Judges Scientific plc (JDG) Earnings Call Transcript

Good afternoon, and welcome to the Judges Scientific Investor Presentation. Today, we are joined by CEO, Tim Prestidge; CFO, Brad Ormsby; and Group Commercial Director, Ian Wilcock. [Operator Instructions] I will now hand over to Tim to begin the presentation.

Thank you very much,. Thank you, everyone, for joining us. So today, we're going to take you through our interim results for the 6-month period ended 30th of June 2026. Actually, this is 1 or 2 elements that's come out today. And so before I start on the interim results, the first thing I'm going to do is just mention the other announcement, which is regarding our CFO, Brad Ormsby, Brad has been with the group for just over 11 years now, and he's made the decision to retire from the group. And I just find to mention and read about his contribution to the group, and the experience that he has brought. So Brad has made a huge impact on the group since joining. He really lives and breathes the Judge's culture and is amongst its greatest ambassadors, really grateful for the impact that he's had and how he developed our financial acumen within the group and particularly as well for how he's worked so hard to develop such strong relationships, both with our colleagues within the group, but also with the investor community outside the group. He's given us 12 months notice, so he's going to absolutely be around to help identifying a successor and in the transition process. So I'd like to thank Brad very warmly on behalf of the group for the work that is done for us and the state around I look forward to continuing to work with them over the next 12 months. Brad will say a little bit more during his presentation. Okay. And let's start talking about our interim results. So if we can move to the next slide. And the first thing I'll do is say a little bit about what Judge Scientific is, who we are and our strategy. So Judges Scientific, we are a buy-and-build group in scientific instrument markets. If I start on the top left-hand corner, there's 3 pillars of our shareholder value, 3 pillars of shareholder model is based. Long-term drivers. What are the long-term drivers. We talk here about long-term secular trends, the research and scientific technics, so the ongoing need for measurement assessment of variables associated with scientific techniques and instruments associated with scientific processes, and those things, in turn, find increasing application in commercial and industrial opportunities, okay? And we see those as very long-term secular drivers. The other aspect is a large deal pool. So there are many businesses in the world. If we think about a typical opportunity for us, maybe it's a company which is founded by [indiscernible]. It used to be in a research lab, it used to be in the university. They've identified an opportunity. They've built a successful business. It's key for us obviously that it's a successful business, maybe they've come to a conclusion over 15 or 20 years or so that has time for them to find -- to find a different home for that business. We think there are many, many thousands of opportunities, many thousands of deals like that are available in the U.K. and elsewhere in the world. Also fundamental to us, the businesses that we acquire have low capital use. So we're not looking for businesses that require a huge amount of investment and ongoing investment in capital equipment and manufacturing equipment. We're talking about businesses that are asset-light, and the key benefit of that is high cash conversion. In other words, they convert the majority of their profit into cash. We need that because we recycle that cash both to pay off debt and to invest in more businesses. It's that compounding that generates shareholder value. So moving down to the bottom left. Characterizing us is an extensive and diversified global customer base. So the sort of businesses that we acquire, if they are successful, they got successful by the coming diversified in our customer base. If they're U.K.-based, for example, the U.K. doesn't own enough other global market and scientific instruments, to in and of itself, make a successful company or a successful customer base. So companies that are successful have clearly developed the ability to export certain customers around the world. And that's a fundamental aspect of what we look to acquire. We're not -- we don't buy turnarounds. We don't deploy start-ups. We buy successful businesses. And in buildout is that they already diversified. -- the sort of customer base we include universities, industrial customers and other types of research on clients. And we get there some examples, some typical examples across the group. -- of the types of companies, the -- sorry, the types of customers that our businesses have. If I move to the top right, -- what is our growth strategy? Well, I mentioned earlier, the companies that we acquire, generate cash, low capital use, high cash conversion to generate cash. We then recycle our cash. We turn that cash into investments in new acquisitions, which includes paying down the debt for those acquisitions. We turn that cash into investments in organic growth to investments into the existing portfolio. And we turn that patch into a progressive dividend policy to benefit our shareholders. Again, those are the mechanisms through which we generate shareholder value. And the execution of our strategy over the last 20 years, it's been up to the end of the last financial year '25 acquisitions, total dividend distributions of nearly 10x the admission price back in 2005, 19% CAGR of total revenue, 7% CAGR organic revenue, 23% CAGR of total EBIT. 8% CAGR of organic EBIT. We're an experienced management team who together bring a broad set of skills from the different experiences that they've had. So on the call today, myself, Brad Ormsby, who I mentioned earlier, also Ian Wilcock, our Group Commercial Director. Over the last couple of years, we've added into the team, Rik Armitage as a group acquisitions executive and John Dunne, our portfolio Chief Executive. Together, we bring varied experiences on companies like Halma, [indiscernible] Danaher. Next slide, please. So I'm going to start with next section by giving an overview of our performance in H1 the key messages and key takeaways, after which I'll hand over to Brad to take us through some more detailed financials. So the headline here, challenging market conditions that weighed on our H1 performance. but our fundamentals remain intact. So we certainly don't hide behind the fact that we have an exceptionally weak H1 performance. Our revenue was down 21% compared to prior year. That will be 13% on a like-for-like basis, if we exclude the Geotek coring exposition that happened in the first half last year, which was something that we knew wouldn't reoccur this year and we talk in more detail about that. but adjusted earnings per share down 72%. And we need to be clear. We are a portfolio of high-margin businesses. So as we'll talk about, for sure, we took some action on costs, and we've never intend to be able to offset the entire decline in margin through cost as high-margin businesses when there is a decline in revenue. There is a high flow-through and that's why the adjusted earnings per share is down so much. We highlight the external headwinds that affected us during the half. So coming into the half -- we mentioned already that there was no coring expedition for Geotek, which we knew about. Also, orders and revenue were materially affected by continued uncertainties in U.S. research funding, so we knew this was an aspect which was going to affect us. It started around about the beginning of the second quarter in 2025. It continued through the balance of last year, and it's still affecting us now. So in the first half of this year, we had 2 full quarters of that impact versus only 1 quarter in the first half last year. We also continue to see postponement of offshore wind investments, those started to impact us in the second half of 2025 and continued through the first half of this year. We had initially expected that those might improve a little some of the major suppliers, some of the major businesses in that industry, for example, Fugro have been highlighting in some of their announcements that they have expected to see a little bit of improvement from Q2 onwards. But in fact, that didn't occur, and that didn't happen. So we didn't see that improvement as well, something that we hadn't really foreseen coming into the half were delays resulting from China's tax exemption processes. Now we should be clear, this isn't something which is specific to Judges. This relates to any business, including domestic Chinese businesses supplying research or scientific instrumentation into customers in Chine or to customers in China where those customers might benefit from government funding as part of the purchase. They would be -- normally, there will be processes in place where those customers can be exempt from what is essentially a VAT, about 13% or so because of the new 5-year plan in China, several of those processes have been postponed. And the way that we saw that was orders that were placed, the customers are asking for those shipments to be postponed until the tax issues were sorted out. And then lastly, orders not being placed for future visits until those issues are resolved. Against the backdrop of these challenges, we highlight ongoing focus on controlling the controllables. So we continue to take actually to reduce costs at underperforming businesses. We took almost GBP 2 million of costs out of underperforming businesses, principally related to people costs. At the same time, we also invested in talent and innovation in other businesses to support recovery and growth to support recovery growth opportunities. is an important point that we want to make about us. We're not the type of group that would [indiscernible] cut costs purely on the basis of attempting to achieve a short-term outcome, short-term EBIT number or earnings per share. Both things can be [indiscernible]. We took actually to control costs underperformed businesses while simultaneously investing elsewhere to support recovery and growth. Related to that was addressing into performance. We highlighted in previous presentations, and there were some businesses where there were product-specific issues or challenges and we're pleased to report that there's been solid progress for those businesses. Software that needed to be developed has been launched. There's been operational improvements, there's been product rationalization, there's been cost reductions and there is a genuine order intake momentum in those businesses. So while we're a little behind the plan that we expected to be at the end of the half, we're confident that by the end of the year, there will be demonstrable progress of those businesses. Concentrated growth. So despite revenue down 21%, 8 of our businesses grew. I was rather than later show you a bridge our growth was nowhere near enough to offset the decline that we saw elsewhere. But nonetheless, 8 businesses grew in the half supported by internal growth initiatives, new product development, market development, investments in town as well as positive market dynamics in industries like semiconductor, battery development and some other industrial research markets. So of note, all 3 of those examples I gave were industrial margins. With all that, our strategy remains unchanged, disciplined acquisition process, our structured and decentralized organic growth drivers that Ian will talk about later, the importance of local definition and execution of market-led growth strategies. Each of our businesses responsible for defining our own strategy and continued investment for the long-term returns. We ended the half with a solid order book, and as we will talk about increasing momentum on order intake, 90% cash conversion despite significantly lower profitability, and we're recommending a 10% increase in the interim dividend. And that, I'm now going to hand over to Brad for the detailed performance review.

