The Weir Group PLC

Jon Stanton - Chief Executive John Heasley - CFO Ricardo Garib - President Of Minerals Paul Coppinger - President of Oil and Gas

Robert Davies - Morgan Stanley Stephen Swanton - Redburn Jonathan Hurn - Deutsche Bank Alex Virgo - Bank of America Merrill Lynch Mark Davies Jones - Stifel

Good morning, ladies and gentlemen and welcome to the Weir’s 2016 full-year results presentation. As usual we are recording this morning’s presentation and so we’d appreciate if you could turn any mobile phones to silent.

It's good to see so many familiar faces for what is my first set of results as Chief Executive. I'm no stranger to the business of course having been Finance Director for six years.

But as I'm learning being Chief Executive gives you a different perspective. I'm now able to spend more time in engaging with our people for instance.

And that's been a great privilege. Every day I see examples of outstanding commitment to our business and our customers.

The 13,000 people who make up the Weir Group are a great source of strength and an even bigger source of potential as I think about the opportunity ahead of us. Leading Weir also comes with a special sense of responsibility.

There are few other engineering businesses founded in the Victorian age that are still leading global markets in the new industrial era. My job is to build on that legacy and ensure this great business continues to lead and thrive in the decades ahead.

And to do that we need to focus on where we can make a real difference to the group that means our people, customers, technology and performance at distinctive competencies. I'm also delighted to have John Heasley here as Chief Financial Officer.

John led the flow control division with distinction and many of you will know him from his previous time in finance. And also on the podium today are Ricardo Garib, President of Minerals, and Paul Coppinger, President of Oil and Gas.

In addition in the audience we have our Chairman Charles Berry and Non-Executive Directors; Mary Jo Jacobi and Rick Menell. Let me talk quickly through this morning's agenda.

I'll give some reflections on 2016 before John takes you through the numbers in more detail. I’ll then return to discuss my assessment of the business, our strategic direction and the actions we're taking to strengthen the group, take advantage of the coming recovery and I'll also give details of our short and medium term outlook.

So let me start then with 2016. As you can see from the numbers on the right hand side, the Group's results were impacted by some of the toughest market conditions our industries have experienced in decades.

The group's main market hit 30-year lows, mining CapEx fell by approximately 15% in 2016 alone and is now less than half of 2012 levels. And in late May, the US land rig count reached the post-war low of 380 from a high of almost 1,900 in October 2014.

These conditions made for a very challenging environment but as you know we have a resilient business model and we’re experienced in operating in cyclical market. Since the end of 2014, we have aggressively acted to support margins and cash flow.

In 2016, we continued to execute on self-help measures, delivering operating margins of 11.6% at the bottom of the cycle, an additional GBP60 million in annualized cost savings ahead of our original GBP50 million target and an underlying reduction in net debt of GBP123 million. As the year progressed, confidence among miners in oil and gas company improved, supported by strengthening commodity prices.

The Group’s aftermarket focused business model benefited with a return to year-on-year input growth in the fourth quarter. In minerals, very weak commodity prices at the start of the year drove extreme measures among our customers with destocking deferred maintenance in replacement and extended shutdowns impacting our order levels.

As commodity prices recovered, activity normalized and growing production volumes over the year, our aftermarket orders returned to modest growth. Original equipment orders benefited from brownfield opportunities as miners sort to increase productivity from existing operations.

In oil and gas, input returned to growth in the second half of the year with cannibalization and destocking effects fading and customers starting to refurbish stacked equipment in anticipation of increased drilling and completion activity driven by rising oil prices and the growing rig count. Despite the additional activity and as we expected pricing did not improve.

This reflected significant spare capacity in both the North American frac fleet and the equipment suppliers such as Weir. As we've said for some time, pricing is going to be the last thing to come back in this market and I'm very clear on that having visited several of our customers a couple of weeks ago.

Our flow control markets became increasingly challenging through the year and with a lot of competition chasing a small number of projects with the obvious effects on both volumes and pricing. So after the incredibly challenging downturn we've been through, there are some key takeaways I'd like to reflect on.

First is the importance of our flexible business model. In 2016, the Group’s workforce was reduced by a further 500 people and 14 service centers and two manufacturing facilities in North America were either closed or consolidated.

If you look over the last two years, we've reduced our workforce by more than 2,500 hundred people in addition to reducing our footprint and in-sourcing production. In total, this has delivered GBP170 million in annualized cost savings.

Some of the decisions we've taken have been difficult, but we've been very careful to ensure we maintain the core skills and experience to react quickly as markets recover. Overall, the flexibility of our business model allowed the group to successfully deal with the downturn and it will also enable us to fully benefit as the cycle enters an upturn.

We in doubt, we are ready for the recovery. The second key takeaway is the ability of this Group to generate cash, the hallmark of any high quality business.

In 2016 alone, the group delivered cash from operations of GBP293 million and the performance of oil and gas is outstanding with cash generation of GBP47 million even though the division made an operating loss for the full year. Strong cash generation allowed us to ring-fence key investment in technology and product development throughout the downturn and it means we're now in a good position for the recovery.

That brings me to my third key takeaway, the importance of long-term thinking and investment. In 2016, the Group generated GBP110 million in revenues from new products developed in the past three years, a direct result of our decision to protect R&D spending throughout the downturn.

Our recent product launches include the QEM 3000 frac pump, which secured its first orders in 2016 and is delivering a step change in pumping efficiency to the market. We are currently trialing our new high horsepower crushers to comminution markets with initial results demonstrating lower energy consumption and increased productivity.

The group acted with conviction on our digital capability with good progress on our three main initiatives delivering remote monitoring, e-commerce and field service platforms. We've built good momentum in the technology agenda recently and will continue to invest to stay ahead of the competition.

Fourth, the mining down turn is also showing the remarkable resilience of minerals. Group's largest division has consistently outperformed both its market and peer group.

The combination of mission critical technology and aftermarket biased business model and customer intimacy explains it’s the best. The division has one of the most extensive service center networks in the industry.

But while others cut back in the downturn, we spend more engineers from central hubs the mine sites. With minerals as our mainstay, this is a group that is showing it can weather the stormiest of conditions and emerge even stronger.

To sum up then it's been a very tough couple of years, particularly in oil and gas, but as you can also see without acting early and aggressively our performance wouldn't have been as robust. Our self-help measures protected the business and positioned us to grow strongly in the future and the entire team are absolutely focused on ensuring we fully benefit as markets recover.

I’ll talk about more about how we do that shortly but first John will take you through the 2016 financial review. John?

Thank you Jon, and good morning everyone. I was delighted to be appointed as CFO of the Weir Group because some of you may remember this isn’t the first time that I presented the Group’s results.

