Good morning. Thank you to everyone attending in person today and to those joining on the live or audio webcast. Welcome to G&H's interim results presentation for the half year ended the 31st of March, 2025. Chris and I will be following the agenda shown on the screen. After the highlights section, Chris will cover the Group's first half results, including a segmental review, and then I will provide a progress update on the implementation and delivery of our strategy, including outlook for the Group. We will open the floor to any Q&A at the end. Turning to slide 3. During the first half of the year, we made further positive progress implementing the changes required across the business to deliver our strategic plan. I'm pleased to be able to report on the strong performance achieved in H1 against a challenging macroeconomic backdrop.
This is a testament to the progress the Group is making, delivering our strategy and the resilience and depth of experience across our leadership team in navigating complex market dynamics. I would also like to take this opportunity to thank our customers for their continued and growing confidence in G&H. Secondly, to extend my sincere thanks to all our employees around the world for their hard work, and highlight the positive way the workforce is adapting to the fluid global challenges we face, many of which are beyond our control, whilst proactively embracing the changes needed to influence those that are within our control and to do so at speed. As reported in our trading update in April, whilst H1 activity levels in the Group's industrial laser and semiconductor markets remain subdued, demand from our aerospace and defense and life sciences market was strong.
Revenues from our fiber optic products used in subsea data cable networks also grew in the period. Revenues for the first half of the year increased by 11.4% to £70.9 million, compared to £63.6 million in the prior period. Adjusted operating profit for the period increased by 60.5% to £6.2 million, compared to £3.8 million in the first half of the prior year. Following the acquisition of Phoenix Optical at the beginning of our financial year, I can report that the integration of this business is proceeding to plan, with commercial synergies already being realized. Last month, aligned to our strategy, we were pleased to announce the addition of Global Photonics to the Group, significantly extending our aerospace and defense offering and capability in North America.
I will provide more detail on this later in the presentation. The Group's order book increased to GBP 121.5 million, compared to GBP 104.5 million at the year-end, with Phoenix Optical bringing approximately GBP 7 million of this increase. We saw a positive book-to-bill ratio in the first half of the year, which has continued into H2. G&H generated net cash from operations of GBP 2.6 million, compared to GBP 2.5 million in the same period of 2024. Reflecting the strategic investments made by the Group, net debt increased to GBP 35.5 million, compared to GBP 25.8 million at prior year-end, with a leverage ratio of 1.3 times. The board has declared an interim dividend of GBP 0.049. Our expectations for the full year performance of the Group remain unchanged.
Although in the current unprecedented environment of macroeconomic uncertainty and fluidity, near-term execution risks have increased. G&H has strong prospects for profitable growth in the coming years, underpinned by positive underlying tailwinds for our technologies and capabilities that remain present in all our target end markets, supported by the progress we are making to accelerate the delivery of our strategy. I will now pass you over to Chris to take you through the financial results for the first half of the year in more detail.
Thanks, Charlie. Good morning, everyone. Moving on to slide four. As you heard from Charlie, the Group's revenues grew strongly by 7.5% on an organic constant currency basis, driven by strong performance from our A&D segment, more than compensating for a delay in the recovery of our industrial segment. Adding the contribution of the acquired Phoenix business, reported revenues grew by 11.4% to GBP 70.9 million for the six months period. Thanks to the additional volumes and the benefits of our strategic actions, gross margins improved to 30.4%. The outsourcing of selected product lines to our low-cost region suppliers, operational improvements in our factories, and growing proportion of our revenue coming from more complex margin accretive products all contributed to the improvement.
Our spend on R&D was maintained at similar levels to the first half of 2024. The primary areas of focus for our R&D teams in the period were fiber optic module assemblies, which are used for both telecoms and sensing applications, and further development of complex electro-optic assemblies for both land and air platforms. The additional volumes and the benefits of our margin accretive actions drove adjusted operating profit up 60.5% to GBP 6.2 million for the six-month period. The adjusted effective tax rate was 22.9%, which is consistent with the group's expected medium-term rate of around 25%. Adjusted PBT was GBP 5.1 million and the adjusted basic earnings per share 15 pence.