Thanks, Tim. And I think firstly, thank you very much for your kind comments. I probably let me address this first. You'll be aware the life maybe decision to step down from serving as Judges' CFO. Just a couple of quick things on that. is absolutely a very personal decision for me and no reflection whatsoever and the great management of Judges, and one who I firmly believe are the right people in place in order to deliver an excellent long-term future for Judges. I've been truly honored to be able to serve my colleagues and our shareholders over the past more than a decade. And I know we believe I'm going to miss Judges terribly because it is truly a wonderful company. once my success has been found, I will do my very best to ensure they have a really good and proper handover. And then I'll take a break and see what comes next. So moving on to results in the next slide. And total revenue is down 21%. And as Tim touched on before, like-for-like revenues down 13% when you exclude the 2025 Geotek coring expedition that we knew wasn't going to repeat in the first half this year. 21% revenue drop for a business like ours with higher operational leverage results in a 2/3 drop in adjusted operating profits and put simply marginal gains in revenue positively add to profitability. Unfortunately, in this case, a significant decline in revenue really, really has profits. Earnings per share was also significantly affected with adjusted basic earnings per share of only 39p. Moving on to order intake and order intake declined by a similar amount to the like-for-like drop in revenue with order intake 12% down in However, since the end of H1, and I'll talk about this in somewhat more detail in the order intake side, we're now in a position where like-for-like order intake year-to-date is now almost a parity. And the effect or the reason for the 12% drop in order intake, as Tim touched on earlier, it was a, firstly, a full 6 months of the continuing uncertainties in the U.S. We only had 1 quarter in the first half last year. And add to that, the delays in the implementation of the China tax exemptions and good reason for why we were down. And as Tim touched on, and I think it's an important point to make, the environment is difficult, but at the same time, we managed to in the last few months really see some improvement. So if you go back to the beginning of the year, and I'll talk about this later, you can see how things have changed. I think it's a very, very important 1 because it's now at a place where we have good momentum in our order intake for a number of months now. Moving from P&L on to cash generation and the group has a strong track record of turning our profit into cash to toughen before about high cash conversion. And whilst we only generated GBP 4.3 million cash from operations, it was at a cash conversion of 90%, in line with historic expectations. We continue to focus on working capital and what it did increase in the period impacting on -- our adjusted net debt, which increased by GBP 3 million, and I'll come and talk about this later. We remain the strong balance sheet and plenty of headroom on our covenants. And consequently, we've also provided for a 10% increase in the interim dividend to 36p per share, and that's in line with our policy of providing shareholders with progressively increasing dividend returns. A quick comment about the outlook for the rest of the year. Now we said in July when we got our trading update, that there were 2 key things we needed to deliver in order to be able to achieve the numbers in the market. The first one is that we need to achieve a good level of order intake in line with our expectations for Q3. And as you'll see and I'll talk through on the order intake side that we have done almost all the way through to Q3, quite happy with the order intake, which then leaves us with an improved order book and improved order outlook and pretty much the orders we need in order to be able to deliver the full year results. So quite simply, it's a case of execution now. Now that doesn't mean say it's absolutely straightforward, and it's certainly not without risk, but it is within our [indiscernible]. So moving on to the next slide. I'll just touch on a couple of things on the performance side. I did mention beforehand in the summary slide, the group has high operational leverage. And the unfortunate consequence in this first half is that we suffer greatly on declining revenue on our profits. And as Tim touched on, we're not a business, and I think he used these words, I'll repeat them, not a business that we indiscriminately cut costs in order to achieve a short-term profit target. However, importantly, that doesn't mean to say we do not take action where actually it's appropriate and we've reduced the cost base of those businesses that were underperforming by GBP 2 million in this first half. But at the same time, we've continued to invest for future growth and innovation. And it's a really, really important point, but it takes us on to comments on tax, where our effective rate of tax, we expect for this year to be 18%. And that is a consequence of the continued Innovation continued investment in innovation and the side product from wanting to be able to continue to improve our products for our customers and to our customers is that we're also able to tap into the U.K.'s Patent Box scheme, which is enabling us to reduce our tax rate. So a nice side benefit, which we expect to continue to benefit as the years passed from our intention to continue to invest in innovation. And then lastly, for those that are not as familiar with our P&L, we do have adjusting items that take the statutory results. The largest of these is the GBP 4 million noncash amortization of the intangible assets, which we required to recognize when we acquire businesses. So moving to the next slide on order intake, which really is our [indiscernible] first thing, most important for me, talking through the graph that's on the right-hand side of the slide. There are 3 key lines on here, red line, a black line and green line. The red line is our internal of sales budget, which we set once a year and do not change as part of our budgeting process, don't change unless we have a major acquisition. It's our target. The black line is our trailing 12 months of orders and really what we're looking for from the black line because that's the history historic last year is for the black line to ideally be touching in the red line come the end of the year, such that would have had sufficient orders in which to satisfy our internal sales budget. And then the green line, which is the last 4 months of orders annualized. It's a shorter-term measure unsurprisingly at much more jagged line, but an important line nonetheless because if that line is tracking the red line, then we know that we also have good operational capacity. So what's happened in the pivot. And by the way, before we go on to that, the end of the graph is pretty much up to date. So I'm going to start from the beginning of the year and just remind everyone at