Seven years ago, I was Weir’s Interim CFO and since then I think it's fair to say that over the long period and very enjoyable apprenticeship leading some of our great businesses. Now turning to the numbers, I'll start with a summary of the results, the performance shown in both reported and constant currency basis before exceptional items.

Given the relative weakness of sterling post the Brexit referendum has been a significant translation impact on the results versus the prior year with revenues and operating profits impacted favorably by GBP183 million and GBP30 million respectively while net debt was adversely impacted by GBP133 million. Order input is down 8% on a constant currency basis principally due to oil and gas.

However with a strong finish to the year, with Q4 orders for the group up 10% year-on-year. Revenue broadly followed input, down 11% while operating profit was down GBP74 million or 26% on a constant currency basis.

That’s left operating margins at 11.6%, down 240 basis points in the prior year. Profit before tax excluding exceptional items and in tangible amortization at GBP170 million is 48 million or 22% lower than the prior year after the translational FX benefit of GBP27 million.

Headline earnings per share 61.2p compares to 78p in 2015 and the final dividend remains unchanged from last year at 44p per share. The highlight once again was cash from operations, which at 108% of EBITDA was supported by GBP32 million working capital inflow.

Before turning to the divisional summaries, I thought it helpful to bridge revenue and operating profit before exceptional items and intangible amortization. As you can see the year-on-year comparison is dominated by oil and gas, and foreign exchange translation.

Revenue on a reported basis decreased by GBP35 million or 2% from 1.88 billion to 1.85 billion with the 203 million negative impact from oil and gas broadly offset by a foreign exchange translation tailwind of GBP183 million. Modest growth in minerals was offset by 10% reduction in flow control on a constant currency basis.

Notwithstanding our significant restructuring, a combination of price pressure and under recoveries, maintenance flow through to operating profit from the oil and gas revenue shortfall was 33% resulting in a profit impact of GBP67 million which was only partly offset by a foreign exchange translation benefit of GBP30 million. Minerals again showed great strength to deliver 4 million increase in profit with a flow through of 19%.

Together with a 6 million reduction in flow control, that’s left operating profit on a reported basis down GBP44 million or 17%. I’ll now give a summary of the 2016 performance for each of the divisions on a constant currency basis starting with minerals.

As Jon said, for much of the year market conditions remain challenged with sentiment improving in the second half as commodity prices increased, supported by supply constraints, improving demand in falling stocks and also an uplift from the US presidential election. Copper prices by the end of the year were up 17%, iron ore doubled and gold increased 8%, while still below incentive levels for greenfield projects, we started definite payback on our brownfield effort as customers became very focused on efficiency upgrades to maximize return from the higher commodity prices.

I saw this first hand in our recent trip to Calama in northern Chile where our engineers are embedded on our customer mains and constantly working to identify opportunities to improve efficiency and therefore increase customer production. Against this backdrop, minerals once again showed outstanding resilience and outperformed its peers with 3% entry growth on a constant currency basis including original equipment up 5% and aftermarket up 2%.

In absolute terms, quarter four was the biggest input quarter in the last two years driven by a strong aftermarket performance as production ramped up. This left quarter four 23% higher than the prior year period.

Although that performance was against a weak comparator, it was still 6% higher than the average input for the first three quarters. In comminution, our recently introduced high pressure grinding roll technology enabled us to grow market share and meant HBGR original equipment orders increased five-fold.

Regionally, we saw good growth in North America off the back of our strong relationships in the oilsands. And Peru was very strong as new main such as Las Pampas came online.

Australia also performed well with a number of new lithium mains being developed as demand for batteries continues to grow. Revenue [indiscernible] up 2% in the year with original equipment up 6% and aftermarket flat.

This left the aftermarket mix in line at 71% in 2016 compared to 72% in 2015. Revenues from our EU business were very strong in the period reflecting a healthy opening order book.

Across the rest of the regions and products, the impacts for weaker opening order book was mitigated by improving orders as the year progressed to leave revenues broadly flat year-on-year. Operating profit increased 2% to GBP217 million with operating margins maintained at 19.5%.

The restructuring efforts by Ricardo and his team to simplify the management and operating structure delivered GBP29 million of savings and this together with the large proportion of recycling in our foundries went to offset the impact of inflationary pressures. Operating cash flow remained strong at GBP236 million, up 2% on last year, but did include a small working capital outflow which was necessary as we built inventories towards the end of the year to meet customer demand.

Turning to oil and gas, Jon highlighted the severe downturn the division has been working through with markets bottoming in the second quarter. However, it is clear that while drilling and therefore American rig count increased in the final quarter, this does not fairly flow through to completion activity with [indiscernible] increasing slightly over the same period.

International markets weakened through the second half of the year with rig count falling and only appearing to trough in the first quarter of 2017. This flowed through into lower run rates in our Middle East business together with a decline in the number of large O&M type contracts converted as customers delayed decisions although we do have a relatively strong pipeline in that regard.

An international highlight was the sale of around GBP18 million of well heads into the Middle East, an outstanding start in 2015. This all left the division doing 27% year on year with the percentage fall relatively consistent between North America and the Middle East.

While North America gathered momentum in the final quarter, up 18% year on year and showing strong sequential growth, the later cycle Middle East business continued to be subdued with both year-on-year and sequential reduction in the final quarter. These two effects broadly offset to leave the division up 2% overall in the final quarter compared to same period in 2015.

Revenues reduced by GBP203 million or 34% year on year broadly following the input trend together with the impact of a lower opening order book. The division moved to a small operating loss in the year losing GBP9 million compared to a profit of 58 million in 2015, an overall reduction of GBP67 million as represented negative flow through of 33% indicative of loss margin in an aggressive place environment and under recoveries as we look to satisfy demand from inventory offset by significant cost savings from restructuring of GBP27 million.

While profits were lower in the Middle East service business that remained profitable throughout the year and pressure pumping was modestly profitable in quarter four. This supported the division as a whole returning to broadly breakeven in the final quarter with only pressure control loss making.

While the loss for the year was a disappointment, it was extremely pleasing to see the division deliver GBP47 million of operating cash flow driven by significant efforts to reduce working capital including a GBP29 million reduction in inventory. Moving onto flow control which you will recall is exposed around 40% power, 30% downstream with the balance principally general industrial.

The power markets which mainly relate to valve businesses remains subdued throughout the period with project decisions for new development taking longer and maintenance budgets coming under increasing pressure resulting in deferrals in both Europe and the US. Against this backdrop, power sector input declined 6% in the period relative to the prior year.

On the positive side, the outlook for nuclear projects remains robust, given progress with [indiscernible] in South Korea and the mainland basement decision made to develop Hinkley Point C here in the UK. In downstream oil and gas which mainly drives our pumps business, it was a real lack of major project work and those projects which did conclude were very competitive.

