Rolls-Royce Holdings Plc 2015 Full Year Results
OREANDA-NEWS. Warren East, Chief Executive, said: “In the context of challenging trading conditions our overall performance for the year was in line with the expectations we set out in July 2015. It was a year of considerable change for Rolls-Royce: in our management, in some market conditions and in our near-term outlook. At the same time, there were some important constants: the underlying growth of our long-term markets, the quality of our mission critical technology and services, and strength of customer demand for these, which are reflected in our growing order book.”
Underlying revenue £13.4bn (FY 2014: £13.9bn), down 1% at constant exchange rates
Underlying profit before tax £1,432m (FY 2014: £1,620m), down 12% at constant exchange rates
£1,355m before one-off items (see page 4) in line with lower half of 2015 guidance range
Restructuring programmes started prior to November 2015 continue to make good progress:
£145m of annualised cost savings expected by end 2017
Final payment to shareholders reduced by 50% to 7.1 pence per share (2014 final: 14.1 pence)
Trading outlook for 2016 unchanged
4% growth in order book underpins confidence in strong market share growth for Civil Aerospace
Year to 31 December 2015 2014* Change** 2015 2014* Change**
Revenue (£m) 13,725 13,736 0% 13,354 13,864 -1%
Profit before tax (£m) 160 67 +140% 1,432 1,620 - 12%
Earnings per share (p) 4.5p (3.9)p +215% 58.7p 65.4p -10%
Net funds (£m) (111) 666 (777)
Free cash flow (£m)*** 179 447 (268)
Underlying: for definition, see note 2 on page 24; * From continuing operations (re-presented to exclude Energy as a discontinued operation); ** At constant exchange rates. *** Free cash flow defined as operating cash after capital expenditure, pensions and taxes, before payments to shareholders, foreign exchange and acquisitions & disposals
New transformation programme launched in November 2015
Set up a transformation team to focus activities, add pace and simplicity to the business and drive cost reductions of between £150m and £200m per annum:
20% reduction in top two layers of senior management; further reductions planned
Roughly 50% of targeted cost savings already identified
Initial exceptional restructuring charge of £75-100m in 2016
Further actions underway to generate additional savings in 2017
Increased disclosure and transparency included in this full year results statement
Commenting on the outlook, Warren East, Chief Executive, added: “Our outlook for 2016 is unchanged; despite steady market conditions for most of our businesses it will be a challenging year as we start to transition products and sustain investment in Civil Aerospace and tackle weak offshore markets in Marine.
“The pace of investment required to transform the business creates near-term pressure on free cash flow. At the same time, we need to sustain a healthy balance sheet to ensure we have the financial flexibility to maintain a strong investment grade credit rating. As a result, the Board is recommending that the payment to shareholders is halved in cash terms at the full year and the next half year. We recognise the importance of a healthy ‘dividend’ to our shareholders. Subject to short-term cash needs, we intend to review the payment so that it will be rebuilt over time to an appropriate level. This reflects the Board’s long-standing confidence in the strong future cash generation of the business.
“Our strong order book continues to grow, built around market-leading products and services. This provides us with an outstanding opportunity to deliver long-term profitable growth and capture significant incremental market share. The transformation programme is now well underway. This will add pace and simplify our business, making us a more resilient company. Overall, we have made a good start to the journey that will return the company to profitable growth.”
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Richard Wray +44 20 7227 9163
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This Full Year Results Announcement contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. This report is intended to provide information to shareholders, is not designed to be relied upon by any other party, or for any other purpose and the Company and its directors accept no liability to any other person other than under English law.
