Spectris Limited (SXS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Spectris Q3 Results Conference Call. My name is Neil, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to Andrew Heath, CEO from Spectris, to begin. Andrew, please go ahead.

Thank you, Neil, and good morning, everyone, and welcome to the conference call covering our third quarter trading update. I'm Andrew Heath, Chief Executive of Spectris, and I'm joined by Angela Noon, our new CFO. In the period, order intake and sales were 10% and 6% lower, respectively, with both of these metrics bang in line with what we reported at the half year. We provide evidence that our markets have stabilized. Encouragingly, with the exception of academia and battery materials, order intake across our other end markets is either flat to only slightly down on a year-to-date basis, which is a further positive sign as we look ahead and also supportive of our revised guidance. While we believe that markets have plateaued, the headwinds that we described at the half year, most notably continued softness in China, pharma, and academia have persisted and from what we can see today, are likely to continue into the early part of 2025. However, while Q3 was weaker, we have seen building momentum in our order intake in October. Against this backdrop, though, we are taking decisive action in the form of a profit improvement program to increase and accelerate cost reduction activities to improve the group's productivity and also drive profitability. Now these actions consist of 3 core elements, all of which are well underway. And they are, firstly, general cost reduction actions in addition to those that we announced at our half year results. Secondly, the realization of cost synergies associated with the acquisitions announced in 2024. And then lastly, the crystallization of the benefits associated with the implementation of our new ERP system. This program is expected to deliver approximately GBP 50 million of benefits. That's on a full run rate basis with at least GBP 30 million of that total coming through next year, with the remainder in 2026. Now while markets remain subdued and are taking longer to come back, we continue to build a higher-quality business at Spectris. I have to say I'm really pleased with the strategic progress that we have made during this year. As you know, in August, we completed the acquisition of Micromeritics and SciAps. Integration planning there is progressing really well as we look to further strengthen Malvern Panalytical's position as a world leader in material characterization. We've also announced the acquisition of Piezocryst, a leading provider of piezoelectric sensors to create a true leadership position in combination with our existing offering within Spectris Dynamics. And we expect the acquisition to complete around the end of the year. Also, our new ERP system implementation is back on track with revenue we phased in the first half being progressively recovered. And more recently, we completed the first phase of the implementation of the new system in Spectris Dynamics and HBK, which has gone smoothly. And 2024 will also be a record year for product launches, and that will drive future sales and also growth. And then shortly after the period end, we completed the second GBP 50 million tranche of our GBP 150 million share buyback program, and we expect to start the final tranche in the new year. So as you can see, we continue our focus on strong strategic execution and the areas that are very much under our own control, which alongside the cost actions announced today, provide significant opportunities to drive future sustainable growth and also profitability. Turning now to the outlook for the full year. Given the continuation of the market trends we've experienced in the first half, we now expect to deliver adjusted operating profit for the group for the full year of around GBP 200 million. And moving on to the balance sheet. Net debt was GBP 393 million at the end of the period. And in the event of the Piezocryst acquisition completes before the end of the year, group leverage as measured by net debt to EBITDA is expected to be around the upper end of our target range of 1x to 2x. So wrapping up, our recent years -- over recent years, we have significantly improved the quality of the Spectris portfolio, which today comprises market-leading premium precision measurement businesses aligned behind a common purpose and capable of delivering true cycle growth and margin expansion. The high-quality acquisitions we have made this year have further strengthened our platform and enhancements to our customer propositions. It's also increased our confidence in synergy delivery in addition to the self-help measures I talked about, and they've all collectively and structurally increasing our ability to deliver against our medium-term financial targets. And with that, we are very happy to take your questions.

[Operator Instructions] We now have our first question from Mark David Jones with Stifel.

A couple from me, if I can. Firstly, a couple of market questions. Firstly, what are your life sciences customers saying to you? We've discussed in the past the possibility of an extended replacement cycle on the instrumentation for that end market. And you said it's sort of trending along flattish at the moment, but any indication that there might be a return to spending on the cards? And what are you hearing on that?