Maintenance activities also slowed through the second half of the year. Overall, oil and gas sector input was down 22% compared to 2015.

Industrial and US municipal water markets fared better with activity remaining solid throughout the year. as you’d expect for later cycle end market there is no notable pickup in activity levels in quarter four.

Overall, this left input down 13% year on year with the market pressures being offset by share gains in a number of niches as a result of newly introduced products. Revenues broadly followed then, down 10% compared to 2015, operating profit was down GBP6 million with shortfalls across most businesses and geographies driven by market conditions which resulted in both volume shortfalls and pricing pressure.

Restructuring efforts and an aggressive focus on cost and supply chain ensured that the margin impact was minimized and largely offset placing pressure and negative operating leverage with margins maintained at 9.1% compared to 9.8% in the prior year. Like oil and gas the flow control division did a terrific job in delivering cash with operating cash flow of GBP42 million representing 111% of EBITDA, again driven by a significant reduction in working capital.

Turning now to exceptional items, restructuring and rationalization charges in the period totaled GBP64 million. This mainly relates to the restructuring actions in North America, oil and gas and minerals which Jon outlined earlier.

In flow control, the charges mainly relate to our downstream pumping business with a closure of an Eastern European factory and consolidation of a number of other facilities in Europe through one same store in Milan. Cash incurred on restructuring and rationalization in the period totaled GBP57 million of which 49 million released to actions in 2016.

The remaining balance sheet provision for restructuring as of the end of December was GBP47 million and we expect the majority of this to be utilized in 2017 with around 50% of that in cash. These charges were in part offset by GBP7 million of net exceptional credits mainly relating to gain on sale and leaseback of a number of properties, part of a non-core asset disposal program.

As you saw in Jon’s introduction these actions have been critical for us having maintained strong profitability through this downturn and have delivered annualized savings of some GBP170 million. Our restructuring programs are largely coming to an end and I would not expect any significant restructuring costs to be charged in 2017.

Moving now to the charge in respect of our China operation. Following organizational and local management changes in October, we identified GBP17 million of unprovided liabilities mainly in respect of Trio which was acquired for $220 million in 2014.

Our full and detailed exercise has been undertaken and has concluded though there are no further exposures in this regard. In the meantime, the issues identified relate to warranty and inventory matters and the product found has since been reengineered with design authority for that product now moved to our minerals team in the US.

These liabilities relate to the period both before and after acquisition. However, given the period for updating the fair value accounting exercises passed, we’ve taken all of these items as an exceptional charge in the current period’s income statement.

Of the 17 million charge, GBP9 million is likely to result in future cash outflows as warranty issues are addressed. We are gaining traction with our Trio products through the minerals network and the business remains a critical component of the minerals comminution strategy going forward.

I’d now like to turn to our cash performance which was a real success in the year. Operating cash flow at GBP293 million included GBP42 million working capital inflow mainly across oil and gas and flow control.

In absolute terms and in constant currency, we delivered a GBP42 million reduction in debtors and a 24 million reduction in inventory. Debtor days 73 remained in line with last year on a constant currency basis and we've managed to avoid any significant bad debt during these turbulent time.

A slight reduction in inventory turns reflects lower business levels. We will continue to drive improvement in our cash flow metrics with a laser focus on improving inventory turns through our value chain excellence program.

Tax cash flows were GBP16 million compared to income statement charge of 38 million principally due to the state of a US tax refund as we carried back 2015 losses mainly arising from prior year impairment against previous year's profit. CapEx at GBP62 million represented one times depreciation with the main expenditure being on the consolidation of pump manufacturing in Milan, continued rollout of SCP and other IT infrastructure and key strategic projects across technology, digital and safety.

Dividend paid of 46 million or 48 million lower than 2015 reflecting the strong pickup for the script dividend in respect to both the 2015 final and 2016 interim dividend. This resulted in a free cash flow after dividends but before exceptional items and acquisitions and disposals of GBP130 million.

Turning now to net debt, our repeated strong underlying liquidity and specific actions taken during 2016 on non-core asset disposals mean that our financial position has remained extremely solid through this downturn. From a net debt perspective the GBP130 million of free cash flow was more than offset by an unfair foreign currency translation impact of GBP133 million on our US dollar and euro denominated debt as sterling weakened in the second half of the year.

Exceptional cash outflows of GBP58 million related to our ongoing restructuring programs and are offset by proceeds of 36 million and property disposal and sales on leaseback. Cash inflows of GBP31 million have been received to date in relation to the disposal of American Hydro and YES.

This is offset by deferred payment on historic acquisitions and the purchase of non-controlling interest totaling GBP14 million. This all left net debt at GBP835 million, 10 million increase in the prior year.

From a covenant perspective which calculates net debt and EBITDA on average exchange rates, the ratio was maintained at 2.8 times consistent with the half year relative to covenant level of 3.5. We continue to hold $1.1 billion of fixed rate private placement debt with maturity through 2023 and a largely unutilized $800 million revolving credit facility with maturity in 2021.

Lastly, we made good progress with our asset disposal program in the year realizing proceeds of GBP78 million split roughly 50/50 between the sale of our renewables businesses and a number of property disposals and sale of leasebacks. We sought to ensure maximum value from the assets disposed and therefore reaching up to GBP100 million will be dependent upon reaching satisfactory terms for our property disposal currently being negotiated.

Finally let me leave you with some guidance and financial matter for 2017.As Jon noted as markets improve, it’s important that we reinvest appropriately in our key strategic priorities to ensure that we fully capitalize on the market recovery and stay ahead of our competition over the long term. As such we will be making incremental OpEx investment of around GBP15 million in 2017 to effectively restate our capabilities.

Around GBP6 million of this reflects a step up in the ordinary course of business relating to employee share options. The last two years of including credits [indiscernible] fixed cost.

This is a critical investment to ensure we motivate and retain our best people as markets recover. The balance of GBP9 million relates to a step up in spend on innovation, digital and operational improvement project.

I expect CapEx to be higher than 2016 at GBP88 million or 1.4 times deprecation albeit not fully back to historic investment levels. Continued strong operational cash flows mean that net debt to EBITDA should continue to reduce on a full-year basis with some working capital investment in the first half necessary to support growth.

We will continue to repeat our pension deficits with contributions of 4 million planned for 2017. In respect to tax with our North American oil and gas business expecting improved profitability in 2017 together with some legislation changes with regards to US financing arrangements we will see an increase of 200 basis points in our effective tax rate compared to the actual of 22.5% in 2016.

