Andrew Lappin - Director, Corporate Affairs Andy Reynolds Smith - Chief Executive Chris O'Shea - Chief Financial Officer

Mark Davies Jones - Stifel Nicolaus Andy Simms - Citigroup Alex Virgo - Nomura Robbie Capp - Bank of America/Merrill Lynch David Larkam - Numis Securities Robert Davies - Morgan Stanley Sash Tusa - Agency Partners Kath Kaman - Allianz Global Investors Jonathan Hurn - Credit Suisse Alasdair Leslie - Societe Generale Michael Blogg - Investec Bank

Good morning, ladies and gentlemen. Welcome to Smiths Group's interim results presentation.

My name is Andrew Lappin I am the Head of Corporate Affairs here at Smiths. [Operator Instructions] And I'd be grateful if you'd read, and inwardly digest, our disclaimer slide.

Thank you. It's now my pleasure to introduce Andy Reynolds Smith, our Chief Executive.

Thanks very much, indeed. Good morning, everyone.

It's very much appreciated everyone being here today, particularly as I know there's a finance guy even more important than Chris O'Shea speaking later on this afternoon. I'll leave you to make your judgments, once you've heard what Chris has got to say.

But it's fantastic to see everyone here at my first results presentation. I was reflecting, on the way in, my journey through the technology business over the years that have brought me here today.

Because I started out at 16 years old as an apprentice at Texas Instruments, running test programs for what were the most advanced semiconductors in the world at that time, and very different now. But just to give you a feeling the way that technology has come on in my life, we used to load the test programs using punched cards, which I'm hoping most people in the room aren't old enough to remember that.

But it certainly illustrated to me, as I was reflecting on my journey to today, the biggest concern always was dropping the pack of cards before you loaded them, because sorting them out again was not easy. But, anyway, thank you, again, for everyone being here today.

I'm joined, as you can see, by Chris O'Shea, our Chief Financial Officer, as well as Bill Seeger, a non-Executive on our Board. I'd also like to thank, before we kick off, the invaluable folk who help make these events happen.

There is an awful lot of activity that goes on behind the scenes, so, to Andrew and the team, thanks very much, indeed. I wanted to start talking really about the first-half results, and then afterwards have Chris cover the financials, and then, I'll move on to my initial observations and priorities.

I started at Smiths a little over five months ago now, and since then I have really been dedicating myself to seeing the Company, experiencing the Company, and getting to really understand what makes it tick and what we can do best to take things forward. In short, where the potential is in this business, how do we be the best at what we are doing, as you saw on the opening slide?

I've been especially pleased by the quality and passion of the people, the depth of the technology, and the capability that I've seen across this organization. Based on what I've seen, I've got a really good feeling in my stomach about how we can build something really special.

I could see the potential in this business during my due diligence before joining, and my view continues to be reinforced as I've travelled around the world to our different sites and reviewed strategy and the way forward. Smiths is a global company with some really outstanding -- in fact, I would say, if I was asked to comment on one of the most significant first impressions for me, it's been the depth and quality of what are some really quite eye-opening technologies.

Smiths have been around for 160 years, and that's 160 years of change and development in a business that's really developed a powerful DNA of innovation. We aim to unlock that DNA as we create our future, and as our culture and values evolve.

I'm confident that we can build on what is a strong platform, and I can see clear opportunities and the potential of the future. There is some real scope for improvement, positioning us to deliver sustainable growth and shareholder returns, and now, if you'd let me let me take you through our first-half results.

From a trading perspective, this is a solid set of results, demonstrating the benefits of our range of end-market exposures. On an underlying basis, Group revenue was down 3%, and headline operating profit down 6%.

This was in line with our expectations. This was largely driven by declines in John Crane with the other four divisions either up, or close to flat.

As we stated earlier in the year, John Crane's performance was impacted by persistently tough oil and gas markets. However, the business model prevailed, and our aftermarket revenues proved more resilient.

We benefitted from continued growth at Medical and good profit growth at Detection. Performance at Interconnect and Flex-Tek was in line with expectations.

The Board has declared an increased dividend at the interim of 13.25p per share. I'll now turn to the performance of each of the divisions in the first half.

John Crane's underlying revenue fell around 11%, against a backdrop of difficult market conditions. Our first-fit sales, those sales that go in to the original build of the refineries, for example, fell 15%, but aftermarket sales, as we've said, proved more resilient, declining only 7%.

Aftermarket revenue as a percentage of total was slightly up at 58%. We do continue to see high capacity loading of the refineries around the world.

The world is still consuming 95 million barrels of oil a day, despite the supply side issues that appear to be driving the current situation. That said, we're seeing some facilities postponing operating expenditure on upgrades and retrofits.

This is driving an increase in preventative maintenance activity as efforts to improve reliability and efficiency increase. That's a good thing for us.

John Crane's headline operating profit margin fell 330 basis points to 19.9%. This was driven by lower volumes, and also by investment in strategic first-fit projects to increase our installed base.

These investments reduced margins by around 90 basis points in the period, but are an important reflection of our commitment to the long-term aftermarket, and our investments in that long-term business case. As you would expect, we're also taking firm action to position John Crane in the current environment by addressing the fixed cost base.

During the last year, we've cut headcount by 4%. Further actions are now underway, primarily focused on improving the flexibility and the efficiency of the way our business operates, to put more simply, making the business more capable and more flexible to take advantage of the ups and the downs in the market, as they occur.

I think it might be helpful to pause for a moment to really take a closer look at what I think sets John Crane apart from many of its oil and gas peers. First of all, 40% of revenue is derived from non-energy sectors, such as pharma, chemical, and paper.

This remains a key focus of the division with, for example, a recently secured first-fit project in South Korea in the biotech industry. Secondly, within the 60% of the business that is energy-related, our split is around 75% downstream, that's the refineries, 15% midstream, that's the pipelines, and 10% upstream, broadly around exploration and production.

So John Crane's total upstream exposure is around 6% of total revenue. When you think about that in terms of Smiths Group overall, it's less than 2%.

But what really sets John Crane apart is its customer service, the quality, and the pure technology. These are products with tolerances of a few microns that operate at 20,000 revs per minute.

And these are not rubber O-rings, these are products that sell for between $20,000 to $50,000, and cost many tens of thousands of dollars to refurbish and service. That was an important part, for me, in understanding how that business operated.

I saw customer service in action when I visited John Crane customers in Texas in December and their senior management, maintenance crews, and, I have to say, spend a bit of time switching between hard hats and Stetsons, neither of them suited me, I was told. And it's really about dedicated service, trusted relationships, and products that customers, value and rely upon to keep high-value assets running.

