Earnings Transcript for SXS.L - Q4 Fiscal Year 2019

Andrew Heath: Good morning, everybody. Welcome, to you in the room and to those of you on the webcast, to this, the Spectris Full Year Results for 2019. I'm Andrew Heath, Chief Executive, and I'm joined today by Derek Harding, our CFO. I'll go through the headlines and then pass over to Derek to run through the numbers in more detail. I'll then come back and talk to you about some of the financial and operational developments in our businesses before closing with our outlook for 2020 and opening the session for Q&A. But first of all, I'm sure you'll all agree with me that the welfare of our people is our most important priority. As such, I'd like to comment on the coronavirus situation. There's no doubt, as some of you will have seen in the media, a small number of our Servomex employees, unfortunately, contracted the virus after attending a conference in Singapore back in January. I'm pleased to report that they are about all recovered and are back at home or are recovering well. We still have 1 employee in hospital. We've been in close contact with the public health authorities around the world throughout this period, and have been acting on their advice to ensure the welfare not only of our people, but also of our communities, and we're supporting both the affected employees, their colleagues and their families. And in terms of the direct impact of coronavirus on our business, I'll cover that later on. So with that, let's start to talk about the results for last year. You remember at our Capital Markets Day in June, we set out our strategy for profitable growth, and we have made demonstrable progress in executing on this in 2019. I'm very pleased to say that against a weakening macroeconomic backdrop last year, we delivered profit growth, enhanced margin and cash flow, which I think just demonstrates our increased resilience as a business. And this was underpinned by successfully executing our profit improvement program, combined with increased emphasis on deploying the Spectris Business System to further reduce waste and improve efficiency as we drive increased operating leverage across our businesses. The strategy to simplify and focus our portfolio commenced with the sale of BTG in the year, and also the sale of the EMS Brüel & Kjær joint venture is nearing completion. And we continue to manage the portfolio through 2020 as well as seek acquisitions. Now having reviewed the balance sheet at the year-end, we're proposing to pay a special dividend consistent with our capital allocation policy. Before I get into some of the numbers, let's just talk about our purpose because during the strategic review last year, we clarified our purpose, the role we play in society and how we want to progress as a business. Precision is very much at the heart of what we do in Spectris. Our businesses provide global customers with specialist insight through our high-tech instruments and test equipment augmented by the power of our software. We are well positioned in our markets with compelling and differentiated offerings, which our customers highly value. We ensure our customers get the measurements and insights that they need to meet their challenges and this, in turn, enables them to deliver significant benefits to their own customers. And this might be in getting a new drug to market quicker, developing new electric and autonomous vehicles, improving the productivity of manufacturing processes or meeting regulatory requirements, food quality, environmental or emissions controls. So in this way, Spectris know-how is creating value for society, as our customers manufacture, design, test and produce new products to make the world cleaner, healthier and more productive. So our purpose is all about delivering value to all our stakeholders, be they our customers, our employees, suppliers and partners, shareholders or wider society. But it's more than that, just delivering value. Our aim is to deliver value beyond measure, doing more than expected and going beyond the measurement, as we expand our software, analytics and services offerings. And you'll see our strategy triangle before we use this at the Capital Markets Day back in June. We are absolutely keeping things focused and simple, targeting top line growth, margin expansion, free cash flow growth and enhanced returns on capital to create greater shareholder value. And that means that we're going to be owners of scalable platform businesses with differentiated and competitive customer offerings, facing off to attractive end markets with strong fundamentals, where we can achieve strong operating leverage as we grow, actively managing the portfolio to optimize our assets and deploying our Spectris Business System to accelerate growth, reduce waste and drive efficiency. And all this is underpinned by a strong culture around ethics and health and safety, developing leadership and talent with a growth and performance mindset. So against these objectives, how did we perform in 2019? And here, we show our financial metrics, which we also use internally as part of our core value drivers to run the business. Overall, I'm pleased with our performance last year, but not satisfied, as clearly, there's more to do. I've made it clear since I arrived at Spectris that I believe we could be more profitable, and in the near-term, return Spectris to previous margin highs. Against a slowing macro backdrop, it is, I think, therefore, particularly pleasing that we achieved operating profit growth, margin enhancement and cash flow improvement last year. This absolutely reflects the successful execution of our profit improvement program and the increased focus on overheads and cost control right across the business. And if you look at overheads, and Derek will show this, overheads were down year-over-year. However, we have to do a better job with regards to return on capital. While our working capital as a percentage of sales remained within our guidance range, it did increase last year. And our new KPI, return on gross capital employed, declined 20 basis points despite an increase in operating profit last year. And that was very much as a consequence of the higher capital base from acquisitions that came in into the capital base in the -- from the prior year. But certainly, as we concentrate on improving the operating profit and managing the portfolio, this will respond to treatment. Then in terms of executing our strategy, we've also made considerable progress. The profit improvement program has delivered benefits ahead of expectations, helping to drive operating leverage. We made the first steps towards optimizing the portfolio with the divestment of BTG and the announcement of the sale of the EMS joint venture. On capital allocation, we reduced Capex 13% and with the peak Capex investment at Millbrook now behind us. We increased the dividend by 6.7%. That's the 30th consecutive year of growth, a 10% CAGR over that period. We ended the year in a net cash position in accordance with our capital allocation policy. We're proposing £175 million special dividend. And the M&A environment was challenging in 2019. We did participate in a number of opportunities, but we retained financial discipline. So ultimately, we didn't transact any of those. And to be clear, though, M&A does remain a core part of our strategy going forward. We also simplified our organizational reporting structure as we implemented our platform model. And with that, I'll pass you over to Derek, who will take you through the numbers and how we see the second half.

