Good morning, everyone, both in the room and in cyberspace back there. A very warm welcome to the 2019 interims for Essentra PLC. I will be kicking off. I will give you a summary and a brief update on the highlights. Lily will be taking you through the numbers pre/post IFRS, pre/post disposal, pre/post anything else as well. We'll talk, because there's an awful lot of moving parts, about the impact of our portfolio simplification, and hopefully give you some information that will enable you to knit the fog that we have created for you through our active management of the portfolio in the last six months.
If we were to stand back and say the journey since January 1, 2017 is a book, you can choose what type of book, I'll leave that to yourselves. I think at the moment, what we would be doing is starting the third chapter. To one, really about understanding what the fundamental issues were. It was about developing solutions. It was about bringing stability. It was about reinventing ourselves in the eyes of our customers and our people. It was about creating an inflection point where, and we'll put some dimensions on it in a minute, the negative momentum that had been generated in 2015 and 2016 was not only stabilized, but reversed.
It was also about developing strategies for the three now only divisions we have, that have in the last two years of their implementation, broadly stood unchanged while being tested both by our own internal challenge, but also by the forces of external reality. Chapter two was saying, okay, we have some stability, we have strategy, we also have a cluster of businesses with very different profiles, as we have always said, are not necessarily strategically additive.
We've very much taken on the basis of the strategies that Tim shared with you this time last year, a very, if you like, capital allocation-based approach and said which businesses should naturally remain part of Essentra PLC in the third chapter that we're talking about, and which are better added to another entity, and where we can free up capital that we will use for the benefit of Essentra PLC and its shareholders. As you can see in the title, what I think 2019 really shows is encouraging financial progress, major portfolio rationalization, and now we have three focused global divisions. We have de facto, and this isn't a sleight of hand, really gone from nine businesses to three businesses in the course of six somewhat hectic months. If you actually look down, we'll see a solid result in components.
I'll put some parameters on that in a minute. As I called back in September, we anticipated that the underlying markets would weaken. We cannot escape the gravity of that, but we can outperform it. Packaging, if there was an MVP award for the half year, I think Ian Purssell and the packaging team would get that for an accelerated performance and an encouraging trajectory consistent with the guidelines that we have said, which will enable us to get back to the target returns for the industry in 2021. Filters for the first time in a long time, it has grown both its sales and its margin, and we are increasingly confident that growth can be sustained, not only by getting the fundamentals right, and we can talk about that, but also by successful implementation of the game changes in the second half.
I said that later on I'll take you under the bonnet, and what you'll see is that on our people and our operating performance, we have again continued to improve in all businesses on all key metrics. We have announced today that the specialist components business will be wound up no later than the end of Q3, enabling us to proceed with a much simpler portfolio. There is a triple-digit, GBP 100-plus million fund that we have generated from these disposals, and that's being used to reduce net debt and to fund two value-creating acquisitions. I do not expect that either to be the end of that in H2. To give you some numbers, on a like-for-like basis, the sales have gone up 3.7% and profit has gone up 10.8% if you adjust for disposals, closures, et cetera. Our reported operating profit has moved significantly.
That's primarily the impact of acquisitions, disposals in the first half of both years. You can see there that EPS up 7.5% debt, depending on whether you want to look at it on a pre or post IFRS 16. I think in real money it's 193, but Lily says I have to say 242, as does Nick Stevenson, my auditor. He hates APMs. With the strength of our balance sheet and the confidence, we're happy and very comfortable maintaining the divvy at 6.3p. You'll now see some charts in the presentation that we have used every time since H1 2017. The left-hand one is the like-for-like revenue growth. You can see there that there is a pleasing and a constant increase in our trend. Before we started chapter one, it was a -11% run rate sales decline.
That's moved by 15 percentage points in five halves, which is very encouraging. Clearly also, if you look there in the halves at the packaging underlying revenue growth, 9.5 compares to -9.2, only three halves before. There's an 18.6 percentage point movement in the period of 18 months, which I think is testament, A, to the fantastic work, but B, the fundamental defensive robustness of that market. The margin, which hit its low point in 2017, you can see 8.2, 8.2, continues to progress another 30 basis points. Let me then just delve very briefly into each of the divisions. You can see we have at least two of the three divisional heads now, clearly they are feeling better about life because they dare to turn up. Components, like-for-like, 0.8. The actual real number is, you can see at the sub-bullet on the first point, 1.7%.
