Earnings Transcript for RR.L - Q4 Fiscal Year 2019

Peter Lapthorn: Good morning, everyone. And thank you for joining us here at the London Stock Exchange and for those of you joining online. My name is Peter Lapthorn, I work in the Investor Relations team here at Rolls Royce. And it’s my pleasure to welcome you to our 2019 results. The agenda for today’s presentation is that our CEO, Warren East will give an overview of the year’s performance and some of the strategic highlights. And then, our CFO, Stephen Daintith will take you through some of the more detailed financials. Warren will then wrap up and give his view for the year ahead, as well as a longer term outlook. Our presentation is expected to take around 50 minutes. And then, we’ll have time for Q&A, both from the audience and here online -- and online. You can do online questions through the webcast services. Finally, can I ask you to switch off mobile phones? We are not expecting any drills today. So, if you do hear an alarm, please exit in an orderly manner. I think, that’s all of the Safe Harbor and the boring stuff out of the way. So, with that, I will hand over to Warren East.

Warren East: Thank you, Peter. Good morning, everybody. Thank you for coming along. I hope you enjoyed the video rolling while you were having coffee and pastries out there. A little bit of subliminal messaging, and the picture of the electric plane on the front cover of the little handouts we’ve got there. We’re just one quarter away from flying that now. So, some exciting highlights come in the year ahead. But before we get there, I’m going to talk about 2019, to start with. So here’s a summary. And we’re very pleased that we ended up with very strong progress across the group. We ended up with a strong finish to the year. It was a tough first half in 2019. For we feel are very encouraging behavior changes around the group. We could really see the effects of the transformation that has been ongoing within the company and some of the behaviors which were necessary to drive that performance into the end of the year. So very pleasing to have an underlying operating profit strongly up. And that is really what’s underpinning the quality of that cash flow number that’s delivered as well. We have a board held payments to shareholders. There are some environmental risks out there, which I’ll be talking about in a little while. But in summary, a strong set of results because 2019 was a year of delivery. In 2019, we delivered strong trading performance. We delivered significant progress on the Trent-1000. Trent-1000 is dominated a lot of conversation about Rolls Royce for the last 18 months. But actually, underneath that and I’ll show you a slide in a few moments. We’ve had some excellent progress on that. Restructuring has been going on for a little while. But again, we continued with the progress on that. We continue with delivering on portfolio simplification. And we’ve delivered on our forward-looking strategy to capitalize on the upcoming energy transition and the journey to low carbon for the world at large. I’m very pleased with the momentum that we established, particularly in the second half of the year, particularly in Q4, particularly around the behaviors of our people. And that momentum has carried forward into enter 2020 and that underpins our confidence in 2020. Stepping back and looking at the market environment, I’m just going to around the three key areas of our business. So in civil aerospace, which is half our business. We continue to build our install base is now over 5,000 large wide-body engines. Passenger air traffic demand has settled back to a steady state rate. We have had a few years of some quite superior growth, but it is, in 2019, more of a steady state long-term trend. Build rates from airframers were adjusted during 2019, and as a consequence, our forward-looking projections are build rates for large wide-body engines has changed. In some ways, I think this build rate adjustment from the airframers has alleviated from what the concerns, which were growing in the industry about oversupply. And so that’s actually quite a positive thing from a market environment point-of-view. And of course, it’s led by was effectively being lower than anticipated retirements over recent years of old aircraft. And I’ve got a little picture later showing pictures about retirements and so on. In our Power Systems business and the sector there. We have had a cyclical downturn in the market served by our power systems business, particularly following a pull forward a year or so ago from some of the traditional markets. However, from our point-of-view, we’ve seen encouraging growth opportunities in new applications and new geographic regions. Defense, in our Defense business after several years of pause, we’re now seeing new programs coming through from the key defense customers, particularly the US Department of Defense and here in Europe with the UK Ministry Defense as well. And so the new programs are getting closer in the defense environment. Down the bottom of the slide here, we’re on our journey towards zero net carbon. And across all of our markets, our customers, we found in 2019, getting much, much more receptive to our thoughts on this. And we’re pleased to have I think, established in 2019, a position of though leadership. Before I go into detail of the business, I’ll just build on that last point. Though leadership in terms of leading a trend within our industry, towards zero carbon, taking the responsibility that we need to take for this. And that’s in products that face up to the market. It’s in the underlying technologies which feed those products, where we’ve seen a great acceleration in our capabilities around electrification, for instance. We’ve seen progress on nuclear reactors with small modular nuclear reactors, great source of zero carbon, electrical power. And we’ve seen a lot more industry engagement in the reality that the world needs to solve the synthetic, sustainable fuel challenge ahead. A little bit of picture of our site in Friedrichshafen, where we have installed the microgrid. We’re starting to sell microgrid, but not it is still our own microgrid and this solar powered microgrid is generating about 30% of the energy requirements for our plant in Friedrichshafen. Enough of the future for the time being. I’ll now have a quick update on what’s been going on in the business. So, in our Civil Aerospace business, we’ve seen a year of sustaining improvement in underlying operating profit. If you look that’s been happening over the last several years, in 2019 with no exception, a significant increase in underlying operating profit in our civil business driven by the usual drivers that we’ve been tracking for the last several years. Customer confidence is pretty good, as well. So from a forward looking point of view from orders coming in through the door, approximately nearly they’re using two-thirds of widebody new orders in 2019 coming to Rolls-Royce. From an operational point of view, our operations, getting into much better shape. We’re improving performance there, improving stability, improving cycle times, generally improving performance. It’s not just about our widebody engines in Civil Aerospace, we do have some exciting programs in business aviation as well. And in 2018, we launched the Pearl family of engines. The first Pearl family engine entered into service in 2019. And the second Pearl family engine was launched in 2019. And that’s going to power the new Gulfstream aircraft. In power systems, I mentioned, from a market point of view, there’s a bit of a downturn in the sector served by our Power Systems business. And so we were encouraged to be able to grow our business into that environment, grow our business at the top line and grow the profitability of our business. And how do we do that? Well, we did that through targeting new applications, the newer applications, particularly strong in mission-critical power, backup power, and also by pushing hard on developing our business in what’s new geographic regions for us and particularly in China. And it was great on some of the new technologies as well as the progress on things on microgrids and hybrids. And that hybrid, I’ll probably come back to a bit later in the presentation. But, in the space of 2.5 years, we’ve gone from concept to proposal to MOU to order to, in the next several months delivery of Hybrid Rail PowerPacks. So very solid progress from our Power Systems business. Defense, defense standouts for 2019 in defense was about orders, another year of record, book-to-bill taking all the book to a record level as well. And it was another good year for delivery of cash. In the background, I mentioned, we’re getting closer to those new programs. So actually, our R&D is going up a bit, so you will see the margins coming off a bit over the next couple of years in defense, but we’re capping off a period of four to five years of building the order book, and over the last five years, book-to-bill has been above one. And so our future in defense, particularly driven by some of the service contracts, is in looking at very good shape. Now, I know that everybody wants to hear a bit more about Civil than they do about Defense and Power Systems, so we’re going to have a couple of deep dives on Civil. I can’t stand here and not talk about Trent 1000. Obviously, we did a little bit of an update in November. And in the results announcement this morning, you will see no change from what we announced in December. No change in terms of projected return of AOGs to single digits, no change in exceptional costs and so on. During the year, we made some pretty good progress, good progress in actively managing the situation continuing to extend our MRO capability and our MRO capacity. And we are confident that that £578 million are of cash costs in 2019 is the peak year of cash cost for Trent-1000. So we are beyond that peak. As we look forward in 2022 to single digit position around the midyear, then we’ll be underpinning that with more spare engines, as we announced in November. And the histogram here on the bottom of the chart is about just that reduction in aircraft on ground. You’ll see in 2019, you had to take a step back. And we took a step back proactively by -- because we needed to pull forward replacement of intermediate pressure turbine blades on one of the variants of the engine. And having originally generated indigestion in our MRO network, and having been eating off some of the indigestion we then generated a load more and so push the AOGs is down again. And effectively pushed out for period when we get back to single digits. But there has been no further deterioration on that, since we announced that in Q4last year. So we’re currently sitting around the mid-30s in terms of disruption. This slide is an update of the slides that we showed in November, which summarizes the three engine marks for Trent-1000s and the three key issues. And we are now in a position of 8 out of 9 of the design changes are done. We got one there, the Pack B IP compressor waiting to be certified. There’s no change to that design, we’re totally confident that that will get certified. It’s simply a question of priorities in terms of the fact that that’s the last one. Other than the final box over there, where as we said in November, the design work for the high pressure turbine blade on the 10 that’s still underway. As I stand here this morning, I’m a lot more confident than I was last November about that design work is progressing well. And in the coming weeks, we will be running an engine with that new design, will be going to type test and hopefully then on to certification. The charts been updated though with these little pies to show that it isn’t just about doing the designs. It’s about rolling those designs into the fleet. That’s what minimizes the disruption and ensures a healthy fleet. And the pies is on the left, in each box a snapshot of where we were 12-months ago. And the pies on the right in each box represents where we are today in terms of rolling those fixes into the fleet. So, I hope you get a sense of momentum here of how the fleet is getting healthier as we go. So moving on, this is all about Trent-1000. Trent XWB has now reached five years in service. And the leading engines surpassing our expectations in terms of durability, in terms of performance, it’s our most reliable engine. And its efficiency holds up very well in service. So the airlines love it. And actually the customers love flying on the airplane as well350s, great airplane. Points on the XWB. It’s today just three to 10% of our installed fleet, but it’s approximately half of our wide-body deliveries. And it’s on a journey to be around a third of our fleet in the mid-term. So this is a very important engine for us. So it’s very important that it has an outstanding record of performance. There are other programs as well, I’ve already talked about the Trent 1000. Trent 700 is still our largest volume, it’s a third of our fleet nearly. It’s a major workhorse of the Trent fleet. We’ve seen great progress over the years in extending the time on wings to the Trent 700. And so it’s a little bit of a benchmark and barometer for the newer engines that are coming along behind. And it’s an auspicious day today, because it’s 25 years to the day that the first Trent engine went into service, it was Trent 700, 25 years ago on the 28th of February. And it’s still going strong after 25 years. At the newer end of the spectrum Trent 7000, and we put this up because the Trent 700 powers the A330 different 7000 powers the A30 -- A330neo and we’re putting all the lessons we’ve learned from the Trent 1000 into that engine. It based on the same architecture as the Trent 1000 TEN. But putting all the lessons in then, we are confident in the performance of that engine. Looking a little bit further forward. At our installed base, because it’s the size of our installed base that underpins the medium term business confidence. And the size of our install base is about new airplanes going in, it’s about older airplanes retiring. And this chart shows, but actually, if you look at the older airplanes are they going to retire? I either ones on the left hand side of the slide at the bottom, it’s dominated by our competitors. And on the right hand side of the slide, the present day, you see our market share. And you recall our market share in terms of orders approximately two-thirds of the orders in the last 12 months, for instance. So we think we are well positioned through this retirement cycle that is going to be coming up over the next several years, well positioned to continue to grow our market share, and that underpins the installed base. Enough of deep dive on civil. By the way, the clock in the bottom, in the back of the room guys has stopped working at 9