Thank you for your question, Mark. With regards to life sciences, I mean, customers are still providing plenty of interest in our offerings, particularly because of our new products that we've launched this year. If we look at sort of our internal trends in terms of sort of market qualified leads sort of the available opportunities, if you like, the trend there remains positive. However, what we are not seeing is any sort of reduction in the time it takes from that -- the time from sort of initial interest through to actually concluding a deal. So the time from interest to order, which is just taking longer. And whilst the pipeline of opportunities is strong, we are still seeing weakness in converting that pipeline into orders. We were expecting the half year that starts to pick up given what customers are saying to us. We have not seen that during the third quarter. And as such, we're now planning on the basis that that trend will continue into next year.

And on the battery materials side, that's obviously very weak and likely to stay very weak for a while, but presumably that's shrunk to a relatively modest share of revenue now. Can you give us some indication of how much that matters going forward?

I think your assumption is correct. I mean in terms of the sort of the revenue for us, it's sort of in the sort of low single-digit range. The issue this year has just been that it was an extremely hot market for us in 2023. So against a very tough comp. So that has again sort of stabilized. I mean the interesting thing for us on the battery side is that we sort of play in 2 sides of the value chain. One is the sort of the advanced research, the materials development, the next generation of battery technologies, which is very much a scientific play for us where our instruments are used in that whole process. That's why it just came off dramatically at the beginning of the year and has remained weak ever since. On the sort of downstream side of the value chain, when we look at sort of battery testing, electric vehicle testing, end of manufacturing, end-of-line testing, the amount of activity that's going on within China and the build of electric vehicles there on the manufacturing side has been very strong. And that's actually helped support order intake for Dynamics division this year. So we've sort of got 2 stark contrasts between Scientific and Dynamics around sort of batteries and electrification.

And sorry to be greedy, can I ask one more, which is, if leverage is going to be at the upper end of your range at the end of this year, how quickly do you think you can delever next year? And does it make sense to push ahead with the buyback against that environment?

So yes, this is regarding the leverage, and we expect to be around the upper end of our range, the upper end of our 1x to 2x, of around 2x at the end of the year. There are a number of moving parts that clearly with our guidance coming down, that puts a bit of pressure on it. But equally, some of the FX movements, some of the debts that we have is U.S. denominated. So that's another factor. But clearly, we're very focused on driving working capital improvements through to the end of the year and into next year as well. And your point around deleveraging, as you know, we are highly cash-generative asset-light business. And so we fully expect to delever quickly through next year, be well under 2 by the end of next year and that trend progressing. And I think your other part of your question is just on the share buyback, clearly, we'll look at the balance sheet at the end of the year and then take a decision as to exactly when we start the share buyback again. As I said, our intention is the start of New Year.

We now have our next audio question from Stephan Klepp with HSBC.

Just a few more clarification here. You said in October…

Stephan, sorry to interrupt you. We can hardly hear you.

Hang on. Hang on a second. Can you hear me better now?

Not really. If you could speak as loud as you can.

Okay. I'll try again, probably this way. Okay. So you talked about October orders building momentum. Can you talk us through the bright spots where things are looking better? And then at the same time, you said as well the negative momentum in China, academia, pharma carrying over into 2025. What are your clients saying there? So how long into 2025 will we see the pressure? And where is the order book at the moment? And then I'm greedy as well, one last thing. What kind of expectations are you thinking about organically for 2025? And why do you need a restructuring program to deliver on the ERP? That is relatively new. You never said that before.

