The Weir Group PLC

Keith Cochrane - Chief Executive Jon Stanton - Group Finance Director

Nick Wilson - BESI Jonathan Hurn - Credit Suisse Alasdair Leslie - Societe Generale Sanjay Jha - Panmure Gordon Glen Liddy - JPMorgan Cazenove Robert Davies - Morgan Stanley

Good morning, ladies and gentlemen, and thank you joining us at today's 2015 Interim Results Presentation. As this is being streamed live on our website.

Can you please switch off your mobile phones or turn them to silent, before we start. Joining me today as usual is our Group Finance Director, Jon Stanton.

And as with our normal practice, I'll begin with the first half highlights and then Jon will take you through the financial details in more depth. I'll then take you through a review of our end markets, update you on our strategic progress and discuss the outlook for the full year.

We'll then take your questions. So let me begin with the groups first half performance, which was in line with our update in June and reflects a significant impact of the historic downturn in oil price, since October.

Group revenues on a constant currency basis were down 14% compared to the first half of last year. When you remember oil was trading $100 a barrel and the oil and gas division was experiencing strong momentum.

Jon will take you through the detail, but the steep reduction in oil prices has had an impact on all three divisions with reported pre-tax profits down by 40%. I'd also like to highlight two areas in particular safety and cash generation.

Our total incident rate of 0.8% is in line with the average of last year. Although worst then the second half of 2014.

We need to do better and all the teams have been tasked with improving performance in this critical area. In terms of cash generation, I'm pleased to see we made substantial progress with an increase of 35% to £202 million giving the Group important flexibility to continue to invest for the long-term.

Fundamentally, we believe our end markets remain structurally sound. Minerals, oil and gas in parallel are crucial to the needs of the worlds increasing population.

With an additional 1 billion people expected in the next decade alone, the structural demand for more natural resources and energy is clear. But these are also cyclical markets and that means they can be challenging, very challenging, as they're now.

In minerals, we're in the third year of our mining capital expenditure decline and face a challenging near term commodity price environment, as we've seen again in recent days and weeks. In this context, the group has made good strategic progress with a focus of improving the efficiency of our operations and using technology to lower the total cost of product ownership for our customers.

Indeed, total underlying mining sector orders were broadly flat in the first half with after market strength of setting originally equivalent declines. As oil and gas activity has reduced quickly, the group has responded aggressively focusing on cost competitiveness while maintaining our ability to be highly responsive to customer demands.

Managing the reality of challenging end markets, while continuing to invest is critical to delivering long-term value. That's why we've increased research and development investment by 38% and continue to expand our product portfolio for the acquisitions of Trio and Delta.

I'd also like to highlights some changes to our board and management structure announced this morning. Firstly, Gavin Nicol, Director of Operation Support and Development will be retiring at the end of the year.

Over the last 10 years, Gavin has shown outstanding leadership as Managing Director of the historic, Weir Pumps business, President of SPM and most recently leading improvements to the group's operations, innovation and health and safety efforts. Dean Jenkins, Divisional Managing Director of the Minerals Division will join the board as Chief Operating Officer with effect from January 1.

In addition to assuming Gavin's responsibilities, Dean will support me in driving the operational performance of the Group's three divisions and continuing to develop Weir's innovation agenda. Now I'll let you turn to the group's financial results in detail, which Jon Stanton will take you through.

Jon?

Thank you, Keith and good morning, ladies and gentlemen. As Keith said, we faced very challenging markets during the first half of the year.

And our results reflect those conditions but also the range of actions we've been taking against that backlog. I'd like to start by looking at a summary of the reported results.

And please bear in mind, that is usual or referenced as to profit margin and EPS are the four exceptional items and intangibles, amortization. With regards to the exceptionals I'll cover those in some detail on a subsequent slide.

To illustrate the impact of foreign currency translation, this slide shows our performance against last year on both the constant currency and reported basis. To give you the headline impact upfront, the favorable FX translational effect seen in the period of £24 million at the revenue level and £6 million at PBTA.

And this is illustrated in Appendix 3 and 4 of the slides. The headline results have been driven by the very severe downturn seeing in our North American oil and gas businesses.

Order input decreased 18% on a constant currency basis. With aftermarket order down 13% and a decline in original equipment orders of 29%.

Revenue from continuing operations of £1 billion decreased 13% with operating profit down 36% to £129 million. On like-for-like basis excluding Trio input in revenue were down 21% and 17% respectively.

Operating margins were down on 2014 at 12.9% and I'll take you through the moving parts in the divisional discussions. That finance cost were £21 million, up £2 million on last year due to higher average levels of net debt following the Trio acquisition and adverse movements in the US Dollar exchange rate.

Profit before tax of £108 million is down 40% year-on-year as reported. On a positive note, cash generated by operations increased by 35% in the first half to £202 million driven by excellent cash collection in receivables.

With an EBITDA the cash conversion ratio of 124%, the effective tax rate of 23.6% is lower than 2014 due to the decreased proportion of the Group's profits generated in the US and you can assume that the full year rate will be in line with this. Headline earnings per share of 38.7 pence compared to 61.4 pence per share in 2014.

While the interim dividend remains unchanged from last year at 15 pence per share. Return on capital employed was down on the prior year.

With a 14.4% highlights our ability to generate superior through the cycle returns. Let me now turn to a summary of the performance of each division over the period, starting with minerals.

Overall order input was flat on a constant currency basis. With the impact of Trio offsetting the like-for-like decline in orders of 7%.

Within this, there was 30% decline in input from oil and gas market with like-for-like mining sector input broadly flat. On a like-for-like basis original equipment orders were 22% lower, slightly below original expectations, as customers responded to the further falls in commodity prices by continuing to reduce CapEx and delay projects.

