Rolls-Royce Holdings plc (RR) Earnings Call Transcript & Summary

Hello, and welcome, everyone, to our 2021 full year results presentation. I'm Isabel Green, Head of Investor Relations. And I'm joined today by our Chair, Anita Frew; our CEO, Warren East; and our CFO, Panos Kakoullis. Before we present our results, I'll hand over to Anita to say a few words on our other announcement this morning.

Thank you, Isabel, and good morning, everyone. You'll have seen our announcement this morning that Warren plans to step down at the end of this year. By then, Warren will have spent 9 years on the Board and almost 8 years as CEO, a relatively long tenure and a tribute to his strength and commitment. As a result, we're now starting an open and transparent search process for Warren's successor. Warren has a real passion for the business, which engenders pride in our people and confidence amongst our stakeholders. In his time at Rolls-Royce, he's created a dramatically different business and has positioned us well to generate substantial value from the drive to net zero. Finally, I would just like to thank Warren on behalf of the whole Board for his tremendous work. It's not over yet, though. I know that while we carry out the search for his successor, Warren will continue to lead Rolls-Royce with all the dedication he has shown throughout his time at Rolls-Royce. I'll now hand back to Isabel to introduce today's results.

Thank you, Anita. Today's presentation will begin with a summary of our improving performance and an update on our commitments from Warren before handing over to panels for a more detailed review of our financial results. Warren will then conclude with an update on our ambition for sustainable growth and value creation. In all, our presentation should take around 40 minutes, leaving time at the end for Warren and Panos to take your questions. Before we begin, please take note of the safe harbor statement on Slide 2. As always, the full set of results materials can be downloaded from the Investor Relations section of our website. I'll now hand over to Warren.

Thank you, and good morning, everyone, and we appreciate you joining us on what I know is a very busy day for many of you. Now as Anita mentioned, I have decided to step down at the end of this year. I'm extremely proud of what all of us at Rolls-Royce have achieved since I joined the company. Rolls-Royce today is a culturally and strategically a very different business. We're also a completely different organization commercially and operationally, much more efficient and productive with sound operational gearing that will create value from additional growth. I'm sure you'll see some of that in our results presentation this morning. You'll also see that we have a clear vision and direction to lead the transition to net zero, and we're already seizing opportunities with tremendous future potential. I understand no Chief Executive's job is ever really complete, but I feel that with the advances we've made and the momentum and energy we've shown and our firmer financial foundations, now is the right time to look for the future. Now there'll be a time for reflection at a later date. Right now, as you would expect, I'm fully committed to leading the business. So let's get on, and we'll talk about that. So let's look where we've got to and turn to the results for last year. I'd like to start by celebrating what an important year it's been for Rolls-Royce and to think about some of my own personal highlights from 2021. Now in November, I joined my colleagues at COP26. A few years ago, we wouldn't have even had Rolls-Royce at the Climate Conference. But today, our business and the future of our business is all about the energy transition. In the picture on the left of the slide, I'm with the Nuclear for Climate team. You can see they represent the young workers of today, and they're drawn from multiple nations all working in the nuclear industry. They're all really passionate about protecting the world, their world, from the negative impacts of climate change. And they're concerned about the positive contribution that nuclear can make to the future energy mix. It was particularly encouraging to speak with them and many others at COP26 about the need for our technologies in this space and, in particular, the role for our SMRs. Furthermore, we showcased a number of our technologies in the green zone, as you can see in the photo on the top right of the slide. Exhibits included our double world record-breaking spirit of innovation aircraft, which helped visitors to understand how we, at Rolls-Royce, can be part of the Climate Change solution. However, it's not just our new businesses that we should celebrate. Our established businesses are also driving our journey to net zero, and the image here on the bottom right shows the launch of one of our latest MTU hydrogen fuel cells in a microgrid at our facilities in Friedrichshafen. That's it being switched on for the very first time. It took 6 months for the microgrid demonstrator to go from decision to commissioning of the first MTU battery energy storage system, and that's a great example of our agility and how quickly we're delivering new solutions. Let's move on now to our 2021 operational performance highlights. I'll begin by focusing on civil and, in particular, the restructuring program. And this was an enormous undertaking building on earlier productivity and efficiency programs. It's really transformed our Civil Aerospace business. The picture here is of programmable machine tools at our turbine blade facility in Darby. These machines have been transferred across from Crosspointe in the U.S., and they can easily switch between designs and have absolutely minimal manual oversight. This means one person can now do the work of several previously, and what used to be a time-consuming manual setup is now fast. It's largely software, creating flexibility as well as much greater throughput, and that's just one example. Moving on in Defence. We're very proud to have been awarded B-52 engine replacement program in the U.S. This award secures new business for the coming decades after entry into service in the late 2020s, and it's a huge achievement for our Defence colleagues. And I'll talk more about Defence opportunities later in the presentation. In Power Systems, you'll remember at the half year, we were seeing orders well ahead of the year before. And in the second half of 2021, order intake accelerated with record order intake in the fourth quarter, giving us the largest order book in Power Systems history. Moving to the bottom of the slide. In Rolls-Royce Electrical, we're thrilled with the success of our 2 world records with the Spirit of Innovation aircraft. This demonstrates the real pace at which electrical technology is accelerating into the world of aviation and creating new opportunities. We're excited to be exploring the varied applications for air mobility. In the middle at the bottom, in Rolls-Royce SMR, as you know, we decided some time ago focus our civil nuclear activities on SMRs, small modular reactors. In the second half of the year, we have secured U.K. government grant support alongside equity investment to progress the project to the next phase. And last, in the bottom corner, but certainly not least, we're making good progress with disposals. Back in October 2020, we committed to undertaking a series of disposals to reshape our balance sheet. Three of these disposals have already completed, and the sale of ITP Aero is agreed. It's announced, and it's expected to complete this year. Let's have a look at our financial summary. We have 3 great outcomes from the progress we made in 2021. One, we have improved financial performance. Two, we're delivering on our commitments. And three, we're still investing for growth and sustainable value. Our cost reductions and market growth have helped us to return to profitability in 2021. And while we still had a cash outflow in the year, you can see from the histogram on the left of the slide, this was substantially improved from 2020 and is expected -- and is ahead of expectations. And as mentioned in a moment ago, our restructuring program has delivered more than GBP 1.3 billion run rate savings, and our disposals are on track to achieve the total proceeds of around GBP 2 billion. Our sustained investment in research and development is enabling us to deliver market-leading technology focused on net zero. And this unlocks opportunities to deliver long-term and sustainable value in both our established businesses and the new ones that we're reporting on separately for the first time today. And our ability to maintain investment even in these difficult times is supported by a strong liquidity position with no debt maturities before 2024. Now moving on to the next slide. I'm going to add some color on just a couple of topics. Let's start with the restructuring program. The activity here was mostly about Civil Aerospace. It was about rightsizing in the short term and then taking advantage of efficiency and productivity enhancements so that we can scale up output without a corresponding increase in operating costs. Not only have we exceeded our run rate savings target and we've removed more than 9,000 roles across the group, we have done so 1 year ahead of schedule. Our Civil business operation is now about 1/3 smaller than it was in terms of footprint and headcount. And that makes Civil leaner, a much more efficient and productive business and one that is ready for future growth. The focus now is on ensuring that the benefits we've achieved are sustained. Now some pictures of friendly faces. Before passing over to Panos, I'd just like to take a moment to focus on our executive team. The real breadth of experience and expertise is enhanced by these recent additions. So last May, we mentioned -- we welcomed Panos Kakoullis, our CFO, who joined us from Deloitte with over 30 years experience of managing large multinational, multidisciplinary teams helping major organizations to deliver change. Top right on this slide, Grazia Vittadini has joined us as Chief Technology & Strategy Officer. Grazia brings to us extensive expertise in both Aerospace and the emerging and disruptive technologies from, amongst other things, her 20 years experience at Airbus laterally as their CTO. I think it's important that a balanced team brings a combination of fresh thinking from outside the organization, but also deep knowledge from within the organization. It's important also to demonstrate to others internally that career development to the very top level is just part of how we do things around here. So in January this year, we promoted Sarah Armstrong to the role of Chief People Officer. Sarah has been with Rolls-Royce for more than 15 years, most recently as the leader of HR in our Civil Aerospace business, where she had a pivotal role in delivering that restructuring program I talked about a moment ago. And in January, Rob Watson, President of Rolls-Royce Electrical, joined our executive team. Rob has been with us for 10 years. And over the last 4 years, he has played a fundamental role in the development of our Rolls-Royce Electrical business as we invest for a more sustainable future. We have a strong, capable and driven executive team, and I'm very confident in their ability to deliver our vision for the future. So thank you. And now over to Panos to talk about our financial performance.