the year-end announcement in early April, that we noted that Q1 order intake was down 18% in the first quarter, not a great start to the year. We have to be honest about that. And you can see that from the declining black line throughout the first quarter. But as we went into the staff, the second quarter, order intake starting to improve, and you can see the black line beginning to improve as with the green as well. And so by the time we got to the end of June, some improvement, but still 12% down. However, that improvement continued as we went into the second half and for the last has again continued to improve. And you can see that through both black and green lines. And actually, the green line, which if you follow to the end of the graph, has been at around or a bit above the budget level for at least a month. And because this measure is the last 4 months annualized, what that really means is we've had 5 months of order intake at and around our budgets which means that we've got momentum coming back, and you can then see that in the black line as it's working its way up, what hopes inexorably towards the red line for our budget. So overall, this is momentum return for us. We wouldn't have said anything for 2 months' worth of a decent order intake, and hence, we do anything in July. But after 5 months, I think that's a reasonable period to feel like we've made some improvements, and we can see it. And consequently, how that's giving us quite a comfort. Now clearly, we've been effective, as you can see from the geography, effects of China, the effects of the continuing uncertainty in the U.S. academic research funding arena, and it's not on effect around the world, but we've managed to do this despite no real improvement in those environments. So I'm pleased with our teams doing determination to be able to bring in extra orders and help improve those. And that gives us a good degree of confidence. Looking forward, it means that we're going to have enough orders, we wish to satisfy this year's consensus performance but as I said before, we still have to execute, and there is definitely still risk because we have a lot of high-value orders and things can go wrong. However, we're in a good position this year because we've got the orders to be able to deliver. So moving on to the next slide. On this slide is our profit bridge, which reconciles between the 2025 first half and '26 first half profit contribution to the businesses before central costs. Yes, the 2 green blocks at either end of the graph, reconciling between these, you can see the green block of organic growth where 8 of our businesses grew during the period. Good performance from them. Ian will add a bit of color to things that we did in order to be able to achieve this over that period. But as Tim touched on before I can say the red line can greatly overshadows the green line. A large chunk of that is the consequence of no coring expedition at Geotek during the period, but also decline of 13 of our companies, some of which I have to say, that a consequence of delayed order intake, and it's in subsequent delivery for customers. And I just want to say I've also asked very deliberately the acquisition of [indiscernible] to enable us to remind shareholders that this important part of our strategy is absolutely not on pause. Moving on to the next slide, please. The balance sheet and cash flows. Cash conversion continues to be at historic levels, which I'm pleased about. We continue to focus on working capital, although with the weaker H1 results and the need as a consequence to plan well for this significant delivery in the second half, working capital has increased. I think the year-end will give us a clearer picture of progress here. Gearing has inevitably increased as a consequence the weaker performance, and that really is a mechanical effect on this measurement. But you're also seeing this morning that we have announced a 2-year extension to our banking facilities such that they now mature on the 1st of July 2030 instead of 2028, and I want to formally thank our banks, the 3 banks that we have, Lloyds and Santander and HSBC for their continued support, which is not unappreciated by any means. And then lastly, for anyone that's followed the fact that we do have a small defined benefit pension scheme that we've had on our balance sheet for the best part of 11 years. August this year saw -- the group is no longer having responsibility for this defined benefit pension scheme as it was fully bought out, such that now all members, future pension payments have all been secured and the group no longer has responsibility. So moving on to the next slide, return on total invested capital, ROTIC, as a quick reminder for everyone in its purest form, it's a function of the multiples we pay for the businesses we acquire. You can see on the far left-hand side of the graph, when we acquired FTT, our first acquisition, we pay close to 5x start around 20% and growing ROTIC thereafter requires improved financial performance and/or buying businesses at lower multiples. And when you pay higher multiples, you can see the cliff edge effect when we acquired GDS and Scientifica, which were then very large acquisitions in the group in 2012 and 2013, the cliff egde effect of doing that. And likewise, when we paid 7x acquiring Geotek in 2022. And smaller acquisitions affect minimally on ROTIC. What happened in the year while the decline in performance, unfortunately means that ROTIC has declined to around 13%, and it's clear we have much work to do to return this figure to historic levels and work we will do. So moving on to the next slide. noting on diversification, simply put diversification works for us. Just a couple of things to note. One, our focus added to life science semicon areas and also into industry, particularly as a consequence of the continued uncertainty around the academic funding, not only in the U.S. across the world. So good that we're working on that. Ian again, we'll touch on a little bit of this in a short while. And then on to my last slide, which hopefully 1 in my last slide. I think on financial history and some key statistic about the long-term success of our group. Whilst we're going through a prolonged continuing challenge and period for performance -- the group has provided shareholders a long track record of growth, and we will return to growth. And those key measures Tim touched on at the beginning of CAGRs growth and profit growth will return to their white foot levels. Dividends have grown by at least 10% per annum over the history of the group, and we've increased this interim dividend by 10% to 36p per share. And lastly, the group's continued focus on cash generation serves to enable the group to weather challenging market conditions, like we've been going through. enable us to make the acquisitions we want to be able to make when we want to make for them. When we're able to make them quickly reduce acquisition debt and continue to find those progressively increasing dividend returns for shareholders. And I'll pass back to Tim now.