Finally, translational foreign exchange will continue to have a significant impact on our reported result. The weakening of sterling only really kicked in from June 2016 and therefore if rates were to stay at current levels across our main trading currencies, then we will see further translation benefit in our reported profit.

At an operating profit level based on current rate this could be up to GBP25 million. In summary, in challenging market conditions we've again demonstrated strong profitability and excellent cash generation and we move into 2017 with good order input momentum in our main end markets.

Thank you and I’ll now hand back to Jon.

Thank you, John. Even though I’ve been with Weir for several years, as a new CEO it is rightly to take a step back and look at the business objectively and develop the go forward strategy.

In the past few months I’ve spoken to investors, customers and thousands of our own people, the team and I have looked closely at the group as we plan for the future. Among the questions we asked ourselves were how robust is our business model, are we in the right market, how strong is our competitive positioning and what are the core characteristics that should define a Weir business.

We also reflected on the impact with downturn has had on the company and while we were able to ring-fence R&D we were forced to cut to the bone in other important areas such as engaging and developing our people and we put a lot of stress on the business to manage our way through the downturn. This means we have some rebuilding to do.

The results of our assessment is on the right hand side of this line, we are Weir, the new vision, mission and certain distinctive competencies to mark the next stage in this group evolution. My intent is to create a highly energized and aligned organization that will outperform a growing market.

This will be underpinned by our strong values and cultural identity. At the heart of Weir we are where is what we do our business model and divisional platforms.

The group focuses on mission critical solutions that means we aren't just suppliers we are vital partners to our customers. If a slurry or frac pump experience is unexpected downtime, it can cause millions of dollars a day in lost production.

It's for that reason we design and manufacture highly engineered solutions. In our markets, customers are conservative on quality, reliability and performance are crucial.

By providing leading technology we've built up a large installed base of original equipment are used in some of the world's most hostile environment from crushing rock high in the [indiscernible] to fracking wells in rural Texas to processing gas in the Arctic Circle. These harsh and abrasive environments led to substantial aftermarket demand for spares and services that is met by our comprehensive global network.

It's a business model that delivers resilience even in the toughest of conditions and it provides a strong foundation for both organic and inorganic growth in the future. When we are true to our business model we are unbeatable.

Under my leadership, we’ll be laser focused on ensuring all our future growth will build on our strengths and take advantage of growing global demand for additional infrastructure and energy. Within these broad markets the group is aligned to some of the highest growth segments as you'll see as we look at the division in turn.

Let me start with minerals, as I said earlier this is a great business, a truly world class capital goods franchise. In terms of its market, it's in a really good place.

It's aligned to long term structural growth trends and is in the early days of what is likely to be a cyclical recovery in mining. I believe this will be particularly robust in copper and gold given emerging supply constraints and ore grade declines.

Combined these commodities represent just over half of our mining exposure. The division is also a global leader in its market with very strong positions in mill circuit technology in particular.

This along with its service network provides a high barrier to entry for competitors. The division’s aftermarket gives real resilient and that can be seen in the outstanding financial performance you saw earlier.

As we look to the future minerals will continue to benefit from its access to sustaining and brownfield CapEx opportunity, while building ever stronger commercial and collaboration models with our customers. We look to build our strength with targeted acquisitions that are aligned to our core skill sets, mechanical engineering, hydraulic and material science.

If we look at oil and gas we see a division that is more focused in terms of end markets and geography. This focus promises excellent growth prospects as we're positioned in the world's most attractive oil and gas market with the Middle East the North American shale now sitting in the bottom half of the cost curve.

We expect global demand for oil and gas to continue to grow. In addition, due to depletion the industry needs to replace supplies equivalence around 5% of global demand each year.

Given we are expecting to see supply and demand reach a balance shortly and significant cutbacks to exploration budgets in the past two years, this should support good production growth in North America and the Middle East over the medium term. Indeed onshore North American activity will be the first to benefit from the market recovery with forecasts of a 26% increase in E&P spending in 2017.

At a divisional level, our customers range from the largest oil service companies in the world to smaller more focused domestic players. We need to ensure we have the right offering that each segment of the market.

For example, some of our mid-sized customers are looking for our help as they seek to offer smarter more connected packages and we're focused on delivering that for them. In terms of our positioning we are clear technology leaders pressure pumping equipment and service in North America that includes being Number One in well service pumps and the associated aftermarket along with being a tier-1 provider of flow control equipment.

We're still a tier-2 player on the pressure control side and we're working on how we can leverage our pressure pumping position to improve that. In addition the division is also the Number One provider of third-party services in the Middle East.

The division fits our preferred business model. Like minerals it has a large installed base of mission critical equipment with a big aftermarket focus supported by an extensive service center network that builds customer intimacy.

To my earlier point, we're listening to our customers who are beginning to look for more integrated solutions across the supply chain. For instance in the field at the moment we have a large [indiscernible] zipper entry that was developed jointly by pressure pumping and pressure control.

And we need more of this sort of collaboration. The recent integration of our oil and gas operations in North America will facilitate that.

At the moment we have a rapidly changing competitive landscape in oil and gas and we're thinking about how we can benefit from that's further strengthen our franchise. Turning to flow control.

This is our smallest divisions in terms of revenue and all the latest cycle, it does have good medium and long-term growth prospects as global energy demand increases. It operates in fragmented market in terms of both products application and geography, but it also has some strong and dependable niche positions including nuclear safety valves, UK services provision and process pumps for refinery markets in Europe and the Middle East.

Its overall market share is small but that provides opportunity. The recent integration of the Group's process pump into this division was aimed at giving us a better present across EPC market.

In terms of its characteristics, the division is project focused with a reasonable installed base and slower cycle aftermarket component that means it doesn't need the same scale of service center network as the other divisions. It consistently delivers strong cash generation and as you can see from the bottom right graph it's recent margin stability relative to peers has been impressive.

The divisions future focus will include maximizing its new portfolio benefit and further growing it’s aftermarket. A recently improved operational base will also help grow margins when markets pick up.

In David Paradis, we've promoted divisional president who has a very strong track record in the flow control space. So overall our assessment is we have three good divisions albeit they have varying strengths.

All have good positions in attractive market and we're confident we can build something special in the years that follow. To achieve that we need greater focus and that's what our new strategy We Are Weir gives us.

We shared it with all employees earlier this month in live webcast globally and I'm very excited about how it received and what it meant to them. As part of this process we've redefined our vision and mission.

Our new vision is to be the most admired engineering business in our market. That means all our stakeholders see Weir as a truly outstanding business to be associated with.

Our mission is to enable our customers to sustainably and efficiently deliver the energy and natural resources needed by growing world. Both statements clearly articulate our ambition.

So what are the outcomes we’re looking for? Number one, growing faster than our end market and delivering strong returns to investors.