A refinery is a large investment that runs for many decades, and our seals are mission-critical and require multiple interventions every few years. We continue to enjoy, as we go through this difficult period, high levels of stickiness with our customers.

So we plan to keep expanding our installed base of seals, and other mission-critical components, in order to secure that long-term aftermarket revenue in the long-term. Turning to Smiths Medical, the business continued to deliver in the first half.

Revenue grew by 1%, and profit by 4%. The sales growth was driven by infusion systems and vital care, offsetting small declines in vascular access and specialty products.

Profits were up because of increased underlying revenue, and because of tight cost controls, and the benefit of some of the restructuring that's been carried out over the last year. And I'm pleased to say, margins are now back above 20%.

We were pleased also with the performance of infusion systems in the half. It was against an especially tough comparative period.

And we also benefited from a bigger installed base of portable infusion pumps, alongside strong sales of syringe pumps downstream. We're also taking steps to revitalize our program of focused and targeted R&D, where funding increased by 50 basis points to 5.8% of sales.

For example, in China, we launched our Graseby F6 syringe pump that has been developed, for the first time from the ground up, by our Shanghai R&D team, in close cooperation, of course, with Medical's new global technology center in Minneapolis. Our overall Asia Pacific market presence in Medical continues to develop, too.

China grew by 9% and India by 20%, as our direct presence in those markets delivers some positive results. This is part of our drive towards channel-to-market simplification in the Medical division, and more broadly.

It's probably worth highlighting that more than 80% of sales come from an aftermarket of consumables and disposables, rather than initial capital goods only. It's a very important characteristic of the business, and a feature about how we think of creating value in the future in Smiths Medical, and across the Group.

I was particularly pleased by Detection's first-half numbers. And we have the Finance Director in the room here, so, Lily, thank you for that.

A good revenue performance and much improved profits were due to the action that's been taken by management to drive value engineering, and, particularly for me, rigorous approach to program and contract management. Revenue grew by 4%, a strong performance in ports and borders, and continuing progress in military.

This was offset by some weakness in the period in transportation and critical infrastructure. Headline operating profit grew by 38% as a result of increased sales, a strong business mix, and growth in the aftermarket.

The value we get from activities like servicing contracts and upgrades now stands at 38% of sales, that's more than double where it was only a few years ago, when the focus was primarily on device sales. The market continues to respond and evolve in an increasing global-threat environment.

Highlights, which go some way to demonstrating that, include business wins in the first half, such as our first XCT scanner in Asia Pacific at Hokkaido Airport, checkpoint equipment in South Korea, wins in aviation security in Saudi and Kuwait, and an order for baggage scanners for the Indian Airport Authority. In addition, I'm delighted to be able to announce today a $65 million five-year agreement with the U.S.

Federal Protective Service to provide x-ray systems for government buildings right across the country. Company-funded R&D in Detection in the period was 5.1% of sales.

We put a greater focus on allocating capital with clear commercial potential. Interconnect delivered a stable performance in the half.

Revenue declined 3%, with underlying profit flat year-on-year. Operating margin went up 50 basis points, driven by the performance of connectors and power, and by the benefit of restructuring and cost controls.

These more than offset volume-related margin reduction in our microwave business unit. In connectors, underlying revenue was broadly flat.

And we saw semiconductor sales decline, in part due to a tempering of the smartphone market volumes, and a changing brand mix as Asian competitors emerge. However, sales in the medical sector and commercial aerospace increased.

Microwave sales were down 8%, due to some programming delays in defense and telecoms, and revenue at power improved slightly. Overall, Interconnects performance has stabilized.

Thanks to a highly disciplined management approach the business now has a greater focus on product development and key customers, which will take it forward, and on generating growth in Asia. And finally for the half, Flex-Tek delivered another solid performance.

Revenue declined 1% year-on-year, due to passing through of lower nickel prices and because of some easing in orders by Titeflex's industrial customers. Operating profit fell 5% on an underlying basis, with margins down 50 basis points.

This was largely due to the full transition to a range of innovative new flexible gas piping used in the U.S. construction home build market.

Overall, the division saw a number of market segments grow, including aerospace, housing, and medical. We were pleased, too, with our performance in China from the Flex-Tek business, where revenue grew double-digits.

I'd now like to hand you over to Chris, who is going to take you through the financial performance in a bit more detail. Thanks, Chris.

Thank you. This slide goes to show that there's only so much you can do with Photoshop.

Thanks, Andy and morning, everyone. Like Andy, I'm very happy to be here in my first results presentation as CFO of Smiths Group.

I'd like to take some time to cover the financial results for the six-month period to January 31, 2016. Looking now at the key financials for the half, revenue for the period was £1.372 billion, a decrease of 3% from the prior period.

Excluding the impact of acquisitions and disposals and currency translation effects, headline operating profit fell 6% to £217 million, which resulted in the margin decreasing by 60 basis points to 15.8%. We were pleased to record an improvement in headline free cash flow, which rose 32% to £174 million.

Return on capital employed was in line with the prior period at 15.4% with weakness in our John Crane business being offset elsewhere, most notably, in Detection. Earnings per share for the six-month period were 35.2 pence, reflecting lower trading profits and a higher interest charge, partially offset by 0.5 percentage point reduction in our effective tax rate to 26%.

The Board has declared an interim dividend of 13.25 pence per share, 2% growth over last year. Now I'll take some time to take you through the results in some more detail.

As you can see on Slide 13, the net impact of acquisitions and disposals and currency translation effects was a reduction in revenue of £2 million. Our revenue weakness was principally driven by softness in the market served by our John Crane business, where revenue fell by 11% on an underlying basis.

Growth in our Medical and Detection divisions more than offset the falls we witnessed in Interconnect and Flex-Tek. All in all, underlying revenue fell by £42 million to £1.372 billion.

Moving on now to headline operating profit, the net impact of acquisitions and disposals and the currency translation effects was an increase of £1 million. On an underlying basis, profits fell by £16 million, where improvements in results in Detection and Medical were more than offset by the impact of lower revenues in John Crane.

Overall, this resulted in headline operating profit falling to £217 million, down 6% on an underlying basis from the prior period. The Group's operating margin was down 60 basis points to 15.8% with the decline in John Crane margin more than offsetting the increase at Detection, Medical, and Interconnect, where good cost control offset the impact of lower revenues.

Let's look at cash flow now. For those of you that know me, it will be no surprise to you that my primary focus is on cash.

Over the past few months, we've spent a lot of time with our new colleagues, discussing the importance of cash flow, and how to generate the resources required to grow the business. Therefore, I'm very pleased to tell you that we converted 100% of our headline operating profit in to cash, which is good progress on the 88% we managed in the same period last year.

