problems for us and for our customers at the moment. And of course, we regret the problems that that's causing to our customers. You will see some of that in the press. But we are working very hard to minimize any operational disruption that our customers face there with our scheduled program of maintenance. So a very quick summary now, looking around the business. I'll start with Civil Aerospace. Clearly good to see both OE and particularly aftermarket revenue increasing year-on-year. We've got a long way to go in terms of profit, but it's good to see some improvement. Some of the things that are driving that, of course, is the growing size of the installed base, the fleet that's in operation. And as we grow that with our new engines faster than the older engines are retiring, we get a growth in the size of the overall fleet, and that's fueling our aftermarket growth. I mentioned before the production ramp in terms of volume. That's very important to us. We'll do more in the second half of the year, but it's been a good start. Balancing that volume production, of course, we've got new engines that we have to get through the final stages of development. As I look into the second half of this year, the good news is that the Trent XWB-97 and the Trent 1000 TEN, both on schedule for entry into service before the end of this year. The Trent 1000 TEN, that was witnessed on its first flight on a 787 by President Trump. Later in the year, we saw Trent XWB flying at the Paris Air Show, and that was witnessed by new President Macron. So had a very sort of presidential first half for our new engines. Oh, and the Trent 7000, which will enter into service halfway through next year on the new A330. The Trent 7000 engines have now been delivered or were delivered in the first half, i.e., before the end of June, to Airbus, and we're expecting the first flight on a new A330 happening in the next month or so. Switching to Defense aerospace. Revenue down a little bit. Stephen will summarize the detail there. But notice the profit is up, and that's really due to an emphasis in our Defense business on innovation in the aftermarket. Because this business is all about attending to customers' needs at the moment. You can see that with some of our new service delivery centers, where we're getting closer to the customers in operation, where we're concentrating on making sure that the deliveries that we do make to our customers come through right on time. One of the things that's helping us in the aftermarket is we, in the first half of this year, also extended a long-term agreement that we've had with Aviall. Aviall's now actually part of Boeing. But we've had an agreement with them for a long time on spares. We've extended that now to cover literally thousands of Defense engines, and we're benefiting from their extensive network. Power Systems, as I said, it was good to see an encouraging first half there. The new management really is revitalizing our business. There's an emphasis that you will see come through in the numbers eventually on taking the service model from our aerospace business and applying that to the large installed base that our Power Systems group has. There's been quite a bit of effort on that, and I hope we'll have some news on that in the second half of the year. There's also been progress with joint ventures. It's good to see in the numbers some market recovery coming through. OE sales up 5%, and that results in overall revenue increase. But it's good to see a greater profit increase coming through from some of the cost reduction initiatives actually bearing fruit. In terms of orders and looking forward to future business, it's been a good first half for orders as multiple sectors have enjoyed some recovery. I mentioned at the start we're putting quite a bit of effort into trying to address the continued seasonality skew that's been happening over the last few years. Obviously, the question mark in the right-hand bar on the histogram there, because it depends how well we do in the second half. We absolutely expect to have addressed that skew somewhat. Looking further ahead to costs, one of the things we've been talking about for some time in the bottom right-hand of the chart there, this is demonstrating the 80/20 nature of the product portfolio where 80% of the revenue has come from 20% of the products. We are going to make significant steps in reducing the number of product variants. That is now underway. We are aiming for a number significantly more than 25%, but we are 25% so far. Switching to Marine. As I said, the story is one of balance, really. As far as the present is concerned, we are trying to balance the continued depression in the offshore market versus the restructuring that we are doing. Hopefully, we get fairly close to a break-even situation. Obviously, we are consuming cash still at the moment in that business. As I look forward, we look forward at trends around electrification, autonomous shipping, more stringent environmental controls, more stringent safety standards. The investments that we are making there are around technologies relevant to those trends in the Marine business, also particularly relevant to some of those trends that apply to other parts of the group. In Nuclear, it has been a steady first half to the year. Revenue up a little with increased activity in our submarines business. Profit down because we are maintaining R&D investment, and that has been offset by some of the positive transformation benefits. Some of that R&D investment, particularly around our small modular reactor initiative in the civil space. The submarine business, we continue to develop that for the future, engaging with our U.K. government customer. The focus has very much been on improving the performance for that submarine customer. Performance coming out of our components operation. That is a very significant performance improvement versus the first half of 2016. The challenge now is to sustain and improve on that level of performance. In the civil space, we have had some good headlines with some orders and achieving preferred bidder status on various projects. Transformation across the group. We have had a go here at representing graphically the difference between our run rates and achieved savings in the year. We are on track to deliver at the top end of the expectation, i.e. at least GBP 200 million of annualized cost savings versus the end of 2015, where the chart starts, by the end of this year. I think, first half, good start, focusing on the things that we said we were going to focus on, delivering the things we said we were going to deliver, transformation program on track. With that, I will hand over to Stephen to talk through the numbers in a little bit more detail. Thank you. Thanks, Warren. Cheers. Okay. Well, morning, everybody. There is one or two familiar faces in the room, but I think I am getting to know many of you for the first time, so look forward to working with you over the next few years and getting to know you better. Stephen Daintith has just joined in early April, so just over, we are around four months or so into Rolls-Royce. I think I have joined the company at a very exciting time, actually. Warren has alluded to this in his opening comments, but there is a massive amount of work going on across Rolls-Royce that struck me a lot in my first few months. Lots of good energy as well and real ambition across the organization. I think we can see a big opportunity ahead. There is lots to do, as Warren has highlighted, but it is all doable. So it is very much around our effective execution. It is an exciting time to join. I first got to know the company late last year. I met Warren around August, September, early August, and then various members of the team. I started to jot down then what I thought what my priorities were likely to be over my first 6, 12, 24 months in Rolls-Royce. I am starting the agenda today with just an outline of those priorities. Then I move on to the