Good morning, ladies and gentlemen. Welcome to the Bodycote 2017 interims. Could we just turn that? Got a bit of an echo here at the front. So I'm Stephen Harris, Chief Executive, and a bit of a sound engineer by the sound of it. And on my right, I've got Dominique Yates, our CFO, and of course, we've got our chairman, Alan Thomson, sitting in the audience. So I'm going to go through the agenda here. I'll do a summary quickly. We'll then talk about financial review, which Dominique will do. I'll come back and do the business review, and then we'll move on to the outlook. So it's pretty exciting times at Bodycote at the moment. We've got a good set of results, and there's a lot going on.
So just taking you through that, I mean, clearly we've got some good growth, so 18.8% in total, but in constant currency terms, 8.3%. Now, organic constant currency is 4.8% behind that. And it's important to note that while we've got 3.5% of our growth has come from acquisitions, which we made last year, it's worth pointing out that also 2% of that growth has come from recent greenfield investments. And we'll talk a bit more about that as we go through more about that as we go through the different segments. The reason I'm highlighting it here is that we like to do things to the world rather than have the world do them to us. And these issues, acquisitions and organic investments, are things that are under our own control.
So notwithstanding what happens to the background growth rates, we have things that we can do, and we continue to do them. And we've been doing this for some years, and it's paying off for us. It's also pleasing to see that our specialist technologies continue to march ahead, and we'll talk a bit more about that later. I'll let Dominique go through all the nitty-gritty on margins and cash and everything. Just back on the investment side, so we have upped our rate of investment. So we've authorised GBP 36 million of growth investments in the first half, so that doesn't include maintenance, which is an uptick in our investment rate. And we get good returns on our investments, very good returns. As people probably know, we have the same hurdle rate on acquisitions as we do on investments. It's 20%.
So it's good business decisions to invest in this stuff. We've kept it going even though we had slow growth or declines even in the last few years, and the benefits are paying off now quite nicely. So we are putting up the dividend by 6% to GBP 5.3p. So I'll let Dominique take you through the numbers now, and I'll come back later.
Thank you, Stephen, and good morning, ladies and gentlemen. On slide 6, we have the key financials, some of which Stephen has already covered in his overview slide. We have 8.3% constant currency revenue growth translating into 18.8% at actual rates when including the substantial benefit on translation that we have enjoyed in the first half as a result of the depreciation in sterling last year. This benefit can then be seen reflecting itself through the P&L, contributing to a 26% increase in profit before tax. Taking then the reduction in the group's tax rate from 27.5% to 25.5%, headline EPS was up 29% on last year in the first half to 23.6P. This strong result was also reflected in the free cash flow that Stephen highlighted just now to leave the group with net cash of almost GBP 18 million at the end of June.
Moving on to slide 7, we have the headline operating profit bridge. Once again, we see that the group was able to achieve price increases ahead of underlying cost inflation. Clearly, looking at the size of the different boxes, the main contributors to the overall improved profitability were the underlying increase in sales volume together with the boost from currency translation that I have already mentioned. We also see the benefit from acquisitions coming through and contributing in line with group average margins as previously advised. As a result of the improved trading and profitability, we've also needed to accrue more on our various long-term incentive schemes reflecting the likelihood of increased eventual payouts. Looking at divisional performance now on slide 8, and here I'm going to concentrate on the constant currency numbers as the impact of exchange rate movements is amply covered elsewhere.
ADE revenue growth was restricted by the continued decline in oil and gas revenues as compared with the first half of 2016 when those revenues were still declining. Excluding the impact of this, constant currency revenues were actually up 3.6% in the ADE division. 1.1% of this growth was contributed by the ramp-up in sales of recent greenfield investments, with the main impact being in Western Europe. Margins were up very slightly. And just to remind you that our strategy for ADE is based around revenue growth rather than margin expansion. Stephen will cover the individual market sectors in some more detail a little later on. On slide 9, we see that AGI revenues were up 12.8% at constant currency. You may recall, however, that all of the 2016 acquisitions were in the AGI division, and these boosted revenues by a little over 6%.
Revenues benefited by a further 2.7% from the impact of ramp-up of other greenfield investments in the AGI division. Accordingly, deducting these two from the total growth, underlying revenue growth was 4%. This reflects a significant turnaround when compared with the last few years' trends. Again, Stephen will cover in a little bit the key market sector developments that have contributed to this. Margin expansion, as you may recall in our European AGI business, has been a key strategic pillar for the last four years, and we saw continued growth in the margin here. For the division as a whole, we saw a 110 basis point margin expansion in the first half against the comparable period last year. Moving on to cash flow. On slide 10, we saw a doubling of free cash flow in the first half to GBP 42 million.