Stephen Daintith: Thank you, Warren. Good morning, everybody. So I’m going to take you through the full year results. Give an update on the key drivers that we first highlighted back in the middle of 2018 our Capital Markets Day. Then we’ll go through a quick review of each business. And then we’ll go into guidance for 2020. So, just running through these. So at a glance. We gave ourselves a lot to do in the second half. But with the, we’re pleased to be reporting today a strong underlying operating profit growth of 25%. And what’s most encouraging about this business is the core driver of the growth in our free cash flow. And we’ll see that again in 2020. Moving on to free cash flow, £911 million. So driven by that growth in profits, and especially strong performance in the civil aerospace aftermarket, we’re going to see shortly the civil aftermarket cash margin and how that’s developed over the last couple years. We also receive very late in the year, some insurance receipts in respect of insurance that we had in respect of grounding of our wide-body engine fleet. And we could claim against that on the Trent 1000. We have been negotiating these for well over 12 months, this particular insurance arrangement. And we reached the conclusion of those negotiations towards the end of the year. And hence, the receipts, which arrived in right at the very end of the year as well. So halfway through the year, limited disability around that and not much certainty. Civil aerospace. We saw a strong improvement in operating profit in civil aerospace as well. It’s the first time that we seen profit in civil under IFRS 15. It’s reminded that came in at the start of 2018. We no longer capitalized the losses on the early sales and so very encouraged to move to operating profits in civil aerospace. And finally, gross debt reduction. We’ve reduced our gross debt by £1.1 billion, reporting today and net cash position is improved to £1.4 billion. An important priority for us will come into the details a little later to strengthen our balance sheet and return to a single A rating. Let’s go to revenue slide. Revenue, business by business. Our delivery in 2019 was in line or better than guidance for every business. I won’t get through the exact numbers, but you can see there in the blue, just to the right of center, what we guided a year ago. And then the middle there, the growth for each business. Very solid growth in civil aerospace, 10% growth, driven by both OE and aftermarket. Strong growth in power systems and we’ll go into the detail in a challenging market. Defense growth, in line with guidance and good growth in ITP which will go through shortly when I go through the business reviews but largely driven by increasing civil aerospace volumes. Moving on to profit. And that’s the profit profile for each business in 2019. And again, margin guidance that we gave a year ago met or exceeded in every business. Relatively modest margin in civil aerospace moving into profitability. Power systems back into double digit territory. Defense, increased investment in R&D as Warren mentioned, causing that drag. And ITP, good improvements in margin in ITP, largely around our simplifying the contractual relationship between ITP and civil aerospace with ITP very much now as a full-fledged member of the group, very much a traditional parts supplier to Rolls Royce. We simplified those contracts there. So good performance in operating profit and a strong performance in particular into the year-end especially in power systems that delivered on much of the projects that have been built up during the course of 2019. Moving on to free cash flow. So we had a strong end to 2019 following a challenging first half. And just three or four items here just to call out that helped us deliver this good free cash flow. Inventory reduction, will go through the detail very shortly, but a very significant inventory reduction in the final quarter. Disciplined spend control as well. You’ll see that today we’re reporting being C&A cost down 4% year-on-year. And that was another good achievement largely around discipline around discretionary spend, capital expenditure was also down year-on-year and good discipline there as well, but driven largely by some large projects coming to that conclusion during the course of the year. And I’ll go through that detail. And as I just mentioned, the Trent- 1000 was secured as insurance receipts. What’s not included in this list is a strong civil aftermarket performance as well in the second half. And we’ll see that when we get into the details of the long-term contract creditor and how that move year-over-year. We also saw in our cash flow and improved quality as well, there’s materially lower contribution from net receivables, payables still last contribution, but materially lower than last year. I’ll talk about that in a second. Cash return on invested capital was stable the 12% and that’s despite our R&D investment being at the highest levels of cash spend £1.1 billion per annum. And the chart down the bottom shows material free capital improvements from the low base for 2016, when we’re generating just £100 million of free cash flow. So bear that £800 million improvements in mind, which I’m going to come to as we go through the cash drivers of performance for the first highlighted in the middle of 2018. So when we look at those drivers of cash flow, and we break them down, looking at our summary funds flow statement, looking at the balance sheet movements, trying that in with operating profit, here is the composition of our free cash flow improvements, a £305 million pounds and what’s most encouraging is this £507 million of that was driven by operational cash flow improvements, increase operating profits, the growth in this little deferred revenue balance that long-term service agreement creditor on the balance sheet represents in deferred revenue, cash receipts that hadn’t been traded through the P&L account. And then lower a CapEx of certain large projects attempts in conclusion. R&D cash spend is stable. So it’s not through any reduction in R&D that these numbers have been delivered. A low working capital contribution of £50 million is a headwind and the peak year for the Trent 1000 costs of £152 million is also a headwind and that includes the insurance proceeds as well. So you put all that together, you get your £305 million and it’s color coded there, which matches this next table, which goes through the summary funds flow statement itself, to show you how we’ve allocated the individual lines to deliver those numbers. That’s how the math all works. Working capital improvements. Now just on this one as well because it does attract a lot of attention and often is regarded as always bad, which is got in the case. First of all, in the second half, we sort of £319 million reduction inventory. That was the task that we had ahead of us at the half year. After that big building inventory in the first half of the year. Civil aerospace and power systems have particularly strong fourth quarter, there’s been a tight focus on supply chain management that will continue through 2020. But buffer inventory that were built upon the series 1600 in passes comes those that have production moves to India that will start to unwind. The sales and operations planning process in civil aerospace. I think, I’ve mentioned previously a lot of room for improvement there was starting to see this size of improvement is taking place more regularly for the smaller number of people diversity working a lot better than all the various committees that often cause complications there, but that’s a lot more efficient as well. And that’s helping drive the industry improvement. We expect to see the vast majority of working capital contribution in 2020. From further inventory reductions, we have just over £4 billion of inventory on our balance sheet, about half of that is in finished goods. We don’t support to flow through quite quickly. It was a £574 million increase in net receivables and payables. Our defense business had a very good year for cash flow generation, driven by that strong order book in taken just over £5 billion and £200 million contribution towards that 574. And then another example here of what I regard as good working capital management, a more disciplined collection of overdue debts, reducing those from 20% to 15% of trade debtors. And driving that £150 million contribution. So don’t be surprised that there’s more of this in future years. There should be. This is good, healthy discipline. And these are what I would regard as durable working capital improvements. So, putting this together, we have a significantly improved cash position at the year-end. We have a year-end net cash of £1.4 billion. That’s led by that group free cash flow number of £873 million. Of course, we received the Commercial Marine and Power Development proceeds in aggregate of £453 million. There was a £1.1 billion reduction in gross debt as we repaid the £500 million bond and then the EIB loan as well. We have one maturity in 2020 of $500 million bonds in the second half of the year, and we’ll consider whether to refinance or retire that bond in due course. That gives us, together with the cash that we have in our revolving facility of £2.5 billion, that gave us almost £7 billion of liquidity. We do though have a credit rating challenge right now given where we are, and we have a strong ambition to return to a single A rating. We highlighted this as a strategic priority for us in 2018 and that remains and we are very much determined and focused to get back to that rating. We’ll be around operational delivery and delivering the Trent 1000 fixes and demonstrating that we’ve retired that risk. So the progress on the key levers. These are the three key levers of cash flow growth that we first highlighted in 2018 at our Capital Markets Day, and they remain as true today as they were then, and they will be for the next five years as