results. Then I have got one or two accounting changes to talk about. Looking at the priorities, and interestingly enough, these five priorities that I am about to outline have not changed since those first early months when I first started gathering my thoughts and hearing what the various executives and board members and so on, and management across Rolls-Royce were saying to me. Indeed, external people that I met as well around the challenges that Rolls-Royce faces and the issues that it needs to tackle. Here are the priorities that we are working on right now. Number one is cash. I could talk about all of these separately, one by one. Two is costs. Three is balance sheets and capital allocation. Number four is clearing the fog, using Warren's terminology there. Five is a strong finance team as well. Going through these one by one. Cash, first of all. I think it is the best indicator of economic performance. There has been a historic disconnect with profit. The table down the bottom shows cumulative profit and cumulative cash over a 10-year period. What it highlights is the stark difference between the two. I think we have been reminded that I think GBP 781 million was our record achievement of cash generation in a single year. I put there understanding and managing the key drivers as well, which I will get onto in a second on a couple of other slides. But really understanding what is driving cash flow across Rolls-Royce, across all of our divisions, and an understanding of that, and then allowing us to think about where and how cash flow might develop over the next few years. There has been a lot of media and market commentary on the GBP 1 billion of free cash flow by the end of the decade. Just to clarify that, it is not an internal target. But we really do like the focus on cash, and we think it is right and appropriate. Indeed, we would hope that we can go beyond that number over the next few years. There is a road map to a free cash flow that looks like that and beyond it, but of course, there are lots of operational issues along the way to manage it. What I am going to try and do here is show you some of those building blocks to a growing free cash flow. Over the course of the next couple of results releases, add a bit more detail to how that is developing and our progression towards a growing free cash flow. But we do welcome the focus on free cash flow, and we are very comfortable with that GBP 1 billion is being talked about. The road map to a growing Civil Aerospace free cash flow. First key driver is the economics around OE. As Warren East mentioned in his opening comments, we do sell our engines at a loss. So the cash margin per engine sold, an improvement of that cash margin. In other words, a smaller loss ultimately leading to break even for one or two of our engines remains incredibly important. The Trent XWB progress in particular is a key indicator for us, given the size of the ramp-up that we anticipate in the Trent XWB over the next few years. Again, as Warren East just mentioned, we have made good progress over the first half of the year, and we see the route to further progress over the second half of the year as well on the Trent XWB. The aftermarket value and the growth of the aftermarket margin. The growth in the installed engine base. Right now, just over around 3,000 or so wide body jet engines. We would hope to push that beyond that over the next few years as we increase our production ramp-up and deliver around 500 engines or so a year. Growth in flying hours goes with the growth in the installed base, but also passenger hour growth as well. Then shop visit efficiencies. How often are our shop visits taking place, and what is the cost of each shop visit as well? These are key drivers to a growing free cash flow. I am using Civil Aerospace here as the key example because it is acknowledged, and we acknowledge it too, acknowledged externally but also internally, that the Civil Aerospace cash flow is the one that will be the biggest driver of all the drivers to a growing free cash flow for Rolls-Royce. Then finally, cost management and capital allocation. This is transformation across various buckets. A focused improvement on our operations and commercial and administration costs. We are seeing some of that coming through already in our half year numbers. Disciplined capital allocation on CapEx and R&D. I am going to talk about this subject in a little more detail in a few slides going forward. Working capital management, always a key part of good financial management across an organization. Looking at Civil Aerospace, this is the trading cash flow for 2016, as previously presented in a traditional format for reconciling profit with trading cash flow with various entries in between. I am hoping that we can move to looking at cash flow under a different lens by looking at those key drivers that I have just run through on that previous slide. An alternative view of free cash flow for Civil Aerospace, and I will take a little while on this slide because there is a lot happening in here, is to get to the same outcome of basically a break-even business. But to show what is happening across the various lines. Do not take this as any sort of audited, precise set of numbers. I am trying to give you a shape and a direction, a feel for how the model currently works. Going forward back in March next year, I can add a bit more precision to this when we talk about the 2017 numbers and the outcome there. Looking at the OE economics, 320 engines delivered last year on wide body at our average margin loss of around GBP 1.6 million cash each, getting us to an outflow of GBP 500 million. 11 million engine flying hours, generating an aftermarket cash margin of GBP 1 billion. Looking at the top number, the original equipment, clearly we are hoping for progress on the 1.6 over the next few years, Trent XWB in particular. The 11 million engine flying hours ought to grow as well as we grow the installed engine base, as Warren East has mentioned in his opening comments. The sale of some spare engines on the wide body fleet, they go in as well, and they get us to a wide body cash margin of 0.7. We add in then the cash flows for the business and regional engines of GBP 600 million. The V2500 royalty around GBP 300 million gets us to a gross cash margin of GBP 1.6 billion. You may be wondering where the additional factory costs and the sales-related costs, the AFCs and the SRCs have gone. We have allocated that GBP 1 billion that you might be familiar with across three buckets. GBP 300 million of it is amortization, depreciation, which is non-cash, then you are down to GBP 700 million. Operations and engineering makes up the balance of the GBP 700 million of what we have called AFCs and SRCs. GBP 300 million of commercial and admin costs takes us down to an operating cash margin of GBP 600 million. Then we are spending around GBP 600 million in R&D and CapEx in the Civil Aerospace business. A bit of working capital improvement. We get to the position that we see today. I am showing you this model to show you where we think the dynamics are, the key dynamics are going to be over the next few years, largely in the OE economics and the AM value line, with some good progress also on cost management and capital allocation, developing the building blocks to that GBP 1 billion of free cash flow over the next few years. Costs. A relentless focus on costs across Rolls-Royce, and this is one of the areas that struck me most in my first few months, is how much activity is taking place in every division across Rolls-Royce and across all the functions in Rolls-Royce as well. Just highlighting a couple of specific examples across these areas. The Trent XWB-84, we have stated before, and we repeat this ambition to be break even by 2020. Good progress in the first half of this year and anticipated progress in the second half as well. I think we will be more explicit about the progress that we have made here in March next