Derek Harding: Thank you, Andrew. Good morning, everyone. Hope you can hear me. Andrew has covered some of these numbers, already. But for completeness, my first slide, it's a summary of the key performance metrics for the period. And you can see that sales increased by 1.7% to £1.632 billion, a 0.4% increase on a like-for-like basis. Adjusted operating profit increased by 3.9% to £258.1 million, up 3.7% on a like-for-like basis. Along with Andrew, I'm also pleased to report an improved adjusted operating margin up by 30 bps to 15.8%, with a like-for-like adjusted increase of 50 basis points compared to 2018. Adjusted profit before tax was £247.4 million, up 2.5%. And our tax rate came in at 21.4%, which is in line with the guidance that we gave during the year. Adjusted earnings per share increased by 1.9% to 168p, reflecting the net impact of the increase in adjusted profit before tax offset by the increase in the effective tax rate and the decrease in the weighted average number of shares following the share buyback last year. Full year dividend per share of 65.1p is up 6.7%, and represents, as Andrew said, the 30th consecutive year of dividend growth here at Spectris. Dividend cover remains good at 2.6x and is consistent with our long-term average. And adjusted cash conversion of 91% compared to 59% last year. During the year, net debt reduced by 30 point -- sorry, £330.6 million, which resulted in a net cash position of £33.5 million. And as we know, that's mainly driven by the sale of BTG. And then finally, on the slide, we see, again, the reduction in the return on gross capital employed, which is mainly due to the full year effect of the CLS acquisition, and I'll come back to the bridging items of that later. So my next slide gives a graphical view of just the main P&L movements in the year. Sales across the top and their profit is along the bottom. And I've adjusted in the 2018 numbers to remove sales and operating profit relating to 7 months of EMS, which was transferred to the JV in 2018 and one month effectively relating to BTG sold at the end of November. So we can get an organic baseline, as you see there in the middle, for sales and profit. Acquisitions contributed £20.5 million of additional revenue in 2019. And that relates to the full year effect of VI-grade, revolutionary engineering, which is part of Millbrook and the full year of CLS. However, these acquisitions did not contribute any additional profit, primarily due to the trading performance of CLS. Favorable foreign exchange movements contributed £23.6 million of sales and £3 million of operating profit. And like-for-like organic sales increased by £6.8 million, of which £4.5 million dropped through to the gross profit line. And then finally -- sorry. Actually, the gross margin was actually flat year-on-year, and therefore, that drop-through reflects the favorable pricing and procurement savings that we've achieved, offset by cost inflation and mix impacts. And then finally, as you can see, their overheads are down 4.7%, with savings generated from the profit improvement program. And that's through headcount reductions and other targeted savings, more than offsetting cost inflation that we experienced during the year. As Andrew said, notwithstanding the progress we've made in 2019, we still see opportunity to improve further as we head into 2020. As profit, the important conversion here is cash. And this slide shows how we generated it in the year, and illustrates how we've used it. It's another way of thinking about sources and uses, which we talked about at the Capital Markets Day back in June last year. So first of all, I add back £58.3 million of depreciation and amortization charged in the year, and that will then bring you to a £316.4 million EBITDA generated in the year. Cash movements from working capital was broadly stable with an increase in receivables being offset by lower inventory and slightly higher payables. And we are increasing our focus on improving our average working capital as a percentage of sales, which although it's ended within our range, as Andrew said, is up over the prior year, and you'll see us looking at that further during 2020. Capex, net of grants of £81.6 million, was £12.5 million lower than the prior year. And in that number, there's £43.1 million of Capex for Millbrook. So that then gives us our adjusted cash position of £234.2 million, and we divide that into the adjusted operating profit to get the cash conversion metric of 91% compared to the 59% last year. And we will continue to strive to be in this range of 90% going forward. Interest and tax had a combined cash impact of £43.3 million, and the payment of dividends utilized £72.3 million. We spent £34.3 million of cash in relating to the restructuring. I'll expand on that in a moment. And then the group completed one small software acquisition during the year with a total cost of £3.8 million. The £5.9 million was paid in respect of prior year acquisitions and £2.6 million was paid in respect of deferred consideration tax payments for EMS and some other small disposals. And we also spent £1.6 million on other transaction-related costs. So all of that together gives you £13.9 million outflow for transactions. And then you can see the £262.7 million of cash that came in as a result of the BTG disposal. And then finally, there's a few other items in there, which mainly are lease payment of around £20 million and the cash from a sale of a property of £9 million, and then in order to bring us back to a balance sheet number, there's a £10 million FX adjustment in there. And that's how you get to the £333 million decrease in the net debt in the year. So I've put this in to try and help us bridge between the moving parts between our adjusted operating profit and our statutory profit, and I'll take those in turn. So first of all, you can see that the group incurred costs of £52.2 million relating to restructuring in 2019. Now this relates wholly to one-off costs of the profit improvement program that we started in 2018. And within here, you have £27.5 million of staff-related costs, predominantly redundancy, £11.6 million related to impairment of assets, including inventory, property, plant and intangibles and £13.1 million of other costs. Offsetting some of this cost, you can see that we've adjusted to the positive £5.2 million of profit on disposal of property, and that's as we sold some buildings as part of our footprint rationalization. And then at the half year, we discussed the goodwill impairment on Concept Life Sciences, and you can see that here, £35.1 million. Next is an £84.6 million charge for amortization and impairment of acquisition-related intangibles. Now £37.5 million of this is the normal annual charge, and then in addition, there is around £32 million relating to customer relationships that we impaired at the half year for Concept Life Sciences, and then £14.7 million relating to other restructuring activities undertaken as part of the profit improvement program. So as you roll through those adjustments, you'll go from the adjusted operating profit to the statutory operating profit. And then, in order to get from statutory operating profit to statutory profit before tax, there are some other adjustments. So our share of the EMS joint venture lost £4.7 million in the year, and you can see that there. But on the 17th of January this year, we announced that we've reached an agreement for the sale of our interest in this joint venture for a consideration of £17.9 million in cash and approximately £1.2 million in shares of the Envirosuite Limited company, which is the business we're selling it to. The closing of the deal is subject to approval by their shareholders at a meeting to be held on the 24th of February, so this coming Monday. And as a result of that transaction, the receivable from the joint venture has been impaired by £21.3 million to the expected recoverable amount that I've just described. And you can see the impairment here on the slide. And then finally, you can see £204.7 million of profit on the disposal of BTG. And interestingly, when you look at the prior year comparison there, the £56.3 million, which is actually the profit recognized on the sale of the JV of EMS last year. So despite the impairment that you can see this year, net-net, this is still a profitable transaction for us over the 2-year period. Then you take off the finance costs and you'll get to our statutory profit before tax of £259.3 million. For clarity, it is our intention to ensure that this slide is less complicated going forward. So I've put here our capital allocation model, as a reminder from the Capital Markets Day. I'm not going to go through it, particularly. But it is relevant when you look at the net cash position and the decision around the special dividend that we've announced today. The group's cash generation has been strong, with a net cash position at the year-end of £33.5 million. And whilst the economic outlook does remain uncertain, we do believe the group has adequate resources to fund future investment in the business, along with continuing to grow the ordinary dividend, whilst at the same time retaining sufficient capacity for bolt-on acquisitions. All of those remain a priority for the group. And therefore, in line with the capital allocation policy, we are proposing the special dividend to shareholders of £175 million. This will be paid in June, along the same time as the ordinary dividend, and it represents just over 5% of the market cap of the group. And it will be accompanied by a share consolidation subject to the shareholder approval at the Annual General Meeting, which is being held on the 22nd of May. All of the other details, the ex-div, the record and the payment dates, will be announced in due course and will be in the documents available for shareholders associated with the AGM. This slide looks at a bridge for you on the return on gross capital employed. And if you remember, this was a KPI that we've introduced last year. It replaces our previous KPI of economic profit. We define it as the ratio of the group's adjusted operating profit to the average year-end shareholders' equity net debt and accumulated amortization and impairment of goodwill and acquired intangibles. So it's effectively a full return on all of the capital in the group. And as you can see, over the year, despite the profit increasing, for the reasons we've already talked about, the return on gross capital actually goes down by 2 points. And the main reason is the goodwill and other intangibles that you can see on the capital employed, which is the full year effect of the CLS acquisition that we did in 2018. Now that, that has fully flowed through, we will look to see incremental improvements in this measure going forward. So just finally, before I hand over to Andrew, I thought it would be helpful to share some thoughts on how we see 2020. As always, we are managing a business in a dynamic environment; there are headwinds and there are tailwinds. So starting with the headwinds, we remain cautious about the impact of the current political and economic environment around the world in which we operate. And like many of our peers, we did see a slowdown in the second half of 2019. And we expect that this will continue into 2020, certainly in the first half. And therefore, overall, we expect limited top line growth in the current year. We continue to see inflationary pressures on the cost base, and we anticipate around 3% of cost inflation into 2020. But despite these short-term concerns, we remain extremely confident in our markets over the medium term. And for this reason, we have decided to increase our R&D spend at Malvern Panalytical in 2020. And this will not be capitalized and will result in an additional cost of approximately £5 million to our R&D spend in 2020. And then finally, coronavirus. We continue to monitor the ever-changing situation regarding coronavirus in China. At the moment, it's too early to have a clear view on the extent or duration of the potential impact on the group. So we monitor it, but it's there as a headwind as we look into 2020. On the other side, though, on the positive side, on the tailwinds, we anticipate a further £10 million of benefit from the profit improvement actions taken in 2019. And against the current lower growth backdrop I've just talked about, we are going to continue our profit improvement program into 2020. We anticipate further costs in the range of £20 million to £25 million, predominantly supporting ongoing merger activities, HBK. But we think that these actions will drive a further £10 million of benefit in year in 2020. All of our platform businesses introduced new products and services during 2019, and which will continue to support the top line, despite the challenging conditions, and we anticipate further product launches in 2020. And finally, we're continuing to deploy the Spectris business system to reduce waste and further build on our self-help activities. So the tailwinds offsetting the headwinds broadly. In the back of the book, I have included a slide which shows our sensitivities to FX and also confirms our guidance on tax and Capex, which is going to be around about 21.5% for tax and our planned Capex is £70 million, of which £20 million relates to Millbrook. And then I've also included a table on this slide, which shows what 2019 and '18 would have looked like if BTG were not part of the group. So hopefully, that's a useful table for you as you think about your baselining, as you consider 2020 without BTG. And with that, I will hand back to Andrew.