Good morning, everybody, and thank you, Warren. We are very proud of our achievements in 2021. Against a backdrop of challenging and unpredictable market conditions, we've delivered improved financial performance that's been driven by cost reduction and market growth. Results you can see on these slides, where they're all presented on an underlying basis, and that's for the continuing businesses in the group. Revenue that stayed steady. So it's less than 2% lower than 2020, and we've seen a much more balanced contribution from across our businesses, with Civil Aerospace now contributing around 40% of the total. Lower wide-body volumes and lower shop visits in Civil Aerospace were balanced by growth in both Defense and Power Systems. Operating profit, that's GBP 414 million, and that's a GBP 2.5 billion improvement compared with 2020. And that reflects the significant cost savings from the restructuring program that was largely focused on Civil Aerospace. Defence performed well and more than covered its increased R&D spend. Power Systems, that grew strongly. It benefited from recovering end markets and better utilization on the shop floor. The underlying loss of GBP 2 billion in the prior year, we had included GBP 1.3 billion of one-off charges in Civil Aerospace, and those were mostly related to the impact of COVID-19. Free cash flow in 2021, that's an outflow of GBP 1.5 billion. But again, that was substantially improved on the prior year. We saw great progress on cost reduction, stronger operating performance included higher flying hour receipts in Civil Aerospace and much more targeted capital expenditure. The working capital outflow that you see, GBP 800 million, that was mostly driven by concession payments and lower OE deliveries in Civil Aerospace. If you can look at the improvement on prior year, the prior year also included the non-repeat of GBP 1.1 billion negative impact from the termination of invoice factoring in 2020. On the whole, a very substantial step in the right direction on our recovery journey. If we move on now to Civil Aerospace. The Civil Aerospace financial performance, again, significantly improved as we neared completion of our restructuring program. Gradual market recovery and the non-repeat of those COVID-related one-off charges from 2020, that also helped enhance our financial performance. Overall, revenue was down 10% on prior year. If you break that down, OE revenues were down 29%, reflecting the reduction in engine deliveries as fewer large engines were required to fulfill customer build schedules, whilst sales of spare engines where they increased. Business Aviation OE deliveries were down as we transition to newer engine programs, which are now growing well from a low base. Services revenue was up 6% on the prior year and included GBP 214 million of positive long-term service agreement catch-ups compared with a negative catch-up of GBP 1 billion in 2020. They also reflected lower shop visit volumes and a reduced contribution from the V2500 engine program. The underlying operating loss of GBP 172 million was significantly better than the GBP 2.5 billion loss in 2020. We continue to focus very heavily on those areas that are in our control, and we're seeing sustainable cost benefits from that restructuring program. Our trading cash outflow was GBP 1.7 billion, again, a substantial improvement from last year in 2020. That was driven by engine flying hours. They were up 11% compared with 2020. In fact, second half engine flying hours were up 57% year-on-year. As COVID vaccination programs, they enabled key routes to reopen, although they are still at reduced volumes. Lower operating costs, lower CapEx and working capital outflows in 2021 as well as the non-repeat of that invoice factoring termination in 2020 also contributed to that improvement in cash flow. If we turn now to Defence. Our Defence business continued to perform well, with strong demand for both OE and services driving growth in all of our end markets. That's combat, transport, submarines and naval. Underlying revenue, that increased by 5% on an organic basis to GBP 3.4 billion, with services revenue up 6% and OE revenue up 3%. Underlying operating profit was GBP 457 million. That's an increase of 3% compared with 2020. It was driven by sales growth and a positive mix towards higher-margin spare parts and spare engine sales. Now that profit growth, that occurred despite a 28% increase in R&D spend. That was made to support our ongoing product development and the growth opportunities ahead of us. Trading cash flow was GBP 377 million. That gives a cash conversion of around 80%. That's a fairly normal level for our Defence business. The prior year, that trading cash flow, that included an adverse impact from the timing of deposit receipts. Finally, we have a strong order book in Defence that follows several years of high intake with a 5-year average book-to-bill of 1.1x and 85% order cover for 2022. Moving on now to Power Systems. Our end markets recovered well over the course of 2021. The order intake of GBP 3.3 billion was 24% higher than the prior year with a much faster conversion seen to sales in that business than we would typically see in Defence and Civil Aerospace. Order growth was strongest in Marine, Defence and Power Generation. Underlying revenue of GBP 2.7 billion was up 3%. Services grew at 10% as product utilization increased. OE broadly flat. Sales were higher in Industrial and Power Generation, partly offset by lower activity in China. Underlying operating profit, GBP 242 million, up 37%. Operating margin was 8.8%, that's 2.2 percentage points higher than the prior year. That's due to the mix of sales towards higher-margin aftermarket spare parts as well as improved utilization in our manufacturing facilities. We also experienced lower warranty costs. Trading cash flow, GBP 219 million, representing a cash conversion of around 90%, despite an increase in inventory related to the global supply chain disruption we experienced in the second half of 2021. I move on to new markets. Now we've separated out our early-stage businesses. Those that have got high growth potential, we put them into a distinct reporting segment: new markets. This gives increased visibility to the investments we're making to address the new opportunities that are being created by the transition to net zero and the Energy transition. There are 2 businesses currently in this segment: Rolls-Royce SMR and Rolls-Royce Electrical. These businesses where they leverage our existing engineering expertise and capabilities to develop new sustainable products. Rolls-Royce SMR secured GBP 490 million of funding in 2021, including GBP 50 million we committed ourselves. We've already received around GBP 30 million of that funding. And the remaining cash inflow, that's going to be phased over the next few years to align with the underlying specific spend. In 2021, a ramp-up in investments saw R&D costs of GBP 68 million, GBP 16 million of that in SMR and GBP 52 million of that on Electrical Power and Propulsion technology. Over the next 5 years, we anticipate spending over GBP 1 billion in R&D in these businesses, although our cash spend will be considerably lower due to that third-party funding for SMRs. New markets, they are naturally more challenging to forecast given the pace of customer demand ramp-up and also the regulatory approval process. What is clear, though, is the fact that the potential opportunities for these businesses are significant. We believe they could generate more than GBP 