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

Mark Davies Jones - Stifel Nicolaus Jack O'Brien - Goldman Sachs Glen Liddy - JPMorgan Cazenove Robert Davies - Morgan Stanley David Larkam - Numis Securities Alexander Virgo - Bank of America Merrill Lynch Matt Spurr - RBC Capital Markets Sandy Morris - Jefferies Andre Kukhnin - Credit Suisse

Thanks, everyone. And good morning.

I must say that's made my Friday morning, watching the face of our Company Secretary sitting at the back there, quickly, Andrew, flicked through the disclaimer slide. But welcome to the [Alan Jearing] room.

I'd like to take you through, today, the good progress that we're making on strategy, the specific actions that we're taking, and the performance that we're achieving against our plan. We're really driving towards a bigger, better, more focused Smiths Group.

Over the last six months, we've taken action on all of our strategic priorities. Our objective has been, and continues to be, to return Smiths to sustainable above market growth.

To meet that priority of outperforming the market, we've initiated a program of increased investment in innovative new products and services; and that program is both well thought out and highly focused. We've also taken further actions to better position the portfolio for growth.

We've increased our R&D spend in the half from 4% to 4.5%, and we've disposed of further noncore businesses, including artificial lift, Wallace, and the interconnector power business. We're also in the final stages of the regulatory approval for the Morpho Detection business transaction.

To meet our priority of achieving world class competitiveness, and more consistent execution, we've also rolled out the Smiths' excellence system across the Group. We've strengthened our financial framework, with the goal being to increase our fire power to give us the flexibility, and ability, to invest in growth.

We've also started a rollout of a cultural change program to develop the leadership capabilities that we're going to need to deliver on our dream for the future. So, investing in growth focusing our portfolio; running our businesses better; and stronger cash conversion and a strengthened balance sheet.

It's clearly going to take time for the benefits of our actions to start to come through, but I did want to be really clear, we're laying the foundations for real future growth across the Group. More on all of that, later.

But now, I'd like to take a few minutes just to run through the first six months. We made a good start to the year.

We produced Group revenue up slightly by 0.5%, and it's up 18% on a reported basis. Smiths detection delivered a strong revenue performance, and that offset declines in revenue we had expected in John Crane, and some weakness in the Smiths medical revenue.

Headline operating profit was up 8% for the Group overall, with all divisions contributing by delivering a solid trading performance, good cost control, and generally running our businesses better. Group operating margin was 150 basis points; and headline earnings per share were up 45.7 pence, that's 30%.

Cash conversion remains an absolute key focus for us. That's an area where we want to see some real improvements continuing to embed across the business.

So it was good to see that cash conversion hit 115%, and free cash flow up over 40% versus prior year. We also delivered a lower net debt number in the first half.

And the Board has declared an interim dividend of 13.55 pence, up 2.3 pence. Now, I'll take you through the highlights of each division.

As we expected, John Crane continued to face some difficult trading conditions in the global energy markets and sales were down 4% on an underlying basis. But aftermarket revenues returned to growth in the first half, up 3%, as levels of activity stabilized, although, at this stage, first-fit contract activity showed no signs of recovery.

The aftermarket, at 64% of sales, is really a key factor in the resilience of John Crane. And we continue to win some significant new contracts to feed the pipeline with the likes of Solvay and BASF.

First-fit sales were down 15%; this was due to continued low new product -- project activity. And it was particularly true in North America.

But we did have major new contract wins in Saudi Arabia, Oman, and Kuwait, which were pleasing. Another factor in John Crane's quality is the range of end markets that we serve.

We continued our efforts, as we said back in September, to diversify our non-oil and gas market revenue; and it was good to see that revenue was up 3% in this area as we won new contracts, particularly in chemical, mining, and water treatment. To maintain John Crane's position in the future, we've continued to focus on expanding the installed base, also.

And we've continued to invest in strategic first-fit projects that produce good, long-term returns on investment. But, as expected, that did cost us a bit in margin.

The underlying headline operating profit at John Crane was down 4% year on year, but we continue to manage our costs, including making some further headcount reductions. As I've said before, we're taking decisive action to strengthen John Crane during these tough times, and that way we're much better positioned when the energy markets do start to recover.

Back in November, we sold the artificial lift business. And that sale, combined with the other action that we've taken, led to increased profitability.

In fact, operating margins were up versus the same period last year, at just over 20%. Developing our research and development capabilities remains a very strong focus for me, and particularly in John Crane.

We see significant areas of potential in areas like material science and condition monitoring. Back in September, we mentioned the Sense predictive diagnostic platform; and I'm pleased to say that we're now in the process of ramping up installations across more than 30 refineries, which will be completed by the year end.

Moving on to Smiths medical, overall, Smiths' medical revenue in the first half was weaker than last year with sales down about 2%. Most of that drop was in infusion systems and vascular access.

But despite lower sales, it was good to see the benefits of efficiency improvements with profits up 7%, and margins just going over 21%. Infusion systems sales were down 2%, mostly because of softness in portable pump hardware.

And in -- but infusion overall, we are revitalizing our product portfolio to position it for growth, and have launched new products, including our Medfusion smart pump programming solutions in the half, which drove stronger sales in hospital data management. In vascular access, revenue was down 4%, with some growth in cardio and port products, but also some declines in sharps.

We continue to bring new products to the market in this area, which is a really important part of our strategy. Vital care sales were up 1%, driven by growth primarily in trach tubes and respiratory products.

It was a bit of a mixed picture for medical in Asia with strong growth in India of 24%, and 8% growth in South East Asia, but offset by a weaker performance in China. I'll come back to what we're doing later to re-energize our approach to Asia and China, but the simple fact is we're not well enough positioned today in Asian markets; and that's something we're going to fix.

We increased R&D investment in medical to 6.8% of sales. And we made progress, increasing our investment in new products for higher growth segments, in infusion and vascular particularly, that we talked about at the half-year results.

I'm really pleased with the pipeline of product that we have, and we've got more launches to come later in 2017, into 2018 and 2019. Finally on medical, it's worth noting the sale of the Wallace IVF business to Cooper Surgical in November.

At only 2% of medical's revenues, and limited growth potential, it was very clear that divesting the business, for £140 million, would enable us to invest in building scalable top-three positions elsewhere in the portfolio. Now, let's turn to detection.

And, Richard, nice to see you here with Di today: the President and Strategy Director of the detection businesses. Detection had a strong start to the year with revenues up 12%.

We saw growth in all end markets, apart from ports & borders. Airport revenues were up 12%, driven by a strong performance in Europe and the Middle East; and large new projects, such as Abu Dhabi and Berlin Brandenburg, that we'd mentioned.

Today, it's also great to announce that we've won a major new contract with Schiphol, third-largest airport in Europe. And they're buying 24 advanced computer tomography systems, with an option for a further six, as they upgrade their whole baggage screening.

And that installation will really help Schiphol stay at the forefront of the latest certified technologies. As I mentioned, ports and borders revenue were down 14%, really, against a very tough comparator last year.

It was a good performance in Europe and the Middle East, with deliveries in Kuwait and Italy; but that good news was more than offset by the completion of some large programs last year in Latin America and Asia. Military sales were up 21%, and critical infrastructure increased by 24%.

