Welcome to the Judges Scientific Full Year 2023 Results webinar. All attendees are in listen-only mode, and at the end of the presentation there will be the opportunity to ask questions. At any point you can click on the Q&A button to submit a question. This webinar is being recorded. I now hand over to David Cicurel, CEO. David, over to you.
Thank you very much, Tamsin, and thank you for everybody for attending. This is the presentation for our 2023 results, and I'll go straight into the second page, please. This really explains what we do and why we do it and why we think it works. We are a buy-and-build group, and we're buying manufacturers of scientific instruments. The reason we think it's works is what we call the three pillars of shareholder value. By the way, shareholder value is the purpose of our existence. We think the three pillars are those: long-term drivers, which is a secular growth in university education. Most of our sales go to universities, but for research purposes. The other one is a desire of everybody who does anything to always optimize what they're doing. When you're doing physical things, you can't optimize them without measuring them.
We make measurement instruments. So these two things are going to be there in 20, 50 years, and 100 years will still be true. The third one on the picture is a large deal pool. Well, if you do a buy-and-build, you have to have targets. And when we started the business, we found that there were 2,000 companies in our sector in the UK alone. So that is really a large pool of companies, and a lot of them will need to change hands every year. Then the third one is maybe a bit less obvious: it's low capital use. So we have, you know, not a lot of equipment and very little working capital. And the impact of that, I will explain.
Your typical buy-and-build exercise is a quoted company, and it says, "Well, I'm on a multiple of 20, and I buy this company on a multiple of 10, so I've doubled my money." But what we're doing is something different. We borrow money from the bank. Typically it costs us, you know, 3%-4%. Recently it's more, but not a lot more because we've hedged a lot of our, a lot of our borrowings. And then we use it to buy companies which, on average, give us a 5x multiple, which means that we get 20% on our money. So that's a much more efficient way of creating value. But the only problem is that the profit that you buy, if we pay 5x EBIT, it's EBIT and it's earnings, but it's not cash. And it's only with cash that you can repay the bank.
Therefore we need good cash conversion. We'll talk later about cash conversion, but it's always, you know, very high figures. This is a very important part of our model. You know, we're a well-diversified company. We sell to the whole world. We sell to a number of scientific disciplines. We sell to industry as well as universities. You have on the slide, you know, a very, very small percentage of the people we do business with. A buy-and-build strategy is based on buy and build. It's based on M&A and on having organic growth in these companies. The execution is just as important as the strategy. We believe that a key thing in that execution is discipline.
So we've only done 23 acquisitions in 18 years, but we're very cautious to buy only excellent companies. And they've produced good growth. So our sales have gone up by 21% compound over the years, and organic is 8%. So that means with other deals we still have 8% growth. So they're growing companies, and their profits are growing even faster, 28%, including 11% organic. So this is very important, and this is what has enabled us to pay dividends, which is what I believe shareholders expect of us. And over the last 18 years we've paid dividends totaling 7.5 times the admission price of the company when we readmitted in 2005. So the next sheet shows the management team.
So, I'm introducing you there: Brad Ormsby, our CFO, who's going to do the bulk of the presentation if I give him a chance; Mark Lavelle, our Chief Operating Officer; and Tim Prestidge, who joined this year as Group Business Development Director. Next, we'll talk about what they do a bit later. Next page is just acquisition. So we need to be disciplined. We need to buy a strong exporting company in global niche markets. Not all the instruments are in global niche markets, so we try to pick those which are and which have solid EBIT margins. Our growth standard is 25% EBIT margin, and which generate profit, cash flow. We pay typically 4-6 times. We've had one outlier 3 times and one outlier 7 times, and the rest is an average of 5 times EBIT.
As I've explained, 20% return on our money, and we borrow up to 3x EBITDA. In the past it was around 3%-4%. Now it could go up as much as 8%, but interest rates are quieting down now. The deals take a long time to do. A lot of them fail, and we have big because we are disciplined. There are years where we don't do any deals, years when we do many. But we try to be very ethical, and we have a reputation for being very ethical, which means that the whole process is conducted in an honorable fashion. We have the financing before we agree a deal, which means that the seller has the certainty of concluding it according to the terms that he's agreed. Then we do the deal.
We do the best we can with these companies. We'll tell you more about it later, and we reduce debt and reinvest in the further acquisition. So, on the right there's two deals we did last year in 2023. There were small deals. We'll discuss them a bit later. And then the next sheet shows you the history of all the deals we've done. So you see we got good years and bad years. It's like the wine, and you have to cope with that and be patient and disciplined. Post-acquisition is the next slide, introduction of good financial controls. That's done by Brad. And we leave the companies with a lot of autonomy, and we promote excellence within these companies. That's the job that's performed excellently by Mark and Tim.
They really coach and help these, the managing directors of these companies to achieve the best results, and they have excellence everywhere. We focus on the long term, and we want all of our employees to be entrepreneurs, but entrepreneurs who think in the long term. Next page is the key messages of this presentation. You know, the, we've kept doing an unchanged strategy and executed in the same fashion. We've done two small deals. We've strengthened the management team by the appointment in February of Tim, and we believe the long-term fundamentals are absolutely positive and keep being so. We, we've achieved record performance in 2023 in revenue, organic revenue, in organic profit, and in cash generation, and in adjusted earnings per share.
