Judges Scientific plc (JDG) Earnings Call Transcript & Summary

Hello, everyone, and I'm sorry for the delay. Welcome to the Judges Scientific Interim Results Webinar. [Operator Instructions] This webinar is being recorded. I now hand over to David Cicurel, CEO. David, over to you.

Thank you very much, Tamzin, and thank you to all the attendees. So this is our interim for 2024 to the 30th of June. And I will be presenting with Brad, our Finance Director; Mark Lavelle, COO; and Tim Prestidge, our Group Business Development Director. So could we move to 2, please? So really, just to remind those who know us and explain to those who don't know us, we're doing a buy and build of manufacturers of scientific instruments. And the big question is, "Why do we think this is good?" And we think it is good because of what we call the 3 pillars of shareholder value. And I should explain that our purpose in life is to create value for our shareholders. So that's our obsession. And so why does it work? Well, the first one is long-term drivers. So we're buying companies in the sector, and these company needs to have good long-term drivers. Otherwise, they're not going to produce shareholder value. So we think we have 2 very strong growth drivers. One is an explosive growth worldwide in university education and universities are our main client, largely for research rather than education. And the other one is the first of every human activity for improvement. And if you're making things, physical things, you can't improve the way you make them or their performance without measuring. So we also make these measurement instruments, which are used in industry. So these 2 things, we think, are secular drivers, which will be there for decades and decades. The third one, if you look on this chart, is a large deal pool. Clearly, if you're doing a buy and build, you want to have a lot of targets, so you can select the very best and they're very good. And when we started this exercise 19 years ago, we found there was 2,000 companies in the U.K. alone making scientific instruments. So a very large number. And out of this large number, we believe that people keep them maybe for 20 years. And so you would have probably 100 of companies which need to find a home when people retire. And the middle one is less obvious. It's low capital use, but I want to explain your typical buy and build is like this. You have a public company and you say, I'm a multiple of 20x earnings, and I'm buying this thing on 10x earnings, so I have doubled my money. It's a very good and legitimate as this your traditional buy and build exercise. But this is not what we do. What we do is we borrow money from the bank and we buy companies on a reasonable multiple of EBIT, and we try to buy companies which are producing good profits and cash flow, and we repay the bank and we start again. And this, of course, avoids us issuing a lot of shares, and we've only doubled the number of shares since we started, which enabled us to multiply shareholder value by 100x because there's only twice more shares. If we had 100x more shares, we would only double the value of the shares. But it only works if you can convert these earnings into cash because if you can't, then again, you have to issue new shares. So these are the 3 things which make this thing work. And of course, the growth of our company is based on acquisitions, but also organic growth. We're going to talk about all these things. And just to say what have we done since 2005, we've done only 25 acquisitions, so not a frantic rhythm of acquiring. We've increased total revenue by compounded 21% a year and EBIT by compounded 28% a year. And if you just take organic growth, the organic growth of revenue was 8% compound and the organic EBIT was 11%. So these are strong figures, which are largely due to the sector we're in. And of course, we pay dividends because what's the point of making all this money if you don't share a bit with shareholders. And we've already paid dividend equal to 7.5x the original admission price. So people have been rewarded for staying with us all these years. Next page, please. So this is the executive management team. So we're here with Brad, Mark and Tim. And we've recently at the beginning of September, we've added Ian Wilcock, who joined the Board. He's Group Commercial Director, and he's part of that team, which makes this business excel at every time, and we'll talk more about what we do for that search for excellence. Next, please. So acquisition criteria, what do we try to buy? We try to buy companies which are solid. Our business works well if we have companies which produce sustainable earnings and cash flow. So they need to be strong exporters because we live in a very international market. And if we sell most of our seeds in the U.K., it means that we have a very small share of the global market. We try to buy companies in niches and where we are really strong in our niche and therefore, strong in the world seed. With solid EBIT margin our gold standard is 25%. And we've been paying 3x-7x EBIT according to size. But if you exclude the 2 outliers, which is the 3x and the 7x, all the other deals have been done at 4x-6x with an average of 5x to basically we make 20% return every year on our acquisitions. And we've been borrowing money. We allowed to borrow 3x EBITDA. And over the years, we paid between 3% and 8%. And at this point, it's closer to 8%, but not quite because we use hedging. So deals take a long time to be done. The crystallizing is erratic. So we have some years like this year, which are successful because we did 3 deals and some other years, we don't do any. We have an excellent reputation, and we provide good financial certainty to the seller because they trust once they've signed heads of agreement with us that we will honor them absolutely. And we treat people very well in the company, and it's very important for the sellers. So -- and then that's the model. We reduce the debt and reinvest in further deals. And this year, we've done 3 deals that we'll explain more about. One is in Switzerland, Luciol, Rockwash in Wales and Teer in England. Next page shows the deals as we've done them. So it looks a little bit like an F1 track, but we don't do that -- we don't do deals so fast, but we try to do a lot of good deals. So the next one is what we do once we own these companies. And the first thing we do is and Brad does is install very good financial controls and make sure that this happens even before we buy the company. We leave the management of these companies' great autonomy. This is our model, but we have a team of the 3 people that I mentioned before, Mark, Tim and Ian, which are promoting excellence within these companies and give them a lot of assistance. And really, we are focusing always on long term, and we're trying to teach our management team to focus on the long term. So of course, this is the announcement of our interim results. So the key message of this announcement, that's the next slide is we've had a challenging environment, geopolitical tensions everywhere. The order intake in China, which is an important market for us, has been very sedate, and we're 60% down on the previous year. We didn't get a coring contract for this year, which is an important part of the company we bought 2 years ago, Geotek. So it's a substantial portion of that, about 1/3. But we can -- ideally, we do a coring contract every year. We can't do much more. But this year, we don't have one. But we have one, as I've explained for '25. And a lot of projects have been deferred and are slow to crystallize. And so a lot of business has gone from H1 to H2 and even some of them to '25. So trading has been subdued. Order intake has not been very active. So it's been quite soft. And cash conversion hasn't been strong. We'll talk about it a bit later. But we still ended the half year with a solid order book. But it was obvious to us for quite a while that without the coring contract for this year, we would be a struggle to achieve our forecast. A little by little, it became obvious that we wouldn't have one for this year. And -- but we would have needed a reasonable environment that the environment was hostile. And therefore, we revised down our market expectations by 10% in July. So apart from that, we have to explain that the short-term fluctuations in business that affect our results, but they don't affect our strategy of building the group, and we kept building the group, although these short-term influences didn't exist. So we did 2 acquisitions in the first half. We're increasing the dividend 10%, which is our promise to shareholders that we would do that every year, and we've done that every year for the last 19 years. But of course, in the good years, we increased it by more, and we've achieved 24% compound increase in our dividend in the last 18 years. After the end of the period, we did another acquisition, which actually much larger. So we've had a good 8 months for acquisition. We have extended and increased our banking facility. We signed a coring contract, but it will only result in an expedition in the early months of '25. And we recruited Ian Wilcock, which is a very strong addition to our management team. And now I'm passing to Brad, who's going to explain about the performance for the period.

