Judges Scientific plc

Good afternoon and welcome to the judges scientific investor presentation. Today we are joined by Tim Prestige, Chief Executive Officer, Brad Ormsby, Chief Financial Officer and Ian Wilcock, Group Commercial Director. Questions are encouraged throughout this webinar and can be submitted via the Q&A box situated on the right hand panel of your screen. I will now hand over to Tim to begin the presentation.

Thank you Evie and welcome everyone thank you for joining and delighted to be leading this my first retail webinar as CEO I'm going to start just by saying how the agenda overall will work here and the points that we're going to cover. So I'm going to give some introductory remarks and talk a little about the highlights from our financial year 2025, the investments that we've made and the key takeaways, talk a little bit about the executive team and our business model. I'm then going to hand over to Brad who will talk in more detail about the specifics of our performance through 2025. Brad's then going to hand back to myself and my colleague Ian to talk through our buy and build the fundamentals of our buy and build strategy acquisitions and the organic growth model. um after which we'll talk about some of the fundamentals and finally some time for q a so one of the key takeaways that we'll talk about is undoubtedly that your financial year 25 20.5 has been a disappointing year um but the fundamentals are intact so in that context it probably makes sense to have a chat about what are the fundamentals so what is judges scientific and what is our business model so if you can move us to the first slide please First slide, please. Next slide. So, Jody's Scientific is a buy and build group in scientific and student markets. Sorry, if we can go back to slide two. If we can go back to slide two, please. JV Scientific is a buy and build group in scientific and sheet markets and the important aspects to realize here are that we are we're founded on three pillars of shareholder value okay so that the markets in which we play and the businesses that we seek to acquire all benefit from long-term drivers so long-term secular drivers are underlying growth drivers this particularly relates to long-term demand for scientific instrumentation and scientific techniques for academic research and how those techniques in academic research inevitably find their way into commercial applications and industrial applications both in terms of research and processes we also benefit from a large deal pool a large potential pool or pool of potential companies available for acquisition Typically we might deal with companies that are founder owned, a founder has led the company for a period of time, perhaps they've reached a stage where they want to retire and at that point they're looking for opportunities for how they can divest the business. The other pillar of our shareholder value is low capital use. So we specialize in targeting businesses that have a foundation of low capital use. So we actually want to focus on businesses that are very high return on capital, high cash conversion. And together that allows us to generate cash and repay debt. and together those things have compounded shareholder value Moving down the left hand side another key aspect of our strategy is we are an extensive and well diversified customer base globally so you can customers in university in industry and in other research and and compliance jobs But our diversification is broader than that. So we're geographically diverse. Our companies are more than 85% of our revenue is exported. And we're also diversified in the context of the scientific techniques that we invest in. So we are agnostic in our choice of scientific techniques, we have a broad base of capabilities within the group. Our strategy is a buy and build strategy. People might think of it as serial compounding. So it's based on acquisitions and organic growth. We seek to acquire the businesses into the group that meet the criteria. We'll talk a little bit more about that later on. then to invest in those businesses to amplify their strengths and to help them grow and help them grow in the long term so we acquire we always acquire businesses in the context of holding on to that business forever we never acquire a business in the context of exiting that business um but we we intend to invest in that business and have it become part of our organic growth portfolio through the execution of that strategy over the last 20 years We've achieved 25 acquisitions A total dividend distribution of 9.8 times the 2005 admission price 19% CAGR on total revenue 7% CAGR on organic revenue 23% CAGR on total EBIT And 8% CAGR on organic EBIT Next slide please We have an experienced management team and there's also been some recent additions and investments in that management team. If I go down the right hand side first, we were joined recently by Rick Armitage as our group acquisitions executive bolstering and expanding our acquisitions team. I should also say here with the plan succession David moved to a non-executive chair role but he also continues to assist us on acquisitions it was always David's superpower and it's something that absolutely he wanted to remain involved in and we wanted him to remain involved in that aspect of what we do so he remains as part of our acquisitions process and Rick has further bolstered that We also welcome john dunn as portfolio chief executive