Judges Scientific plc (IUF.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Judges Scientific plc Investor Presentation. Today, we are joined by David Cicurel, CEO; Brad Ormsby, CFO; Ian Wilcock, Group Commercial Director; and Tim Prestidge, Group Business Development Director. [Operator Instructions] I'll now hand over to the management team to begin the presentation.

Thank you very much, and thank you, everybody, for attending. I would just start reminding you -- next slide, please, what we do. We're doing a buy and build of scientific instrument companies. We've been doing that for about 20 years. And I would like just to explain why we think it's a good idea to do what we do. And of course, our purpose is to create shareholder value. And we think there's three pillars of shareholder value. One is the long-term drivers, which is the growth in the world university population. And of course, a lot of instrument gets sold to universities for the purpose of research. And the other long-term driver is constant aspiration from everybody who does something to do it better. And if it's something physical, then to optimize, you need to measure and we sell these measurement instruments. So I think these, we believe, are secular drivers. And this is to do a buy and build in a sector where you have good drivers is essential. Secondly, a large deal pool. When we started this 20 years ago, we measured that there were 2,000 companies just in the U.K., but we're not restricting ourselves to the U.K. So it means that every year, there's quite a large number of companies needing to change hands largely because people retire. And then low capital use. So this looks a bit stranger. And why is it important to us? Because we're not doing your traditional buy and build, which is my shares on a multiple of 20x, I buy your shares on a multiple of 10x and I've doubled my money. But this is not what we're doing. What we're doing is we're borrowing money from the bank. And typically, we pay maybe 5x, 6x at this point, a bit more to borrow this money and we buy companies on multiple, on average of 5x EBIT, which means we have a return of 20% on our money. So you multiply your money maybe by 4x instead of 2x. But [Technical Difficulty] you are not issuing a lot of -- and the reason we have created a lot of value for the shareholders, which is something like 80x since we started if you include dividends is because we only have doubled the number of shares since we finished our first acquisition. So I think that has been a critical element of success for shareholder value creation. So what we've done, we've done this 20 years. We've done 25 acquisitions only. So you don't need to do a lot of deals, but you need to do good deals at tolerable values. We've distributed dividends of up to 8.6x the admission price, which was GBP 1. We've created growth of revenue of 20% compound per year, and organic 7%. And EBIT has grown 26% compound and 9% organic. So this is really what has worked. And really, what makes this thing function is two things: mergers and acquisition, and organic growth. So if you don't mind getting to the next page, please. So this management team, Brad and me, Tim were in the room. Tim and Ian are also there with us in a virtual fashion. Mark, who has been our COO for many years and has made his colossal progress over his tenure is now on the path to retirement, which should happen in about a year, and he's fulfilling a number of important central functions for us in the improvement of our business. And Rik, which was just started on the 1st of July and is an addition to our management team of one -- merger acquisition team of one, and now we have two. So we hope to increase the rhythm at which we manage to do acquisitions. Next slide, please. So the message of this -- of course, this is an announcement of results for the first half of this year. The environment has been mixed. We started the year with a coring expedition in Japan. So that's a very profitable thing. We were very happy to start on the right foot in this year because it was January, February. We had a lot of deferred order from last year, which was a difficult year and a lot of things were late. So we started delivering all these orders which were late last year with the exception of one, which is now for '26. And we had a good recovery in China and Hong Kong, which is back to normal, but we were severely affected by the U.S. research funding freeze. And this has been a big disappointment. And this year, which was supposed to be really starting very well, is now a disappointing year. So comparative -- we had a weak comparative last year because the first half wasn't great. So we're producing good results, but we see the weakness in order intake, and we think our year is going to be disappointing compared to what we expected at the beginning of the year. And we issued a trading statement in July, which means that it is no surprise. And now we expect to be in line with market expectation. The big issue was obviously the U.S. impact, but some other challenges are affecting some of our businesses. And we stick to the market expectation of July. We need to address the trading challenges of our various businesses. A lot of them are related to the U.S., but there's other issues as there always is. We need to restore organic growth. We haven't done an acquisition for the last 13 months. We're not panicking about this because we need to do an acquisition 0.25 every year. And so it's not a number of acquisitions we do, but doing the right one at the right price. And we try to be always disciplined and patient about this. And we're increasing the dividend 10%. This has been our promise to shareholders since we started paying a dividend 18 years ago. We've kept that promise, but we've actually increased the dividend on a compound basis of 22%. Next, please, and then I'm passing on to Brad because, of course, this is an announcement about our results, and Brad will take you through the results.