Trio made a strong initial contribution meaning total OE was down 6%. Aftermarket orders were broadly flat on a like-for-like basis and you've seen from the press release that this implies a 4% decline in the second quarter, which I'll just take a moment to explain.

You'll recall that last year, we had an unusually strong second quarter with large one off aftermarket orders to HPGR tyres and wear resistant liners of circa £14 million, which are more lumpier in nature and did not repeat. The impact of swellable packers was a further 1% headwind.

If you strip these out, the underlying mining aftermarket performance was very robust with core slurry pump spares, which makes up two thirds of aftermarket revenues growing strongly at 7% half on half. This resilience is evident in the aftermarket book-to-bill, which remains above 1, even though revenues are growing strongly.

Total revenues was 3% down on a constant currency basis and 8% lower like-for-like as original equipment revenue declines more than offset the strong aftermarket growth. Production driven aftermarket revenues were up 6% on last year and represent a 73% of divisional sales.

Our market share was very solid with good growth in South America and the partial recovery in South Africa offset by declines in Europe and North America, where we saw some marginal mine closures and the impact of lower oil and gas volumes. Excluding Trio aftermarket revenue growth was 3%.

And overall the division's book-to-bill ratio increased in the period to 1.06. Compared to last year, gross margins increased by 150 basis points.

Driven by the aftermarket mix, with the benefits of cost reductions and procurement initiatives offsetting pricing pressure. The absolute quantum of gross profit was broadly year-on-year, as the higher margin was offset by the impact volume declines.

Operating profit decreased 9%, primarily as a result of increased investment in product development and the divisions SAP capability, as well as one-off integration cost of £2.2 million pounds in relation to Trio. The net effect was a small reduction in operating margins as previously flat to 17.8%.

Moving onto oil and gas, input was down 38% on the prior year period as result of the severe reduction in activity levels in our North American upstream businesses. Middle East operations were largely unaffected below downstream orders were softer.

Aftermarket input was down 32% year-on-year. In upstream, most product lines were down sharply although service and maintenance input was more resilient.

Aftermarket orders increased to 76% of the total compared with 69% in the prior year. Original equipment orders were 53% lower than 2014 primarily driven by a lack of demand for new pressure pumping equipment and a reduction in wellhead demand in pressure control.

Revenues decreased 30% year-on-year reflecting the weak order input trends. Original equipment and aftermarket sales reduced by 49% and 23% respectively with aftermarket accounting 80% of revenue compared with 72% last year.

Operating profit was 65% lower than last year on a constant currency basis, with the key driver being the division's upstream operations. And the group share of profit from joint ventures was £4 million compared to £5 million last year.

Operating margins for the six months have fallen to 11.3% compared to 22.8% in the prior year. Within this result, gross margins were only slightly down as cost and efficiency measures somewhat offset the impact of pricing pressure in upstream operations.

However, there was a worsening trend through the period particularly with the disproportionate impact of price concessions on rental revenue streams. Operating margins were heavily impacted by negative operating level due to a deliberate focus on inventory reduction to drive cash generation at the expense of production to recover manufacturing overheads.

Turning to power and industrial, input in the division was 11% down on the prior year, primarily due to large hydro and steam turbine orders, which were not repeated. Although, the business currently has a good pipeline of larger hydro projects some of which should convert to orders in the second half.

Excluding these prior year orders input was down 4%, as result of delays across power and mid and downstream oil and gas markets. Original equipment orders were down 26% year-on-year: well aftermarket orders increased 4% driven by strong double-digit growth in valves and only a partial offset from lower services input.

Revenues were down 8% year-on-year with aftermarket growth of 3%, offset by original equipment revenues down 17%. Valves revenues were 11% lower year-on-year impacted by project inspection and delivery delays.

Operating profit was flat at £10 million on a constant currency basis, with margins up 50 basis points to 6.5%. This reflects the first benefits of the cost reduction and operational improvement measures taken at the end of 2014.

With gross margins in the valves business showing an improvement of 240 basis points year-on-year. We've also delivered a £4 million reduction in indirect costs.

And although, this is been offset by the volume decline in the period, it represents a sustained underpinning improvements to the divisions future profitability. I'd now like to provide an overview of the two main areas, where we've recognized exceptional items in the period.

The first of these is the previously flagged further costs totalling £8 million associated with the Group wide efficiency review, which we announced at the end of last year. These costs related a final stages of the reorganization of minerals in North America, as well as other headcount reductions in that division, primarily in Latin America and Australia.

The second exceptional item is in oil and gas and is a charge of £39 million relating to actions we've taken in response to the current market downturn. Off the total charge, £8 million represents redundancy and other cash cost associated with the closure of service centers.

With a balance of £31 million relating to the impairment of inventory and tangible assets. These impairments have been taken as a result of our decision, in light of the current market to rationalize product lines and discontinue support to certain older product categories, which are being superseded by new technologies.

This includes our decision to withdraw from marginal activities in Australia and Brazil. And further details of these restructuring charges are provided in Appendix 7.

The extend of any further charges in the second half; will depend on how end markets develops. But at this stage, I would not expect more than £10 million of further cash costs.

I'd now like to move on to the cash flow statement. Our operating cash flows increased by 35% to £202 million, with a strong working capital cash inflow offsetting the impact of lower profits.

This resulted in an excellent EBITDA to cash conversion ratio of 124%. In terms of capital expenditure, we've continued with key investments in safety and strategic initiatives including information systems, a new facility in Italy for downstream oil and gas and re-organization related CapEx.

Dividends paid of £62 million were lower than last year and reflect the re-phasing of the full year dividend that we implemented in 2014. In total free cash inflow was £59 million after dividends compared to £20 million outflow last year.

In terms of working capital, we generated a cash flow inflow of £39 million in the period compared to an outflow of £79 million in the prior year. This corresponds to a 14% reduction in absolute working capital since the year end on a constant currency basis.