Okay. I think there's 4 questions in one. I'll take a step at a time. So first I said, look, order intake was meaningfully up in October over prior year. If you actually look at our sort of 3 over 12, 12 over 12 run rates on order intake, we crossed the line in the third quarter, which means that we are sort of now heading into a recovery phase, which is encouraging. And it was good to say that order intake was meaningfully up in October as well. It supports our year-end guidance position. The markets really -- I think it's -- we can pull out the markets, but things at the moment are proving to be quite lumpy. But we certainly saw an improvement in machine manufacturing, in electronics and semis, and also in sort of primary and advanced materials. So they were the sort of the bright spots in October. There's nothing else, I think, we need to say other than sort of academia and battery materials that we talked around already remain sort of subdued. But at the same time, we did see a bit of weakness in automotive given the sort of the news that's hit the automotive industry in the last quarter. But despite that, as I say, we're meaningfully up high single digits up over prior year on order intake in October. I think regarding the forward pressure, I think I'll refer you back to my answer to Mark really. We are, I think, across the group, seeing good demand, good interest for our products and services. It is just taking much longer than it has done historically to convert that interest into orders. The customers that we talk to are typically sort of heads of R&D, labs, and test facilities, and research facilities in our customers. They definitely are looking to acquire new product services from us. But clearly, the budgets [indiscernible] are being constrained at the moment. I think the thing that -- I think I'd like you also note to remember is that in Q4, it's the one quarter of the year where we are most aligned with our customers in terms of getting stuff done. We clearly want to get the orders turn to recognize revenue. At the same time, our customers also want to translate their orders effectively into expenditure against their budgets. And if they have some spare budget towards the end of the year, then typically we also get a bit of a kick coming through in the fourth quarter, and we expect to see that similar trend happening in October, as I said, was reassuring. I think the third part of the question was around the order book. The order book at the end of Q3 was over GBP 530 million. So that's broadly equivalent to where we were at the half year. And as you look forward, that gives us circa 4.5 months of order cover. So we're sort of bang in the middle of our range, which again gives us some confidence over the sort of momentum over the next 6 months. And then your final part around the restructuring program. So I think let me just be really clear on this. In my mind, as I say, I characterize as profit improvement program that involves some restructuring. There are 3 elements to it. 2.5 of those we have already announced, but we're effectively now sort of trying to quantify what the run rate benefits of that are going to be in 2026, but also give you the indication of what we expect to see come through in 2025. So as we look to deployment of our ERP program, we've always talked about 150 basis points in margin improvement. We remain very confident in the delivery of those benefits, and we will start to see that come through progressively in 2025 in our Scientific division and then towards sort of the second half of the year going into '26 in terms of Dynamics. That's already announced. But to be clear, as part of the GBP 50 million run rate. The second element is getting the cost synergies from the acquisitions that we've made this year through Micromeritics and SciAps, but then also with Piezocryst coming in. And that is clearly -- we announced that when we made the acquisitions. As I said previously, our confidence in delivery of those cost synergies has gone up given the work we've done over the last few months since we've been owners of the businesses. The integration plan is going really well. The new leadership team is announced, Malvern Panalytical, that will start the integration work in earnest in January. The only reason we're not starting it now, we have earn-outs on both those acquired businesses. So we're using the period between now and the end of the year to sort of do all the detailed integration planning to make sure we can start in earnest in January and successfully execute on those plans. And then the third element is around sort of the our -- is the sort of cost reduction, cost trimming, efficiency savings, recognizing that volumes have come off this year, and therefore, we are trimming it accordingly and setting ourselves up. So don't take this as a sort of GBP 50 million restructuring program that says, oh, Spectris is really worried that something structurally has happened. Effectively, we are driving the self-help measures we talked about in terms of ERP, the self-help measures from the synergy realization and then doing some trimming in addition to that, the third element, half of which we announced at the half year. But given where we're coming out in the second half, we've elected to push a bit harder and accelerate increase in efficiency savings. So hopefully, that gives you a proper color and context around what we're doing.

We will now take our next question from Jonathan Hurn with Barclays.

Just 2 questions from me. Just coming back to that sort of GBP 50 million cost savings, Andrew. Just take it another way, can you kind of just break that GBP 50 million down across the 3 categories? Essentially just remind us what the savings are in the various pools, please? And also just reassure us how confident you are on achieving those. And I suppose lastly, just referring to that, you talked about the cost synergies as a bucket. I think historically, you said there could be sales synergies coming out of those acquisitions as well. Could that be an incremental sort of addition to that GBP 50 million in due course, please?