well. So, what are they? First of all, reducing the loss on our OE widebody deliveries, there was a further improvement in the year of around £200,000 per engine in the reduction of the loss. The XWB 84 leads the average loss reduction. There’s been a £400,000 improvement per engine since 2017, which is the base year that we’re comparing against from when we first unveiled these drivers in 2018. So let’s just use 500 engines, £400,000 improvement per engine. That’s around the £200 million improvements from this particular initiative. The wide-body aftermarket cash margin delivered a further £300 million improvements moving from £1.6 billion to £1.9 billion aftermarket cash margin. That’s a £500 million increase over the 2017 base. It’s worth reminding ourselves as well that in 2018, or 2022 goal for the market cash margin was £2 billion and we’re already at £1.9 billion. This should grow further as aftermarket flying hours grow, but also as we extend time on wing and the gaps between short visits as well, the core priority for us in civil aerospace. And then finally, bending the fixed cost curve on the right hand side there. And this is the aggregates of commercial and admin costs, R&D and CapEx put together. Right now, we are 280 basis points lower as sales reduction during the course of the year, which in aggregate brings us to around 400 basis points lower since the 2017 base. So put all that together. That’s about £100 million contribution there. So it’s not -- the math isn’t quite exactly the same but the point is if you add up to £200 million to £500 million and £100 million from those three key drivers. You get to an £800 million improvement over the last two years, which happens to conveniently be. The free cash flow improvement as well. Although there is a mixing things a little bit here but it gives you an idea of the direction and the contribution from these three key drivers. Here is a bit more detail on the wide body engine delivers 510 in 2019 a record year for deliveries. That’s how the profile of losses has improved over the last three years in the top right there. Worth pointing out as well on the deliveries, big pickup in volumes of the Trent 7000 in 2019 versus 2018. So very small, just 2% of the pie down there Trent 7000. And on the right hand side 21% Trent 7000 deliveries. Just calling out on the left hand side, here the Trent XWB-84. We saw 22% reduction in early losses. And by the end of next year, we expect the XWB-84 to be a breakeven engine. The aftermarket cash margin has now moved from £1.6 billion to £1.9 billion. This is driven by on the above the horizontal line there is the cash coming in, which is wide body15.3 million engine flying hours and then from the 5000 installed our engine base. And then down the bottom there the cost that will go out through in the course of the year in respect to the major refurbishment, that’s scheduled every five years also short visits. The check and repair visits are the sort of more -- the cases that sort of ad hoc depending on specific instances. And this one for example, is where most of the Trent 1000 check and repair visits in some respects to issues that Warren ran through, he’s going through that line in there. And then there’s various other cost as well. So delivering ahead of our Capital Markets Day ambition £1.9 billion, and within touching distance with the 2022 goal. On the right hand side there, the key drivers of growth. 7% engine flying our growth in the year, strong time and material growth as well. We’ll see this shortly in the civil aerospace, profit and loss account 14% growth. Yield improvements as well. And growth and pay at shop visit events. Now this is important. There are many of our customers or customers who prefers to be paid at the shop visit rather than through the flying hour process. That has a higher yield per flying hour than have they just paid as they -- as the hours were generated. But it’s an important dynamic. This is an important slide. And it’s a reminder of the trajectory that Rolls Royce is on to become increasingly a services business. It’s reminder of our installed base. When you add up the civil aerospace installed base of 14,000 engines, the power systems installed base of 146,000 and then 16,000 the defense the 176,000 engines driving this service revenue. And you can see the makeup there, long-term service agreements £3.8 billion and other services 4.1, growing to 13% and 8% respectively. So now representing 52% of our revenues and a growing source of revenues with recurring visible higher margin business. And so a lot more certainty around these revenues from this large installed base. Key initiatives for us to drive higher returns, extending the time on wing on civil and difference aerospace a point that I mentioned earlier, which will only help improve the aftermarket cash margin. Optimizing repair technologies and increasing use of digital capabilities, better predictability, about the health of the engines when they’re going to be required to be serviced and how quickly to turn them around. And in the fixed cost curve. C&A cost were down 4% year-over-year, capital expenditure was down £168 million year-over-year between the guidance that we gave for as long as projects came to completion. C&A cost but mentioned you can see the charts there. Just to remind you that R&D is at its highest levels, just over £1.1 billion of cash spent. And then you can see the progress that we’ve made as percentage of sales for each of those lines of the Costco. Trent 1000 in-service cash costs. 2019 is the peak year of those cash costs, growth cash cost £578 million before the benefits £473 million of insurance receipts. And you can see the profile that we’re expecting and guiding to over the next 3 or 4 years. So quick run through our businesses. Operating profit of £44 million and still aerospace driven by wide-body early, sorry, driven by early revenue growth of 4% services, growth of 14% an equal measure across LTSA and time and material still a very healthy source of high margin business for us delivering that 10% to overall driving gross profit improvements and subsequently, the operating profit that we’re reporting today. Our Power Systems business. Good revenue growth and what are challenging market you’ll see some of the others in this sector. I think, proposing less much lower revenue growth and power systems of experience. Good growth in power systems in power generation and good opportunity in China, where we see good progression there as well. Our Defense business pretty much as we guided underlying revenue broadly stable, just 1% growth, a little bit of the margin decline given by increased investments in research and development, with some good opportunities for that business and its pipeline. And we were hopeful for even more big order wins in 2020 for our Defense, but already knockout year for our Defense business. And I should call out here the very high cash conversion in our Defense business, driven by those big order wins, and a big contributor to the cash flow performance to the group. So an outstanding year for our Defense business. And then finally, ITP. ITP is a business now fully-fledged member of the group. Reporting very good revenue growth of 21%, slightly driven by aerospace volumes. As a reminder, ITP is a risk and revenue sharing partner on certain Rolls-Royce engines, but also on Pratt & Whitney and GE engines as well. So it’s a partner to various players in the aerospace sector. The operating profit growth was partly driven by a £25 million one off benefits in respects of the adjustments of those trading terms between civil aerospace and ITP to better simplify arrangements between the 2 companies. So moving on to the guidance for 2020. Underlying revenue, we’re looking at civil aerospace revenue being stable to low-single-digit growth, very much driven by that revision to early volumes for 50 to 500 or so engines in 2020. Power systems, low-single-digit growth anticipated there. Defense, stable to low single-digit growth. ITP and ITP stable £936 million. And on operating profit, civil, growing by 50 to 100 basis points improvement in margin in civil aerospace. But as a reminder, we’re diving today that our R&D, capitalized R&D will be between £100 million to £150 million lower in 2020, that in ‘19, and that will mostly be in civil aerospace. So we’ll might think that that’s a slightly low-margin improvement in civil, but we should bear that into mind. Power systems, further margin improvement there of another 100 basis points, defense business stable, and then ITP, a small margin improvement there as well. Operating profit growth putting all this together of at least 15% and that gets you to around £1 billion of operating profits in 2020. Core free cash flow of at least £1 billion and I should call out that this guidance excludes any material impacts from COVID-19 in 2020. How does that bridge to cash flow profit? And, so how that bridge from profit to cash? So here are the big moving parts. £1 billion of operating profit, the core driver of the free cash flow growth. The LTSA deferred revenue, we think, will be broadly stable year-on-year at around £750 million. Capital spend above depreciation and amortization, again, broadly stable at £600 million within capital contribution of £600 million in 2020, that reinforces my earlier points that that will be led by inventory unwind, and I think around sort of three quarters or so of that £600 million being an inventory unwind. Movements in provisions around £500 million has largely the Trent 1000 that you would expect. And then other, tax, interest pension broadly stable at around £250 million. And that’s how we get to £1 billion of free cash flow at least £1 billion of free cash flow in 2020. With that, I should add one more thing. There’s more detailed guidance, by the way, in the appendix of the slides that you’ve got here around various other drivers. With that, I’ll hand over to Warren. Thank you.