As a result of this, we've increased the full-year dividend to 17%, which is a total dividend for the year of GBP 0.95. Some of you who've known the company for a long time will know that the company was originally IPO'd at 95p in 2023. So it's quite a satisfaction to be able to give these shareholders 100% on their money every year. Current trading: when we start the year with a solid order book and good orders, we live in a very volatile geopolitical environment, which is not good for an international business for us, but it's been like this for some time. Two years ago we bought Geotek, which is a third of our business now. It's a very successful business that we bought.
A third of that business is the coring business, which consists of doing approximately 1 expedition a year. So it's a sizable part of our business. This year we haven't, at this point, signed any coring deal. So there's uncertainty whether we will have a coring expedition in the course of 2024. These are thin on the ground, and we are the only people who do these coring expeditions with gas hydrate. Gas hydrate is a very interesting thing, but it's a bit erratic. So we know we have to live with that. I'm passing on to Brad, who will present the results.
Hello everyone. We can move to the next slide. I'll take you through the key highlights for last year. And, you know, we've navigated through the past couple of years of inflationary challenges, supply chain issues, and coming out the other side of that. And overall, having been through all of that, we've still managed to deliver what I believe is a good performance in 2023. So what's actually happened? Total revenues up 20% to GBP 136 million. That's a combination of 15% organic revenue growth, and that's at a rate which we maintained from the half year. And then also a contribution from our current year two acquisitions and also a full year contribution from Geotek that we acquired in 2022. Now, the 20% increase in revenue resulted in a 16% increase in adjusted operating profit, and that's up to GBP 35 million from GBP 30 million in 2022.
That 16%, sadly, by the time we got down to earnings per share, whilst it provided us with record adjusted earnings per share, which is up 3% to GBP 3.746, a lot was swallowed up with the increase in UK corporation tax and also borrowing costs. I'll come back to that a little bit later. Now, going back to organic revenue growth, that was supported both by increases in organic order intake. That's 7% up on the prior year, and also with the alleviation of the supply chain issues that we'd faced previously, together with continued improvement in our operations, which enabled us to steadily reduce our oversized order book and end the year still with a strong order book of 17 weeks of organic orders. Now, as I've said plenty of times before, the group retains an excellent track record of converting profit to cash.
This year we generated GBP 31 million cash from operations at a cash conversion of 90%. Now, that's an improvement on the previous year of 80%, but it's still not quite as high a level as we'd like. We'd like to be in the high 90s for cash conversion. The cash generation as a whole still serves to allow us to continue our policy of delivering progressively increasing dividend returns for shareholders. As David mentioned before, we've increased the full year dividend by 17% to 95 pence per share, with a final dividend proposed of 68 pence per share. The cash generation also allows us to support our buy and build strategy in acquiring new businesses. We acquired two new businesses, Bossa Nova and Henniker. David will talk about those later, as well as settling the full earnout from the Geotek acquisition in 2022.
Now, all of that takes us to net debt, which reduced from GBP 52 million at the start of the year to GBP 45.1 million at the end of the year. And that's despite these acquisitions and settlement. The earnout, together with also an investment of GBP 5 million in capital expenditure, GBP 7 million paid to shareholders in dividends, and now close to GBP 10 million paid in tax and interest. Overall, we retain a strong balance sheet, which is a key feature of our group. We have significant headroom in our covenants, and our gearing is only at 1.38 times against the covenant limit of three times. And we retain significant borrowing capacity and flexibility in our facilities such that we can fund future acquisitions. So overall, a strong picture. Now, looking forward to 2024, the number of positives and negatives weighing on the group's outlook. Geopolitics, David mentioned that before.
They've not been more tense in my entire lifetime. I'm now 48, so it's a, you know, a fair while. At the same time, offsetting this slightly, we can say, you know, that inflation has calmed. Supply chain issues have generally abated. At the same time, we still have a little bit of Geotek coring contract and the timing of that. But with the start of 2024 coming along with a strong organic order book, still satisfactory order intake, which we'll talk about a little bit in depth later, and our business is well equipped to face the future, we can be positive about 2024 at this stage. So if we move on to the performance slide, I just want to pick a couple of things from this slide. The first one, I touched on inflation just before. I think we've navigated that well.
The evidence is that our organic businesses have managed to maintain their own margins before central costs. So I'm very pleased about that, although the effect of increasing stepped central costs this year has resulted in a 1% reduction in overall operating margins. Our interest has increased as a consequence of a full year of the debt we incurred on the initial acquisition of Geotek. Plus, we also settled the earnout this year. And just as a reminder, the majority of our debt is hedged at around 5%, so we have certainty about our borrowing costs. Now, moving on to taxation, our effective tax rate on adjusted earnings is 21.8%. That's up 4.5% on the previous year. And it really is a direct reflection of the 6% increase in UK corporation tax headline rate from the start of April last year.