john joined us from hammer And he chairs a portfolio of our companies as does ian wilcock a group commercial director Mark lavelle who stepped down from the plc board After our agm last year remains with the company and is working centrally particularly focused on operational excellence And i'm here with my colleague brad as chief financial officer Next slide, please. So I want to highlight here the key aspects and key takeaway messages for our presentation today. We've had a disappointing financial 25, despite a strong start. As mentioned, the fundamentals remain intact. So at a strong start in Q1, Delivered a geotech core and contract as expected The contract was delivered and executed well that happened in q1 We also in q1 benefited from strong order intake However the situation changed slightly in around march Where restrictions in us federal funding started to be introduced There were really two layers to this. The first context was around uncertainty. So there started to be conversations about specific universities and beyond that specific areas of funding and which projects might be funded or not. And that had an almost immediate impact on us in terms of previously budgeted projects and projects for some discretionary spend being held. Subsequent to that, we then saw the real impact of funding cuts and the funding cuts started to be seen in terms of longer term projects being put on hold or cancelled. And really the restrictions in US federal funding is the key and material impact for our 2025. We saw a significant downturn in orders in Q2 and Q3. Beyond this, though, we did see some geographic and market diversification that partly mitigated the US impact. We saw some growth in Asia. We saw some growth in parts of Europe. and we also saw um where there was resilience across the group it was with those companies that had some exposure to industrial applications we'll talk a little bit more about that later on and also those companies that had delivered new products recently That really focuses us on where we can make a difference. We are very mindful that there are certain things like the US's approach to federal funding or the geopolitical climate that we cannot influence. But we can focus on controlling the controllables and by controlling what we best what we can control, we better navigate those things that we can't control. So the things that we want to highlight are investing for growth in talent, investing in innovation, Operational capacity and operational improvements and working directly with those companies that were experiencing some product specific and product line challenges We also as i mentioned in our previous slide invested in management team and the plan succession with rick joining us With john joining us and with david's move to non-exec chair and my appointment The key takeaway is that despite it being a challenging year, a disappointing year, and despite this being the second successive year of disappointing results, the underlying fundamentals remain intact. We have a portfolio of strong exporting companies and global niches that maintain solid margins. Our overall margin, just below 20%, was perhaps a little disappointing by our own measures, but it's still a solid result. where robust cash conversion enabling a rapid repayment of debt and a 10% increase in dividend. We'll also reconfirm that our strategy remains unchanged. We have confidence in our long-term demand drivers. The long-term requirement for scientific instrumentation and scientific techniques in academic research shifting into commercial and industrial applications we believe remains solid. we are committed to our disciplined acquisition process and we are committed to our structured decentralized organic growth methodology which we'll talk about more later and next slide please i'm now going to hand over to brad will take us through our performance review thank you tim and hello everyone if you can move to the next slide please

Let me take you through the results for the past year. And as Tim's already touched on, you know, it's disappointing for us again, that we've had challenging and difficult trading results. We started the year quite well. The geotech coin expedition, a solid order book, gave us confidence for the year. And then unfortunately, the effect of the US academic research funding cuts bit. progressively degraded our performance throughout the rest of the year so let's look at the results and total revenues up nine percent to 146 million this was a combination of total organic revenue growth of six percent plus a full year contribution of about 20 24 acquisitions going back into the organic revenue growth for a moment and On a like-to-like basis and that's if you strip out the coring expedition which we didn't which we had in 25 that didn't have in 24 Then like-to-like organic revenue growth is only two percent And behind that was You know drop in order insight, which was disappointing for us. We started as we said we started the year quite well p1 was quite a good quarter for us and but then no ongoing decline afterwards so overall the jacket operating profits were flat at 28 million an effect positive supported positive support from that from the geotech corinne expedition and in fairness to geotech as a whole a good recovery from the whole business but if you strictly take out from these results the rest of our organic businesses went back by a third which was a you know a