Warren East : Thanks, Stephen. Okay. Right. I’m going to look forward a little bit more. Earlier I talked about momentum around change behavior and change levels of performance. But continuing momentum, coming in from the second half of 2019 is what gives us the confidence in 2020. As Stephen said, little footnote here on the left hand side of the slide, and the guidance that he just stepped through. And in fact, all the guidance that we have in our earnings release is subject to the fact that it excludes material impact from COVID-19, in 2020. But that said, we would expect our operating profit growth to be around 15%, the number that Stephen mentioned and at least £1 billion free cash flow in 2020. Importantly, we look through COVID, because we see the fundamental drivers of the business, and that’s what driving our one time, our confidence in £1 free cash flow per share in the midterm. Now, I’m not going to ignore the COVID situation at all. We’re taking it very seriously. And what’s important is what we’re doing to manage the situation as far as our business is concerned. So our priority is, of course, our own people. And we have daily monitoring of the situation in all of our locations. And that’s coordinated and comes into our Chief Medical Officer who reviews that situation every day. We’re also doing daily monitoring of the business risks. And the business risks break down into what’s happening potentially to revenue. And importantly, although we’re not a business that is subject to lots of just-in-time deliveries and that sort of thing, it’s important that we keep a daily track on our supply chain. And that is what we’re doing at the moment through our supply chain leadership. This is clearly one of those known unknown situations. The things we don’t know, how long the disruption is going to go on for and to what extent the disruption is going to spread around the world? So here on the bottom of the slide, we’ve got a few data points, so that you can scope some of the potential impact to our business. I say potential impact, because of course, the third unknown is the extent to which we’re able to mitigate the damage, should there be material damage? Here are some parameters. Chinese airline customers, it’s about 10% of our backlog today. Flights touching China is about 20% of our engine flying hours. How much of that should we take into account? I can’t tell you, but what I can tell you is that year-to-date, flights touching China are down by approximately between 15%ish in January and 50% in February. So I can also tell you from our daily monitoring of the supply chain and our daily interaction with customers through our power systems business that operations in China are getting back to normal. Our key suppliers, we have a handful of key suppliers in China, the suppliers are all back at work. And we have had actually no interruptions in our civil aerospace supply chain as a result of the shutdown there. So that’s kind of the scope of the situation, the monitoring of the situation that we’re doing. And in terms of contingencies and how we can mitigate against that? Well, we’re the same as any other business. So we look at the financial impacts and what can we do about deferring expenditure? What can we do about deferring investment? What can we do about deferring or freezing hiring, and what can we do about the actual staff costs that we take on a day to day basis? And like any other business, we’re pulling on all of those levers. So that’s the situation for as far as COVID is concerned for our business. COVID is a reality. And we have to manage through that. And I think manage through that, because though, is the reality. I mentioned earlier, I think we’re in better shape than we ever have been to deal without reality. We must look beyond and looking beyond takes us to our priorities to 2020. Customer priorities are very clear, about meeting our commitments and about getting the Trent 1000 AOGs down. From an operations point of view, we need to continue the improvements that we’ve made over the last 18 months or so, particularly driving towards achieving the £400 million of run rate savings. Having successfully changed the trajectory on inventory, we need to continue driving that forward. From a financial point-of-view, obviously, the emphasis is on the quality of cash and strength of operating profit. And from my people and culture point-of-view, we need to build on the fantastic changes that we’ve seen, embedding those behavioral changes, building on the encouraging momentum that we have seen, so that in the longer term we can be a leader. We can be a leader in terms of behaviors. We can be a leader in terms of business performance, and we can play a leading role that we want to play in the energy transition over the coming decades in all of the sectors in which we operate, because we see that as a fantastic business opportunity. And with that, I’ll stop. And we’ll hand over to Q&A. So, who wants to go first?