Putting that 4.5% into context, if you apply that at 4.5% of our adjusted operating profit, it's GBP 1.5 million of extra tax we paid, which is equivalent to GBP 0.22 of earnings. Then lastly, we do have adjusting items that take us to the statutory result. The largest components of these are GBP 12 million for non-cash amortization of the intangible assets that we acquired to recognize when we acquire businesses, and GBP 4 million, a GBP 4 million charge that relates to the change in fair value of the earnout that we settled by June 2023. Moving on to the next slide, I'm coming back to order intake. As usual, I'll just remind everyone about the graph that we have. We present this every six months.
So there's, on this normal graph, three lines: a red line, a black line, and a green line. The red line is our annual sales budget. So we set this once a year as part of our budgeting process, and that's really the target. The black line is the last 12 months of orders, trailing 12 months of orders. And the green line is the last four months of orders annualized, so multiplied by three. The far end of the graph is the end of December 2023. So what are we looking for? Well, ideally, the black line is at least touching the red line, in which case you've had sufficient orders with which to satisfy your sales budget. And ideally, your green line will be at least tracking the red line. That way, you've got relatively consistent orders.
But it is quite clear that as a shorter-term measure, the green line is always a lot more jagged. And what we also did after the acquisition of Geotek, before Geotek became an organic business, which it will do from the start of this year, is we also included dotted lines of the same color to show the difference between organic and total. So what can you see from the graphs? Well, the first thing, if you look at the dotted lines, is that the black line was ahead of the dotted red line for the majority of the year. And that really shows why we had a 7% increase in our organic order intake and why we were able to finish the year still with a strong order book on an organic basis of 17 weeks. Now, a couple of other things to note.
One, if you look at the solid lines towards the end of the year, you can see there's a gap between the red line and the black line. And, you know, that reflects not having, in the last Geotek coring contract. and just as a reminder, the revenue for this year's, Geotek coring contract that was recognized in the second half of this year, related to a contract which was signed in the order book during 2022. So the last thing to note is that you can see, if you look at December 2023 compared to December 2022, that we don't have quite the same peak that we had at the end of 2022 when China reopened from its lockdowns. And that peak continued into the start of 2023, in January, February, and resulted in a very strong start to the year for us.
In fact, you would have seen when we reported our half-year results that China, Hong Kong, was up by 78% in the first half of last year. A strong comparative, for us to compare with at the start of this year. What's happened since the start of the year? Well, we've had organic orders at a similar level to the same time last year, albeit with, you know, a high comparative with the exceptional level of orders from China. Moving on to the next slide. This slide really reconciles between the profit contribution of our businesses from 2022 to 2023. They're the big green blocks at either end of the slide. Reconciling between those, we've got organic growth. You can see we've had nice organic growth, a good chunk.
That really, you know, is evidenced through the fact that more than half of our businesses achieved record performance this year. But at the same time, with the smaller red block, you can see a few of them move backwards. Then the last block we have relates to the contribution to our profit from the acquisitions, the two acquisitions this year, and also a full year contribution from Geotek, which was, just as a reminder to everyone, heavily weighted to H2 last year. Moving on to the next slide. Just briefly took through balance sheet and cash flows. You know, the key figure on this slide is adjusted net debt. That's reduced from GBP 52 million to GBP 45 million. Obviously, explained a bit about that earlier. Now, we, you know, we deleveraged. Gearing went down from 1.6x to 1.38x.
So, you know, we're able to continue to deleverage, despite the fact that, you know, our cash conversion has not been quite as good as we like. And where do we evidence that? Well, in working capital. Where in normal circumstances, working capital is usually around 10% of annual revenue. At the moment, it's closer to 20%. And that's simply because we've had, over the last few years, had to invest in inventory to ensure that we could meet our customers' needs. As the supply chain issues have abated, we've been pleased to build momentum in reducing lead times and delighting our customers. And our businesses are cautiously concerned not to lose that. But at the same time, we're very, very cognizant of the fact that we want to make sure we can reduce the amount of inventory and working capital.
And slowly but surely, in working with our suppliers, and we need to do this carefully, that we can help reduce that level of stock. But it's going to take us a little while because managing those relationships, it's not like we are a business that has significant control over our suppliers. You know, if you're a Ford and you say you want to destock for a couple of months and you say to your suppliers, "Please stop for three months," they go, "Okay, no problem." They have the power. For us, we're a small purchaser of most suppliers' products, so we have to work with them in a manner which is a little bit more careful. But we will do so and at the same time work hard to try and improve that cash conversion and reduce the volume of working capital. So moving on to the next slide.
We return on total invested capital. ROTIC is another key measure for our business. In its simplest form, is a direct function of the multiples we pay for the businesses we acquire. To improve ROTIC, you need to either improve financial performance and/or buy businesses at lower multiples. You can see on the left-hand side where we started, we paid close to 5x for FTT. We started just over 20%. Now, we've had a couple of big cliffs, as you can see in the middle of the graph, in 2012, 2013, when we paid 6x for what were then large acquisitions for us. They had a downward mechanical effect on our return on capital. Obviously, towards the end of the graph, you can see when we made our largest ever acquisition of Geotek at 7x, the same thing happening there.