Pleasing as this result is, just a word of caution, you can't extrapolate this straightforwardly for the full year as we will be investing more on our growth projects in the second half. Slide 11 shows the revenue and operating profit by major currency block. You'll note that the other block is now up to 18% of the group's operating profit generation compared with 13% on the equivalent chart a year ago and demonstrates that the group's strategy of investing in high-growth emerging markets is delivering results. As previously advised, the H1 translation benefit to operating profit from weaker sterling was GBP 6 million. Should exchange rates remain at current levels, we don't anticipate any significant impact on revenues or operating profit in the second half. Finally, from me, slide 12 covers off tax and financing.
As already mentioned, the group's tax rate dropped by two percentage points from last year to 25.5%. You'll be aware that the group's tax rate is a blend of the rates in different jurisdictions, and as the mix of profitability has moved towards some lower tax rate jurisdictions and away from the U.S., our tax rate has benefited accordingly. Also, as usual, there are myriad deferred tax movements and other adjustments that play on the tax rate. In spite of this decrease, the underlying pressure on the group's tax rate going forward will be upwards, so I would pencil in a 26.5% tax rate for 2018 at this stage.
On funding, we were very pleased in the first half to extend our revolving credit facility by a further 3 years to take us out to 2022, which hopefully will be well beyond any turbulence that we might see as the Brexit negotiations progress. In the meantime, the facility remains a backup, and we have not currently drawn on it. Now back to Stephen for the business review.
Thank you, Dominique. So I'll take you now through the main market sectors, as usual. So we'll start with aerospace and defense. So first half, that's GBP 81 million of our group revenues. We saw constant currency growth here of only 1%. That is not as high as one might expect given that we've got civil aerospace in here, and that's mainly because of the oil and gas decline. That's actually because of defense because this is only aerospace and defense, not aerospace, defense, and energy. So sorry about that. So that's the defense decline that we've seen. So we've got civil aerospace revenues up 4.4%. Primary growth in aerospace for us has been in the U.K. into the Rolls-Royce supply chain where we've had very, very good growth in the first half. France is doing okay. North America is more mixed.
What we are seeing is that there's a bit of a choke in the supply chain. It's been going on in the States for a while as that's settling out. And then, in fact, the LEAP engine in France has got a bit of a choke in that supply chain now too. So that's restraining overall growth. And of course, that's for our customers. And as we supply into those guys all the way up the supply chain, it means that the French growth in the first half was a little bit less than we've seen before but still nice. Now, this sector, we've seen 1.3% revenue growth from recent greenfield investments. Just a word about that. So in aerospace and defense, we had no acquisitions in this area last year.
The greenfields that I'm talking about, though, are in Houston, in South Carolina, but mostly the growth's come from France where we put in a new greenfield in France. It's important when we look at this investment; often it's investment versus acquisitions, is sort of a make-buy decision for us. We aren't doing grand investments in acquisitions. We are making small bolt-ons. These bolt-ons, if we can't buy something in a territory, then we'll build it. So for example, we did want to be in the Aviation Valley in Poland, in Rzeszów. We tried to buy a business there, couldn't get it, so we built one. That's actually the way in which we look at the acquisitions. So acquisitions have been a little slow of recent. In fact, we've done none in the first half.
And that's one of the reasons why we've stepped up our investment in organic projects. Okay? So moving on then to energy. So this is the story about oil and gas. It was a bit presumptuous on the previous slide. So here in energy, we've seen a constant currency decline of 4.1%. Now, the oil and gas story's still declining. You can see in the bar chart that first half 2017 versus first half 2016 is a step down. I mean, it is a little bit pleasing that, in fact, sequentially, first half 2017 is a little bit higher than second half 2016. And that's driven by a resurgence in onshore in North America. And in fact, most of that has come for all of it's come in the second quarter. And we saw second quarter growth in oil and gas of 52%.
