Smiths Group plc (SMIN) Earnings Call Transcript & Summary

Good morning, everyone. It's Andy here, and thanks very much for joining us today. I really do hope people have been managing to stay safe and well. I've got John Shipsey, our CFO, in the boardroom in London with me today at a social distance, of course. And we wanted to give you an update on how Smiths has been performing since the half year given the speed of change in these difficult and unprecedented times but also talk about an important business improvement initiative across the group. I want to start by thanking the amazing people we have in Smiths around the world. Our focus and priority has been to keep our people safe, keep the business running and our customers satisfied and, at the same time, continue to create opportunities and improvements for future growth and better returns. I cannot have asked for more from anyone of our team. The dedication and professionalism of our people has been incredible and has demonstrated the real strength and resilience of our company. So a huge thanks to everyone. Smiths is proving itself to be strong financially, operationally and strategically. In the last couple of weeks, the level of COVID-related disruption to our operations and supply chain has reduced substantially. As of yesterday, all of our plants, which is 75, were operational versus around 15 to 20 of them being affected at any one time earlier in the crisis. We are certainly not complacent, however, and infection control measures are in place right across our plants and increasingly, our offices as they start to come back to work. We have been able to ensure excellent business continuity for our customers throughout the disruption so far, and this has proved to be an important competitive advantage in maintaining and winning new business globally during the crisis. However, global market conditions and demand remain very uncertain. And we remain extremely focused on ensuring all necessary measures and actions are in place to keep our people safe, manage business continuity, protect profits and conserve cash. For Smiths continuing operations, we've delivered reported revenue growth, including acquisition, from May year-to-date of 6%, an underlying growth of 2%. The first 4 months of the second half delivered 1% growth. We have not been entirely immune to additional operational costs driven by the COVID disruption across our global network, of course, but I'm very pleased with our cash conversion, which has remained strong for the first 10 months of the year. This is a testament to the fundamental structural cash generation quality of all of our businesses and the highly focused efforts of the team day in and day out in managing cash during the crisis and the ongoing underlying improvement plans we put in place. This performance has contributed to an improvement in the group's liquidity headroom from the GBP 850 million that we communicated at the half year to around GBP 950 million through May. Within this story, John Crane remains in growth on a May year-to-date basis, and the aftermarket order book continues to be strong. But the OE order book in oil and gas is showing signs of weakening. In non-oil and gas, pharma and pulp and paper in particular are looking more positive due to some strong global market trends. Overall, demand for oil, which is a very important factor for us, as you know, is growing again at a rate of around 6 million to 8 million barrels per day per month and expected to reach somewhere in the order of 90 million plus after the summer, following a trough at around 75 million and a pre-COVID level of 100 million. Crane has been winning new business, including some important market share gains resulting from our exceptional customer service to customers through the global supply chain difficulties. For Detection, we grew strongly through May as momentum and strong order book cushioned the impact of reduced demand in airports. It is now facing tougher comparators for the balance of the year, and we are seeing slower tender activity. We were delighted, however, to win a GBP 47 million contract with Kuwait airport in June. Flex-Tek is down year-to-date with the primary impact being commercial aerospace, which comprises about 20% of the division. U.S. construction has also been very slow for the last few months but now appears to be picking up. The other Flex-Tek businesses, including military aerospace, have performed well. In Smiths Interconnect, order and revenue trends are starting to improve following a very difficult first 9 months due to the weak connectors market globally. Interconnect has been back in growth more recently and is working hard to fulfill strengthening order books. Moving to Smiths Medical. The division continued on its improvement path with revenue growth in the first 4 months of the second half up 2%. The start of the second half saw a tailwind with a spike in demand for critical care products and distributor restocking. This was then replaced by the headwind of lower numbers of non-COVID-related procedures and hospital admissions, although these are now growing again. Underlying improvement plans are progressing well, including the launch of new products. Overall, Smiths is not standing still. We're managing the short term the very best way we can with our eyes firmly on the future, and we continue to invest. Our priority has been and remains organic growth, but as you know, we do continue to execute on a very disciplined parallel path of acquisition to accelerate our progress. I'm delighted to announce this morning the completion of a small but highly significant bolt-on technology acquisition called PathSensors. Welcome to the group. It strengthens our biological detection capability, building on our existing expertise in other markets. It will enable us to accelerate the industrialization and commercialization of devices which can detect the presence of a virus in an individual and the viral load in the air in confined spaces. We're very excited about this addition, as you can imagine, and the potential applications. It was a really good example of the sort of bolt-on thinking which really drives us forwards, in this case, externalizing R&D investment where it would have simply taken too long internally. It extends our market reach in the critical area of biological detection to provide solutions to the challenges we're all going to be facing. Along with the recently announced Medical acquisition, this brings our deal total over the last 3, 4 years to 21. The team does remain vigilant but highly disciplined and highly aware of the current market uncertainties that we face. Organically, we're also very pleased to win last month an order for more than 100 million hypodermic needle sets in Medical to be produced in the U.S. as part of preparations for what will be a vast inoculation program when a vaccine is found. We continue to execute against our strategic plan, taking the necessary actions and making the necessary investments to deliver long-term growth and outperformance. As part of this, we're announcing today an important program which brings together a number of initiatives which have been under development across the group, aimed at ensuring we emerge stronger from the crisis and better positioned for long-term growth and outperformance. It will also accelerate our progress towards our target margin range of 18% to 20% in the long term. In addition, it will further improve our flexibility and speed to react in the uncertain demand outlook we see in some markets and continue to face in the coming months. It spans all of our businesses and includes a number of actions to improve the efficiency and speed of our support functions as well as optimizing further global footprint and supply chains. Total costs are GBP 65 million with annual benefits expected of more than 70 -- annualized benefits expected of more than GBP 70 million, yielding an underlying margin improvement of 200 basis points. It will be completed by the end of our next financial year, and the benefits are expected to offset the costs in FY 2021. The program will support the delivery of long-term growth and outperformance and further strengthens Smiths for the future, ensuring we're strong financially, operationally and strategically. Thanks very much for listening. Really appreciate it. And both John and I are sitting ready for any questions that you might have.