Thanks very much, David, and hello, everyone. If we can move on to the next slide, please. I'll take you through the results for the first half. And as David mentioned, we've not had a great first 6 months. Total revenue down 1% to GBP 61 million. It's a combination of a 3% drop in organic revenue, partially offset by contributions from our recently acquired businesses. The drop in revenue unsurprisingly has affected our profitability and adjusted operating profits were GBP 12.3 million compared with GBP 14.2 million in the prior period, and that's a drop of 13%. Now we can get good growth, good leverage out of our high fixed cost base when we do get good growth. However, unfortunately, it works against us when we have organic revenue decline. Earnings per share increased to -- it didn't increase, decreased to 123.7p. That's a 19% reduction. And that was impacted by higher interest and also the final period of the increase in U.K. corporation tax. Now the drop in organic revenue of 3% was closely matched by a drop in organic order intake. And whilst we maintained an organic order book of around 17 weeks throughout the period, this resulted in an anemic comparable for revenue. And it's clear to us that the drop in order intake seen partially in North America, but certainly quite strongly in China have affected us. And I'll come back to order intake in more detail later. Moving from performance to cash generation. We've got a strong track record of generating cash from our profits, and we generated GBP 7.8 million cash from operations, but only at a cash conversion of 63%. And this is well below our expectations where we should be really around 90%, and I'll talk more about that later as well. Our cash generation enables us to support our policy of providing shareholders with progressively increasing dividend returns, and we've increased the dividend for the interim to 29.7p per share, an increase of 10%. And that really is our minimum. And we deliver our minimum increase when performance isn't where we expect it to be. The weaker cash conversion has also affected our net debt position and adjusted net debt was GBP 52 million at the end of June compared with GBP 45 million at the start of the year. And whilst we acquired 2 businesses in Luciol and Rockwash, which added GBP 7 million to our adjusted net debt, and we also spent GBP 3 million on CapEx. Net debt wasn't quite as good as we wanted it to be. At the same time, gearing was still 1.5x. We still have significant headroom on our covenants, and we still have a strong balance sheet position. And post period end, we amended and extended our banking facilities, and I'll come back to that later. And we've also acquired another typical Judges business, which David will talk about later as well. Now looking at the rest of the year, we've seen an uncertain climate for order intake with many orders moving to the right. And whilst we still have a good order book, and we now have order intake above the same period last year, we still have much work to do in order to be able to meet the revised expectations for the full year. So moving on to the performance slide. I really talked much about performance. I'll just pick on a couple of things. That reduction in revenue, you can see the impact on our margins. That's the operating leverage effect. The effective tax rate has increased to 23.1%. That's the consequence of that final quarter from the start of this year to the end of March of the increase in U.K.'s corporation tax headline rate from 19% to 25%. And lastly, for those of you less familiar with our P&L, we do have adjusting items that take us to the statutory result. The largest of these is GBP 4 million noncash amortization of the intangible assets we're required to recognize when we acquire businesses. And moving on to order intake, and this really is the bellwether for our performance. And to talk you through that, want to talk about the graph on the right-hand side of the slide. To remind everyone, it has 3 lines on us. This is our internal graph that we use every week to look at order intake performance. It has 3 lines on it. There's a red line, a black line, and the green line. The red line is our internal sales budget, not to be confused, I might add with consensus numbers, but it's our internal budget, which we set every year as part of our annual budgeting process. That's our target. The black line is the trailing 12 months of orders. That's the last 12 months history. And the green line is the last 4 months of orders annualized, so we basically multiplied by 3. And what we're looking for ideally is for the black line to at least be touching the red line come the end of the year because then we would have had sufficient orders with which to meet our internal sales budget. And ideally, the green line will be tracking the red line, but it's always a more jagged line because it's a shorter-term measure, and order intake is never smooth. The end of the graph is pretty much to date. So what can we see? Well, for the last 12 months, if you look at the green line, it's looked pretty flat. And there you can see the effect on our order intake. And for the last 6 months, we've been affected by the drop in North America and also significantly the 65% drop in China orders. And it's affected us quite a lot, and we're back at levels below 2022 now. So a big effect for us, and I'll show you a little bit more about that later. Then when you go back to the graph and go, well, how does the black line compared to the red line? Well, you compare the black line to the red line, the red line, you can see expected this year, we budgeted and expected for a decent improvement in our organic orders, but you can see it hasn't happened. And consequently, there's a significant gap. And the result of that, in July, we felt that it was necessary to update the market that we weren't going to meet the original market expectations. And we finished