Number two, attracting and retaining the best talent by being the employer of choice. Number three, develop enduring strategic relationships with customers and suppliers.

And four, always doing business the right way living by our values and code of conduct. To achieve these outcomes we've chosen four areas where we need to have distinctive competencies; people, customers, technology and performance.

So where do we land on these priorities. Firstly, this is a strong business with a great platform.

As you've just seen we have good positions in growth market and there is headroom for each division to grow market share as the recovery gathers pace or supported by the strength of our culture. However, we also recognized that there are some areas where we could have done better.

For a start, our people have paid a heavy price through the downturn and we've not given them the best framework to develop and demonstrate what they can do. This means we have huge latent potential.

Secondly, we shouldn't stray from our core strengths. For example, we recognized that in 2016 when we exited the renewables industry.

Not because it isn't an attractive market, but because it wasn't fully aligned with our business model. There is also an opportunity to regain momentum and continuously improving our operations.

We used to be a leader in this area, but we've diluted our lean capability and we need to refocus. Finally, customer intimacy is critical to our success, but we aren't consistently excellent at it.

This also presents a major opportunity, as we look at how our markets are evolving and the competitive landscape is changing. So bringing together our strategic positioning across the portfolio, the objective assessment of where we need to do better and the outcomes we want to achieve, we have our four distinctive competencies.

If we have safe engaged people, delighted customers, leading technology and lean operations, we’ll be able to deliver better prospects for our employees, improved outcomes for our customers and stronger returns for our investors and we’ll be able to do that sustainably over the long term. Let me give you a bit more detail behind these competencies, starting with our people.

Firstly, safety will always be our number one priority. That means a total commitment to being a zero harm workplace and I don't want anyone in Weir to be satisfied until we get there.

I recently set up a CEO safety committee to drive improved performance. Historically, we focused on implementing processes, but we need to win hearts and minds and deliver behavioral change so that people think and act more safely in the future.

We also need to reinvest in some of our leadership programs, the strength and depth of our team has always been a differentiator for Weir as hopefully recent appointments demonstrate, but we put some initiatives on hold during the downturn. Developing our people also means better reflecting the communities we operate in.

We're committed to at least [indiscernible] group executive and their direct reports being female by 2020. The diversity is not just about gender.

We also need to encourage different thinking and we're seeing some early success in our open innovation efforts with teams from all over the world engaging and sharing their ideas to improve our operations and processes. For example, a team in Malaysia came up with a new way of heating mold that reduced production time from seven hours to just 5 minutes.

We have an incredibly talented and loyal workforce and we haven't been good enough in the past at empowering and motivating them. We’ll do much better in the future.

We're also going to become even more customer and solutions centric. This is a journey Minerals has started and we saw the benefits in terms of additional brownfield opportunities in 2016.

In essence, Weir has traditionally focused on individual products and their specific benefits. A solutions mindset instead takes a more strategic view.

What is that customer’s primary objective and how can we help them achieve that? In mining for example, it’s productivity as oil production has increased, bottlenecks have become a big issue, where previously we might have sold an individual product to alleviate part of the problem, we’re now looking across the process to see how we can help.

Let me show you what I mean with a short 1.5-minute video we’re using internally in the Minerals division. For those watching on the webcast, the version of the video is available for download.

[Advertisement] So I gave you a flavor of where we can help the mill circuit alone. It might be through more of our products where it may even involve partnering with others from electrical engineers to geologists to get the job done.

In essence, it’s a much more entrepreneurial proactive approach. That's why in minerals, we're investing in a global team of mining engineers to take us to new levels of relevance with our customers.

The solutions mindset isn't about providing an end-to-end presence, but more about understanding the bigger picture and where we can add real value and developing these really deep relationships is something we're going to do more of throughout the business. The ultimate aim is that whether in the field or in the boardroom, when our customers think of Weir, they think of a truly integrated partner that is vital to their success, not just a supplier.

And our partnership approach is also the benefit of giving us even better customer insights, which can then be used to inform our technology development, including extending our digital capability. It’s all aimed at making our customers’ lives easier and in doing so, delivering real value over the long term.

That brings me to our third party, technology. Weir has always been a technology leader from the steamship pumps, that first enabled powered transatlantic travel to our latest innovations.

The pace of change is quickening and we need to lead the change in our market. That means combining the benefits of digital and mechanical technology and seeking out disruptive and novel technologies that we can apply to our industries.

For instance, we're undertaking fundamental research with some of the world's best material scientists at Imperial College, London to examine how technologies such as graphing can be applied in mining. We're also investing in additive manufacturing with 2016 delivering the commercialization of our first 3-D printed product, an intricate control valve component that weighs about two kilos.

To give you an indication of the opportunity by 3-D printing this component, we reduced the leased time from 14 weeks to just 14 days. But to stay ahead in these areas, we need to invest more in R&D.

We've traditionally been at the lower end of the range in terms of spending as a proportion of sales. Going forward, we’ll move towards spending 2% of revenues on technology development, which is about a third higher than 2016 and double where we were in 2014.

And today, I'm delighted to announce that Geetha Dabir will join the group executive as Chief Technology Officer. Geetha is an electrical and software engineer and was most recently General Manager of Intel's IOT applications ready platform, combining hardware and software solutions for a variety of industrial applications.

Her previous experience includes 13 years working at Cisco, laterally as Vice President of IoT applications. Currently based in Silicon Valley, she will relocate to our Fort Worth office in Texas and help lead Weir on to the next stage of our technology development.

Our fourth priority is performance and by that, we mean delivering excellence to all our stakeholders through strong leadership, accountability and a lean culture. That means we'll continue to grow ahead of our market.

It also means acknowledging that we aren't as lean as an organization as we'd like to be. The recent history of this business has seen some really great work done to improve operational efficiency, but I think it's fair to say that as time has passed, we've lost some focus.

You can see that in the inventory turns, which at 2.2 times need to improve. We have more than 500 million pounds in inventory and that presents a significant opportunity as is on time delivery, which is currently at 86%.

To give you a sense of the opportunity, pressure pumping reduced inventory by 50% in the past two years. This was achieved through monthly Kaizen events, which can last up to two to five days, identifying opportunities to improve efficiency.

By extending this type of approach across the group, we can sustainably increase profits, cash and returns on capital. So as you can see, we have a clear strategic direction, focused on our people, our customers, our technology and performance.

If we focus on these distinctive competencies and execute well, we’ll consistently outperform our market. Now let me turn to the prospects for 2017 specifically, starting with the outlook for Minerals.

Mining markets are expected to be relatively stable assuming commodity prices stay supportive. We expect normal maintenance schedules and aftermarket demand to be supported by higher ore production.