This is a business that is multiple transactions, very fast lead time, low value. It is de facto. It has the same kind of characteristics as a distribution business. We always look at sales to working day, which is about 2%. Effectively, I've always said we target industrial production growth plus 4%. That would imply circa 2% underlying industrial production decline. What I would say is that Q2 was stronger than Q1. If I look ahead with all the news that surrounds us, and uncertainty, do I think that's a trend you should extrapolate? No, not necessarily. I am confident that between price and market share gain, we can continue to outperform industrial production. One of our particular highlights is Access Hardware. This is centered in the Mesan Turkish business. Seen encouragingly is the beginnings of cross-selling in things like our fasteners.
That's very important because you have about six product categories, but very few of our tens and tens and tens of thousands of customers take multiple product categories. Actually, our fate is within our own hands in that aspect. The key essence of how we can improve the ease of our customers to find the right products and to order from us and trade with us in as frictionless a way is actually through our website. This was piloted in Q1 and has now been rolled out in a number of markets. It broadly covers now about 40% or so of our sales base, and by the end of the year, it will cover 80% of our sales base. So far, it has been very encouraging.
Scott, who you can ask about it later, is a master of such metrics, but our Google performances and things like that have gone orders of magnitude better, and we're getting very positive feedback from our customers. What we're also trying to do in terms of this hassle-free is to improve the logistics that provides faster, more immediate customer service and also gives us, for fairly obvious reasons, a stronger logistics capability in continental Europe. We have been, from a logistics point of view, probably too heavily weighted in a post-Brexit world or whatever on our Oxford facility. We will be launching a brand new warehouse on the Dutch-German border in first half of next year.
Also, the picture there is our Houston warehouse, which is very new, which not only gives us a better ability to serve that southern industrial base, but also gives us the capability to absorb Innovative Components and Micro Plastics product and increase their geographic reach. Hertila, the acquisition we made in Sweden, continues to perform to plan. Micro Plastics, as a parenthetical note, is trading ahead of our integration plan, and we have been to its Chicago site, Innovative Components, which again, you can ask Scott later on about the details, but it complements that very successful Access Hardware range. It's a combination of plastic and metal, and gives us also, in the form of the Costa Rica base, a low-cost variable manufacturing base. Packaging.
What I should also say is that as the title shows, the operating margin has, despite a relatively slower growth, still been maintained and increased at 40 basis points. That's about 23% all in all. Packaging, 9.5% underlying revenue growth. Please do not extrapolate that. We will not sustain 9.5% in perpetuity. The comps will get harder, but I think that certainly Ian and the team will achieve somewhere between the 5% medium-term target that we're saying that you should use as a trend, and that 9%. Excellent performance. The really encouraging thing is that it's been pretty much consistent in both Americas and Europe, and across our product categories. The good thing now that we have stability is that we're having a totally different dialogue with our customers, the Reckitt Benckisers, the AstraZenecas, the whomever.
It's all about now, not only how do we, on a day-to-day basis, maintain what we're doing, but it's how do we help you design products that are tamper-proof? How do we help you design products that are cheaper to make in your factories, et cetera? I have seen in the last 18 months a sea change in that regard. I've always said that about two-thirds of the benefit, as we go on this journey back within the next two years to industry standard margins, is going to be about the benefit of volume through the factories, and we're seeing that. We continue to invest in the equipment. We continue to use the continuous improvement Lean Six Sigma capabilities. It's encouraging to see that we've also had investment in the last six months to address the nice problem of being capacity constrained in certain product areas.
Filters, 1.3% growth like for like. Operating margin's up. I cannot think of a time, I went back, where we could have pluses in both of those. I don't think, Joe, you've ever been able to write two pluses. That's great. What is interesting is I mentioned that last year we, for the first time in a long time, if ever, we moved to having a higher weighting in independents than the MNCs. Clearly, those five MNCs are very important. We are seeing a lot of further encouraging progress there. That's really encouraging because it gives us, if you like, a lower risk profile. The lumpiness of a certain large player deciding to suddenly go in-house or move or whatever, its impact gets ameliorated.