the half year with an organic order book of 17 weeks. Since then, we're now into positive territory for organic orders and the order book is over 20 weeks, which also includes the Geotek coring contract that David mentioned. So it's clear we still have much work to do to deliver on our full-year numbers. So moving to the next slide. And this bridge reconciles between the H1 '23 and H1 '24 profit contributions of our businesses before central costs. They are the 2 big blocks on each end of the slide. And reconciling between these, you can see the effect of our drop in performance for the group with a much larger red block of decline than increase. Improvements in some of our businesses overshadowed by reductions at others. And then lastly, a small positive block for the effect of our more recent acquisitions. It's not the picture we look for at the beginning of the year or expect ideally, it will be the inverse. Moving on to the next slide and talk about balance sheet and cash flows. And really, the key thing to talk about here, as I was alluding to earlier, is the levels of cash conversion, which is 63% are well below our expectations. For our business model to deliver the highest returns for shareholders, we need cash conversion to be at least 90% on average. And the consequence of this lower cash conversion means that we haven't been able to make any inroads into our working capital levels, which themselves were higher than the pre-COVID pre-supply chain issues. And with working capital at more than 20% of annual revenue, this compares to the pre-COVID levels of around 10%. So we have much work to do to restore this balance. And as I mentioned when we last recorded our seminar, inventory levels were in the region of GBP 10 million plus above the levels before COVID. And whilst understandably, we have more inventory at the half year because we're gearing up for what we know is a higher H2. I'm hoping that we're going to make some good inroads in this and also in creditors by the end of the year. Our gearing was 1.5x at the end of the period, and we maintain, as I mentioned before, significant headroom on our covenants, good borrowing capacity and the unwavering support of our banking group of Lloyds, Santander and Bank of Ireland. And post period end, we were able to amend and extend our facilities. We go on to the next slide, I'll talk a little bit about those. So previously, when we acquired Geotek in May '22, we refinanced the group's banking facilities into a Tri-Bank Group, GBP 100 million bank facility. That consisted of GBP 25 million term loan, a GBP 55 million revolving credit facility and a GBP 20 million accordion, all maturing in May '26. Now we've extended that facility until July '28. So that's an extension of 2 years, and increased the facility to GBP 140 million, which is now made up of a GBP 90 million RCF and a GBP 50 million accordion with no change to our existing covenants of gearing and interest cover. All in all, this gives us sufficient firepower for the foreseeable future to continue to buy the businesses that we think are right for this group. Moving on to the next slide. Return on total invested capital or ROTIC, which really is another key measure for us and in its simplest form is a function of the multiples you pay for the businesses you acquire. So on the left-hand side of the graph, when we first acquired FTT, we paid close to 5x. We started slightly above 20% and improving ROTIC requires improving financial performance and/or buying businesses at lower multiples. Now of course, if you pay higher multiples, you have a mechanical effect. So when we paid 6x for GDS and Scientifica earlier on in our life, you can see the big cliff edges that happened as a consequence of that. And likewise, when we acquired Geotek at 7x in '22, that drop as well. And since the period end, as a consequence of our performance not being quite as good, return on capital is reduced to 20.7%, and we've got to work hard to improve that and push that back up in the direction of 30%, which is where we aspire. Moving on to the next slide, diversification. And if we go from left to right, you can see a split of revenue by all our companies, and there's no one single company that overly dominates. We also diversified by scientific application. Our businesses manufacture instruments for different scientific markets. You can see also geographically that there's no one single country or region that overly dominates. And it's a useful point here to show the impact you can see in the China wedge, it's not yet come through into revenue, but the difference between order intake in the first half and delivery of the revenue and the orders we already had. That's a real big effect for China. Lastly, on the right-hand side, we provide some analysis of our revenue by end market, 20%-25% in geotechnical, around 20% in industry optimization, and we have somewhere in the region of 40% to 50% normally for Life Science and Semiconductors, which we amalgamate together because the instruments used and the techniques used in academic and industrial research are largely the same. So moving on to my final slide, which summarizes some of the key statistics about the long-term success of our group and revenue and profits and earnings per share have all grown strongly over our past despite us not having the best year so far. We've delivered fantastic compound growth, both on an organic revenue and profit basis over our history. We have a compound growth in the dividend of in excess of 20%. And this first half, we've increased the interim dividend by 10% to 29.7p and our constant and continued focus on cash generation serves to help us weather challenging market conditions, acquire the businesses we want to acquire, pay down the debt and also be able to fund that growing dividend return for shareholders. And on that note, I'm going to pass back to David to take us through the growth strategy.