However, there's no growth in our figures for the rest of the world, and subsea there's no growth anywhere. So in total, oil and gas is a decline. And our assumption going forward, by the way, is not that we're going to see further growth in oil and gas. We're just assuming it's going to stay at the kind of rate that we are at the moment. Oops. So just turning to automotive then. So pretty stellar growth in automotive. Constant currency growth of 14.3%. And within that 14.3%, car and light truck in particular up 15.5%. So heavy truck went up as well but just not as strong as car and light truck. Now, importantly, within car and light truck, we did have acquisitions contributing 5.3%. And our incremental revenues from investment projects is 5% in this sector.
So let's just have a word about where the investments have been and what our investment strategy is. So the investments have been in Michigan, for example, in Mexico where we've got two plants that are ramping up very well, in China, and in Gebze, in Turkey. Now, the strategy behind all of our greenfield investments falls into three areas, really. We like to invest in secular growth areas, long-cycle businesses. So aerospace is an area that we have been putting money into for quite some time. The second area, which is a higher priority area in some respects, is emerging markets. And then the top priority has been in our specialist technologies. And if we can get a double hit by actually putting specialist technologies in emerging markets, for example, then that's really great. And that's exactly what we've done in automotive in Mexico.
So we've put some specialist technologies in Mexico. And the result of that is that we've actually got 46% growth from that particular business in Mexico. So that's what we're trying to do in our organic investment strategy, and it's paying off very nicely. And we expect to see that keep going. In fact, we've stepped the rate of that up. So then turning to general industrial, here we've got 11.8%. Now, this is very significant for us. General industrial makes up nearly 40% of the group. We have had over three-year decline in this area. Every quarter, we've been talking about 3%-5% decline in general industrial. Our business is almost a proxy for global industrial production. It's made up of thousands and thousands of customers across a diversity of subsectors here. It doesn't change very quickly.
So when it does change—and here it's changing for the positive quite nicely—that's very good for us. So reversing a three-year trend, extremely helpful. Now, of that 11.8%, acquisitions did contribute 5.3%. And then also, we got a small help from incremental projects here of 0.7%. But general industrial, quite notable for us, this growth. And then turning to specialist technologies, this gives you an idea of the breakdown within the markets of specialist technologies. I get asked this question quite a lot, so putting it on the slide seemed like the obvious thing to do. If we exclude oil and gas, specialist technologies marched ahead at over 10 percentage points. Our margins exceed 30%. Don't forget, our strategy in specialist technologies is not to increase margins. It's to grow the business with the very healthy margins that it's got. So over 10%.
Of course, oil and gas is the laggard, and it's down quite a lot. This is subsea work. That's what specialist technologies are in oil and gas. It's subsea work. Notwithstanding the increase in the financial investment decisions on subsea projects, we have seen no growth. We're not seeing any turning in subsea at all. The other exciting piece of information on specialist technologies is that you may have seen our recent launch of our PowderMet suite of technologies, which we think are great, actually. It seems as if the world is joining in that excitement because the inbound inquiries after our launch have been very high. Some people might say, "Well, can you tell us a bit more about that?" Just for those people, I thought we'd do a quick slide. That's very difficult.
I think it's quite difficult, at least, to talk about a range of technologies that actually are they're quite esoteric in some of the stuff. But this is an attempt to explain some of it to you and how it works. So one of the big problems you get with 3D printing, 3D printing from powder, is it takes a very long time to build a component, days and days. Because what you're doing, if it's laser sintering or e-beam sintering, is that you have a powder bed, you run that laser beam or that e-beam across the powder bed, and you actually fuse the powder together layer by layer, and it builds up very, very slowly. You go as fast as you can with that laser beam, but it goes up very, very slowly, micron by micron.
If you're trying to make an item like you can see on the third picture across in the slide here like that, that takes a long time to do that. So one of our suite of technologies here is hybrid technology with 3D Printing. In essence, if you look at the pictures on the left-hand side, we're actually showing you a cross-section, cutting in half that component that we're trying to build. You can see that what we do here with this is instead of trying to make it solid from the beginning, we actually leave the powder inside it, unconsolidated. Now, if you see the picture of the second one across, you should see powder in those holes. But of course, when you cut it in half, the powder all falls out. But that would be filled with powder. How is it filled with powder?
How do you get the powder in there? Well, quite cleverly, really, it's already there because it's actually sintering the bed. If you're only doing the outside, the powder's already in the middle. Now, it sounds very easy, right? But then when you finish the unit, you then put it in the HIP, do the hot isostatic pressing, and it goes 100% solid. And so now the production time for that unit is dramatically less than having to center the whole thing all the way through. This is just one aspect of the technology, but it shows you where the cost and time reductions come from. Now, of course, there's a lot of secret sauce in this. How do you get the gas out because there's entrained gas in that stuff? How do you deal with the shrinkage because when you HIP it, it shrinks?