Looking at debtors first, reduction of £145 million in the period is partially driven by volume. But it is also a function of the Group wide focus on cash collection and the excellent performance in oil and gas in particular.

Encouragingly, despite the challenging markets, we've not experienced significant issues with regards to recoverability and are proactively managing relationships and credit with customers. Moving onto inventory, there's not been a material change since the year end, although there are a number of moving parts.

Within oil and gas, upstream operations have reduced underlying inventory by £22 million before the rise off, I previously mentioned. This is been offset by increases across the other businesses with working progress up.

Particularly and our engineer to order businesses driven by project delays and phasing of deliveries. The impact which is around £23 million and some of this should unwind during the second half.

Moving on, net finance cost excluding the pension related cost of £2 million have increased by £2 million year-on-year due to the higher average levels of net debt and the movement in the US Dollar to Sterling exchange rate. As you can see, net debt is decreased from £861 million at the end of 2014 to £817 million at the half year, driven by our free cash flow inflow of £59 million.

The net debt-to-EBITDA metric of 1.8 times on a lender covenant basis, remains well within the covenant level of 3.5 times and below our self-imposed limit of 2 times despite the significant decline in EBITDA. In April, we launched our new commercial paper program with £101 million in issue at the end of the period, replacing our historic uncommitted bank lines.

86% of our debt maturities are in 2018 or beyond. And briefly on pensions, the net deficit on our defined benefit plans decreased to £88 million from an opening position of £94 million reflecting a 20 basis point increase in discount rates on the prior year.

And finally a few words on acquisitions. The integration of Trio, the business we acquired in October last year is progressing well and is close to completion.

It's provided a good initial contribution and our expectation is for this to continue through the second half. And we recently announced the acquisition of Delta Industrial Valves, a leading US based manufacture of knife gate valves for the mining, oil sands and other industrial markets.

The initial consider was $37 million of which $21 million was paid in cash and the balance in new Weir equity. The part equity structure was used to enable us to unlock the transaction at an attractive price, by enabling the vendors to share in a cyclical recovery and at the same time limiting the balance sheet exposure.

We also expect a good contribution from this business in the second half of the year. Thank you and let me now hand over to Keith to take you through the business overview and outlook.

Thank you, Jon. Now you'll be familiar with the group is very clear and consistent strategy, which is designed to deliver long-term value for shareholders.

Our four strategic pillars innovations, collaboration, value chain excellence and global capability, underpin our performance and I'm pleased to report significant progress in each area in the first half of 2015. All three divisions have launched new products including in minerals, a new hydro cyclone.

A critical part of the minerals processing circuit. The new cyclone can achieve 50% higher throughput in comparison to any competitor of its size.

The oil and gas division introduced a new continuous duty frac pump to the market, which lowers total cost of ownership by an estimated 20%. We don't expect to sell many of these in the near term, but this kind of innovation will make an important contribution to an industry, which is very focused on efficiency.

More broadly, we're exploring advances and smart connected technologies, to see how they can improve our equipment and ultimately benefit our customers. Our Synertrex system is designed to monitor the performance of our products with the aim of preventing costly unexpected downtime.

And in oil and gas, Mathena has trials underway with customers to pilot a new senor which monitors fluid levels and shale-gas separators to prevent environmental incidents. The group has formed an R&D partnership to work with Imperial College, London.

Consistently, one of the world's top rated universities. Our engineers and Imperial's academics will undertake fundamental materials research with the aim of commercializing any breakthroughs as quickly as possible.

We're also working with other companies where it make strategic sense. That's why we announced a joint venture with Rolls-Royce subsidiary MTU which builds in our previous collaboration agreement.

Together, we've developed a purpose built frack power system integrating the pump transmission and engine for the first. Weir will lead on aftermarket support using our extensive service center network, which again addresses the demand for more efficient solutions.

As we made customers more efficient, we're also looking across our value chain in leveraging our global scale to further reduce costs and drive efficiency. More than 90 value chain projects are currently underway across the group.

And the minerals division is making progress with the rollout of its new ERP system. Implementation in Malaysia is now complete and the new system will go live in Europe later this year.

Ahead of Latin America in the beginning of 2016. The group has also expanded our global capability with this month's acquisition of Delta.

Extending our range into high pressure corrosive and non-discharge applications with a market leading knife gate valve product. We'll now seek to globalize this technology.

And that's what we're doing with Trio. Integration is nearly complete and we're building out our regional sales teams.

This is helping us to grow customer relationships globally and seek out aftermarket opportunities from its installed base. So far this year, order input trends have been good and we're seeing momentum grow every month.

The sand and aggregates market has more a positive short-term outlook than mining with the US particularly attractive. And the group continues to extend our significant best cost manufacturing capacity, which as Jon suggested is underpinning gross margins, even in a tough pricing environment, enabling oil divisions to be more cost competitive.

Let me turn now to market conditions in more detail beginning with mining, the group's largest exposure. As miners continue to reduce capital expenditure they're also prioritizing productivity and improve returns.

The effect is a rise in ore production even though commodities have been volatile with further price declines in the last few weeks impacting copper in particular. In the first half some mines were mothballed in Africa and North America.

In contrast, in lower cost regions where Weir has the majority of our exposure production increased which underpins our aftermarket business. Iron ore prices continue to fall with a 23% decline in the first half leading to project delays and again some mine closures including in China and the United States.

As we said in February, expectations are for a further fall in mining capital expenditure through the rest of this year and into next. And this may well be exacerbated by recent price declines.

What is clear though, is that customers are still willing to invest in projects which increase productivity or reduce cost per ton. The latest analysis suggest global ore production is expected to grow.

With copper output supported by the benefits of full year production from South American mines commissioned last year. We also expect a further three large South American projects to start production in the second half 2015, with a full suite of product sold to each site.