Thank you, Brad. I want talk through the growth strategy and also hand over to talk about the organic growth aspect of that. So if we move to the next slide. We use this slide to position our -- or describe our growth strategy around buy and build capital allocation and the priorities that we have for that capital allocation. So just going up to what I mentioned in the very first slide, the businesses that we acquire an asset light, they generate cash. Our businesses generate cash, we collect that cash, and we recycle our cash in this priority. So first priority for us is to recycle our cash as investments in further acquisitions, including reducing the debt or paying down the debt resulting from those acquisitions. The second priority for us is investments in organic investments in the portfolio of businesses that we have already to enable them to take full advantage of the growth and market opportunity -- and the third priority is then the progressive dividend policy, and I'll talk more about that on a later slide. So if we move to the next slide, I'll talk a little bit more about our acquisition strategy. And I think the key point in the heading there is around the strict discipline. Strict discipline that we have is fundamental to our feed strategy. If we think about the attributes of the target businesses described earlier, how the deal pool, we still see the opportunity pull is large, but strong exporters in global niche markets for scientific instruments and technique related to the use of scientific instruments. A strong indicator for us what indicates success, strong cultural alignment as businesses have developed innovate, entrepreneurials, [indiscernible] this within that culture and also frugality, okay, they're run with a real frugal mindset that helps, obviously, with the asset-light or cash conversion aspect. We absolutely look for businesses with robust margins, that demonstrates to us differentiation in the niche they serve and price power, both of which are fundamental to our model. And we look for businesses that generate sustainable EBIT and cash flows in high turn on sales. Again, all of which reinforces the strength that they have in their marketplace, all of these aspects taken together really form what we would think of as the hurdle, okay, the high barrier, high hurdle that we have, the potential acquisitions have to be able to cross in order for us to be able to think about acquiring them. I think a key way of thinking about this is we always acquire a business in the context of keeping it forever. We don't acquire a business in the concept of selling it after a few years' time. So if we are to acquire a business, absolutely, it has to pass the test for us, do we want to keep this business forever. The deal priorities, we typically pay 4 to 6x for the business. We have paid 3x. We have paid 7x for our largest acquisition to at,[indiscernible] and that's generally around the size. We pay a multiple of EBIT. We don't pay a multiple of EBITDA. We see depreciation monetization as a cost of running the business. We've demonstrated flexibility in the deal structures have been used over the years and our deals are funded with cash debt. We buy high-quality businesses, importantly we buy businesses that a quite sound [indiscernible], but we are talking about businesses that the owners have decided that they want to sell the business for whatever reason. It's not that we are attempting to persuade owners who don't want to sell the business to sell to us. Deals typically have long [indiscernible] periods, and we acknowledge crystallization is erratic. There have been periods where we've gone 2 years without -- we're out securing a deal, in fact, with within 1 of those periods now happened again years a few years ago, equally well, there's been years work at 3 deals that were completed. Perhaps the most important statement here is we aim to do deals, absolutely, it's fundamental to who we are and what we do. but not any specific deal. So that high barrier, that high hurdle means that we must be compelled to do a deal. We have a reputation as an honorable acquirer. We are mindful that for most of the people that we buy from, they will go through this process, just won't in their life, where is it something that we do much more regularly. So the importance of building -- having built a reputation maintaining our reputation being open in the process that we follow is absolutely key and critical to who we are and our culture. Generate cash, reduce debt, repeat. That's the fundamentals of this model. We made no acquisitions in half 1 of this year. But we want to emphasize the group sees a healthy pipeline of opportunities, and we absolutely remain confident both in the depth and vitality of the potential deal pill and in our continued ability to attract acquired businesses of disciplined EBIT multiples that will be referred here. So we do not interpret the lack of an acquisition in the first half as the lull in activity, or our business model that our acquisition strategy is ceasing to work in some [indiscernible] faith in the strategy that we follow. [indiscernible] well compared to maybe 9 to 12 months ago, we do feel that there are some stronger opportunities out there. We certainly see examples of businesses that might have started a sale process and then exited that process in a word, they stop to themselves, having restarted that process. So we're seeing some examples like that. And absolutely, we'll see good positive flow opportunities. Okay. We're going to move on and talk about investments in organic growth on the next slide. And at this point, I'm going to hand over to Ian. Thanks, Ian.