In terms of innovation, which is one of the three building blocks, along with key account management and world-class service, we are seeing much more innovation. We are now having regular innovation workshops with our customers. What we're seeing is we were mostly talking, for instance, to the procurement individuals. We are now talking to the marketing, the product development, the R&D people, et cetera. In terms of the game changes, we are, I think, making encouraging progress in our discussions in China. We have now got commercial supply in Heat Not Burn. We have got some specific component supply also within the vaping market, and we are having a number of live discussions as we speak about some material outsourcing contracts. Specialist components. I suppose I comment on the operating margin increase there. Clearly, revenue has gone down for fairly obvious reasons.
We highlighted last year that Tear Tapes, in particular, had underperformed. We put a strategic recovery plan in place. That, I'm pleased to say, has been moving up the margin quite significantly there and has, therefore, gained some good traction. Reid, which is the distribution business anchored in the Midwest, has had a tougher time, which is directly in line and directly correlated with the underlying trends in the industrial production in the Midwest. That's a quick tour d'horizon of what's going on. Clearly, I'll take questions about the detail later. Now I'll hand over to Lily, who will take you through the numbers. Over to you, Lily.
Thank you, Paul. Good morning, everyone. I'm delighted to be here to present our very first Chapter 3 interim results, alongside with Paul here. As Paul mentioned, we saw encouraging financial progress and significant portfolio rationalization in the first half of the year. Moving on. In March, I actually ended my presentation on the high of IFRS 16. I thought I'd change the sequence, the message is exactly the same. The net impact to our P&L and balance sheet is minimum. I'm pleased to present a bit more detail on the presentation impact on different lines. If you're interested in this topic, we have more detail in our RNS. Turning on to our income statement and looking at the year-on-year change at constant ForEx. As Paul mentioned, we reported GBP 507 million on half-year revenue, a decline on the reported constant ForEx line of 2.7%.
If you exclude the divestment, closures, and business cessation, the underlying revenue growth for the whole group was 3.7%. Operating profit GBP 48.3 million at 9.6% growth, with 9.5% operating margin, 100 basis points expansion. It's worth noting that excluding all the divestment, the IFRS 16 business cessation, the closures, the like-for-like, apple-to-apple, and wider than the white measure is 10.8%, as Paul mentioned. EPS GBP 0.12, a 7.5% increase. Turning on to division by division. Paul has already mentioned most of the underlying improvement. I would just point out a couple of things here. Number one component is 0.8%, but actually trading adjusted is 1.7%. As Paul already mentioned, a solid performance, supported by pricing management, pricing initiatives, amid a relatively soft global output in manufacturing sector. Packaging, GBP 177 million. Excluding closures, a strong growth of 9.4%. Filters returning to growth, GBP 131 million, 1.3% like-for-like growth.
This is against the backdrop of tobacco industry pipeline volatility that we have always talked about. Independent customers now account for more than 55% of our revenue. Specialist component, again, on a like-for-like basis, is a decline of just under 1%. Overall group is 3.7% top-line growth. Turning on to operating profit, which again, at constant ForEx, component delivered a OK of GBP 31 million, 3% growth, a margin of 23%, a 40 basis points expansion. The pricing management paid dividend and the business demonstrated good margin resilience over the cycle. Packaging reported GBP 7.9 million profit, a 360 basis points expansion. The improvement was partially helped by a one-off, just under GBP 2 million sort of benefit into the first half. Again, Paul mentioned pricing and the improvement on the underlying quality metrics and service level. We have seen pricing initiatives offsetting raw material cost this half.
Filters reported profit growth of 5%, a 50 basis points improvement. Thanks for the operational excellence continued contributing to this. Specialist component declined on profit as a result of divestment, but margin showed 110 basis points expansion. Let's pause here for central cost, central services. GBP 13.6 million, as we expected. I previously stated that we invested into new and upgraded capabilities into the group, such as security, cybersecurity, program management, operations excellence, continuous improvement, procurement, and those capabilities underpin our stability and recovery. As a result of our divestment, we expect circa GBP 2.5 million to GBP 3 million unallocated central cost for 2019. Directionally, the full year central cost to be around GBP 30 million for 2019. As Paul mentioned, we continue to work on acquisitions, and over time, we aim to achieve overhead efficiency along with our global BPR program.