Thank you, Brad. So growth comes from M&A acquisitions and from organic growth. We'll talk about organic growth in a few minutes. And I'm just going to talk about the acquisition we've done in the half year and after the 30th of June. So the first 2 acquisitions are unusual for Judges because there are -- the basic purpose of acquisition for us, we try to buy good solid businesses, which are capable of standing on their own feet. So Luciol is a very small company, which is in Switzerland. It makes an instrument called OTDR, which is really a measurement of the properties of fiber optics. We have a company making the same type of instrument, OTDRs and other instruments, which is in the U.K. and which is addressing the telecom markets. And so the OTDR they make is to measure fiber optic over like 50 kilometers. And we're working on one which will do 100 kilometers. But this one is for small lengths, maybe 10s, 100 meters. And it's really much more into vehicles and planes and tanks and trains. So the scientific concept is the same, and we can understand it, but the markets are different, which is very interesting for us because the telecom market is very cyclical. You have a lot of ups and down. We make very good money during the ups, but no money at all during the downs. And the Luciol business is not at all tied to the same ups and downs. So it has only 3 employees, 2 are selling and retiring and 1 is retiring in the course of next year. So we can really consolidate these 2 businesses, and they will be a lot more stable than they were before. The company makes about CHF 500,000, which is bit like $450,000 and we paid 4x for it and an earn-out, which is based on the average earnings over a period of 4 years. So they can make the earn-out for the period which finishes at the end of this year or for the period of 4 years, which finishes at the end of next year. The next acquisition is Rockwash Geodata. It's a company based in Wales. It is very similar to one of the 3 activities of Geotek that we bought 2 years ago. And it's -- that activity is the digitalization of the analysis of cause. So companies in mining, oil and geology, they extract cores and they keep these cores forever in big warehouses. And sometimes they want to have information from these cores, so you can get them. So the digitalization service that we provide is to install near these repositories, a couple of containers, which are stuck together with a lot of instruments and scientists and to do kilometers and kilometers of cores. Like this, the people in these companies instead of going to get the information from the cores they can get the information on the laptop. And basically, they could do all the properties of these cores, which are known today that you can analyze today, they can have all this in their laptop. So it's a spectacular service that we believe that that's one of the best businesses of Geotek. So miners and oil companies when they drill, they produce something else, which is chippings or cuttings. And this is basically gravel. And by law, they have to keep this gravel, so they keep them with a location where they produced it in plastic bags with the exact in placement where they found them. And they usually do nothing with it. So Rockwash, it does exactly the same thing, is the digitalization of these chippings. And so we believe this is highly synergistic with Geotek. They are doing business or trying to do business with the same sort of customers and sometimes also with the same customers. And so we believe this is going to be very good and it's highly synergistic. So we paid GBP 2.25 million, and there is an earn-out and the total price could reach GBP 6 million provided the company makes GBP 1 million EBIT in '24 or in '25. It's not expecting they will do in '24, but in '25, if everything goes well, it's quite a possibility. After the end of the period, we bought Magsputter, but we call it Teer because this is the trading company, which is called Teer. And it makes coating equipment. So we have other companies making coating equipment. Coating or generally thin films is a very, very widespread process in science and industry. These are very, very sophisticated coatings, which are applied with a very powerful equipment and very reliable equipment. Each machine can cost like GBP 0.5 million to GBP 1 million. And the company is equally divided between selling the instruments and providing coating services. So it's a highly sophisticated coat. So the company makes GBP 1.75 million adjusted profit adjusted assuming they're paying rent on the building. But of course, they don't pay rent because they own it. So basically, we paid 6x the adjusted EBIT plus the value of the building. So that comes to a total GBP 12.3 million. So it's a very typical Judges deal, and we expect it to contribute immediately to our earnings. And then we're going to talk about organic growth, but I'm passing it to Mark and Tim.