[Operator Instructions] The first question is coming from the line of Andrew Wilson from JPMorgan.

I've got a few questions, please. Maybe if I start with the restructuring program, I think, given you finished with it. I'm just interested on if you can be -- at a very high level, kind of take us through the thinking on this. Because, I guess, a restructuring program in this environment, sort of the inevitable assumption is that it's reacting to kind of pressures within the business, and the numbers don't really, I guess, suggest that. So I'm interested in kind of -- if this is sort of a "fixing a problem" solution or whether this is something sort of bigger picture and longer term. Maybe if I kind of start there.

Okay. Andrew, thanks very much. I hope you're keeping well, too. So I think a couple of points of calibration for me. But first of all, this is a global program spanning the entire business, and it comprises and has brought together a number of initiatives that were under development, many of them on a pre-COVID basis, to ensure that Smiths is stronger in the future, it's leaner in the future, faster in the future and continues to optimize its operations, so in large part, were predating essentially the COVID disruption that we're facing. What we have done is pull those together in a concentrated way now because we felt it was really important to communicate it holistically. But of course, what it also does do, as we're creating a leaner, faster structure, a more cost-efficient structure to support growth for the future, it does put us in a position where we're more easily able to flex and withstand and protect profit in the short term in this uncertain demand environment.

That's helpful. Switching across to John Crane. And I think one of the, I guess, big questions we've got in the sort of near term and, I guess, over the next 6 months as well is just thinking about the aftermarket side of John Crane. And clearly, it's been very resilient historically and I guess the unique feature of the downturn in terms of access to customer sites, et cetera. So perhaps -- I'm just trying to get an understanding of sort of what you've seen at the moment, whether you think there's potential for a catch-up, whether you're seeing some customers take advantage of sort of where there are perhaps some downtime, just to get a better feel about -- I guess sort of give us a bit of confidence in terms of how that's developing.