year. Footprint and factory utilization. We are targeting a 20% reduction in footprint by 2020, and at the same time, we are looking for factory utilization of at least 80% by 2020. Right now it is about 65%, so good improvements in factory utilization. That is on a 24/7 basis. Lifecycle cost reductions. We continue to look at how we can make our shop visits more efficient across our fleet, targeted engineering to reduce costs over the life of a contract. Then process efficiency, simplification. A lot of simplification opportunities across Rolls-Royce being pursued, and this does free up time. Theoretically, productivity will improve. Rolls-Royce likes its processes, and we have enjoyed making what ought to be simple things quite complex and complicated. I think there is, as has been mentioned previously, a lot of opportunities to improve and simplify the way we look at and manage the business. Finally, commercial and administration management of those costs. Tight head count control in particular. We put in place a head count freeze, I think around six weeks or so ago. That is working well across the business. We do see in the first half results, as I will show in a second, some good improvement on commercial administration costs over the half year. Balance sheet and capital allocation. Rolls-Royce, as you know, is a long-term business. We build engines for the long term. We enter long-term contracts. Delivering a strong free cash flow is not just important in its own sake as a successful growing business, but it, with disciplined capital allocation, gives us then flexibility for investment. It will be good to have the sort of business where we have a strong free cash flow and disciplined capital allocation so that we do have a position whereby we can invest for the future and place some of the bigger stakes where we see opportunities for growing cash flows in the future in new engine programs. That disciplined capital allocation is very important, that we are sensible and disciplined around setting return on capital targets, cash return on capital targets, over not short-term cycles, but medium long-term cycles. So 5, 10, 15-year cycles, and being public about what those expectations are and what those targets are. So we would hope that putting all those three together will lead us to be secure as investment grade and ultimately delivering a pathway to a sustainable A rating. Indeed, in my meetings with Moody's and with S&P, they too are looking at a free cash flow, a growing free cash flow, as the key indicator that they will be looking for to secure our investment grade and then return to an A rating status. Return on capital targets I've talked about, but taking that long-term perspective. Clearing the fog. I think there's an opportunity. This is not just an external, but also an internal focus as well. I think we can help ourselves and improve the way internally we look at the business and the drivers of performance and what are those key performance indicators and where the accountability lies, and having clear measures that we're measuring and managing ourselves against. So understanding and explaining the performance of the business internally, I think we can improve, but also externally as well. I think we're very strong on financial accounting, and I think we can probably get a bit better on the old-fashioned management accounting. Clear metrics and accountability, including group KPIs. We'd hope to develop those over the balance of this year, and in March next year, share with you some ideas around what sort of group KPIs we ought to be looking at. Greater clarity on cash flow. I've talked about that. So rather than reconcile a profit number with a cash flow number, try and explain cash flow on a driver basis, not just for Civil, but for our other businesses as well. IFRS 15 helps enormously. We welcome IFRS 15. I think it will allow for a purer and clearer view of the business. While long-term contract accounting adjustments have been the way we have accounted appropriately over the years, I think the removal of those and moving to IFRS 15 will help enormously. All giving greater transparency. Group KPIs, possible items that are under review. Return on capital employed, that I've talked about. Free cash flow per share. Cash conversion and cash margin. A strong focus on cash. I think it's a language that is growing across Rolls-Royce, becoming increasingly part of our language of success, a growing free cash flow, and very much sort of matches our ambitions. Just a specific topic on clearing the fog. There was quite a bit of commentary and indeed, questions from the market around our hedge book. So over the next couple of slides, I'm trying to shed a little bit of light on why we have in place what we have in place, and explaining a little bit about our hedge book that we have today and the shape of our hedge book, and therefore the likely trajectory of the achieve rate over the next few years. So the headline statement, our hedging policy is to reduce FX volatility on cash and profit. We're a long-term business. We take a long-term view. We have long-term contracts. Moving down to the final two bullets, we receive about $6 billion a year to offset our sterling and euro costs. To be sure about what we're going to be translating those dollars at, we sell those $6 billion forward over the next few years. What these two lines show are the policy that effectively defines our maximum hedge book. These are maximum and minimum bands for the flows that we anticipate in each year. The purpose of the hedge book is not to be precise within these bands. It's to determine the maximum size of the hedge book, then we allocate the hedges broadly in those lines. This is more around determining the size of the hedge book rather than the actual shape of the hedge book itself. Having said that, this is what our hedge book looks like over the next few years. The dark blue shaded bits show the hedged portion on a percentage basis of our anticipated dollar flows. Then the forward rate shows if we were to buy today, for hedges in those years, selling our dollars, the rate that we would purchase at. Then the blue line in the middle there, the sky blue line that's shaping down, shows the likely trajectory of our achieved rate over the next few years. 2017, around 154. Then moving down, you can see through to around just above 140 or so, 140, 144, in that range over the next few years. Depending, of course, how the forward rate moves and what rate we replace the hedges that we use in 2017 with new hedges in the outer years. These policies work very well for us. When you look at these rates over the next few years, they are comfortably below our long-term planning rates. We're very comfortable with this policy. We think it's sensible. It's worked well for us. Just to repeat, it's well below our long-term planning rate. The finance team, helping drive the change. Two recent additions it's worth highlighting in respect to strengthening the finance team. Sarah joined us in September. Sarah's sitting here in the middle of the room. Sarah's joined from Shell, just over 25 years or so with Shell in various countries, in finance director roles and regional finance director roles and various operations roles as well. Delighted to have Sarah on board, and currently our Group Financial Controller and Deputy CFO. Sarah's doing a cracking job so far. Thanks, Sarah. Then we have Ben Fidler joining us in early September. You all know Ben. What we're looking for in Rolls-Royce is to face up to the sort of brutal facts around the performance of the business in recent years and the area that we need to improve, and we do need rigor, and we do need challenge within the organization. We think Ben will bring that rigor, that challenge, but also that industry expertise as well, and will help us not just in financial planning and analysis in the short term, but also thinking about capital allocation and strategic planning and so on as well. We're