So if I could just say a few words as an introduction to this section. I think we've talked earlier about challenging environment and subdued trading, which has very much been the case during the first half of this year. But the people that have seen this presentation before or familiar with us will probably notice that the slide that we're showing here hasn't changed. This is the same slide as before. And there's a key message in that. which is that our commitment and how we manage the businesses once they're part of the group and the keys to our organic model hasn't changed. This is something that we fundamentally believe in as a long-term driver of shareholder growth. And so it's not something that we've significantly -- it's not something that we change on the basis of sort of short-term trading challenges or volatility. The other thing I'd highlight is that the things that happen in that sort of environment, one tends to see in a more challenging environment, areas across the business -- across the group, I should say, sorry, where there are opportunities for improvement. Those sort of things will be more evident when there's a challenging environment. And equally well, areas across the group that are very resilient. And so it tends to sort of highlight for us if there's a sort of systemic area across the group where there's an opportunity for improvement, well, can we help by introducing new ideas, working with external providers to sort of help us deliver new capability into the organization or where there are areas of resilience within the group, what can we share? What can we learn? What can we use our peer network. So both of those aspects play very much to the Judges model. So an emphasis that even in challenging times like this, there are very positive attributes to the Judges model that we can bring to bear. I'll hand over to Mark.

Tim, thank you very much. And good afternoon, everybody. Given the time, I'm going to try and skip through this pretty quickly because I think it's important that you have a chance to ask the questions you want to ask. I'm just really going to make 4 points. So first of all, I think a really important facet of the group is the importance of its diversified and decentralized model. I find it useful to compare us with something like a buy and build of, say, British builders merchants. If we were going around the country hovering up all sorts of small independent builders' merchants, what we'd end up with is a group of companies that were broadly all the same, selling the same sorts of products to the same customer base with the same drivers and the same ups and downs in the economy. And therefore, there'd be a real driver there to look at consistent measures, consistent ideas, cost-saving measures, and structures that measured every business on the same facets. Our situation is very different. Every business we've got, give or take, is different. We're all in scientific instruments, but they make different instruments. They sell to different markets. They sell to different customers, and they've got different drivers. So it's really important that we don't take as it were, the builders merchant approach and that rather we're much more subtle and nuanced in the way that we run these businesses, knowing that the companies themselves, the technical people in them, the marketing people have deep specific knowledge in these tiny niches, and they're probably the world's most knowledgeable people in those niches despite the fact they might only employ 40 people in the entire business. So it's a very different setup, and it requires some pretty subtle and nuanced oversight and some flexible management of those businesses. And a good example of that is we don't talk about the specific performance of individual businesses. But if we sat down in 2019 and looked at the list of businesses, and I got 20 of you in the room and said, right, which business do you think is going to deliver the best compound average annual growth rate over the next 5 years? My guess is that not a single one of you would have the company that did deliver that in your top 10 out of 20. So very different businesses deliver different performance based on all sorts of different markets and different factors. So we just have to bear that in mind. The second is that we're really keen to continue to encourage those businesses that were once independent to keep their small, fast entrepreneurial mindset. They're close to the customers. They can do things quickly. So rather than being a big group with huge bureaucracy where if someone wants to move in waste paper basket, they do a 200-slide deck, send it up to head office and a couple of years later, they get some dark questions about it and maybe 5 years later, they get approval. We're talking about a business where someone's got an idea, the MD pulls everybody together, they have a chat about it, and 2 hours later, they start knocking walls down. It's that sort of speed and pace that we're trying to encourage. But again, that has its pluses and its minuses. When things are going really well, it's really easy to let people do that when times are a little bit more challenged, the places that you need to push and resist, et cetera, are different for every business. And it's an interesting challenge. The next point is something which I always mention, which is about leadership training. Most of these small businesses, they're incredibly knowledgeable about the science and the markets and the products. But many of the people in them haven't had long experience of leadership in other organizations and knowing what good looks like in those terms. So one of the things that we're particularly proud of is the investment we put in the leadership training, teaching people who are technically great with great knowledge of their market, how to lead a team of people and to hire people who can be great and expand the company beyond the reach of a particular individual. We've got roughly 100 people on the boards across our 25 businesses, and we're about 75 of them have gone through a 2-week leadership program, which has had a significant impact in them. And as new acquisitions come along and people come and go, we try to put the latest group through, and we've got a dozen more going through that in 3 weeks' time, starting off on that process, and that's been very important. And then the fourth point I'd make is just about learning across the group. The businesses are really good at talking to each other and learning lessons from each other, whether that's which distributor you can trust in China. And we've got a great example of a number of our companies moving distributors recently and that beginning to have a significant impact, not just in China, but in other areas. We've got companies that are less good at their production, and we've got other companies helping them out. Some companies have been really great at improving their pricing, and they've been helping the customers that are less good at that. One or 2 businesses are particularly good at pinpointing the products that customer wants and getting those delivered through their new product process fast as opposed to taking too long over it. And even real basic things like how we're going to motivate the salespeople with the commission scheme, should that be based on sales, should it be based on margins, whatever. So there's a huge amount of learning going on around the group in good times and bad. So those are really the 4 areas that I'd like to highlight as being particularly important over the last year and in fact, over the last 5 or 6 years. Back to Tim.