In the current environment, aftermarket pricing pressure remains a constant theme that's unlikely to ease in the near term. Looking to the medium term and we say it out, in our recent Capital Markets Day presentation, copper, ore rate declines will lead to increase production, the main profit driver of our mining business.

[Indiscernible] estimated to satisfy the 3% predicted annual increase in demand up to 2021 will require a 6% increase in annual production as a result of declining ore rates. The supply and demand balance for iron ore and coal is less favorable and is likely to be sometime before the world needs to find new sources of supply of either commodity.

So what does this mean for Weir. It reinforces the importance of providing the products and solutions, our customers need to succeed and the lower CapEx and OpEx environment of today.

They're looking for solutions which are competitive and reduced their total cost of product ownership that means continuing to invest in technology, remaining focused on our own operating efficiency and being highly responsive to customer needs. Turning now to oil and gas, the market downturn has led to substantial fall in upstream North American activity.

Rig count has reduced steeply as the graph in the right shows, although in recent weeks there have been signs of stabilization. Within those figures, the oil-directed rig count fallen 60% greater than industry estimates in the beginning of the year or gas-directed rigs have fallen to record lows substantially below prior expectations.

Meanwhile, US onshore production has been more resilient than initially expected because the impact of rig count declines and production volumes hasn't been failed in the first half. We expect to see some impact in second half production volumes.

It's possible that this may be offset by the recent agreement with Iran, but with no certainty if or when sanctions will end, the short-term impact should be relatively limited. It's also important to note, that our strong presence in the Middle East means that this could also be the source of opportunities for us.

In North America, runs rates in pressure control were broadly stable in May and June reflecting its closer correlation to the rig count and the relative lack of excess inventory in this sector. Conversely, as the second quarter progressed pressure pumping saw sequential input declines in April, May and June.

July orders appear to be matching June's run rate but are below the normalized level you would expect given the current activity levels reflecting destocking and cannibalization. By the very nature, these are both temporary and unsustainable and therefore should reduce as the year progresses.

Across our North American oil and gas businesses, customers are downgrading equipment specifications and lengthening maintenance and inspections to save costs. When markets normalize the catch up required typically leads to a step up in pressure pumping activity.

And as you've seen from many recent US company earnings reports pricing pressure has been substantial and broad based. From our perspective, almost every new order is being competitively bid for and sales teams need to be creative in the packages, they offer customers to secure contracts.

We're confident though that, across all our North American businesses, our efforts are maintaining market share. Overall, there was a 30% sequential decline in oil and gas division's upstream orders in the second quarter with margins falling into single digits.

In Middle East, where our oil and gas services operations generated a quarter of the divisions first half profits, production has continue to grow particularly in Iraq and Saudi Arabia. Conditions in the North Sea and the Caspian have been more difficult.

New projects in the Canadian Oil Sands are unlikely but production continues to grow and we saw that, in minerals aftermarket trends. However, this was offset by fall in demand for their swellable packer range, which is used in upstream applications.

Mid and downstream demand was more resilient, although projects are being delayed impacting both power and industrial and Gabbioneta. While the near term market challenges are clear.

Looking further ahead, there are some positive market developments that will support medium to long-term growth and I would highlight three in particular. Firstly, unconventional North American shale continues to move down the cost curve.

Price reductions and continuing technological advances have reduced breakeven cost making unconventional supplies are vey sustainable and competitive source of energy. To give an example, in the first half of the year average drilling days improved by 8% in the US compared to 2014.

Secondly, if we look at depletion rates across conventional and unconventional markets. It's clear, there is pause in investment can't continue in the medium to long-term.

With over $200 billion of planned projects now are in the hold. Shale is clearly well positioned to fill the gap, when it arises.

Output from these long-term projects will take much longer to realize in comparison to the short lead times of tight oil resources. In addition, shale benefits from its stable political environment and lower project risk.

And finally, we shouldn't forget growing demand for gas. Natural gas is now overtaking coal as the leading feedstock for electricity generation in the US.

And the first exports from North America could take place by the end of the year. The market challenges we faced are not in our control, but where we can make a difference is in our approach to the downturn.

We've had to stay agile, execute effectively and be aggressive in our approach to cost management. This is been assisted by our flexible business model, which has allowed us to quickly in source work and support recoveries.

Pressure pumping manufacturing has been cut back to one, four day per week shift in the Fort Worth facility followed have suspended activity for a week in May and again in July after the period end. The division is on track to deliver £55 million in annualized savings, as a result of service center and manufacturing facility closures, a substantial reduction in workforce, SG&A and some procurement savings.

To give you an indication of the divisions' responsiveness. In February, we had cut the North American workforce by 22%.

In April, that figure had risen to 27% and today it stands at almost a third, with the latest redundancies taking place earlier this month. Given the current market, we have accelerated our plans to consolidate pressure pumping and pressure control service centers in North America.

Whether the same time the division has maintained core skills and shooting it doesn't make short term sacrifices, which will impact long-term profitability. And as we've shown previously.

This is a group, which knows how to take full advantage of any upswing in activity. Well customers are obviously focused on cost of present.

They're also open to new thinking and technologies which make them more efficient, that's something we've been doing across the business with new solutions in leveraging our full offering. Now despite in sourcing, there was limited production in the second quarter.

As division sought to burned out inventory while activity was low. This led to manufacturing pressure pumping overhead under recoveries of £13 million compared to the first half of 2014.

With a £25 million reduction in gross recoveries partially offset by cost savings. The upstream businesses are now highly leveraged to volume changes.

In pressure pumping, the £8 million absolute under recovery in the first half will be recovered with a 10% increase in revenue run rates and take the division back into the mid teens margins. In pressure control, Seaboard is in the same place.

Well Mathena's rental business model means its margins are highly geared to any recovery in activity levels. Finally, these minimal manufacturing levels.