Q - Rob Stallard: Rob Stallard from Vertical Research. Couple of questions if I may. First one, easy one for Stephen. 2020 guidance what sort of embedded commercial aerospace aftermarket grocery have you built into your forecasts? And if you could break it down by long-term service and the time material, I’d be great. And then, perhaps one for one and then longer term question. You have cut your forecast of wind 40 engine delivery going forward to coming down from roughly 500 last year to potentially 400 in the out years. And what sort of impact does that have to be in terms of your targets for reducing the loss per engine on only?

Stephen Daintith: So the civil drivers. Well, we talked about 450 or so 450 to 500 engine deliveries, that’s a key driver. The average loss per wide-body engine, we’d have to get down to around £1 million per engine, so for the £2,000 improvement that’s the goal for us there. XWB clearly on the road to breakeven by the end of the year. So our original on that number will be sort of 0.2%, 0.3% I would expect that sort of, that’s what we’re looking for. And to find growth, you should be thinking high-single-digits, a 9% engine for now growth is a key driver for us. And then a number of short visits, we could just go to the thousand short visits in 2019. And I would suggest that using something around 1100, 1200 short visits is a good guide make refurbs roughly as it was in 2019 and for between 300, 350 or so, and then about 800 or so check and repair visits is the rough composition of the, so there is the key drivers of the civil profits and cash flow in 2020.

Rob Stallard : And coming into the wide-body deliveries. Yes, the wide-body deliveries that we would expect to make over the next several years is lower than perhaps the estimates we had a year or two ago. But what drives our business is actually the size of that installed base. And so we will still be at north of 6,000 wide-body engines in a few years because the size of the installed base is about as a retirement, from the rate of retirement as well as the rate of new airplanes going into the market. And, so that’s sort of key point. The other point to bring out of course, as you saw in Stephens presentation, our midterm ambition is underpinned by that aftermarket margin growth, the total aftermarket margin contribution, which we estimated at £2 billion in 2022. And as students just show, we’re at £1.9 billion in 2019. So we’re an awful long way through that, that process already. And in fact, we’re probably going to exceed our assumptions and if those assumptions which underpin midterm ambitions. And as for the volume and it impact on that trajectory of OE loss reduction, I don’t actually see a material impact by the difference in volume. This is not a hugely sort of high volume activity anyway in the costs of dominated by the cost of those components. And the cost of the components is dominated by the design of those components. We continue to spend engineering effort on modifying designs to take costs out, we take cost raise on an annual basis. And, those plans are proceeding according, just unaffected by volume. You saw in the numbers that Stephen talked about. It’s led by XWB. I said XWB s half of the total volume. We will shift our first breakeven XWB in the fourth quarter of this year, which takes us to the average that Stephen mentioned. And we are confident of achieving that.