Okay. Well, a couple of comments from me, and then, John, perhaps you can add your views as well. So I mean, just a reminder on it, as everyone knows, we are essentially downstream and 70% aftermarket. And as we said, that position has remained strong from an order book perspective but has been impacted to some extent by simply this reduction in demand that we talked about earlier, but continuing, as you've heard through the year-to-date, in a very solid way. Access to sites has been tough, and it's not really very much easier right now, which is a little bit of the discussion earlier on some of the COVID-related drag that we've seen on some costs that are -- it's been harder to get to places. It's been more important to ship stuff by air freight, for example, when supply chain is disrupted. So we have been seeing that.

Yes. I mean, I think Andy has covered a lot of it. We entered with very strong order books, so that has cushioned us. To date, it has been about trying to meet customer demand while navigating a fair amount of disruption. If you look at past cycles -- and I guess, in some ways, it's not necessarily that they're a good guide to this current one, but in past cycles, there's been relatively little impact on aftermarket. A little bit -- we do get a bit of pushout, but basically, customers need to do their maintenance. They can push it a little bit out, but not much. What we have seen in the past is a delayed impact on OE. OE projects that are in flight, we complete, and then we can see a dip. So that would be, I guess, if we look back to previous cycles.

And maybe just a final one on the Detection side. Obviously, you made the acquisition today. And I think you touched a little bit more on kind of the biological side and the biological opportunities maybe in Detection than perhaps certainly I'd realized. And clearly, not claiming to be an expert on COVID-19. I guess how much of what you're seeing in terms of COVID and the areas that, I guess, authorities are looking to spend and develop products, how much of that sits in the sort of detections umbrella? And how much -- I guess, in short, how much of an opportunity do you think is going to result from COVID for the Detection business? Because it feels to me that it's a much more significant opportunity than perhaps I kind of previously appreciated.

Yes. Well, I think at the highest level, so Smiths in the past has been very much involved in biological detection but dominantly in military. As we've looked at this, we see that the world post COVID is going to be a very different place, and we're engaged with a number of authorities on how the world returns to work and returns to travel and pleasure in the best possible way, which drives you down a path of how do you better identify viral threat. It fits, I think, really quite well with our ability to commercialize and industrialize at scale solutions that are used for passenger flow. So there's broader core solutions competence here that I think comes into play. But we did not have the viral detection or the pathogen detection capability that was more broadly biologically based, so this acquisition really enables us to take a technology which can be applied to both individuals and groups of people with the viral load in the air. It applies and it is adaptable to other viruses also, not easily because these things are tough, but it isn't like developing a new vaccine every time. So we're really excited about the opportunities. But it's a very big market opportunity. It would be impossible to scale it at this time, but what we're trying to do is put sort of the core technology capability in place that we can package as part of a Smiths solution.

I think it's a great example of where we should be placing bets on things that have a great strategic fit with our capability. Clearly, this is not an existing market, and it's uncertain how it will progress. But we think it's very exciting. It's -- it makes sense for us to make this acquisition to acquire the technology, put it together with our existing capability and develop the option value of that and explore the opportunities that arise.

Next question is coming from the line of Mark Davies Jones from Stifel.

A couple of questions. Firstly, on Detection, please. Clearly, a very robust performance so far, particularly given what's been going on in the airline sector. But to what extent is that backlog now depleting? And is that tied to the completion of those big European upgrades? How much longer do we have of that sort of support? And is something coming that keeps momentum going thereafter? Or should we be expecting a quiet period from Detection for quite a while?

Okay. Well, that's a good question. So for me, the European program, the upgrade program is coming to an end, as you rightly say. It's probably somewhere between maybe 80%, 85% complete at this stage. The important thing for me is the upgrade cycles which layer on top of it. So there's a further European upgrade cycle coming at the checkpoint. You have in the U.S. now an upgrade cycle already running on the checkpoint, and that will also be complemented by a checked baggage program that moves it to next generation, given the last upgrade was a long time ago, very soon. We've already got initial communications going on around that. So you really have 4 layers that are staggered over quite an extended period of time now. I mean the European program that's just coming to an end, that was actually quite compressed. In the U.S., the checkpoint upgrade, we won the first 15% of that. The further tranches are going to be coming out, probably 10% or 15% in each chunk, but this is going to play out over a number of years. So there are a number of upgrade cycles to achieve regulatory standards and keep up with threat emergence coming over a very long period of time here. So I'm not expecting a follow period from an upgrade cycle perspective. But as we said, we are facing, for the balance of this year and into next, tougher comparators for the balance of this year. Plus tendering has dropped right now. So we continue to run. There are a number of tailwinds and headwinds. People are still trying to pull stuff forward to take advantage of downtime. They are pushing out where they're more constrained right now. We're also seeing, of course, a number of airports scrabbling to get back online now. And the question is at which operational level will they be back online. So it's going to be, with now the catch-up of airport closure, more challenging few months, but the long-term trends as you move into back of next year, notwithstanding whether there's a second wave and further disruption, are very strong.