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2015 Business Highlights
All percentage or absolute change figures in this document are on a constant translational currency basis unless otherwise stated
unless otherwise stated
% of Group*
Closing Order Book
(£bn) Underlying revenue Underlying profit before financing
2015 % change 2015 % change
Civil Aerospace 52% 67.0 6,933 +3% 812 -14%
Defence 15% 4.3 2,035 -5% 393 +4%
Power Systems 18% 1.9 2,385 -3% 194 -15%
Marine 10% 1.1 1,324 -16% 15 -94%
Nuclear 5% 2.2 687 +9% 70 +40%
Other 96 52
Eliminations/ central (0.1) (106) (44)
Total Group 76.4 13,354 -1% 1,492 -11%
* Based on gross revenues prior to intra-group eliminations
Underlying revenue up 3%; solid growth in aftermarket revenues offset lower new engine sales
Underlying profit before financing 14% lower than 2014; largely reflecting lower gross margins, due to adverse mix effects and higher R&D charges, partially offset by the impact of life-cycle cost improvements, retrospective long-term contract accounting benefits, a reversal of impairment of Contractual Aftermarket Rights and lower restructuring costs
£3.8bn order book growth; led by Trent 900 and XWB orders – XWB now nearly 50% of order book
New Trent engines, 1000 TEN, XWB-97 and 7000, on track for entry into service in 2017 and 2018
Good progress modernising supply chain to reduce costs and increase capacity for Trent XWB ramp up over next four years
Underlying revenue 5% lower; revenues impacted by weaker helicopter and trainer volumes, partially offset by higher combat original equipment sales
Underlying profit before financing up 4%; steady gross margin and lower restructuring costs offset higher R&D charges
Strong positions in transport & patrol and combat underpin outlook for a steady performance in 2016
Major five year $600m investment in Indianapolis to improve cost base and benefit long-term growth
Underlying revenue 3% lower; weaker original equipment partially offset by good growth in services
Underlying profit before financing 15% lower; led by lower gross margin
Positive outlook for 2016; healthy closing order book with good positions in key market segments
Long-term R&D investments to increase cost competitiveness in higher volume engine applications
Underlying revenue down 16%; weak offshore markets impacting both OE and aftermarket revenues
Underlying profit before financing down 94%; significant reduction in gross margin, led by lower volumes, and higher restructuring costs only partially offset by reduced commercial and administration cost
Challenging outlook for 2016; led by reduced demand in offshore oil and gas markets
Launched two restructuring programmes in 2015 focused on manufacturing footprint and back-office functions; expected benefits to start to accrue from 2016 onwards
Underlying revenue 9% higher; strong service revenues led by increased submarine work
Underlying profit before financing unchanged, excluding the benefit from a £19m R&D credit; volume benefit offset by lower margins
2016 outlook steady – focus on improving delivery performance and developing civil nuclear opportunities
Investing in the business to extend systems offering and increase service scope
Includes the residual retained assets relating to the Energy business which were not included in the sale to Siemens in 2014 and a gain on a one-off intellectual property settlement
Chief Executive’s Review
In the context of challenging trading conditions our overall performance for the year was in line with the expectations we set out in July 2015. It was a year of considerable change for Rolls-Royce: in our management, in some market conditions and in our near-term outlook. At the same time, there were some important constants: the underlying growth of our long-term markets, the quality of our mission critical technology and services, and strength of customer demand for these, which are reflected in our growing order book. While we have some near-term challenges, these constants provide us with confidence in a strong, profitable, cash-generative future.
Performance in 2015
Our performance in 2015 was broadly in line with our early expectations, with Marine markets causing most of the weakness. At the same time we have continued to invest in products and services to support our customers and reinforce the long-term strength of our order book, valued at £76.4bn at the year end, up 4% on 2014.
Group revenue was broadly unchanged on a constant currency basis with good growth in Civil Aerospace offsetting weaknesses in Marine. The combination of some difficult market conditions, sustained engineering investment and high fixed costs led to underlying profit before finance charges and tax 11% lower at £1,492m.
Civil Aerospace delivered an underlying profit before finance charges and tax of £812m (2014: £942m). Defence delivered £393m (2014: £366m), Power Systems £194m (2014: £253m) and Marine £15m (2014: £138m). Nuclear delivered £70m (2014: £50m). More detail on each business is included in the Operational Review.
After underlying financing costs of £60m (2014: £61m), underlying profit before tax was £1,432m (2014: £1,620m). Excluding the benefit of a one-off intellectual property settlement of £58m, triggered by the third-party acquisition of a former business partner, and a favourable £19m R&D credit benefiting our Nuclear business, underlying profit before tax would have been £1,355m, in line with the lower half of the 2015 guidance range set out in July last year.
After an underlying tax charge of £351m (2014: £388m) and adjusting for minority interests, underlying profit for the year was £1,080m (2014: £1,226m). With an average 1,839m shares in issue, underlying earnings per share were 58.7p (2014: 65.4p).