I mean, we not yet been able to leverage the favorable procurement terms our teams have negotiated. Overall the division has taken tough decisions where necessary but importantly it's maintained its ability to respond quickly to market conditions where they are favorable or otherwise and that's been our approach across the grip as a whole, with our current cost reduction production on track for our run rate of £85 million by the end of the year, of which we expect to deliver around £60 million in 2015 with £20 million realized in the first half.

I've already mentioned the measures oil and gas has taken. In minerals, we've completed the closure of three smaller less efficient manufacturing facilities in the US and Australia consolidated into larger centers.

With further plant closures in France and the US to conclude later this year. Power and industrial is also benefitting from recent reorganization with improved accountability across the division and best cost sourcing helping to improve margins with further cost measures taken in July.

The Group's head office there have also been cost reduction to the support overall performance including a reduction in headcount and discretionary expenditure. We'll maintain our ability to invest but importantly we'll also continue to invest in the drivers of future growth as demonstrated by the priority given to R&D, which is why you'll notice that central cost were up in the first half, year-on-year.

Our procurement savings initiatives have made particular progress in castings, forgings and fabrication as well as reducing the side of our supply chain and increasing best cost capability. We are meeting our savings target of 4% of cost, but the reduced volumes mean we're unlikely to reach our £50 million run rate target by the year end.

And so across the organization, we continue to make progress despite the market challenges we currently face improving our competitiveness and enhancing cash generation. Now looking to the divisional outlook and starting with minerals.

Although, there is expected to be an overall reduction in mining capital expenditure, the division expects its original equipment orders to increase sequentially in the second half of 2015. Reflecting a strong contribution from acquisitions combined with a pick up and orders from the GEHO product line.

GEHO has a high probability projects pipeline of over £50 million reinforcing the point I made earlier that customers are still willing to invest for the right reason. These are expected to be awarded in the second half, although the majority of these contracts are for delivery after 2015.

Over the division expects good full year like-for-like aftermarket revenue growth. While the contribution from acquisitions will largely offset the reduction and underlying original equipment revenues.

In line with previous guidance, this anticipate full year margins will be slightly below the prior year reflecting the first half performance, but with the divisions restructuring initiatives and volume growth, supporting a sequential margin improvement in the second half. Part of this will be the usual seasonal bias, we see year-to-year and the fact that the second half of 2014 included a £3 million profit headwind as a result of strike action in South Africa.

In oil and gas, oil prices continue to be relatively volatile, but expected to remain substantially below their peak. Upstream markets have shown some signs of stabilizing in recent weeks and we expect the third quarter will look similar to Q2.

Consistent with industry expectations, the division is aware of some customers planning to increase activity later in the year. Although, this remains uncertain given oil price volatility and the division anticipates only a modest improvement at best and activity in the fourth quarter.

Pressure pumping is also expected to benefit from some easing of destocking and cannibalization towards the end of the year, with order starting to normalize. Pressure control will also see a bigger seasonal bias as a result of the extended Canadian spring break-up in the first half.

Second half margins are expected to be slightly below first half level, reflecting the full impact of pricing pressure. We anticipate this will be partially offset by improved overhead recoveries towards the year end as manufacturing activity picks up as we run down inventory levels.

Finally in power and industrial, the division's end markets are expected to remain subdued through 2015. Expenditure in Europe will continue to be impacted by low projected economic growth rates, while oil price declines our impact in project activity in emerging markets.

Supported by the higher opening order book, seasonal trends and continuing good after market opportunities, the division expects sequential constant currency revenue growth in the second half of 2015. Similarly, margins are expected to see further benefit from measures taken to improve profitability alongside the positive effects of operational leverage.

Each division will maintain their operational focus ensuring the group continues to execute effectively and generate cash, while also aggressively targeting cost reductions and pursuing opportunities to leverage the competitive advantage provided by our leading technology and markets focused on increasing the efficiency. Let me conclude with some of the key messages, I hope you take away from today's results.

Firstly, these are currently tough markets but they remain attractive through the cycle. We're prioritizing investment in areas which will continue to allow us to execute our strategy successful even in current conditions.

That's being seen in the speed of the cost reductions we've made which will have lasting benefits as we reach our run rate of £85 million by the year end. Pulling this altogether, the group level with the normal seasonality of volumes and margins and minerals and power and industrial increased restructuring benefits, further cost savings and a good contribution from acquisitions.

We expect a meaningful sequential improvement in our financial performance in the second half of 2015 leading to higher bias toward the second half, then we've seen in recent years. As a result, we expect continued strong cash generation in the second half maintaining our strong balance sheet and leaving us well placed to capitalize when our markets recover.

Thank you for your time and Jon and I would now be delighted to take any questions, you may have. Thank you.

Just two questions, please. On minerals, can you try and give us a feel for the oil and gas exposure within.

I know you talked about how order intake had fallen, but I just would like a kind of rough quantification maybe in terms of sales exposure as well. And then just coming back to the excellent cash generation in H1.

Just how much more can you do in H2 in terms of what you've already got underway in the Group?

Okay, while Jon is looking up the exact number in terms of oil and gas exposure in minerals, the overwriting point is the principle oil and gas exposure, we have remaining in minerals is Canadian Oil Sands aftermarket and as I mentioned in the presentation. Production across the Canadian Oil Sands continues to grow and therefore that underpins aftermarket activity.

So we've actually seen quite a good performance in terms of Canadian Oil Sands aftermarket in the first half going up rather than going down in that sense. In terms of your second question around cash generation.

There is more to do, clearly the receivables is almost the easy win as volumes decline naturally receivables decline. But at the same time, as you noted our days outstanding have gone from something like 75 to 55, so we've made significant inroads which is a fantastic performance in the current market conditions.

So I think probably receivables is somewhat more limited, probably a wee bit to do there. I think the bigger opportunity is around inventory.