Thanks, Mark. I'll just say a little bit more on a couple of those points as well. I mean the point around leadership development and the focus on the senior leadership team is one of the bullet points that we make in talent development. And aligning that to the point also that Mark made around strength or areas of strength in some of the businesses, for example, in terms of the distributor or channel management, that's -- we've looked to particularly enhance over the last period and build upon strength across the organization with sales in particular and sales leadership and learning from some of the companies around their choice of channel partner, their choice of distributor. And another example of that would also be in working capital management. So on the finance side, similarly building that strength within the organization and learning where there are or learning from those parts of the organization where there is particular strength there. Another thing I'd highlight in terms of the particular focus on talent. And again, Mark mentioned this in terms of the entrepreneurial spirit of the leaders within our companies because of the autonomous model that we have. But what we've identified is that while it's really important to have that autonomy, in many cases, there is still a need for and real benefit to having some structure to some of the processes here. And one I'd like to highlight in particular is the strategy process. So we're actually just going through this at the moment. We obviously, we have a top-level strategy for the group. But what we also have is an individual strategy that is developed by each of the businesses within the group because they are autonomous, and they are knowledgeable at their particular niche market. We asked the businesses to put together a 3-year rolling strategy. But that is done in a relatively structured and defined way in terms of what questions it asks and how it's to be laid out and how it's to be -- what process to consider in terms of where the company is now, where it wants to get to, how to get there and then who's going to do what by when in terms of developing an action plan out of that. So putting in place quite a structured framework, which is something that we help with centrally. And another couple of things as examples there in terms of, as I mentioned earlier, new things that we've introduced into the group, introducing ways of thinking about the new product development process in a very agile way, looking to really capture at the earliest possible time in that process, the value proposition and what the customer genuinely needs as a way of accelerating the NPD process, in part by being really clear on what product it is you're going to develop, but also hopefully by not developing the all those products that aren't going to solve those problems and thereby not wasting one's time on that. So that's an ongoing exercise that we're helping with across the companies and a number of the companies have been through some workshops in that over the last 6 months or so. And a final point for me is also encouraging a greater focus on intellectual property in general and patents in particular, but not in the context of just blindly encouraging all the businesses to go get a load of patents. This isn't about just getting things applied for and granted just for the sake of it. It's really to encourage the businesses that if they're thinking in a way that is potentially patentable, then they will be thinking about novelty and inventive step. And if you're thinking about novelty and inventive step, then you're thinking innovatively. And fundamentally, our belief is that if our businesses are thinking innovatively, then they're going to outperform their competitors in their field in the long term. And that is the culture that we're seeking to amplify and embed further within the organizations. Thank you. I'll hand back to David.