5 billion of combined annual revenues by the early 2030s. If we turn to the next slide, we set out here our summary funds flow. We saw a GBP 1.5 billion cash outflow in the year from continuing operations. That's a significant improvement on the GBP 4.2 billion outflow in 2020 and much better than our expectations that we set out at the start of 2021. If you break the movement down, you can break it broadly down into 3 buckets. Firstly, we saw an operating performance improvement of around GBP 2 billion. That was thanks largely to our cost savings in Civil Aerospace and also revenue growth in both Defence and Power Systems. Secondly, our GBP 800 million working capital outflow was GBP 700 million better than 2020. That was mostly due to that non-repeat of the unwind of invoice factory. That was partly offset by a planned increase in inventory in Defence and Power Systems to meet both expected sales volumes as we went into 2022 and the impact of global supply chain disruption in Power Systems. And thirdly, around about GBP 100 million of other impacts. That reflected lower CapEx, partially offset by the higher hedge book closeout costs in the year. Our free cash flow is continuing to improve. The combination of restructuring and growth driven by recovering end markets is putting us on track to get back to positive cash generation. Turning now to our balance sheet on the next slide. We are committed to rebuilding our balance sheet and returning to an investment grade credit profile in the medium term. We're on the pathway to achieve this as we benefit from reducing uncertainty, improving financial performance and our strong strategic focus on the energy transition. We've previously announced 4 disposals, which are expected to generate around GBP 2 billion in total proceeds, including approximately GBP 200 million of retained cash. The final and largest of these disposals, ITP Aero, is still expected to complete in the first half of this year, pending the necessary regulatory approvals. Disposal proceeds, together with the underlying free cash flow generated by the group, will be used to reduce net debt. We ended the year GBP 5.2 billion of net debt, including GBP 1.8 billion of leases. Our liquidity position is strong, GBP 7.1 billion of liquidity, including GBP 2.6 billion in cash at the end of 2021. And that is after we repaid during 2021 -- the 2021 EUR 750 million bond and also the GBP 300 million COVID corporate financing facility. A strong balance sheet is very important for us. We will balance the pace of that rebuild with the investment opportunities across our portfolio to make sure that we maximize the long-term return for our shareholders. Moving on to investments. Our technology and engineering expertise gives us a critical role in enabling the transition to a low-carbon global economy. We have significantly upgraded our approach to analyzing investment cases to place an even greater focus on sustainability and broader ESG considerations whilst maintaining investment discipline. Our investment spend is very much focused on making our existing products compatible with net zero, pioneering new technologies that can meet the accelerating demand for cleaner technologies as well as identifying additional applications for our current portfolio of technologies. It is key that we optimize our investments in order to most effectively deliver our strategy, maximize our return and achieve our net zero commitments. Our investments in both SMRs and electrical propulsion create net zero solutions and opportunities in new end markets. We have best-in-class products in markets with high barriers to entry. And taking advantage of that, generating a healthy return on our investments, well, that's a priority for us. Now we've seen the 2021 financial performance. I just wanted to recap on the priorities that I set out to you all back in August. As a reminder, 3 priorities: deliver on our commitments, simplify how we report and invest wisely for the future. Firstly, delivering on our commitments. Right now, I feel very comfortable that we're making great strides. We've delivered the sustainable savings from our restructuring program, and we continue to make sure that a large proportion of the costs that have gone out stay out even as the load grows as demand grows. We've exceeded our GBP 2 billion free cash flow guidance for 2021 by over GBP 500 million. And GBP 300 million of that was due to concession slippages, and we shared that with you in December. And I'm not going to claim any credit for that. That's not controllable. The rest, though, around GBP 200 million is due to our improved trading and cost performance and surpassed the commitment despite engine flying hours being worse, frankly, than we expected when we set the guidance right at the start of 2021. Secondly, we do need to simplify, break down the complexity around our financials. There is progress to be made in having more straightforward financial communications. Now I've taken some steps already to reduce the complexities, easy-to-understand disclosures, helping comparability between years and across peers. There is more to come during the course of 2022. I'm making sure that the changes we make align from the ground up with how we drive the businesses and reward performance. And thirdly, we will continue to invest wisely for the future, creating sustainable value. We are at a very exciting point, huge opportunity to lead our markets in the journey to net zero. We also have the opportunity to take our innovation and technology into new markets with incremental growth, and we won't stop investing in our current products either. There are good near-term returns available from increasing durability and efficiency. So as I said, 3 things: deliver on the commitments, simplify how we report and invest wisely. If we move on to outlook. We are well positioned for the anticipated growth in our end markets. Despite some challenges around the pace of market recovery, global chain -- supply chain disruption and rising inflation, I am confident that we will see continued positive momentum in our financial performance. We expect low to mid-single-digit revenue growth in 2022. That's supported by a strong order book cover in both Defence and Power Systems and a continuation of the gradual improvement in civil aerospace, along with an expected increase in spare engine sales. We expect our operating profit margin to be broadly unchanged as underlying operational improvement is balanced with increased engineering spend to develop sustainable growth opportunities with a gradual shift in spend towards new markets, Defence and Power Systems. We expect to generate modestly positive free cash flow in 2022, representing a substantial improvement on 2021. Now that increase comes despite the concession slips that I mentioned earlier, going from '21 into '22. As has been the case in prior years, cash flow will be seasonally weighted towards the second half of the year. Looking further ahead, long-term revenue growth will be driven by technology and innovation opportunities and rising global demand for sustainable power. This will be supported by well-targeted investment. We aim to spend around 75% of our investment on lower carbon growth opportunities in the medium term. So a lot of opportunities ahead, a lot of growth from the energy transition, a lot of variables to manage and a much more agile and balanced business geared towards capturing that growth in a profitable and sustainable way. And with that, I'll hand back to Warren.