Where we will seek continued reductions and burden out in upstream North American inventory and as Jon mentioned, one of the factors sort of resulting in an overall flat performance in the first half is the work-in-progress that's sitting in the system across the downstream oil and gas, minerals and P&I because of project delays and things that just taking a bit longer to get out the door. We would expect to be able to eat into that during the second half.

So I think, we can continue to see an improved working capital metric as we go through the balance of the year and that remains as clear through, the presentation a key focus for all our businesses through H2. Jon?

Yes in terms of the revenue, Nick. The oil and gas exposure in minerals was less than 10% in the first half and historically it's been about 15%.

So it scores you back to the 30% decline we talked about.

Hi, it's Jonathan Hurn from Credit Suisse. Just one question, please.

Just in terms of your margin guidance for oil and gas, H2. Can you just give us a fill for what you see Q3, Q4?

Is Q3 going to see another step down inventory sort of ramp up in performance margin wise in Q4?

What I said was, we saw the Q3 will be similar to Q2. You should also picked up, I said that Q2 we saw single-digit margins in terms of oil and gas, so that suggest that Q3 is going to be single-digit margins as well.

Pretty similar I would say in terms of Q2. You may think, why the step up in Q4?

Well I think it gets back to the point, I was making in terms of overhead under recovery. Even if we assume no pickup in underlying market activity or indeed any improvement in or lessening in destocking and cannibalization, which I do think will happen to a degree.

We should start producing again in the fourth quarter because it certainly in terms of some critical product categories, we will have run down inventories to level, where we need to have more stock in the system. So we'll start manufacturing, so you'll get, start to get a bit of an overhead kicker.

So I think for me the key point is gross margins are slightly down, but actually the team are doing a great job holding gross margins despite the pricing pressure because of all the cost reduction initiatives that we're seeing. We're being hurt because we've taken this conscious decisions in the first half to focus on inventory burn down rather than creating inventory just to say and to protect the P&L, but that will run its course as we go through the year, even without any activity pickup and therefore we will start to see a bit of an improvement in recoveries.

Now clearly then, if you start to see a lessening and destocking and cannibalization that's another factor that should play out. I believe any of us, can quite call exactly when it will play out, but that should be a theme.

Current levels of activity are frankly unsustainable even for the rig count that's out there today because customers are doing everything they can to avoid purchasing equipment and that will run its course at some point and then of course the third thing, is what happens to activity. Well I think the underlying activity we said, there were number of different views out there.

We're saying look at best it could be a modest improvement because we're aware of some customers, but equally some of the oil price moves we've seen that dynamic may change. But frankly, our guidance is not underpinned on much improvement at all over the balance of the second half, it's more these themes starting to manufacture again and a bit of lessening in terms of destocking and cannibalization impacts across the pressure pumping business in particular.

Alasdair Leslie, Societe Generale had a few questions actually, maybe just take them one at a time. Firstly, just on pricing.

In oil and gas, actually you, you've given quite a lot of detail in terms of kind of levers and the moving parts for H2 margins and in oil and gas in terms of kind of under absorption activity level, etc. I was just wondering obviously the gross margins in oil and gas are being pretty resilient in H1, but you did talk about sequential decline through the half.

So just in terms of pricing expectations for the second half, maybe what the run rate. I appreciate you probably not going to give the actual pricing pressure in H1 and maybe not for H2, but just magnitude in terms of percentage point's kind of expectations for the second half.

Well I think, it gets back to my point. I think Q3 will, we've seen -- there is no question Q2 pricing pressure was more severe than Q1, let's put it like that.

So you will see that effect play through into Q3 and then we're certainly not assuming any improvement in Q4 from a pricing perspective in terms of the guidance. As I said, it's difficult.

We've moved on from the customer standing and I'd like to say and we want a price down of X% and us negotiating with them around that to the point, that we're bidding everyone is having to bid aggressively or any meaningfully size, they order. You'll just bid, you'll bid what it takes.

How is that not going any worse, so how does that changed materially over the last couple of months? Not really, it's pretty much just the world we're having to deal with and I think the point I said, we're holding on.

We believe, we're holding onto market share across all our North American businesses. So I think back to what we said about gross margins.

Our ability to withstand that and further willing to be very modest impact on the business, I think is a real result. And perhaps the other point to pull out, is back to procurement savings.

We have passed on some of that pricing pressure to our suppliers. But the reality, is we're not really seeing any benefit from it because we're not purchasing anything.

So as we go through the year and we need to start purchasing again. You will start to see a lower cost of material supply fall through as well.

So that's another [indiscernible] that we have as we get towards the back end of the year. I'm reconciled to the fact that the pricing environment ain't going to change anytime soon even if the market picks up.

Probably pricing is the last thing to come back. Having said that, I think the actions that we've taken in terms of making our business more efficient, in terms of supplier price downs.

Actually, mean we're on a pretty good place and being able to manage that in terms of the bottom line, notwithstanding that's going to be the environment over certainly the near term..

And can I follow-up longer term question on pricing as well? I mean obviously you said, the kind of start the downturn, the industry took the view that everyone cross a supply chain, how to kind of share in the pain in terms of pricing concessions.

Obviously, when you give that away it's difficult to regain. So I was just wondering, through the recovery, do you expect the kind of pricing dynamics across the supply chain to kind of emerge relatively unchanged or do you kind of think there's been a the sort of transfer and value between say some of the customers, the E&P's and the supplies and can you still get back up to the 20% margin that was?

I think across the medium-term, do I think we can get back up to those sort of margin levels, absolutely yes. I don't think, we'll get there through pricing moving up though.

I think we'll get there because of the savings, you know efficiency improvements that we've made across all our operations. So I think, we'll get there by a different route and I think that's very evident, is back to what I'm saying.