And just to be double sure, no mention in today's statement about the Medical spin-off, and obviously, we know that's on hold for now. But there's no change in thinking around that -- particularly as you start growing the biological side within Detection or whatever, there's not any change in the longer-term thinking around the separation there?

No. We paused for the right reason, so no change in the position there. It was always about value for Medical and for Smiths in the long term. That remains the case. And as soon as we're in a position that we feel that we can achieve that -- achieve our objectives, we'll continue, as we said.

Next question is coming from the line of Andre Kukhnin from Crédit Suisse.

I hope you're both very well. I want to start off with a question on the restructuring program you launched. The GBP 70 million of savings you qualified as 200 basis points, which seems to be a bit lower than, say, your 2019 reported revenues were. I think on that basis, it implies closer to 300 basis points. Is this your kind of implied expectation of the retention ratio on the savings that you expect to generate? And could you maybe give us a bit more detail on what kind of activities will you be undertaking? Will this be kind of all the way down to site closures and consolidations? Or is it more of SG&A cost-cutting program?

Andre, it's John. Just to clarify, obviously, our -- the revenue, I think, you're quoting is continuing operations, but actually, the program covers all of the group, including the GBP 900-odd million of Medical. So that's how we get to the 200 basis points. On the extent of it, it is -- it does involve some element of network, but it's really across our whole organization. It's about -- as Andy said, it's about upgrading our productivity. It's not about -- in very large part, it's not about shrinking capacity. It's actually about upgrading our productivity across both direct and indirect elements of the organization.

I mean, for me, it's really about a flatter, leaner and faster structure. So we're selling more effectively, we're bringing new product to market more effectively, we have our backroom administration operating more effectively to support more efficiently and, of course, therefore, at a lower cost to keep customers happy. So there is a limited amount of continued footprint or network work. But as you know, we don't have a vast -- we don't really have a suboptimal manufacturing footprint at the moment. This isn't about wholesale manufacturing footprint changes at all. This is just some refinement activity in that area.

Got it. And thanks for clarification on the base of sales. Can I then ask the question on the retention ratio? How much of that 200 basis points at the whole group level would you expect to be retained structurally?

I'm not sure if I fully understood the question, but effectively, this is -- so in terms of phasing, we expect the GBP 70 million to flow through in full in FY '22. So we will have a charge and a cash cost that spans the end of this year and FY '21, with broadly a neutral impact on FY '21. And then FY '22, the full savings will flow through.

Yes, yes. And it's really important for me -- this is not an ongoing restructuring program. This is executed within the confines of the balance of '20 and FY '21. It has a broadly net margin-neutral impact in 2021 and then flows through in 2022, and that was really important. So we will be expressing this as an exceptional not from an accounting treatment perspective, but as an exceptional restructuring activity and communicating sort of underlying margin improvement on an ongoing basis, so you will see that flow through versus the costs.

Got it. I was just thinking in terms of the impact to bottom line in 2022 and how we think about it at the moment. That GBP 70 million is clearly savings you expect to generate, and we don't expect the costs to generate those savings to reoccur. But in the meanwhile, we're likely to have ongoing kind of cost inflation, labor-driven most likely. So are there kind of ongoing efforts going on in parallel to this program to offset those so that we can expect the whole of GBP 70 million to land in the bottom line in 2022? Or should we think about GBP 70 million versus other kind of internal inflation items on the profit bridge?