Thank you, Panos. Now the title on this slide reflects the terminology that I used last month actually at our Annual Senior Leadership Conference, sustainable in both centers of the world, given our products and markets clearly sustainable in terms of climate and impact or not on climate change. But my internal message was very much more focused on sustainability in the business sense, meaning generating profits and cash from our activities and seeking growth. From a behavioral point of view for our senior leaders, that means adopting a restless pursuit of ever greater levels of profit and return, holding our heads high, seeking out and capitalizing on growth opportunities. And I'd like to focus for the next few minutes on how we're driving growth and sustainable value in our established businesses: Civil Aerospace, Power Systems and Defense before then moving on to the new markets. So I'll start with Civil. The fundamental restructuring program that we've delivered means that we now have much lower costs, much improved operational gearing. Now we can see significant growth in demand in our factories, and that's accompanied by only small incremental growth in our operating costs. This is extremely important as we continue to generate value from our large installed base. Around 2/3 of our engines are covered by long-term service contracts that will deliver value way out into the future. We also have more than half of the market share for new large engines with more than 1,500 on our order book. Our current order book includes 58 Trent XWB engines for Airbus' recently launched A350 freighter. The A350 F represents a great opportunity for us to take share in a market that has been until recently dominated by Boeing and GE. We're also seeing fantastic growth opportunities in Business Aviation, where our family of Pearl engines is now offering market-leading power and efficiency and outstanding low noise and emissions performance. The slide here shows a picture from Dassault of their Falcon 10x. At the launch, we and Dassault revealed that they've chosen our Pearl 10x engine to exclusively power their brand-new flagship aircraft. And Gulfstream have chosen our Pearl 700 to exclusively power their new ultra long-range business jet, the G800. That's in addition to its use already announced on the G700. Pearl 700 testing is progressing very well, and we're now in the final phase of regulatory approvals. And we and Gulfstream are delighted with the results of the flight test program, and we expect to receive certification later this year. So now I'll move on to Defence. And we're seeing good growth opportunities in this business. And that's critical to -- this business is critical to protecting people around the world. In 2021, we concluded a multiyear program of investment to revitalize our facilities in Indianapolis, creating a world-class campus with advanced manufacturing capabilities on a smaller and more efficient footprint. And that's a very similar story really, but on a smaller scale to the restructuring program that we just spoke about in Civil, baking in operational gearing, which enhances the benefit of future growth. And this was recognized last year as we secured the award for the highly competitive B52 engine replacement program, generating $2.6 billion of business for the coming decades with entry into service towards the end of this decade. We intend to bring that operational gearing benefit to future growth as well as we pursue further design wins, and we remain in a competitive process, for instance, for the Future Long-Range Assault Aircraft program in the U.S. in partnership with Bell Textron. And a win here would be very significant driver for our long-term growth in Defence. Of course, back in the U.K., we continue to work with our partners: The Ministry of Defence, BAE Systems, Leonardo and MBDA on the Tempest program with developments, including the recently announced collaboration with Japan on a Power System demonstrator. We also continue to support the U.K. MoD in the collaboration announced last year between the U.K., the U.S. and Australia on nuclear submarines. Looking further ahead, Defence, of course, is a very long-cycle business. We are supporting customer demand for novel products that deliver advances in technology and sustainability. Investment opportunities include areas such as hypersonics, small engines and even power in space. Now I'll move on to Power Systems. We saw order intake accelerate in Power Systems with the business achieving the best ever order book in its history. We have a strong established position with our MTU brand engines and a loyal sticky customer base of over 40,000 customers. We're focused on supporting the transition to net zero, and we've set some challenging targets to carbon dioxide emissions. For many, that means deploying microgrid solutions like the one in the picture here with renewables, storage combined with backup from reciprocating engines. And of course, in future, those reciprocating engines will be powered by synthetic fuels or hydrogen as we continue developing those technologies. In 2021, we formed a partnership with cellcentric to develop hydrogen fuel cells. Following on from this, we've been awarded a significant contract to provide the first-of-a-kind net zero microgrid, which will combine fuel cells and hydrogen combustion engines for the port of Duisburg in Germany. And hold on to that thought for a moment because I'll talk about airports in a little while. Some of the strongest demand this year has been from data center customers. Our standby power solution was recently chosen by a hyperscale data center customer. And as we expand our geographic reach, we'll grow market share in this space. Right, so that's our established businesses. Now we'll turn to what we call new markets. Our newly established reporting segment, including both Rolls-Royce SMR and Electrical. Whilst these businesses are at an early stage, as Panos explained, they come with huge growth potential focused on addressing the opportunities created by the transition to net zero. Starting with Rolls-Royce SMRs. We're using existing technology, which we've been taking to market for decades, over 60 years, in fact, in our nuclear submarine work. The diversification here is into new markets with nuclear power plants for both on-grid and off-grid applications. And we're seeing enormous amounts of support for this technology. In 2021, we secured a sizable third-party funding through a U.K. government grant and equity investment from strategic and financial partners. And this is helping us to fund our SMR design through the regulatory approval process and support us as we search for sites for those factories that will manufacture the first units. First, orders for the U.K. market are anticipated within the next couple of years. SMRs are a core part of the U.K. government's 10-point plan for a green industrial revolution. Our SMR is designed to deliver 470 megawatts of power on a size that is -- a sight, rather, that is only the size of 2 football pitches, and that's very power dense. They've been engineered for low-cost and repeatable manufacturer, making them competitively priced with solar and wind, but without the associated intermittency challenges and costs and including all the costs of eventual decommissioning and waste management. What's also really exciting about SMRs is how they can support our other businesses in the necessary production of green hydrogen and net zero synthetic fuels. Now moving on to Electrical. In Rolls-Royce Electrical, we see, again, high growth potential. This is where we take a relatively new technology to a market sector that we know very well. Rolls-Royce has the mix of technologies and the skills that we've built through decades of sector-specific knowledge and experience combined with market access, and that's what makes us win. With lots of people -- well, I mean, lots of people have the technical ability to work in the electrical propulsion and power markets, we have aerospace in our DNA and a track record of success. It's relatively easy to build electrical machines. They're all around us in many different shapes and sizes, typically low compared with the world of aviation, the power capabilities that this is relatively low to lift a heavy object into the sky and move it through the air for hundreds of miles needs much more power, and the energy required has to be carried in that vehicle as well. And that is getting into the realm of hard stuff: weight thermal management, structural integrity, all very challenging and extreme levels of safety and reliability too, and it all becomes extremely difficult in a narrow application. But that's where the decades of experience and the depth of knowledge at Rolls-Royce makes the difference. We are highly differentiated. We have the experience and the expertise and the safety track record to succeed. And this is a growing market, too. We've partnered with vertical aerospace, and we power their VX for all electric urban air mobility vehicle. Vertical has $5.5 billion worth of preorders for over 100,000 rather of these products from some of the world's biggest and most innovative airlines. We're also strategically partnered with Embraer's urban air mobility spin-out, EVE. By the end of last year, EVE had already secured over 1,700 of aircraft preorders worth $5.2 billion. And we have a collaboration with Tecnam and Widerøe announced at the half year for an all-electric powertrain for the commuter market, and that's targeting entry into service in the mid-20s. Our electrical business is not just for airborne solutions. We're combining our expertise in electricals with our experience in power systems to develop a business opportunity for energy and charging infrastructure for airports and for vertiports in preparation for the advanced air mobility market. All in all, it's an extremely exciting time for our Electricals business with many tangible opportunities in the pipeline. So to summarize today's presentation and our full year results, we're proud to confirm that our financial performance is improving, thanks to both cost reduction and market growth. We are delivering on the commitments that we promised and we're investing to drive growth and deliver sustainable value into the future. Together, these make Rolls-Royce a better, balanced and more sustainable business. And with that, we'll turn over to Q&A.