That improvement was mostly driven by the US and the UK, but with also important progress on the Shanghai underground. Underlying headline operating profit grew by 51%, with that improvement due mainly to stronger sales, stronger mix, and continued progress on delivering efficiencies from our operations.

It's an impressive performance. And whilst we expect margin progression for the full year, we do expect some moderation in the second half, due to product, OE, and aftermarket mix in those sales.

Asia Pacific now represents 17% of the detection business; and we continue to grow the aftermarket, also. R&D was increased to 6.3% of sales.

And we launched some exciting new products in the aviation market, including advanced screening platform, called Checkpoint.Evoplus, which is a bit of kit that integrates different sensors into an intelligent search solution for remote screening at the checkpoint. And we stayed right at the cutting edge of applied technologies, too, with our products being the first in the world to be certified, under tough new European standards, for automatic detection of explosives in hand baggage.

In April 2016, we announced the proposed acquisition of Morpho Detection. And we're in the final stages of that regulatory process, and expect to complete the deal shortly.

It's a really important moment for us and for our customers, and the industry as a whole. This is a really compelling combination of two complementary businesses, creating best-in-class technology and solutions.

The regulatory approval does require us to sell the Morpho explosives trace business, however; and that process is now well underway. It will conclude after the acquisition is closed.

Smiths already owns a high quality trace business, which we will continue to develop, of course. The strategy and value potential from combining the two businesses remains really strong.

The teams are really excited at this point, and waiting to get going, delivering a really comprehensive global integration plan. Moving now to Smiths interconnect, revenue was down about 1% underlying, with flat revenue at connectors and lower sales in microwave.

Microwave revenue declined, due to program timing in the telecoms market, but we saw gains in the space market. And we also increased content on satellite programs, and generated strong new orders in commercial aerospace with our cutting-edge KU-band wireless technology.

Headline operating profit was up 15%, thanks to the benefits of continued restructuring and procurement savings. As a result, margin was up 160 basis points in the half.

So far this year, we've invested a lot of time and effort into reorganizing Smiths interconnect, combining the business under a single brand and improving our account management to focus on core markets for the future, including space, commercial aerospace, and semiconductor test. We also sold the power business in January for 162 million, which helped us focus the division on the markets and customers where our connector and microwave technologies have the most value and potential.

We've made good progress to sharpen interconnect's focus, and this is starting to show through. Finally, Flex-Tek.

Sales grew 2%, the growth mainly driven by the US housing market. Overall, and as usual, Flex-Tek continued to deliver stable performance, and continued to deliver efficiencies and growth.

Operating profit was up 7%, and margins came in at 18.3%. I'll now hand it over to Chris, who will take you through the financial review of the first half.

And look forward to chatting again on the strategy, a little bit later. Thank you.

Thanks, Andy. Good morning, everyone.

Let me take you through the financial results for the six months ended January 31, 2017. Starting with the key financials for the half, revenue was £1.616 billion, an increase of 18% compared with last year.

Underlying performance, excluding the positive impact of foreign exchange translation and the adverse impact of disposals, was in line with 2016. Headline operating profit increased £60 million to 277 million, which resulted in an underlying margin increase of 150 basis points to 17.1%.

Headline free cash flow performance was very strong with a 44% year on year increase to £252 million. Return on capital employed increased by 90 basis points to 16.3%, reflecting improved profitability and better working capital management.

Headline earnings per share were 45.7 pence, a 30% increase on last year. This was driven by increased headline operating profit and favorable foreign exchange translation effects, partially offset by 0.5 point increase in our effective tax rate to 26.5%.

As Andy mentioned, the Board has proposed an interim dividend of 13.55 pence per share, a 2.3% increase on last year. I'll now take you through the results in some more detail.

As you can see here, positive impact of currency translation increased revenue by £251 million compared to the first half of 2016, partially offset by a £15 million impact from the disposal of the artificial lift and the Wallace businesses during the first half. Revenue performance benefited from particularly strong growth in detection, but underlying revenue increased by 12%.

This was counterbalanced by ongoing challenges in John Crane's end markets, leading to a reduction in revenue of £18 million; and weakness in Smiths medical, where revenue fell by 2%. Smiths interconnect revenue was down 1%, whilst Flex Tek grew by 2%.

All in all, total revenue increased, on an underlying basis, by £8 million to just over 1.6 billion, with 53% of this revenue coming from aftermarket activities. Let's look at operating profit now.

Excluding the positive impact of currency translation and the effect of business disposals, profit increased by £22 million with improvements in all divisions, with the exception of John Crane. We saw downward pricing pressure in Smiths medical and Smiths detection, which was only partially offset by positive pricing in John Crane.

And in the other two divisions, the pricing was broadly stable. Cost reductions of £11 million were mainly driven by strong cost management across the divisions, partially offset by increases in central costs of £5 million, as we build additional capabilities to execute our M&A program, pursue initiatives on people and talent, and introduce the Smiths excellence system.

Reported headline operating profit of £277 million was up 60%, £60 million year on year. And, all in all, the Group's reported operating margin was up 130 basis points to 17.1%, with margin increases in all divisions.

And on an underlying basis, the margin increase was 150 basis points. If we have a look at the cash position now, which, as you know, is something of a religion for me, and an important focus for Smiths Group overall.

Cash conversion was 115% in the first half, compared to 101% in the same period last year, and 102% in the full year, in 2016. Capital investment of £51 million was up 21% versus last year, reflecting the effects of foreign exchange translation.

And on an underlying basis the increase was 6%, that shows the investment in the business to lay the foundations for future growth. Cash inflow from working capital was £27 million, which is a £37 million improvement on the position last year.

As we've said previously, there's ample opportunity to release more cash from working capital, and we expect to continue to make progress in future periods. Overall, headline operating cash flow of £320 million was up 47% on last year.

Headline cash interest of £22 million was slightly up last year, principally driven by foreign exchange translation. And headline free cash flow was £252 million, an increase of 44%.

Looking now at net debt, this reduced by £343 million in the period, principally driven by increased free cash flow and the proceeds from asset disposals. The re-translation of our opening net debt to closing FX rates and related fair value in FX hedge movements caused an increase in net debt of £17 million, principally due to the strengthening of the U.S.

dollar and the euro. Our headline free cash flow of £252 million more than covered all cash outflows, including pension contributions and the payment of the full-year dividend.

For the first time in a long time, we've had an underlying reduction in net debt in the first half. Overall, this underlying reduction of £40 million, together with the £320 million disposal proceeds, saw net debt fall to £635 million at the end of the first half.

This gives us a net debt-to-EBITDA ratio of 1 times. With the completion of the Morpho acquisition, and the related disposal of Morpho's trace business, we would expect the ratio to move to around 1.7 times.

I'd now like to spend a little bit of time on inventory, demonstrating the progress that we've made so far. As you know, we're looking for sustained and sustainable improvements in inventory management.

Andy talked about inventory terms, I talk about inventory days, but it means the same thing: we want to reduce inventory. This is one of the charts that we use internally every month.