I guess I think we see this as incremental. This is what's getting us towards our 18% to 20% margin goal. We can't speak completely to forward guidance, and we've withdrawn forward guidance. So I can't really speak to the rest of it, but essentially, this is -- as Andy has highlighted, this is positive productivity. This isn't designed as offset.

Yes. And it's very clear for me. This is not about predicting future margin pressure and finding ways to offset it. This has been designed in order to improve the underlying margin and speed our progress into the 18% to 20% range. Of course, there are a number of programs underlying productivity and purchasing, which continue to run to maintain sort of that base inflation offset position. This is intended to speed us into that range rather than be solving for margin pressures. We have other levers and tools that we have to be pulling to do that.

That's very clear. That's exactly what I wanted to check. May I just ask one last question on, again, actually profitability development but in the first 4 months that you cover in the trading statements because there's so many moving parts of growth in the first 2 months, decline in the next 2 months, extra costs, mix effect. Could you give us some ballpark on where the profitability is trending in those 4 months year-on-year?

I cannot -- this is a trading statement update. As you know, I'm not in a position to talk through profit evolution. Of course, that will be extremely clear when we get to the September results. But I hope you're getting some sense from the words and the positioning of this.

Next question is coming from the line of Ed Maravanyika from Citi.

Just talking on the COVID-related impact on Smiths Medical, the sort of increase in activity. How much of that do you see remains sort of beyond the current sort of immediate vicinity of the pandemic?

Yes, yes. It's a very good question indeed. So in the first part of the pandemic, as you know, we definitely saw, in common with others in the industry, a big spike in what people viewed was COVID-related product or what they thought would be COVID-related product. There was also an element of restocking and increasing of stocks that went on, given the unpredictability of the whole thing. So people were trying to prepare for something that they didn't know how big or how difficult it would be. That restocking, let me call it, as the situation and demands on the health services has become clearer, has effectively ended. What is happening in the background is people are reconsidering their ongoing view of what stock levels are necessary in the event of either recurrence or something different happening because it is, I think, a general view that people feel they've been left wanting in some areas. Very difficult to put a sort of ongoing underlying growth impact number on that. We'll certainly know more over the next few months as things become clearer and more stable. From a headwind perspective, at the moment, it's kind of not surprising that there was a huge drop in the number of non-COVID-related procedures and hospital admissions that were going on. That is coming back now and starting to catch up. You're probably hearing something similar right across the press at the moment. Those procedures were delayed or people simply didn't go to the hospitals. That is picking up, but there's still that lag on that tailwind -- or that headwind of simply procedures non-COVID were at very low level for quite an extended period.

Next question is coming from the line of George Featherstone from Bank of America.

I guess we've seen a lot of OE delivery in Detection recently. And in the near term, one would assume that, that is dilutive to margins. But what I'd quite like to understand is how quickly that turns into service and recurring revenue and perhaps higher aftermarket revenues -- higher aftermarket revenues and higher aftermarket margin. That would be great.

Okay. Yes. Thank you. And hope you're doing well. I mean -- so overall, the ongoing recurring revenue associated with an OE program is, as you know, in the range of 40% to 45% recurring. That approximately splits half and half between ongoing contractual maintenance, mechanical maintenance, keeping -- replacement, preventative maintenance, keeping it going. A proportion of that is typically contractual for the first couple of years, so included in the -- very much like a warranty. So you've got probably 30% of that total, the 50%, which is an ongoing warranty for 2 years, but then turns into you pay to get your car serviced. You then, layered on top of that, have software upgrades, which typically start very quickly after the OE installation. In some cases, there are contracts that allow for those to be paid for, for the first year, but more typically, they start quickly. So if you kind of thought about this as 2/3 of it happens quite quickly after, 1/3 of the after or the recurring revenue is normally delayed for the warranty period of 2 to 3 years.

Okay. And then maybe then in that context, how should we think about margin progress for Detection as you look to kind of 2021 and beyond given the level of OE that you've been delivering in 2020 so far?

Yes. I mean we can't give forward guidance on the margins, I'm afraid. But what we can say absolutely is that we still have a very strong OE order book. And that is -- and you're absolutely right, OE is lower margin than aftermarket. So I'm not sure I can say too much more.