Non-underlying charges which excluded from our adjusted profit totaled GBP 2.2 million, with a cash cost of GBP 1.1 million arising from our M&A and restructuring activities. While the new U.S. tariff regime didn't take effect until after the end of this reporting period, we've notified our customers that we intend to pass on any incremental costs to them, an approach they have confirmed is in line with our industry peers. We've developed new reporting tools to enable us to quickly assess the impact on existing customer orders so that we can apply a tariff surcharge where required and protect the group's margins. We're also actively resourcing our supply of certain raw materials required in our production processes, where availability has been restricted by China retaliating against these new tariffs.
Given the group's considerable US-based manufacturing presence, we believe the new tariffs could, over time, be a benefit to some parts of our business against their non-US competitors. Moving on to slide five in cash flow. Net cash flow from operating activities totaled GBP 2.6 million. Working capital levels increased by GBP 6.7 million from the end of 2024. This was driven by a growth in receivables given high levels of invoicing in March, which have since been converted to cash in the first months of the second half. The group's inventory also grew by GBP 5.3 million. This will support the group's step-up in trading levels in the second half, and we also deliberately increased our inventory of some materials, such as germanium, in response to those new uncertainties in the availability of raw materials.
Capital expenditure on tangible and intangible assets was GBP 3.4 million. The principal areas of investment in the six months period were in our fiber optic facility in Torquay, where we continued our investment in new fiber optic module assembly lines as programs migrate to their production phase. We also invested in additional heavy water for our Cleveland facility in order to increase their crystal growth capacity. That investment was brought forward from the second half in order to take receipt in advance of the new tariffs coming into effect at the beginning of April. The net cash outflow on the acquisition of the Phoenix Optical business totaled GBP 2.7 million. This comprised consideration paid of GBP 2.9 million, less cash received with the business of GBP 200K. Transaction fees totaled GBP 300K.
Deferred contingent consideration of up to GBP 3.35 million is payable based on the financial performance of the acquired business in the three years ended thirtieth of June 2027. We've assessed the present value of the deferred contingent liability at 31st of March to be GBP 1.7 million. Net debt, excluding lease liabilities at the end of March, was GBP 24 million, rising to GBP 35.5 million when lease liabilities are added. Our leverage ratio, as measured by our banking covenant, was 1.3 times compared to the facility cap of 2.5 times. On a pro forma basis, once the Global Photonics acquisition completes, our gearing will rise to around about 1.6 times and is then expected to fall in the rest of the second half based upon our group's forecast trading.
At the 31st of March, the group had drawn $38.4 million on its revolving credit facility. On the 1st of April, we extended that facility out to March 2030. We increased the committed facility from $50 million to $55 million and secured an improvement in the margin grade of 15 basis points. Following the completion of the Global Photonics acquisition, a further GBP 5 million will be converted from the accordion to the committed facility, resulting in a committed facility of $60 million and an uncommitted accordion of $10 million. Turning now to slide 6. Sales into our industrial markets declined by 6.5% on an organic constant currency basis.
Recovery in our industrial laser and semiconductor markets remains delayed, and indeed production call-offs of our products used in the latest deep and extreme ultraviolet photolithography machines were reducing as our end customer trimmed their build rates. The uncertainty generated by the fast-changing US tariff regime is impacting confidence and delaying the recovery of these markets. Offsetting to some extent these reductions, we saw further growth in revenue from our subsea data cable markets. Deliveries of our newly developed complex amplifier assemblies grew as we supported our key end customers' delivery of their new cable networks. The ramp-up in build rates of these more complex fiber optic assemblies has been enabled by the full transfer to our contract manufacturing partners of the build of our high reliability fiber couplers, allowing our own production facilities and skilled operators to be transitioned to this new, more complex work.