OE demand is more difficult to predict, but we are aiming for further progress in 2017. The division is expected to deliver moderate growth in constant currency revenues with broadly stable margins after investment in some of the strategic priorities I outlined earlier.

Turning to oil and gas, as I mentioned earlier, improved oil prices are supporting industry confidence with E&P and service companies announcing plans to increase spending in North America, in particular. We believe that margins can over the medium term return to high teens, supported by improved volumes and recoveries that will deliver a positive flow through as a result of the division’s lower cost structure.

This scenario also assumes about a 50% recovery of pricing lost. In 2017, we’ll get very little pricing recovery due to excess industry capacity, so we can expect strong growth in the division’s constant currency revenues with margins returning to modest levels of customer activity increases.

Flow control markets will remain subdued, particularly in power and downstream. As projects delayed in 2016 come on stream, we expect moderate constant currency growth for the full year, although, margins and profits will fall as a result of higher OE product mix and ongoing pricing pressure.

Finally, let me turn to the group as a whole. Specifically in 2017, we expect to deliver strong cash generation and good growth in constant currency revenues.

Profit growth will be further supported by foreign currency translation benefits, partly offset by incremental investments in people and technology. This is the right thing to do.

Rebasing our investment in these areas early in the cycle and enabling us to stay on the front foot. While the shape of the oil and gas recovery in 2017 remains uncertain, all the signs are that we are at the beginning of a multi-year cyclical upturn in our main market and we aim to take full advantage.

As I said earlier, this is a special business. Weir will be 150 years old in 2021 and that kind of heritage forces you to adopt a long term view.

Having health checked the group in recent months, I'm confident with more focus, we are strongly positioned to outperform in the future. Thank you.

And John and I together with Ricardo and Paul will be happy to take any questions you may have.

It’s Robert Davies from Morgan Stanley. Few questions.

First one just on oil and gas. I was just looking at the CapEx estimates for 2017 and the difference [Technical Difficulty], can you just remind us your particular exposure to large cap E&Ps versus IOC or NOCs, just to get a bit more flavor of the individual exposure to the [Technical Difficulty].

And then the second one was really around the flow control business. Maybe, you can just flash out some of the dynamics that are going on there.

I know you mentioned some headwinds in the downstream oil and gas, but you also, I think in the press release, mentioned about maintenance delays on the power side, maybe you could just give us a little bit more color around that?

Yeah. So let me start with oil and gas and Paul may want to add.

But as we look at LNG CapEx estimates across our customer base, we have a broad exposure across the market, so we have a blend really of the exposure to the larger IOCs, NOCs and the domestic players as well. So if you look at our customers, we have that blend that means that you would be somewhere in between those two in terms of the growth that we expect to apply to our business.

Paul will just add.

Yeah. It’s probably slightly weighted towards the IOCs and larger domestic players in North America, then it would be the NOCs, but only slightly.

Good blend actually.

Yeah. And then in terms of flow control, we're seeing a very quiet project environment at the moment with lots of our competitors along with ourselves chasing a small number of projects that really is reflected in the outlook we see for that business, because it's late cycle.

We see continued pricing pressure across most of our flow control markets. And in relation to the service and outage piece, that’s really just a reflection of phasing of outages and refurb work across our customers.

Stephen?

Good morning. It’s Stephen Swanton of Redburn.

I had two questions. One on minerals and one on oil and gas.

The minerals one, just on, I was a little bit surprised your second half margins were flat. I noticed exactly what you said they will be in terms of the sequential change H2 and H1, but given the big pickup in aftermarket growth, maybe you would have seen and typically margins are a little bit seasonally weighted to H2 anyway.

Just wondering why you didn’t see bit more of a pickup? And then looking forward to kind of your guidance on minerals and where does investment come in, but what is the long term thinking on minerals’ margins.

I mean, can you see margins above 20% again, given you’ve got mix effects and aftermarket coming back and just what the longer term thinking is there? On oil and gas, I’m aware kind of if it wasn’t much happening six months to go and we’re kind of back to very long or very high level of, very big ramp up at the moment, is there any kind of bottlenecks emerging amongst your supply chain as you start to ramp back up again?

Okay. Well, Paul you can take the broad next question.

From a minerals perspective, we have consistently said and this remains the case. Minerals margins are going to vary in the 17% to 20% margin range.

And the key driver of those margins is the OE aftermarket mix and obviously we have a very high proportion of aftermarket sales in our revenues and that’s driving where the margin is overall. As we move forward and if we see a pickup in CapEx and in the OE orders, then that might cause our margins to drift down a little bit relative to where they are at the moment.

But we see that as a high quality problem to have, because it means we’re getting more installed base and that supports aftermarket revenue streams in the future. So our view is really unchanged in terms of minerals margins, we’ll be in that range, not very comfortable with where they are there.

In terms of the H1, H2 effect, I mean there is lots of moving parts obviously in terms of how those margins play out. They delivered what we've said we’d do.

Part of that is a phasing of variable compensation costs, which became larger if you like as the year progressed, given how the market recovers. So we’ve got more bonus costs flowing through in second half of the year, which depressed the margins to a degree.

Ricardo, is there anything you would add to that?

Jon that probably we’ll see some initiatives in minerals that, we’re under pricing pressure, because the customers have alternatives. But we are taking, as Jon mentioned, lean initiatives in our shops.

We have reduced our manufacturing in Australia, moved that to Brazil and the UK, especially UK with the benefit of the Brexit and a few benefits. Then also we have a summit that’s going on in terms of improving our production of Trio in China.

So I mean, all those are pushing us for prices, but we have still in our two books some other ideas that we can reduce our costs and maintain our margin levels.

Yeah. I think, obviously there are some bottlenecks as we ramp back up.

I’ll answer the question in two pieces, manufacturing and supply chain. In the manufacturing side, as you know, over the past several years, dating back to 2010 and 2011, we've invested quite substantially in our infrastructure from a manufacturing point of view.

So that's certainly not a bottleneck. I think from a people point of view and re-staffing capacity, a large part of those 2,000 people that were laid off were in oil and gas in North America.

I think Weir has done a great job in treating those people very fairly and what we have found so far is that because we treated them so fairly, we're finding a large number of those people willing to come back to work for us and so that eliminates some of the training and obviously people that are familiar with our business. I think as far as the supply chain is concerned, we didn't stop working with supply chain partners during the downturn.

We continue to develop those relationships. We continue to develop our product segmentation in our Kanban systems and things like that.

So as we begin to ramp up, it doesn't go without some issues, but I think so far, we've been able to get them back online in a fair amount of time. So I'm not saying we don't have any issues whatsoever, but I will say we're not seeing it to be too much of an issue right now.