Our capital investment of £42 million was almost 95% of depreciation and amortization. We saw a £10 million outflow of working capital in the first half with inventory relatively flat, and a strong reduction in trade receivables being more or less offset by a similar reduction in trade payables.

Adjusting for £8 million of other items, including the impact of share-based payments, our headline cash flow from operations was £218 million, £1 million higher than headline operating profit. Our headline cash outflow and interest in the period was £19 million, and we made cash tax payments of £25 million.

As a result, headline free cash flow was £174 million for the first half of the year. Turning now to Slide 17, I'd like to take some time to walk you through the movement in net debt.

The retranslation of our opening net debt of £818 million to current FX rates cause an increase of £108 million, principally due to the strengthening of the U.S. dollar, but also partially due to the strengthening of the euro.

The cash outflow in the period related to non-headline items was £102 million and this is primarily due to legacy pension and litigation liabilities. As previously announced, our cash contributions to pensions will fall substantially in 2017.

The net effect of headline free cash flow of £174 million, the 2015 final dividend payment of £111 million, and other ongoing activities was an underlying reduction in net debt of £42 million. And at the end of the half, our net debt was £986 million.

As you can see on Slide 18, we have a consistent financing strategy with a well-diversified debt portfolio consisting principally of US dollar and euro bonds with a range of maturities out to 2023, and the revolving credit facility. These facilities have a combined weighted average life of 4.6 years at the end of the half.

The upcoming maturity of the £150 million sterling bond will be met from the £461 million of cash we held at January 31. The Group's $800 million revolving credit facility was recently extended for a further year and will now mature in February 2021.

This facility is currently undrawn. During the period, we announced the conclusion of a pension-funding exercise after agreement was reached with the trustees of both of our UK pension schemes.

The agreements now mean that we have significantly lower pension deficits. And this has enabled us to substantially de-risk pension schemes in the UK, where only 5% of the SIP scheme and 25% of the TI scheme is held in equities.

In the U.S., we have no equity exposure at all. This has reduced the value and risk in our pension schemes, and from 2017 will result in an increase in free cash flow of £50 million per annum against a normal year of pensions.

In the current year, our contributions will be £27 million lower than we had anticipated at the time of presenting our full-year 2015 results. So we expect to contribute £124 million in 2016, and you can see that falling to £50 million in 2017, onwards.

We are, of course, a responsible employer and we're happy to be to reduce the contributions whilst continuing to meet our commitments to our pensioners, both current and deferred. Taken together, these actions mean that we have certainty of funding over the next three years for all Smiths Group pension schemes.

And we're happy to have concluded this exercise and look forward to the benefits that this will bring to the Group over the coming years. Andy will shortly outline his observations on Smiths and our priorities for how we will run the business, going forward.

But before I hand over, I want to pause and highlight my priorities for strong financial management. We'll extract efficiencies across the businesses, and we'll focus on intelligent cost control.

And by that, we mean we'll ensure we get the appropriate value for every £1 we spend. This will enable us to further invest in growth opportunities.

Having visited a number of our operational locations, we can see opportunities to increase plant utilization and, therefore, use our capital assets more efficiently. We've got a lot of money in working capital.

We have around £900 million in a combination of trade receivables, inventories, and trade payables. And it's clear to me there's considerable scope for improving our working capital position, freeing up more cash for targeted investment in growth-generating opportunities.

A previous boss once told me cash is not king, cash is God, and I happen to share his view. Our focus on generating cash will be consistent and constant.

We'll have a rigorous approach to the allocation of capital, to the priority of investing in areas of the business which will drive sustainable long-term returns. In summary, disciplined financial management will underpin our approach to managing Smiths Group.

I'd now like to hand you back to Andy, who'll take you through his initial observations on the Group.

Thanks, Chris. And God bless you, my son.

As I said earlier, I joined Smiths in late September, and it's been a fascinating journey the last few months for me. It's really been, for me, about assessing where we are in terms of being the best at what we do, our ability to execute, and the positioning that we have in the market, and our own competitiveness, as we move on our journey towards leadership.

I can see some significant opportunities for improvement and potential for value creation, and particularly for growth across the Group. And these are playing an important part in the development of our vision and strategy for the future.

Both Chris and I have spent a lot of time getting to know our businesses, travelling the world, and visiting sites across Europe, the US, China, and meeting well over 1,000 of our new colleagues in every situation, from strategy reviews to town hall meetings. And it's been an incredibly productive time, giving us a clear sense of our areas of strength and an understanding of where we can do more to improve.

There's a lot of goodness here, and a lot of potential. The good news is we do have five good businesses, all of them on a different part of the journey towards leadership, all of them in end markets with market leadership positions and long-term structural growth drivers.

Among our 23,000 people, we've got a deeply embedded passion for innovation and development of the business. We have a very strong engineering and science base.

It was my first and strongest impression, the depth of the technology capability in this business. We're a global business with some really important market leadership positions around the world, which we can build on.

I've also seen some great examples of excellence across the Group. I'd like to talk you through some of those areas in the way and the categories that we're thinking about excellence in building this business for the future.

We're going to sharpen our focus significantly on doing the things that customers value and are willing to pay for. As a Group, we are going to be doing more to drive simplification and speed of decision-making, and a culture of continuous improvement right across the Group, right across the business in an existing way that builds on our existing strengths and improves our ability to execute.

Some of the strengths in technology first, like the cutting-edge technology I saw at Detection's operation in Wiesbaden with complex algorithms and outstanding software engineers, building technology that can detect materials on a molecular level, building image libraries that can piece together threats, like disassembled ceramic handguns hidden in different bags as people try to check through. And new products, like XCT, which combines x-ray and computed tomography imaging for high speed hold baggage screening.

Great examples of how we're helping to make global travel safer and more efficient. But, of course, our innovation is not just in Detection.

There are other examples of technology excellence, including patient-friendly portable infusion pumps for premature babies, where the level of delivery of the drugs is so crucial, and the sophistication so high, and our position is leading. New gas technology seals that help industrial plants run better, and cleaner.

And high-performance connector systems for the satellite sector, we have more than $250,000 of Interconnect ultra-high performance product on every SSL satellite that's launched, for example, and that number's increasing. I've also met with a number of customers to get a sense of where they are, to get a real feel of the strength of the relationships that we have and the level of customer intimacy that we have in places across the Group.

We're going to need to keep building on this intimacy and increasingly develop a strategic alignment with our customers as we move hand-in-hand forwards. We also have some great examples of brand power.