So what's happened this year? Well, the organic businesses have performed well, and the consequence of that can be seen in ROTIC, which has improved from 28.7% to 33.5%. And having then looked at the total, which includes the Geotek acquisition and that mechanical drop that we had, which was in the region of 8%, we've started this year with 20.6% return on capital, finished the year with 22.7%. So good performance overall, moving in the right direction. And of course, the point with the larger deals is that there really is a quid pro quo. You know, as you buy bigger businesses, you do get that large improvement in earnings, but at the same time, you get that same downward pressure on return on capital. And that's what we have to weigh up all the time when we're looking at potentially larger deals.
So moving on to the next slide. My penultimate slide in diversification. But you can see on the left-hand side, we've got a split of the group's companies by revenue. And you can see, you know, one single company overly dominates. Our businesses are diversified by scientific application. They make different scientific instruments for different scientific markets. Geographically, there is no one single region or country that overly dominates. And we've added some extra information for this year for end market revenue analysis for the group as a whole. And 25% geotechnical, around 20% of our businesses sell into the industrial process optimization market. Then somewhere in the region of 40% into life science/semicon. And the scientific techniques and the instruments used in both the university and industrial research for these two differing industries are very, very similar. And that's the reason why we've amalgamated them.
But hopefully, that's a bit of extra useful information for our shareholders. So moving on to my final slide. And this slide really looks at some key statistics about the financial success of our group. Revenue, profits, and earnings per share have all grown strongly over the history of our group. And this year, we've had record revenue, record profits, and also record earnings per share. We've had an 8%+ organic revenue compound growth rate over the last 17 years, with an 11% profit growth as well on the same basis. So for us, whilst we are looking to buy sustainably profitable businesses, there's really good evidence of the group's ability to ensure that the businesses it acquires also grow post-acquisition. And we do believe that we can keep growing that revenue and profit carrier as well. Dividends have increased by at least 10% per annum.
This year, we've increased the dividend by 17% to GBP 0.95 per share for the full year. And that still is a cover of 23% for the dividend. And then lastly, our continued focus on cash generation serves to enable us to be able to reduce debt quickly, make space for further acquisitions, and of course, continue to provide increasing dividends and better returns for shareholders. And on that note, I will pass back to David, who's going to talk through the group's strategy. Excellent. Thank you so much. Thank you so much, Brad. Yes. So buy and build, as we said, is a mixture of M&A and organic growth. Two words on M&A about the companies we bought recently. So that's the next slide. Henniker, which is a company which is involved in surfaces and is how to treat surfaces with plasma.
So basically, you put these surfaces in a machine and the plasma changes the characteristic of the surface. We bought this company on a multiple of 4x. It's making a little bit more than GBP 500,000. And the cash payment was GBP 1.8 million, which could be supplemented by GBP 500,000 earnout. The earnout period is virtually finished. It was an excellent company that we saw before the lockdown, and it fulfilled all its promises over the period where we couldn't visit it. And it's an unusual company where the managing director is quite young, and he decided to stay, and he's happy running the company for us. Bossa Nova Vision, which is in L.A., is a very small company which images and digitalizes the appearance of tresses. It's about the hair business. It has an enormous proportion of that market, which is very small.
So it's quite a small company. And it makes only $400,000, or when we bought it, made only $400,000 a year, and we paid four times for it. But of course, Los Angeles is very far. The reason we were interested in buying a company so far is that we have another company called Dia-Stron that we've had for eight years and which tests the physical properties of hair for exactly the same customers. And we believe a lot of synergies offering these same customers two complementary offerings and having very little competition in both. And then the next one we just bought this year, post balance sheet, called Luciol. It's in Switzerland, Vaud, close to Geneva. It makes OTDR, which is an instrument which characterizes fiber optic over short distances.
We have a company in Berkshire making OTDRs, which characterize fiber optic over long distances, like 50 km for communication purposes. But this is more about communication, for instance, in a plane. So you want to have a 100 m or 50 m long fiber optic, and you want to make sure it's impeccable because a plane, you can't play with safety. So these are the instruments which check that. So again, it's a small company making CHF 500,000, which is virtually GBP 500,000. And we paid 4x for that with a potential earnout of GBP 500,000. So three deals we did recently, very moderate multiples. And we think they're all excited companies, and two of them with quite a lot of synergy with existing companies in the group.
So once we bought these companies, then you have to make them work and make sure they're prosper. And that's the job of Mark Lavelle and Tim Prestidge. And they're going to talk to you a little bit about our organic model.
Thank you, David. So as David says, we buy these businesses, and then we seek to help them grow further. And I think it's just important to mention, first of all, that we are not a turnaround organization. So the businesses we buy are all highly successful businesses. So what we're doing is building on excellence already. We also have a fundamental belief that because we're talking about very small businesses operating in very small niches, that the speed and flexibility that these businesses have is a really huge asset. And the last thing we want to do is encumber them with huge bureaucracy.