The gray bars show inventory days at the end of each month, and the line shows the 12-month rolling average. The rolling average is used as our performance measure, and that shows that we don't encourage window dressing at period ends.

Looking at the 12-month rolling average, you can see that over the past year we've taken seven days out of inventory; and on an underlying basis, that's £35 million in cash. Most of this was recognized in the second half of 2016.

You can see that we still have drops around the reporting period ends, but you can see that the drop in January 2017 was less pronounced than in July 2016. And, furthermore, you can see that it didn't suddenly rise back up in February, indicating a more sustained performance.

This is a good start, but it's not enough. Our businesses, and two of them are here, deserve credit for responding to the challenges we've set regarding inventory.

The introduction of the Smiths excellence system across the Group should increase the rate of reduction, as we continue to look for systemic improvements in the flow of inventories throughout all of our divisions. Over the course of the next few years, I'm confident we can continue to make progress.

And we remain of the opinion that we can release a further £100 million, or so, from inventory over the next few financial years; that's in addition to the £35 million already. Now, if you'll indulge me for a moment, I'd like to emphasize one of our great strengths, which is our cash generation.

The slide you see here shows the operating cash generated by Smiths by quarter over the past year. We are cash positive from day one.

We generate cash continuously from the first month to the last: that means that we have a business that naturally deleverages every month. Or, alternatively, it allows us to invest in growth opportunities.

We've got a consistent financing strategy. We've got a well-diversified debt portfolio, consisting principally of US dollar and euro bonds, with a range of maturities and a revolving credit facility.

Following the successful issue of a new 10-year, 2%, €650 million bond, and debt facilities of an increased weighted average life of 6.5 years, we've also reduced the interest rate to 3.5%. Part of the proceeds of this bond will be used to repay bonds which fall due in 2017, €300 million in May this year, and 2018.

Moving now to pensions, you'll recall that the end of 2016 we had over 90% of the assets back in our UK pensions schemes invested in matching investments. As you can see here, that percentage has gone up slightly to around 93%.

However, the key point to take away from this slide is the quality of the hedges, and how we continue to improve our risk management. Corporate bonds provide a hedge against interest rate movements.

As you move up into government bonds you then add an inflation hedge to that interest rate hedge; and then, if you move further into buy-in contracts, you add a further hedge, which is mortality. You also take away the potential duration mismatch on bonds and policies.

We made further progress de-risking the pension liabilities in the first half of this year with two further buy-ins for the UK schemes, one for SIPS, one for PI; and that covers more than £300 million of liabilities. As a result of this, we have increased by 7 percentage points to 26% the amount of our, of the perfect hedge in our UK asset portfolio.

So, more than one-quarter of our UK pension assets perfectly hedge the liabilities. The total required cash contributions for this year is expected to be around £60 million, following the triennial valuations in 2015.

This is a significant reduction from the £124 million we paid last year. The cash contributions are impacted by foreign exchange because of the US contribution; and that explains the rise in the £50 million, I mentioned previously, to the £60 million, I mentioned today.

We will continue to de-risk the Group pension position, wherever we can do so economically. And at January 31, on an accounting basis, our overall pension position was a net surplus of £51 million.

You see here the performance of the three businesses that we divested in the period. Had these businesses been sold on August 1, on a pro forma basis for the first half, the margin for the Group would have been 20 basis points higher at 17.3%.

This demonstrates our ability to focus the portfolio on higher-performing assets over time. In addition, we would have seen a very small increase in our rate of revenue growth had we disposed of these on August 1.

Let's move on to the Morpho Detection acquisition. Andy's already given you an update, now let's have a look at the numbers.

The remedy we offered to the Competition Authority requires Morpho's trace detection business to be divested; we'll talk about the materiality of this remedy. Based on the 2015 numbers, Morpho Detection's trace business represented about one-quarter of its overall revenue.

And, as a result of the agreement of the remedy, we've revised our assumptions and synergies. We estimate that we can generate around $20 million of cost synergies, down from $30 million mentioned previously.

We expect the synergies to be fully generated by the third full year after closing, with a fairly even phasing over the three-year period. Based on what we expect to achieve, the returns from this acquisition remain attractive, and they remain above our hurdle rate; and the strategic case remains compelling.

I will look at our financial strategy now. Some of you may remember this slide from previous presentations on how the financial strategy supports the corporate strategy.

I'd say, I was reasonably happy with three-quarters of our targets here, which is a rather unusual exuberance for me. Headline revenue was flat on an underlying basis, and Andy will give you some more color in a moment on what we're going to do to improve this.

But it's fair to say that neither of us is happy with the performance we have today. Margins improved by 150 basis points to an underlying basis to 17.1%, as a result of better mix, operational improvements, and cost savings.

Return on capital employed was strong at 16.3%, driven by improved profitability and lower working capital. ROCE was up in all of our divisions, with the exception of John Crane, which reflected the lower profits in that business.

Cash conversion, as I said, was very strong at 115%. At the core of our strategy is a straightforward financial framework.

We will maintain a strong investment-grade credit rating; we will invest in opportunities that create value; we'll take a very disciplined approach to M&A; we'll actively focus to strengthen and focus the portfolio; and we'll deliver as competitive a tax rate as we can. And all of this we'll do with our robust approach to enterprise risk management.

I think this set of results is testament to this approach. You see the three disposals; the increased investment in R&D; the progress we've made on the Morpho acquisition; and the further de-risking of the pension portfolio.

If you take a minute, you will recall that the full-year results I mentioned that this would be our last year of taking small restructuring items below the line. From 2018, we will change our reporting of exceptional items.

Ongoing restructuring costs and pension administration costs will be booked above the line, going forward. The final slide in your appendix details the impact this would have had on the results in the first-half 2017, had we made the change now.

We'll do the same in the second half, to give you a good base for 2018, your 2018 models. We will, however, continue to separately report legacy litigation costs; amortization of acquired intangibles; and certain other large one-off items, where we think it will help the understanding of the accounts.

And finally, before I hand you back to Andy, just going to take a look at the outlook for the rest of the year. Overall, the outlook is unchanged.

John Crane's end markets are expected to remain challenging, and detection's revenue growth is expected to moderate in the second half. However, we do expect medical to claw back some of its underperformance during the second half.

Good performance in 2017 is expected to be less weighted towards the second half, compared to prior year, with Smiths detection moderating somewhat during H2. We expect a continued strong performance on cash conversion in the second half.

And if the depreciation of sterling continues, it will provide further tailwind in the second half results, somewhat moderated than what we saw in the first half. As a result of changes in the global corporate tax regulatory environment, we expect our effective tax rate to increase to between 30% and 31% in 2018.

This is also because the 2017 rate of between 26% and 27% reflects a number of positive one-offs that will not repeat, rather than any significant structural change. On that, I'll hand you back to Andy for the strategy update.

Thanks, Chris. Great job.

I noted that cash has morphed now from cash is God, to cash is religion. So I'm not sure.

All related.

So I'm not sure. But super presentation.

Thank you, Chris. We've made some really great progress in building the strong financial framework to support our overall strategy for growth and value creation.