Paul will provide a bit more color a bit later. Overall trading performance was strong with margin improvement in all the divisions. Moving further down the income statement. Interest charge slightly higher than prior year, largely impacted by the presentation of IFRS 16 and also slightly higher sterling-related debt to help mitigate some of the Brexit uncertainties. Effective tax rate, 20%, in line with previously stated 19%-20% range. The unchanged minority interest is a result of circa three months less minority interest allocation from Filters JV in Dubai, but offset by stronger growth in our JV in India. EPS GBP 0.12, 7.5% increase. Turning on to exceptional and other adjusting items. We reported a gain of just under GBP 23 million. The credit was largely driven by the gain on disposal, as you can see the details on the slide.
One thing I want to just highlight here, the tax payable, if you go to the back half of our RNS, is slightly higher, largely driven by the tax base is lower than the accounting base when it comes to net assets. Within the GBP 13 million tax payable, we outlined as tax payable on disposal, around GBP 5 million is associated with prior relief that benefited the group historically. We expect tax to be settled in 2019. We also reported a gain in other categories from provision release to certain site closures, offset by just under GBP 1 million of external consultancy costs in relation to a review and investigations currently in progress of certain compliance matters in a subsidiary. Now moving on to cash flow.
Our adjusted operating cash flow for the first half was GBP 37 million, 76% cash conversion as a result of the investment we made in our net working capital associated with two matters. Number 1, as Paul mentioned, packaging grew by just under 10%. We invested working capital to support that. Number 2, we built some finished goods inventory in our component business to offset and mitigate the Brexit risks. Overall, the net working capital ratio was 13.9%, a 20 basis points improvement comparing to previous year, despite the investment we've made. This is the area we continue to focus on. Our CapEx is in line with expectation. We continue to invest in our IT infrastructure, as Paul mentioned, equipment to support growth in the packaging area. After applying interest, tax, and pension, the free cash flow was just under GBP 23 million.
Turning on to net debt, our net debt ratio was 1.4 pre our IFRS 16, and post is 1.6. Whatever measure you look at, that was a significant improvement from the year end, at a 0.4 or 0.5 times reduction. On a constant currency basis and after applying IFRS 16, our net debt reduced by just under GBP 60 million as a result of the fund flow from net acquisitions and disposals and our free cash flow generated in the business after paying dividend and the exceptional items. Our return on invested capital for the first half is 10.2%, continuing to make steady improvement, as you can see on the chart. The low point was 2017 at about 8.6%. Last year, we were 9.6%. We're 10.2%, which is a great result in line with our portfolio management and further M&A activities.
As Paul mentioned, the board reviewed and approved the dividend unchanged for the interim at GBP 0.063 for half year 2019. Thank you, Paul. With that, thank you. Back to you.
One of the significance of ROIC is, as you probably recall, that we've moved to ROIC as a measure for our long-term incentive now. Stability, how are we going to sustain this and then get the organic and inorganic growth building on that engine? We'll go through people, service, IT, and our finances. Two stories here. This is looking at the cumulative lost time incidents. You've seen that there is some improvement, but not enough in terms of the number of LTIs. To a degree, the more we acquire, because we have higher safety standards than anyone else, we tend to find that it almost acts as a counterbalance to that positive trend. The encouraging thing, however, is that whilst we have a 5% reduction in the number, in terms of lost hours and therefore the severity, we've got an almost 60% reduction in the lost hours.
We are having fewer incidents, but they're also of a much less serious nature. Employee engagement. Other than the safety of our people, the engagement of our people is my number two priority. We are really encouraging engagement in our local communities. We are following up on what a key area of desire from our people was in terms of personal development and career development. We have Oisín, who has been in place as Group HRD now for some six months and is really developing, I think, a very coherent and powerful three-year strategy for our HR capabilities. We have a talent acquisition director in place.
Mary Reilly, one of our NEDs, has, with her customary vim and vigor, taken up the role of board employee champion and has been visiting a number of our sites and is a key input and a very valuable input into how I and the rest of the team think about and perceive how we optimize still further that engagement of our employees. We are now targeting what we call the supervisor level and piloting some really well-received programs there. We have also, under Nick Pennell, developing a sustainability strategy. That is focused on four areas. Responsible resource usage. We are big users of materials, so looking on an end to end. For instance there, a number of our sites now are on zero waste to landfill. Energy and climate change.