No. I mean Detection very much remains a mid-high teens return margin business. The aftermarket is more profitable when we're shipping large amounts of OE. That, of course, does suppress the margin, but it's all about that long-term profitable software-related recurring revenue. So no change in our view of the long-term underlying margin potential of Detection.

I guess the question was more -- sorry, to maybe reclarify them. But if you've been delivering a lot of OE this year, are you expecting or are you already expecting to see an inflection driven by the aftermarket increase in maybe 1 to 2 years' time?

I mean it is a fact that -- so I'm trying to be helpful. But it is a fact that high OE mix will lower margin. And then if the aftermarket mix recovers, then that will be beneficial.

Yes, although you shouldn't be thinking about this as in 2 to 3 years, there's some sort of digital event by any means. There is, in the shorter term, some mix impact of OE versus aftermarket. But I mean this is hundreds of programs running on a phased basis globally. So this isn't a matter that one big program comes to an end and then you live with it and then the next one starts. There are multiple programs at multiple levels running, which will smooth that situation.

Next question is coming from the line of Jonathan Hurn from Barclays.

Just a few questions from me. Just firstly on John Crane, just coming back to margins here. Obviously, you're seeing a beneficial mix there in terms of order intake, obviously getting more aftermarket versus the OE. So as that starts to feed through, a similar kind of question, do you think we can get the John Crane margins up towards the sort of historic levels of sort of 24%, 25%? That was the first question. Do you want to do one by one or...

Yes, yes. Okay. Can do. That's probably easier. So I mean John Crane is a through-cycle 20%-plus margin return business, as you know. I mean you're right, over time, it has moved between 20% and 25%. I think something that we've spoken about before is in the last big downturn, it never dropped below 20%. It's a remarkably margin-resilient business. We then went through a period, as you know, where we invested additionally in new product, which had been probably neglected in the Smiths of old and the Crane of old a little bit, and also repositioning the division towards non-oil and gas markets in a much more aggressive way. So there are some short-term additional investments that tend to run this. But if I think about that margin potential over time, for me, this is very much a business that you can expect to see in that 20% to 25% range with potentially some movement on an annual basis if there's a particular investment or a particular change being made. Sort of the really nice thing about this is the gross margin is extremely strong and particularly so in aftermarket, which really supports. And nothing has changed there in terms of that gross margin that has you feeling that ultimate bottom line margin gets negatively affected over time.

Okay. Very interesting. The second one was just on Detection. Obviously, you've talked about the order win there. Can you just give us a feel of where the order book is right now in terms of Detection in terms of size? That would be really helpful. And then just also, can you just talk a little bit about the non-air transportation markets? What are we seeing there in terms of sort of infrastructure and so forth? That would be helpful.

Yes, yes. Okay. So on the non-air transportation markets, I mean, ports has obviously taken a similar pause to the airports business with a number of ports being closed down for extended periods or not running for extended periods. They are coming back online now. I mean borders is a bit of a different story, and we're deeply involved now with the European border force organizations, with border organizations around the world. We're not yet seeing -- this is for the return to the new normal and also the agreements that are being -- changing. So we're involved with the Schengen authorities at the moment around what the new travel cross-border, land borders is going to look like. You're not seeing that yet in the immediate term. But we think there's a very positive trend there going forwards. We continue to make good progress on the military product as well, although, as we've said, that sits out in 2022. As a general feature, you probably heard that we remain extremely focused on maximizing the opportunities that this crisis is shining a light on post COVID in what we call urban security, so outside airports in more general environment of travel, crowded places, for example.

Just to your question on order book, we don't disclose the size of the order book. Just -- we haven't set that precedent. What we did say at the half year is that we entered this half with the strongest order book we've ever had. It is on the order of -- it does extend towards a year in terms of the size of it, and we still have substantial backlog -- or sorry, orders in place, previously announced contract wins with the likes of TSA in Spain, and we still have a lot of deliveries to complete.

We do. You can be clear that the order book and our market share wins remain very positive and strong.