With a strengthened balance sheet, improved cash conversion, and further progress on pensions we're trying to give ourselves the financial fire power to invest in growth for the future. As I said in September, the two key components for future value creation come down to two strategic priorities, outperforming our chosen markets by focusing our portfolio, and investing to increase our exposure to higher growth market segments; and achieving world class competitiveness by implementing the Smiths' excellence system to drive speed, efficiency, and solid consistent execution across the Group.

It's an ambitious and far reaching program of change, so I'd like to try and highlight some of the key areas where we've made some real progress in the last six months, if I may. First, we've begun to reposition and high grade the portfolio for future growth.

We're doing that through organic investment and a highly disciplined and surgical approach to acquisition and disposals. During our strategy review, we worked out that around two thirds of our revenue comes from businesses that are well positioned, both in terms of market competitiveness and market attractiveness.

That left something of the order of one third of our revenue which required improvement to achieve top three leadership positions; or businesses which, while of high quality, lacked scalability, or in some cases, we're just too far from achieving market leadership and would be better off in a good home somewhere else. So far this year, we have moved decisively to complete the sale of the three businesses I mentioned earlier; and together, they accounted for £150 million of revenue and generated more than 300 million from their sale.

When we added the acquisition of Morpho Detection to this equation, the shape of the portfolio is starting to change. And we've now got better growth and return potential.

After these transactions are complete, more than 70% of our revenue will come from well positioned businesses. We can either work to improve the remainder, or look at further disposals.

We've started to buy well, and sell well; and that discipline will continue as we continue to work to deliver value. You can reasonably expect that there will be some more activity in this space as we continue to build the bigger, better, more focused Smiths that we desire.

While organic activity, more like more acquisitions, can clearly be complementary or accelerate our progress, for me, organic growth is priority number one, two, and three. Outperforming in our chosen markets and achieving top three leadership positions really means trying to drive our businesses towards the characteristics of the Smiths business that we talked about, back in September.

Firstly, technology differentiation, some of the examples that we talked about earlier with increasing R&D and medical to strong fund the pipeline for innovation; or detection taking industry leading positions in new standards for automatic threat detection. A strong aftermarket in recurring revenue is really important to build resilience and greater predictability into our earnings.

And the aftermarket also helps us to build closer relationships with our customers over the long term. We've seen John Crane's aftermarket revenue return to growth, and the acquisition of Morpho Detection, which will further extend detections' aftermarket profile from well less than 20% a few years ago, with a target of getting to more than 50% of revenues in aftermarket and service offerings.

Asset-light and sustainably competitive businesses; with more than one-half of our cost of sales bought in we have, and we expect to maintain, a low capital base that makes us adaptable and flexible as we change and grow; all, of course, underpinned by world-class operational excellence. And increasing digitization: more and more of our revenue is coming from digital, including smart infusion pump for the future, intelligent threat detection, and condition monitoring.

It's an area that we're investing in significantly in the divisions. And also, the first of the projects, from the £10 million central R&D fund that we announced back in September, which is designed to leverage Group critical mass, and those include a focus on ultra-high speed data transmission projects, digital security, analytics, and machine learning, there will be more to come on those in the coming months.

Our IQ Group-wide innovation forum is now also fully operational, bringing together the divisional CTOs and business people to drive our agenda and make absolutely sure we're leading edge on technology, rather than defensive. We've implemented a Group-wide process for new product introduction, too, to make sure that we increase and focus our investments for growth in the market sub-segments where we can achieve leadership positions.

As I said earlier, we've increased our R&D spend in the half to 4.5%, and expect that trend to continue over time. But, in short, the aim is to invest smarter, and manage the conversion of the ideas into sales more quickly, with better leverage of Group-wide muscle.

We're also focusing on new business models, as we try to bring together our physical and virtual capabilities. Today, it's also great to announce a new partnership between Smiths detection and Duke University on a deep-learning digital solution project for advanced airport screening capabilities; really exciting stuff.

Technology and innovation is a lifelong passion of mine and it's great to see the potential in this business as we build our future. As we focus our investments in high growth markets globally, we see potential for market outperformance in all regions.

But clearly, our Asia exposure is too low at less than 10% of Group revenues. Growth in Asia is not new to me.

And, as I've said before, we're too small. I've also said that we were trying to evaluate the best way to fundamentally shift our approach.

I'm delighted to report today that we've appointed Roland Carter, a current President of Smiths interconnect, as our new Group Asia President, based in Shanghai. Roland will sit on the Group executive committee and report directly to me.

In fact, Roland's sitting at the back there, perhaps, if you could just make yourself known to the folks. Thanks, Roland.

Roland's going to lead some really important work of focusing and accelerating our strategy and people focus in the region and, most, importantly the actions necessary to get us moving. We've done a lot of talking in the past on this subject.

I've no doubt that Roland's broad international experience and heavy previous focus on Asia, together with a really intimate knowledge of most of Smiths, is going to really help us and serve us well as we raise our ambitions in the region. I'd now like to turn to the progress that we're making against the second of our strategic priorities: achieving world-class operational performance.

It's not about cost-cutting programs; it's about making sustainable improvements in efficiency by building process capability to do what we do faster and better, whether it's designing new product, or whether it's manufacturing, or getting things to our customers when they want it at the best levels of quality. These are the things that really create, in my mind, competitive differentiation, which the customers value, and, of course, also, in the process, create great value for us.

Right from the beginning, I've been consistent and insistent on the importance of embedding excellence across our organization in really everything we do. We've introduced the Smiths' excellence system with six pillars: cost, customer, people, program, production, supply chain, and technology.

It is an ambitious plan, and it's a long-term plan, of continuous improvement and change, focusing on Smiths businesses and Smiths people, and making sure we're the best at what we do. Achieving world-class competitiveness is, however, an ongoing journey.

It is taking time, it will take time. But by delivering on this agenda relentlessly, step by step, there is material opportunity to improve our competitiveness and achieve material benefits.

Take how we manage our approach to inventory. With my automotive background, it's something that's always front of mind, much as Chris said earlier.

Speed and efficiency of flows through the business are, for me, a really important proxy as to how well the business is run; speed, from order to cash or development through to cash. There's no doubt that there's scope for improvement across all of our businesses.

As we've said before, one stock turn is worth £150 million to us for reinvestment back in the business elsewhere. We've made some modest but, importantly, systemic improvements over the course of the past year.

Inventory turns have started to improve on a consistent and systemic basis, translating into the seven inventory days, or £35 million, of progress so far that Chris mentioned earlier. The journey started, and we now expect this trend to continue.

At the same time, we're taking action to manage our supplier base, deepening and developing our relationships with strategic suppliers. But we're also being disciplined and selective about the partnerships to make sure they work for us.

An example is in interconnect, where they've achieved far more than a 50% reduction in their supplier base to less than 350, from a number in the thousands previously; and £4 million of procurement savings in the first half. We've also been reviewing our sales effectiveness across the Group, and we're in the process of reviewing sales incentives and channels to market.

Detection has been making some good progress developing tools to evaluate how to best capture aftermarket service revenues in its different markets. It's an approach that's working well in Europe with its distributors and is now being rolled out in Asia and Latin America.