Thank you very much, Tim. And in view of the fact that we want to really give the opportunity for questions, I'll go quickly through Slide 27 and the outlook. And what I want to say again is we have a very robust business model. We have a difficult short-term time in the markets, which is affecting our revenue and our profits. But the positive long-term fundamentals are completely untouched, and we have pursued really the construction of the growth of the company in terms of management team and in terms of acquisition. And this has been completely separate from the production of regular earnings. What I want to say is that from the point of view of building the Group, whether we have a coring contract in December or in January doesn't make any difference because in the end, it produces the cash, which repays the bank and enables us to do further acquisitions. So we're really trying to produce regular earnings, but the short-term ups and downs do not really affect the long-term health of the Group. So that being said, we have to recognize we have a challenging year. We've really -- we haven't changed our guidance for the end of the year, but we do realize that there are a lot of vulnerabilities relating to the timing of order revenue, which can affect the result for the year. So just in the next page, what I want to say is we have a robust business model, a lot of potential deals, strong growth drivers, good diversification, complete focus on shareholder value, profits, cash generation, debt reduction, dividend growth, we've paid a compound 23% growing dividend. And up to now, our shares are free of inheritance tax if they held up to 2 years, but the future may be different. And now we open, I think, to questions.

Great. Thank you very much, David. So we've got loads of questions. When debt financing is taken for acquisitions, how is it structured? Should interest rates continue to come down, will Judges have the opportunity to refinance existing debt?

So one for Brad, I think so, if that's all right. Well, I don't think the 2 necessarily need to be linked. I mean for us, it's a straightforward revolving credit facility we now have. So we can make repayments as and when we have available cash to do that. So for us, you can repay, you can borrow, you can repay, you can borrow. So for us, what we have at the moment suits our needs. We have an accordion, which is uncommitted that we can then draw down on if we need some significant additional funding. So that gives us plenty of flexibility for the coming years. Of course, if we do a very big deal, we might have to do something a bit bigger than this. But for everything we normally want to do, this covers us for at least a few years. In terms of interest rates, well, I think the big question first is, are they going to come down and will they come down in a hurry. I'm not sure that they're necessarily going to be rushing down, and we've protected ourselves by hedging the vast majority of our debt already at rates which I think protect us for the coming years. I don't see interest rate if they stay around where they are, they go down 1% over the next year or so in that sort of regions having a significant effect on our approach. And of course, it's always helpful if rates come down because they're going to cost you a little bit less. But it's still pretty well priced given the multiples we're paying for the businesses we acquire to still help the model deliver great returns for shareholders.

Great. And I think this is referring to a coring contract. Is it feasible for a second -- oh it is Coring contract to fall into full year '25 with the first contract being so early in the year?

Yes. In a nutshell, very simple answer. Yes, it is feasible. It's not an easy thing to have 2 in the same year and people shouldn't count on us have a second one, but it is feasible. But what you have to realize is there are only 4 ships in the world on which you can do these expeditions. And the expeditions include a lot of other companies and us. So they do a lot of other experiments from that boat. And it's complicated to put together. And I would say the odds are we can't do to next year.

Thank you, David. And a few more questions about the coring contracts. Can you advise what typical revenues are for each contract and an indication of the number of potential customers for the coring contracts? And if you could increase sales of coring contracts, how many does Geotek have capacity to fulfill in one year? So you've answered that last one already.

Yes. I think I've answered this. I'm trying to answer quick because you have a lot of questions. I would say the coring contract we signed is about the same as the 2 previous one we had. It's still quite difficult. So say a few million dollars, and it could easily reach 1/3 of the profits of Geotek. And yes, I think the limitations is that you typically have 4 customers, the U.S., Japan, China and India are the most permanent customers there. And I've explained about the limitations.

Great. And do the difficult market conditions that Judges is experiencing also improve the prospects for acquisitions?

No, we don't think it's the case. We buy only excellent companies and very cash generative. So every company that we bought had a lot of cash that we, of course, pay this excess cash on top of the price we pay, and they're not under pressure to sell when they have a bad year. And it's people who typically, they've spent 20-25 years of their life building a business, and they want to sell well at the end and they all managed to survive. So if they want to sell and the climate is not good and they have a bad year, well, they'll sell later. That's one. So good companies don't sell quickly in a rush when business is bad. There's an opportunity to buy bad companies when business is tough, but it's not the companies we try to buy.

Great. And Armfield has grown revenue strongly and expanded strongly in full year '23 and expanded employed staff, although still loss-making. Does the growth mark the turning point in Armfield's recent history?

That's one, I think, for Mark. But I have to say before passing on to Mark, but we try to avoid talking too much about individual companies because of commercial concerns because we have competitors. And so we don't like to encourage our competitors in any shape or form. But Mark, do you want to say one or 2 words about that?