[Operator Instructions] And we've got a question on the website from [ Lavinia Sherwood ], who asks, how is restructuring helping to support the anticipated business ramp-up.

Okay. Well, thank you very much. I'll answer that a bit qualitatively. I mean the restructuring is all about inserting operational gearing into the business so that when activity increases, it delivers real value in terms of profit. And we're confident that operational gearing will persist because the costs will stay out, and we can look at our civil business and say it's 30% smaller in terms of footprint and in terms of headcount. Now those factories are not coming back. We've installed machines like I talked about in the presentation, which reduced cycle time hugely. We've changed our design processes, again, reducing cycle time hugely, driving up the productivity. In fact, with the reduced level of activity that we're still seeing in 2021, we have underutilized assets, but those assets will be utilized when the growth comes back. And so the growth will be able to come back, as we said, with relatively small increment in terms of operating costs. I don't know if there's anything to add to that, really.

Yes, I think -- if I think about it from a quantitative perspective, as we look to 2022, there is going to be a load increase in the Civil business. And seeing how that load increase manifests itself, think around about 30% more load going through that business. And when we look at it from an operating cash cost perspective, it's around about 6%. So it's a disproportionate increase in load supported by that gearing that Warren's referred to already. And if I just added, I guess, a little bit of experience from having now spent quite a bit of time in the business and wondering around the shop floor and talking to our people, and we've talked about it a little bit in the past around the mindset of our people, what we're able to do now and what I'm able to do now is link in some of those individual activities that I see on the shop floor, how they're thinking, what they're thinking around quality, safety and efficiency and how that starts manifesting itself in lower cost going forward.

Thank you.

We're ready to take the next question, I think, from the phone lines, please.

Your first question comes from the line of Celine Fornaro from UBS.

It's Celine Fornaro. That was a nice one. Right. The first one would be actually on providing slightly more color, if you could, on the cash aerospace and the trading cash performance there and the dynamics that are underlying, I would say, as you highlighted on the introductory remarks, and that are likely to stay in '22 and '23. And what I'm thinking here or interested in is if you assume some sort of a pickup in the shop visit, how do you think your estimated cost in the shop visits are trending compared to the real cash cost that you are incurring, and that's true for A350, 787 and A330. And my second question is on the GBP 1 billion of cash savings that you have achieved, excluding CapEx. How should we think about the return of these costs, looking at '22, '23, please?

Okay. I'll -- thanks for the question. Kicking off more color on that cash. I mean, clearly, cash incoming depends on the rate of recovery of activity in the markets. We do anticipate the steep increase in activity, which we saw second half on second half in the '21 numbers to continue, albeit at a slightly sort of a slower rate because you're building on a larger base as we go through '22. So consensus forecast would be for approximately a 50% increase in flying hours. Now you can see when we think about shop visits and our planned number of shop visits to deal with that, you can see from the answer that Panos gave a moment or two ago, we're anticipating roughly a 30% increase in load on our factories. And that's really driven by the component demand from those shop visits. And the cost of those shop visits is clearly related to the cost reductions that we talked about a moment ago. And that sort of takes us into the second half of your question on the GBP 1 billion, and I'd sort of bring you back to Panos' answer a moment ago where we're sort of divorcing the load increase from the operational cost increase. You're probably going to go on and ask us about material cost increases and supply chain challenges and all those sorts of things as well. And of course, those are baked in, but I'd remind people of the long-term nature of this business, the long-term nature of the contracts that we have with suppliers and the escalation clauses that we have in there.

So your next question comes from the line of Robert Stallard from Vertical Research.

This is probably a question for Panos. You highlighted the GBP 300 million positive benefit from concessions in '21, and it's a very sensitive topic. But what are your expectations for concession payments looking into the 2022 numbers and potentially to 2023 as Boeing eventually restart deliveries on the 787.