Thanks, Tim, and hello, everyone. Yes, I've been well trailed by my colleagues. We're going to look at organic growth for a few slides. So next slide, please. So -- many of you will be familiar with the fundamentals of our model, but it's worth repeating, and particularly for those who are not familiar, some fundamental points on this slide as to how we work. The key word in the title is decentralized. So we are deliberately an asset like group. We have a small head office as reasonable, so that as much as possible in terms of resources are in the businesses close to customers, driving innovation. Now that model only works perhaps, I think, 19 separate individual P&Ls. That model only works if the left-hand side points, those fundamental points are working properly. So the first 1 I'll focus on for a second is the strong leadership team. Obviously, we can't be in the business. We're not in businesses all the time. So we're along having exceptionally good leadership teams in our businesses and particularly focusing on the MDs having the right entrepreneurial growth-minded MDs. We've put a lot of time in talent development and making sure we've got strong leadership teams. I'm pleased to report that we've had a very stable period with only 1 change in MD in the period, which is a retirement -- and I think we reported last time we had out to 7. So we reached a really good period of stability. There were some other changes in the leadership teams locally, but at MD level, there was only 1 change. So strong leadership teams. And if we get 1 thing right, it is having those -- that entrepreneurial growth [indiscernible] teams locally. The second point is, again, this model only works these within a framework of robust governance and financial controls. Now I don't want to give the impression we over incumbent businesses with processes and structure is quite the opposite. We want to minimize that. We want to use the agility, the small nimbleness of our businesses to our advantage. But of course, we do need to have -- we do need to have processes in place, obviously, financial ones, but we focus a lot on things like [indiscernible] controls, cybersecurity and increasingly things like AI, responsible use of AI, to provide that framework for them to work in. And the third point is we also recognize that we have -- where we have capability gaps, we can bring in additional help, we can bring an external resource. For example, we've done some software outsourcing. I'll talk about in a second. Well, where we think we need to invest in capability. So for example, AI is a growing area, which we all know, and we're putting, I think, 23 people through an AI apprenticeships as a new initiative, specifically focused on the adoption of AI for SME manufacturing businesses, it's a really exciting initiative. So we got all that right on the left, which then talks to having the autonomy and accountability. But they're different work in isolation. We move to the right-hand side. We have an incredible amount of talent and experience across the group. So we aim to leverage that as much as we can by creating communities of like-minded role. So for example, we have a very strong sales community, operations, community, finance community and so on. And these communities share best practices as much as they can. And whilst 1 of us in the exec may well sponsored them, they're generally run by 1 of the MDs. So these are ground-up grassroots communities rather than a top-down impose sort of thing, and they're really, really successful use many examples we're sharing the best practice. We promote excellence, I mean, partly through these communities but also through sharing case studies. We have a learning management system, which we're increasingly using. We do also use it actually for some of the compliance training on the left. But we're using it increasingly to improve our capabilities and promote excellence. And then finally, on the bottom right is we encourage ambition, really, really strong growth ambitions. I'll talk a little bit about that particularly as regards to our strategy development process in a couple of slides. We get all that right on that slide, and that gives us that long-term focus, that long-term growth which is as you just noted for. Next slide, please. So we alluded last time, and in fact, we lifted the lid last time on some detail around some of the challenges -- sorry, some details around some of the opportunities we're seeing. And one of the very exciting things in what has obviously been a relatively difficult period in academic markets, particularly in the U.S., is the application of some of the scientific techniques and equipment network that we make into industrial areas. Now we picked up 2 here. THT is our [indiscernible] business focusing on understanding heat flows and particularly as applied to a number of industrial processes and particularly in batteries, and we've seen a really good recovery in that mobility market and that's both in EVs, but also in injury storage in general. We have new leadership there and interesting applications of AI in that business as well. So there's some really good growth prospects there. And the second one I would draw attention to is our is UHP, which is 1 of our longest standing businesses in the group actually experts in moving things in ultra-high vacuum. Now that's historically been a typically a big science thing often [indiscernible] national facilities and very academic, but increasingly funding opportunities in industrial application, particularly semicon where the move to more ultra clean environment is becoming more and more important. So really 2 interesting examples of a growing sense that of application of our scientific techniques into industry. Next slide, please. So we alluded last time to some of our businesses, which had some product-related issues, Tim touched on this at the beginning. Pleased to report some very good progress on these. So firstly, in fine testing technology, it's our longest standing business in the group for over 20 years, run into some particular competitive issues, particularly around software, required additional investment, particular focus on cost base and capabilities. We brought in quite a lot of external expertise there. And that's resulted in some really exciting new product launches, very pleased to report some significant order growth well on the way to recovery. These are multiyear projects, which are big, big projects where we report on. So I'm really pleased to report some good progress there. And the second one, we draw attention to last time was Armfield. It's a business which focuses on educational equipment and food technology area. Again, product-related issues slightly different, more to do with the extent of the product range. So we did a lot around product rationalization, focus on margin improvements, cost reductions and operations improvements. So multi-strand set of activities that good progress to report as well. Order intake is up and new products being launched as well. So great progress on those 2. And then the final slide for me. So -- we've got a very robust strategy process, which, in fact, have just come to the end. We tend to do it in the summer. We run obviously a budgeting process in the autumn, but we deliberately separate budgeting from strategy because now are fundamentally different disciplines. Now when we're developing strategies, we ask the businesses to really think big. What do they need to do to double the EBIT in a 3- to 5-year period. What are those big rocks, what are those big key strategic initiatives, they need to do, they need to be investing in now, where do they see the market opportunities to do that? Honestly, it's my fair time of the year because I really think it brings out the creativity and [indiscernible] nature of some of our businesses. And they put that together into a strategy into a 3-year plan, which is then presented -- and we're just at the end of that process, that then flows into the budgets, which is more of a short-term commitment. And I think I kind of overemphasize how important that strategy process is helps us identify the investments we need to be doing now to deliver the growth in the longer term. Okay. I think that's all for me. So I'll hand back to Tim.