Yes. And there are 2 things that we've highlighted, I mean, with exuberance, is that we do have very tough comparators. We had a very big year-end -- last couple of months for Detection in the prior year. And the thing that we've obviously got our eye on is, unsurprisingly, in this last period, the number of tenders being issued has dropped. We look forward to that recovering. There's regulation, and there's new projects that have to move forward. But we certainly have seen a hiatus in tender activity which made the Kuwait win all the more important for us.

Great. Very helpful. And then the last one is just on Medical. Obviously, looking out there right now, sort of Medical is very much in focus. I mean over the last sort of couple of months, have you seen any sort of revived interest in your Medical business from trade buyers? Have you had sort of more sort of incoming inquiries?

Well, you'll forgive me for not commenting on that. As we said at the last update, I do think this is shining a light on the value of Medical, but you'll forgive me for not discussing any further what that might mean.

Sure. Okay. So obviously, still on the table as a possibility if the right offer comes across?

Our rationale is...

Okay. Fair enough. Okay. Let's leave it there.

And the last question is coming from the line of Robert Davies from Morgan Stanley.

I just had a few. One was on -- maybe you could flesh out some of the regional trends within the Crane business. I'll be quite interested across the sort of different regions for oil and gas, specifically what you're seeing. The second one was just around if you could flesh out a little bit more the details. You highlighted, I think, in the release, some of the trends or weakness you're seeing on obviously the aero but the construction market as well. I'd be interested to get a little more detail there. And then just the final one was just around how you're sort of managing and kind of controlling, I guess, the execution of the projects in the Detection side. It's obviously been much better in the last couple of years. But given the sort of record pipeline, just wanted to know what you've sort of been doing to ensure that, that sort of keeps moving smoothly.

Okay. Okay. Thanks very much, Robert, for those questions. So just talking about the regional position from a Crane perspective. The Middle East and Asia remains very strong, very active. As you know, there's a large amount of product moving around the world, and the majority of the investments that will continue to go in, over time, now are really around Middle East and Asia. The U.S. is -- probably not surprisingly, the upstream side of the U.S. is really very difficult at the moment. We're not exposed, as you know, to that any longer. And Europe is in a similar situation. That -- sort of that upstream OE sentiment in the U.S. and Europe is really difficult right now. What we're firmly fixed on is the return to demand that seems to be coming through as the world continues to -- or gets traveling again. I think on the Detection contract side, I mean, as you know, the -- back in the bad old days, contract management and program management was not the forte of the Detection business. This is dating back to sort of 2012, 2013. We have a completely different position now in terms of both our ability to negotiate the contract, get the right contracts and to program manage the execution against it. And it's something that's been top of my list from the very beginning actually, program excellence. Program excellence and contractual excellence is right at the top of the list. So -- and we have very regular detailed investment committees against all of the main contracts and reviews, post-program reviews and during-program reviews, on the execution side. So I guess, in short, I mean, life can be tough sometimes. But I mean we're in a very different, much more robust position now contractually and from a program execution perspective.

And there was one just fleshing out some of the aero and construction trends you're seeing.

Okay. Okay. So from an aero perspective, as you know, Flex-Tek is -- probably about 1/3 of its aero is military, which is currently remaining very strong. Most of that is the Joint Strike Fighter. So that's not a big surprise to people. On the commercial aero side, we are seeing essentially what everyone else is seeing at the moment. So demand is down in the order of 25% going forward. We do not see that changing in the short term. There may be a surprise behind it, but essentially, we're modeling out that for a longer period of time. The U.S. -- because our business is almost -- on construction is almost entirely U.S., we do have some increasing offsets in Europe, but that was down for the first 3 months of the second half and down quite a lot, which is why Flex-Tek is under most pressure at the moment. But we are seeing some pickup and, in fact, quite some pickup in U.S. construction right now. I mean they're essentially back at it. But I guess I've got to note the caution in my mind around increasing occurrences and spikes that appear to be coming out around the U.S. at the moment. But that order book in U.S. construction was coming back quickly. Okay. Well, thank you very much, everyone. Really appreciate you joining. I know and understand today is a bit of a busy day for you all, so much appreciated. Really looking forward to seeing everyone. I'm no longer enjoying the confinement at my end, so very much looking forward to seeing people when it's possible. Thanks again to everyone. Appreciate it. Thank you.