Back to interconnect, who have already moved well down the road with their distribution network review and have now reduced the number of distributors to 114 -- sorry, from 114 to 57, and they are now much better aligned and incentivized with our growth plans. Everywhere I'm going at the moment, I'm really impressed with the examples of best practice to continually improve our production processes.

But our Group-wide best practice and know-how sharing is poor, and this must be addressed by the excellence system. Here's a great example of how Smiths detection have optimized their layout in their facility in Malaysia, cutting lead times and work in progress by more than 50%.

These examples of operational excellence across the supply chain, customer, and production give you some sort of sense of some of the things that are underway at Smiths in this comprehensive program. But, for me, the key part of excellence is our people and leadership.

We've set out to build an organization that nurtures its talent and attracts the best; and we're doing that by focusing the Group around a cultural change program, and a set of values, and a sense of belief. We call this the Smiths' way: the values we live by and what you can expect when you work for us, or do business with us.

We want to be able to attract, retain, develop, engage, and inspire the very best people to deliver on our dream. We've launched a number of new leadership programs, including a partnership with UCLA, and others, to develop the best leaders.

And we're making sure that our top leaders, across the business, are incentivized much more closely on operational and strategic metrics. So I hope this has given you some view of the solid progress we're making and how good I'm feeling about the future potential.

Action's underway to focus the business for growth; achieve world-class competitiveness; invest in differentiation; increase financial firepower; and develop leaders to deliver on our plan for a bigger, better Smiths that can count itself as one of the world's leading technology companies. Thanks very much.

And Chris and I will now be delighted to take any questions that you have. Really appreciate your attention.

Thank you.

Thank you very much, Mark Davies Jones from Stifel. Can I ask two detection-related questions, please?

Clearly, been a very strong performance in the first half. Particularly, the top line, I guess, is a big surprise.

I seem to remember, at the end of last year there was some business that was pulled forward, and you explained an acceleration in the top line then on that basis. And we got a similar message, I think, at the half year that we shouldn't get over excited about how fast the growth was coming through.

But is there something going on in that marketplace in terms of the upgrade cycle in Europe, particularly the move to the CT-based systems, which is leading to an acceleration in market growth?

Yes, I think it would be difficult to judge something by half. Certainly, the European upgrade to CT for checked baggage, which has to be implemented by 2022, is a big pull coming through the system now, the Schiphol thing that I mentioned earlier.

But I think in the half year what we're really seeing is this is really about the mix of product and the mix between OE and aftermarket. Overtime, we expect the differences by period to smooth, particularly as our aftermarket percentage grows, but, at the moment, still some of that is visible.

As I said, I think, in the second half, we are expecting that mix to continue to move, but progress for the year overall.

Jack O'Brien, Goldman Sachs. A couple of questions.

Firstly, I notice in John Crane you saw some positive pricing, so just interested to see if that was driven largely by the aftermarket, and what you're seeing on the first fit side. And then, the medical side, clearly, you talked and are making a lot of efforts about product development and that coming through with the product launches.

But would you consider M&A on that side, particularly perhaps on the large infusion pump? And what are the opportunities there?

And then thirdly, just on efficiency savings, again, you saw some good progress in H1, totting up the numbers. How should we think about that for the full year, and then into 2018?

Thank you.

Perhaps, I'll have a go at the John Crane and efficiency. Do you want to make some comments about medical, because I know you've been looking specifically about that recently?

I think with the Crane business, if we split it into aftermarket and first fit, we're definitely seeing pressure on first fit pricing, I think, simply, because there are fewer projects and more people fighting for those projects. Really pleasingly, however, that pressure is not in the aftermarket; and that's partly due to the fact that refineries are running flat out, refining 92 million barrels and 93 million barrels a day.

And they've got to keep running. So, as I mentioned just briefly, we're still trying to maintain that installed base, which has touched our margin a little bit because of that pricing pressure, but not in aftermarket.

On the efficiency piece, most of our focus, at the moment, has been to generate funds for investment, rather than take margin forward. We are making progress on that.

We expect to see continued progress. But this is a it is a long journey.

And, for me, it's all about embedding the systemic processes to get away from these period end type activities, or single point cost saving initiatives. So I'm pleased with the progress we're making on efficiency.

It's small so far, but it's consistent and systemic, which is the important thing. So we expect that to move on.

But I would see that translating into ability to invest, more than an expectation that material movements forward from a margin point of view, at this stage in our development at least.

On the medical side, Jack, it's amazing that when you commit to buy something, as we did with Morpho Detection, that simply pushes some of your other divisions to come up with lots of ideas. So we're not short of ideas as to what to buy.

I wouldn't be allergic to buying something in the medical division, but the question is always can you create value out of it? Are we better owners than other people?

So, there's no real preference there. We always ask first, when we've brought an acquisition opportunity, we always ask why can't we do it ourselves?

And so, we look at the time to deliver, and we look at the value. So if something is there, we'd be quite happy to.

You mentioned large volume pumps. The big one was ICU Medical bought Hospira pumps from Pfizer.

That was [Indiscernible] big transaction. It doesn't seem to be something that is going gangbuster just now.

But that's a deal that I hope, for ICU Medical, it works out well. I think that's probably the last big large volume pump manufacturer that's available.

We think we can do that organically. It's taking slightly longer than we would like, but we're convinced that we will have a good product.

Glen Liddy, JPMorgan. You're focusing now on investing more in Asia.

Your vision, you laid out a while ago, was that you're going to invest in growth. Can you still fund the investment in Asia from internally generated savings across the business?

And cash conversion, 115% is pretty impressive. If you start to grow, does that slip back very much?

Or can you still stay at 100%, or better, with moderate growth? And then finally, on detection, you're pointing to things being not so buoyant in the second half.

Is there much by way of low-margin business in the backlog? And is the margin on the new business that you're capturing improving?

And the capture rate for service in the new business would be interesting to track.

Okay, if I have a go at Asia and detection. I'm sure you're going to want to talk cash, Chris.

We've got some very clear views on cash, which I'm sure Chris will articulate. I think, with Asia, it's important to remember that we're actually really quite small by division in Asia right now, which is part of the problem.

If you look at our sales in China, we're at about £120 million, £130 million. The rest of Asia combined is about the same again.

So you spread that across five divisions in all of the countries and you've got some quite small positions. And I think therein lies the problem with our growth, partly.

Our strategic focus and our critical mass, whether it's people, getting things done, is not high enough. I think this move now with Roland will make a very big difference.

So he'll be there sitting around the ExCo table, he's based in the region, and will bring a new focus. I think this will come as a combination of organic, organic's one, two, and three, for me.

But I think, in order to accelerate, there'll be some acquisition here as well. It'll be a dual path of getting ourselves moving in the right areas.

But we have to move this one. There's been a lot of talk on this one in the past.

I think with detection in the second half, we had a really super first half, which I'm really pleased about; it does mean it's likely to moderate in the second half. But it's still moving forward, if you take that great, that gangbusters first half out, so the year as a whole will continue to move forward.

As we said earlier, a lot of focus now on trying to free up the capacity to invest in detection as well, and it's up at high levels of investment again. So I'm very positive about it, the longer term cycle trends for the market, and we do expect progress for the year as a whole.