Stephen Daintith: I can just, I didn’t answer your question about the LTSA split and the time and material split. I’d say time and material, I mean, great performance in 2019, probably sort of high single digits also in 2020. And the LTSA member of, volume of shop visits, clearly is a key driver there. But one thing to watch out for is that, and again, this is true in 2019, where we have Trent 1000 shop visits, check and repair visits. That are related to the exceptional cost activity. We trade those costs through the provision that, therefore, hit the LTC, the long-term credit balance. So the deferred revenue is not reduced. The LTC balance is not reduced by those shop visits. If you see my point, which is a slightly accounting point, but, and that partly explains the growth in the long-term credits for this year.

Celine Fornaro: Celine Fornaro from UBS. I was just wondering if you could explain the mechanics through the civil trading cash, which are a nice improvement this year to £400 million. And so how do we think about that for 2020, because potentially could be slightly worse depending on all the dynamics you’ve assumed? And then my second question would be from the 787 overall market share and in terms of the recent announcement from ANA to go with GE and thoughts there on your assumption on potential volume on the TEN?

Warren East: So 787, we look at it from a sort of fairly macro position and it isn’t just about share on 787, it’s about share of widebody orders. I think approximately two thirds of the wide body orders in 2019 is a reasonable result. We are taking orders on Trent 1000 as well. Obviously, we are disappointed with the decision for ANA, we’re disappointed but realistic. ANA already, 83 of their aircraft are powered -- of 787s powered by Rolls Royce. And to be 100% dependent on Rolls Royce when you have the choice is, is an unrealistic assumption when you get to a fleet that is growing and that sort of size. And so to have 15 aircraft a few options going to be GE is not something that particularly surprises us. But of course we’re disappointed. We retain a very close relationship with ANA. And I think if you talk with them, you’ll find that they’re very pleased with the way in which we’ve handled the situation to their fleet. The importance of their fleet notwithstanding COVID for the Japanese Olympics this year. And in fact, in the next several weeks, all of the Trent 1000 powered aircraft will be in the air rather than on the ground.

Stephen Daintith: I’m sorry, and on the improvements in this space trading cash flow. Well, again, going back to those drivers our cash flow grows generally across the group. Original equipment losses coming down and lower volumes at the same time as well, there is going to be a contribution there. The aftermarket margin will continue to grow maybe I think couple of hundred million or so say than maybe£100 million or so from the first one that I mentioned. I think I mentioned business jets as well. Business just had a very strong 2019 and as well placed the 2020. So we’re going to see some further improvements in the business jet contribution. Trent 1000 costs coming down as gross cost but of course, we don’t have the benefits of the insurance receipts. So that is a headwind there. And we are expecting further improvements in C&A costs generally across the group in 2020, building on the momentum that we developed in the second half of 2019. Most of the headcount reductions in -- that we’re announcing today the cumulative reduction is 2900. I think 2000 of those are civil airspace. And you’re going to start to see that full year benefit of that 2000 headcount reduction flowing through in civil aerospace. So putting all of those together gives us confidence around few further improvements in trading cash flow in civil aerospace.

Nick Cunningham: Nick Cunningham, Agency Partners. I apologize in advance because this is in great danger of being nerdy. Both of my questions in fact. Thank you for the disclosure on factoring, which is really interesting. And I just wanted to try and understand it better in terms of how it moves across the year, and what the rationale of using it. Does it reduce the cost of capital and so on. And then secondly, probably equally nerdy, but possibly more generally interesting. We look at the decarbonization if you like roadmap, how do you see that playing out and so very broad timescales and route to market? And what kind of mode of power source do you see developing? Thank you.

Stephen Daintith: Okay. So let me cover factoring. And we are, as you know, we’ve been very keen at the last few years to add transparency to our numbers. And our guidance is pretty detailed, and we kind of explained our numbers at length as well. And an extra piece of transparency that we’re bringing today is all details of around invoice discounting or factoring as it’s otherwise known. And explain where we are on this. It’s factoring is a commonplace activity in the aerospace sector. And we’ve been doing it for over a decade now. I would say 2016, there was the first time that we materially we’ve got into invoice discounting, and it was, that was largely around the time when the air framers change their own settlement terms. And we introduced it to normalize the cash flows with typical delivery of engine volumes. So, you’ve got a symmetry around those cash flows. The last 3 years is averaged at the year-end, but just over a £1 billion as it does in this year. The way to think about it is that if we haven’t been any invoice discounting this year. Our cash flows will be £95 million lower, which is the size of the delta between this year’s activity and last year’s activity. But the average over the last 3 years has been as I just, just, I have £1 and £37 million over the last 3 years. That’s the rationale for why we did looks well for us. And you’re right there is a cost of capital attached to it, but it’s pretty modest. And it’s only for a short period of time as well, because really, you’re just advancing November, December invoices in the current year rather than waiting until January and February. So it’s only in place for a very short time.

Warren East: And the other one around the decarbonization roadmap. I mean, obviously I’m not going to be too specific on dates here and basically principle is the smaller the aircraft, the more electric. And so we see an opportunity in the sort of helicopter size market disruption, new products for all electric to hybrid. And then in the regional space, we see an opportunity for hybrid coming sooner than we do into the narrow body space. So hybrid designs in the mid to late-20s moving through to larger airplanes in the early to mid-30s. And then in the largest place, we don’t see an alternative to kerosene engines of energy storage, but we do see opportunities for sustainable synthetic fuels. And the decarbonization is all about the source of the electricity that’s used in the synthesis process. So clearly, it’s not very sustainable, if the electricity comes from a carbon rich source. But as the world electrifies in a team away, then there will be opportunities for clean electricity to generate synthetic fuel. We do see a potential role for hydrogen. In that makes sense, we are spending effort with some of our partners on exploring the opportunities for hydrogen. But it is going to be about the challenge of storing that hydrogen and again, about putting sort of electricity to produce the hydrogen in the first place. Synthetic fuel is going to be limited by the ecosystem and the rate at which ecosystem can develop and the faster it develops, the faster the cost will come down. The more the cost is up there, the more delay there is in that and I suspect as with any new technology, there will be a bit of a history, a tipping point. And then we’ll get there. And it’s important that we do things like UltraFan and more efficient gas turbines because whether we’re burning hydrogen or whether we’re burning synthetic fuel, there’s still a cost associated with producing that. And so the less of it that we can use, the better. And so we see a very firm role for UltraFan and more efficient gas turbines, whether they used it directly for the UltraFan propulsion or whether the core out of UltraFan, the more efficient core is used in a hybrid application in a smaller aircraft. The project is absolutely vital.