Reported profit before tax was £160m (2014: £67m), compared to an underlying profit before tax of £1,432m (2014: £1,620m). A full reconciliation of headline to underlying profit can be found on page 21.
Free cash flow of £179m was materially higher than our Q3 expectations, reflecting strong cash collections at the end of the year from a number of key customers, a better than expected overall working capital performance and the non-recurring cash settlement arising from the intellectual property agreement mentioned above. Some of this positive variance is likely to reverse early in 2016.
A more detailed review of financial performance is included in the Group Trading Summary and the Financial Review.
Positive market developments continue to drive long-term growth
The long-term positive market trends for our leading power systems remain unchanged despite some near-term uncertainties that are expected to impact small aerospace engine production volumes and service activity on older widebody engines over the next couple of years. The trends driving demand for growth in large passenger aircraft, corporate jets and maritime activity remain strong; in particular a growing aspirational and mobile middle-class, particularly in Asia, and globalisation in business, trade and tourism. In addition, capacity constraints at the airframe manufacturers and a strong underlying demand for newer, more fuel efficient aircraft, should provide resilience to manufacturing schedules over the next few years as the industry transitions to new airframes during a strong replacement cycle.
The most significant short-term challenge that has emerged in 2015 relates to the changing demand for our Trent 700 engine as Airbus transitions production from old to new airframes. This has had a knock on effect on both demand for and pricing of the remaining engines to be delivered. Once completed, we will benefit from an exclusive position with the new Trent 7000 on the A330neo. In the near-term the profit impact of this transition is negative; the impact of lower pricing and gross margin is exacerbated by the accounting effects of changes within our large engine aerospace product mix as we transition to a portfolio increasingly comprising “unlinked” platform positions. However, the roll-out of new engines will significantly grow our market share and the installed base of new engines that will deliver strong aftermarket revenues for decades to come.
We recognise that these changes have been exacerbated by market uncertainty as to the impact of TotalCare accounting on our financial statements. As a result, we are increasing our financial disclosure to present a simpler narrative that will more clearly describe how the key drivers of performance translate into our financial results and aid transparency and understanding. These are included in the Trading Summary.
Announced initial findings of a detailed operational review
Our strategic priorities for 2015 remained largely consistent throughout the year, with a clear focus on the customer, innovation, and on driving long-term profitable growth. However, with short-term market conditions around us changing, it has been appropriate to review these priorities as we look to the next three or four years.
Since July, we have been conducting a review of operations and presented the initial conclusions in November. As part of this we shared our views on the strengths and weaknesses of our business portfolio and updated management's future focus and priorities around delivery and transformation.
Clear areas for business improvement
The review of operations also highlighted a number of opportunities to drive further performance improvements over and above the extensive restructuring programmes already underway. As we grew as an organisation we embedded costs and complexity in the business which, in periods of significant investment and product transition like now, is impacting our performance. But the higher costs also present a significant opportunity; to simplify what we do and sustainably reduce the cost of management, creating a more streamlined, resilient and sustainable business.
Strategic focus going forward
The review has led us to recast our priorities for 2016 onwards. As before, the overarching theme continues to be developing our products, services and order book to drive long-term profitable growth. We will do this by focusing on three common themes across all our businesses:
investing in and developing engineering excellence
driving a manufacturing and supply chain transformation which will embed operational excellence in lean, lower-cost facilities and processes and, finally,
leveraging our installed base, product knowledge and engineering capabilities to provide customers with outstanding service through which we can capture aftermarket value long into the future.
Our ability to deliver these priorities will be enhanced by a major transformation of our organisation; to simplify our processes and management structure, to add pace to our decision making and execution, and to provide space to develop our people and create a stronger, high performance culture.
These themes will become the cornerstones of our operational priorities going forward.
Major new transformation programme creating meaningful cost savings
The objective of our new transformation programme is to simplify the organisation, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making. Our target is to deliver incremental gross cost savings of between £150m and £200m per annum, with the full benefits accruing from the end of 2017 onwards.
In the last two months we have already announced a 20% reduction in top two layers of senior management and further reductions planned for 2016 and onwards. This has included removal of the divisional structure. To date we have already identified around 50%, or £75-100m, of targeted cost savings with a related exceptional restructuring charge of £75-100m which will be taken in 2016. Around £30-50m of the initial savings should be achieved in 2016 with the full run rate benefiting 2017. Further actions are underway to quantify the additional savings needed to reach our goals, together with the related costs which we expect to take in 2017.