Too many to mention, but examples include Medical's Portex trach tubes. These are products that are asked for by name every day in hospitals, operating theatres, and emergency rooms.

I've also visited several manufacturing sites that have given me some insight on how we approach production excellence across the Group. It's an approach I saw in Interconnect's operations in Shanghai, where their cost and time per part per employee has improved tenfold in the last three years, due to the introduction of single-piece flow.

At Detection in Wiesbaden, there was a small team who'd decided to organize part of the shop floor more efficiently, using 5S and cell manufacturing techniques. Andreas there, the team leader, said to me, I've been here 26 years and my job today was to show you that we're willing to change.

Well, I hope you're listening this morning, Andreas, because I heard you, and I saw what you did. There are many examples like this taking place across the Company, each, in their own way, delivering improvement.

And we will take a more consistent approach Group-wide and do more. The operations across the globe are bought-in materials and materials -- bought-in components and materials make up nearly two-thirds of our total cost of sales.

So it's an extremely important part of our future structure. A key question from me, therefore, is how efficiently do we manage our supply chain, put simply, the flow of value in the business, the order-to-cash cycle?

As I'll set out in a minute, I believe there's significant potential for us here. Program management has also been a key area of attention for me.

In many of our businesses, we have long running contracting programs and multi-year service contracts, and some of these have caused difficulties, historically. As a reminder, 55% of our Group revenues comes from aftermarket sales and servicing, that's a figure I believe we can grow as we develop our business model.

And finally, as we speak about excellence, it all comes down to people and leadership. There's no doubt in my mind they provide the inspiration and the platform on which our future success will be built across Smiths.

I'm often asked about competitive advantage, and where it lies, and there are many forms of competitive advantage, of course, operationally and technically. But for me, the one truly sustainable competitive advantage is our people, and ensuring that we develop them and give them the opportunities to be the best they can be.

By striving for excellence in these six categories, technology, customers, production, supply chain, programs, and people, and by spreading best practice and consistency of ruthless and rigorous execution across the whole of Smiths, I believe we can unlock significant value to fuel and develop the growth for the future. I now want to look briefly at two areas where it's already clear for me that we can improve, first, our customers, and then in our operations.

Doing better at both of these will underpin our ability to grow above the market in the future. We must become much more customer-centric.

Our aim is to broaden and deepen the value and content that we supply to our customers, not just at the time of initial delivery or installation, but throughout life. As I've indicated, I believe we can drive up this share of through-life revenue in our aftermarket servicing, consumable, and disposable sectors over time.

Customers need solutions. The world is moving quickly.

And it's clear to me that we must do more to align our innovation capabilities to their needs as we seek to improve the breadth and depth and content of the value that we bring. Trends, such as digital industrialization, are reshaping customer and consumer expectations, and the service offering that we should be providing.

That's an obvious area where we need to innovate and extend our capabilities. I visited, in Texas, one of the INEOS refineries, which is one of the world-first installations of our condition-monitoring technology, where a nerve center capability is put in place to monitor all the pressures, flows, temperatures throughout the operation, and then targeting the right levels of maintenance and repair.

It's going extremely well, and I think it's a technology that you'll be hearing more about in the John Crane model. We also need to develop a clearer sense of the technology trends that are going to shape the future, thinking about technology and those technologies which will disrupt the future over a 15-to-20-year time horizon as an important part of the way that we'll be thinking.

Overtime, my aim is an expectation to increase the amount we spend on R&D, but we also need to ensure that it is deployed in a much more focused and commercial way. I'd now like to look a little bit at operations, and some of the potential that we see in the shorter term.

I've come from an industry that is used to an intense and ruthless focus on operations, so have an idea of what good looks like here. Smiths enjoys a reputation of strong margins when execution is robust, and deservedly so, but that might lead you to conclude that we've optimized our operational efficiency.

But, of course, margins alone do not reflect the efficiency of the business. We have some great examples of lean manufacturing across the Group.

But I do see real scope to make operations better in terms of plant utilization, reduced inventories, and improving the flow of value in our operations, basically, cutting the time between taking the order and getting paid. And that's something that the customer values as highly as we do.

A key early focus for both Chris and I is around working capital. One particular example I will pick on is our average stock turns across the Group are 2.5.

In rough terms, that means we rotate stock about once every four months. That's not good enough.

As I look at the opportunities to improve, improving this by 1 turn would free up cash flow of over £100 million for investment in the growth in our business. We will, and should be aiming to, fund investment in new capabilities and growth through savings we can make in our operations, thereby enabling us to protect our margins.

But it's about more than freeing up financial firepower. A more rigorous culture of continuous improvement is critical to ensure better consistency of execution.

At times in the past, I think it's fair to say that Smiths has not always been consistent across all its divisions in terms of execution. Another thing that's clear for me is that in recent years growth has been a challenge.

This is a company that can grow. With the right actions, I'm absolutely confident we can grow above the markets that we serve.

We have good quality businesses that need more focused investment in growth opportunity, and more rigor in consistency of execution. 80% of our revenues come from only five market sectors, attractive markets, healthcare, security, energy, defense.

And having reviewed our top product lines, we found that only half are growing, the other half are flat to down. The question that we're working through, of course, is why?

And the answers we're getting is it's not only a function of the market, it's a function of the sub-segmentation of the market, and it's to do with our own competitiveness. We're working on addressing all of these things.

We're changing our approach to view from the customer- and market-attractiveness perspective, of course, underpinned by technology and innovation, but looking very hard at our own competitiveness, our relative market position, to assess the point on the journey, and the process that we will take to move through the journey. I think it's giving us a good sense of the relative market strengths and the future direction of our business.

For me, the key to driving sustainable growth is to understand what we need to do more of and what we need to do less of. Focusing more clinically on these attractive market segments, and the capabilities that we need, will help us to identify where we need to position ourselves in the right growth-orientated markets, where we need to get closer to our customers, where we need to sharpen our own competitiveness, and where we can expand our geographic exposures.

It's already clear to me, for example, that we don't do enough in Asia Pacific. These markets account for just 15% of Group revenues with China at only 4%, and India at only 1%.

This will present an opportunity for us in the future. Our approach will be guided by what we're calling squaring the circle.

There's, clearly, a virtuous circle of growth, investment, and returns, but we must have a balanced focus in every investment decision on both growth, margin, return on the capital that we have employed, and cash. We'll continue to do that throughout our decision-making.

By the way, aligning these measures with how we incentivize our people in the future, throughout the organization, will be an important part of focusing attention on these growth drivers. I hope that some of these reflections have given you a sense of the approach that we're taking to developing and running the business.