If we're able to do this and still deliver in terms of an average margin over the first half north of 10% margin despite some of the pressures that we see, despite the under recoveries. A 10% revenue improvement essentially eliminate that £8 million under recovery, which then takes you back to mid-teens.

And that will happen back to just the natural sort of phasing of activity and the lessening of destocking. You can sort of work out in that.

You can do the math and say well actually, what do you need to believe to get to almost see the compounding effect of that that takes you back to what's 20%. Now I'm not saying, we're going to see that anytime soon.

But these businesses, we're in a very all the North American businesses actually in a very finely leverage position, if I call it because the Mathena is a rental business. So if you should pick up an activity rent or 80% of the top line goes to the bottom line, pressure control, Seaboard has got rent too on sales components.

Again, the flow through will be very significant if we see a pick up and activity and then the recovery benefits in terms of the pressure pumping business. So it is challenging, I'm not taking away from the fact it's tough and we happen to make some really tough calls and I don't see any end to that in the near term, but having said that.

I think we're actually pretty well positioned from our ability to drive profitability back up, notwithstanding the lack of pricing, when the market comes back.

I'm sorry, just one final question actually on inventory well. So it's really not completed.

Just kind of what you're hearing and seeing there, what kind of besides the opportunity for us, fit for your business and just whether you're hearing, certain price point, when maybe that sort of kicks in. Thanks.

Yes, I think we're aware that quite a number of customers are doing that and this is just more industry gossip. So I certainly wouldn't take it as gossip.

From what we've heard, once you get into the sort of 60, 65 range. Then you may see people starting to sort of depend to.

I think they're using it almost as reservoir, it's a bit like having your supertank floating with oil that you bring to the market, the point the price picks up. Of course you can do that, fracking process and start up production very quickly.

So it's actually it's almost a near term kicker, if the price is in the right place, the market going to react to and of course you won't see in terms of rig count. But it does have a very direct impact on our pressure pumping business and the detail as such pressure control business for the flat wellhead piece .

So again, it's definitely the call when customers driven that, but they're making sure that they have the flexibility to be able to move quite quickly. If they think that's the right thing to do.

Keith, you touched in a little bit in your presentation. I'm just wondering, if you've anymore color about where you see your minerals installed base on the cost curve.

I mean, how much if any is kind of risk to some of the production closures, we see maybe a bit more recently?

The vast bulk of our minerals installed base and what I would describe as lower cost environments. South America is clearly the low end of the cost curve for all commodities.

Australia certainly the low end of the cost curve, when it comes to iron ore. Where we see exposures and in fact, we've probably seen most of this already.

It's not just to say, there won't be a wee bit of the margins still to come through. North America iron ore, Northern Europe iron ore, is clearly in a more expensive place.

African copper in Zambia are like is again slightly more expensive. So these are some of the environments that we've seen mothball mines.

Clearly China and its own mining market space is quite challenged as now. If there's one market, we don't have a strong market share and that's China.

So we're probably least exposed to any wholesale closure of mines in the China market and biased towards Australia and South America, where the big low cost mines, where there is no question. Back to my point, there are three big projects we know are going to come online this second half and then drives an aftermarket kick up across Peru and Chile.

And from that perspective that underpins our confidence in terms of the aftermarket trends that we will continue to see.

Sanjay Jha. Can you hear me?

Sorry, Sanjay Jha, Panmure Gordon. Can I sort of drag the discussion back to oil and gas?

If I look at the experience of gas, gas rig counts fell by 80% from the peak in 2008. But there we have seen and the cost curve coming down quite a bit, gas price is still falling, production is still going up.

What happens, what if the same thing happens to oil because we're clearly saying -- you're saying cost curve is coming down? Companies like hunting are saying that more and more companies are moving looking at Permian as a place to explore.

Are you positioned for that kind of scenario with oil as you're with gas?

I think we are and it gets back to our focus on technology and broadening out our product portfolio, the new pump that we'll introduce as I mentioned, sort of 20% reduction in total cost of ownership. I think the really interesting question in my mind is, will there be a requirement or will there be opportunity to actually sell some of those pumps almost a head of a normal cycle because customers want to get the efficiency benefit perhaps they've impaired or scrap, their old fleets, which we know are sitting in yard right across the US and rather than refurbish them, they'll go out and buy new ones because they know they're going that much more efficient.

I think, the key thing is, for shale oil to recover. I don't think anyone things though price needs to get back up to $100 anymore.

It doesn't need the rig count to go back up to $1,800-$1,900 probably not. I think the trends that you're seeing in terms of production right now are both in tight oil and gas sort of reinforce that, the industry is getting smarter, it's getting more efficient.

It's getting more bank for its buck in terms of rig count. But part of that efficiency part of that getting smarter is increasing the intensity of fracking, increasing the length of laterals, more pad drillings but actually all place to ourselves.

So I don't think we should get too hung up on rig count because rig count is obviously a directional trend, but what that actually means. It can almost be a compounding effect on our own business and because of the increased application of horizontal drilling and then the intensity of the actual fracking process that becomes available.

So I think we are aware of that and very sensitive, but gas is a really interesting space because I think when I spoke to investors 4 years, 5 years ago, it was all about breakeven point $4. Well here we are at, $280 and people are still making good money, really good money in terms of gas.

And of course the first LNG terminal goes on stream at the end of this year. So that's an interesting dynamic and what does that start to do to the gas world in terms of and it becomes more almost demand led rather than supply led.

Can I just one more question. I think on the mining side, you said that.

You expect slight decline in margins for the full year and given that in the first half margins sold by about 1.3%, does that mean second half margins will be better than last year's second half margins.

Jon?

If you look back at, margin profile in the minerals business over the last few years typically you see a 200 basis point improvement in H2 just driven by the phasing of deliveries in the profile particularly or the aftermarket the mix and so on, so I would expect to see a similar profile this year. So will it be quite as high as they were second half last year maybe not, but you know I think it will be in the sort of 50 to 100 basis points year-on-year differential that we talked about in the, when we gave our guidance in February.