Jonathan?

Good morning. Hi.

It’s Jonathan Hurn from Deutsche Bank. Just three questions please on oil and gas.

You talk about -- firstly, you just talk about potentially a 50% recovery in pricing within that business, but can you just remind us how far pricing has actually fallen from recent peak. That was the first question.

Second question, just on terms of your customers, when they start to see a recovery in pricing, [indiscernible] before that pricing or you can start to see that pricing coming through for you? And thirdly was just in terms of the OE and the aftermarket launches within oil and gas, I mean historically if you look at them, they've been broadly similar.

Intra-recovery scenario, is that relationship going to continue or one side of the business probably do better margins than the other. Thanks.

Okay. Let me start it up.

And Paul, please add. I think when you just step back and look at how we expect pricing to develop from here, if we look at what's happened over the last two years, we probably lost 20%, 25% across the board in terms of pricing.

That's the effect on our revenues essentially. And as we sit here today, we have done a great job of managing our way through the downturn.

It’s a really robust business, number one position as I described earlier. So I think we're in very good shape to take advantage of the recovery.

But if you look at our customer base, the frac fleet is currently only about 40% utilized. Customers are obviously starting to bring it back from the stacked basis into the marketing refurb work, but there's a lot of kits still to come back into the market.

Among the equipment suppliers like Weir, we still have a lot of physical and theoretical capacity available. And therefore, they’re on forces in place for the moment that means that pricing is going to tighten.

And I think that is going to be a feature of the majority of 2017. And to give you an example of that, Paul and I have spent some time with a few customers a couple of weeks ago and with our senior sales guys and the conversation at the moment is, can we get half a percentage point here and there.

So we’re pushing, but against that excess capacity that just sits in the industry, it's a really, really challenging discussion just now and I think that is going to be a feature of 2017. Now, as more and more customers bring that stack fleet back to work, as the rig count hopefully continues to increase, I don’t see the market -- I think we will see the markets tighten.

History tells us that’s what’s happened. But we see it right at the back end of ’17 and into ’18 and ’19 really as being a feature for us.

So we're confident we'll get some of that back. That underpins us getting back to those high teen margins that I talked about in the medium-term, but I think it's going to be a little bit more challenging through 2017 in terms of how that will play out.

And the other question was OE aftermarket margins, wasn’t it, where essentially there is very little difference at the moment across the product lines in terms of the gross margins. What I would say though that, as we think about how those incremental revenues will flow through in the oil and gas business, we will see strong revenue growth.

The overheads that we've taken out, the fixed overheads that we’ve taken out, we're not going to need to put back into that business. So we'll see 20%, 25% flow throughs from the incremental revenues and any variable SG&A that we do need to put back in will be offset essentially by over recoveries that will start to get through as manufacturing ramps up.

So you’ll see strong flow through pricing versus the later phase.

Thanks. Alex Virgo, Bank of America Merrill Lynch.

A couple more on the oil and gas please. I wondered if you could comment on what you've seen in Q1 so far.

Just in terms of the progression. Obviously strong into the end of the year and have you seen a transition to or from just purely refurb work into underlying demand from completions improving?

And then the second question, just you mentioned Jon the rapidly changing competitive environment in oil and gas gave you some opportunities. I wondered if you could on that a little bit please.

Paul, do you want to talk about what you're seeing at the moment and I’ll do with strategy point.

Absolutely. Yes.

So I think our business roughly follows the activity levels in the rig count going up. So as far as our pressure pumping business for example, that's kind of a leading indicator of those big service companies and medium-sized playing service companies will begin to refurbish equipment prior to the rig count picking up to get things repaired.

So it’s a bit of a leading indicator. And then obviously as that rig count picks up, we start to see a blend in pressure pumping of both the ongoing day to day business and then continuing refurbishing and then in our pressure control business, that's pretty much directly tied to the number of wells being drilled and completed.

So that maybe lags just a little bit, but obviously as we've mentioned, Q1 is pretty much tracking on what you see in the rig count and our business has modestly improved over the fourth quarter.

Yeah. And as far as the competitive landscape is concerned, Alex, I think as we look over the last 12 months, we’ve seen Schlumberger and Cameron coming together.

FMC to Technip, so that raises some questions about how the market's going to play out for us, but what we're seeing at the moment I think is actually quite encouraging, because the market is probably segmenting even more than it did. So you’ve got the tier 1 service companies who are incredibly sophisticated have the full system of what they want from Weir is just outstanding product.

They want the very best product that's going to fit into their overall system. The tier 2 companies -- customers are probably less sophisticated in terms of the overall system space and for us, it’s about how we can put together a package pressure pumping, pressure control, digital parts of the system, subsystems if you like that will fit into their overall solution.

And there's a third tier that is probably still more commodity in terms of the type they’re looking for us. So I think there's a part to play for us in each of those segments.

And as we think about how we develop the business both organically and inorganically, it’s making sure that we’ve got relevant reach of those to take full advantage of it as it comes back.

Mark Davies Jones at Stifel. Two questions please.

Firstly, John, can I just pick up on that point about the amount of the fleet that’s still stacked. As people have looked again at that, have we gotten any more indication of how much of that is actually going to prove to be fully usable, is some of that going to get scrapped?

And as part of that, is there any more indication that some may be prepared to go to new generations of equipment where you've got higher efficiencies rather than refurbing the old. That was point one.

And then point two, a much broader question on the flow control business. It's very obvious from your run through of the divisions that fundamentally, there are some differences in that relative to the other two, much lower market shares, much lower aftermarket more project driven.

The renewables business didn't fit your business structure, it’s the more of flow control that might not fit your business structure in future or is it critical to your overall position within the vertical?

Let me just answer that and then Paul, you would want to pick up the point about stacked fleet. No, flow control is, we see it as a core business.

As I said earlier, it's got some strong niches, a little bit that we’ve sold in the little space that it really focused on I think where the opportunity is and fit very well with our business model. We've just appointed one of our very best leaders as division presidents take advantage of or take that business forward.

He spent the best part of 20 years with Tyco on the business development side. So he’s got some real ambition about what he can do with that business and I’m very supportive of that.

So as it stands today, it is a good state with our business model and we've got good leadership in it to take it forward. Paul?

I think as far as the percentage of the fleet that ultimately won't make it back, there's been estimates that are all over the math, somewhere between 3 million and 5 million horsepower has been thrown about and it's a little unclear just because you get so many moving pieces. If you understand that right now in North America, the service companies, the smaller and medium sized players are still reforming.

You're looking at some private equity coming in. You've got Baker Hughes spinning off their pressure pumping business.