Thanks very much, David. If we can move on to the next slide, please. And let me take you through the results. And on the face of it, we've delivered a better set of figures compared with a disappointing first half last year. But in fairness, they were well below our expectations at the start of the year. And we were affected both, as David mentioned, by U.S. research funding cuts and also by certain separate trading issues at some of our businesses. And the consequence of that is we had to reset market expectations in July. So looking at the results, total revenues up 15% to GBP 70 million, and that's a combination of 7% organic revenue growth, partially supported by 4% growth in organic order intake and also contribution from our more recent acquisitions. The growth in revenue fed through to profit, and adjusted operating profits were GBP 14.3 million, up by 16%, and a similar percentage increase to earnings per share with adjusted earnings per share progressing to 141.4p. The improvement in financial performance was driven by the delivery of a coring contract with Geotek and expedition earlier this year, which we delivered in the first half. And also, if you look at Geotek as a whole, better performance across it. However, if you take Geotek's performance out of our results, the rest of the organic businesses went backwards by 1/3. And I'll show you the effect of this illustrated after the profit bridge slide a little bit later. Moving from P&L to cash flows. And we -- our group, over its history, has had a strong track record of turning profit into cash. And we generated GBP 12 million of cash from operations with a cash conversion of 87%. And it's pleasing that we're going back to historical norms, and I'll come back to this a little bit later about cash conversion, but also about working capital where we still recognize there's some work to do. But our cash conversion served to support our policy of providing shareholders with progressively increasing dividend returns, and we've increased the interim dividend to 32.7p per share. That's up 10%. It's our minimum increase given the weaker performance. And our cash generation also supported reduction in our net debt, and adjusted net debt reduced from GBP 51.7 million at the year-end to GBP 45.7 million at the end of June. Gearing or leverage was 1.5x, down from 1.7x at the year-end. And we have significant headroom -- continue to have significant headroom in our covenants and a strong balance sheet. So looking at the rest of '25, and it's clear we still have some work to do to deliver the rest of the year, but it's primarily related to execution of delivery rather than needing lots of orders. But we continue to have tricky trading conditions, particularly in the U.S. Global geopolitical and economic conditions remain uncertain and also unpredictable. We have lots of work still to do to ensure that we can end this year in a good position to start next year. So moving on to the next slide. Having talked through most of the performance, just going to touch on two things. One on tax, where our effective rate on adjusted earnings is 23%. U.K.'s headline corporation tax rate of 25%, partially offset by those of our businesses now in the Patent Box regime. And as a quick reminder for everyone in relation to R&D tax scheme, we're in the large company scheme, which really means that it's less effective than it was when we were small in the SME scheme and also most of those benefits end up in operating profit. And then lastly, for those of you not as familiar with our P&L, we do have adjusting items that take to the statutory results, the largest of these being GBP 5 million noncash amortization of the intangible assets that we're required to recognize when we acquire businesses. And moving on to the next slide, please. And really key for our business is order intake, and we share every year a graph with you showing what we look at every week. So just to quickly walk you through it, there's three lines on it. There's a red line, a black line and a green line. The red line is our internal sales budget, which we set internally every year as part of our budgeting process. That's our target. The end of the graph is the end of June this year. The black line then which we're aiming to be meeting if we can by the end of the year. The red line is our trailing 12 months of orders, and the green line is the last 4 months of orders multiplied by 3, so annualized. And that is a much shorter-term measure, it's a lot more jagged. What we're hoping for from that is for it to at least be touching and hovering around the red line so we've got maximum capacity. So what actually happened in the period? And actually, it's important to take you back to the start of the second half last year. And what you can see is we started with momentum increasing both at the black and the green line from July last year, and it kept going. And you can see the black line ticking up quite nicely, almost in a nice straight line as we got into this year, as we got to the end of Q1, but then it stopped as we get to Q2. And you can see the drop off towards the end of the graph where the effect of the reductions in funding in the U.S. started to hit us and consequently, why organic order intake was only up by 4%. And since the end of the first half through July and August, organic order intake is now flat compared to the comparative period. And that's not a great picture because really what they're saying is we've gone from plus 4% to 0 in the last 2 months, really driven by events in the U.S. If there's any high spot in this, any positive -- positivity, you can see that we were up by 120% in China. But sadly, the U.S. has sort of covered over that. And moving on to the next slide. And I said I'll come back to this later. So this slide really reconciles between the first half EBIT contribution of our businesses before central costs for '24 versus '25. So reconciling between these, you can see there's a big improvement in organic growth in the period, largely supported by Geotek, but at the same time, a chunky drop in organic performance as a consequence of some of our other businesses. And Tim and Ian will talk through a little bit about some of the things we're going to be -- are going to be doing or doing at the moment in relation to writing this. The last little block, the effect of post -- of the acquisitions that are not in the organic group. Overall, not the picture we expected at all at the start of this year. And moving on to the next slide, balance sheet and cash flows. Really two things I want to quickly pick up. One is, as I said before, cash conversion. We've had a good first half for cash conversion, 86%, which on the face of it may look a little bit lower than our usual target of 90-plus percent. But I need to take you back to last year first when cash conversion for the full year was 122%, and that was inflated a little bit by the advanced payment on the Geotek coring expedition. Without that advanced payment, we would have been at about 104%, 105%. So a good year for us for cash conversion. The same thing applies from the unwinding of that advanced payment in the first half this year. So that 86% is actually more than 100%. So for the last 18 months, we've had typical good Judges cash conversion. And having said a year or so ago, we need to make sure we're focused on this. The businesses have responded and we've delivered that well. So that is back to normal for us, something we'll keep continuing to focus on, but it's an important thing that we've kept going over the last 18 months. Now what isn't yet better is working capital as a whole. And we've always had our own target of working capital being 10% of annual revenue. It's now more like 20%, but quite a bit of work has gone on. David mentioned Mark now doing some cross-group work, and he started work with all of the businesses and Operations Director about getting more granular information for our inventory, and we believe there's some good opportunities to start bringing this down. And I'm sure Tim and Ian will touch on a bit more of this later as well. In terms of net debt, we've reduced our debt a little bit in the period. That's because we've been able to pay the bank back from some of the cash generation. The leverage reduced to 1.5x. We've got significant headroom on our covenants. We have significant available funds to be able to use out of our facility, and we continue to have strong support from our banking group of Lloyds, Santander and most recently, HSBC, who joined the group post period end. I mentioned in my CFO report at the end of last year that we need to make a change because Bank of Ireland, who were our third member of the banking group, we were pulling out of U.K. lending. And HSBC, I'm pleased to say, have stepped in to take over that debt. Overall, we have significant firepower for the foreseeable future from our banking facilities to enable us to acquire the right businesses for our group despite the fact that we haven't bought any in the period year-to-date. So moving on to the next slide. Return on total invested capital, another key measure for us. And very quickly to walk you through the graph, ROTIC is an important measure for us. It's a function of the multiples we pay for the businesses we acquire in the purest form. You start on the left-hand side with FTT when we acquired it for a little less than 5x to close to 20%. Growing ROTIC thereafter requires improved financial performance and/or buying businesses at lower multiples. As you go across the graph, three key points to look at: GDS, Scientifica and Geotek acquisitions, which are big acquisitions for us, we paid 6x and 7x, respectively. But smaller acquisitions affect ROTIC minimally now. And through the period for the last 6 months, we've improved ROTIC to 17.9% from 16.5% at the year-end. It's not where we want it to be, we want it back above 20%. We'll work hard to ensure we do that and ideally keep working on pushing that in the direction of 30%, where we really, really believe if the group is performing as well as it should be able to, that we can get to that over the long term. So moving on to the next slide, an ultimate one on diversification. Quickly going across from left to right, you can see the first pie chart, the split of all our businesses by revenue, and there's no single company that overly dominates. We manufacture scientific instruments with different end markets. And so we're diversified by scientific application. We sell across the world, more than 85% of our revenue we export, and there's no single country or region that overly dominates. But it's useful to see in this period, the effect of the contraction in North America and also the better period we had in China. And then lastly, on the right-hand end, the analysis by end market, geotechnical part, the orange part is usually around 25%, the consequence of the first half and Geotek performing particularly well, including the coring expedition means that, that wedge is a bit bigger than usual. So going on to my final slide, please. And this summarizes some key financial metrics about the long-term success of the group and revenue and profits. Earnings per share have all grown strongly over the history of our group. And despite our more recent subdued trading, we still have compound growth in revenue on an organic basis of more than 7% and the related EBIT growth of more than 9%. Dividends have grown by at least 10% per annum over the history of the dividend. And compound growth in the dividend remains above 20% with an increase of 10% to the interim dividend to 32.7p. And our focus on cash generation and cash conversion ensures we're able to quickly reduce our acquisition debt, make space for more acquisitions, fund that progressively increasing dividend for shareholders and weather more challenging economic conditions like we're going through at the moment. And on that note, I'm going to pass back to David.