Andrew Heath: Thank you, Derek. So now let me run through a high-level summary of our sales by region and by end markets, and then I'll cover each of the businesses in more detail. So firstly, by region, like-for-like sales were lower in both North America and also in Europe, with sales in both the U.K. and Germany down. These generally reflect the trend in PMIs that we've seen across those geographies through last year. Asia does continue to see good growth across the region, although in China, like-for-like sales last year were marginally lower, reflecting quite a tough comp from 2018, but in particular, the impact of the U.S.-China tariff situation. In our end markets, we saw good growth in pharma, especially in Asia, even after the strong performance in 2018. Automotive was lower, reflecting a tough prior year comparator, but also the global auto downturn. There was strong growth in sales to energy and utility customers, especially in emissions control and wind power, and there was growth in semiconductors; they were lower in electronics and telecoms. And good growth in advanced materials within minerals and mining, offset by lower sales into the metals industry. So now let's turn to each of the businesses. First, the platforms, and I'll cover the Industrial Solutions division. So starting with Malvern Panalytical. Sales growth was 1% up on a like-for-like basis, with strong growth in Asia and to academic research and advanced materials customers partly offset by lower like-for-like sales into pharmaceutical and mining. On a like-for-like basis, adjusted operating profit increased 5%, with a like-for-like margin expansion of 60 basis points. A positive impact from higher sales, reflecting favorable pricing and good overhead cost control. This was partly offset by the dilutive impact of Concept Life Sciences, as Derek has mentioned. Looking at the end markets, pharma was lower year-on-year, reflecting a tough comp, particularly in North America. However, as I said earlier, we saw good growth in Asia, especially in China, and we're also seeing positive underlying trends for investment, especially around new generic drugs and the more complex biologic therapies. In food, which is traditionally a lower growth market, there are attractive niches, such as confectionery products and beverages. The increased focus on food safety, sustainable sourcing and manufacture represent true opportunities for our solution portfolio going forward. And there's been some softening in metals and mining, but demand is expected to stabilize and improve this year. Sales into the advanced materials, however, have been strong, and this is expected to continue with new product developments in battery and additive layer manufacturing with Asia being the key growth region driving that performance. In terms of update on strategy, we continue to see benefits coming through from the merger activity that started 3 years ago. And last year, we strengthened our end market and customer focus within mobile panel to go through further organizational change. CLS restructuring has been completed and is now part of the Malvern Panalytical platform. The teams between Malvern and CLS are working closely to develop incremental sales opportunities and also new capabilities that benefits both parties. Malvern Panalytical continues to launch new products, such as the latest generation of its X-ray fluorescence spectrometer, which is an enhanced precision functionality and also flexibility. Partnerships and collaborations with academia was also an area of significant activity last year, such as the partnership with the University of Bristol, where we're working on data analytics, machine learning and artificial intelligence. These types of collaborations are moving us into more predictive and prescriptive offerings in addition to our more traditional diagnostic solutions as we combine our best-in-class sensors with our increased domain knowledge and newly developed AI application capabilities. And I thought we'd just include a few case studies through the presentation. I think it went down well at the Capital Markets Day. I think they illuminate sort of, well, what we do as a business. As Derek mentioned earlier, we're also increasing the level of R&D investment in Melvern Panalytical to accelerate the development of new products. As we repeatedly see the precision and insights that our equipment and software provide is truly valued by customers. And a good example is Dolomite Microfluidics, who specialize in nano and micro particles in developing drug delivery systems. They were using a transmission electron microscopy technique to characterize the particles. And while that is a reliable process, it is also expensive and time-consuming, and it's also not fully capable of verifying the entire sample in one pass. So the customer switched to using a Malvern Panalytical Zetasizer Ultra, which is both a more accurate capability across the entire sample but also enable the customer to streamline their R&D process. And this led to a significant reduction, not just in costs, but also in development time with the actual time to develop the new delivery system coming down from 12 to just one month. So this is a typical example of how customers utilize our products and the value beyond measure that we can provide them. Moving on to HBK. Like-for-like sales declined 1%, partly reflecting some -- partly reflecting some high one-off orders in 2018, but also some more challenging end markets last year. On a like-for-like basis, adjusted operating profit increased 8% and operating margins rose by 130 basis points. The year-on-year improvement reflects favorable pricing, but also lower overheads, and in particularly, strong operational improvement coming through as a consequence of the merger and the execution of the profit improvement program in HBK last year. In our end markets, like-for-like sales into automotive are lower, reflecting a tough comp, particularly Asia and Europe, and also the subsequent impact from the global auto downturn. We see strong opportunities, though, in automotive R&D, which is more resilient than the production side of the business. And this stems from the plethora of new vehicle platforms that are being developed, whether it be electric vehicles, connected autonomous vehicles, whether they be more conventional internal combustion engine systems, and we're taking advantage of all the opportunities that we see here. In machine building, sales were marginally up. And while the industry fundamentals remain attractive, we expect activity to remain soft through 2020. In aerospace and defense, commercial business was good in all regions, although sales in Asia last year were lower. We do see notable R&D investment and opportunities in the aircraft and space industries going forward, particularly for software products in areas such as our static and fatigue testing solutions. And in consumer electronics and telecoms, customers launched fewer products last year, which led to a like-for-like sales decline. We expect moderate growth this year with the rising use of voice-activated mobile and smart home products, along with increasing noise regulation, and both of those things coming together is really underpinning the future demand for testing in that area. In terms of strategy, work on the merger and HBK continued throughout the year, and we will continue that work this year. The new senior leadership team is now fully established and the strategy execution plan is being implemented. As previously reported, combining the sales and marketing teams in the early part of last year did lead to some sales disruption, but now we have an integrated global go-to-market model in place. We are starting to see much improved order flow coming through. Our activity is continuing to further reduce overhead costs through additional headcount reductions, site consolidation and closures and to harmonize processes, and we see good opportunities for further margin expansion as we bring these two parts of the business together under HBK. As part of the integration, VI-grade is now also part of the HBK platform and that is being positioned to lead the development of an expanded simulation offering for our customers, and the software and simulation will be a key sales growth area for HBK this year and going forward. And as I've just mentioned, we're actively targeting electrical vehicle testing. Our new e-Drive system for testing electrical inverters and motors is getting great traction. It utilizes our data acquisition systems, dedicated application software, talk and other sensors. And this is in addition to our additional battery durability testing solutions where we can test across voltage, temperature, vibration measurement and life cycle. And again, in terms of just a little case study. This is a good example of our test solutions for electric and hybrid vehicles, in this case, actually looking at drive by noise measurement for automotive development as we've got new electric vehicles, where there is a concern from a public safety perspective that electric vehicles are too quiet. So actually, we've developed a noise monitoring system measurement system to measure the drive by noise to make sure actually the cars are loud enough to pass those new tests. IDIADA bought one such system in order to be able to satisfy these new testing requirements that are now coming into force. And the capability not only has allowed sort of IDIADA to meet the minimum noise certification requirements, but it also ensures the public safety, as a consequence of that, and also has enabled IDIADA to offer design and system development capability to their auto OEM customers. Moving on to Omega. Disappointingly, like-for-like sales last year at Omega declined 9% as a consequence of really slowing U.S. industrial production, but also the U.S.