All of those are design parameters that have to be built in from the beginning. And that is IP that Bodycote has, and we've applied for patents on this stuff. So this is really game-changing stuff. I'm quite excited about it. I hope you are too. In terms of where is this going, I'm sure somebody might start asking me questions about, "Well, what does this mean financially and when?" So the problem with this is that, as you probably know, there's more paper being printed about what 3D printing is than actually metal parts that have been printed so far. Okay? And while there is a very high growth rate, it's still a very small business for the world. We know that. We're very close to it. We do HIPing on all this stuff all the time. And heat treatment.
So I don't know where the 3D printing market's going, let alone this. What I can tell you is that because we're reducing the cost and we're actually reducing the production time, which is a dramatic issue for people, what this does do is make the available market for 3D-printed components bigger. You can imagine, you can now use 3D printing for more products than you would have used in the past. So whatever the 3D printing market's going to be, the market for this technology is bigger than that. So 3D printing on its own is smaller than the combined market for this. When it will come to fruition, I don't know because I don't know when the 3D printing market's going to mature. What I do know is that we won't see any real numbers hitting our needle, as it were, in the near-term next year or anything.
But in a few years' time, this should be very big business. Okay? So I hope that's a nice taster. We will have to obviously do something more in-depth for people a little bit later. But that'll have to do for now, I am afraid. So then, with that, just moving on to our summary and outlook. I'm not going to read it through line by line. It's really just summarizing what we've been talking about. Of course, the most important thing here is the last paragraph. And we are saying that we now expect our full year results to be towards the upper end of market expectations. With that, we'll hand over for any questions.
Good morning. It's Andy from Jefferies over here. Couple of questions, please, and I'll leave it to some other people. Can we just talk a little bit about operational gearing? I mean, the operational gearing in the first half is pretty good, I think, in excess of 50%. Can we just talk about where that goes in the future? Because there was a little bit of variable cost in there which took the edge off it slightly. Where do we see the operational gearing going forward? And then another numbers one for Dominique. With respect to tax rates, 25.5% and then kind of nudging upwards. Am I right in thinking that doesn't potentially take into any account any change in French tax law? Which, again, forgive me if I'm wrong, but I think that's quite important for you guys if that French tax rate comes down.
Okay. First of all, on operational gearing, you're right. If you strip back the acquisitions and also our greenfield investments, then the gearing that we're seeing on our organic growth is in the mid-50s percentage points. It's certainly right that that has been held back by the fact that last year, we didn't pay out big bonuses because the business wasn't performing that well. This year, the business is doing a lot better, and therefore, we need to accrue for variable pay to reflect that better performance. All other things being equal, next year, if one were seeing similar performance, then clearly next year, we would be comparing against a year where we already had some variable pay. Therefore, one might expect to see higher operational gearing levels achieved than the mid-50s that we've seen so far this year.
On the tax rate, what was the specific question on the tax rate? Sorry.
French tax rate.
Oh, yeah, the French tax rate, you can only take into account what you know. That's the rules. And so we've only taken into account what we know. If the French did take their tax rates down significantly, and I think there's talk of it going down to 25% or so from the current 33%-34% level, that would have a 1% positive impact to our overall group tax rate.
David Larkam from Numis. Just on the sort of organic growth, can you talk a little bit more about how you're seeing it sequentially from the second half of last year? Because obviously, the first half of last year was pretty weak. So are we seeing sort of similar levels of sequential growth? And then just talk about North America defense because a lot of people have been reporting that market's pretty buoyant in the first half. So just sort of surprised you're seeing the weakness there.
Sure. So I'll cover defense, and Dominique can cover the sequential. You need to understand what our defense business is. So we're not involved in lots of glamorous programs. We tend to do a lot of consumables. So clips that hold missiles onto wings, the spending on these kind of things is year in, year out, typically very steady. When there's a pressure on cost side, then the new programs get the highlight, and this kind of stuff is still under pressure. So it's not a lot of stuff. Most of it's airborne flying assets. But I think it's about 9% decline that we've seen. It's not a big part of our business, but that's just the way it is. So we've got a few things like howitzers and stuff like that, a few consumables off the F-35.