Yes. Thanks for your question, Jonathan. So just on the GBP 50 million, clearly, we've guided previously 150 basis points around sort of ERP. So in rough numbers, that's sort of about sort of GBP 20 million. And then the remaining 2 elements around the cost synergy from the acquisitions and then the other sort of cost efficiency and training work we're doing, it's slightly skewed towards the latter, but there's not much difference between the 2 in reality. And then on your question around the sales synergies, I think it's fair to say as we've seen this year, China has slowed down dramatically. The stimulus the Chinese government injected into the economy back in the beginning of Q2 hasn't come through this year in the same way it did in 2023. It feels to me that's gone more into sort of more labor-intensive industries within China this year rather than into some of the sort of advanced research and sort of more strategic areas of their economic strategy that certainly benefit us in 2023. And I think the latest stimulus package in China that's been announced appears to be much more sort of to drive a consumer-led recovery in China, supporting the property and housing market and giving the population more reassurance about their property value. So over time, that will feed through into the economy and into industrial demand, but we don't see that happening, that stimulus creating immediate sort of a demand for us in the same way it did in '23. So in China, we are planning on the base that China is going to be slower for us next year. I mean it's going to be a much easier comp, but that will impact certainly Micromeritics and SciAps next year. So as we look at sort of our sort of acquisition plans, we are on track to deliver this year. We're also on track to deliver our acquisition plan for next year, albeit not as strong as the potential upside that we saw when we were doing the acquisitions themselves earlier in the first half of the year.

Yes, I think the same question you kind of answered with that outlook for Micromeritics and SciAps. But can you just give us a little bit more color on the sort of the delta that's coming through in terms of what you expect going forward to what you expected at the time of making the acquisition, please?

Well, I think, look, I mean, as I said, we are against our acquisition business plan, 2024 and 2025, we're very confident of delivering. We were -- as I said, we thought there'd be some more upside in '25, but I think that's looking less likely now given the situation in China. So '24 and '25 nailed on is the way I see it today. Your point really, I can really cover your revenue synergy point. But as we look at the -- on the revenue side, over time and against our, again, against our acquisition plan, again, we're very confident of being able to get the revenue synergies. The reaction in the market from customers has been very positive. We've had a lot of unsolicited inbound inquiries on instruments. If you remember when we announced the acquisitions, we said that 40% there's a strong customer overlap between certainly Micromeritics and Malvern Panalytical. 40% of the customers buy from both businesses today, 60% don't. And our thesis that that 60%, we'd be able to access by having a broader range of products and using existing customer relationships to access them. That thesis is already starting to come to fruition with customers reaching out to us as well as us reaching out to other customers. So I think we're very encouraged by that. And certainly, the 2 management teams in Micromeritics and Malvern Panalytical are very excited about what they see in the market and the opportunities are out there. So over the next 3, 4 years, the revenue synergies that we anticipate to come, it will take a bit longer because you've got to do the integration, get the sales forces aligned, educate the sales forces and also the customers. But again, we're confident of getting those synergies over time as well.

We now have our next question from Andrew Douglas from Jefferies.

Three questions for me, please. The first one relates to China. We're hearing from other people who operate in your space that the China for China policy is causing them problems. Are you seeing additional domestic competition, particularly on the Scientific side? I understand that your Scientific business is being slightly less in China compared to Dynamics. Is that anything from a competition perspective? Or do you worry about that in the future, if not now?

Okay. Thanks, Andy. Nice to hear from you. So look, I mean we actually do -- we have our own China for China approach. We have businesses based in China where we produce first over [indiscernible] we produce under a Chinese brand name for our sort of China for China customers sort of more in the sort of mid-tier part of the market. And there we do compete against Chinese competitors, but we have a good offering. But typically, for the rest of sort of [indiscernible] PMS sort of mix, there aren't really any competitors of note, domestic Chinese competitors at the premium end of the market. So what we're seeing in Scientific is very much just slowing down in demand from those end markets, particularly sort of life sciences has come off. There have been some export control challenges around semiconductors, but that's been in place for a while. We continue to address what we have to do on that front. And the comparison to Dynamics is not one of sort of competition or market share gains or losses. It's much more around just which parts the market are currently in growth in China versus those that have slowed down. And as I said earlier, what Dynamics are seeing is that certainly the sort of electric vehicle development programs in China and the new -- some of the disruptors, the likes of [ BYD, Neo ], et cetera, continue to push new platforms, new models, and as well as the electrification development and all of that, and that creates strong test and measurement opportunities for us. So China in automotive has been a bright spot for Dynamics this year.

Second question, you've got GBP 20 million of variable compensation coming back into the business in '25. Is that volume or sales dependent? Or is that coming back sales?