-China tariff situation and also one-off sales not repeating again from 2018. The sales performance, though, did also reflect some temporary disruption following a supplier change at the beginning of last year and also lower online traffic as customers learn to navigate the new website following the launch of the latest digital platform in Omega. And while the customer transition was more impactful than we anticipated, the key operating metrics have been improving noticeably since the launch all the way through last year. So that combination of the sales decline and the increase in overheads due to extra license costs and also higher depreciation in relation to the investment we made in the new digital platform has meant that the like-for-like adjusted operating profit and margin both contracted by 39% and 600 basis points, respectively, last year. On a regional basis, sales into North America declined, and that reflects the slowing U.S. industrial production environment. And we do expect that to continue through the first half of this year. As I said, sales into China were also lower. Both China and the U.S. were both impacted as a consequence of the tariff situation. We also saw a pullback in semiconductors last year. So that really, in terms of the Capex spend in the large fabs last year, which washed through to the equipment providers, which Omega supply to, although we have started to see some pickup in the first few weeks of this year from a number of those customers. So that's encouraging. In terms of sort of an update on strategy for Omega. As I said, we have launched the new digital platform; that's a significant step in strengthening Omega as an industry-leading e-commerce player. They're already a strong player with their previous website, but that was becoming outmoded and we needed to make further investment, which we concluded last year, and continue to drive volume through that new e-commerce platform to deliver sales growth is clearly now the objective for the Omega management team. Omega also accelerated its product refresh program during the year; we introduced over 100 new product lines, such as the new handheld thermal imaging range and a picture of that is on the slide. And also the ultrasonic liquid level sensors and more are planned for 2020. And these investments both consolidate Omega's position as a leader in the specialist process engineering distribution space, but also will help drive future sales growth. And I think another little case study here, and this one is sort of on industrial Internet of Things, where Omega's been expanding its portfolio progressively in recent years. One such customer example is the Prima Company, who harvest stone fruit. And they need to ensure the quality of the fruit by making sure that it's cool to its lowest, but also safe storage temperature. And Omega provided a low-cost wireless monitoring solution with easy to use plug-and-play features, which connected to the customer's control system. As a consequence, the solution not only helped the customer maintain product quality, but also lower their energy costs through more precise data and control around the cooling requirements. And then finally, on Industrial Solutions division, here, like-for-like sales grew 3%. Sales rose strongly in Asia, and we're also up in Europe, but this was partly offset by lower demand in North America. Like-for-like adjusted operating margins increased 150 basis points. This resulted from the revenue increase, particularly in PMS and server mix, combined with higher gross margins which reflected favorable pricing. In addition, growth in overheads was constrained as a consequence of the profit improvement program. Sales into the semiconductor industry was solid despite the overall industry pullback. Growth in Asia was particularly strong outside of China, offsetting a slowdown in North America, and we had a strong order backlog coming into the year with notable sales of gas analyzers and particle counters to the major fabs around the world. The backlog did, however, reduce through the year as the sector saw a decline in capital equipment orders that I mentioned, but we do expect growth to resume this year on the strength of memory spending and new projects in China. In pharma, there was good sales growth, particularly in Asia, driven again by China. And the demand from increasing regulatory scrutiny, especially data and process integrity, is expected to continue. In Energy & Utilities, the scrutiny around environmental monitoring is also increasing. Servomex's gas analyzers play a critical role. And as such, we saw strong sales into the hydrocarbon processing, but also the petrochemical sector. And BKV also saw strong sales into the wind industry, whereas lower U.S. onshore oil prices did mean that sales at ESG did fall last year. In Automotive, the expansion in testing facilities at Millbrook drove an increase in sales with new capacity across all their sites in the U.K. and in the U.S. and also in Finland. New assets in the U.K. included a leading facility for testing large-scale battery packs for both performance and durability. And the Connected Autonomous Vehicle Village, which is part of a U.K. government-backed test bed for CAV continuous autonomous vehicle development, was opened last year, and that includes one of our top grade BI grade simulators. Test World was also opened in Finland with new facilities for through year testing, winter testing on an indoor basis. So we have new indoor test facilities. So customers could test in winter conditions on snow and ice throughout the year. And we also launched and opened a new electric vehicle development facility in California. So Millbrook has benefited from significant capital investment. And as such, is now well positioned to serve its automotive OEMs and their Tier 1 suppliers. And as I said earlier, the peak year of Capex investment at Millbrook is now behind us. In terms of strategy for the division, we put in place a new leadership team at a divisional level last year, and they've been very much focused on improving the operational and financial performance of that group. The performance in 2019, I think, absolutely underlines that Industrial Solutions is made up of some high-quality niche businesses. As you're aware, as part of the strategic review, each of the businesses within Industrial Solutions was assessed for either platform potential or divestment, where we wouldn't be the best long term owner. And during the year, as we've said, the divestment program commenced, and we completed the sale of BTG and also announced the sale of the EMS Brüel & Kjær joint venture, which, as Derek said, is expected to complete at the end of this month. As we go forward, we will continue to target investments within Industrial Solutions where we see attractive opportunities and attractive returns. Now I just mentioned one area of particularly strong growth for Industrial Solutions has been in emissions control. This is not just in power plants and hydrocarbon processing. Midrex Technologies has designed, engineered and procured equipment for a new hot briquetted iron plant, which is used for steelmaking. They were keen to have high levels of environmental stewardship and be one of the world's most modern and efficient iron making facilities when it opens shortly. Servomex provided over 40 gas analyzers, a sampling system as well as a continuous emissions monitoring system. And the monitoring control that was being provided by Servomex helps the customer improve energy efficiency, lowering the plant's overall cost as well as its carbon footprint and ensuring the environmental stewardship requirements are met. So I think -- or at least I trust from these inclusion of these case studies, it does give you some further insights into how Spectris' businesses are harnessing the power of precision measurement, equipping our customers to make the world cleaner, healthier and more productive. Then before I just conclude, let me talk about coronavirus just for a second. As Derek says, we are seeing some impact from coronavirus as we speak. January was a difficult comparative month mainly because Chinese New Year shifted from February into January. So the last week of January, really at the only point where the virus was starting to sort of get prominence so January, in reality, year-to-year, we don't really see much difference, but we are experiencing less activity in China than we'd normally expect in February. As a consequence, really, of the ever-changing situation around COVID-19. And as Derek said, we're monitoring the situation very closely to assess the extent and duration of the potential impact to us and we'll provide updates as necessary, and we're happy to take questions on it as best we can in the Q&A in a moment. So just to wrap up then, in summary, we made demonstrable progress in 2019 in executing our strategy for profitable growth. Despite the more challenging macroeconomic and geopolitical backdrop which caused our top line sales growth to slow, I am pleased with the profit growth, pleased with the operating margin expansion and cash flow that we delivered, also pleased with the successful execution of our profit improvement program and the value delivered from our first divestments. These achievements have allowed us to announce a special dividend, in line with our capital allocation policy, so net-net, good progress in 2019. But as I said earlier, there's more to do. We're intent on further improving our operating margin and enhancing returns. So we will maintain our focus on cost control. We'll continue to optimize our assets and actively manage the portfolio. You should expect to see further divestments while we seek acquisitions in parallel. And absent a material impact from coronavirus, we expect markets to remain challenging in the first half of the year and a recovery only likely post June. And as such, we see limited top line growth in 2020. Therefore, we are continuing our self-help initiatives to drive further cost efficiency and show a more resilient and profitable business going forward. And clearly, we are going to build on our accomplishments in 2019 as we execute our strategy to deliver a sustainable increase in shareholder value. So with that, Derek and I will be more than happy to take any questions.