But mostly, it's bits and pieces, clips and bolts and stuff like that.
On the sequential growth, it's very difficult to read the runes on this because you're always questioning or wondering which is the base level. But I think there are a few things we can point out. One is definitely in Q2 of this year, onshore oil and gas picked up in North America. That was a definite step change. It's certainly also the case that Western Europe overall has been stronger in the first half than the North American pickup. As we mentioned in our results, we did see North American results strengthen in May and June. But that's too short a period of time, not enough data points for us to call that definitively as a change in trends.
But as we went out with our full year results, we definitely saw a move up in the markets in the fourth quarter of last year, and we saw that continue into this year.
General Industries picked up more.
So we saw it fourth quarter, it picked up. And as we've come into the first half, that's definitely picked up sequentially.
Morning. Michael Blogg from Investec. This is a question that goes back, I think, to the drop-through question earlier on. You're putting capacity in classic heat treatment. I presume that it looks as if it's very selective. It's not an indication that you're running out of capacity generally in classic heat treatment. Where do you have substantial spare capacity? So in other words, where will we see the best drop-through if and when volumes increase?
Sure. So yeah, the investment that we're putting in is not actually for capacity for existing classical heat treatment, to be clear. The investment projects are things like specialist technologies, new facilities out in the emerging markets, and expansion, new facilities, not investment so much in existing classical heat treatment, certainly not so much in General Industrial. And the reason for that is that we do have significant capacity available, particularly in North America. We've got capacity in General Industrial in North America, but also in Europe. We do not have capacity crunch across the piece, actually. I don't see anywhere. If there is a capacity crunch coming, and it is the area where we do our longest-term planning, and that's in HIP.
The reason we do long-term planning in HIP is because it takes so long, a couple of years to get a vessel delivered and start it up takes a year more if you're unlucky. We always do long-term planning on HIP. We are seeing the potential for capacity crunch coming in HIP. Don't be surprised that we start investing in more HIP capacity shortly. I will point out, of the GBP 36 million that we released for investment in the first half, none of that were new HIPs. That was all in the specialist technologies outside of HIP plus classical heat treatment in the areas that I mentioned before. No capacity problems per se at the moment.
The launch of PowderMet, presumably, if it takes off as you hope it will, would absorb some HIP capacity?
Absolutely. The main capacity constraint for PowderMet will come in HIP vessels. Now, having said that, we haven't got fixed pricing on this yet. But if you look at the closest proxy, which is our HIP product fabrication business, and PowderMet is really a subset of HIP product fabrication in many respects, the yield, as we call it, the sales yield, how many dollars or pounds did you get per hour out of HIP vessels, is 4-5 times for HIP product fabrication than just straightforward HIP services were. So you can imagine that the PowderMet business will be of that order, which suggests that the sales will go up much faster than we won't run out of capacity as fast as if that was coming from HIP services. Okay? Now, the big crunch that we've got coming at the moment is from HIP services.
This is all to do with the new materials that are going into aerospace, frankly. But in due course, if PowderMet takes off at the kind of rate that we think, in a couple of years, that will be driving requirements for new HIP capacity.
Can you see yourself getting to the point where you prioritise HIP product fabrication and PowderMet through your capacity because it generates a better yield for you?
Well, hopefully, while planning will get to the point where we don't need to do that because trying to tell somebody when you are—I mean, let's face it. We have the most HIPs in the world by quite a long way. There aren't any other real players out there. And if we've got to turn around to people and say, "I'm sorry, but we can't do your normal HIPping work," you'll have to ground those planes because you can't have any more components for your engines because we've got this fancy-down technology. I don't think we'd be very popular. So we would rather have enough capacity, and that means that we need to plan ahead and make sure that we get it. But the answer is, if it really came to that, I think the first thing would happen, I'd be fired.
Then the second thing would happen is that we'd probably prioritize it. Yes.
Good morning. Hi. It's Jonathan Hurn from Deutsche Bank. Can I just ask a question on oil and gas? I think historically, previous cycles, you've kind of lagged the oil and gas cycle by about a quarter. Obviously, this cycle, it's been extended. You've seen the pickup coming in Q2. What's the stop further improvement coming through in Q3, and why are you being a little bit cautious on that?