On top and bottom line.

Add a little bit to that, there is still some more business to come through in detection. We are seeing good attachment rates in the aftermarket bill.

When we sell the kit there's usually a two year warranty period, so there's a two year lag between the OE sale and any aftermarket revenue coming in. So we see the benefit of the increased OEM sales in this half, in the first half of fiscal year 2019.

On cash conversion, we still think there's over 100 million to come out of inventory. We also believe that -- we've got about 65 days now of sales outstanding, and about 45 days of purchases outstanding.

If you equalize those two, that's £150 million. Now, I don't think we'll be able to equalize them.

But even if you get halfway there then, combined with what we've got in inventory, they are still closer to £200 million than £100 million that we think we can take out of working capital over the next few years. That being said, with moderate growth we should still aim to be over 100% cash conversion.

The last one, just on your Asia growth question, even if we have to acquire we still have internal funds that we can, we still have available funds within our current capital structure to invest in acquisitions. So we could have acquisitive growth in Asia with the existing resources that we've got today.

I think, just in very simple terms, on cash, 90%, 95% is nothing to celebrate when you're flat. No, I, frankly, expect it to be where it is now, given our growth profile.

Inevitably, as we grow I don't expect to maintain it at the 115% level; I just expect it to be stronger on an underlying basis, commensurate with the cycle that we're in, or the stage that we're in.

Robert, Morgan Stanley. Just a few questions.

First one was around John Crane and the oil and gas business. Maybe you could just give us a little more color around the margin mix on oil and gas versus some of the other segments you said you were looking to move into, like the mining and chemical segment.

How should we think of that mix change, and what impact that would have on margins? Second one was just around your strategy to accelerate growth.

It's something that comes up quite often when you talk to shareholders, that previous management teams have made an effort to accelerate growth before from a kind of cost-saving program, struggled to get it done. I guess, on the ground, what is going to be different?

And what are you assuming your end markets are doing in that environment, i.e. if you could just give a bit more color on what's going on there?

And then, the final one was just around the comments you made on digital. How are you thinking about the digital offering?

Are you doing that across Group? Is each individual division separately thinking about their own digital bucket?

How are you going down that road? Thanks.

I'll just make sure I don't miss these. Hold on, right.

I do the John Crane one and then...?

Yes, do you want to deal with the John Crane, and I'll do the digital.

The margin differential that we see in the different markets, there's very little there. So we wouldn't expect to see margin dilution by going heavier into chemicals, pulp, and paper, etc., where I think our guys are pleasantly surprised that they can get the same margin.

People pay good money for good quality kit and top quality service, so you shouldn't see much change.

I think the strategy, for me, comes back to a couple of things: the competitiveness and the positioning. As we talked before, we've now got a much more granular view of markets by sub-segment, and within markets, and we've used a lot of examples, whether it's vascular access, or in some of the Crane business, or interconnect business.

What we're really trying to do is target our investments now with a much more precise knowledge of the market segments that we want to lead in, rather than looking at them more holistically. So without saying that the devil's in the detail, really, it is.

We've now got a view of somewhere between 50 and 60 segments across the business within our main markets. And we're focusing investment, both organic, and are thinking non-organically, around those areas where we think we can be sustainable competitive, and in segments that are growing because they've got good drivers, whether that's technology or something else.

On the digital piece, you hit on exactly the point there. We've got about 350 software engineers across the Group, some of them in John Crane, some of them in detection, some of them in interconnect, medical on smart infusion pumps, a lot of them doing the same things, data security; clouded data; focusing on analytics; writing algorithms; AI; or machine learning.

So we'll continue to strengthen what we're doing in the divisions, simply because the pull is the business model is moving that way. Richard's digital piece grows to 30% over the next five years in detection, for example.

But we're also introducing this cross-Group approach, and we'll be making some announcements around that soon. But in the areas where we need to get critical mass, where we're subscale, for example, in analytics, or in machine learning, we will pull that together to create Group capability to try and accelerate the digital plan.

Thank you.

David Larkam, Numis. Start on medical, can you just talk about China?

You didn't really expand on why that was quite so weak in the first half, anything going on there? Secondly, North America, with the potential removal of Obamacare, are you seeing any changes in purchasing patterns there?

Secondly, can you just talk about Mexico, with Trump? Your manufacturing there, you've got quite a lot of manufacturing there.

And finally, one for Chris, just on the restructuring charges going forward, what should we think about that as a headwind number for next year? Is there an additional number which we should think about now, above the line?

Just your first point again there, David, sorry?

How China was -- China was weak in the first half.

For the restructuring charge, what we'll do is we will show you, for the full-year 2017, what the results would have been with the restructuring charge above the line. That gives you a base of which to work for 2018.

We will strive to beat that base, so we'll strive for it to be lower next year. A lot of the things that have been done over the past few years in the Fuel for Growth program are exactly the right things to have been done.

So lots of small things made the business better, more profitable, and leaner. And so we would expect to continue to do that.

So the question is not whether we should have had the Fuel for Growth program, the question is whether we feel comfortable with doing similar things below the line in the future. The answer's no, those are recurring activities.

Andy will talk about the China medical. On the Obamacare, we didn't see a peak from Obamacare coming in, and we don't expect to see a degradation from it being repealed.

But we have to see if the legislation is. I'll talk about Mexico.

We have plans in Mexico, like many companies. Key thing is we are a net exporter from the United States.

So whilst we have plans in Mexico which we'll supply some things into the United States, we're a net exporter. We have a very broad manufacturing base across the globe, we have more than 400 different locations, and so we are not unduly worried by what's going on in the States.

We watch, and whatever the President wishes to do then we will act and react accordingly. So no huge concentration in Mexico.

Thanks, Chris. China, China medical, I think it's really a very good illustration of the fact that we're just too small.

Our China medical sales are about 20 million, so up and down by 10% is the difference of 2 million. So it's almost on a pinhead, which really emphasizes to me, first of all, we need to do a lot more.

Because, in this case, medical was down due to one large distribution contract that didn't come in the period we thought it was going to come in. And I see a headline of more than 10% down in China; [they weren't], but that's what it is.

So, for me, it just underlines how important it is to get some significant scale quickly. So I'm not overly concerned about the immediate down in China, because I know exactly what it was; I am concerned that I'm too small there.

I think on medical and the Obamacare thing, more or less, whatever happens, people want more for less in the future. So, for me the reaction to that is very much technology is the enabler, in a lot of cases, and that's how we're trying to focus our portfolio in medical for the future.

So everyone's going to feel that pressure of more for less. The more innovative you are the less pressure you'll feel, and you're also the solution provider to a lot of the issues.

And getting people out and into home care is one of the big ones, so getting you out of the hospital and at home. For example, connected infusion pump platforms from the sort of thing you'd be hooked up to in a hospital to the sort of thing that you'd be using at home is really important.

So, I think just this increased investment in innovation to address the more for less challenge. Mexico, just to echo Chris's comment, really, the net exporter from the U.S.

We employ three or four times more people actually in the United States than we do in Mexico. We do produce product, but most of what we produce is component shipped for than more value added north of the border.

So we're keeping a really close eye on it. It's important to us.