Q - Andrew Douglas: It's Andrew Douglas from Jefferies. 4 quick questions, hopefully. Could we just talk, firstly, on Malvern? It looks like a bit of a slowdown back end of the year. Is that more market? Or given the fact it can be a lumpy business as things shifted into 2020, just give us a flavor for what happened there. That will be helpful.

Andrew Heath: So I think for Malvern Panalytical, as I said, I mean there's some very tough comparators against 2018, especially in the second half of 2018; the business was going extremely strongly. So we did anticipate that, certainly Q4-to-Q4, that would be a tough comparator. So that's a big part of the relative slowdown. And we did see sort of the growth in North America and pharma slowing down last year. I mean some of that is a consequence of U.S. government concerns around cost of health care, and that's causing some of the U.S. pharma companies to restructure and reject things. So I think certainly that did cause some pullback as well. But I think fundamentally, the Malvern Panalytical business, pre-CLS, as you'd have seen before through the year, performed extremely well. We're very pleased with its performance. It's a really good business. And when you actually overlay the CLS restructuring and the losses from CLS last year, that's effectively pulled down the top line metrics for Malvern Panalytical.

Andrew Douglas: With regards to the additional restructuring, we have £25 million for £10 million of benefit. Can you just explain to us likely what that is? And if we were to assume post-2020, a reasonably sensible top line environment, is there more restructuring that needs to be done? Or is this you guys just cutting your cloth accordingly for the year ahead?

Andrew Heath: Well, I'll let Derek talk about this more specific. But I mean I think as we said last year is when we launched the profit improvement program, we were really looking to be fundamentally a 2019 program. But we did always say that depending on where the markets ended up, we would look at whether we needed to extend some of those self-help measures. Given where the markets have gone through 2019 in the first half of 2020 as we see it, we think it's absolutely appropriate to continue to drive those self-help measures. We're accelerating the merger activity, HBK, so using this opportunity to do that, but also just sort of extending the program is in other areas to just make sure we're really battening down on the cost control where we can.

Derek Harding: Yes. And I think the key here is in light of where we are, we need to keep going. So we wanted to stop in 2019. I think you can see it particularly in HBK, so in specifics, where is the predominant spend? It's a continuation in HBK. And we saw last year a reduction in revenue, but an improvement in profit, and we'd hope to do the same improvement in profit, at least in 2020. Beyond that, then the restructuring is done.

Andrew Douglas: Post the special dividend, you've clearly got a strong balance sheet even after the £175 million. Can you just comment quickly on the M&A pipeline, that's how you see it?