Thank you.

Glen Liddy from JPMorgan Cazenove. On the minerals business, I mean there is a clear ore degradation, so your volumes will rise just with ore volumes.

Does the change in the ore quality affected your ability of the things you said, so you'll get extra rather than just volume increase?

Yes. In simple terms, the harder, the rock that's been processed, the shorter the lifespan of the component and you do see that particularly in mines, when they switch and that will be a careful decision that the miner takes as to is he going to mine the soft rock or the hard rock based on, whether I guess the pricing point he's aiming at, that does have an impact on aftermarket trends.

Okay, in oil and gas you mentioned there was a downgrading of customers specification expectations for now. Does that mean things like the Duralast Fluid and it's not selling as well as growing in proportion as quickly as you might have expected previously in the old fashion fluid and is in demand because it's just physically cheaper.

Actually, no. The demand for Duralast has principally come from some of the larger pressure pumpers.

Who are perhaps in a better financial shape and therefore still were able to realize the benefits from the Duralast technology. Clearly customers who are very focused on the near term will look for lowest cost and therefore there was sort of healthy demand for traditional fluid and, but the promotion of fluid and sales hasn't really changed to be honest.

What I was getting at there is we have foreign customers moving out inspection intervals from three months to six months changing the parameters of replacement of kit at that inspection point because they're very much focused on reducing cost, every which way they can. But again I would describe those are very much short-term actions and is back to a lot of what's happening across the industry.

Yes, to Alasdair's point earlier, there has been a step down in pricing efficiency that will I think play through for the longer term and we need to recognize that. But equally, there is some short term actions customers are taking, are not sustainable either across the longer term.

Fully understand, why they're doing them. We'd probably do the same thing, if we were in those circumstances but equally at some point things have got to given and they would need to start order kit, yes.

Finally, in terms of the size of oil and gas business today. Is it right-sized for the current level of activity or have you assumed that in the foreseeable future from your perspective, that there will be some recovery in volumes?

It's right-sized and that's why, too further heads out at the beginning of July particularly in the pressure control business, add sort of effect the activity levels through the fact that we thought Q3 was going to pretty similar to Q2. Clearly, if there's a pick up, well the first thing you do in terms of the pressure pumping.

As you move them back to five days a week working. And there is any opportunities of overtime and the likes.

I think, we've got quite a bit of flex in the system. We've been very careful to keep core skills.

So for example, highly-qualified CNC operators probably know driving the forklift or have been sent out to a service center. So that when the market picks up, well it's easy enough to get forklift drivers.

It's not easy to get, highly qualified CNC operators.

Okay, thank you.

Okay. I think, we probably got time for one more question.

Morning, Robert Davies from Morgan Stanley. Just wanted to dig in little more on your view on the mining market and if it's changed at all in the last six months.

So saw the aftermarket numbers were down, is that partly due to one-offs. If you x out the one-offs, you x out the kind of contribution from oil and gas, what do you think the underlying aftermarket trends doing right in minerals business, that's the first question.

Just second one is in the oil and gas business and really around the sort of refrac opportunity. Just what is your sort of view on a divergence between the kind of trends and the rig count in a potential movement in the market ahead of that, if you see a change there.

And then just finally around M&A, what's your kind of view on M&A at the moment given the kind of current depressed environments in oil and gas, is there opportunities out there for you? Thanks.

Okay, well Jon you take the first one.

Yes, well on the aftermarket trends. I think you can look at the half one number, the best thing to look at is actually the revenue growth, which is 6% in total including Trio 3% like-for-like.

And that's sort of the, the sort of underlying expectation that we've always talked about and which we continue to believe, what we'll see driven by some of the factors Keith was talking around in terms of other capacity coming online and ore degradation and so on. So I think because of our entry into things like HPGRs, I would expect you might see a bit more lumpiness in the trend, but on an input level.

But you can see the underlying, I think it comes from the revenue. Clearly book-to-bill on the aftermarket as I said, is more than borne in, in H1 so that underpins confidence, so that trend will continue into the second half.

And in terms of re-fracking, I think it's fair to say there are mixed views across our customer base as to the value add from re-fracking. There were some customers t hat were quite keen on that, there were others that are not convinced relative to their cost.

We haven't seen much thus far, but you're right. If it was to take off then as it says in the fleet is re-fracking, it involves fracking again.

So therefore, it's a good thing from our business and it's another way in which you can see a pickup in activity, which didn't come through rig count trends. So I think, it's something sound like to be aware of.

In terms of M&A, as always we will sort of continue to cast and look across the horizon. It's interesting, certainly sellers expectations in oil and gas.

Perhaps are starting to come down to more realistic levels and maybe, companies as they look at toughing things out over the next six months. There will come a point, where some of them look for, new homes indeed.

There is an argument that says, the industry is got to take out some capacity for the world that we're looking in. So there are number of reasons to think, that M&A might happen.

Having said that, we will continue to be very disciplined. We are very conscious of the balance sheet, we will continue to be creative in terms of the structures as we were around Delta.

So we will, we'll be quite thoughtful and selective in M&A and we're going to discount it, but equally, it does hinge on the right opportunities coming along that make sense for the business and are able to done within the financial frame that we have till communicated to the market.

Sorry, just one follow-up, just on M&A. I guess your power and industrial business.

You said you needed to sort of gain critical mass or potentially get rid of it. What is sort of your latest view on that?

Well, I think P&I is work-in-progress is probably the best way to describe it. I think we're seeing quite encouraging trends in terms of the gross margin and underlying margin improvements, which will and we would expect to see continue over the balance of this year.

So I think, it's something, we keep under review in terms of how we think about P&I. But at the moment, the focus is very much on improving its operating performance and - [Ends Abruptly]