Thank you very much, Brad. And next, we talk about group strategy. And the next slide is just repeating what we said before. It's based on M&A, buying the right companies at the right price and organic growth. Of course, as we grow and we have more companies, organic growth becomes a much more key element of our growth. Next slide, we're going to talk very quickly about acquisitions, mostly because we didn't do any one in the beginning of the year. Next slide, please. But I just want to repeat what it is that we're trying to do. First, a strict acquisition discipline. So we want to buy companies which are strong exporters in global niches. Niche companies are the target that we're following and that need to have solid EBIT margin and a lot of export. These companies tend to generate a lot of profits and cash flow. We've been historically paying 3 to 7x EBIT. And on average, we've been paying 5x. So as -- if they're bigger, we have to pay more. The 3x and the 7x are unusual ones, outliers. But apart from these two deals, it was 4 to 6x. So this is very important in the building of shareholder value to pay moderate prices for these acquisitions. We're borrowing up to 3x EBITDA. And historically, we've paid 3% to 8%. Recently, it's been a bit higher, but not as high as 8%. And of course, when we did the Geotek deal, we had a very good hedge before interest rates started to explode. So deals are long to incubate. We have to pursue companies for a long time. It's very erratic. Are they crystallized? Some yes, we do nothing. A year, we did four. We're very honorable in the process. We never renegotiate, and we don't try to screw the sellers. And I think people are more and more conscious of the fact that a deal could be good for both parties. And we offer the sellers financial certainty. So we always finance -- we have always financed the -- secured the finance before we actually sign heads of agreement. And of course, we do the deal and we reduce the debt with the cash flow, which is generated from this deal and other deals we've done before, and we invest in further deals. So it is a very simple business model. So we're trying to really increase the rhythm of acquisitions. We realize we have to look a bit beyond the U.K. And this is -- this desire to enhance this activity has led to the recruitment on 1st of July of Rik Armitage, who's very experienced. He is around 60. He's spent a lot of time as a consultant doing acquisitions. And then with Chemring and Oxford Instrument, and he's very experienced. And he's really understood very quickly what is the thing which has made Judges successful in its M&A program. And I'm sure he's a very essential recruitment for us. Next slide is going to talk about organic growth. And I'm passing on to Tim and also to Ian to deal with the description of what we're doing to promote organic growth within the group.