To ensure we remain focused, we have set up a transformation team who will drive change to simplify processes and activities across the company to deliver sustainable performance improvements. The new team will ensure other restructuring programmes maintain progress. They will also help develop the comprehensive range of key performance indicators needed to support the changes we are looking to make inside the business. Several measures around site level productivity and aerospace engine unit costs have already being adopted within the business. These and other measures will be important indicators of the changing culture around productivity, cost reduction, investment efficiency and process waste. Details on new measures will be set out in further announcements.
Restructuring initiatives started prior to November continue to make good progress
During 2014 and 2015 restructuring initiatives were started, largely focused on our operational footprint within Aerospace and Marine.
In 2015, we consolidated our Civil Aerospace repair and overhaul activities, enabling the closure of sites in Brazil and the UK, along with further rationalisation of our UK manufacturing footprint. To date, nearly 80% of the targeted 2,600 Civil and Defence Aerospace headcount reductions have been completed with an 11% reduction in our 2013 operational footprint.
In May 2015, we announced a Marine restructuring programme to make significant reductions in both manufacturing footprint and headcount (by 600) and generate £25m in annual savings from 2016 onwards. This included work to consolidate our footprint and increase lower-cost country sourcing. At the start of October, we announced an additional programme of restructuring, focused largely on back-office administrative functions. This will lead to a further 400 reduction in headcount.
Good progress has been made overall, with related headcount reductions across Aerospace and Marine totalling 2,500 by the end of the year.
Update on regulatory investigations
We previously reported that the Serious Fraud Office had begun a formal investigation. The Group is continuing to cooperate with the authorities in the UK, US and elsewhere. As the investigations are still ongoing we are unable to give any further details or a timescale for when they will conclude.
The pace of investment required to transform the business creates near-term pressure on free cash flow. At the same time, we need to sustain a healthy balance sheet to ensure we have the financial flexibility to maintain a strong investment grade credit rating. As a result, the Board is recommending that the payment to shareholders is halved in cash terms at the full year and the next half year. We recognise the importance of a healthy ‘dividend’ to our shareholders. Subject to short-term cash needs, we intend to review the payment so that it will be rebuilt over time to an appropriate level. This reflects the Board’s long-standing confidence in the strong future cash generation of the business.
As a result, the proposed final payment for 2015 is 7.1 pence per share, 50% of the final payment made for full year 2014. It is further proposed that the interim payment for 2016 will also be reduced to 50% of the prior year, in line with the long-term recommendation. As in past payments, the distribution will be in the form of C shares. Further details are included at the end of this statement.
Outlook for 2016
Our outlook for 2016 is unchanged from that set out in November 2015. On a constant currency basis Group revenue for 2016 is expected to be marginally lower than that achieved in 2015, partially reflecting the pricing and volume effects in Civil Aerospace and the continued weakness in offshore marine markets. Overall, the net profit trading headwinds discussed in previous announcements are unchanged at around £650m compared to our underlying profit before financing, excluding the £58m intellectual property settlement included in ‘Other’ and the £19m R&D credit which benefited Nuclear.
Individual outlooks are provided for each business in the operating review.
Looking further ahead
The successful roll-out of new engines, led in particular by the Trent XWB, 1000 and 7000, together with a growing aftermarket, is expected to drive significant revenue growth over the next ten years as we build toward a 50% plus share of the installed wide-body passenger market. While the impact of the transition to the Trent 7000 has reduced Trent 700 deliveries, and will hold back Civil Aerospace profit in the near term, we are confident that the important investments we are making to transition our production will create a strong platform to drive customer service, improved margins and strong cash flows.
Our 2014 and 2015 initiatives to reduce manufacturing and back office costs within Aerospace and Marine are on track to reduce costs by £145m by the end of 2017.
In addition, we have made a good start to the transformation programme that will add pace and simplify our business, and create incremental enduring cost savings of between £150m and £200m per annum from end 2017 onwards. These initiatives will make us a more efficient and resilient company. At the same time, we will continue to invest appropriately to strengthen our engineering and operational excellence and aftermarket products and services. We have started the journey that will return the company to its long-term trend of profitable growth.