My priorities are going to be, in the next months, really broadening and deepening our approach to customers to understand clearly what value we can bring, the more value and content is a key underpin of growth above the market, intensifying our focus on operational excellence in the business, across particularly production, supply chain, and program management, and positioning Smiths to develop the capabilities and leadership for above-market growth through a more focused approach to market segments, customer attractiveness, and our own competitive positioning. Cutting across all of these will be a disciplined and vigorous approach to financial management and capital allocation, as Chris has outlined, focused on sustainable growth and enhanced returns.

I hope, from my comments today, it's clear that I see considerable potential in this business. Finally, before opening up to questions, I'd like to provide you with a summary of the Group outlook for the second half.

We're expecting global energy markets to remain challenging in the second half, and are taking action to ensure that John Crane is well positioned in that environment. I expect Medical to deliver similar revenue performance in the second half, driven by growth in infusion systems, vital care.

Medical's margins should benefit further from the effect of operational efficiencies and restructuring actions. Thanks to its strong order book, Detection is expected to see higher level of sales growth in the second half.

But the margins we saw in the first half are likely to moderate, given contract mix and investment in new business capabilities. As previously guided, the Group's performance is slightly more weighted to the second half than usual.

Our expectations for the full year remain unchanged. Thanks again for this morning.

Appreciate your patience on this busy day. That concludes the presentation from me, and very happy to take any questions.

And I'm sure Chris feels the same. Thanks very much.

Mark Davies Jones, Stifel. Can I start with one fairly general one and one more specific?

On China, and growing the share of the business in the Far East, that's been an ambition for some time at the Group, and, clearly, progress has been relatively slow. What do you think needs to change?

Is it how you go to market as a Group, or as a set of divisions? Or is it going to require some M&A?

Yes, I think it's a bit of all three. I think one of the challenges that you face in China is that, typically, because our businesses are relatively small there the critical mass that you have, particularly in terms of management and leadership on the ground, depends on smaller units.

So we will be doing some work to try and create more of a leadership critical mass and on-the-ground strategic capability to help the divisions as they develop. Part of the other issue is channels to market.

In common with lots of companies, the first step in is through third parties. And I think as I mentioned in my comments, driving a channel to market simplification and a bit of a more direct access approach there is really important for us.

We're also very open-minded about the market and the technology, particularly now developing some of our core technologies on the ground in China, which, for me, is crucial. It's a balance of risks, as with all of these things, but it's an important part of the way that we go forward.

So more horsepower, I think, in a more structured and focused way.

And then, the more specific one is the outlook for Crane through the balance of the year. Typically, the seasonality has pushed margins up a little bit second half versus first half.

Is that still a pattern we'd expect? And should the cost savings be effective already in the second half?

Can you help me out with that one, Chris?

I think you can expect to see an increase in margins, if other things remain equal, in John Crane in the second half versus the first half. And there have been some actions taken in the first half that should drive out some cost.

I would also like to add, Andy's a bit too modest to tell you, but in terms of China, Andy was responsible for GKN's business in China, and when we visited there in January clearly has a lot of contacts, a lot of empathy there. I think you really have to focus on that business, and he's now taking the right responsibility for China, so I think that will help bring in focus.

That will really help us, I think, as a Group.

Andy Simms, Citi. Just a couple of questions, if I can firstly, on investments, is there a level of investment required in anything such as sales and systems to achieve what you want, going forward?

And then secondly, just on the CapEx number we've seen in the first half, can you just give us an idea about where that might end up for the full year? Thanks.

Let me take the first part of that, Chris. I think as we sharpen up our focus on understanding markets, the attractiveness of the markets the segments by product line, and so on, we are continuing now to develop our business intelligence or our analytics, which helps to drive the sustainability of that.

So that's a key focus of how we're taking things forward and driving the decision-making. And I'll pass the second piece over to you, Chris.

Absolutely, CapEx should be broadly similar in the second half to the first half. There are some things that are ongoing that won't be repeated, for example, a new facility at Laconia for the aerospace business in Flex-Tek, but it should be broadly similar.

I would say, if underlying your question on systems is are we going to implement an ERP across the Group, the answer is absolutely not. There are some system improvements, but this is not a major investment required in order for us to run the Group.

Sorry, just to come back on the CapEx side, how do you see that as a long-run number? Is it sustainable around the same level as depreciation, or does that have to go up?

I think it really depends. It's broadly, yes.

So we do have some capacity in the existing asset base, the question is whether the capacity's in the right place. So with 4% of revenue in China, we've clearly got a lot of capacity in the U.S., there's a point at which we want to build more capacity elsewhere.

So I would say, all in all, we've got about £300 million of PP&E in the balance sheet, so this is a capital-light business, that we see nothing that would change that.

Alex Virgo, Nomura. I just wondered if you could dig in to John Crane a little bit in the first half.

Can you break out the decline in the aftermarket business a little? Maybe you can tell us how much of that down 7% was due to project delays and deferred maintenance, and how much of it is the overall aftermarket falling, if you see what I mean?

And then, on the OE side, can you talk a little bit about how much of the decline was the artificial lift systems specifically, the upstream specifically, which I imagine got absolutely crated, and how much of it was the broader oil and gas supply chain? Thanks.

Yes, okay.

Maybe I can take the last bit, first. We won't break out the John Crane production solutions, the artificial lift, but it is fair to say that, that business has seen more of a hit than the refining business.

And that has contributed to the higher level of first-fit or OE drop that we see versus the aftermarket.

I think on the aftermarket business overall, it's been a key point for me really, just how resilient is that piece, that aftermarket and downstream piece. The start point with it is this is not a demand-side challenge we've got in the market at the moment.

We're still refining 95 million barrels of oil a day, so those refineries are still running really hard and they need to keep running hard. We are seeing people looking at potentially delaying refinery retrofits, for example, where they would go through a midlife upgrade, and move more towards an extended preventative maintenance program.

So there are some switches going on like that. I think overall people are just trying to delay -- not cancel, because they can't, because the implications of something failing outweigh any benefit that you might see from cutting corners.

So, yes, it is being squeezed. It feels like it is being pushed out.

What we're not seeing is any squeezing on the stickiness of our share in that aftermarket. And over time, the expectation is that if you're going to keep the refineries running you have to maintain and repair them, and you have to replace.

I would say, at the moment we're seeing more push out than cancellation.

And then, last one just on the 90 bps that you called out related to strategic, or loss-leading, I guess, on first-fit for the aftermarket benefits subsequently, I guess two parts to it. One, when do you expect to see the benefit coming through on the aftermarket?