Despite reduced revenues in this segment, adjusted operating profit grew by 10.2% compared to the first half of 2024, and the adjusted return on sales percentage increased to 12.7%. This was thanks to the benefits of a higher proportion of complex assemblies which command better margins within the segment's revenue, together with the benefits of the margin accretion that comes from the transfer of high reliability fiber couplers and other acousto-optic products to our low-cost contract manufacturing partners. Moving on to our A&D segment. Revenues here grew very strongly by 30% on an organic constant currency basis. The conflict in Ukraine, together with the recognition by many Western NATO countries that they need to increase their defense spending, is generating high levels of revenue for the business.
Defense spending is often driven by supporting the group's precision optics systems, which are often critical element within the most modern defense systems. In addition, the combination of our recently acquired Artemis and Phoenix businesses with the existing capabilities of the G&H group means that we are now able to offer more comprehensive product offerings to our customers and secure new business. Deliveries of our super polished optical components used in ring laser gyros increased thanks to our end customers' programs growing, but also as a result of the improvements we have made at our Moorpark, California facility to increase production throughput and yields, thereby allowing us to capture more of our customers' overall demand.
Additional volumes in this segment, together with our operational improvements, resulted in the segment generating a profit in the period of GBP 600K, evidence of early stage turnaround of this segment. The integration of the Phoenix business is proceeding to plan. The acquisition has already allowed the group to secure new customer orders, and combined capacity planning between Phoenix and the group's other precision optics sites is supporting the Phoenix business in delivering its record order book. The group has moved quickly to identify alternative sources of germanium following the Chinese government's decision to restrict supply to Western countries. Germanium is used in many of the group's products supplied into the defense market, and we believe our newly established supply chain relationships for the provision of this material provides us with a competitive advantage. Moving on to slide 8 in Life Sciences.
Our Life Sciences revenues grew by 14.2% on an organic constant currency basis. Revenues from our medical diagnostic markets grew compared to the first half of 2024, thanks to strong end market demand for one of our customers' instruments. We're also pleased to see the launch of the first two instrument production programs in our recently established Life Sciences facility in Rochester, New York State. There was recovery in volumes of our Pockels cells that are used in medical lasers from their very low levels in the first half of 2024. Given the increasing competition we are facing from low-cost Chinese suppliers, we've made the decision to end of life the majority of our product lines in this market, which on average account for around GBP 4-5 million of group revenues.
We've invited customers to place last time buy orders with us, which we will deliver over the coming 18 months, at which point our Cleveland, Ohio facility, where those Pockels cells are manufactured, will transition to further develop its capacity for the growth of crystals, which are used both within our group and directly by our end customers for optical applications. Despite the growth in revenue in this segment, margins declined to 12%. In our medical diagnostics business, pre-negotiated lower production pricing came into effect on one of our instrument programs as volumes increased, while pricing of our Pockels cells came under pressure as a result of the increased competition from low-cost suppliers that I've just described.
We expect margins in this segment to recover as we secure the benefits of more revenue through our Life Sciences facility in Rochester and some selective outsourcing of other product lines to our low-cost suppliers. Thank you. I'll now hand you back to Charlie.
Thanks, Chris. In June 2023, I announced our new strategy focused on delivering sustainable margin growth and explained the clear executable path that we are following to deliver mid-teen returns over the medium term. G&H's strategy to become an innovative customer-focused technology company delivered responsibly by making a better world with photonics continues to progress positively. The foundational building blocks are now in place. We remain laser-focused on ensuring G&H becomes and remains the first choice for all our stakeholders, including our employees, customers, shareholders, our ecosystem partners, and the communities in which we operate. We will deliver this by offering differentiated performance through focusing on the four key strategic priorities outlined on the slide.
Through our people by creating a high-performance, purpose-led culture across the whole company, from self-help activities to improve customer experience and operational execution, from technology through deploying our advanced photonics engineering talent and know-how more effectively to accelerate our time to market the new technologies into commercially attractive applications, and finally, by applying greater discipline and rigor in the allocation of resources to deliver accretive growth both organically and inorganically. We've refocused the business to invest in higher margin products and sectors at the same time as addressing non-performers, in combination with making several exciting speed-to-value acquisitions. I would like to provide an update on the contribution we expect from the five primary building blocks to deliver the step up to mid-teen returns that we are targeting by 2028. 100 basis points from the better utilization of our well-invested factories from increased volumes.