Great. Thanks, Ian. So the last point I wanted to touch on in our growth strategy, a progressive dividend policy. Just a reminder, the businesses generate cash, we recycle our cash, investments in acquisitions, including paying down debt, investments in organic growth and then a progressive dividend policy. That policy is to increase our total dividend -- the total annual dividend by a minimum 10% annually, subject always to appropriate cover and subject to no constraint on the group's capacity to continue to invest in its priorities 1 and 2. So investments in acquisitions and investments in organic growth. So the Board has increased the interim dividend by 10%. And the cover for that, dividend cover is 1.1%. And we recognized to complete the new in isolation that level of cover is not sustained. But it's important to understand that, that's driven by the particularly low result in the first half of the year, okay? We do expect, as a result, comes through for the second half, but mechanistically, a number will improve. So the increase in the interim dividend is a statement of confidence from the group that the group will weather the current headwinds, the current macro headlines and confidence in the future potential of the group, okay. And importantly, the group is not constrained in its capacity for investments in acquisitions and investments in organic growth. Okay. I'll move on to the final couple of slides, the outlook and investment case. So next slide, please. So I just want to summarize what team what my colleagues said in terms of the outlook for the balance of 2026, but also some points about 2027 business model. So positively, we are seeing real momentum in order intake. So as Brad mentioned, 18% down at the end of the first quarter, largely because of that impact of the comparative quarter previous year was not impacted by U.S. federal funding science challenges. -- whereas this year it was. So 18% down at the end of the first quarter, 12% down by the end of the half, at the end of last week, just 1% down year-to-date. So feels like momentum building there. Also positively, early signs that the China's tax exemption processes are being resolved. So having customers who have older equipment but asked us to delay some them until these things resolve they are starting to ask for these things to be to be supplied. The timing of these things, the improvement in order intake and the tax exemption process being resolved inevitably leads to a significant H2 voting indeed, Q4 weighting in terms of revenue. And that has some execution risks, execution challenges for us. We are a collection of businesses that produce high-value capital equipment. So a single instrument or 2 instruments missing or shifting a month could have an impact there. So for example, there's an instrument that's being shipped and the specific terms or maybe get delayed during shipment, we are mindful those are risks that exist. But the risks that we have are predominantly within our control, okay? So we now have good visibility with the improved order intake on the revenue we need to deliver through the balance of the year. So the risks are predominantly within our control. but there are still risks in terms of execution through that final period of the year. We are confident about delivering demonstrable progress on those businesses that have underperformed in particular examples that I gave at [indiscernible] earlier. So we're guiding trading in line with FY '26 market expectations. We highlight some resilient markets, in particular, those related to industrial. So we're talking about the exposure that we have to semiconductor, improvements in battery development and battery technologies, so some of the industrial research markets but absolutely highlighting continued headwinds in scientific research. So we see challenges remaining through the balance of this year. With uncertainties from the U.S., of course, we have the midterm elections coming up soon. The U.S. budget for scientific research where there were proposed cuts that were rejected by Congress but those funding never really flowed properly through the balance of 2026, and we don't expect to see a recovery there. And we are also now very mindful that the U.S. administration is talking about similar cuts to the 2027 budget. So we do expect continued headwinds in the scientific research market generally. We understand the next Geotek coring expedition is not now expected earlier than 2028, so previously, we anticipated that there might be a contract signed later this year for delivery at some point next year. The good news is that particular customer has had their funding approved, but we now understand that they're going to reverse the order of some of their projects. And so the coring expedition is unlikely to happen before 2028. We have confidence in the long-term drivers and our business model for the group remains intact. That brings us on to the investment case for the group. So next slide, please. So I reiterate long-term drivers a large deal pool and that low capital use businesses that generate cash to recycle in the buy and build capital allocation strategy that we discussed altogether, continue to generate shareholder value. We have a robust business model that we pursue with discipline. Earnings enhancing acquisitions, we're diversified by geography and by application we note increasing diversification, particularly in industrial and commercial opportunities and dividend growth greater than 10% for the last 19 years, actually at a CAGR of 21%. Okay. Thank you. That's the last slide. We're going to now move to Q&A. Thank you.