disappointment we'll see this illustrated a bit better in my bridge later we moved from profits the cash generation and the group has a strong track record of generating good profits and turning those profits into cash we generated 33 million of cash from operations So we've kept our discipline in this area for more than the past two years and we've also been able to reduce overall levels of working capital. This cash generation serves to support our policy of providing shareholders with progressively increasing dividend returns and this year we're proposing a final dividend of 82.3 pence per share an increase of 10 on the prior year which if approved at the agm will provide a full year dividend of 115 pence per share but it is our second year running of minimum dividend increase as a consequence of the disappointing trading and the cash generation has served to enable us to invest 7 million in capex this year to pay 3 million corporate taxes distribute 7 million to our shareholders and in line with our buying build strategy also enable us to acquire the remaining stake in our subsidiary geotext brazilian business and still reduce our net debt an adjusted net debt at the end of the year was down 8 million to 43.6 million and we have gearing of one and a half times at year end significant headroom on our covenants and still a strong balance sheet position so looking out to 26 and we still have a tricky trading environment we start this year with a lower than preferred order book and with order intake which is not buoyant and with global geopolitics as they are weighing heavily on the economic outlook and whilst we have the first positive signs out of the US of the first steps to restore that the hiatus in the research funding we are yet to see the funds flow and consequently any formal green sheets of recovery and therefore the guidance that we provided shareholders within our January trading update still stands moving on to the next slide please I'm just going to pick up two things on here one Tim touched on just before our margins which have declined and it's disappointing whilst we've managed to grow revenue costs have grown at the same rate and that's really an effect of certain amounts of investment in head office costs in line with the succession planning that Tim talked about before but also a number of our businesses investing for growth which unfortunately didn't come and consequently we took some actions later in the year to adjust that but the effect of those adjustments have not had a material effect on the 25 results now we also have material adjusting items we just want to talk about those for a moment the largest component 10 million of that is the non-cash amortization of the intangible assets we recognize when we acquire businesses and there are two other material items to talk about this year The first relates to our 2024 acquisition of Rockwash and that came with a significant earn out which when you acquire a business under the acquisition accounting rules you have to make your best estimate for how much you think you're going to have to pay for that earn out and so we did that and at the end of 2024 we had an acquisition payable of 2 million and at the same time when you do that you also have to increase your goodwill and intangible assets and so we had a further 2 million that was in line with that 2 million of payable now during 2025 it became apparent and we've seen the first signs of that at the half year that that rockwash's performance may not get them an earn out and it turned out that actually no earn that was payable so consequently we've reversed an acquisition payable of 2 million with a credit into adjusted items of 2 million and at the same time we've also impaired those assets that the goodwill and intangible assets that were created as a result of creating the payable and so we've also had achieving in debit so overall no net effect in the p l and no cash effect either but something worthy of note at the same time we have also recognized a 2.3 million impairment to the group's goodwill for its investment in on-field as a consequence of a prolonged period of underperformance so moving on to the next slide and just to take everyone through the graph and there's three lines on it as i always explain a red line a black line and a green line the red lines are in terms of sales budget which we set once a year as part of our budgeting process the black line is our training 12 months of orders and the green line is the last four months of orders annualized The end of the graph is the middle of March this year. So what are we looking for? We're looking for ideally for the black line to be at least touching the red line by the end of the year such that we've had sufficient orders with which to satisfy our sales budget and ideally for the green line to be tracking the red line so we have optimal operational capacity. Now if you look at the graph and take you back to the middle of 24 you can see that we started building momentum in orders you look at the green line and to a degree the black line that kept rising up and actually the first quarter was good and we were still going on but when you got to the end of Q1 it turned and then it tumbled and it only started to improve during Q4 although if you compare the size of the Q4 on the green line to what it was at the end of 24 there's a big difference and this is why when we've explained it in our results that organic intake