And second one is I would imagine that that's only going to get bigger. So, as we think about comments on the second half and John Crane, and looking forward maybe in to 2017 as well, are we likely to see that 90 bps -- should we think of that as just price?

Or is it a bit more than that? And should we expect it to become more of a headwind as we move through the next 12 months, 18 months, I guess?

That reference was specifically related to a large program in Kuwait. And it was more about us making a strategic decision to invest in something to increase our installed base, rather than increase competition to protect the installed base we had.

And clearly, those are tough fought first-fits. But that was really about that expansion of installed base, rather than maintaining it.

If I could add, we look at these proposals on a life-cycle value basis. And sometimes there's a -- we have to get paid the value we think the products are worth, sometimes you get it up front, sometimes you get it after the fact.

But also bear in mind, the refining business is a tough business, and it has been for 25 years or more, and so these guys work with very tight margins. So it's not that a low oil price is causing them to look more at the cost base, they've been like that for as long as I can remember.

And they are making some money just now, which is quite unusual in that business. So that's why they're deferring the maintenance.

But there's no change in the market dynamics, as far as we see. But every project, especially the big one Andy mentioned in Kuwait, we'll look at the 20-year to 40-year annuity that we foresee, not just the price in the first-fit.

And that's probably a little bit of a change in that we're more actively involved in reviewing these things now. So we said to the team bring us everything that you've got, rather than you've got in the past maybe they had a limit.

And that's not smart business.

In answer to your specific question, normally starts to come through about two-plus years after first-fit.

Robbie Capp, Merrill Lynch. Three questions, if I may.

Firstly, as you say, if you look at Smiths and the margins you're making, metrics we can look at externally, like sales per employee, etc., it does look very efficient as is. I wonder if you can give us some help in some of the metrics you're looking at maybe by division, how that compares to best-in-class, so in terms of asset turnover, in terms of working capital as a percentage of sales.

Maybe we'll start with that one.

Yes, perhaps starting with working capital, if I look at the inventory number that I mentioned a little bit earlier, turning inventory at 2.5 times, there are different business models, clearly. The models depend, in some cases, on stock on the shelves, stock as it moves through the operations, stock when it's in raw.

If I look at the terms today, I see the opportunity because, simply, when I break that down I see adequate stock on the shelves, and I see it moving too slowly from raw through the plants. If I look at that level of turn, typically, you would see, in a very high-volume operation, turns of 10 plus.

Most of the automotive world you would see turns significantly higher than that. Whichever way you look at turns of two times to three times, from a raw material and a work-in-progress perspective, that tells you it's simply just taking too long to get through your operations, because the tie between the customer demand or the customer order and what you're asking your suppliers for isn't flowing.

So that means there's waste. And that means that the customer gets a slower reaction, and it means we hold stock on our balance sheet.

So I've a very high level of confidence that we can focus in the right way in that area, and improve overtime, and, Chris, if you want to talk about some of the other metrics, perhaps.

Yes, I would fully agree with Andy. I think the answer is for us to look at each of the businesses and each of the elements in detail.

And they will be different business by business. As Andy says, one of the things we hear, you say inventory's high, is, well, you need to because it's a service-led business.

So why does John Crane get such good margins? Because it can respond in the middle of the night and fix something that goes wrong at a refinery.

But you have to peel that away, and you have to really lead people to come up with the right answers. So I think there's no one metric that will apply across the Group.

If you look, for example, at receivables, we have about 65 days today. Is that good or bad?

It depends on the mix of your business. In the U.S., you get net 30 days, net 45 days.

You sell in to Italy it's a sport to pay you late, no matter what, so you get 120 days. In Japan, you get 110 days, it's a matter of honour to pay you on the day.

So receivables depend on your mix, and where you do business. But I think we have -- there will be a range of measures that we'll put in place.

But the key thing for us is to challenge conventional wisdom, and the only way to do that is to get round the business and visit and spend time with people.

And the second one then, a bit more specific on the Medical side, obviously, a very strong margin in the first half, despite the fact that you've got R&D coming up. You talk about gross margin pressure, not much volume leverage on just the 1% growth.

Can you talk more about where that's coming through, how sustainable that is, where you're cutting the costs, and how much mix played in to that?

There've been a couple of key areas. First of all, I mentioned that we've been investing in a more focused way in some of the R&D.

I think, for me, innovation in R&D is all about small incremental innovation that comes through rapidly and enables you to maintain and increase value. We've been doing that.

The particular areas of benefit that we've seen around infusion pumps have been on the portable pump side, or the ambulatory, where there's been an increasing demand. I think it's the hospitals who have been seeking more homecare, that sector of the market has increased more quickly.

And, of course, we've got good content of disposables and consumables that link with that, once those portable pump systems get out in to the market, as well. As far as leaning the thing, and the cost savings, I would say most of the benefits there have been coming through a strong focus on channel-to-market simplification.

I think like a lot of companies over time, you build up a legacy structure of agents and distribution that in some cases is optimal, in some cases is not. The Medical guys have been really looking at that very, very, carefully to see where the value is in that, and how efficiently we can get stuff to our customers.

And that's actually been yielding some quite significant cost savings, which are a large part of what you're seeing now. I don't know if you have anything to add to that, Chris.

We believe in the medical market you see between 1% and 2% price pressure on an annual basis. And the Medical team believes, and Andy and I believe as well, that the only way to see off that pricing pressure is to innovate, and that's why the R&D spend goes up.

So, we would like it to be a bit higher. But any fool can spend money, you have to make sure it's spent on the right things.

So we'll push it higher in a smart way. But the pricing pressure always has been there, and always will be there.

And then just one more for you, Chris, just in terms of the charges, you had quite a significant reduction in the asbestos payments to John Crane, looks as though there's a credit for the Titeflex as well. What's going on there?

And what can we expect for this year, and moving out?

If I could tell you that, I would tell the result of the referendum and the oil price at the end of the year.

Not the Scottish referendum.

No, I know the result of that one. I think we continue to manage that liability.

We're not the only company to have legacy asbestos liabilities, and it's, I think, very well managed. And we have a good record of defending our claims.

I think, on average, we've paid around $1 million per claim, as we've lost them. Sometimes you have a good day, sometimes you have a bad day.

So I don't know where it will go going forward, but we do regularly review the provision. Similarly, for Titeflex, so we keep that under review, and manage it.

And we're responsible as well, where we're liable, we pay. So we'll continue to manage that.

I think it's well managed by our legal team, but I don't know where it's going. It's not getting worse.

David Larkam, Numis. A couple of questions, firstly, just on the increased investment you want going forward, you say that's going to be funded through internal savings.