Clearly, that's something that's relevant to everyone, whether that be LED lighting, whether it be using solar panels in our factories. These are all programs that we are kicking off. I believe personally, as do my team, that a business should be a responsible and a valuable member and contributor to the societies, the communities in which they operate. We are very much rolling out a community engagement policy. I think 97% of our sites now have an active program there. With the responsible supply chain, again, we are looking both upwards and downwards across the supply chain to make sure, whether it be know your supplier, know your customer programs, et cetera, that we are making good progress there. We're very cognizant of linking it to some of these UN Sustainable Development Goals, and you can see a cross-referral there.
It isn't pragmatic to try and address all 17. You can see that in many, there is an overlap with those. In terms of the operations, as I said, good progress on every metric pretty much across the board. Call out, say, Components there, that's moved up almost a percentage point. Filters maintains its world-class level. The focus area is now not really on it's about OTIF, but with reducing lead times. Packaging, notwithstanding the fact it's growing at 10%, has increased, and Q2 was higher than Q1, and Specialist Components moved forward as well. Quality, you can see there, for Components, a halving of quality incidents, a 75% reduction in Filters, a 45% reduction in Packaging, and a 17% reduction in two years in Specialist Components. I think it's all trending in a positive, encouraging way. It cements that relationship with our customers.
It enables us to debate strategic matters, not day-to-day matters. Also, frankly, if we are not having quality issues, it makes our factories that much more efficient. Again, positive, consistent improvement across the board, which is encouraging. We will, at some stage, get into diminishing returns. Once Filters gets to a bit lower, whether it can ever be perfect, who knows? It's a really encouraging trend. The other major issue that we've been focusing on, and within our stability agenda, I would say process rigor and IT capability are two things which we still need. If we're at, say, 70%-80% of the way through the stability, where are the big two levers? It's probably those two, allied to making our people top decile in engagement. What you can see here, this is the major incident rate.
You can see that in two years, Richard and the team achieved a 75% reduction there. How is that? It's by having better processes in place, it's also by spending quite a lot of money, to be honest. Packaging and IT have been the biggest recipients. If it hadn't, we'd have been having some interesting conversations, Richard Cammish and I. He's doing well. This is a different timescale. This is in one year. If you look at the hours lost as opposed to the number, i.e. the severity, we've now got an 85% reduction in hours in one year, which is very significant. Again, it just reduces the frustration in our people, and it reduces the waste of time. That's a very significant improvement.
What it does is it allows Richard and the IT team to focus on defensive things like cyber, and offensive things like supporting Scott on the website rollout, and the BPR program, which is a much more constructive use of time. Leads us on to the BPR program. Why do we need that? We need better financial and business controls, and because our 46 ERP systems are just falling over and are not fit for the kind of business we want to be. It addresses those issues. I said we would come back and try and scale essentially two key points, one of which is within the CapEx guidelines of GBP 55 million or so, this will be absorbed. Secondly, if we look the next three or four years on the impact, the net of the benefits and the increased depreciation, they wash out.
If I were you and I were doing a model, I'd just ignore it. That's easy, isn't it? Right, good. What are the benefits? It enables us to integrate businesses required quickly. It does enable us, we've already talked about working capital and end-to-end supply chain. It enables us to manage that in a much more joined-up way. It enables us, particularly where we have global customers, to provide them a purview that's on a much more integrated basis. In terms of planning, medium-term planning, it enables this thing called Sales and Operations Planning, S&OP. There are some benefits that we have quantified, which enables me to make that statement about it being a wash, such as SG&A. It will obviously help in terms of, say, the efficiency of Louise Finance function, but also in terms of addressing cost of quality.
There are a number of other benefits it will enable in terms of working capital management, machine utilization, and just a general reduction on waste. We are very cognizant that having just spent two and a half years climbing out of the swamp from self-inflicted wounds, if we were to get this wrong, that would have been the waste of an awful lot of time and effort. We are taking a multi-year approach. We are only looking at Components, Finance, Purchasing at the moment. The other divisions will follow in time. The other enabling units will follow in time. It's a phased approach over up to five years. Half of our focus is about getting the benefits. Half of our focus is about managing the risk.