So yes, that sort of GBP 20 million is -- there's quite a bit of that, which is sort of variable compensation coming back. Clearly, our performance this year, we're not where we intended to be. And therefore, in terms of variable comp bonuses, et cetera, they will be significantly lower than we budgeted. And so we look forward to next year, a good proportion of that on the basis that we deliver next year's budget will come back in. So you'd have to adjust for that. And then there is some other costs, as you say, in relation to sort of growth and other sort of cost actions we've taken this year that will come back in. So we're guiding sort of to a GBP 15 million to GBP 20 million sort of cost headwind that you should adjust for. So you've got GBP 30 million of restructuring -- the profit improvement program from restructuring ERP, synergies, cost efficiencies coming in. You've also got then sort of GBP 30 million incremental profit from the acquisitions. We talked about GBP 40 million. We'll get GBP 10 million of that, we'll get GBP 10 from the acquisition this year. So it's GBP 30 million next year. You adjust then for whatever growth you put in with a reasonable drop-through offsetting those cost headwinds, I think is sort of how we're helping to guide your thoughts on next year.

And then last question. When we had Donald Trump presidency last time around, we had quite a few issues with products coming in from China, but I think that was mainly [ Omega ]. Can you remind us how much products you export into the U.S. from either China, the U.K., Mexico, or the U.S.? Just trying to figure out any concerns over tariffs if Trump is successful in his -- in the U.S. presidential election.

Yes. I mean it's -- to some extent, we're all staring into a crystal ball on this one. But from a sort of China exports into the U.S., we have taken steps over the last few years to, I'd say, sort of de-risk some of that exposure that we had historically, if you go back to 2019 when we had the last big tariff hike. So we have set up a for Dynamics, we set the new facility in Portugal. We talked about that basically replicates our operations in China. So we can support our Western customers now from Portugal. That plant was commissioned early in the year and is already producing first product. So I think from a Dynamics perspective, we've covered that off. And the same in Scientific, we have a China for China approach to sort of support the Chinese market as well. But I think we clearly import a lot to China. So there is some sort of tariff exposure there. And from a -- whether tariffs get applied to Europe or vice versa, clearly, we'll have to adjust for that. So we've taken steps that we think are sensible to help mitigate as much as possible. But clearly, we need to wait and see exactly what comes for us.

Do you have much from Mexico or Europe, U.K. into America?

Yes. I mean we clearly, our sort of operations in the U.K. across Germany, Holland, Denmark, quite a lot of that goes into the U.S. as well as product from the U.S. coming into Europe as well. [Indiscernible] we buy it, we purchase from [indiscernible]. So typically, that's at the component level, and that all just depends on what the relative content requirements are, vis-a-vis the tariffs.

We now have our next question from Harry Philips from Peel Hunt.

A couple of questions from myself as well, please. Just on the first one is just the 10% organic revenue decline in the third quarter. I'm just slightly struggling with that in the context that I thought some of the ERP sort of rescheduled revenue will be coming back. And therefore, just on that basis alone, that should have ticked a little bit better. But if you could just walk me through that, that would be great. The second is just on -- I mean, mentioning drop-through with the sort of changing shape of the business, what is a sort of sensible drop-through assumption for yourselves in a sort of more subdued environment? And then lastly, just sort of coming back to the target set out at the Capital Markets -- sorry, the third question on the Capital Markets Day and the sort of 6% to 8% through cycle 20% margin. Notwithstanding the sort of hiatus, the macros, is there anything sort of recently happening, say, with China as an example, that sort of makes you wonder that that might become a peak rather than a through-cycle objective?