delighted to have Ben on board, and we think he's going to be a great addition to the team. I expect there'll be one or two more changes on the horizon as well. But getting a strong finance team to really drive the outcome across Rolls-Royce rather than report the outcome, I think that's the key thing that we're looking for from a strong finance team in Rolls-Royce. Providing that insight analysis, but helping us all make better decision-making across the group. The half year results, running through the numbers. It's been a solid start to the year. It's always good to see revenue growth in a business. Civil growing 14%, underlying growth rate. Power Systems up 3%. Marine operating, though, in tough markets down 15%, but overall a 6% revenue growth for the group and a solid start to the year. Profit, again, decent start on profit. Group revenue we've highlighted. Commercial and admin costs are GBP 38 million lower than this time last year. GBP 16 or so million of that is down to the non-repeat of legal costs associated with the deferred prosecution agreements. But putting all that together, we have an improved operating profit, GBP 345 million over GBP 158 million last year, and an improved margin. Although I wouldn't want to boast at all around a 5% margin. There is still a lot to do on improving our operating profit margin, but a solid start to the year. I'm going to run through all the divisions one by one now. Putting all that together, you can see the profits there. Civil and Power Systems, the big driver. Marine operating in tough markets and GBP 17 million decline half year on half year. Free cash flow. Sorry, let's go back to the free cash flow slide. Free cash flow, GBP 75 million better than last year. We have pointed out that there's a lot happening in working capital, around GBP 180 million in receivables in particular, which I'll talk about later, I'm sure we'll do it as we go through the Q&A. That's been the driver of a free cash flow performance that's slightly higher than last year's number. We are not changing our outlook on free cash flow. Indeed, I should have said neither on profit either, just to repeat Warren's comments. At this stage, we're very comfortable where the outlook is, our outlook for the full year that we gave back in February of earlier this year. So looking at operating cash. Cash outflows from a higher installed engine production. We invoiced 202 wide body engines during the first half of the year, so a good ramp-up from last year's numbers. That was offset by increased cash revenues from the aftermarket growth, which as you saw, grew nicely. Free cash flow. There was an increased level of capital investment, higher level of working capital management, that GBP 180 million that I talked about, principally in receivables. Other than this, the cash flow performance was largely as expected. So running through our divisions one by one. Civil Aerospace, 12% growth in OE, driven by that 202 growth in the Civil widebody engines. That's excluding the leased engines that we've sold. Another seven or so there. Aftermarket revenues growing by 15% year-on-year. And whoops-a-daisy, sorry. Then you can see that translating down to a nice healthy growth in operating profit from 173 this year, sorry, and GBP 31 million in the first half of 2016. To make the point, there is a benefit there in those numbers of long-term contract accounting adjustments that does help. There's a net GBP 33 million gain, but it's about GBP 56 million higher than it was this time last year, where there was a GBP 23 million loss. I think this next slide goes into that in a little bit more detail. Underlying revenues, 85 Trent XWB engines were produced, sorry, were invoiced in the first half of the year. 41 in the prior year. Aftermarket growth led by flying hours, which were up 15% for the in-production Trent fleet, so good growth in production Trent fleet half year on half year. And the business aviation market as well, 21% growth in that reflecting the success of CorporateCare. Gross margin improvements, highlighting there that positive benefit of GBP 33 million from the contracts accounting adjustments, and that included a one-off, GBP 77 million credit risk assessment benefit in respect to one of our customers where we have taken a view after we provided several years ago in respect to that customer when their trading was in some, let's say, some choppy waters, improved trading have allowed us to remove this provision that we took in earlier years. Our outlook for the year is unchanged, and we're comfortable where it stands. Just a couple of other bullet points there. We're expecting further improvements on the XWB, higher costs related to increased maintenance activity in respects of the Trent 1000, which Warren talked about in his opening comments. Defense aerospace, 4% revenue decline as expected. We expect that to pick up in the second half of the year. The aftermarket down slightly as well. Second half production will grow in the second half, and that will drive some OE growth we anticipate in the second half as well. Looking at the underlying revenue, the lower EJ200 OE sales following the completion of the Saudi contract is a key driver of the underlying revenue decline half year on half year. Gross margin, we benefited from the non-repeat of the TP400 charges that you may recall this time last year of around GBP 31 million. And we have lower C&A costs in Defense, a key driver of the small, but GBP 7 million improvement in operating profit for our Defense business half year on half year. The outlook remains solid with full-year expectations are unchanged and just pointing to there the second half growth in the AE engine production. But margins and profits are expected to soften from last year's numbers. Power Systems. I think Power Systems is the one business that's recovered and its markets have recovered earlier than we anticipated when we put our outlook together. It doesn't change our overall group outlook, but I think Power Systems is the one business that's performed a little better than we expected in the first half of the year. Growing at 5% on its OE business and 3% when you put its services business together. Operating profit up nicely to GBP 66 million. So it's an encouraging start to the year in a slowly improving market. But as you'll recall from last year, Q4 is a big quarter for Power Systems in respect of its services revenue. So there's still a lot to be done in the balance of the year on Power Systems. Looking at the drivers and the outlook for Power Systems, underlying revenue, good OE growth. The rapidly expanding Chinese telecoms market, particularly data centers, is leading to some good OE sales into China for Power Systems, but also signs of recovery in several industrial markets, including construction and rail. Lower though, half on half year governments and Marine activity. Operating margin, GBP 6 million lower C&A costs. Again, lots of transformation activity going on in Power Systems, but also their final bullet point, strong working capital management. Power Systems is one of the key contributors to that outperformance in working capital in the first half of the year. The outlook for Power Systems remains cautiously positive. Q4, just to highlight that again, is key for the service revenue growth as it was indeed in 2016. Marine. Marine continues to operate in a very tough offshore market. 