Our finances, as hopefully our actions of the last 6 months have demonstrated, we have applied ourselves and the Board and the Executive Team a very rigorous capital allocation. ROIC is a very important determinant of our thinking. We do have, and we have maintained strong discipline in terms of Board agreed return parameters for M&A. Also, we have introduced a very structured post-investment review process with the Board, and that, for instance, has confirmed the signal progress made with Micro Plastics and the fact we are comfortable with where Hettelaar is. Before IFRS. We have gone from 1.9 to 1.4 times net debt EBITDA. If we were to do it pre, it would be 2.1 down to Sorry, before applying IFRS 16, I cannot even say it, let alone understand it. We have gone to 1.4 from 1.9.
If we were to do that on a post, it would be 1.6 and 2.1. Anyway, a major reduction. In terms of the U.K. pension plan, those of you who know Coats can imagine the joy this says to me. We had a GBP 1 million actuarial deficit, which we are going to close in the next year or so. You'll have already seen, given the focus on the quality of earnings, the consistent improvement in both ROS and ROIC. Right. A lot of moving parts. Hopefully, this will help you to maybe understand the impacts. Disposals, the first column. Gross proceeds GBP 115, loss of GBP 105 million, loss of GBP 50 million profit, and an EPS hit of circa GBP 0.04. We had the purchase for GBP 12 million of 49% Filters JV, which has obviously no revenue or trading profit impact, but an EPS uplift of circa GBP 0.01.
The acquisition of Innovative Components brings us GBP one and a half million of profit and an EPS impact, GBP 0.5p. Those are some of the moving parts. The net of that is we had, within specialist components, two businesses left. Tear Tapes. Tear Tapes, its primary customer base is the tobacco MNCs. It will operate a number of those customers and independents. A number of customers have said it would be better to have the product offering under one coherent customer focus. We will operate it as a standalone center of excellence, but with a consistent customer-facing focus. Reid is essentially a distributor in the Midwest of third-party branded products to broadly the same customer base and in complementary product areas. The mistake we made a few years ago was to try and smash it in and pretend it was exactly the same.
We will not be doing that. It will be a standalone autonomous unit within Scott's division, with its separate management team, but looking to leverage the complementary customer bases, et cetera. I'm sure we will learn from the lessons of the past. There's a clear, coherent strategic logic for that. We believe they can then be more valuable as part of Essentra with the synergies and benefits. We are committed to pursuing those two within our three global division content. What does it mean for the numbers? This is a snapshot of FY 2018. You can see that the components, and we had the ST Express sites. They are the numbers, filters, packaging, and then the sixth specialist component entity. That is the before. The after looks like that.
You can see when you add in Tear Tapes and filters, you have the base components business. You have some of those express sites that moved out with the disposal of Speciality Tapes, and you add in the Reid Supply business. You can see there. Packaging, that was what it looks like because it's unchanged. Broadly, GBP 300 million turnover global divisions, although of different margin profiles currently. If I look ahead, whether it be financially, operationally, commercially, I think the strategy and the progress are on track. I cannot think of how the outcome is different from what I would have expected six months ago or 12 months. If you made me sit down and write this presentation, then I'd have come out with broadly this. What do we want to do therefore? We want to continue to drive above market organic growth.
I think we are doing this in all three businesses. We need to sustain that. In Components, it's doing that, and it's looking at value-enhancing bolt-on acquisitions. For those of you who hate us for having to change your models, I apologize in advance, but you may well have to do it again. Packaging, it's continuing this market share gain, leading to organic revenue momentum and looking at strategic bull's-eye bolt-on low-risk acquisitions. I think it's a sign of the confidence on board and the senior team that we are now happy to do that where we think that they are low risk and will add value. With Filters, we've talked about the importance of innovation and the step change Kamal has made and key account management underpinned by operational excellence, and then pursuing those three game changers.
As, ladies and gents, I've been saying for the last 11 months, the world was going to get a worse place. The good thing is we will outperform the underlying industrial output level 3%, 4%, and packaging and filters effectively remain non-cyclical. As a defensive play on a relative basis. Yes, we can't escape the gravity of the world producing less industrially, but actually that's, A, relevant only to one, and B, we'll mitigate it because most of the valid levers are in our control. Let me just reprise. We are now starting chapter three. I think H1 is conspicuous for good financial progress across the board. Major, major changes, positive changes, simplification to our portfolio, and three businesses that are now set to move forward organically and inorganically.