Thanks for the questions. So in relation to Q3, as I said, was weaker than we anticipated in Q3. But I think we had around sort of about GBP 10 million of the more mechanical sales that were missed in the first half, recovered in Q3. As of the end of October, we recovered about 2/3 of those, about another GBP 4 million, GBP 5 million of the sales recovered in October. As I said at the beginning, through the second half, we'll progressively recover all of those sales in the first half. I think very reassuringly, none of the orders have been canceled, and we just -- we are now operating our 2 biggest sites, the Malvern Panalytical -- the Malvern site in the U.K. and the Almelo site in the Netherlands at higher levels of throughput than we were achieving prior to implementing the new ERP system. So all of the sort of manufacturing processing, all that site is going very smoothly now and safely and we can actually buy more products through our facilities. In terms of what that means though is that we then push out a lot of products into, yes, put, yes, dispatch it to customers. And we are now in the process of installing and commissioning it. And given the sort of revenue recognition rules under IFRS, we need to do all of that and get customers signed up before we can recognize the revenue. So that has necessitated having to sort of renegotiate some of the installation dates and commissioning dates with customers and the customers prefer to delay things, then they could have taken the opportunity to do that. So that's really why you see quite a steady progression through the second half. But we have a lot in the new orders, and that's coming through. So yes, so that 10% revenue decline gives the offset, I think [indiscernible] GBP 10 million coming back and give you that number. So it's more like sort of 12%-ish, I guess, in Q3. On your question on drop-through, in a more subdued environment, certainly, the guide -- what we aim for internally is that for every $100 of revenue, we expect $33 of that to drop-through to the bottom line. So about 1/3 is our sort of internal target. That can -- given our gross margins, that can be higher depending on just if we -- it's relatively subdued, we don't have to invest cost to grow, that can then drop-through a bit faster. If we're investing more for growth, then it could be a bit lower. But as a guide, that's what we sort of use internally. And in terms of the Capital Markets Day targets, look, at the moment, I think I'm still confident that we can deliver those targets. But clearly, the world is not going to be such a higher growth environment as we anticipated back in 2022 when we put the targets out. But internally, given the level of investment we're placing in terms of R&D, but also our recent acquisitions, which we certainly see as higher growth, high-quality businesses, that through-cycle growth rate of 6% to 7% and certainly getting to the 20% margin target regardless is very much -- is on our sights, and that's what we're driving for.

We now have our next question from Bruno Gjani from BNP Paribas Exane.

I just wanted to understand, I guess, the outlook message a little bit better because the backlog at the end of Q3 was quite strong or looked relatively healthy at 532 million. Orders in Q3 seem okay to me, slightly up quarter-over-quarter, marginally, which seems okay. And I don't think you are factoring a pickup in orders when you last issued your previous guidance. So I guess what happened between then and now? Is it just that some customers have pushed out some of the orders and so therefore, deliveries have been pushed out and then maybe sales have declined more harshly than anticipated? Or yes, I guess, just what's driving that? Because the orders in Q3 don't look that bad at least sequentially, and I don't think you're factoring in that pickup.

Yes. So thanks for the question. I mean the order intake has been tracking sort of somewhere between sort of GBP 300 million and GBP 330 million the last few quarters. And it goes back to my opening statement really that the markets have stabilized and we feel we're very much plateaued and that going back to for the last 12 order intake, we now feel that we're heading into the recovery period. But as it relates to Q3, I mean, there was some sort of customer pushouts that we saw in the Malvern Panalytical business as a consequence of sort of having to answering Harry's question in terms of renegotiate some of the customer delivery dates given some of the disruptions we've had through the ERP implementation in Q2. And some of the book and turn business in the quarter was a bit weaker than we anticipated at the half year. So I think that really explains it.

And just on, I guess, Dynamics because it seems as if that had a meaningful sequential deterioration in sales Q3 over Q2. What's explaining that? Is that shorter-term book and ship activity in machine manufacturing, automotive? And I guess just because the orders in H1 for that business seemed okay, but yet the declines seem quite harsh in Q3, and that's not ERP related.

No, it is not ERP related. I mean we -- there is a bit of where we implemented ERP, we pull down some of the sales we were targeting and negotiated that with customers. So there's a little bit of that in terms of the revenue. But I think the majority of it stands as if it's weaker book and turn business from automotive currently in Q3, which aligns to a lot of the new flow that's come out in automotive over the last 3 to 4 months.

And just lastly, on the acquisitions, Micromeritics and SciAps. I think in terms of earlier communication, you expected those 2 assets to generate sales of close to GBP 160 million this year. Obviously, not all under your ownership, but still -- is that still the case? And then also, I guess, why -- what gives you confidence in regards to 2025 and why it's nailed on in terms of these businesses performing in line with expectations? Is it just because of the cost synergy side? Or do you have some visibility in terms of orders already starting to recover for these 2 assets?

Yes. So you referenced what you say, GBP 160 million of sales for the full year run rate.

Yes, yes.