250 basis points from proactively expanding our outsourcing activities at an earlier stage in the product life cycle to our proven contract manufacturing partners. 200 basis points through productivity gains from cost of poor quality reduction and other efficiency improvements. 100 basis points from the successful introduction of higher margin new products and increased mix of subsystem solutions with greater G&H technology content. Finally, 150 basis points of accretion from portfolio enhancement through non-core product rationalization and accretive bolt-on M&A. On the next slide, I would like to provide an update on the progress that has already been made in our Aerospace & Defense business since the launch of our new strategy. When I joined G&H in September 2022, the group's A&D business was not in good shape.
As well as being loss-making, there were also severe problems around customer service, and the size and quality of the new business opportunity pipeline was weak. Through the focused deployment of our new strategy, I'm pleased to report that the overhaul and turnaround of our A&D business is progressing well. The return on sales in this segment has improved by over 1,100 basis points and is expected to continue to increase during H2 2025 and over the coming years. G&H's refocused and upgraded customer-focused aerospace and defense team are delivering these planned benefits through operational improvements, productivity gains, supply chain action, and disciplined NPI and R&D activities. This has been accelerated by the successful implementation of our portfolio strategy, focused on divesting non-core parts of the business, and adding carefully selected complementary speed-to-value bolt-on acquisitions.
The group's A&D business is now uniquely positioned to meet increased demand from existing customers, capture new business opportunities, and become a full optical systems solution provider for the defense primes in the U.S., U.K., Europe, and the rest of the world. On outsourcing, we are proactively implementing our previously announced plan to use lower-cost region manufacturing partners for certain stable product lines at an earlier stage in their product life cycle, where technological sovereignty is not a differentiator. We expect the proportion of the group's revenues built by contract manufacturing partners to increase from less than 5% in 2022 up to circa 25% by 2028. During H1 2025, we continued to make good progress with implementing this plan. Dedicated leadership and an upgraded supply chain function are now in place across the business, including the expansion of our capable team embedded in Thailand.
We've expanded the outsourcing of additional acousto-optic products to include our 80 MHz product line. We have now successfully ramped up to full production our high-reliability submarine optic couplers with our partner in Thailand, including the receipt of additional customer approvals for the manufacture of these products at this location. After closing our factory in Shanghai last year, we've expanded our approved low-cost region manufacturing partners to now include factories in Thailand, India, and the Czech Republic. The qualification of additional product lines across all these locations is underway for more transfers in H2 2025 and 2026. On the next slide, we continue to refine our customer-focused technology roadmaps to deploy platform design solutions, accelerating time to market, where G&H has technology-led differentiation. Let me provide an update on progress over the first half of this year from the more focused approach to value creation from our technology.
Spending on R&D of GBP 3.5 million in the first half was broadly in line with the prior year. Our strengthened acousto-optic engineering and product line management team are making positive progress with the development and commercialization of optimized germanium-based modulators for advanced CO2 lasers that are used in cutting-edge semiconductor fabrication and metrology. The refocused fiber optics engineering group are seeing successful customer take-up on next generation fiber optic modules for extreme ultraviolet 13.5 nanometer wavelength semiconductor fabrication, high reliability submarine amplifiers, environmental sensing, and medical diagnostics. Our precision optics and optical systems development team continue to design novel imaging and sighting solutions for land, air, and naval defense systems, complemented by our advanced thin film coating and laser protection filter offering. We also formally opened our new U.S. Life Sciences Innovation Hub in Rochester, New York in May.