I'm not really sure that I can say anything that I'm happy to say really. I think I'm tempted to pass on that one for commercial confidentiality reasons. I do apologize.

Excellent. Thank you very much. So we're shanking this one to whoever asked this.

Can the reduced order intake from China be replaced elsewhere? Or is it a case of waiting it out for the long term?

Well, yes, I think we see that the fantastic growth we've had in China from the time we started in this business until the COVID crisis we'll not be there anymore, but China will grow, but China grows less as a country. And a lot of the growth is moving now to private consumption rather than public investment. And we, of course, don't sell consumer products. And then finally, there's the issue of buy Chinese. So I think that the climate will be less favorable. But of course, we sell throughout the world. China is now maybe 10% of our sales rather than 12%. And we will find we have growth in many other places. The state hasn't been great this year, but I'm sure it will come back. Europe has been more favorable. And of course, the new China is probably India, which is a very large country with a growing population compared to China, which is halving in the next few decades and very educated and very poor. And as it becomes more prosperous, I think there will be great opportunities to do more business there in a lot of other emerging economies.

Great. And can you do anything to dilute the lumpiness due to Geotek's Coring?

No. I think the only thing we can do and we're doing is growing the group as we've done over the years. And I think in 5 years, we won't talk about Geotek Coring if we managed to do acquisition of the rhythm that we've done. It's big. We've had in the past big lumpy things that we didn't talk necessarily about, but we thought about them. And now we didn't even think about them. So as the group grows, the impact of the coring expedition will diminish. And it will diminish as part of Geotek because we think the main growth of Geotek will come from these digitalization services.

Great. And you mentioned that supply issues have impacted half 1 cash flows. Can you explain a little bit more?

Can I take that one?

Yes, please.

I don't think we've said that we think supply issues have impacted. I think we're over the supply chain issues, but I think we've still got a legacy for how our businesses are behaving in that environment. And I think it's helpful to appreciate that before the supply chain issues, you had David gave an analogy earlier before this that customer was king and then all of a sudden, suppliers became king. And I think that's an important point. Now I think once there's enough components and raw materials moving around the economy again, then the balance needs to settle back towards where it was. And I suspect that maybe we have a little bit of the balance wrong in some of our businesses at the moment. I can only say that anecdotally, but at the moment, we're looking into that. And it's part of one of my pet projects, I think, for Q4, which will be to look into how all aspects of our working capital and try and help our businesses think about how they're doing business a little bit more. Really, the challenge is to go back and understand what we did before '22 and what we're doing differently now. And I think that's an important thing for us to be really, really clear about and then make some progress thereafter.

Great. Thank you very much, Brad. And final question. To what extent does recurrent revenue contribute to the group? Is servicing and calibration of scientific instruments meaningful to revenues? And are sales of instruments typically outright or do leasings and rentals feature?

You want to do that, or do you want me to?

Well, we want to do everything in a rush. In 2 words, our main business selling instruments, we servicing and calibrating. Calibrating is really minimal. Servicing is not a big component. We do services. The main provider of services is Geotek, but also Teer because half of their business is providing services. We have some other companies providing services, but it's not a very important part of our global turnover. And rentals is only Geotek, which does rentals. And it's not substantial, but it's a nice part of the revenue, and it's very expensive. So people end up often buying the machine because it's too expensive to rent, which is what we like.

Great. Thank you very much indeed. And that's the end of questions. David, do you have any closing remarks?

Yes. First, I wanted to thank you and Tim and thank all our audience for taking the trouble to listen to us. I would like to say these are not ideal results, and we're happy with them. We're working hard to produce better results at the year-end that we produced in the first half. I would say we have really good confidence that the second half will be better than the first half because there's 3 pieces of business which are important that we were hoping to get a lot already in the first half, but the contribution is tiny in the second half. So we can really identify that and there's a contribution of their holdings. So we have confidence we're going to do better. We are vulnerable to events still, which is not a pleasant thing to be. But the important thing is to remember that the growth part of the group is absolutely not dependent on these short-term results. We don't like the short-term ups and downs. We don't have many, and it's only the fourth time we have a down in 19 years. And we hope not to have that too often, but it will happen, but it doesn't impinge the growth of the group. So we hope to be able to service our shareholders with more growth in shareholder value in the years to come.

Great. Many thanks, David, Brad, Mark and Tim. And to everyone listening, you'll now be taken to a web page to give feedback on today's presentation. If you can't complete it now, you'll get a follow-up e-mail. We'd be really grateful if you could take a few moments to complete. Many thanks for joining. This is the end of the webinar.