was up four percent at the end of the first half by the end of august it was flat and by the end of the year it was minus six percent and whilst we've had areas of decent performance both in china and in europe This certainly did not offset the significant effect of a near on 25% drop in North America. If you go back and look at the graph for the last couple of years and you compare the black line with our sales budget, you may be forgiven for thinking we've been a bit optimistic with our budgeting. And in fairness, the consequence of that is that for 2026, we've had a reset. and consequently why at the start of this year our budget was aligned with the trading 12 months of orders so if we go into 2026 we have a a lower than preferred order book and orders here today are behind the same period in 25 however it's fair to say that the 25 comparative had no effects in relation to the us academic research funding cuts moving to the next slide please Moving on to the breach and this reconciles between 2024 and 2025 profit contribution of our businesses before central costs they're the two big blocks at either end of the graph and reconciling between these have a big block of organic growth the last part of that is the geotech recovery which included coring expedition but also growth at six other companies including five that achieved the record But at the same time there was a sizable drop from decline at 12 of our companies. And this included a couple of our businesses with end market specific challenges and a couple of our businesses with challenges in relation to products. And Ian will talk a little bit about what we're doing to address these in a short while. The effect of the US federal cuts cut across both the growth and the decline. with exacerbating decline and reducing the growth. And then the final block is the full year effect of our tri-year acquisitions. So moving on to the next slide. I'm just going back to cash flows for a moment. now we have a good cash generation this year cash conversion is 118 which on the face of it was a little bit down on the prior year but the prior year was inflated by the fact that we had advanced payment for the corian contract and if we regularize this cash conversion this year is actually 136 compared with 104 last year so it's clear discipline on both cash conversion and also helping look at how we can reduce the higher than desired levels of working capital is working and we've gone down to 16 this year but the goal for us is to reach 10 and that's 10 of annual revenue and if we do that we can release up to 8 million of cash which is a significant opportunity for us and lots of focus will continue on that and Ian will also talk a little bit about some of the things we're doing to help release some of that over the coming couple of years. Net debt continued to drop when we finished the year with a leverage of one and a half times compared with 1.7 times the prior year with significant headroom in our covenants, significant borrowing capacity and the continued strong support of our group of banks Lloyd's Santander and HSBC who this year have replaced Bank of Ireland in the banking group and we're delighted to have them on board so moving on to the next slide I won't dwell too long on return on title invested capital erotic other than say it's a key measure for us we start on the left hand side when we required sdt and we paid nearly five times so we start around 20 and growing robotic thereafter requires improved financial performance and or acquiring businesses at lower multiples and you can see as you go across the graph when we acquired the bigger businesses GDS, Scientifica and the early teams we paid six times for them they were big deals for us back then when we also acquired geotech in may 22 and paid seven times the smaller deals minimally affect Rotic now and whilst we managed to increase our Rotic for the year end by 1.3 percent to 17.8 percent at year end We still have a long way to go and big improvements in our financial performance for us to be able to achieve our long term target, which is 30%. Moving on to the next slide, please. And I won't dwell on this slide other than to say diversification works for us. What I mean by that is in a year where we suffered significantly in the US, the group has still managed to deliver earnings that are more than two thirds of its previous record. but at the same time it's clear to us that we could and should be better diversified particularly in our exposure to industry and again I keep giving Ian something to do and he'll be talking a little bit about what we're doing to address this so moving on to my last slide and this slide summarizes some key financial statistics about the long-term success of this group revenue profits and earnings per share have all grown strongly over our history and we continue to have long-term high quality CAGR organic revenue of seven percent with associated EBIT growth of eight percent over 19 years dividends have grown strongly over the life of the group and we're proposing an increase of 10 percent to the full year dividend and the compound growth of the dividend remains above 20% and the groups continue to focus on cash generation serves to protect it in times of challenging market conditions enables us to rapidly pay down acquisition debt and supports that progressive dividend policy now on that note we'll pass back to Tim talk through the growth strategy Thank you Brad