15% decline for the division with 22% decline on OE and 6% in services. Operating profits suffering accordingly. It is a tough offshore market. Having said that, a lot of restructuring taking place in Marine and as indeed it has been over the last couple of years, and you will see in the statement today talking about further headcount reductions planned for the second half of the year. Some of the key drivers in the outlook, revenue declines reflect the lower early order intake and the tough offshore market. We are not anticipating a recovery or a rebound in any event. We continue to take cost out of the business. C&A costs are GBP 12 million lower. We expect the second half reported loss to be similar to the second half in 2016. Marine, tough markets and no reasons for optimism at this stage. We do believe, though, the amount of cost that we have taken out of the business, we are well-placed when the offshore markets eventually start to recover as we expect them to at some point. Nuclear. Nuclear, good revenue growth as we have managed our submarines contracts particularly well. Underlying revenue growing at 8%, operating profit slightly down on last year, and that is largely driven by the GBP 10 million investment in small modular reactors, which you will see in our numbers. Solid performance across both the submarine and the civil Nuclear activities, as Warren East mentioned in his opening comments. Operating margin impacted by the investment in the small modular reactors, GBP 10 million or so in there. The outlook for the year, the long-term outlook is unchanged, and there is no reason to change the outlook that we have in place in our models for 2017. Accounting changes. A couple of items that are on the horizon. As you know, with effect from the 1st of January 2018, we moved to IFRS 15. Indeed, we are hoping that for the March results next year, we can show you the 2017 results on a current basis, but also the full results on an IFRS 15 basis as well. So you can see that fair comparison. Probably spend quite a lot of time on that, and that will then allow you to think about how you want to think about 2018 on an IFRS 15 basis. Looking at the numbers, back in November of last year, we gave you an early view, and we stressed at the time that it was an early view on 2015. We have settled down now on the numbers for 2015, which show an underlying operating profit adjustment restatement of GBP 933 million. The number for 2016 is a little lower. I think we guided that we expected it to be a little lower on the 2015 number, GBP 823 million. Just to repeat again, there's no cash impact. Cash remains the same. This is a restatement of accounting numbers. For 2017, we'll share the detail of that with you in March. If anything, we're expecting the 2017 number to be, again, slightly lower on the 2016 number. Sorry, skipped one area there. IFRS 16 comes into play on the 1st of January 2019, and we'll be taking operating leases onto the balance sheet. Again, no impacts on cash. That's around GBP 1 billion of operating leases. These principles are already used by our rating agencies in the way that they assess the health of Rolls-Royce. Just as a flag that that's on the horizon. Again, we'll share more of that with you in March next year. To summarize, clear priorities for the way ahead, a particular focus and an emphasis on cash. It's been a solid first half. There's much to do in the second half. Power Systems, Civil Aerospace, Defense aerospace, around our divisions, there's much to do in the second half. It could be tempting to get carried away with the first half numbers, but there's a lot to do in the second half of the year, and I really would reinforce that point. Accordingly, our outlook for the full year is unchanged. Thanks very much. Over to Warren. Thanks, Stephen. A few comments just to close, and then we'll move to Q&A. I was chatting with the board last week, because I've actually been doing this for a couple of years now. Sometimes it feels like 5 minutes, sometimes it seems like about 22 years. But some of you who've been following me doing this for a while will note that in days of yore, I didn't need to use glasses to look at the slides. Anyway, the slide sort of breaks into two halves. There's what we're really concentrating on in the short term versus what we're building on the right-hand side of the slide for the longer term. I think in 2016, I was really concentrated around some of the structural changes that we're making with what I called operational hardware back in 2015. We're really seeing the positive effects of that now, particularly the direct line of sight of the senior team right into the businesses. It feels a lot easier to get a grip on what's really happening in the businesses. As we've moved into 2017 on the operational hardware, then it's really encouraging to see we now have a new, balanced senior team around the table. I think you can see in the energy that Stephen is bringing to the finance function, a measure of the changes that are happening at that level in Rolls-Royce. I'm also encouraged by the changes that we're making around engineering and technology. That's the most recent change, and we've made that very much a 2017 change, but that puts us in a great place for the future, and you'll see technology appearing in a couple of the other boxes as well. Steven talked about the fact that we love our processes and complexity, and you have heard me talk about this before. I suppose if there was one area that where on reflection after two years, I do need to, it is part of my job to be more impatient. I think we can always move a bit faster here, in terms of improving the simplicity of our organization. However, I would say that in 2017, particularly now as we are getting that team established, I can see a pickup and a building in the momentum, which is happening in that direction. I am confident that we will deliver on what I previously called the operational software in due course. Looking forward, events happen in business all the time. The important thing for Rolls-Royce is to establish some resilience so that we can really achieve sustainability. Behind that resilience, that is why it is so important that we deliver on the operational software side of our transformation, so that we can really strengthen the balance sheet, so that we can establish some breadth and depth in the technology that sits behind our portfolio. That is what we are concentrated on right now. I can see that we are starting to make progress there. To make it stick, Steven talked about disciplined capital allocation. That is what is really necessary to be able to sustain the expenditure, the investment in R&D for the future. To create a winning platform, so that when we have got this real execution machine, it is built on a winning platform. I think we are making reasonable progress, in all of those four boxes, actually. After two years, I am quite satisfied with where we are. Coming back to the present, though, the priorities for the second half of the year are really very, very simple. We need to deliver what we say we are going to deliver. In 2017, as Steven just mentioned, there is no change this morning to our expectations in terms of financial results. We have got a lot to do in the second half, but I believe that we are well positioned to do just that. From a day-to-day point of view, very much concentrated on engineering, on operational matters, and on looking after the aftermarket. It is a balance. The balance is a good example, good place to see that is in our Civil Aerospace business. We clearly have a balance from an engineering point of view in terms of delivering the new products. Two large new engines entry into service before the end of this year. Another one coming along six months behind. Balance that against, from the operational point of view, the ramp-up that we need to do. Just over 200 engines invoiced in the first half of the year. We need to get that up towards 500 engines for the end of the year, and we are reasonably placed to do that. I mentioned at the start of the presentation how we are working hard with our Civil Aerospace customers to minimize disruptions caused by the in-service support that we are doing with a scheduled maintenance program, in particular on our Trent 1000. So it is quite a lot of challenges there in the second half of the year. Behind all those challenges, I have talked for quite a while about the future and the need, whilst we are focusing on the present, the need to consider the future, and make sure we have a thorough review of