As you've already heard from Chris, during the first half of the year, we took the decision to reduce our technology roadmap focus from seven to six key areas. We decided to proactively exit the design and manufacture of Pockels cells for medical lasers due to increasing competition from lower cost Chinese suppliers. However, over the medium term, we still expect these six remaining R&D workstreams to deliver more than GBP 50 million of margin accretive new business from next generation product introductions. On the next slide, I would like to share an update on the new product success in our Life Sciences business. OrganOx's incredible machines are revolutionizing the world of donor organ transplantation to deliver more reliable transplant outcomes for patients and ensure improved logistics and operational effectiveness for hospitals.
Our Life Sciences business, headquartered in Ashford in Kent, was awarded the design for manufacture, regulatory qualification support, and volume production contract for OrganOx's metra liver transplant equipment, a highly complex medical device delivering life-changing machine perfusion. In the first half of the year, G&H successfully ramped up production to meet the increased demand for this product following their FDA regulatory approval for the USA market. Our experienced medical and diagnostics device R&D team are supporting with the development of OrganOx's next generation kidney transplant machine. This partnership is expected to unlock multi-million-pound new business opportunities for the group over the coming years through our unique medical and IVD device design and manufacturing capability that we are now able to offer from both the U.K. and the U.S.
On the fourteenth of May, in line with our strategy of speed to value acquisitions, we announced that the group had entered into an agreement to acquire U.S.-based Global Photonics. From its well-invested facilities near Tampa, Florida, the highly regarded Global Photonics team supplies optical systems for military land applications, including periscopes and fire control systems, as well as avionics instrumentation and other advanced precision optics. This acquisition brings expertise in complex optical assembly, clean room lithography, photolithographic reticle fabrication, ion beam etching, and advanced thin-film coatings that complement G&H's existing manufacturing capabilities and significantly enhance the group's offering into the North American market. This transaction represents an exciting speed to value bolt-on deal by the group. Global Photonics is a strong strategic and operational fit for G&H, bringing deep application expertise, strong relationship with U.S. Defense primes, and complementary manufacturing capabilities to our growing optical systems division.
The acquisition accelerates our plan to become the partner of choice for high precision optical systems in the U.K., Europe, and North America. It opens exciting new growth channels in the USA for us, accelerating the creation of a scalable U.S. l aser protection coating center of excellence, and offers a credible high volume made in the USA manufacturing center for the group's imaging and sighting systems that are designed today at our facility in Keene, New Hampshire. The establishment of a full optical systems engineering and manufacturing capability in the USA for the aerospace and defense market mirrors our successful strategy for the US healthcare sector following the recent opening of our G&H Innovation Hub for Life Sciences, as mentioned before in Rochester, New York. The strategic rationale for this deal are clear and compelling.
Revenue synergies through our combined commercial pipeline have already been identified, and I'm pleased to report that the initial feedback from customers has been very encouraging. Global Photonics is part of G&H, brings together industry-leading optical know-how and capability that will accelerate value creation for the group in North America. On to slide 17 and outlook. The group's order book remains strong, particularly for our A&D businesses. Following the announcement of the new global trading policies from the U.S. administration in April, and the consequent retaliatory measures from China and other nations, we are seeing an increase in near-term uncertainty for many customers in our industrial, semiconductor, and life sciences markets. This has resulted in softening demand levels from our industrial market persisting longer than we'd expected, and new delays with some infrastructure, semiconductor, and life sciences projects.
However, the positive book-to-bill ratio that we saw in the first half of the year has continued into H2, and the group's current order book is continuing to grow. It currently stands at above GBP 125 million, providing 95% cover to deliver the expected full year revenues for FY 2025. A revenue bridge from H1 to full year is included in the appendix of your books as reference. In summary, as a result of the operational and supply chain improvements made over the last couple of years, the group is well positioned to benefit from recovering demand levels in the semiconductor and other markets. Our design and engineering resources are refocused on delivering a customer-led vital few list of next generation development projects.
Value creation synergies from recent acquisitions are being realized, and the addition of Global Photonics will only accelerate this activity. While mindful of the current uncertain macroeconomic and geopolitical landscape, G&H's healthy growing order book, strengthening market positions, and differentiated photonics expertise, aligned to structural growth drivers from megatrends, all provide confidence in the group's ability to deliver further progress on our journey to mid-teens over the medium term, and deliver long-term value for all of our stakeholders. Thank you. I would now like to hand over and open up for any Q&A.