Thanks, Robert. Yes. Probably hard to predict because it does depend on some regulatory outcomes. The assumption we've made is that GBP 300 million slipped into '22 as you'll have seen. We do expect to see some unwind as we go through overall through the course of the year. It's going to typically depend on deliveries. Overall deliveries of new engines this year, we're expecting to be flat. But I'm seeing that go into 2022, it could potentially slip a little bit into '23. We will highlight it for you as and when we have greater clarity on it. And it's something we pull out, and you heard me talk about it earlier on in the presentation, it's an uncontrollable. So I'm not going to claim credit for it, if it doesn't happen. And if it happens earlier, then we'll highlight it.

Yes. And as a quick follow-up -- I'm sorry. I can hear myself, sorry. And then maybe a question for Warren. On the fantastic name Vertical Aerospace, I was wondering what your thoughts are on potentially monetizing that stake at some point in the future? Or is this a long-term investment?

Goodness me. This is, as far as we're concerned, a long-term investment. It's sort of cementing a partnership as it were. We're looking at that whole space, and as I say, huge growth opportunity. There are uncertainties around that. The market really doesn't exist today. And so there's a big error on what that market is going to look like in, say, 2030. We're very confident when we look at our partners though that we're looking for a balance of partners like vertical aerospace, which are new companies tackling this market, and companies like EVE, the spinout from Embraer, where you have a more established player. We're interested in powering as many of them as possible because, as I just talked about a moment or two ago, we think we have real differentiation there. And as far as investments are concerned, we're not going to be making a habit of investing in everybody, but where we can do a little bit of catalyzing then we will.

So your next question comes from the line of George Zhao from Bernstein.

I guess, first question, can you just talk more about the increased investments in '22, driving the flat margins for this year. How much higher? And how much of that is going to the new market? And I guess second question is more on those new markets. I mean you decided to give the GBP 5 billion revenue outlook by the early 2030s. I guess, why was now the time to give this figure when we're clearly in very much of an infancy of a stage for these new ventures? And I mean now that you've given us this GBP 5 billion number, could you give us some details on how you get there? And what are some of the investment requirements over the medium term to succeed here?

Okay. I'm going to ask Panos to talk about the '22 investments, and I'll come back and add some color on the new businesses that we talked about this morning.

So thanks, George. So -- and you'll have picked it up from both the release and how we presented. There is a sort of a pivot away into some of those growth opportunities over the course of the next few years, probably a little bit away from civil and where the civil business is. And the increased level of investment, you better see them effectively in 3 places. So Defence, where we've got some big bids coming up, and we're in that stage of ramping up around those bids now. Power Systems, in particular, because that's -- you heard us talk about energy transition. That is where the big opportunities are sitting right in front of us at the moment. We've got 40,000 very, very sticky loyal customers who are coming to us now increasingly. In fact, we had a Board meeting earlier this week when we were looking at the ramp-up of that order book around that. So the investments there are around the technologies and the system solutions to help those customers. So you see it coming through there. And as you've rightly said, around new markets. And we very deliberately for this year, trying to give you more clarity. We've pulled out those new market businesses into that segment, both SMR and Electrical, and we pulled out to show you how much R&D. Now the -- there's a big element of that ramp-up that does happen in '22 in those new markets. So -- and I think we've used sort of the word substantial, so you can think about that as a sort of near doubling of investment in that. That doesn't all come through in terms of cash. That will definitely be a P&L because those are businesses that we control and consolidate. But you saw from an SMR perspective, how much of that is coming from both government funding and third-party shareholders. And as you go forward, that cash profile, particularly on SMR, is matched by customer orders and deposits coming in and matches off on that, how that spend happens. And I think we've talked about what we expect the rough spend over the next 5 years to be on new markets, which is around about GBP 1 billion mark, which about GBP 0.5 billion we will fund ourselves.

Yes. And I think Panos has sort of answered really the second part of the question there as well. We're talking about GBP 1 billion of investment. And we pulled it out because we want to demonstrate that this is investment not just sort of central R&D costs. Clearly, if we're -- I imagine it was a completely stand-alone start-up business. You have to paint to your investors a picture of the sort of return that you're going to make, and that's why we're talking about GBP 5 billion in the early 30s. Now clearly, as I said in an answer to a question a moment ago, there is uncertainty around here. We're expecting these electrical aviation products to enter into service around about the middle of the decade, maybe between the middle of the decade and the next couple of years after that. The SMRs, we've talked about having orders in the next couple of years with revenue recognized in proportion to costs. But we're talking about getting these on the grid around about the end of the decade, maybe 2030 a little bit beyond. So there's uncertainty in it, but we're trying to paint a picture just to sort of scope out roughly the sort of size of contribution that is being made by those businesses in that time frame. It is very, very approximate. I would just highlight, Panos referred to the investment that we're making in Power Systems, however. This is an established business with existing customers, with much shorter development cycles. And so we absolutely expect to see a revenue impact from the net zero investments in Power Systems well before the second half of this decade.

Sir, your next question comes from the line of Ben Heelan from Bank of America.

I had a couple of questions around the guidance. I was quite surprised to see the low to mid-single-digit revenue guide at the group level. Is there any divisional breakdown that you can give us around that? And then secondly, on the margin, you've talked about the operating margin being flat. Is there any color you can give around gross margin? Obviously, you've said R&D and investments are growing. So how should we think about the gross margin progress as we go through this year?