So whereas there are many organizations around the world who like to buy groups, like to buy companies, integrate them, focus highly on synergies. And I always say that within a few seconds of a deal being done, they've moved the finance function to Boston, the R&D to China, production to India. And you just got a little sales office left with the founder's logo ripped off and the new American corporate structure logo on top of it. That's absolutely not what we do. And our business view is that for us, with these tiny niche businesses, that autonomy trumps integration. So what we do instead is we're looking to add to the businesses and try and plug some gaps or give them the confidence and the knowledge to grow the businesses further.
The sorts of things that they tend to have not done is perhaps expanded worldwide as much as they might have done. We've got many businesses that have now, and therefore we can offer help, assistance, and advice, both frankly, from companies that have done it successfully and sometimes companies that haven't done it so successfully are also quite interesting people to talk to. So we encourage the MDs of these businesses to talk to each other a lot, to share ideas, to share experiences and good practice, and also get their direct reports, production, R&D, sales, and finance to interact with the other businesses just to learn what good looks like and generally raise the bar. A couple of things that we tend to get them to do, which they haven't done before, is very much focus on monthly performance.
If the general feeling is that the year will be what it'll be and we might have a little push at the year end, that tends to lead to lesser performance than asking the businesses to produce a forecast for each month and then deliver to that forecast. That way, we end up just squeezing a little bit more into every month and then a lot more into every year. As I hinted there, we view the senior team as extremely important. The managing director, and typically in these businesses, you need to invent a product, produce it, sell it, and count the money. Most of our businesses are built around the concept of an MD and then an R&D director, a production director, a sales director, and a finance director.
We spend a lot of time with them and have developed some leadership training courses to help them understand the impact that they can have as leaders rather than, in many cases, what they've used to be doing, which was very much technical experts. The two are very different every year. In fact, this year, it happened just earlier this week on Monday and Tuesday. We got all the MDs together and very much focused on the things that we see as the critical feature for the year. This year, we were talking about developing those teams, about strategy and ambition, and particularly about new product development. I think that's probably enough from me.
So let me pass over to Tim, who's particularly strong on the strategy and ambition side of the businesses and underpinning a little bit of that with some good finance and governance controls as well.
Thanks very much, Mark. I'm going to just layer a few things on top of what Mark has described there in terms of our organic model. I think if Mark and I were to describe really the key and most important aspects of our roles, then that falls into just essentially four or five points. It's around, firstly, the governance and compliance aspects. Just being confident and making certain that the subsidiary companies in the group are behaving appropriately and they have the correct levels of fundamental sort of controls in place. Beyond that, then it really is all about talent.
So being confident that we have the strongest leaders running the companies and that they, in turn, are building around them a strong leadership team and that that team is, in turn, being a credible and ambitious strategy and that they are then executing that strategy with urgency. So no coincidence, then, that broadly speaking, the data on this slide, the points on this slide align with those things. So if I think about the top left corner first, the sort of finance and governance side, I mean, those are what you might think of as mandatory elements of control. So how does that type of thing fit within an autonomous management structure, a decentralized management structure?
The best way to describe that is, well, absolutely, what we don't do is to take that off the companies and centralize it all and do it all ourselves and put those sort of controls in ourselves. So the model is much rather that we have a framework of what has to happen and what we expect to happen. And it's very much about then making sure that that is pushed down into the companies and it's delivered, but the companies and the leadership within the companies is held accountable for implementing the necessary governance and the necessary controls to make sure that we have the right level of control across the organization.
What that then does, in turn, is allow them to develop the strengths themselves around some of the other not mandatory, but highly recommended aspects, particularly in terms of, for example, management accounts and also balance sheet, more control of balance sheet metrics, for example. So pushing that accountability down through the organization ensures that we have the robust controls where they need to be, but also allows the organizations to develop those further strengths themselves. If I think about the autonomous structure, but one of the things to highlight there is that it shouldn't be thought of as something which is automatic. In some sense, at least, it's earned. And the thing that I'd particularly highlight that earns it is delivery or operational excellence. So executing on the actions and executing on the commitments that the companies have agreed to.
So that's where the sort of operational excellence comes from. So Mark and I very much see that in visiting the companies and meetings with the companies, if there are challenges in the sort of short to medium-term delivery, those would dominate the conversation. And therefore, challenges in terms of the near-term operational aspects of the business tend to take the lead. What we really want, of course, is that operational excellence and delivery is in place. The team is delivering that. And therefore, we have that sort of buys the right to focus very much on the long term. And that's really the fundamental aspect of the autonomous structure, which requires talent, the best possible talent in place leading the organization.
And that really sort of ties in with what I think Mark and I would see as probably the most important part of our role in terms of being confident that we have the best talent leading the organization and developing around them the strongest team. The final point I wanted to highlight, just looking at the bottom right square there, is around the strategy and ambition. It's something that we've worked to develop a slightly better process over the last 12 months or so in terms of really ensuring that the ambition is captured in the strategies for the organizations. It's very much the responsibility of the individual businesses to generate their strategy. It's not something that Judges impose, but we've helped by developing a structure in which to do that. But the key thing is that that structure cascades down to actions as soon as possible.