Yes. So hello, everyone. Tim and I were going to take the next section, a bit sort of double headed. So I'm going to take this first slide, and then we've got some specific examples after that. Next slide, please. So this is a bit more sort of granular detail about how we manage our group, our 20-plus businesses and the role of the center, so all of Tim and myself in the center, encouraging best practice. So if we focus first on the left-hand side, the left-hand side is really about the companies themselves, so individual things that are there, which I'll go through in a second. And the right-hand side is the role of the center and the roles that we play to encourage best performance and deliver organic growth. Now if we focus on the top left-hand point first, the strong leadership teams. And arguably, this is the most important point on the slide. I often think that if there's one thing I do right, it's getting the right MD in place in each of our businesses. Our autonomous model, which we've obviously talked about on many occasions is critical therefore, to have the right leadership in place. And these jobs are great jobs. These are jobs where you run your own ship, you're in charge of your own strategy, your own P&L. Don't need to worry about doing the payroll at the end of the month. But other than that, you're running your own ship. And that gives -- that attracts great talent, people who have an entrepreneurial mindset and really want to grow things. So ensuring we have the right leaders is absolutely essential. The second point is we obviously have good robust governance and financial controls. Clearly, the usual financial ones and financial metrics, but also obviously, other governance around health and safety, for example, or export control. But I want to emphasize here that we're very careful to make sure it's as light touch as possible. We do not want to encumber our businesses with big processes and over-administration. We want them to focus on growing their businesses, concentrating on their customers. So we really do focus on giving -- making sure it's as light a touch as possible and governance regime. And then the third point is really making sure that not only have you got the right MD in place, you've got the right strong leadership teams locally across all of the functions you need: sales and marketing, engineering, product development, operations and so on. And we work very closely to make sure that we've got the right capability locally. Now that then talks to the middle, which obviously the autonomy point that I've made, very important. But equally is the other side of the coin, which is accountability to us, a group. So there's a -- we emphasize the responsibility these MDs have in short, running their own ship, absolutely, but they are accountable for their performance to a group. Then on the right-hand side, really just focusing on some of the things that Tim and I do. Obviously, we're looking -- from a helicopter view, we can see a much wider view of the performance and look at what fabulous talent we have and fabulous experience we have across multiple different businesses. And leveraging this group-wide experience, maybe somebody's got a particular industrial sector experience or maybe somebody's got a particular expertise in operations or some aspects of that where we can really leverage this and share best practice across the group. And we pull together sales leaders, operations leaders, finance leaders together frequently to share best practice and create a community of best practice. That then leads on to the second point, which is clearly promoting excellence and examples there. And then the final point I'd make on encouraging ambition. We're just actually through the annual strategy cycle where we require each business to produce an ambitious 3-year visionary strategy as to where they want to grow the business to. And we found a very motivational process, and then really getting people to go away from the day-to-day and focus on where that business will be in 3 years' time. And I think summing all that together is we would give us clearly a long-term focus, but we genuinely believe sustained advantage. Tim, do you want to add anything to that slide?

Yes. I think the only things that I'd layer on there, another way I look at it, to emphasize your point, I think, around the autonomy aspect being so fundamental to our group, so fundamental to how we operate. But it shouldn't be something which is seen as automatic. It has to be seen as something which is earned, and it's earned by making sure that the things on the left-hand side, which, as Ian said, they're the company-specific things. But they're kind of the fundamentals, they're the health side of things. Those things absolutely need to be in place to make sure that we've got a healthy business and that healthy business is delivering in the short term. And with those things assumed, that's what enables autonomy and the accountability that comes out of that. And of course, then if that's in place, we get to -- we earn the right to spend the majority of our time on the right-hand side, which is then all about, as Ian said, the ambition and turning that ambition into a long-term focus and the sustained advantage, which is really fundamental to us.

So the next four slides are specific examples. And Tim, you're doing the first one. So next slide, please.