Why am I being a little bit cautious? I'm being a little bit cautious because there's a lot of commentary on this. If you look at the current oil prices, it's difficult to see how subsea can pay for itself. I mean, if you leave Brazil out of it at the moment because, I mean, they do have reasonably cheap, in subsea terms, capability there. But elsewhere, subsea is generally a lot more expensive. So I'm a bit of a skeptic. It's hard to see where the investments could come in for subsea. So that's a big, big issue for us. Onshore, well, yes, but that's mostly North America. I mean, Permian Basin stuff. And Permian Basin's clicking along. But you read the latest sort of punter, I'll call it, gossip just to be nice to analysts out there about the Permian Basin and that area.
I mean, they're kind of getting worried about the oil price, and maybe they'll rein back. So it's not that we have any special knowledge on this. We're unable to see forward very far in this stuff. So we tend to rely on what we've already seen anyway as a general method of forecasting. We forecast what we've seen as continuing. And to see a change upwards in oil and gas, I think that's a big bet. If the oil price's firm, then maybe. But you do see people talking about actually cutting back in terms of their production of components for the business. And if our customers cut back, then it will hit us eventually. So I'm not a bull on a big increase in oil and gas. Having said that, if you see the oil and gas contribution to the business at the moment, it is quite small.
I don't think anybody should worry about oil and gas as dictating the fortunes of Bodycote because it's far more about General Industrial. It's far more about the projects that we do for ourselves than it is about volatility in oil and gas. Harry at the back.
It's Harry Philips from Peel Hunt. Three questions, please. In terms of the bonus payment for this year, obviously, it's going to be a better year. You've given guidance for the full year. So what sort of bonus numbers should we be thinking about putting in? Secondly, in terms of the additional investment spend, where should we think of CapEx for this year and next year? Because I note the CapEx in the first half was about GBP 28, and obviously, you've got GBP 36 to come or already in motion. And then lastly, just looking in the divisional splits and geography within that, North American AGI margin of 11.7% seems pretty low. Is there a specific reason for that, please?
Sure. So I'll cover the first part of the bonus question, and then I'll give it over to Dominique. I'll do the North American margin, first of all. So the AGI margin in the U.S. is all about the fact that North America did not turn until right at the very end of the half. And that explains that completely. I don't think there's much else you have to talk about with that situation. As far as the bonus is concerned, I might two-penn'orth on that. It's clearly not enough is the answer, all right? But Dominique can talk about actual numbers, so why don't you go to that?
I mean, we have increased the accrual in the first half based on an expectation that we've gone out with of a higher operating profit out term. I don't have the exact figures to hand off that increase in accrual, but as I mentioned earlier, that has had some impact on the operational gearing level. I think you also had a question on the investment on CapEx. What we've pencilled in for the full year this year is 1.2-1.3 times depreciation as the overall net CapEx. That works out to around about GBP 75 million. So as I alluded to my comment earlier on the free cash flow, that does indicate a substantial increase in CapEx investment in the half too because we were just under GBP 30 million for the first half.
I think at this stage, looking out to next year, it's very difficult to give a precise number for next year based on timing of investments, but it will be based on what we've approved first half of this year, it will be, I would guess, at least at the GBP 75 million or so level for next year as well.
So maybe just if you could give us a split again between the onshore and subsea and the oil and gas business where you currently sit. Obviously, you mentioned this very strong growth in the second quarter in the onshore business. So just wondered if you could kind of give us a bit more color there. The second one was just around automotive, and clearly, you have very strong growth in that segment. Are there any particular programs or customers that you're seeing strength with? Maybe just a little bit more color of what's going on there. Third one was just on General Industrial. I wondered if you could give us any indication on 2Q versus 1Q. Did you see any growth moderation in that General Industrial growth?
And then finally, around incremental investments, how we should just think about the potential benefits in the second half and maybe running into 2018 from what you've already done?
Sure. Okay. So let me choose those one at a time. So Dominique, you'll pick up the onshore/offshore piece if you don't mind. Auto projects. So most of that is specialist technologies, and it is using low-pressure carburizing and Corr-I-Dur. A lot of it is on gear trains. So customers, particularly here in North America, is a big penetration with General Motors. And they have actually outsourced to us all of their LPC work now. And we're going up the drivetrain numbers of gears, if you like. So as you go up, I think at one point before my time, but you said three-speed gearboxes. But now we're up at 10 and 12 speeds. And of course, the next step after that are now CVTs, continuously variable transmissions. And so we have one project on CVTs in North America.