During the year there have been a number of important changes to the Board. On 22 April we announced that John Rishton had decided to retire as Chief Executive on 2 July, to be succeeded by Warren East. At the AGM on 8 May James Guyette, President and Chief Executive Officer of Rolls-Royce North America, retired and stepped down from the Board. John Neill also stood down at the AGM after six years as a Non-Executive Director.
Irene Dorner, formerly CEO and President of HSBC USA, joined the Board in July. Alan Davies, Chief Executive of Rio Tinto’s Diamonds and Minerals division, and Sir Kevin Smith, the former Chief Executive of GKN, the multinational automotive and aerospace business, both joined the Board from 1 November. In February 2016, Sir Kevin assumed Chairmanship of the Science and Technology Committee.
Irene brings a wealth of international expertise, particularly in risk management and operational performance. Alan, as well as having a strong financial background, brings relevant experience in transforming operational performance and driving cultural change through a complex global organisation, together with a deep knowledge of China and other key emerging markets. Sir Kevin also brings recent Asian experience together with significant aerospace industry knowledge, with engineering and manufacturing experience, after a long career at GKN and BAE Systems.
Lewis Booth, a US resident and an independent Non-Executive Director since 2011 has indicated his intention to relinquish his responsibility as Senior Independent Director once a successor has been appointed. He will continue as Chairman of the Audit Committee.
Dame Helen Alexander, an independent Non-Executive Director since 2007, will be stepping down from the Board after the AGM in May 2016 having completed her nine-year term. At that time she will be succeeded as Chairman of the Remuneration Committee by Ruth Cairnie, who joined the Board in September 2014.
Commenting on Dame Helen’s contribution, Ian Davis, Chairman, said: “On behalf of the Board I would like to thank Dame Helen for her dedicated service to the Company. She has been a wise and insightful member of the Board and her well-judged advice and leadership of our Remuneration Committee have been highly valued by her colleagues.”
Group Trading Summary
£m 2014 Underlying Change Acquisitions
& Disposals Exchange 2015
Order book 73,674 2,725 - - 76,399
Underlying revenue 13,864 (96) - (414) 13,354
Change -1% - -3% -4%
Underlying OE revenue 7,418 (363) - (331) 6,724
Change -5% - -5% -9%
Underlying services revenue 6,446 267 - (83) 6,630
Change +4% - -1% +3%
Underlying gross margin 3,523 (251) - (90) 3,182
Gross Margin % 25.4% -160bps 23.8%
Commercial and administrative costs (1,069) 11 - 54 (1,004)
Restructuring costs (149) 107 - 3 (39)
Research and development costs (730) (64) - 29 (765)
Joint ventures and associates 106 10 2 118
Underlying profit before financing 1,681 (187) - (2) 1,492
Change -11% -11%
Underlying operating margin 12.1% -130 bps 11.2%
Order book and order intake
During the year our order book increased by £2.7bn to £76.4bn. Key orders included our record single order from Emirates for 200 Trent 900 engines which contributed $6.1bn to the order book. Throughout the year new order intake in our Marine business was very weak, driven by significant market deterioration in offshore. Overall, orders were lower in Defence and Nuclear, although we view the prospects for these businesses as unchanged, reflecting long-term orders won in previous years.
Underlying group revenue declined 1% in 2015 compared to 2014 on a constant currency basis. This reflects a 5% decline in revenue from original equipment, partially offset by a 4% increase in services revenue, led by Civil Aerospace. By business on a constant currency basis, Civil Aerospace revenue increased 3%, Defence Aerospace revenue decreased 5%, Power Systems revenue decreased 3%, Marine revenue decreased 16% and Nuclear revenue increased 9%.
Underlying profit before financing of £1,492m (2014: £1,681m) was 11% lower on a constant currency basis, led by a significant reduction in Marine profit, driven by weak off-shore markets in particular. Civil Aerospace was down year on year, although performance was helped by around £222m of retrospective benefits (2014: £150m) led by refining the basis of taking account of risk in our forecasts of future revenue on long-term contracts, and the reversal of previously recognised impairment on contractual aftermarket rights (CARs) and release of a related provision. Defence Aerospace delivered an improved year-on-year profit which included one-time contract benefits, led by contract extensions and reduced long-term costs. Power Systems was down year-on-year in line with our expectations on a constant currency basis as the business managed well with a number of weaker markets. Marine, as expected, was sharply lower, reflecting the weak oil and gas offshore sector and Nuclear was in line, after excluding the positive R&D credit.