Yes. So I'll talk through this example. I know that we've highlighted earlier around how -- yes, the U.S. research funding has been an impact for us this year, but there's also been some other separate impacts, product-specific impacts and so forth. So we just wanted to go through just a few of the examples of issues that we are following up on and how we are addressing that. So this first one is about diversifying long-term growth drivers. And I don't want to give the impression that something that's particularly new to us. In some sense, it's rather -- it is innate to our model. We are, to some extent, agnostic about the particular fields in which the companies we acquire play or all scientific instrument manufacturing companies are related to that. But clearly, we have exposure to geotechnology to semiconductor, life science, a whole sort of different set of market drivers. And when I sort of think about describing what might be a sweet spot for us about our businesses as scientific instrument manufacturers, manufacturers of peripherals for particular scientific techniques. And those scientific techniques are deployed in academic and industrial research. But there is also a move where those scientific techniques become increasingly find application in other industrial processes. And so to use a reference earlier, you'll have seen on the graph that Brad displayed, we combine sales for life sciences and semiconductor. And you might think, well, that doesn't necessarily make sense, but there are significant overlaps in some of the scientific techniques that we sell to and how those things are deployed in those two quite different markets. So naturally, as an example, that -- the use of our products and services in one particular market then gains traction and gains exposure to growth drivers in another. So this is something which is both a sort of natural part of our model, but it's also something that we are increasingly being more deliberate and ambitious around through the strategy process. So actually uncovering through our strategy process, what are those opportunities and how can we seek to accelerate and amplify those opportunities and gain a greater level of exposure to other growth drivers. So we continue to have the long-term sustained growth driver in research and industrial -- sorry, academic and industrial research as well as some industrial processes, and a greater level of exposure to industrial growth drivers.

Okay. Next slide, please. So this is a sales example. And as we've alluded to, it's never been more important when one of our main markets is under stress in the U.S. to make sure that we maximize our opportunities globally. Now as I'm sure everybody understands, the vast majority of our sales go through distribution channels, distributors, agents or OEMs. So therefore, best practice around managing these channels is super important to make sure we manage our existing ones. We make sure we change them if they're not performing. We make sure we're covered in all of the territories we want to be covered in. So this is something we've been working very closely with on the -- with the sales leadership community, particularly around developing tools to manage distributors and agents better to benchmark their performance and if necessary, change them out. And so we've got some great examples of businesses which have changed distributors in China, and it's a great success. And that's, again, part of the reason we're up in China. And I should emphasize, the vast majority of our sales go through this channel. We've only really got direct employees in the U.S. And really, the final point is, and this is from a personal perspective. We must emphasize that selling -- managing distributors and agents is a very different skill set to direct selling. And I think recognizing that and focusing on best practice partnership management is going to deliver good growth in the future. The next slide, I think that's you, Tim.

Next slide, please, yes. So I'm going to talk a little bit about some of the product-specific challenges and how we've thought about -- how we've gone about addressing those things. Again, I don't want to give the impression that this is the first time that things like this have hit us. Of course, we're a portfolio of manufacturing businesses. There's always things going on in those businesses about various product-specific challenges to overcome. Maybe this year has been a year where there's been slightly more of those happening at the same time, which has been perhaps a little bit unusual for us and so something that we particularly commented on in the announcement in July. A couple of examples then. I'd highlight the commitment to quality. We've had one or two examples of some quality -- of recurring quality issues here. And I think just important around leveraging group-wide experience, making sure we've got the right approach and right capability gaps around continuing to instill what I really regard as a culture of quality. So it's not just a person's role, it really is vital and fundamental to the whole company. And I think as we've grown our talent base of MDs and functional leaders that we brought into the organization, benefiting from a fresh set of eyes, fresh set of eyes and fresh experiences and the knowledge base that brings to reinforce the approaches made there. And an example, which I'm sure will be familiar to many of you around different ways of addressing quality. We think about quality being inspected in. So you might manufacture lots of products, you inspect them at the end of the line, you throw away or rework the ones that don't work and you ship the ones that do work. And really, that's a last resort in some sense. That's not best practice, it's something which is a containment action at best. The next best thing is to think about building quality in. So how do you have quality built in during the assembly process or the product manufactured in such a way that it's manufactured to a higher quality or can't be manufactured incorrectly. So a much better sort of short- to medium-term assessment. But actually, the far better solution in the longer term is to design quality in. So design the product in such a way that it can't go wrong in the first place that failure modes are absolutely -- they're removed, they're not there. And that is the basis, as everyone know, from root cause analysis. And so in terms of promoting excellence and leveraging group-wide experience, really bringing to bear experiences around the group when we have quality challenges like this on understanding what is the root cause and putting those root causes right. There's been several examples where we've really been able to make use of that capability around the group. And another example, again, sort of fresh perspective coming in and seeing, okay, maybe we have an example of declining sales, why are sales declining and really understanding climbing inside that and realizing, look, maybe there is an issue with the product where there is a functionality or a capability in a specification that isn't what it needs to be. It doesn't meet market requirements. Then it's about hitting that requirement, either getting new capability in or addressing that with the required critical mass of engineering resource to actually make that change and to bring that product up to the required standard. And that's other areas of investment -- examples of other areas of investment that we've been making this year to improve the capability of some products to bring them back to the level where they are competitive. And, next slide.