So I was just checking. I mean it's about GBP 55 million to GBP 60 million revenue for this year under our ownership, just to be clear. But in terms of, I mean, when we put the -- our internal business plan together around the acquisition, we did not factor in some of the higher growth rates that the sellers were projecting for 2025. So our own internal case was discounted off that deliberately to make sure that as we look at the first year of the acquisition, full year acquisitions, we can deliver against the stated business plan that we put out to the market. So that's why we are confident in delivering that. So we effectively built some mitigation and contingency against what the sellers saw the opportunity, what we saw as the opportunity. But we obviously, we back that off a bit in terms of making sure that we can deliver the returns and deliver our first year performance in particular.

Are you able to provide some color in regards to how orders have trended within these 2 assets and what book-to-bill might look like for the year? Are we exiting the year with, I guess, a much softer order intake? And if you were to annualize that, would you still be at GBP 160 million? Or would it be somewhat softer?

As I said, they're both businesses are tracking to the business. So we're very comfortable relative to this year and next year.

We now have our next question from Alexander Virgo from Bank of America.

I just wondered if I could take a step back here and just give us a sense of what most surprised you compared to where you were at the beginning of the year? And how much confidence we can actually take from the order [Technical Difficulty] better than revenue development? And the sort of the book and burn business, I guess, still has scope to catch you on the [indiscernible] perhaps. I'm just sort of trying to think a little bit about the change in the portfolio or any changes that you think there might be in the context of your ability, our ability to think about the next step in that recovery. I appreciate your point on October and Q4, you can obviously see a little bit towards the end of the year. I'm just trying to get a sense of that level of confidence and thinking about 2025, I guess, in particular, and the exit rates as we come out of 2024 and think about that recovery.

Okay. Thanks, Alex. So I guess what's most surprised us about this year is fundamentally, it's been a lot weaker than we anticipated. If you remember, go back this time last year, we still expected to make progress, not anything like the same levels of double-digit growth -- top line growth that we've seen in the prior year '21, '22, '23. But I think we all came into the year thinking there was going to be sort of 4 or 5 rate cuts in the U.S. We might see 2, much lower rate cuts across Europe. I think China has clearly been a disappointment in terms of how China has evolved through this year. So effectively, I'd say that's really sort of been the sort of thing that's most surprised us. And as I said earlier, it's not that customers -- the customers that we deal with aren't interested in buying our goods and services, they absolutely are. It's just that clearly their companies will be much tighter on the purchasing things this year given what's happened in the marketplace, the cost of capital, all of the uncertainty I think that clearly, we like others, have seen that across the industrial space. And against some really tough comps, that's proved to be quite hard for us through this year. I think in terms of order revenue development, as I said, sort of our order intake over the last few quarters has been in sort of tracking between sort of GBP 330 million a quarter. So around that sort of plus or minus 5% of GBP 315 million. So things have stabilized, and we're tracking in that vein. Book-to-bill in Q3 was around 1, and just slightly above. So I think from that perspective, we've definitely seen that stabilization. I think in terms of exit run rates, as we look at the order book, as I said earlier, sort of GBP 530-plus million. we're bang in the middle of our sort of 4 to 5-month guidance range at that point for the next 2 quarters. Now we have 4.5 months of visibility, but we clearly have 12 months. But going into next year, we've looked at Q4, we've revised our guidance down. We've taken a very balanced approach to the risks and opportunities, represents a sensible risk-adjusted position. And it means as we go into next year that we'd expect some of the weakness we've seen to extend into at least Q1. And then I think we need to see how Q1 evolves before we get to our full year results, we'll then talk more about 2025.

Alex, I would add to the -- what did we not know at the half year, and we have a small impact from foreign exchange as well, about GBP 3 million to GBP 4 million, which is a delta of outlook.

We currently do not have further questions on the line. [Operator Instructions] I'll pass back to the management team for closing remarks. Thank you.

Yes. Thank you very much. There are no further questions, we'll close. So thank you all for joining us this morning. Clearly, 2024 hasn't evolved as we wanted to. Personally, I'm disappointed. However, the strategic progress that we are making -- continue to make has and will continue to structurally increase our ability to deliver against our medium-term financial targets. And the self-help profit improvement program that we're talking about today and that we'll undertake in the near term will only serve to accelerate our long-term growth and also expand margins. And certainly, as I look and we look to 2025, I have strong conviction in the strength and quality of the group. And then when the markets rebound, as I'm sure they will, we are well-positioned to capitalize on the future and that opportunity. So with that, we'll close, and thank you again for joining us.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.