R&D charge increased 11% over 2014 on a constant currency basis, largely reflecting ongoing investments in Civil Aerospace for the Trent 1000 TEN and Trent XWB-97, together with higher spending on the Trent 7000 and corporate jet programmes. In addition, we increased investment in future technology demonstrator programmes and improved emissions solutions for Power Systems applications. In addition, capitalisation of R&D declined significantly largely due to the entry into service of the Trent XWB-84 in January 2015 and increased recognition of entry fees.
Underlying financing charges were £60m (2014: £61m). Underlying profit before tax was £1,432m (2014: £1,620m). The underlying tax charge was £351m, with an effective tax rate of 24.5% (2014: 24.0%).
Free Cash Flow
Cash capital expenditure in 2015 reduced to £479m (2014: £616m), largely reflecting lower spend on new aerospace facilities. Cash taxes were £160m (2014: £265m exc. Energy). The cash cost of defined benefit pension schemes in excess of the earnings charge was £46m (2014: £154m exc. Energy).
Overall, the free cash inflow for the year was £179m (2014: inflow of £447m, adjusted for Energy). The significant decline from 2014 primarily reflects lower trading margins, and adverse working capital movements. The TotalCare® net asset movement year-on-year was slightly higher than expectations.
Net debt, TotalCare net assets and Contractual Aftermarket Rights
The Group is committed to maintaining a robust balance sheet and a strong, investment-grade credit rating, which it believes are important when selling products which will be in service for decades. Standard & Poor’s updated its rating in January 2016 to A/negative outlook and Moody’s maintained a rating of A3/stable.
At the end of 2015, the Group’s net cash balance reduced from £666m to a net debt position of £111m, reflecting the £179m positive free cash inflow, share repurchases totalling £414m and shareholder payments of £421m. Other items include residual payments related to the divestment of the Energy business and non-cash foreign exchange movements. On 6 July we announced that we had curtailed the share buyback associated with the Energy business sale at the to-date total of £500m, including the shares purchased in 2014. During the year we refinanced our revolving credit facility, increasing it to £1.5bn, and issued two new US bonds, totalling $1.5bn.
The Group hedges transactional foreign exchange exposures to reduce volatility. The most significant exposure is the net US dollar income of approximately $5bn per year which is converted into GBP. The hedge book was approximately $29bn at the year end, which represents around five years of cover. The average achieved rate in our hedge book at year end was $/£1.59.
TotalCare® net assets increased in 2015 by £406m (2014: £463m) to £2.2bn (2014: £1.8bn), reflecting accounting for new ‘linked’ engines of £521m (2014: £588m) and the retrospective TotalCare accounting adjustments of £222m (2014: £150m) taken in the year, offset by the cash inflows and net other items of £337m (2014: £275m). The CARs balance increased by £156m to £405m (2014 £249m). The increase included £50m arising from the decision to reverse the impairment of prior year CARs.
Group technical factors for 2016
All figures are at constant currencies unless otherwise stated.
Overall finance charges in 2016 are expected to be in the region of £90-110m, reflecting current bank rates and the higher level of net debt, including additional committed facilities and cash balances maintained for liquidity purposes. The increase reflects the fact that the underlying gain of £34m taken in 2015, on realised foreign exchange contracts settled to convert significant overseas dividends from group companies, is not expected to recur.
The effective tax rate for 2016 is expected to be around 26% reflecting the greater proportion of taxable profit expected to be generated in higher tax rate regions in 2016 compared to 2015.
Capital expenditure for 2016 is expected to be around £500-550m (2015: £494m).
Net R&D spend is expected to be again over £800m in 2016 reflecting the steady investment in new development programmes and expenses related to the completion of important new product launches in Civil Aerospace. The net R&D P&L charge is expected to be broadly unchanged at around £750-800m.
After a strong finish to 2015, led by strong cash receipts and good management of year end inventories, free cash flow for the year was £179m, around £250m ahead of expectations. As a result, free cash flow in 2016 is likely to be at best in line with previous expectations for a modest overall out flow of between £100-300m.