Harry Breach: It’s Harry Breach here from MainFirst. Could I just ask you, Warren, you touched on coronavirus in the slide earlier on. Can you just say, have you had any deferrals of delivery dates for on wing or spare engines that have been cited to be coronavirus capacity related? Secondly, if I remember well, and I probably don’t, back in July the interims, if I remember you were saying that the breakeven date across the large engine deliveries, including spares, if I remember was to 2023. Firstly, have I got that number right? And the secondly, is there any change given your lower wide-body delivery expectations. And then just final one, maybe for Stephen. Stephen, just in 2019 for the civil aero LTSA revenue stream. Is it possible for you to give us an idea of the pay at shop visit versus the sort of paper flying our monthly settlement?

Warren East: Let me kick off, we haven’t seen any deferrals attributed to the impact of COVID yet. But of course, that is a phenomenon, which is in the realm of our sort of planning and our sort of scoping the size of the potential impact from COVID. But as of today, we haven’t seen any of that. The breakeven points and the volumes, I mean, first of all, the volumes don’t make any difference as the answer to the previous question. Do you, you’re jumping in this?

Stephen Daintith: Yes, I’ll go along this one. There is a £400,000 average loss per engine by 2022. So…

Warren East: We haven’t actually, I mean, I think I remember a little bit the conversation where there was a slight bit of miscommunication from the presentation. As Stephen says, the line that we’re speaking to is just under £0.5 million across the portfolio by 2022. And the other data point that we’re speaking with is breakeven on XWB 84k by the end of 2020. As I said, we will achieve that the second one, it’s close where we’re going to get there in 2020.

Harry Breach: Okay. And on the, sorry, the mix of shop visits as well. And I’m talking here around the sort of the major refurbs [indiscernible]. So, I think my question has been just -- I was trying to get at the for civil aero LTSA revenues what the mix there was between the pay at shop visit part and f I take at least 20% pay at shop visits perhaps sort of mid-high teens and then the rest would be flying hours. The important point of dynamic is 2019 was we had three times the number of pay at shop visits in the second half of the year than we had in the first half of the year, which somewhat explains the strong second half performance from cash generation on the long-term creditor that we’re seeing in the numbers today. That’s an important dynamic

Warren East: Thank you. One just pass it along, I think, is the best answer.

Unidentified Analyst: A couple of questions. First of all, presumably 97K is one of the big lose -- big loss makers of the moment. Is there any reason why it shouldn’t get to break even like the 84?

Stephen Daintith: You’re right. The 97K is two years younger than 84 in terms of entry into service. And so, that is one of the loss making contributors. It will follow the trajectory. I can’t commit today that that will actually get to zero. I mean, what you’ve seen because it depends how far out you take these things. And we put a lot of effort into extending the time on wing. It’s possible, that we don’t want that to get the breakeven. Because it’s possible, but we actually want to spend the money and have the components that improve the durability and the time on wing for service of a given engine. Because we have to make more profit over that than we make from trying to squeeze a technical profit on the OE. So, generally it’s a good idea to make a little loss as possible on the OE. But when you get into detail and you get to the smaller numbers, then it might actually be better not to do that economically for the program and for our overall profit.

Unidentified Analyst: Next question is group request is triple the number of spare engines on the Trent 1000. How come it was so low?

Stephen Daintith: Capacity of new capital simple as that. I mean, we -- it’s a new engine is obviously had issues. And the reason that we were able to improve the spare engines a little bit last year and we’re going to take another big step forward this year is because we now have the capacity to do that.

Unidentified Analyst: And then related to that. It must be a bit pretty tough job being the Trent 1000 salesman at the moment. Why on earth would any airline sign up to buy one right now. This is perhaps strange question. Is there enough in your backlog to see you through to H1. Is there any chance to see that in Trent 1000 all of this year.

Stephen Daintith: Yeah. There are Trent 1000 for us this year. And do hope to take orders this year. Why would anybody do it? Because the overall performance of the engine, the overall actual reliability of the engine. And the fact that actually, our competitor while having spare engines to protect against the disruption that we’ve seen, when you get into the detail here are issues with our competitors engine as well. Now I’m not going to stand on the platform and talk about you can talk to Boeing, you can talk airlines about their experiences of the engines on 787. But the answer is we wouldn’t be taking new orders we’re taking now. If our engine was so bad that it was a tough job being a salesman.

Unidentified Analyst : And the final one is bit of a philosophical one. A couple of years ago, you said that you typically had 4 in-service problems at any one-time. It would take a couple years to sort our each and one would solve them. So there’s probably 200 millionish of cost underlying. With the Trent 1000, you’ve had 3 problems and it costed you 1 billion. There will be undoubtedly in-service problems with your other engines at some stage. How can you give us any reassurance that it’s going to be a 100 million problem, not a 2.5 billion problem?

Warren East: Well, and the answer, of course, is that we can’t give any guarantees but we can give assurance based on, it’s a very data that generated that original function in the first place, it wasn’t based on thin air, it was based on our experience of 25 years of different engines. And no, that is the experience we’ve had. And some of it does come of our own making. And we’re trying to actually sort of extend the life of time on wings of the engine. And we’ve made great progress on the Trent 700 of 25 years in doing that, but it hasn’t all been linear. And sometimes we end up with a great idea to extend the life or reduce the cost. And then 2 years later in service, we find some issue and those are the sorts of issues that I’m talking about, but that crop up regularly. The Trent 1000 has been absolutely unprecedented in our history. That what everybody tells me. And we are grinding through it. Obviously, we’ve spent a lot of time and effort learning from those lessons. So now we can take steps to minimize the probability of that happening again. I think if you look at the later engines, XWB is our example as a later engine, then, as I said, we’re fleet leaders at 5 years now, achieving the number of cycles that they set out to achieve. And the airlines seeing excellent reliability during that process and excellent hanging on to the engine performance as well as it goes through time.