So we're still forming what's going to be the ultimate structure here for the next few years and so that's the muddied the water a little bit on exactly how much horsepower is going to be scrapped. But I think it's not too bad of an estimate to say that between 3 million and 5 million of the 20 million and 21 million that was in North America previously might not come back.

I think as far as the decision on refurb versus building new, it’s a tale of a company or a smaller company for example that gave us our first order for our QEM 3000s where they’ve got very specific customer needs in Canada and they’re just still developing their fleet and they needed to build new horsepower where you've got other players that have a large fleet that’s been cannibalized over the last couple of years that it's probably better just to go ahead and put a new power in and do some refurbishment of that. So I think we still got quite a bit of runway on refurbishment before we see truly a rebuild cycle or a capital bill cycle.

I think utilization is going to have to go up substantially before we would see an across the board rebuild market.

In the minerals business, over the last couple of years, you’ve flanked up, you've been awarded sizable maintenance contracts because of value added reduction in lifecycle costs. Have you been winning any more of those?

And are you having to share the benefits of those saving with your customers? On the oil and gas side of the businesses, is there a significant variation in the pricing pressure or pricing power within the various segments, whether it be pressure pumping or flow control?

And then finally for the pricing of new products, you’ve successfully launched a range of new products in both minerals and oil and gas during the downturn. And it's always difficult to get pricing power then.

Are customers looking at pricing for the new equipment that offers better performance differently today than a year ago?

Let me just, so I’ll let Ricardo comment on the minerals questions, but just in the round, in terms of our business model, we don’t do maintenance contracts or power by the hour at the moment, it’s experimenting with it a little bit around the edges, but it's not the vast majority of what we do. It’s really about still selling the products and services in the aftermarket.

I’ll ask Ricardo to give you a bit of a sense of what we're doing in the brownfield space because I think that is really interesting and exciting as I alluded to. So Ricardo, why don’t you just tell a little bit about that and then I will come back to the oil and gas first questions.

On the management side, I'll say that most of the management [indiscernible] because of course, they don’t have the expertise. So we have [indiscernible], but the bottom line is we have grown in the management side and especially what has been called the brownfield optimization or providing solutions where we can go to a mine audit.

And before I go there, as I mentioned, in the mining sector, a huge amount of the leaders of the mine have changed in the last three years. Also, most senior maintenance operators, managers left the business because they took up extra payment.

So now we have a population of leaders in the mines which they don’t really well, the equipment is allocated. So here is where the Weir team really plays a big role and we have found these preferences, massive plan with the local pipes manufacturers and so we have been doing probably a little bit of brownfield optimizations and debottlenecking, replacing old equipment and now that the commodity prices going up a bit, they want to get more flow and something all mines are tracking and we’re there to pick up.

So I think that adding up and down, we are getting much more activity on what we call ground fill more than just maintenance.

Paul, do you want to talk about pricing of the new products. I will start with, in terms of the different segments and all the variable degrees of pricing power, I think probably there is a lot of excess capacity across all segments of the business within that pressure pumping and pressure control.

But what has happened is that we've given more pricing in pressure control because it’s a rental business model and we've seen more flow through of that pricing to the bottom line and that's why today pressure pumping is back into the black, but pressure control is still losing money. So I don't see a massive differential in pricing power across the two aspects of the business, but we just got more to get back on the pressure control side.

So that will take longer as we work through 2017. And then in terms of how you’re pricing the new products, Paul?

Yeah. Jon is absolutely right.

The E&Ps are ultimately controlling the pricing, even to our customers in pressure pumping or the service companies and in turn, we're negotiating with and then on the pressure control side, we're negotiating directly the E&Ps and at $53 oil, they’re still keeping pricing pretty much in check. I think as far as new products, particularly our new pumps and some of the other products where we believe are the best in class, we are getting slightly better pricing, but right now, it's just very difficult to get any pricing effect whatsoever, but if you put it on par with our legacy pumps for example, I do believe we get a little bit of a premium, but right now, it's just tough across the board and I think it will be for the rest of ’17.

[indiscernible]. Couple of questions.

Firstly on under recovery. You've talked about that in the past.

Can you give us a feel for how much that was in 2016 and is that a sort of kickback going forward with that and how complete? And also you mentioned working capital improvements you're looking at going forward, what should be expect because obviously as the turnover picks up, we would expect the working capital to pick up.

So just talk about how we can grow that?

So taking the under recoveries, it’s really in the mean impacts from the oil and gas business. So the under recoveries through 2016 oil and gas was in the sort of 10 million to 15 million pound range.

And clearly as volumes pick up, we would see some of that come back, but that would be included within the sort of 25% flow through or thereabouts that we have talked about with the volume entries coming through, clearly if volumes go beyond that, then we get a little bit more over recovery, which Jon talked about. In terms of working capital across the group, then clearly I think 2016 was at 32 million pound, and so we're really keen to ensure that we maximize fuel benefit from the uptown opportunities from the market.

So there will be an inevitable investment in working capital, especially through the first half of the year. But what we are very, very focused on is ensuring that the working capital metrics continue to improve.

So in absolute terms, you will probably see some investment in working capital through the year. But improvement in inventory turns, especially is a key priority.

[indiscernible] One on minerals. So you mentioned a pickup in Q4 in the aftermarket as some projects ramped up.

Can you give us a bit more on that and whether there are any ramp ups you’re expecting in 2017 or whether it's just more of a constant rate or because of the tough Q4 comp? And then on oil and gas, I think it was interesting it was quite early in the year and you seem to be quite defensive in saying pricing doesn't come back this year.

Is that because have you made a conscious decision not to push it, just to make sure you keep, market shares will get loaded up, can you give us a bit more on that?

Pushing as hard as we can, I mean, but that’s against the real headwind at the moment in terms of the excess capacity. So we are going to push as hard as we can throughout the year, but we're just being realistic against the demand supply forces that we see in the marketplace at the moment and going back to 40% utilization, lots of excess capacity in the equipment suppliers, it's going to be a challenge.

We're going to push it hard, but I’d say those customer conversations we're having at the moment, we’re not making a huge amount of progress. And I think on the minerals aftermarket, I mean as the tick up you saw in Q4, obviously a really, really weak comp last year or see a really, really weak comp last year as our customers shut up shop very early and closed down and stopped a lot of maintenance and repair spending.

We just saw the exact opposite this year in the fourth quarter. Our customers just knew with where commodity prices are, they just kept going right up to the 31st of December.

So we’re through the aftermarket flow through as a result of that and that's continued strongly as we come through into January and February. So our expectation is that ore production is going to continue to grow, declining OE yields will continue to be a factor with commodity prices where they are at the moment, we’re expecting to see our aftermarket business grow further in 2017.

Okay. Well, thank you very much everybody for that.

Really appreciate the questions. Thank you.