But structurally, we're in a reasonable start point place. Did I get everything, David?

Alexander Virgo, Bank of America Merrill Lynch. Could you just talk about the detection margin in a little bit more detail, please because I think, unless I misread it, the aftermarket mix was down and your R&D was up?

So you'd normally expect mix to be negative, if aftermarket's down. So, obviously well, maybe how much was the margin driven by completion of contracts?

Perhaps, are you really seeing provisions made for completion of contracts, or something? I'm just trying to get a feel for the actual underlying improvement there, because 17 don't think we've seen 17 for a long time.

And then, similar sort of question, I think, on John Crane. I think, last H1 you talked about a 90 bps headwind from strategic first fit contracts; what does that look like this year?

I'm guessing if you did fewer then it's obviously a positive in the bridge, but just a comment around that. And then lastly, I'll the question on tax.

Can you just give us some detail on why it's going up to 31%? I think, again, the last seven or eight years it's been around 25%, 26%.

I appreciate your point on one offs this year, it would otherwise have been higher this year, but, obviously, that's still quite a big bridge. So if you could bridge the gap for us that would be great.

Thank you.

Do you want to start with tax, Chris? I think there was a related provisions question in detection as well there, wasn't there?

Perhaps touch on that, and then I'll pick up from there.

I'll start with the interesting topics for tax. I think that our tax rate has been creeping up over the last five to seven years, from about 23% up to roughly 26% to 27% just now.

There are all number of things that are in there, but, in general the global tax environment is getting more challenging. The OECD BEPS initiative is it, basically, means that wherever you earn your profits you pay your tax.

That's a natural upward pressure on the tax rate. You then have to look at the mix of profit.

So we have over 50% of our profits in the United States, where the tax rate is about 40%. We don't have unrelieved losses in the States, so we pay tax on day one.

So it's a cash tax output, and the effective rate is the same as the actual rate for United States. We have seen good growth in our U.S.

market. U.S.

economy is doing well, so there's a mix impact from having more of your profit around 40%. Germany is a very strong market for us; very high tax rate.

Japan's a reasonably strong market. They've brought the tax rate down, but it's still higher than our average.

So you see these natural upward pressure points. We also, as with many companies, fund our operations across the globe through a mix of debt and equity.

And the debt -- if you put debt in 10 years ago the interest rate -- and it's the underlying price, and the interest rate is 7% to 10%. This is all very plain vanilla tax.

If you refinance that now the underlying rate is 3%. And so, if you're paying interest in the United States, or in Japan, or in Germany, wherever it is and you're receiving it in the UK, where the tax rate is 17% or 18%, you have a tax arbitrage.

If your interest rate comes down, that arbitrage reduces. So there's an effect of that.

And there's also we have had a number of -- if the tax environment progresses more towards one of more simplification you have fewer of these contentious issues. So we have a number of issues that we've had, contentious issues, over the previous however many years, and we've been quite successful at resolving them.

And we have provided for those cases and when we've resolved them it's better; that gives you a benefit in your rate. So we see a benefit in the rate this year on that.

As we knock those things off, they won't recur. The 30% to 31%, let me stress, that is based on company-enacted tax legislation.

Should President Trump implement his plans then we would expect to be lower than 30% to 31%. So, if nothing changes, that's what we would expect next year.

The related part on detection, there's no big boost to detection's profits based on provision releases. The differential between the margin on the first-fit and the margin in the aftermarket in detection is that differential is lower than you find in John Crane.

So the differential might be up to 10 percentage points on a regular contract, whereas in John Crane it could be quite a bit higher than that. So the mix impact is not as pronounced in detection as it is in John Crane.

So that is -- it's a very clean set of results. We were as pleasantly surprised as you were to see those margins in the first half.

Thanks, Chris. Just some comments on John Crane.

We said we had a drag from winning those new pipeline projects. As I mentioned earlier, they're very hard fought at the moment.

It's crucial that we maintain that installed base, because that's where we get our 25-year annuity of service from. I think the drag is a similar drag.

We've mentioned 90 bps before, something similar. We're, however, not kicking stuff out.

The drag's a little bit more than that at the moment, because the IRR on the project going forward remains compellingly attractive. So, for this half, similar.

But, as we said, we're not seeing anything pick up in those first-fit projects particularly at the moment, whereas we have seen the pick-up in aftermarket. So we're watching that really carefully.

The other things around the Crane margin, the JCPS business, the sucker rod business that we sold came out; and also, we continue to do some work on network optimization and efficiency. But, I think, as I've mentioned last time, we haven't done as much as I would have done in previous lives because of the value -- the really important thing about Crane is that network and that customer intimacy and that service.

So we've had some headcount reduction but we could have probably done more. But this is about preparing it to come back.

Matt Spurr, RBC. I had two.

First one on detection, on the Morpho deal, what you can say. It's sounds as though trace was reasonably important for the value case there, you lose, or you have to dispose of 25% of the sales yet you lose one-third of the synergies, is that right?

And then, you're probably not going to be in the best position, given you're a [forced seller], so just your thoughts on how you think about that deal and its value-creating possibilities now?

On that, the Morpho trace business is a very good business, as is our trace business. It's a reasonable chunk of the revenue to sell, but it doesn't change the value case for us.

When you're up against that timeline to sell a business in an anti-trust case then you don't have the same flexibility as when it's a voluntary sale. That said, good quality businesses are achieving good quality prices just now, so we will hope to generate good value from that.

But it doesn't change our view of the overall deal.

Just a couple of points to add to that, I think it was a business that I would have preferred to have kept, but I'm not irritated to have to sell it. I think, in summary, we see really strong case around the products remaining, and those that combine with us, which is the majority of the business.

And, of course, as we've said before, we're focusing our value thinking here on cost synergies; we aren't taking it further. And, clearly, the aim is to take it further.

Thanks. And then, the second was on the dividend.

It's got earnings up 30%, cash flow 40%, looks like we should get good cash going forward, dividend's only up 2%.

I think I told you before, I come from the part of Scotland that Scottish people think produces mean people. Our EPS was down last year when dividend was up 2.4%, and so what we've said is we will have a, we aim to have a smooth upward trajectory.

So in very good years the rate of increase in dividend will be lower, and not so good years the increase in the dividend will exceed the EPS movement. We'd like to continue that.

We look like we will build cover at the current rate about 2.2% for the full year. And who knows where sterling is going to go, so it's strengthened in the past few days.

So, hopefully, people are happy with this.

Sandy?

I've been doing missionary work down here to show the Scots' generosity. Don't blow it.

Don't blow my cover.

A very simple question. When, in November, the underlying sales were down 3[%], and we end the year, the half year, flat, is it detection that just swung?

Or was there some volatility in the other businesses at this moment?

John Crane was a bit better as well. We traditionally finish each of our six-month period very strongly, so January and July are our two strongest months.

And we saw a very strong detection, we saw stronger John Crane increasing its revenue in aftermarket over the second quarter, so that contributed as well.

Right. I suppose, where I'm obliquely coming from is at the end of FY16 the John Crane aftermarket order book had gone up.