So in a simplistic sense, it's about understanding for each of the companies, where are we now? Where do we want to be? How are we going to get there? But then who's going to do what by when? And across the management team on this call, it wouldn't be realistic for us to say, "Yes, we have a handle on the top 100 actions across the group that we need to have done to be able to drive growth." But part of the magic of our structure is we do have that information. The companies themselves have developed, using that sort of structure, the top four or five or six things that they absolutely have to deliver and execute on to drive the ambition that they have.
And so making sure that the strategic plan process cascades down to action is one of the most important aspects that Mark and I have been putting in place. I'll hand back to you, David.
Thank you very much, Mark and Tim. So just two words about the outlook and the investment case. The outlook, we repeat, we have a very strong business model with strong cash generation and a strong balance sheet. Our long-term fundamentals are positive, and we absolutely focus on shareholder value, which we believe is the purpose of the company. Uncertainty remains in our environment. The geopolitical environment is very dicey at this point, and we're a very international company, but we can live with it unless it gets much worse. And of course, we're helped by a very competitive sterling because whenever there is tension in the world, sterling goes down, which helps us. Current trading, we start the year with a healthy order book, reasonably good order intake. We still have, as I explained, the uncertainty on the timing of the Geotek coring expedition.
We have explained that we were comfortable with the current market expectation for the year. So the investment case, which is the last slide, we have a diverse portfolio, sustainable reserve, growing dividends. We believe there's a lot of targets. We like the long-term drivers of our business. We are completely focused on shareholder value, profitability, cash generation, debt reduction, and dividend growth. We've promised to grow the dividend by no less than 10% every year. And we've done this for the past 15 years. But the actual annual growth rate was 23%. And finally, but not least, our shares are free of inheritance tax if they've been held for 2 years. And that's it. Thank you very much for listening. Questions and answers.
Thank you very much, David. So to ask your question, click on the Q&A button. And we're going to kick off with questions on Geotek. We don't want to completely focus on Geotek, but there are four or five questions. The first is, is there any revenue Geotek coring expeditions built into forecast guidance for full year 2024 or 2025?
No, as we've explained, we are happy with the guidance, although we may not have a coring expedition. So the 2024 forecast is achievable without a coring expedition.
Great. Thank you very much. Could you talk a little bit about the lumpiness of Geotek's revenues and whether this will always remain a feature or whether there are measures that the business intends to take that will help smooth out revenues in the future?
Yeah, thank you very much. Well, the Geotek business is made of three parts. There's a business making and selling instruments, which is what the rest of the Judges' business does. And it is not particularly lumpy, although some of these instruments can be quite expensive. So that makes it a bit more lumpy, but it's an absolutely not lumpy business. Then there's a coring business, which is very lumpy because it's typically one expedition a year. We've explained that when we bought it and usually contracting with a government which organizes the expedition. And there's other players in the expedition. So all the ducks must be in a row before that boat can go. And that will remain as lumpy as it is. But we think it's an extremely interesting business and very profitable when you have it.
Then you have the service business, which is not lumpy at all and which is made of a bit of rental of equipment and a lot of contracts with big mining or oil companies to digitalize the collections of cores. They all have enormous collection of cores. All this information, we take it out and we digitalize. You can have all this information in your laptop. We believe that this is a very interesting business that every oil or mining company should have that. We want to grow that. We think this is where the growth is in Geotek. As we grow this part of Geotek, of course, the coring as a percentage will be lower. The company as a whole will feel a lot less lumpy.
We don't want to give up that coring business because it's an excellent business and it produces a lot of cash. It would be nice if it came in every month, but it's not the case. We like to come in every year. That's possible, but not certain.
Great. Thank you very much, David. And if you can say, what's the approximate level of Geotek coring contract? what does it typically generate? And are there any current discussions as to a potential new contract in full year 2024?
Yeah, it's maybe GBP 3-5 million. You could expect if we say we haven't signed a contract yet that there would be discussions, yes.
Thank you very much. You stated that Geotek EBIT was 9% below its EBIT earnout threshold. Does this relate to the base earnout figure, i.e., GBP 6.4 million, the cap of GBP 11.4 million or something else?
It's the cap of GBP 11.4. I'm bouncing onto Brad there. It's absolutely the cap of GBP 11.4 we're talking about because that's what we paid the earnout on. So that was what we saw as the sustainable EBIT, which is slightly below for 2023.
Great. Thank you very much. Final one on Geotek. In general, the demand for Judges as a whole has never been destroyed, only postponed, say, Brexit or COVID. Would this be the same for Geotek coring?
Yeah. To answer this one, if you hear me, yes, Brexit is completely irrelevant, regarding Geotek coring . and we're talking also about COVID. Geotek coring a lot because in the year of COVID, they had a campaign in China, which hasn't taken place and may take place at some point in the future. So Brexit is irrelevant, but COVID was certainly a big problem for Geotek coring.
Great. Thank you. And where do you see the most scope for improvement across the business in the Judges' family?