Thank you. Can you hear me? Thanks a lot, Charlie and Chris. Just a couple of questions, please. On the working capital increase for the second half, is that to satisfy delivery of orders in the second half, and also securing supply of germanium, for example? Can you give us a split there, please?
Yeah.
Do you wanna do that first?
I'll
Okay. Yeah. It's, I mean, it's roughly 50/50 between the two. Yeah, I'd expect the growth in the work in progress for the second half. Obviously, that will trade out during the coming six months trading. The additional raw materials we're taking on is, you know, in response to the uncertainty in the supply chain we've got at the moment. That may well persist as a higher level during the coming six months.
Thank you. On the flat dividend and the comments about the board reviewing the policy, what's the genesis of that? Any comments around that, please, and what do we expect?
Well, I mean, no decision's been made, but we just think it's appropriate just to revisit our dividend capital allocation policy, to see whether in fact we can give shareholders, you know, more return, if you like, by keeping hold of the cash and reinvest it into the business, whether it's in the production equipment, future acquisitions, or even near-term just inventory, given the uncertainties that we've got in the market. We'll obviously come back at the end of the year to report on the conclusion of that review.
Thank you. I've got a few more, but in the interest of sharing, I'll hand over.
Cheers. Thanks, guys. I think the first one for me is just on that A&D piece. Obviously, very strong growth in the first half. Would there be a way of sort of splitting that between obviously you talked about the facility yield improvements and obviously the growth you've seen in the civil aviation space. Can you just kind of unpick that and whether actually the defense, pure defense revenue increases I guess are coming through in the order book to come, given the book-to-bill, you sort of talked there any opportunities in land because I guess trying to break down that growth.
Yeah. I mean, the super polished optics that go into ring laser gyros is a very important growth driver.
Yeah
For us at the moment. It goes into both commercial and defense applications. We believe the growth is really coming from the defense side for our end customer. We're also on the order book, we focus on that, we're seeing very good growth at the moment on some of the periscopes that go onto armored vehicle programs. You can definitely see European customers bringing forward and accelerating their armored fighting vehicle programs given what's going on.
Okay. Just secondly, the delays you've mentioned sort of in the life sciences projects and I guess obviously with the weaker margin in the first half and I guess the higher margin of those diagnostics programs within the mix. Can you just sort of elaborate on that and I guess the extent of the exposure to those delays potentially likely in the US, I'm guessing?
Exactly. Yeah. I mean, our revenue includes R&D basically work as we're working with our customers to develop and qualify their next generation instruments. We are dependent on support on those programs from the FDA in the US. As you probably heard, there's been some fairly significant cost.
Savings, job reductions, basically in some of the U.S. agencies. That is starting to impact the timing of some of those programs. I mean, those programs will still eventually come through and develop into production. There is some risk to, you know, to our positions as a result of that.
Good morning, guys. 2 for me, please. Just on pricing and tariffs. I know this has probably got a big question, but I mean, how quickly can you adjust prices if tariffs are applied and they're, you know, nasty?
We can quickly, as I mentioned in the presentation, calculate the surcharge to apply. I think the practical issue we're facing at the moment is because the tariffs are moving on a very regular basis, it gives customers a bit of ammunition to say, "Well, you know, we've just heard this morning that the tariff rates have changed." They're using it as a delaying tactic. You know, it's up to us to keep on pushing that, you know, those increases through.
I mean, the lack of the uncertainty of whether it's good or bad news and it's changing is part of knowing tariffs are coming, not having any certainty about what they're going to be is now becoming a large part of the problem to manage it.
Some other companies have actually mentioned that it might be slightly, perversely, a competitive advantage.
Mm.
If you have a large U.S. manufacturing base.
Absolutely. Yeah.
Presumably that's part of your thinking.
It is.