Next slide, please, yes. So final slide on the organic section. As Brad alluded to, one of the things we are obviously always working on is improving working capital, but we've chosen to focus on it particularly this time. Just to give you a little bit of an insight to the work we're doing. With sort of 20-plus factories, you can imagine, obviously, we have a spectrum of performance around stock, inventory turns and so on. Some of our best factories, I would say, are very good. They've got turns between 3 and 4 and have very good performance. We naturally have a spectrum of those who are at the other end. We still have some work to do there. So we're working across our operations teams with -- particularly within the operations leaders community, a bit of healthy competition. We've got league tables and so on. And I think there's considerable area we can improve to get the laggards up to the performance. But actually, in many cases, they had pre-COVID. My experience has been that whilst many businesses have returned to pre-COVID levels of inventory management stocks, there are still some that are hanging on to some excess stock, which definitely needs to be dealt with, and that's what we're doing. Okay, next slide.

David, this is back to you.

Thank you very much. Sorry, I did. Thank you very much, Tim and Ian, and we're going on to the outlook and investment case. Please change the slides. So the outlook, what we want to say is we've had a lot of turbulence in the last 2 years, mostly due to China and to the U.S. and also the timing of Geotek coring expeditions. But we -- I do firmly believe that the secular growth drivers are absolutely intact. And once these turbulences are over, we should get back to the typical growth of our sector, which is 7%, which we exceeded, by the way, in the run-up to -- in all the years which ended with COVID. H2 started with solid order book. But of course, this order intake was poor over the summer, and this was really due to Americas. So we still have a problem there with the constraint in U.S. research funding. We're always wondering when our next coring exhibition -- expedition will take place. And we don't know and we will always update when we have certainty, but it could be in '26 or '27, and we don't know at this stage. We're working hard to restore the performance of those who are laggards within our group. And we're expecting the year to finish within the constraint of the market expectation, which has been in the market since July. So next one, please, is the investment case. So why invest in Judges or why keep your investment in Judges? Well, we still have 100% belief in our drivers in the size of the deal pool and still low capital use, although it was much lower before, and we're working on it. We believe these are very, very strong factors of shareholder value creation. By the way, we're obsessed with shareholder value because that's our job. We pursue our model with great discipline, and we think it's very robust. We only do deals which are earnings enhancing. And we're quite diversified by geography and scientific application, which gives us excellent resilience when there's problems around. And of course, we grow the dividend at least 10%. We've done this every year for the last 18 years, producing actually a compound growth of 22%. So basically, the message is if you have your shares, you don't need to sell them to make money, you just need to get this 10% compound or more over the years. And then we are going on to the next slide, which is questions and answers.

Thank you very much. We've had a number of questions pre-submitted and submitted live. The first one being, please discuss how Judges' processes and approaches have changed since Ian and Tim joined the group.

Okay. Thank you very much. So this is a question that I'm not answering, and I'm going to let Ian and Tim answer that one.

Do you want to take a first go at that, Ian?

Yes, go for it.

How have our processes and approaches changed? I think probably evolved is probably a better description, of course. Preceding us, Mark was with the group for some time. What I would highlight about the three of us, including Mark, is that by chance, we all happen to bring slightly different perspectives. So fundamentally, our role and until recently, Mark's role was chairing portfolios of companies within Judges. Mark has naturally brought an operational perspective. Ian has naturally brought a commercial perspective, and I've naturally brought a sort of R&D and innovation perspective. So has dovetailed very nicely in terms of helping us to start to establish. What we're thinking of in some ways, we try not to use the word toolkit, but some sense of best practice, partly leveraging our own experiences, but more particularly leveraging the expertise and capability and knowledge that's around the group as well, and to help deploy that around the group and help highlight where are the pockets of excellence or areas of excellence that we can amplify and use elsewhere within the group. So I think moving to sort of standardize that more and increase the use of that and slightly greater, more systematic, let's say, use of and leverage of that excellence around the group in various processes like the operation and stock planning process that we mentioned earlier, the working capital improvements, like the strategy development process and like some of the networks, including for sales that's led to some choices of distributors and sharing best practices around distributor management. Those are some examples of how things have changed. Ian, I'm sure you've got...

Yes. I mean at one level, it's hard for me to answer because I wasn't here. But I would -- I think it's best to describe some of the approach that I'm taking. And really my excitement when I look at our business and our portfolio of businesses, I'm very much encouraging them to think about the growth opportunities they've got, the markets they're in, the market sizes, the market shares and where there are opportunities to grow. And what excites me is that there were many and just really working with them to help identify these growth opportunities that they've got.

Our next question is, how much of your revenue ultimately depends on grant funding or government-backed research budgets? And how sensitive is that to political cycles?