I'm going to pass on to Mark.
I think that, to be honest, it's very different at every business. Every business is in a different industry, different markets, and they've got different challenges. I would say that in most of our businesses, the operational performance is getting better and better. Our financial reporting analysis is getting better and better. But we've got peaks and troughs. So I think it really is a huge variety of different tweaks in different businesses. And probably I think that if there were one that was larger than the other, I think I'd probably go for speed of product development. Many of the businesses have traditionally come from a very sort of scientific and slightly academic background.
There had been a tendency before we got involved to perhaps develop products of academic interest, and not just as in things that universities would buy, but things that the R&D director quite fancied developing. Certainly, given our involvement, there's been a tendency more towards products that will actually sell. I do think that's something which we continue to try and encourage as we buy businesses, just to be a little bit more selective about one or two new products and make sure they're ones that are going to have an impact on the bottom line.
Great. Thank you very much. On margin reduction, with organic at 15% and M&A aside, should we expect some operating leverage? Should we just look at central costs, or is there any more detail in the turnover of any division or lower margin contract or anything that may have an effect on the mix?
I think the key point is that the organic businesses managed to maintain their margins, and that's despite inflation. That's credit to them for having utilized the capabilities they have and been able to put their prices up as appropriate and fairly as appropriate, as well as how they've managed the cost base of their business as well. We've been open about the fact that there's been a reasonably big increase in central costs this year. That's largely people-related. We wouldn't expect it to continue at that rate in future years on an ongoing basis.
Great. Thank you. And a question specifically on Armfield. Did it have a better year in 2023 after a couple of poor ones in 2021 and 2022?
Maybe I'll answer this one. Yes. But we still need a lot of improvement. But we have a new managing director who's doing a very good job, and we're very pleased with the progress he's making.
Great. Thank you very much indeed. As most of your businesses export, can you explain how you hedge currency?
Yes. I'll do this one. I mean, what we're trying is to cover the risk of losing money on contracts. So if we contract to sell something in a currency and we obviously have the bulk of our costs in sterling, if sterling goes up, then we make less money on that contract, or we take the risk of losing it. So we calculate the sum of all these sales that we have in dollars and in euro, they're the main currency we're dealing with. And we hedge them with options. So we know roughly every month how much dollars we have coming in. And we want to make sure that we get a minimum amount of sterling for our dollars or a minimum amount of sterling for our euros so we're not going to lose money on these sales. But it's options.
So the result is if sterling is very low, we do very well as everybody expects us to do well, and we don't exercise these options. But if sterling were to shoot up, which doesn't happen very often, then we don't lose money on these contracts, and we're doing still well. So this is the concept that we're using.
Excellent. Thanks very much, David. For companies within the group that performed below expectations in 2023, were there any common themes?
Mark, do you want to deal with this one?
That's an interesting question. I think the answer is actually no. Again, pretty much all of our businesses are in different markets. Most of them are non-cyclical. Occasionally, we have a business where there's some element of cyclicality, but that doesn't often happen. If I look at the small amount of lower performance in the business, I think it's really a different issue at every business and things we feel pretty confident about fixing over the relatively short term.
Great. Thank you very much. Do you expect inventories to stabilize now having increased during the supply chain disruptions?
I'll answer that one as well. The aim is not for them to stabilise because what we've found is that the inventories have tended to stay at relatively high levels. The market has tended to be a little bit conservative in that region and felt that the sort of changes since COVID probably need hanging onto. And our view is that over the next year or two, we should be moving back towards a more normal situation. So it's probably a little bit inventory levels are probably a little bit more like they were at the peak of COVID now than we had expected, but they need to move down a bit. And we're pretty confident that will happen.
Great. Thank you. Could you give more color on the GBP 4 million fair value movement on contingent consideration? Was this a release of provision, and which business didn't hit target and why?
No, no, no. This is relating to the change in the fair value of the earnout that we paid. So first, it's a charge. So if it was a release of a provision, we'd have a credit. This is absolutely in relation to the fact that we have to value the future earnouts at the end of December at its fair value. And part of that fair valuing is that we had discounted the cash that was going to be paid at the point of settlement of the earnout, and part of it related to the issue of shares at the date we settled the earnout. And in relation to valuation of the shares in particular, the share price appreciated between the 31st of December and when we settled the earnout. And consequently, you have to measure that difference in fair value.
Our share price, let's say it was at GBP 80 at the end of December. I can't remember the exact number now. Close to GBP 100 when we settled it, that increase, we're not allowed to put back into the initial acquisition consideration as the accounting standards won't allow that. That increase, we've had to essentially recognize as a charge in the income statement.
Great. Thank you very much.
It's a one-off event.
Great. Thank you. Do you foresee further increases to central costs, or do you now have the resources you need to fulfill your growth ambitions?
I mean, if it's all right to keep going, because I touched on this a little bit earlier, we've had some reasonable increases this year. I don't think we see that rate of increase as expected or as a sustained increase. At the same time, it's clear to us in the structure we have that if we continue to acquire a number of businesses, that we will need more oversight from the roles that we have, which is essentially what we call a COO role. That would be a stepped cost if you need to recruit someone. At the same time, we also are trying to see if we can promote from within as well. That's an approach we're looking at.