Yes. And you'd have seen we've done something different in how we talk about guidance going forward, and that was a very deliberate reflection on the shape of the business that we have now. It's a very different business to the one we had 2 years ago to a much more balanced. You had Warren talked about much more balanced and sustainable business. So 40% of it in Civil Aerospace; 60%, the majority now is Defence and Power Systems. So when we thought about guidance, and you've heard me talk about a much more balanced view of the KPIs that we think about. So that's why we've talked about revenue growth. That's why we talked about margin in addition to what we've traditionally talked about around cash. And then there's in due course, start -- with that track record bill start thinking about what's the return that we can start demonstrating on that. From a revenue perspective, that low to mid, how does that pan out across the businesses? So you've seen very strong order book. I think Warren referred to it record order book in Power Systems. That turns into revenue over the course of this year. So you can see good growth coming through in the Power Systems business. The defense business is a steady business. The big wins that we've talked about, they take time to come through. I think Warren talked about, that secures decades effectively for -- into the future. That doesn't come through immediately. So think of that as that's modest in terms of revenue. And then that leaves you effectively Civil Aerospace, which again is modest growth. And that's primarily determined by what happens around activity driving increased shop visits. You'll have seen in the release some of the factors that start affecting that. We had some long-term service agreement catch-ups, which went through revenue this year. So that's a factor that you have to think about from a headwind perspective on revenue. And then as you look at those in terms of margin, if I go through the sort of 3 businesses. The Defence business, we had a good mix around margin this year, just go into 2021 around spare parts and spare engines. Those are typically higher margin. We get back to a more normal level of mix next year. So that has an impact on your gross margin. Similarly, when we think about Power Systems, again, there was quite a high element of service rather than -- that tends to be a little bit higher margin as well. So that's how that changes. And then from a Civil Aerospace perspective, the margin mix of the business going forward is definitely changing. We're into the newer engine programs. Those are the programs that are flying more frequently now than they were in the past. They are earlier stage. We recognize less margin on those as they are less mature. There's a lot of margin left to come. And when I look at the balance sheet and I look at that long-term service agreement balance, that creditor that sits there, that is -- there are big chunks of that, that our potential margin as we work our way through, as Warren has talked about, how those cost savings come through, how we increase time on wing. That has a direct impact on margin as we go into the future.

Okay. Great. Just a quick follow-up because I thought earlier in the call, you talked about expecting a roughly 30% increase in load for shop visits. So how do I tie the 30% increase in load to the kind of modest growth in Civil Aerospace? How significant is that revenue headwind from the catch-ups?

So Ben, the load was across the whole of the Civil business, including business aviation. So there's quite a big ramp-up in OE for business aviation as we go through this year. So it's OE ramp-up in business aviation and an increase in shop visits across the board. So that's how I think about it.

Sir, your next question comes from the line of Harry Breach from Stifel.

Warren and Panos, can you hear me?

Hello. It's fine.

We can.

Great. And forgive me because I missed the first half hour of this. Can I just -- first of all, can I just ask about time of material last year. I think sort of in the -- sort of first half of this year, T&M was about 16% of overall underlying revenue for Civil Aero. Can you -- and I might have missed this, so please forgive my ignorance. Can you give us a sense of where it was for full year 2021 and how you might see that trending in '22, if you can? And then just thinking about major shop visits, I think in the presentation, you kindly gave us the number for Civil last year. What should we be expecting compared with that 208 base in 2021? What should we be expecting for this year and going forward? Because there is some discretion in the scheduling of those. I appreciate long-term trend will match EFH, but there may be some scheduling discretions. So any help would be gratefully appreciated.

Yes. So on -- we didn't talk about time materials, so you didn't miss that bit. Second half, first half, think about that as roughly the same. So there wasn't a significant disconnect between the two. In terms of shop visits, you are very right. It is driven by actual flying activity. And what Warren referred to what the market is anticipating around increase in engine flying hours, there is always a little bit of a lag in terms of how that comes through. But shop -- expect shop visits go up, probably a little bit less than flying hour activity given that lag that is typically there.

Sir, your next question comes from the line of David Perry from JPMorgan.

I'm sorry, I missed a fair amount of the speeches, so I apologize if I'm asking something you've covered. I've got 2 questions, both of you, I think, Panos, one is high level and one is more detailed. High level, you say you want to simplify how we report. I look at H1 '21 where you delivered a massive beat in Civil Aero EBIT. I look at H2, the full year where there's a huge miss and guidance, way below consensus. I think none of us on the sell side have accrued, frankly. What is it that you can change that makes this somehow more predictable and therefore, more investable? And so it's quite a high-level question. The much more detailed one is, you've clearly guided to an EBIT number well below the sell-side consensus. Can you just walk me from this EBIT number to the cash flow in 2022? So what are you assuming out for working capital? What are you assuming on the LTSA time? That would be very helpful.

Sure. So let me take that up. So I think as we said at the half year, and you and I have had some good discussions, David, around simplification. When I look at how we simplify the way we communicate, the way we -- as you said, the way we help you understand the business and make it more investable, I think what we've done for this full year, we have started to give you some more clarity. So we've shown trading cash flow by business, which is something we hadn't done before. We've pulled out what we're doing on the investments within the new markets, again, to give some clarity on that. And frankly, we started to use a little bit of nomenclature that is more common. So when I want -- because I want to have comparability, I think, across years in between the peers. And when I look at what our peer group do, I want to be -- us to be aspiring to that. There is still more to go, and you may have missed it when I was talking about it earlier on. This needs to be done ground up, right? I'm not going to put something over the top for a sort of veneer in how I present because it's fundamental to how we run the business on a day-to-day basis, making sure that the underlying value drivers that Warren and I spend time within the business as we push on those and as we start showing you what those value drivers are and how we think about them, how they link up to the outside performance. And when you do that, budgeting, remuneration, how people get rewarded, the whole thing has to work in a robust way. So things still to come, things that will help what you've asked for are what we do around foreign exchange and our hedging policy, which is different to what others do. And that will take time to put in place. And particularly, the last point you made there effectively is around contract accounting and having a much tighter link between what happens in the underlying contract and how that shows up from a profit and cash perspective. You will never get a direct link between cash and profit in any long-term contracting business. But how that trend can be can be much more easily seen. So we've done some, and there's more to go. In terms of your effect for your comment on profit. We've never really given guidance around profit in the past. It's been -- it was more observation when I came in because it was a predominantly Civil Aerospace-driven business, there was a lot of focus around cash. It's a different shape business now. It is a much more balanced shape business. That's why we started talking about revenue. That's why we started talking about margin as well as cash and to come how we think about returns. So that's why that profit is there. I don't view it as missing guidance. I view it as helping you think about guidance and consensus going forward because it's nothing we've really talked about in the past, and that's been very evident when I look at the range of profit that the analyst community had in the past. It's never really been taught about. Now we want to put it in a much more understandable way. In terms of the big movements around cash and how profitability comes back, let me come back to that in a few minutes. It is a detailed question. If we take the next one, then I'll come back to you.

Sir, your next question comes from the line of Andrew Humphrey from Morgan Stanley.

Maybe a couple of bigger-picture questions. Warren, we talked a lot today about opportunities for the business and the kind of more balanced portfolio going forward. Could you maybe talk about how you would view the biggest challenges for your successor? And there's another kind of broader question, where does the departure of warrant purchased in terms of any potential mid-term target setting that we might see this year? And then I also wanted to ask a bit about Power Systems. Clearly, we've seen a very strong performance there on orders. Clearly, that is also a shorter cycle business than the Civil Aero. So I wanted to ask about what additional challenges there may be in terms of supply chain management and protection around the margins that business is making over the next couple of years?