Have you got a fuel for growth version two coming through? And if that's the case, are we going to see those charges now moving above the line, rather than below the line, which they've traditionally been?

And then secondly, can you talk about the shape of the Group? Have you got the financial and management bandwidth to look after five separate businesses?

Yes, okay, well, I'll let Chris answer the above-the-line, below-the-line philosophy in a second. But the key thing for me is how we build in systemic process-based improvements in the business that underpins sustainable growth.

Sometimes it's important to do some things that give you a jump forward. But this, for me, is about building in that systemic improvement in our innovation process, in our investment processes so that we incrementally develop the resources to deliver it, and it sustains in the long term.

So this is not a return to fuel for growth, and that really is part of developing that systemic capability overall for the business. And, Chris, I'll let you answer the philosophy question, where you and I are aligned on above the line, and below the line, then, I'll come back to David's question.

I would say in short, no, there will be no fuel for growth 2. I think that where you have a material restructuring program, and that is quite limited in the number of actions, then it can make sense to report that separately, where you have a program that has one or two hundred small things, that's part of normal day-to-day business.

So those types of things will go above the line, they won't continue to be below. But there might be occasions, if we do a radical restructuring, where we'll report those separately.

But the trend will be for fewer below-the-line items, something that Andy and I are both very, very clear on. And the business is also very clear on that, as well.

I think, overtime for me, this is now really about creating a clear understanding of our positioning in each of the markets that we serve, how attractive those markets are, and our own competitiveness. And from that, we'll be making some judgments about where we are in that journey towards achieving leadership positions.

And we're not in the same position with all of our businesses, or with all of our sub-segments. So you can expect some thinking around focusing in the future.

And I think over time here we will likely see a strong focus and simplification around the way that we're doing things.

Robert Davies, Morgan Stanley. Just a couple of questions, first one just on John Crane, and just trying to flash out some of the trends you're seeing there between your different customers within the downstream and midstream segments, whether you could give us a bit more color if there's a difference in messages between different customers, what they're saying to you.

And the second one is just around the Medical guidance of the sales being the same in the second to the first half. Don't you typically see a better second half there?

Just wondered why the number was so low.

I can do the second one, first. We expect the growth rate to be similar in the second half, rather than sales to be the same.

Okay, thanks.

That was an interesting question on the different views around the world at the moment. I think the overwhelming view is that this is broadly driven by supply, not demand.

Everyone is sharing expectations that the amount of consumption and demand that exists is staying solid. Potentially, some expectation that what happens on the supply side eventually is going to affect that, a question of how long that takes.

And people are broadly taking the same approach. They are quite reluctant to delay major activities.

I think people are looking at it and saying how do I now progress through the next period, rather than what do I need to do structurally. It seems to be the order of the day in the general conversations that are taking place.

And I think we're broadly seeing that. We're seeing delay and push out, rather than anything structurally changing in the way that they are approaching their investments.

Sash Tusa, Agency Partners. On detection, Savran have very much indicated that they are looking at divesting their detection business.

Have you seen any disruption up to now in terms of that business being fattened up for possible sale and, hence, disrupting your own business? And if that business is sold, what do you think is the balance of opportunities for Smiths compared to threats from that business under a different owner?

Okay, I think simple answer to that one, we haven't seen any change in market behaviour amongst any of the competition of late. I think everyone is seeing a fairly healthy inflow of questions about how do we take the business forward.

You wouldn't expect me to comment on the acquisition side of things, and I won't. But you also know that we have a responsibility to continue looking at all the opportunities, as and when they arise, on a continuous basis.

So we're continuing to focus just on getting our Detection business well on the road to progress, because it's really been quite pleasing what's been achieved over the recent 1.5 years.

We would, and in terms of who would own this, we don't mind competition, so that's -- it's a good business. We compete well with it, we'll continue to compete well with it in the future.

Kath Kaman, Allianz Global Investors, I would be interested in divisional disclosure. I have got the feeling we skipped the EBIT bridges, and correct me if I'm wrong, so I would be keen if they will come back per division for full year, and if not, why not?

Is it lack of trust in the available data, and for the Q, on getting a bit more comment on that? And as a second question, we spoke about John Crane already a bit on pricing on the OE.

I would be very much interested how the aftermarket looks, [indiscernible] positive respect to pricing? Thanks.

The first thing, we absolutely have the data. There's always a balance, when you put these things together, how long do you speak for and how long do you get people to ask questions, but we'll take your feedback on both.

And as far as the aftermarket from a pricing perspective, we have not seen any material change. We're maintaining our shares, in some cases improving them, and pricing is not really playing a role, that we've seen, at the moment.

[Indiscernible]

I beg your pardon?

Aftermarket is still slightly positive, can you confirm that, aftermarket pricing at John Crane?

I don't have the year-on-year price movement, but...

I would say it's broadly neutral. As I would say, these are customers who have been very price focused for decades so I would say it is broadly neutral.

We're not seeing -- we don't have the opportunity to put our prices up 10%, unfortunately. By the same token, we don't require to take them down substantially, so it's fairly flat.

Jonathan Hurn, Credit Suisse. Just two questions, please.

Firstly, just in terms of the R&D, where do you think that has to go as a percentage of sales [indiscernible]? And following on from that, can you just give us an indication of the payback on R&D by division?

Where does it come through sooner?

Yes, one of the key things that I've been focusing on really is not so much the percentage, because I look at the percentage overall. My bigger concern is how well we're spending that money at the moment.

We demonstrably haven't been doing that well enough in some divisions. So it's not been a matter of quantum, it's been a matter that we've been investing in things and they haven't been saleable, or it's been extremely difficult to get them in to production.

So, that's my first focus. I have a feeling, a strong, instinctive feeling, that for a technology-heavy, asset-light company we will need to focus strongly on R&D and innovation to maintain a leadership position.

I can't put a number on that, at the moment. The other key thing then for me is just how do you track how well your investments turn in to sales and profits?

And that's something that we're looking at across the Group at the moment, as part of understanding the efficiency with which we're investing. I can't give you a number at the moment.

Directionally, I feel it ought to be better and more. And we'll come back to that progressively.

I think on the payback, it depends on the markets that you're in. When you're in the med tech market, or you're in the detection market, it can take quite some time to get new products qualified.

So it might take you a couple of years to get something qualified in Detection, it could be similar in Medical, so we have to work that in to our process. But we have had a review of the time it takes to do certain things and certain of the technology functions, and we feel, and the divisions agree, that it's far too long just now, so we need to improve that quite substantially.

But we'll also have this regulatory issue.

Second question is just, coming back to your comments, Andy, about obviously unlocking the potential in Smiths. And you're saying obviously there is a lot of potential there.