But at some point, if we have another 10 businesses, Tim and Mark and any internal help we have may not have enough bandwidth to be able to deal with that. So we'd probably need another additional support there. So there will be stepped costs at some point, but not in the sort of size that we've had this year. Hopefully, that gives you a reasonable answer to that.
That's tremendous. Given the investment in new talent and product development, do you think your long-term organic growth prospects are higher now than, say, five years ago? Can you quantify the uplift?
This one. Tim, do you mind taking this one, please?
I would certainly say that we have and there's two aspects to look at that, I guess. Naturally, as the size and scale of the organization grows, we would expect organic growth naturally to play a larger and larger part in the future growth and ambition of the organization. So we're most certainly putting in place the processes and the ambitions and the talent to be able to be able to make that happen. And so I guess the answer is yes, we absolutely expect that to be a growing portion of the growth of the organization.
Great. Thank you very much indeed. Do you issue shares as part of an acquisition? Just wondering why the earnings per share is relatively flat. Is it management options? You did cover this, Brad, but obviously, someone wants clarity.
I'm happy to explain that again. Our profits were up by adjusted operating profits up by 16%. Our earnings per share only up by 3%. There were three specific things, one of which was particularly significant. The first one being the increase in corporation tax. That increased by 6% from the start of April. So essentially, a 4.5% increase. So that was a big effect. And as I mentioned before, GBP 0.22 is essentially the 4.5% increase that affected us. So that's one reason. Of course, we had a full year effect of interest, and we did issue some shares as part of the settlement of the Geotek earnout, which was approximately a 3% dilution. So those three things, what came into play?
Great. Thank you very much. As the cost of acquiring new businesses has gone up, how has the rise in interest rates negatively affected the financial outcome?
Yeah. Well, when we see the cost of buying these businesses of course, when we buy bigger businesses, we have to pay more. But I don't think otherwise the cost of buying these businesses have increased. And clearly, interest cost is a very important cost to be taken into account because this is the arbitrage we're doing. Do we get 20% on our money from the companies we buy? And if you pay 8% on your debt rather than 3% or 4%, it reduces your margin. Of course, we hedged the very early stage, the debt taken on to buy Geotek. So we have a very favorable fixed interest on that. But of course, half of the earnout, which was paid in cash, we had to pay current interest rates. And of course, they are higher than what we pay on the rest.
Interest rates are now, of course, I believe, have stabilised and are going to go down now. Maybe not as quickly as were promised in the past, but they're definitely going to go down. All the predictions are that they're going to stabilise and not go back to negative levels like we had before. I think we have to accept that within 2-3 years, we go back to a new normal, which is probably going to have a couple of points above what we had in the recent years. Yeah. But given the return we get on the companies we buy and given the small part of that which is eaten with interest in normal times, I think it leaves us a very good margin. Of course, if we buy much larger businesses and if we buy them regularly, we'll have a lower return.
On that, of course, interest expense starts eating up a more substantial proportion of your income. Yeah.
Thank you very much, David. We've only got time for one more question. Could you clarify whether Geotek is paid by the customer in advance or after a coring expedition? When is revenue recognized compared to when cash is received?
That's definitely for Brad.
I have to caveat this by saying that it is not straightforward. I'll do my best to make it as simple as possible, but there are a lot of nuances. In big picture, in terms of cash, we get a lot in advance of the actual activity of the coring. Now, there's a lot of preparation you have to do to get ready for the activity and the expedition. So there's a lot of effort that needs to be expended. We usually paid a reasonable amount at the start of when we agree a contract and then also an amount when we arrive on site. By the time we've actually moved everything to the site where we're actually going to perform the work, we've been paid nicely in advance.
You're then paid in stages as you go through for the remainder of that. Now, that's the payment. In terms of the revenue recognition, you recognize no revenue until you actually start the work on site. Everything you do in preparation, you get no benefit in your income statement for. Then it's treated like a somewhat complicated version of percentage of completion accounting. You will recognize a certain amount of the revenue as you progress through the rest of that contract, but it's not completely straightforward. The consequence of that is that it's not as easy to forecast the timing of the revenue and just exactly how much you will get because it will really depend with a bit of hindsight on how the contract is progressing.
Fabulous. Thank you very much, Brad. Well, it's not the end of questions, but it's all we've got time for. David, do you have any closing remarks?
No, I wanted to thank you and Tim. I think also my colleagues who participated in this. But mostly, those of you who took the trouble to come and listen to us for an hour and the interest you have in Judges. And I wish you a good year. And if you're a shareholder, I wish you a very prosperous year.
Thank you very much, David, Brad, Mark. And to you all listening, I've missed Tim, sorry. And thank you, Tim, as well. And to you all listening, you'll now be taken to a web page to give feedback on today's presentation. If you're unable to complete it now, you'll get a follow-up email. We'd be really, really grateful if you could take a few minutes to complete. Many thanks for joining us. This is the end of the webinar.