our vision, the strategy, and the technology that sits behind that. We do hope to share that view before the end of the year. With that, I will hand over to Q&A and leave you with that summary. We got first one in the middle there. The microphone is coming round. Stephen and I will share the Q&A. Good morning. Charles Armitage, Citi. Three questions. First of all, 320 engines delivered last year, going to, I do not know, 480, 490, excluding spares. Minus GBP 1.6 million each. There are quite a lot of moving parts. You have got bigger losses in the XWB. You have got more of those coming through. You have got, presumably, the overall cost per engine coming down, but you are delivering more engines as well. Presumably, the losses will probably get bigger this year, but at some point it will flip when the losses coming down will be faster than the number of engines going up. Can you just sort of talk through that dynamic, please? Well, I think you have talked through it, actually. In terms of what we are actually delivering, we are delivering to meet customer requirements. That is the airlines that have scheduled deliveries. You are right, you mentioned XWB. We pulled out. We are very encouraged by the first half performance. That is where it is the biggest loss at the moment, but it is also the biggest improvement in terms of closing the gap. Exactly when that transition happens, we have been fairly clear it is not happening this year. The absolute cash loss is going to be bigger this year because the volume increase is more significant than the closings of the gap. But as we look forward beyond this year, then we are certainly going to come to that point. I do not know if you want to add anything. I think you are right there to highlight a key inflection point for us will be when we get that to start going the other way, when we are making as many, if not more, but the cash drag on the business, so to speak, moves in a positive direction. I believe that will be a key inflection point for some time over the next few years. But that will become obvious, I guess, as we make progress on, particularly on the XWB. Next question. Thank you for slide 28. That is very useful, the FX one. Can we just try and make so I understand the, I am color blind, the pale blue band, I think. Yes. If you just look in, I do not know, 2022, because I can see the numbers. 60% is hedged. The forward rate is quite a lot lower than that. Could one assume that if one hedged at the current rate, you would be towards the bottom of that band, but you are not, so there is a degree of uncertainty? Yeah. You kind of could. I would not want to be precise about the answer because you just do not know how the rates are going to move and so on. But that maths is broadly right, that assumption. But it will depend, of course, on how the forward rate curve changes and spot rates develop over the next couple of years. Lovely. Thank you. No, you got it right. The final question, long-term accounting changes. Particularly that GBP 59 million of technical cost. What is that? Secondly, how on earth can I forecast this? Or do I just forget about it because it disappears under IFRS 15? That is the single largest component there, is the Trent 1000 issues that Warren covered in his opening slides. It is essentially provisions around increased costs that we're anticipating across our engine programs, with the Trent 1000 being the largest. On a go-forward basis, we'll clearly have those costs, and we'll still be providing them as appropriate for in-year provisions and so on, is the short answer to your question. Do they get less under IFRS 15? Well, no. They will vary, of course, depending on what issues take place in respect of our engine programs. Clearly, we would hope for a small increase, or negligible, or even decline in provision every year. It will really just depend on how those operational issues unfold over the next few years. Thanks very much. We've got one in the middle here. Oh, sorry, microphone at the back. From Fisk. It might be a question for your new Head of Technology. GE have got problems with the TP400, Pratt with the geared fan, and you seem to have no problems with the F-35 gearbox, and hopefully not with the UltraFan. Is it because you use this technology called Curvic coupling? I don't actually think it is either. The challenges that were faced around the TP400, I think there was a significant volume ramp-up and the one facility was required to produce gearboxes for lots and lots of different engines. The geared turbofan from Pratt & Whitney, we can't really comment on other people's business. But these things are very difficult things to do. And of course, we will try to learn from other people's experience. And we believe that we have a design of gearbox that is going to be successful. But we're very early. We only just started testing it under power. And I would really hesitate for any of our spokespeople to comment on, it's going to be glorious because we've got a program over the next several years of extensive testing. I'd stress that all of us companies, this is difficult stuff, particularly to make it safe and reliable. So, I really can't comment on other people's challenges. Thank you. Christian Laughlin from Bernstein. Two questions from me. Both are related, actually, in a way, I guess. So firstly, Warren, if you think about two years ago or even 18 months ago, how has your confidence evolved with respect to confidence in the visibility of what you see in the quality of data that's being presented to you, and how deep that goes into the organization or the divisions? And what has been driving that? Has it been changes in people and processes, or also have you started to see some fruits of some of the system updates initiatives that you talked about previously? Secondly, related to that too, if you could clarify some of the comments that were reported into the press over the weekend about the GBP 1 billion in free cash flow around 2020 or so. Just with respect to how you actually are thinking about that in terms of defining that as an internal objective or as a marker on a trajectory over the next few years, and how that shape of improvement from 2016 looks. Okay. Let me just sort of comment on improved confidence. I am a lot more confident in the quality of information that I am seeing today, versus where we were two years ago, even 18 months ago. Part of that is in the delayering that we did in 2016, and the getting closer to the businesses. Part of it is in the re-engineering of the finance function that Stephen is spearheading, and which is the sort of number one goal. I think in some of Stephen's slides, hopefully you saw clear business-driven derivatives of the numbers. Stephen, you may want to comment on where that is going in future. Before you do, I will just talk about the weekend press, and the one billion. Speaking with a colleague about this this morning, he had a great analogy for me. He said, "I can have a target to have a billion." Sorry, he might have a target for that, but a million pounds of cash in his deposit account. That might be a target, but exactly when or if ever it is going to be achieved is debatable. This is a very healthy objective for us to have, and Stephen calls it a great rallying cry within the organization. We sincerely believe and hope that this business will generate a lot more than GBP 1 billion of cash in a year at some stage in future. We think it will be around about GBP 1 billion, around about 2020. Whether that billion threshold happens before 2020 or after 2020 depends on a myriad of different events. It depends on the level of flying hours that are done, the rate at which we grow our fleet, the number of in-service issues we have. If all of that moves in the right direction, we will probably get to GBP 1 billion before 2020. If some of those turn into headwinds rather than tailwinds, then it will probably be a little bit later, which is why we are really not going to get hung up on