Therefore, the final bullet point, we do think across each of those metrics, we will continue to move forward. That's 42 seconds early, Matt. Right. I will pause there. I think the way this normally works is we take questions in the room first. Then we go into cyberspace. If you could please wait and have a microphone so the rest of the planet can hear your comments, that would be helpful. Andy.
Thank you. Good morning, guys. It's Andrew Douglas from Jefferies.
Hi.
Three questions please, if I may. Packaging clearly doing exceptionally well, you're making sure that we don't extrapolate 9% forever. Can you just remind us what you think the underlying market is growing at?
3%-4%.
Still 3% to 4%. Right. Brilliant. Okay. I was slightly surprised by your comment on components that the second quarter is doing better than the first quarter. We've seen most other industrials saying completely in the way and that June was a complete disaster. Can we just kind of flesh that out just a bit?
Yes.
Just to make sure we understand kind of the moving parts.
Yeah.
Because that's quite cool.
Okay. Concentrate, Andy, okay?
I'm listening.
Right. We had a really, really strong Q1 2018. I apologize. We had a really weak Q1 2017, because in a different world, we had pulled forward lots of stuff into Q4 2016. We had a low teens Q1 year-on-year in 2018. It's nothing to do with the world. It's to do with what happened in Q4 2016, to be brutally honest. Does that make sense?
Yeah. I think that's all. Last, central costs-
That was fair, Joe, isn't it?
Yes.
Yeah.
Central costs clearly running at a reasonably high level. Can we just talk about the, I don't know how long you want to look at it, two, three, five-year view, as to what happens to the shape of those central costs?
Well, yeah. As a % of sales, we would see it coming down over time.
Yeah.
I think we have seen the risks of just doing it either too much or in an ill-considered way.
Sure.
The reason that we've started, for instance, with finance and the BPR, is we think there's opportunities there to make that a lot more efficient and value added. I think if you look at it as a percentage of sales now, it's what, 3%? 3%. 3%. Yeah. I think probably trending down to two and a half over the medium term, something like that, Lily? Yeah.
Perfect. Great. Thank you.
James, hello.
Morning. It's James Beard from Numis. I've got two questions on components, if I may.
You know the answer is X plus 4%, don't you?
Possibly not, actually, for these ones. On the margin, we've gone up to 23% in the first half. What are your expectations on that front in H2? Is that a maintainable margin over the short term and the medium term, given your desire to undertake further acquisitions, which presumably will be in the short term, margin dilutive?
Yeah.
A second question, thinking slightly more broadly about some of the underlying metrics within that components business. Are you able to talk about some of the trends that you've seen over the last 18 months, two years, in terms of customer numbers and average order spend, average order frequency, and how those have trended over your tenure?
Right. That's not two questions. I have 22 questions masquerading as two. Let's start with the first one. Margins, you're spot on. If we do deals, there is gonna be a short-term dilution, although you've seen that with Micro, et cetera, we are able to improve it. In the short term, I see no reason why the margins for the underlying business will go down. I think in the medium term, depending on what happens in the world, I've said low 20s is kind of where we should maintain. At the very worst, which was after GFC, it went down to about 17 or 18, Joe, for a year. I think the position we have in the value chain and the ease of doing business with better logistics, better website, should enable us to maintain our position there, James.
In terms of trends, we are continuing, I believe, over the time, to gain small amounts of market share. It is not significant. I think that as we get more integrated with the systems, with the website, with the better logistics, I think we can nudge that up. In terms of the overall profile, in terms of number of customers and products, not really. I don't see a big change. We haven't yet licked, for instance, cross-selling, I don't think.
No.
We haven't fundamentally changed the nature of our business. I think we're just continuing to do what we do, albeit, we are now making it easier for customers to do it. In terms of value from new customers, we have had a marginal increase. The numbers of new customers we need to work on. It's not hugely different. We've just got better performance, and we've now launched some aspects of our offering, and our people training programs, that should enable us to at least sustain that 4% plus X. Is that fair, Scott? I thought there was something wrong. Charles, you're always first out of the blocks.