Okay. Well, I'll go with those, Andrew. Thanks very much. So I think the challenges over the next several years, the strategy is very clear. The challenge is there is a lot of opportunity out there, and it's making the investment calls and balancing that investment alongside looking after our existing business. So we talk about value creation from our installed fleet, for instance, in Civil Aerospace, extending the time on wing. That takes engineering effort resource investment and so on. But so do the opportunities in Net Zero that we talked about, both within Power Systems, actually within things like electrical aviation and even in defense addressing net zero opportunities. So the challenges of those. And we included a slide in Panos' presentation, the bit that Panos presented around how we think about investment and deploying capital. And I think therein lies the biggest challenges over the next several years. As for target setting, medium-term target setting and so on, we'll come to that. When we talked about my moving on this morning, that is the end of this year. And so I'm -- after we do this results presentation, I'm back to running the business. And any target setting that we do around the middle of this year will be no change. Supply chain challenges, particularly in Power Systems, we do expect the supply chain challenges that we've seen over the second half of 2021 persisting through quite a bit of 2022. Right now, if we compare what we anticipate those challenges to the impact that they might have on a sort of otherwise budget, think high tens of millions of pounds up towards GBP 100 million as an impact for 2022. So if miraculously, we're able to deal with those supply chain challenges and they go away, then there's some potential upside there. But we're not hugely optimistic about that happening anytime soon.

Let me just come back to David's point. I sort of reflected on it. So -- and I think, David, you asked the sort of the detail point around the bridge between operating profit and free cash flow and what's sort of driving that. There's going to be a number of things going on the way. We're going to get to a more normal pattern of working capital within the business as engine flying hours start to increase, and we've talked about what that ramp-up would look like. Offset a little bit by the shop visits, but those tend to lag. There is some increased investment spend that we talked about, both from a CapEx and an R&D perspective going against that. There's the continuation of the hedge ongoing costs. That's going to be a little bit lower than we saw this year. Most of the other factors stay the same. So that's typically what you'll see going through. At a macro level, if you just look one number to the other, the bridge isn't trying to bridge very much, but there are lots of ins and outs to get you from one to the other.

Sir, your next question comes from the line of Charles Armitage from Citi.

A couple of questions. I think David is doing a bit better than I am. I'm struggling to get to Ben's question. Low to mid-single-digit sales growth. So we've got a 30% increase in load in Aerospace and profit recognition and revenue recognition along with work done. We've got GBP 3.3 billion inflow in Power Systems versus GBP 2.7 billion of sales in orders, and that converts pretty quickly. We've got Defence stable. We got a negative GBP 200 million -- a headwind of GBP 200 million from CSA catch-ups. I'm struggling to get down to low to mid-single-digit growth, given lots of growth in Power Systems and seemingly Civil Aerospace. What am I missing?

So Charles, that was on the revenue side.

Yes.

Yes. So I think on Civil, we said -- when I answered earlier on, I said modest growth in Civil because that's determined by shop visits coming through and the recognition of revenue around those shop visits. They typically lag, as we've said, around what's happening on engine flying hours. On Defence, we said broadly stable. There's a little bit of up, and there's good growth within Power Systems. When you take all of that mix together, that's how you end up with low to mid.

Okay. I fully think a bit harder on that. Next question. On SMR, what do you need to have -- what -- effectively what level do you need to have carbon cost to make -- to be able to be viable output for SAF production? Alternatively, what can you produce the fund of SAF?

Yes. I'll have a go at answering that, but I can't answer it explicitly to be honest. I mean, what we do know is that SAF requires a huge amount of energy, and the electrification of multiple sectors is putting a huge amount of demand on traditional generation. SAF is a sort of large increment on top of that. You have to use energy to create hydrogen. You then have to use energy to combine that hydrogen. You have to use energy to capture carbon dioxide as well and then put it together. So the rationale is that it's a zero carbon effective way. We know that the levelized cost of electricity is comparable with wind. We know that, that includes the cost of decommissioning and waste management, and that the cost of wind and solar and the like doesn't include the cost of storage required to offset the intermittency. So I can't give you an answer in terms of carbon price, but I can give you an answer in terms of the large amount of demand, which is there, and the comparable competitive cost of electricity. And then you get into the sizing and the logistics of arranging for large amounts of powerful things like SAF plants and significant hydrogen generation plants and the infrastructure that has to be put around it, and that's the economic argument for an off-grid application.

I'll now hand back to Isabel for question from the webcast.

Thank you. And there's actually quite a lot of questions on the webcast, and we're not going to get through them all today. And in fact, quite a few of them, I think, have been covered by the answers given. But just to say if anybody feels that they need a direct answer, do come back to the Investor Relations team. So the last question is actually from someone on the buy side. So we have [ Tim Ashton ] who Warren is asking you, how much do you think Rolls-Royce has changed in your tenure? I'm going to add so far on that because I know that you're not finished yet.

No, no, I'm certainly not finished yet. Yes, it's a difficult question and it's hard to quantify it exactly. I mean what I said this morning was that if I compare the company I walked into with the company we have now is chalk and cheese. From a cultural and behavioral point of view, it's a very different business. Some of the messaging I hope we've got across this morning is that from an operational point of view, it's also a very different business with strong operational gearing baked in so that as we lean towards growth in the future, that growth will have a big contribution to real value creation. So I think it is fit for the future. I think, two, we have a very clear strategic direction, and it's very much a broad-based power group that we look at now and that gives us a much bigger opportunity set. The future of this business is not dependent on long-range, long-haul aviation. So that's a sort of summary, but it's probably time for a longer discussion rather than an answer in a Q&A like this. I'd also highlight a huge difference in the people, by the way, just for finishing on that. We have a much smaller organization. But if I look at things like the senior leadership group here, it's about 60% smaller. It's between 5 and 10 years younger. And I think these are some of the intangible things, which make a massive difference to the agility and the ability of the business to be competitive going forward. Thank you. I think Isabel is busy telling me that, that is the last question. So thanks, everybody, for joining. We do appreciate that you've had a very busy day today, even before events that happened in Ukraine. The messages we'd like you to take away. Improving financial performance in our result is evident here, the operational gearing that we've talked about. We are delivering on our commitments, and we're very focused on the future, both in terms of the opportunities for growth in our established businesses and in the new businesses. And we look forward to seeing you with an update on progress when we give you an update at the half year. Thank you.