Well, thanks for the question. It's a really, really good one. I don't know whether I'm going to be able to answer it brilliantly, but I'll try my best. So we've always explained to shareholders that the sort of split of our revenue is in the region of around 50% to universities, around 1/3 to industry, and around 1/6, which is going to either sort of directly or indirectly to things like research institutes and government test houses, et cetera, neither industrial nor as such university research, but all doing research. So there is -- you could say there's -- in the region of 2/3 is affected by this. Again, if you look at the history of Judges over 20 years, there have been plenty of times when there've been austerity in certain governments and largesse in others throughout the history. So generally, what's happened is we've ridden that sort of up and down wave, and we follow the money. And so if a particular country is usually quite difficult to trade in as a result of government belt tightening and therefore, reduction in the amount of funding that they're supporting their local universities with, then we've just gone elsewhere and follow the money. The challenge for us that we've got quite recently is that the U.S. is probably the biggest market on its own that this has happened. So what we're trying very hard to do is to ensure that we can spread ourselves a little bit better, and this is what Ian was talking about before, really. I don't know if anyone on the team wants to add anything else to that.

Next question. In an acquisition, how do you decide whether to keep the original management in place versus parachuting in new leadership?

Yes. So maybe I'll deal with this one. What I want to emphasize is the large majority of our acquisitions are companies where the owner, and often the Founder, wants to retire. We buy companies which are for sale where people have decided to sell. I know there's different models. Some groups prefer to buy companies which are not for sale, and they want to -- exactly this is the thing I want. But we believe in our model that paying moderate prices is a key to our success. And as a result of this, it's much better to buy companies which are for sale. And the main reason people sell companies is when they want to retire. So either there'll be people who want to retire. Sometimes they want to stay. In one occasion, there's one who actually did stay and he was a bit younger and he's still with us. Often, they say they want to stay, but they don't really enjoy it. We never handcuff them. And we always tell them, even if you say you want to stay and you change your mind, we won't hold you to your promise because we think that if you're unhappy, you're not going to do a good job. So largely, we don't keep the MD. The MD is a new person. So in the past, we've predominantly promoted people from within the company, and it was often the Sales Director tend to be very knowledgeable in the science because to sell these instruments, you have to be as knowledgeable as your client. And sometimes we need to train them a bit in other skills of management than the ones they had before. And usually, they have a good understanding of the scientific community that they're addressing. So we've done this quite a lot, but it also happens that sometimes we have to recruit from outside. I don't like the word parachuting because it's not like we have loads of people in head office who are doing nothing and are looking for a job, and we -- suddenly, we find a job for them. But we have also -- there's one guy that we've used a lot as an interim before we can find somebody suitable. But it's not -- we're not parachuting. We try to promote, there's an American guy who was trying to do a big deal in the U.K. and he said there's always a number two wants to be number one. And this is often true. But in the end, we need to have a very good MD. So if there's nobody in there who we think have the skill or the potential, we'll recruit from outside.

David, I'll add to that, if I may, because I was going to make a similar remark about the word parachute, which I think has probably the unintended nuance of an emergency situation, right? And I mean, I think the key thing here is that in any negotiation to acquire a business, by the end of that negotiation, there can't be any surprises. it must be completely clear and obvious about what the intention is. And if the seller or current MD wishes to stay, then that will become very obvious through the conversation. And if we think that's the right thing, then that will be clear that it's the right thing by the end, by the time the acquisition is closed. And if it's not the right thing, either because they don't wish to stay or because we don't think it's right, then we will have planned accordingly during the acquisition process. So it's just -- it's also not that there's a sense of urgency, it's absolutely a planned and deliberate process during the acquisition.

Given your highly acquisitive model, how do you stress test the group if acquisition valuations rise sharply for a few years?

Well, we've had some periods where we found that we can find or complete acquisitions. We're always wondering whether values are going up. But all these periods have had an end. And we find that generally over the 20 years, values haven't gone up and down so much. I have to say, with the exception of 2009, which was a particularly good year. Undoubtedly, if multiples did go up in a strong and durable fashion, it would definitely affect our business model. And there's a time when we would have to actually turn the toe and say we can't. If we have to pay double the multiples we're paying, I think it would seriously jeopardize the way we're trying to create value for shareholders. But it hasn't been the case. So I think often, when we think maybe we're not paying enough is that we haven't found the right deals and we haven't managed to close them for various reasons. And often patience is a thing which deals with it.

David, again, just adding on to that, but it's something that you and us as a wider leadership team do monitor on a regular basis in terms of obviously, the covenants where we are relative to the covenants and what you think of as acquisition equity. And therefore, in essence, at least a model or a stress test of what we could, in principle, acquire relative to where we are with those covenants. So that is a sort of rolling assessment that we make.

Is there a point where you would consider spinning off some of the portfolio to crystallize value?

Well, I think no. It doesn't mean we would never sell anything because we recognize that we're human. So we've done 25 deals, we can't say is of equal quality all of them with a hindsight. And it's not impossible that at some point, we would sell companies, but we don't buy to sell. We buy companies with a belief we will want to keep them for always. And if we want to sell them is then that we've come to a different conclusion with hindsight. But it's also -- and then we would try to sell them after making sure they're in good condition. But of course, you could have changes in the market. You can imagine that you buy a company which is very niche and that with a passage of time, it becomes less niche and a lot of more competitors enter the market and your life becomes difficult. And it's not a company you want to keep, which really fulfills your expectation that you had when you started. So selling companies is definitely something that's not part of our business model, but doesn't mean we would never do it. And spinning out in -- we could also imagine that we will become very big and too big and too cumbersome and we want to spin out part of our portfolio and create the different public companies, if that's what you had in mind. And so people would end up with two bits like Hansen did in the past, but I think we're very far from that. And you have to recognize that it would greatly increase the burden of a head office because then you need to have two head offices instead of one. So it's unlikely we will do it at this stage in the game. But if we became much, much, much, bigger than we are and it became cumbersome, it could happen.