Thank you. We have had a number of questions. pre submitted and submitted live. [Operator Instructions] So our first question is on long-term capital allocation. Once the balance sheet has deleveraged further, has the Board considered adding opportunistic share buybacks alongside the 10% dividend progression particularly during the quieter M&A periods. This -- sorry, this significantly enhances dividend sustainability and avoid the structural risk of getting boxed into an unsustainably high absolute payout base from one-off larger dividend hikes while allowing Judges Scientific to elegantly soak in cash drag and remain in line with historical dependent policy -- dividend policy sorry.

I'm very happy to take that one. I think there's 2 points to the question here. One is your point in some respect suggests that we shouldn't do more than 10% increases to our dividend over the longer term and perhaps apply that to share buybacks. And yes, to answer the first part of the question, absolutely, we've looked at and thought about share buybacks and see them as a viable use of capital allocation, but not necessarily at the moment I follow the logic of a sustained and consistent dividend increase rather than a variable dividend increase is something which we continue to talk about. And given the last couple of years' performance where we haven't been at historic highs, we've retained a 10% increase in having sought for the last few years to increase anything higher than 10%. As regards the current situation, the groups in relation to share buybacks, I'll probably add this in now the I don't feel personally and I think the Board is in agreement with this that the use of increasing debt in order to achieve share buybacks outside of everything else we're doing. -- is necessarily an excellent use of our capital allocation at the moment. I certainly would feel that I've always said when we do acquisitions, do you never want to your latest acquisition to be your last one, but you accidentally overleverage the group and can't recover from that. The same thing I would argue would be the same, it would be set for share buybacks that we increase our leverage, and we do need to deleverage with improved performance first and foremost.