I know it is early days, but can you just give us a little bit of flavour of the timescale when you start to see, or when you think the first benefit? Is it a three-year view, or is it a five-year view, please?

Thanks.

Yes, you're referring to everything from growth to improvements financially in the business, I guess. Well, we're in the process of working that through.

A key piece of it for me, though, is as we work through the relative business positions, and their -- the attractiveness of their position, and the sub-segmentation of their position, and the competitiveness, because that's really going to dictate how and where we drive many of our activities. I expect we can see, over the next months, some of the results of that becoming clearer.

And then, over time, we'll become very focused on certain areas of improvement, whether it's the working capital we mentioned earlier, or where we expect to be from a growth perspective, as we go forwards. But we have to get that foundation in place first.

Very quick, this is where you discover if I knew nothing about GKN, it is worse here. The asbestos thing was interesting, because we lost a couple of cases.

And this is the first time for years we've lost cases without having to pay out $1 million or $2. That's the only thing that was interesting there.

But that's in the wheat. But coming back to this John Crane thing, if Kirsten and Alex will forgive me for bringing it back up, the bit -- the reason we're all scratching around is we moved a bunch of sales out of the aftermarket in to OE last year.

We did one of these reclassification jobs. My impression was, because these aftermarket sales were more OE, it would make the aftermarket more robust, if you see where I'm getting from.

And we've got minus 7%, which is about as bad as I can ever remember John Crane doing, albeit against a worse backdrop than I can ever remember. The OE has done this before.

It's -- that's why we're scratching around in this aftermarket bit, trying to get a feel for whether it's just shutters down on all CapEx by the oil majors' integrated guys and, therefore, it is a deferral. It feels like that, Andy, if I might say so.

But I guess we're going to keep pestering you for anecdotal evidence.

Yes. And perhaps I wasn't clear enough in my earlier comments.

As far as new refineries being commissioned, we are absolutely seeing those things being delayed and shuttered. As far as significant retrofits, mid-life of refineries, we're seeing those decisions being delayed also.

As far as efforts to keep existing refining capacity running efficiently, we're seeing still a strong focus on that. So we're seeing some maybe delays, some slightly different approaches, but in essence the keep-what's-there-running seems to be pretty robust.

But you're absolutely right the number of pure new refineries being commissioned is slow, at the moment. Chris, have you got any other thoughts to add?

I think, obviously, the anecdotes will come through, because eventually the expenditure has to come through. I think a levelling off of the oil price will help the refiners, it gives them more of a -- whether it levels off high or low doesn't really matter.

If it gives them more of a view of the profitability over the medium-term then they're more likely to do the routine maintenance and the retrofits. The worry for them, I think, is they make so little money in such a short period that when they start to make money, they have an uncertain future they will defer everything that they possibly can.

So some stability there, I think, will help. The initial shock will always cause a movement.

But really, we'll only be able to provide the anecdotes when we see that coming through, later on.

Alasdair Leslie, SocGen. Just a question or two on Detection, contract mix, I think, is going to be a drag again in H2, but maybe from 2017 onwards if you could just call out the portion or the mix of the portfolio that's still going to be represented by lower-margin contracts.

And then, linked to that, you obviously talked about the performance of program execution in your presentation. You've come from a background at Driveline which very much, I guess, revolved around multi-year programs and execution.

Where do you -- and I guess, obviously, sometimes you had to balance taking on some strategic programs against returns. Are you happy to devolve that responsibility to -- at the divisional level in terms of Detection?

And how actively involved are you going to be in terms of oversight of these contracts?

Okay, well, let me have a chat about the program piece, and then perhaps you can pick up on the first point there, Chris. I think, from a program perspective, this is one where across three, probably four of our divisions we increasingly have substantive long-term contracts of some size that's important that we get right.

We have some history of not always having done that. And, for me, it falls in to a couple of categories.

It falls in to the category of getting the contract right on the way in, in terms of the commercial terms and the lifetime liabilities of that contract. And that's something that we'll be looking at, sharpening up in the division, but more broadly across the Group, because getting a contract right on the way in is really important.

The second piece of it then is the ability to execute it. I think, in simple terms, what that means for us is getting the cost right, really understanding the costs, and particularly when it's technologies that are evolving quite quickly, getting that costed correctly.

It includes a high proportion of externally sourced, pretty neat technology that we're buying from companies that are not selling the same thing for 30 years on the trot, it's really quite breakthrough stuff in many cases. So getting that costing piece right and really understanding our ability to put it together at the right cost, and get it where it needs to be at the right time.

So it's the program execution and the contract robustness that I think is crucial, particularly as in the Detection business we're seeing approach 40% now around servicing, training people to use the equipment, maintaining the equipment, updating image libraries. And that's a huge piece of the story right now.

Because the pace with which these threats are being identified, and your ability to detect them, and getting them out there in to the image libraries and the databases and in to the algorithms of the machines is quite an undertaking right now. So us really getting a grip of all of that, and our ability to exploit it, is really important at the moment.

I don't know if I can pass the other one to you, Chris?

Absolutely, I think in terms of the programs in Detection, it's difficult to say, because we expect them to come through in the second half. But we don't control the point of revenue recognition essentially in this, so the customer has to have acceptance.

We think they will be in the second half, but some could actually stray in to the first half of 2017, so I can't be precise in terms of the mix there. I think if I would add to Andy's point, to be clear, the big contracts do come to us for approval.

Last week we spent some time -- they have to go through the Detection team first, but then they have to come to us for approval. So, in general, we have to devolve the right amount of accountability.

But when you're talking about a large multi-year contract with a lower than the ideal margin then Andy and I would certainly review that and give the final yes, or no.

Michael Blogg, Investec. Can I just ask, there was a question earlier about metrics?

But the metric across the Group for cash conversion, it's been extremely good in your first set of results, and I hope you're taking full credit for that, Chris. But what do you think the range of cash conversion should be, bearing in mind your earlier comments about potential?

Depends on growth.

Yes, we've said in the past, I think, 85% to 95% of cash conversion. For a business that's shrinking, I don't think that's particularly good, for a business that's growing, that's not so bad.

I would say that that's a reasonable range for us to have just now, because we're looking to bring growth in to the business. But if we see markets working against us, and we see our revenue coming down, we would expect the cash conversion -- my expectation is it should be a minimum of 100%.

Yes.

Right, well, thank you very much, everyone. Really appreciate the support this morning, and the questions.

Very much looking forward to playing out the progress on the story with you over the next few months and enjoy the rest of your busy day. Much appreciated you being here this morning.

Thank you very much.