We didn't quite see that in the minus 3% in the first quarter, if you see what I mean, but it came through in the second quarter, or the order book has continued to strengthen in John Crane aftermarket. I don't quite get it, in a way, that's even got an order book, if you see what I'm driving at.

It does have an order book, but it's cancellable, so it's a flexible order book, I would say. The order book in John Crane has improved in the second quarter, but much as it had improved at the end of 2016.

And we expected to see a bit of improvement in Q1, and we didn't see it. We don't rely -- so we like to see the order book, we like to see what people want, but we don't take that as a firm basis on which to forecast when the revenue will come in.

Okay. It's a curious thing that if the second quarter was appreciably stronger than the first quarter then the reduction in debtors, which is the biggest part of the working capital improvement, is a bit out of sync with that.

So I feel there's something going on that I'm not quite getting a grip of, if you see where I'm coming from, again.

I'd say, rest assured, the pressure that we put the businesses under on working capital is not limited to inventory. So I think we can improve our debtor position.

So that's a lot of work that the businesses have done to recover debt more quickly.

Right. Okay.

So you're right, the debtor reduction is on the back of having an exceptionally strong January. So the underlying reduction in debtors is actually a bit better than you see in the numbers.

Yes, well, that's the kind of point I'm laboriously getting at. It's a funny old first quarter, second quarter, isn't it?

Moving swiftly on, stop me when you get bored, why are we even bothering to qualify detection machinery in China? Have we ever sold anything to a Chinese airport, since Newtec popped up?

It's a very good question. The interesting situation in China is that you've got such a wide range of different regulatory and legislative situations, whether it's from the Chinese underground through to the airports.

I think it's fair to say that in the domestic airports we do almost nothing. In the international airports, where standards go cross-border, we're increasingly starting to move cross-border.

Potentially, some opportunity could open up, but right now we're very small, as you say. A lot of our focus in China right now is around critical infrastructure, more than from an airport perspective, but that is changing, as the legislative environment changes over time.

So today, very little; in the future, potentially something.

It'll be fascinating if we finally do manage to do some business there. I'm not saying that it's not been unfair, or anything, but it's a bit suspicious we haven't sold anything.

We're too weak in China, in general, Sandy.

And last one, just to make tax look interesting, we've had a few other companies decide that they can look 25 years ahead on asbestos and bauxite. Are we getting to a point, and should I take any sort of comfort from this 8 million release in Titeflex, that maybe we can make this lightning-strike stuff go away, too?

I mean, is there much encouragement there?

So you are referring to Crane Co, that have increased the provision in asbestos, I assume, from a time-limited provision to a perpetual --

Well, it was Crane, Borg-Warner, and ITT actually.

We have a very different, and somewhat unique, asbestos position. We defend every case; we don't settle.

These other Companies settle, and we defend on the basis that we made a safe product. We have a provision for 10 years, and we provide a sensitivity in the annual report to say if that provision were shortened to nine years this would be the delta in the provision, so that people can make a judgment as to -- or they can see the build out of the provision.

The reason we only provide 10 years is that we believe that the asbestos environment is going to change. We believe passionately our product was safe, and, therefore, we shouldn't be paying anything.

That's what one of our lawyers refers to, the search for the solvent bystander. So we are one of the few companies that haven't gone bankrupt, or been in bankruptcy protection, that has sizable asbestos liabilities.

A lot of companies have been setting up bankruptcy trusts. Once those trusts are set up, we expect that they will take a bit more of the load on the asbestos liability.

So we do expect a change, over who knows over what period. Tort reform has been spoken about in the U.S.

for many years. But that's why ours is different, we don't settle.

And we do expect a change in environment where other companies, companies that actually did supply dangerous product, will take more of a load, as they should. It's too early to tell.

We defend our cases. Sometimes you have a good day in court, and sometimes you don't.

I would say it's too early for us to tell whether or to say that this liability will diminish. We have one or two cases.

We've had a few cases struck out on the basis of various statutory limitation, that gives us a bit more comfort. But we'd like to see some more positive news before we are able to give some more comfort.

[Question Inaudible]

Yes, it's one of the few areas that is less predictable than the tax regime. When you go into court, you just don't know how it's going to end up.

Thanks.

Andre, Credit Suisse. A couple of questions.

Firstly, on Asia growth, it sounds like acquired growth will be quite an important part of that. Could you talk a bit about is there a high appetite to acquire in certain parts of the product portfolio, business portfolio, than in the others?

Just thinking about what divisions are more likely versus less likely to acquire in Asia. And further, in context of that, would your process be different at all in terms of how you look for businesses, how you sift through them?

Would your hurdles be any different for acquiring in China? Do you need to invest in a team capability there to be able to do that?

Team capability?

Yes, in M&A capability to be able to do that. And then, just a couple of quick follow ups.

In medical and infusion systems you had a decline in aftermarket, as well as new equipment, could you comment on why aftermarket declined as well? And then, finally, on the tax, I'm sorry to bring that up.

But, Chris, could you quantify how much were those one off credits in 2017, or any idea on what that is in terms of either basis points or absolute amounts, so that we can take that out? Thank you.

So, maybe, if I can start on tax, it's always sensitive when you're asked to disclose things in tax, so I could, but I won't. There will be some disclosure in our full year results, which will show any material one offs there.

But I'd prefer not to because some of these provision movements may well be in things that either we've won, or things we think we're winning, so I'd rather not say there. On the M&A in China, it's very and Andy would give you the same answer.

Their hurdle rates are the same wherever we go. There is no such thing as a strategic investment, other than an investment which doesn't meet your hurdle rates.

So we would not invest in something that didn't meet our hurdle rates in China. We do have an M&A team member, based in Singapore, who handles Asia.

He is Chinese; spends a lot of time in there. So we've got good capability there.

It's for Roland, when he goes to China, to decide whether we need to have more there; he and I will discuss that. But we're already, I think, quite well covered there.

But, rest assured, we maintain our discipline no matter where we buy.

Yes. And I think one qualifier, I think, on the investments, our risk assessment remains robust and comprehensive.

When we talk about hurdle rates the same wherever we are, our risk assessment, very definitely, is taking into account what we're doing in different parts with different risks. We are stepping up our capability to take a closer look at things over time, inevitably.

It's a key part of the divisional strategies and the regional strategy. As I mentioned earlier, I do think that we'll be a combination of organic and non-organic.

Making the numbers work is the hard bit of that, because there's some pretty racy values on assets around Asia. So, for that reason, there needs to be very compelling value when we look at this by market sub-segment with some really complementary repositioning, whether it's technology or operational, where we can see some real value that what we do with it has got to be really clear here.

I think it will be very helpful having the capability on the ground and the horsepower on the ground to help with all of that.

On the medical question, as I say, there's a latency with detection. So you sell a piece of kit, get a two-year warranty; and then the aftermarket with medical, when you sell the pump the disposables are one-time use only, you might need several cartridges in a day.

So if your hardware sales go down on day one then your disposable sales will go down; that will explain the drop in the aftermarket revenue.

I think we've exhausted you.

Anybody want to talk more about tax?

Well, thanks very, very much, everyone, for coming out on a Friday and for your attention. Much appreciated.

And have a great weekend. Thank you very much.