I'd add to that. I think we acknowledge that since the share price has come off the highs a couple of years ago, in conversations that we've had with investors, share buybacks has been an increasingly calm point that's been raised. But as we mentioned in the interim statement, it's not what we felt to be the most effective way of adding value returning cash to investors. So we wanted to take the opportunity in the announcement in the presentation, we'd be able to reiterate that, first and foremost, in our capital allocation priority, we're in diligent stop. That doesn't mean that at some point in the future, we might also consider other ways of returning cash to investors. And there's been examples of the past with special dividend as well. So it's something that we may again come to look at, but we -- the conclusion we came to was that we see in the recent history, it was not the most effective way of us returning cash to ivestors.

Our next question is on margin resilience. You noted a GBP 2 million reduction in the cost base of underperforming businesses during H1. How much of this how much of this represents permanent structural overhead reduction versus temporary variable cost containment? And did any of these measures required cutting back on active R&D or engineering capacity.

So I think if I give a general overview there, and Ian, perhaps you want to comment on some of that as well. the majority of that cost is absolutely in targeting underperforming businesses, the majority of our costs related to head count costs, okay? And absolutely, there were some difficult decisions to make. And that is part of, I think, what was necessarily had to be made when we had examples of businesses in the group where investments have been made previously that haven't resulted in growth, haven't delivered the growth that we expected, then we had to make some tough decisions with those businesses to reverse some of those investments. So indeed, yes, there were some structural reductions in headcount across some of those businesses. Ian, do you want to add anything more?

Yes. I was just going to add, Tim, that, in fact, the 2 examples that we gave, FTT and Anfield both launched new products and [indiscernible] as well as did the cost reduction. So it was done in a way which protected the innovation because the innovation, particularly on the products, which were the 2 issues and the many issues in those businesses have been maybe lacking and we need to address that. So it was done in a way which protected that core innovation developments allowed us to launch new products while still overall reducing the unrelated costs.

Thank you. And next, we have, you reaffirm the current full year market expectations. Could you please explain the key assumptions behind this guidance, particularly regarding second half revenue, operating margins and Q3 order intake.

You want to take that in the [indiscernible] Brad, on top of [indiscernible]

Yes. I guess that's the key thing. We said that we needed to get the appropriate level of Q3 order in time. I think we've been quite clear in showing shareholders in the order intake slide that, that certainly happened for us throughout the period very when we still have another week or so left in Q3. But up to date, more than happy with that. So it's in line with our expectations. It gives us, together with the half year order book and what we've delivered so far in the -- in Q3. Yes, a higher volume to deliver in Q4, but not something that we haven't delivered before as a group. And if you look from an earnings perspective, what we've got to do -- to meet market expectations is basically deliver 160p in the second half now, we've done that before. We certainly last year in not a fully in year [indiscernible]. What is slightly different this year versus last year is the effect of some of the adjustments to our cost base means that we will have a lower cost base in H2 this year compared to last year [indiscernible] and so as I mentioned earlier, the benefits that we had the side benefits from our innovation and the effect on our effective tax rate on adjusted earnings, which will be a lower tax rate than last year, and that will add some additional benefit also to our earnings such that it is not a giant belief that we've never done before. But as we said beforehand, it will be very much Q4 weighted just as a consequence of the fact that orders needed to come in, in Q3. We're building -- continuing to build. But clearly, it's not a balanced year H1 versus H2. So there's more to deliver in H2 than H1. Overall, it's not like we're asking our businesses to do something they've never done before. I think that's the important point and with a pretty reasonable order book. And I can see that even at this stage, and we are not yet at the end of Q3. So I said it before, it's not without risk. Tim mentioned it, I mentioned it, things can go wrong. This is not a bulletproof guarantee from us that things can't go wrong. But as I said, it's within our gift. And our businesses all have the opportunity and responsibility to make sure that they plan properly. They've done everything they can to reduce the risk of it going wrong. And we're not in a position factory that we're desperately waiting for a load of orders to come in November that we hopefully can get out in December.

But just to reiterate, the bridge that we see is a lower cost base compared to the second half last year, some impact from [indiscernible] and then the impact of operating leverage on higher volumes where we have good visibility now as a result of those positive order intake trends over the last few months.

It'd be nice if it works in our favor in H2, [indiscernible] reversen the way it worked in H1.

Thank you. Our next question is, aside from recent disruption, what impact, if any, will the new Chinese procurement processes have in the group in the medium term?

I don't -- I mean, those processes are replacing previous ones. -- that really were -- I mean we don't expect them to have a long-term impact on the group. And we highlight that this is not something that was specific to Judges it was any company be outside China or domestic that supply equipment scientific equipment typically where ultimately it will be funded by government money. The impact that we've seen is delays. We don't think we've seen orders being lost delays having oil having been received, delays in shipping those orders. And then beyond that, delays orders being pledged until these processes would result, but another we anticipate any fundamental changes in the future as a result of those newly defined processes. Ian, do you want to...

No, I would agree. We would largely see it orders, particularly the bidding processes have been frozen by a lot of customers until it's resolved. So quite a lot of orders have moved to the right in China, but there's no indication that they'll drop off, and we would anticipate some decent recovery next year, I think, in the Chinese market.

Thank you. Next, we have the delay in the new coring expedition seems longer than usual. If that is correct, what is the reason for that?