The next question is, how do you see the risk of Chinese low-cost competitors undercutting your subsidiaries in export markets?

Yes. I see that there's definitely a big risk of Chinese competitor undercutting in the Chinese market. And I've talked about it quite a lot in the last 1.5 years that I think China has become a different market for us, which used to be super growth. But we feel it's no longer the same super growth that we had in the run-up to COVID. And one of the three reasons for that, the other two reasons being lower growth and a bigger emphasis on consumer consumption versus public investment. But one of the causes is by Chinese. China is a country which is evolving very fast. It's following to a degree, the Japanese model for after the war, started imitating people with low quality and then imitating people with good quality, and then doing better quality than everybody else, and then doing their own product and then doing their own research. This has been the path of Japan. And China is going through this path in an accelerated fashion. And there's already a lot of stuff that they're ahead of us. And one of the examples, for instance, is electronic -- electric vehicles where they've made enormous advances in very little time. So yes, China is not a fantastic skill of making things in small quantities like we do. So they're better doing large quantities of things and selling them a very attractive value. But I have to say we are experiencing more Chinese competition. The Chinese competition is mostly in China, but I have no doubt that with the passage of time, we're going to have to compete with the Chinese everywhere. And like we have to compete with Americans and Europeans. So this is going to be a growing feature of our business to have to compete with Chinese companies and outside markets. But at this point, it's mostly a problem in China. So we have a little bit of breathing space and we're still very competitive in China. We sell a lot in China, but it's going to get more difficult. Tim and Ian, do you want to add something to that?

I was just going to add, David, I would less emphasize the low cost, really the point you're making. And we will increasingly see high-quality Chinese competitors coming to market. But as you say, we will compete against them against -- as we do against the Americans, the Germans, the Japanese at the moment.

Regulatory changes around laboratory equipment safety or environmental compliance, how exposed are you?

Can I have a volunteer to answer that question, please?

I'll add something. I'm not sure I can give a definitive response, but I'd say in many respects, we are positively exposed to that. We certainly have businesses that are involved in defining standards, standards bodies, and it's something that we're involved in and watch out for. So I'd say, if anything, those would be positive drivers for us on average rather than blockers. They tend to be things related to -- okay, it might slightly increase the amount of time it takes to bring a new product to market. But once the new product is in place, the barriers to entry are higher. So I'd say we have exposure to those metrics. But in a positive aspect, they tend to be tailwinds for us.

Thank you. And this will be the final question due to time. How should we think about the eventual alleviation of challenges in the U.S.? Are you seeing any changes in demand from the few high-profile universities that have publicly announced settlements with the administration? Do you see a scenario where things get worse before they get better?

Again, I need a volunteer to answer this one because I can't say that I know the difference, for instance, between Harvard and Columbia. So if any of you has any answer to that question, happy to hear it.

Yes. I mean I think the answer is I don't think we see any improvement just yet. Predicting anything with the current U.S. administration, I think, is quite difficult. But I would pick up a point, really just picking a point that Tim was focusing on earlier, where we do see growth opportunities in the U.S. are more industrial focused. So that pivot that Tim described to taking academic techniques into more industrial R&D environment, and the industrial R&D market is arguably 4 or 5x bigger than the academic market actually. So that pivot and the U.S. feature is big in that pivot for us, then that's a way of potentially continuing to grow our business now.

Thank you very much, Ian. So was this the last question?

It was indeed. I can hand back for closing remarks.

Thank you very much. I'd like to say thank you to Harry and his team. Thank you certainly to my colleagues for answering all the questions where I was a bit dry. But thank you mostly to all of you who attended this webinar. I need to say that we've had a difficult 1.5 years. Although we strongly believe that the growth of our business is driven by things which are still there and will be there for many decades. But it's unfortunate when we underperform for a period of time. And we've been -- I think we have a very good fundamental business, but it's subject to turbulence. Some of these turbulence are due, of course, to the impact of COVID and the fact that the governments throughout the world are basically bust. If you look at the yield on 30-year bonds everywhere in the world, you realize the skepticism that people have in the ability of these governments to restore a bit of financial credibility. So this, when there was the pandemic, we said this would affect us. I'm sure it's affecting us. America is a mix of politics and finances also is affecting us at this point. So we are in a turbulent period, but we believe 100% in the solidity of our business model and that we have a future which is good. So thank you to everybody for listening to us, and I hope we can deliver to you continuing shareholder value.

Thank you to the management team for joining us today. That concludes the Judges Scientific plc investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be available on Engage Investor. I hope you enjoyed today's webinar.