fixing a actual target quantum of money to a particular point in time. But it is a very realistic number to be talking about in that sort of timeframe. I have used it a lot in presentations that I have given internally, because it is very useful just to get that focus on cash. In fact, we are going through a little bit of an education process because most business managers in most businesses talk about sort of revenues and profits, but understanding of cash flow and drivers of cash flow, it sounds strange, but it is true, is not often that great. So there is that, there is the education around it, but then there is also the drivers of that cash flow, going back to the first part of your question. I would hope that we can start talking in our releases around those drivers and those building blocks, particularly in the aftermarket cash margin, because that's the big cash driver. When you think about it's not hugely dissimilar from a subscription business once you get. How subscription businesses report their cash flows in terms of yield and ARPU growth or revenue per customer growth, that sort of thing. That then becomes very helpful because you've got a very reliable, dependable, and strong cash flow, which is an increasing proportion of our group revenues. So I would hope that we can move in that direction and really get that good understanding of those drivers of aftermarket cash margins. Okay, great. That was very helpful. Thanks. The microphone must be over that side now. We need to remember the microphones to the middle. Thanks very much. It's Rob Stallard from Vertical Research. Couple of questions, maybe to follow up on Charles's question on large aircraft, large engine OE cash margins. The loss of GBP 1.6 million per engine last year is wondering what we might be expecting for this year per engine. Secondly, there's been a lot of conversation about whether Boeing will or won't launch a middle-market aircraft. Is this a platform that Rolls-Royce might be interested in powering? If you were successful in achieving that position, what the sort of cost and timing could be. Thank you. Yeah. You want to talk about it? Yeah. 1.6. I'll do the cash losses. Yeah. I wouldn't expect a number significantly different from last year's number. The very early question is guided as why that is, in that the XWB production is significantly higher in 2017 than it was in 2016, and we know that that carries an initial larger cash than the average of all the others. But again, we expect that to come down. In March, we'll be more explicit about the progress that we're making on the XWB, but it is good progress. We have that ambition by 2020 to get to breakeven, which will only help the average margin going forward. So 1.6, I expect to be pretty much flat in 2017, but then 2018, hopefully we'll see improvements on that. Okay. On the NMA, we're in the business of supplying large engines. If there's a sensible commercial opportunity around NMA, then of course we're interested in going after it. We're developing new architectures at the moment. Our Advance3 engine is about getting greater efficiency out of the engine. Our UltraFan is about making that engine propel the aircraft more efficiently. We're developing those new architectures for new wide body applications at the back end of the decade. If there's an opportunity to create from that architecture another engine variant, that we can do economically, and start having some return on all the investment that we're making in that architecture development a few years earlier, because that might be the timing for NMA, then that sounds like a good idea. But it will be dependent on whether we can get a sensible business case on the individual project, and that depends on where Boeing end up with the specifications for their aircraft and the requirements for the engine, and where we are with our architecture developments at the time. We have to go to the middle now. I'm afraid we're sort of getting the microphones out of the side. Sat in the wrong place. Yeah. Nick Cunningham from Agency Partners. I wanted to ask about Trent 1000. Yeah. Because you were talking about headwinds, if you like, potential headwinds. It's difficult for us to see, I think, the Trent 1000 impact because it gets lost in warranty provisions or within long-term service agreements and so on in the P&L. So I was wondering if you could give us an idea of what the scale of cash issue has been, and also beyond that, whether you now have a permanent fix and how much that fix is going to cost. In other words, how much is it going to cost in cash terms to close it out? Then final part of that, is there any systemic issue around this sulfidation which is going to apply to other engines like XWB or Trent 7000 or whatever? Thank you. Do you want to talk about cash and then I'll come back. There is a £59 million technical provision in respect of a variety of engine programs. The 1000 is the single largest, and you should be thinking around just less than half or so of the total is the 1000. That's what we provided for and that we think is sufficient at this stage. It will depend on how the operational issues unfold over the balance of this year. But right now, we think we're adequately provided. So that's the answer on the 1000. On the 1000 and getting it under control and tying it down, there are a handful of issues with the current Trent 1000. There are about 400 to 500 engines affected. Basically, some parts of the engine are turning out not to last as long in service as their original design lives. As with any mechanical components, they wear out, and you have a design life, and you expect to replace those components. It turns out on inspection that we have to replace them sooner rather than later. That's what causes the extra cost, is the extra cost of physically the parts, and also the operational cost of putting them in. We understand the issues. We have a scheduled program for the fleet of engines that's out there. We believe that with the Trent 1000 TEN, the one that is coming into service at the end of this year, then we've addressed all the issues that have been identified. But if you look across our fleet of large gas turbines, there are issues with pretty much all of them. This is a bit like the question I was answering on the gearbox. This is difficult stuff, and you start off, and you have a design life, and you have in-service experience, and you change the design, or you change the lifing that you're putting on particular components. Over the course of years, we get better at making these things last longer in the air. So instead of having to have engines that typically would return every 2,000 cycles, now it's 5,000 cycles or even 7,000 cycles. The sulfidation issue you mentioned is something that all of these products are prone to. We experiment with different cooling, different materials, different coatings to try to create an optimum balance of performance out of the engine versus life. But I'm afraid it's just a feature of how these things work, that you're always going to have those issues. What you try and do is steer away from the bumpy boundary conditions where you run into operational problems. Sometimes, in trying to achieve better performance, we bump into one of those boundaries, and that's what's happening with Trent 1000 at the moment. Could I just ask a quick follow-up on that? Thank you. The circa GBP 25 million, I guess it is, the half of the adjustment, does that actually encompass the cash cost? Yes, it does. Right. So there's no other warranty utilization or whatever going through? No, I believe that covers the cash cost, yes. Thank you. I will get back to you if not, but I believe that is the case. Yeah. I think we have got some more in the middle here. Do you want to just pass it along and then we can nip up the back? Thank you. Tristan Sanson from Exane BNP Paribas. Three questions. The first one, I wondered whether, Ian, you could give us a bit more details on working capital