On the A&D side alongside life sciences.
Correct. Yeah. I mean, for example, in life sciences, you know, we've got the polymer optics capability at Rochester. At the moment, we believe many of the end customers are sourcing those kind of products from China. This may well give us some competitive advantage.
Yeah. Just quickly on the outsourcing, obviously we've talked about Thailand a lot in the past. Can you just perhaps give us some insights into what you'll be doing in India and the Czech Republic by sort of division, if you like?
Yeah.
In the partner in the Czech Republic is one that the group has used for some time. This is not new. We have qualified a new set of higher value products into that partner over the course of the last 6-12 months, and they're predominantly industrial or life sciences application, mainly for our fiber optic business. This is a specialist fiber optic company that we partnered with there. In Thailand, it's very much industrial is where the focus is currently around our acousto-optic and fiber optic platforms as the main focus there. In India, it's been in two areas, really. Firstly, it's on life sciences, and this partner is a specialist in that space.
also we're looking at in-region support, for example, for the Indian defense requirements to be able to provide that solution, as part of that content needs to be manufactured in country.
Thank you.
Can we just have a little bit more color on the segmental order books, particularly for life sciences and industrials?
I mean, at the end of March, if you look at the phasing of the order book, I mean, life sciences and A&D was roughly 50/50 split between delivery and FY 2025 and FY 2026. I mean, the biggest element of the order book is the A&D segment. That's not unusual for us. I mean, industrial tends to be the segment where we carry the shortest order book, just given the pattern of ordering by our customers. A&D, life sciences, those customers give you fairly good forward order cover. Industrial, that's new.
Thank you.
Thank you. Thomas Rance from Berenberg. Two questions, if I may. First one is just on M&A, and you mentioned you're kind of reviewing capital allocation, and obviously you've just done Phoenix and Global. What's the M&A kind of pipeline looking like? What level is the board kind of comfortable going up to from a leverage kind of point of view to kind of get for the right sorts of deals?
Yeah. I mean, obviously at the moment, you know, having done two Federal Western acquisitions, we're quite focused on integrating those into the group. I mean, we still absolutely have a pipeline of M&A opportunities, targets that we're considering. I think our focus near term is gonna be on the integration. As I mentioned in the presentation, I mean, once we've completed on Global, we'll be up to around about 1.6 times geared. I think the board wouldn't want to go much beyond those kind of levels, you know, 1.6, 1.7. Given we're a cash generative group, you know, we expect to obviously pay down that level and get back and ready for the next one.
Okay. Thank you. Very sensible. The second question relates to the kind of margin improvement plan that they're setting out on slide 10 and the strategy you kind of formulated two years ago. You've obviously seen a margin improvement in the period and over the last two years. Of those kind of five blocks, would it be kind of possible to roughly kind of give us how far through each of those blocks you think you've kind of got so far, and where the biggest kind of future opportunities still to be kind of gained, please?
I think the two sort of really big levers there on outsourcing and productivity are, you know, a lot of the work. We you know are still sub 10% of our revenues are coming from low-cost regions. That's up from 5%, more than doubled from when we started the plan. As I outlined, we're looking to do much more. The work that's gone on there is very significant in the number of products that have been qualified into these partners. With Robin's question about where, you know, a lot of that is in the industrial space.
The point about how well-positioned we are to respond to the recovery in semiconductor and the other industrial markets means that I think we're in a really strong position from our outsourcing plan, even though in preparation for those revenues to return. On the productivity, it's pleasing, and Chris mentioned it regarding the A&D sector. We focus on precision optics and optical systems for A&D particularly, and that's an area that we have had productivity challenges, what we describe as cost of poor quality issues. We are starting to see some very significant improvements in that space.
Like all manufacturing facilities, improvement is continuous, but we have made big strides in being able to understand and getting our arms around where those productivity gains will come from.
Okay, thank you.
Nothing online, so back to Charlie and Chris to close the meeting.
Well, just to say thank you very much for your time and for being here, for our results presentation. Appreciate it.