Andrew Heath: Yes. So I said, so from an M&A perspective, last year, we participated in a number of processes, but retained and kept our discipline. Prices last year were pretty frothy for a number of things that we looked at. And so we're very focused on making sure we can deliver value, good returns from the investments that we make from a M&A perspective. But to be absolutely clear, is a key part of our strategy going forward. We are looking at M&A opportunities. We are active in the same way we're active managing the portfolio. So I mean the key message is don't take 2019 that we've given up on M&A; that's absolutely not the case. We're very much focused on how we can put our capital to best use for our shareholders and M&A is part of that.

Mark Jones: Mark Jones at Stifel. Omega, it's another tough year. Clearly, I understand the headwinds from the end markets, but there's been some misjudgments, poor execution, whatever it might be, as well as that. Are you comfortable both the right team is now running that? And the view that, that was perhaps the more surprising of the platforms is still very much in place?

Andrew Heath: Yes. I think a great question, Mark. I mean clearly, we're disappointed with the performance at Omega last year as is the management team. I think as -- I think we've been quite clear as the causes of that. We did have a -- we've outsourced an electronics product line from a higher cost location to a lower cost location, which are doing all the right things, but that proved to be more problematic. So that caused some disruption in terms of stocking, and therefore, sales in the first half of the year. And at the same time, we also implemented the new e-commerce platform. And I guess the lesson learned is that the customer disruption from translating from the old website to the new was more challenging than we anticipated. So big lesson learned from that. But both those events also happened at the same time as industrial production in North America came off and the tariffs started to bite. So we got a bit of a double whammy from all of that as well. So -- but net-net, I would say, mostly half of it's down to the market, half of it's down to us in all Canada. So that's not good enough. The management team there are absolutely on it. We do have a management team who are a bunch of digital natives now. They do understand this environment. They understand not just the distribution space, but the specialist e-commerce, omni-channel solutions that they're providing. But as we look at Omega, we've clearly got to scale that business. We have made investments in the e-commerce platform that's increased IT costs as I talked about. It's also increased depreciation for that investment that went in. We've got to scale that business, and that's the objective for Omega as we go forward.

Mark Jones: Great. And can I also ask one on Malvern? And you talked about moving into predictive and prescriptive value added. I wasn't quite sure what that meant.

Andrew Heath: Okay, sorry. So really, it is -- or I mean what Malvern Panalytical today is known for is diagnostic capabilities. So our equipment provider, whether it be laser-based X-ray fraction, X-ray fluorescence, we're able to characterize materials and sort of effectively diagnose samples and they can tell the customers what's in there, what shape size particles, delivery systems, et cetera. But what we are also looking is, given we generated a huge amount of data from the diagnosis and the diagnostics, that allows us then to apply machine learning, big data analytics and artificial intelligence to that data set to really then think about how can we be predictive about what the tests are saying. So rather than just diagnosing, actually predicting to the customer, whether it be the lab technician, the scientists who's looking at the data. Actually, what is this telling you? What is -- what are you there for that you might need to do as the next step? Or if you combine it with these other pieces of equipment, that gives you a much richer interpretation and understanding. And then not just predicts, but it can also be prescriptive about what you should do next. So do you need to rerun the sample, do you need to do it in this way, actually, you're good to go, and then you need to do this next step. So we are building our software capability and working with the University of Bristol, in particular, in terms of gaining some of their insights and knowledge to help us start to develop that into a more solution space. Hopefully, that explains it.

Jonathan Hurn: Barclays. Three questions, please. Firstly, can you just talk a little bit about CLS? How do we think about the profitability of that business in 2020? That was the first one.

Andrew Heath: Okay. So one at a time. That's why, Jonathan. It's easy for us. Thank you. So I think from CLS, I think we're clear, I think, at the half year last year that we had sustained losses in CLS. We then, obviously, they move to restructure. So the losses last year were slightly higher than they were at the half year, at the June half year as we went through all that disruption. So we have now closed the environmental analysis part of the business, which we're doing sort of earth and air sort of environmental analysis. And we also sold the sort of environmental consulting business. So effectively, we're sort of half the size of CLS and focus it on basically integrated drug development and discovery and food analytics, which are the more attractive, higher growth, higher-margin parts of the business. We do need to scale that business up and as we do so, we will see that return to profitability. The degree to which we move through this year and where we get to will depend on exactly where that number falls out at. But going forward, I mean this is all wrapped up now within Malvern Panalytical. And we are also doing that as a consequence of really trying to get the Malvern Panalytical expertise around the diagnostic solutions and their equipment. With Concept Life Sciences, they develop new assays for pharma companies. So bringing in that expertise and also bringing in the Malvern Panalytical sales force to help grow the sales in terms of identifying new customers for CLS.

Derek Harding: As you model it and think about your modeling, it's not incremental to what I've already guided you. So if you actually think about this year's benefit from the PIP, it's coming at £25 million, a further £10 million this year for those actions. So it's sort of £35 million benefit for the actions taken in 2019 compared to our previous guidance. So you've got to sort of include the benefits in CLS within all of that in the round. One of us is [indiscernible] back here.

Jonathan Hurn: Second question, just come back to M&A. Can you just talk a little bit more about that in terms of the size of the deal? Were they bolt-ons or were there some bigger acquisitions that you're looking at that you actually weren't successful?

Andrew Heath: Well, Jonathan, I won't get into the specifics. But I think what we've always said around M&A is that we are looking at basically M&A that is immediately sort of highly synergistic to our platform businesses or creating potential platforms. So these are either bolt-ons or businesses that allow us to expand our market share or move us into immediately adjacent technologies, product lines, geographies, et cetera. So we are very much focused around how do we create a look at acquisitions where we can get true synergies, particularly cost synergies, not just revenue synergies.

Derek Harding: And I'd add, even after the special div. So if you look at where we are on the balance sheet after the special dividend, it's about 0.4x net debt-to-EBITDA. And then our overall guidance, I'd say between 1x and 2x. So you can see kind of the headroom and the capacity that we have and the general sort of shape of the balance sheet, which hopefully help give you insight to what we're thinking.

Jonathan Hurn: Just a final quick question. Just in terms of R&D at Malvern Panalytical. Is there a payback on that, it comes through at some point? Is it sort of linked to a particular project when there's...

Derek Harding: Well, there's certainly a payback that comes from it. The timing is the key. And so I think when you look at the organic growth in the year and particularly, the organic growth in Malvern Panalytical that we believe it can achieve over the next sort of 3 to 5 years, we feel we need to give it a shot in the arm in terms of its activity. So the things that Andrew was just talking about, that AI investment, the work that we're doing down in Bristol University, all of that kind of rolls into the Malvern Panalyical investment. So you'll see it come through over the next couple of years as those new products come on stream. And hopefully, we see the organic growth come through from that investment.