evolution than the GBP 180 million that you mentioned earlier. The second, you increased the CapEx guidance for this year by GBP 100 million, I think, but not changing the overall free cash flow guidance. Can you tell us where this extra GBP 100 million will be spent? What type of project? Which division? And the third one is on TotalCare transitions. You transitioned a number of A330s over the past 12 months. Can you give us a feel for what should be the average contribution per hour flown of these new TCAs compared to initial TCAs, including the life-limited parts? If you calculate a kind of all-inclusive contribution, these extended TCAs or transition aircraft, will they bring the same, less, materially less than initial TCAs? Thank you. Okay. If I do the TCA one, do you want to do the working? Yeah, I'll do it. Yeah. Okay. If you kick off on working capital. Working capital. I will come to the TCA. 180 million GBP largely in receivables. It is a real mixed bag of activities. First of all is good old-fashioned improved cash collections and reduced debtor days, particularly in Power Systems. It has been a sterling piece of work in the first half of the year. Timing and phasing of customer deposits. The timing of concession payments when they follow the original engine sale. There will be times where contract payments get restructured with our customers as well. That can cause an inflow of cash. Then a key component there is also the Aviall deal that we announced earlier this year, where we are outsourcing logistics and supply of spare parts for the AE engines to Aviall. That had about GBP 55 million or so, was part of the GBP 180 million. So it is a real mixed bag of items. I think I would make the point that I would not regard all of this as permanent, and indeed, most of it is sort of timing related, hence our keeping our outlook for cash unchanged year on year. Then CapEx, a slight increase in CapEx. This is kind of a non-cash item, but effectively, we are capitalizing certain engines that go into our spare engines for our customers, and that is a key driver in what we are doing there. So that is the CapEx explanation. Then Warren, TotalCare transitions? On TotalCare, there isn't really a material difference between TotalCare rates second and third time around versus first time around. If there is a rule, then actually we typically achieve a higher rate for a second contract than we do for an initial contract. When you get into TotalCare Flex and TotalCare Select, these are the sort of towards the end of life variants, then you can think about that as if TotalCare is a kind of insurance policy, then these variants are where you choose particular things, like on an insurance policy you might choose to pay a higher level of excess and a lower premium. There's that type of impact. So you will find a lower premium effectively because customers are choosing pieces out of the menu. However, none of that really affects the rule of thumb that we talk about, which is a large engine is going to generate $1 million or so of flying hour revenue per annum. That's a combination of the flying hours and the rate, and it's a rule of thumb based on the size of fleet of where we are at the moment. Hopefully that's enough color. That's helpful. Thank you. We've got some online ones that we need to cover as well. Yes, conscious of time, so I just wanted to make sure that the online questions had a chance to be asked. Really the two questions that have come in focus really on cashflow outlook for this year based on the increased CapEx outlook, working capital, and also the increased level of shop visits. Do we expect to be changing our free cashflow guidance for this year and also next year? If we are not changing, then what are the moving parts to leave it all pretty much staying the same? Same answer really. Yeah, unchanged. Coming in, you sort of looking at Rolls, one of the things that struck me is a GBP 15 billion revenue business and a GBP 100 million cashflow. That is very precise with that degree of magnitude, and I would hope we can get to the days where that sort of number becomes, variances around a much larger number then become less relative than material. This is a fine art. Having said that, I pointed to the fact there were one or two quite lumpy items in our working capital, which impacted the improvement half year on half year. I would not read too much into that. Outlook unchanged on a full year basis is where we are when we run all our maths together, and so that is the short answer to the question. We have probably got time for one more question from the audience before we go. Can I take it? Because cannot be seen here at the back. Thank you. Hi. Yeah. David Perry at JPMorgan. A few questions, please. One on FX and then just a series of mini questions on the aftermarket. Just on the slide 28 that you've given us, which is new. It's somewhat different to how in the past Rolls has explained its FX cover. This looks like a very conventional FX strategy, almost identical to, say, Airbus would use. It implies that your hedging is with forwards and that you have pretty much locked in rates for 2017, 2018, 2019, whereas previously we were always told Rolls used swaps with multiple fixing dates and it had a lot of flexibility to sort of smooth the rates over time. Can you just talk to that? Is this as rigid as it looks? Yeah, I will talk to that. I probably should have highlighted that the hedge, the dark blue, is a mixture of fixed and flexible. What I'm showing is what I think is how I think this is likely to evolve. It may change, but by degrees. You're correct in your assumption was the right one. So there is potential for the actual rates in 2018, 2019, even 2020 to be better than you're showing here or not? I would doubt it. I don't think, when you think about it, if we were to do that, we'd effectively be pushing hedges out into outer years, and then the consequence of that would be then you'd start to move up in outer years because you've moved those hedges further forward, which I don't think would be a good thing to do. So I would doubt that. Look, it remains a possibility, but I would doubt it. I think this is a good shape, actually. When I say a good shape, I think this is a reliable shape for the next few years. Okay. Then just a series of questions on the aftermarket. They are all related and quite quick. The 15% growth that you reported was very strong. Can I just check, is that, in your view, a genuinely organic number, or are there some one-off items? Perhaps another way of asking is, if IFRS 15 existed today, would it have been 15%? Well, embedded in that aftermarket, some of it is the size of the fleet and more hours, and some of it is long-term cost reduction that we anticipate because of changes that we make to how we are servicing the engines and intend to service those engines going forward. So, have we got the number on the slide of how much is the long-term adjustment? Yeah. There is some detail later on in the pack, and I will not get into this detail specifically, but if you look at 2015, there was a GBP 208 million revenue adjustment for Civil Aerospace aftermarket, and 2016 it is GBP 474 million. So you can see there is a GBP 266 million difference. So that explains a fair chunk of it. But it is well explained in the detail in the appendixes that have been handed out. Does that imply it would not be 15% under IFRS 15? It would be a lower number, clearly, because you've got that GBP 266 million adjustment going forward. Any chance of guidance for the full year on the aftermarket growth, perhaps on both bases? No, we're not giving specific guidance line by line at this stage. We're just giving group guidance as we have done previously and modestly ahead of last year and cash flow in line with last year. All right. Thank you. Yeah. With that, I think we are out of time, so we are going to have to finish the Q&A. But thank you all very much for coming along and thank you for your questions.