Charles Hall from Peel Hunt. Just following on from that question, can you just give more color on the pricing benefit in the first half in components? Also give some early thoughts on the website impact on customers, a bit more detail around that. Obviously, it's not a transactional website in the true sense, what are you expecting to see, or what have you started to see in the countries it's been rolled out?
Qualitatively, yes. Okay. I think you put in your early notes circa 3%, didn't you? I would not choose to, as always, Charles, disagree with you on that. Scott, could you just please come up, because I'm happy normally to just try and wing it, but on this particular one. Is this on? Yes, it is. Could you just talk about some qualitative and particularly stuff like this webpage stuff, which I really don't understand.
Yeah. Still reasonably early days with the sites we've got live. Obviously, I think we talked in March, we'd just gone live with the first pilot in Finland. We've now got the U.K., Netherlands, U.S. and Canada live. You're right around, it's not really focusing on online transaction. It's about getting more eyeballs in front of the offer. The very first stage of that is our index ability in Google. What we've seen there is between a 4 and 10-fold increase in the number of pages that Google is indexing from our websites. The old websites were quite poor at this. In a very short period of time, the new websites have proven to be much, much better.
The U.K., for example, has gone from, I think, 9,000 pages in Google on the old websites, which were four or five years old, to 40,000 pages inside a month. Much better indexing. Once you're indexed, you then need to get the visibility up the search indexes as a relevance piece, and then we'll see traffic. Traffic has been stable so far. You'd normally expect it to dip, so stable's way better than we expected. We're now expecting that to start growing. More eyeballs to the site, which will be key. It's around getting lead generation from the site that we can convert. Early days, but probably better than we expected at this early stage, I think is where we see ourselves.
Great. On the pricing point.
Thanks, Scott.
you're being more effective on getting price improvements through. Presumably, part of that is lower level of discounts to customers, and presumably having a more effective website will help in that process as well.
You can be smarter. You can build in algorithms and things like that. Yeah.
We've stepped up. We've taken best practice that we've had historically in parts of the world and rolled that out more consistently, has been a big part of Aamir's focus in the first half. It's really doing what we did well in some places and making sure we're executing it globally, which has led to a better result. We've always been okay, but we've just done it more consistently globally this half.
Thanks, Scott. Hey, Tom.
Good morning. Thanks very much. Tom Sykes from Deutsche Bank. You mentioned the game changes, and you mentioned in Filters and the progression on potential outsourcing contracts. I wonder, is there any possibility of you quantifying ballpark how big relevant and substantial those could be to the division? Maybe just following on from the pricing commentary on Components. Could you talk about positive pricing in the other divisions as well, please?
Yeah. I think if we were to get all three firing as they possibly could, it could be add 15% to the revenue over the medium term. Something like that.
Okay. Thank you. On the pricing element within, you said there were-
Pricing within packaging is going well. We are at least recovering our input cost. Filters, particularly within the independent side, it is not something that has been, I think you know me, I'm fairly straight, is not natural endemic in the culture of Filters. We are beginning to make progress in encouraging and giving the underlying value add through innovation and through world-class service to actually encourage people to start having discussions there. I think it's been the slowest out of the blocks of the three.
Okay. Thank you. On packaging. My understanding was that there were price reductions as you had service level drops in packaging, and then you've been recovering.
No, not really. We didn't. The bigger impact was that we weren't allowed to tender for business. Now that we have stability, now we have more value added on two things, one of which is we have been putting price rises in. Secondly, we've been tackling the tail of negative or very low gross margin, recognizing that we can't continue like that. We have been imposing, in some cases, certainly quite high double-digit price increases where it is necessary, because it makes no sense for us or for the customer to be losing money on a job. Why would we do that? No, I'm encouraged about the progress that packaging is making. One of the ways that I said two-thirds is through volume, one-third is through other things. Pricing and removing that negative gross margin tail is another lever.
Okay. Thank you.
Anybody else? Do we have anybody in the ether who wishes to ask any questions? I don't know how it happens, but it happens, doesn't it, Matt? Yeah.
No questions over the phone, sir.
Okay. All right. Well, thank you very much on this busy results day for coming and joining us. I and my colleagues, and there are quite a few of them, will be free to answer any questions after.