Peter Lapthorn : YEs. Quickly here with a couple from the webcast. We’ve had 2 on the LTSA creditor inflow from David Perry and Zafar Khan both asking it was an encouraging inflow in 2019, we’re guiding to a similar level in 2020. What might 2021 look like and one of the drivers around that being a bit higher than previously thought. And then second me a quick, second one from David on delivery guidance and whether we think 400 to 450 is a floor for wide body deliveries.

Warren East: Okay. I’ll do the first one. I’ll get the long-term creditor out of the way. So as a reminder, this is the balance on our balance sheet, the credit balances for deferred revenue from flying hour cash going in there and then revenue gets traded through with the short visit to take place. We had a very strong second half £500 million better than the first half, there’s 3 or 4 key drivers of it. So first of all engine flying hours receipts, good flying hours growth, but we also, as you know, we reconcile at the end of each quarter, the actual engine flying hours compared to the invoice engine flying hours and we do often see upside there. It’s not so straightforward. It’s just number of flying hours flown. And it’s the type of flying hours as well. There are different prices around different parts of the flight experience. So that is a pretty complicated reconciliation. We run that through. And we saw some good upside from that activity in the second half. Pay at shop visits. We have three times the volume of short visits in the second half as we had in the first half, I talked to you about the high yield that was a driver of growth as well, particularly strong business share performance in the second half, which gives us encouragement for 2020. And then finally, the ultimate point the £100 million revenue capture up that we had, that suppresses the drag, the pullout of revenue as well that we reported. And the final piece is the number is Trent 1000 check and repair visits in the second half that goes through the provision, again, which isn’t hitting the creditor, but you’re still getting cash generated from those flying hours flowing through in any event. So those are the four or five key drivers. 2020, you’ll be thinking about the same sort of drivers. I think it’s too early to spoke about 2021, what I would say though is that flying our growth high single-digit sort of approaching double-digit flying our growth is, it remains the fundamental principal driver of cash flow generation in 2021.

Unidentified Company Representative: And on the question of build rate and is our current estimate, the floor well, what I can say is that the current run rate supports the demand, the final demand. We have seen the demand fall to what appears to be more of a longer term run rate growth in demand. And I think if I go back 6, 12, 18 months even, there was a lot more noise about overcapacity in the industry and overcapacity being ahead of that underlying demand, and therefore, there’s been a little bit of an overhang. And I think the build race adjustments have been pretty well sort of expected. Obviously short-term, we don’t know, the impact in 2020 of the virus outbreak and the disruption that results from that? And what, to what extent that might spill over into some deferrals, I already answered that question. And so technically, there might be a little bit of deferral there. But actually, I can see more indicators to increase that demand for build rates. The underlying demand is going to carry on growing at along with economic growth. And I think with the changes in sort of public opinion, around flying, airlines are going to want to deploy cleaner, more efficient airplanes as and when they can afford to do so. So if anything, I can see a little bit of a sort of demand increase signal, but we’re not going to call that just yet. I think we got one, we’ve got the microphone over there. So we’ll come back to you. We’ve got about four minutes.

Unidentified Analyst: Yes, this is really, really is specific. Just standing. If I’ve paid you for a flying hour, is there any way I can get the money back from you?

Warren East: Not typically. I mean, it’s a very good point because I know what you’re getting at here with the question because there is some commentary that we should we should regard the credit balances debt. Will that, the cash is contractually ours and remains ours, even if the airline stopped flying the planes forever. The cash is still ours contractually. So that’s the way we should regard it.

Unidentified Analyst: But they’re still Credits are?

Stephen Daintith: No. It’s deferred revenue, it’s on the balance sheet, it’s deferred income. Yeah.

Benjamin Heelan: Yes. Hi, guys. This is Ben from Bank of America. Just one of the credit rating. You said you want to get back to A rating. What sort of metrics do you think we should be looking at in terms of that happen? And what you think you need to get A. Thank you.

Stephen Daintith: We’ve had a lot of dialogue as you might imagine with the rating agencies with both Standard &Poor’s and Moody’s on this one. And then what is very clear, and their priorities aligned with our priorities, operational performance improvement to that we’re in the high quality, operating profit growth and cash flow generation. If you’re looking for a metric, Standard & Poor in particular, looking for a 14% 15% EBITDA margin. So that to get us to sort of movers into that single A rating category. What I can say is that when we look at our plans, and then we look at the numbers that we’re talking around in the midterm, we can see good progress over the course of the next two years on that ambition. And what is critical there is clearly de-risking the Trent 1000. I want to talk about delivering that final fix on the high-pressure turbine blade on the TEN and getting it to design through in 2019. And certified in early 2021, and then we can start installing those blades and we get the Trent 1000 back to a healthy engine. So, that’s very much how the rating agencies are looking at it. And what we need to do and though we’re absolutely focused on it.

Peter Lapthorn: We had one in the middle.

Unidentified Analyst: Hi, George [Indiscernible] from Bernstein. Could you talk about the CapEx spending in 2020 to build the spare at least four engines to support the Trent 1000. And given that not all the fixes will be done by 2020 is there concerns that you may need to continue to build more spares beyond next year. Thank you.

Stephen Daintith: So, CapEx was around £750 million in 2019. And that include an element about £100 million in round numbers as investments in Trent -- in spare engines. A large proportion of which is Trent 1000.In 2020,we’re going to be maintaining the underlying spend, that’s before the Trent 1000 build. But we’re going to be increasing overall capital expenditure by £100 million to £150 million or so. And we expect that that additional engine built for the Trent 1000. The way to think about this is that, let’s use a proxy of £4 million £5 million per engine that’s about sort of 20 engines or so that we’re building in addition -- in 2020, in addition to those 20 or so that we built in 2019, if that makes sense.

Warren East: To answer, is there a danger that we’re going to have to build for more. What we’re effectively doing is, is pulling forward space that we would otherwise have built anyway as the size of the fleet grows. And so I don’t think we’re going to need to do, an extraordinary number of their engines. I mean, certainly from an operational point of view if we do the spares that we plan to do in 2020then we should be able to protect the fleet and then over the subsequent years will grow back into that volume. And then we will continue to build spares as the size of the fleet grows. So I don’t anticipate any 2021 enormous step up in the CapEx for more Trent 1000 spares.

Stephen Daintith: But as we stands today, this build of Trent 1000 engines will be a very good return on capital, when we consider the cost that we’re currently seeing for every day that an aircraft is on the ground.

Peter Lapthorn: Okay. It’s 10

Stephen Daintith: Thank you.