But the main focus there is General Motors, Ford as well, Chrysler, no. Okay? A little bit of Japanese, but not on the projects. If you come over to Europe, then same kind of work. So we've got some big CVT work, continuously variable transmission, in Europe. Interestingly enough, in France, we've got some very big projects in France. I don't understand why other people don't like France. We love it. And if they put the tax rates down, we'll love it even more. But some big projects there on CVTs. And a lot of that investment is about drivetrains. Mexico, China, same things. Okay? The second quarter, first quarter question was GI trends. It doesn't move very fast. So it's turned. I wouldn't read anything into first quarter, second quarter for GI. It's moving. It'll keep moving. North America started to pick up at the end of it.
We'll see. But I mean, it's slow-moving. So no read from that, I'm afraid. Investments and oil split, Dominique, I assume.
Yeah. So on the oil split, I mean, 65% of our oil and gas business now is out of North America. And as we alluded to, the growth that we've seen there and the substantial majority of the business there is onshore-related. Europe's still very depressed, and that's where we've also traditionally had a reasonable amount of our subsea business. I don't have the exact split of what subsea is of the total, but it will be a low percentage of the total because the activity's all onshore. Regarding the benefits from incremental investments that we're making, I think the reality is that the investments that we've approved in the first half, we will be spending that money through the remainder of this year into 2018. Those businesses will then be ramping up through 2019.
So the positive impact on profitability, you will most likely see coming through in 2020 and beyond. So this does take a while. The nature of the greenfield investments, it takes a while for it to come through and impact the P&L.
So you will recall that two years ago, when we started seeing things being very difficult out there, it was very hard to get growth, that we actually said, "Well, life is tough. Growth is hard to find. We're going to increase our rate of investment," which we did. What we're seeing now is the benefit of stuff that we started two years ago. Okay. Mark.
Yeah. I'm Mark Fielding from UBS. Just following up, actually, on the automotive side of things. You flagged before that hybrid vehicles are good for you, but in the end, electric vehicles, not so much. Maybe you could just elaborate on that. What proportion of your business do you think wouldn't exist in an all-electric vehicle world, which obviously is a little while away still?
Yeah. Well, I have no idea where it's going to go. I don't think all electric is going to go. I mean, I'm a skeptic. I think all electric is a pipe dream some decades in the future. I think from what you've seen, there's a definite commitment to hybrids. But frankly, the skepticism in me comes from the fact the infrastructure build for all electric, particularly in some of these countries with large geographies, is phenomenally expensive. I mean, they can't even get their electrical transmission system sorted out, never mind charging cars up in the middle of nowhere. So I'm a bit of a skeptic on all electric. I can't comment, frankly, as to where the business would end up by then. On hybrids, for sure, it's very good for business.
There's a bigger content for us in hybrids than there are in traditional internal combustion stuff because you get two bites of the cherry. You get the electric bit, and you get the internal combustion side. So everything that I see today suggests to me that actually, automotive technology change is a net positive for Bodycote for many, many years. I don't see any negatives coming from that. And frankly, because the technology change is a net positive, you're also seeing increased investment in growth technologies like our specialist technologies, which is why you're seeing good growth out of us from things that we do ourselves rather than just relying on the world macro demand on cars. I mean, clearly, that has an effect. But if you can do things yourself as we are doing, then it puts your destiny in your own hands.
Not scared of technology change in automotive at all. Haven't we already seen him? I mean.
Just want to follow up because it's timely. Am I right in thinking there's also a reasonable size of business where you're agnostic as to whether it's diesel, electric, hybrid?
Yeah. That's a good question.
Thank you.
Yeah. That's a good question, Andy. So the question really is, so as things electrify, what's going to electrify first? Well, clearly, the lighter vehicles will electrify first. It's much easier to power along a small little car than it is a big SUV or, God forbid, an F-150 or whatever they are out there in the States. The majority of our work in so-called car and light trucks is heavier end of that. So we do a lot on SUVs. We do a lot on premium cars. And we do the light trucks of the like of the F-150. These vehicles, the heavier vehicles, are much, much harder to electrify effectively. And we don't really do a lot on small cars except for seatbelt clips and seat recliners and stuff like that.
Quite frankly, it doesn't matter if it's electric or not on those because you get them anyway. Hence, yes, there are a large proportion of that stuff that we're agnostic about. But please don't ask me for the split because I don't actually have it to hand. If you'd like it, I'm sure Dominique will find it out in time. Anybody else? Good. Well, thank you very much, everybody.