Andrew Heath: Yes. I mean I think we -- again, we've been clear, I think, Jonathan, in terms of looking at the returns that we've had historically from our R&D investment. We've said at the Capital Markets Day, we will maintain R&D at the ranges of 6% to 7%. But we also said the efficiency of that R&D historically has not been good enough. And we've been working with all our businesses through last year to really focus on that R&D effectiveness and making sure that we are really working on the right technologies aligned to the strategy and also reducing the sort of sustaining and maintenance burden of some of our older products. So part of the profit improvement programs is actually culling some of those older product lines that were marginally profitable, actually loss-making or just had a large burden associated with them. So we've been tidying up the portfolio, driving a high quality in that portfolio so that we can liberate our R&D resources, you've got to focus on new products where, frankly, we typically know best, and it's a lower risk source of applying our capital. So it's the right thing to do. And Malvern Panalytical had been very successful with one of their product launches over the years. And as we've looked at all that, we -- absolutely, to Derek's point, we look at getting good returns from that.

Harry Philips: It's Harry Philips from Peel Hunt. A couple of questions, please. Just to be clear on the additional R&D spend at Panalytical, is that a sustained run rate going forward, i.e., is a £5 million lift for the foreseeable future? And then just on Omega, because when you look at the math, it looks like the final 2 months deteriorated a little bit further in terms of organic growth. So clearly, the exit rate was lower than the reported rate for the year. You mentioned, Andrew, that is half and half, half market, half your sales. When we look at Omega sort of in 2020, it's a question obviously on margins. How much do we add back, if you like? And how much weight is there on the prevailing market and the relative softness that is currently there?

Derek Harding: So I think when you look at the exit rate, so the half and half, a lot of the sort of internal challenges, own goals of the first half and a lot of the external challenges in the second half, to an extent, because I think you see that in North American industrial production come off in certainly the fourth quarter. And we anticipate that will continue to the first half of this year. So I think when you look at Omega, certainly for H1, you'll see a continuation from the market challenges. And actually across the group, you'll see continuations of the market challenges. But we're continuing to then get volume through on the website, we'll lap ourselves on the depreciation on the website in the first half as well. So I'd expect a stronger second half. Net-net, overall on Omega, we're probably going to be looking at a flat top line, but margin expansion, at the bottom line and start to see some improvement coming through. But the exit trajectory out of 2020 should be quite strong, I think.

Richard Paige: Richard Paige from Numis. A couple of questions, please. Academic research, two very strong years of growth in that market. Any indications on 2020? Because historically, it's been quite lumpy in demand profile. And then secondly, you've -- sorry, you also provided a sort of H1, H2 guidance in terms of EBITDA. And given what you're saying on outlook suggests that is going to be even more second half-weighted than before, but if any -- you can provide any color on that, that would be useful, please.

Andrew Heath: Yes. So we'll sort of take the second question first. I mean I think -- so in terms of phasing, we are working hard to smooth the phasing of the profit through the year in terms of the actions we're taking internally. We've given the shape of 2020 as it's looking. We're going to have a tougher first half and hopefully, a bit of a rebound in the second half. So inevitably, there is going to be -- if there's going to be much -- the historic phasing is going to be there to some extent, just from a market underpin this year. So I think in terms of expectation, I think we are trying to push it forward or smooth it. But I think this year is going to be difficult to achieve that.

Derek Harding: Yes. I mean our historic range would be interesting, sort of 30% to 35% in the first half. As I sit here right now, I think we'll be at the bottom end of that historic range as we look into the shape of 2020.

Andrew Heath: I'm sorry, I forgot the first question.

Derek Harding: Academic research. Yes.

Andrew Heath: So academic research point. Yes. So, I mean academic research has been strong for the last two years. I think, that's really as a consequence. We are at the sort of sweet spot of a number of new technologies that are being developed. So clearly, pharma in terms of the new generic drugs, the biotherapeutics, in terms of electric vehicle development and battery development worldwide, we are doing everything in battery development, from looking at them, characterization of the materials, the quality of the materials, the yield of the materials. We're looking at how materials get laid down in the manufacturing process of batteries. We have got diagnostic test, where we're actually looking inside the battery during testing through X-ray. So we actually want the performance of the battery underload, we're then looking at when the battery is produced and coupled with an electric drive, highlight then is going to optimize the power performance, durability, life cycle, discharge time, charge time. And so that's creating a lot of demand for us. Things like drive by noise, the example we showed, the electric vehicle is bringing in new requirements in Automotive, advanced materials, a lot of research going into additive layer manufacturing, fine chemicals, the next-generation of semicon material. So I think we are fortunate that we have -- the technology is absolutely sort of overlay and sit on a number of those sweet spots. And that's what's driving that investment. But it comes back to what we said at the Capital Markets Day about the attractive end markets. The five markets that we've identified, and particularly around sort of automotive, semicon, advanced materials, et cetera, are the ones that I think are really going to underpin our growth going forward.

Robert Davies: Robert from Morgan Stanley. First question was around China. I just would like a little more color in terms of what your exposure is there in terms of factories, production, manufacturing site and people as a percentage of group? And just where you are really in terms of how much of those facilities and people are currently operational? And then, the second one was just around Industrial Solutions. Maybe you could give us a little bit more color in terms of the different moving parts there? And I guess, just now that you've been sitting on that bit with the identified potentially bit of the portfolio you didn't want to keep, have you changed your view on any bits of that portfolio? And anything kind of working out better or worse than you'd originally thought?

Andrew Heath: Okay. Great. Thanks for the questions. Where can we start? China, let's return to China. So as we sort of stand today, we -- basically, all our offices are open. Our factories are open. Our -- I mean our larger facility is in -- just outside of Shanghai. We are over 60% staffed as today. I mean there are still people who are effectively quarantined within China because of Chinese New Year. They went across province board -- provincial borders and depending where they were, they're either not allowed to travel or they're self -- have to seld quarantine. So that has caused some disruption too, obviously, but we are about 2/3 strength. Our facility in the south of the country is back up and running. Again, it's a similar strength. In terms of offices, we're less than half started. But a lot of people are working from home. So I think if you compare us to others in China and everything, our people are -- we're having daily calls with them. There, I think -- generally, there, I think, there's still about 1/3 of businesses in China haven't come back at all. So it just plays to the disruption that this is called -- the virus is causing out there. And then I think the other sort of key parameter is then is the supply chain. We clearly do source things out of China, but it's -- we are not heavily exposed to China in terms of our supply chains. We've identified those parts that are, we think, are critical to the manufacturing and assembly processes over the next few weeks, months. And we're basically monitoring that and have plans to deal with that as best we can. And I think it just depends if -- if we basically see, I think, where we are today and who -- I mean who am I to predict? But if we sort of say, this is going to be a sort of a February, March effect and then we recover from here, then I think it will be marginal. We should be able to contain a lot of that for us. If it gets worse, then clearly, I think it's going to get worse for everybody.

Robert Davies: Sorry, just one last. Is that expected then just to be a March, February impact? Or would you expect to catch up during the year, i.e., are you just removing that from the year?

Andrew Heath: Well, yes. So I think there will be a Q1 impact. But I think everybody is sort of talking around Chinese government stimulus that will be then launched to try and sort of -- really sort of boost the Chinese economy. So there will -- we do expect then some rebound. I mean this is sort of reminiscent of SARS and sort of as you look at SARS and what happened, try and apply some of those learnings; that is generally what happened. And the question is, where does coronavirus go from here, really. Is it contained? Or does it get worse? So as we said, we continue to monitor and assess it. I think we have to remember that really this is a February thing for most people in the western companies, at least. It's been obviously going longer in China and we're very sympathetic to what's going out there, and we're very concerned about our employees out there and helping them. But I think from a business impact, really, we only started to see this after Chinese New Year. We fully expect everyone to go on holiday at Chinese New Year. We planned for that. As I said, January not really impacted. And it's really only reared then been since the beginning of February. So we're at day 20, really in terms of a business impact. So it's still early days.

Robert Davies: And then on the Industrial Solutions part?

Andrew Heath: Yes. So Industrial Solutions, I think in terms of your question, I think was really leading to have we changed our minds on anything. No, I think it's -- I think our -- the performance last year, as I said, does underpin and underline that we do have a number of high-quality niche businesses in Industrial Solutions that have been performing well. They performed -- a number of those performed well in 2018 as well. We've got, I think, 6% growth in a lot of those businesses in that year. So those have continued to perform well. But I think as we look at the end markets that we've identified that were attractive, and we think of the businesses where we're going to be the best owner, where we're going to place the investments, I think our view on that is still the same.

Robert Davies: And then maybe just one final one. Just around some of the end market dynamics coming into the early part of the year. Maybe could you provide a little bit more color on -- in terms of some of the end markets that you're maybe expecting to be the biggest positive surprise or biggest negative surprise over the first half? Because you've obviously mentioned this sort of market dynamic is slowing through the first half, getting better in the second half. Maybe just within -- because you obviously cover a lot of different segments, maybe just give us a little color on where you're most all these positive on the first half?

Andrew Heath: Yes. So I think -- I mean I guess, as we see end markets, I think I would say things are sort of spotty. There are spots of concern, but equally, there are spots of still strong growth, and we are trying to be as agile as we can to go and focus on those areas of growth and maximize the opportunities. I mean the ones that are still stronger, certainly academia. We're seeing the advanced materials part of our market doing well. Semicon, I think, is sort of basically flattened. And all the signs are that depending on where you are in the cycle on semicon that, that will start to sort of pick up through this year. And that's all the industry commentators are saying that. Pharma in the U.S. has been on a slowdown through last year, as I said, but in Europe and Asia, it's been doing well. What else haven't I covered? I mean automotive, the signs are for sort of auto in the U.S., Asia, Europe, that generally, it seems to have troughed for what we've seen. Now just obviously, all these things are subject to what happens with coronavirus and we got there and what happens from here. But I think in Auto, we've seen it trough, and therefore, it's just how long that trough lasts for. But I think that sort of covers off most of the sort of key trends.

Andrew Wilson: It's Andy Wilson from JPMorgan. Just a quick one for Derek, actually. On cash flow, and just working capital specifically. Sort of it feels like it's very much work in progress, given sort of the time being the role in and I think a big opportunity that we all identified at the end of last year. Just interested on kind of what's changing within the business, where the business is looking at cash comp, how you're thinking and targeting cash, just to get a sense of what that looks like over the next, I guess, 12 to 24 months maybe?

Derek Harding: Yes, sure. So I mean I think I said at the half year or certainly at the Capital Markets Day that we felt that using working capital to improve customer service and our sort of reliability was a useful use of funds in 2019. So I'm not surprised to see no sort of major improvement. And in fact, we guided between 11% and 15% and now at 13.7%. So I think that's pretty much spot on in the range. Notwithstanding that, though, we think we can do better. So as you look at 2020, all of the businesses have clear cash cycle targets. We're changing the focus in terms of how we look at cash within the business. So very clear focus on inventory days, very clear focus on receivable days, payable days and just making sure that everybody in the organization understands the levers that they can pull to it to improve on that. And I think we will see incremental gains throughout the year. What I'm very aware of and nervous of, though, is that you can easily hit targets by doing daft things. So that's why you need to be really clear about what the core drivers are and make sure this is sustainable, and that's the focus that we've got. I'm not going to give you a number of guidance on this, frankly, because this is a new way of looking at it internally. We've got to push the guys to be very clear, how you know exactly what their targets are, and I hope they hit them, and we'll come back at the end. But in terms of specifically giving a cash release through working capital, there's so many other variables in terms of what the top line does, the mix of performance within our businesses, the working capital structure in our businesses is different. So I think let's just kind of see where the progress goes. The other thing I'd point out is that from an incentive perspective, we also changed the incentives, both for Andrew and I and add all the way down the organization, such that working capital improvements, 20% of it. So I have no doubt it is under scrutiny in 2020.

Tom Fraine: Tom Fraine from Shore Capital. Just back to China, if you could touch on how your customers are affected by it and whether they're in restricted regions or nearby? I understand you might not have an idea of the impact on their own supply chains, but could you touch on any of the orders that you're receiving from them?

Andrew Heath: So I think from a customer perspective, to some extent, it depends where they are in China at the moment. Clearly, sort of the Wuhan province is still quite -- is all closed down. But we are still supporting our customers, both remotely, but progressively now face-to-face. I think everybody in China is restricting the travel, obviously, so customers aren't necessarily asking for people to go, but where we have critical demands. We are looking at all of those and trying to release people to go and visit customers and try and maintain support to them, which is important, clearly. We're doing it in a very responsible way.

Andrew Heath: Any other questions? I appreciate we've run for 80 minutes. So let's wrap up. Derek and I will be around afterwards. So happy to carry on talking to you. But I think just by way of summary -- again, thank you for coming, both physically and on the -- those who have joined on the webcast, thank you for joining us. 2019, I think, was a year of good progress. I am pleased about a lot of what we did last year. I think 2019 showed demonstrable progress against delivering on our profit improvement program, but also by executing on our strategy. There's a number of touch points that I think you can see that shows that the execution of our strategy is absolutely on track, but there's clearly more to do, and we're very focused, especially in the current end market environments and what we need to do, as we've explained today. So thanks again for coming.