Welcome to everybody. This, I think, is probably our 26th breakfast, and it's the third one without food. I apologize for that, and we do hope that, you know, the next one will be back to normal and being able to have a proper face-to-face breakfast. These are the results. Most of it will be covered by Brad, but for those who don't know Judges Scientific well, who don't remember, I'll just quickly remind you what we're doing: doing a buy-and-build exercise within scientific instrument markets. It's a very good thing to do, we think, because of three things: the long-term growth drivers, the large pool of potential acquisition, and the low capital requirement, which means we recycle our cash quickly into new deals.
We've built up, well, there's an excellent reputation as an acquirer because we treat people very well at every level, and the people within the company and the sellers, and this gives us a bit of an edge, and we've done 19 acquisitions since we started May 2005, and we are very disciplined in acquisition, and we're trying to buy only sustainable businesses with good profit and cash flow and pay sensible prices. This is why we've done 19 acquisitions and not 90, we think that these are the three basic on the right-hand side. At the bottom, you see the three, what we call the three pillars of shareholder value Judges Scientific, so there's a bit of a historical chart of all the deals.
You see, we have very good periods where we do loads of deals, and then we have dry patches, and this is what happens when you're disciplined. Next one, please. This is a very small sample of the customer base we have. On the left, you see a lot of universities. We believe about half of our business is done with the research departments of universities, but we sell also to industry for them to, you know, improve their products or control that they're doing the right thing and they're complying with all standards, and we also sell to institutions which are not universities but are doing research or to test houses which are public or private. Apart from those, we sell to OEMs, which are people who have the same customer base as what's above, but we sell a component or a sub-assembly of something that they sell.
So, you know, the biggest example is Thermo Fisher, which is the biggest company in our sector. So really, this is a results announcement. The key message is this: everybody suffered to varying degrees from COVID. Our sector has been blessed that it hasn't been as difficult as sectors which are dealing with, for instance, tourism and travel and entertainment and food. So we're lucky to be in such a sector. But of course, we had a bad year last year, and this is a year of recovery. We've had improved order intake, revenue, profit, and cash flow from the first half of last year. So we're happy with that, and we've more or less restored ourselves to where we were in 2019. So we're not ecstatic because normally we would have done a lot better than 2019.
Our order book has restored a very good level, and this has really, we think, demonstrated the resilience of our business model and the adaptability of our group. And of course, we've been helped by acquisitions that we did, three acquisitions which really counted in this year as non-organic. So the COVID is not gone. We keep trying to make sure that everybody's healthy and safe. We're also lucky that our customers are very intelligent. They're largely scientists or engineers, and they've adapted quickly, like us, to a new mode where we can't travel and we can't see people face to face. But it's not like before. And of course, we would like to go back to seeing our customers and attending conferences, and hopefully it will happen soon. So we still have headwinds, not traveling. Some universities are running slow, some big corporates having still CapEx freezes.
Of course, the thing which has been bothering us more recently is supply chain issues. You read everywhere about supply chain issues. A year ago, when everybody asked us about supply chain issues, we said, "No, we don't have any problems." You know, there was a time when people were buying tons of toilet paper for their homes, and everybody thought we'd have supply chain issues. We've really hardly had any. Now we have, and a lot of people have. I think there's a lot of panic buying also in industry, people buying chips in larger quantities that they need, but also people producing less because they haven't been able to adapt to an improved climate. The outlook, we still have uncertainty.
We don't know whether there's going to be new variants and, again, you know, whether we're going to be barred from traveling to some countries where actually recently we've been able to go, but you know, things are better, and we feel generally positive, and the most important thing is the long-term fundamentals of what we do haven't changed at all because of COVID, so you know, we just had a little bit of a pause in our growth, and we're increasing the dividend 15%. So performance, and now I'm passing on to Brad.
Good morning, everyone. I'm now going to take you through the key highlights for the past six months. Now, the group has got over what we feared are the worst of the effects of COVID, and performance, pleasingly, is returning back to where we want it to be, initially reaching the 2019 performance level, but we know there's more for us to do, so what have we done in this first half, well, total revenues are up 15% to GBP 43 million. That's an increase of 5% organic revenue growth, coupled with contribution from our two acquisitions last year, THT, that we acquired at the end of May last year and Korvus last October. Now, that growth in revenue has fed through to profits, and our adjusted operating profit are up 31% to GBP 8.8 million, up from GBP 6.7 million in the COVID-affected previous half.
And that's carried through to the bottom line, through to EPS. And our adjusted earnings per share has progressed to GBP 1.11, up 32%. Now, the organic revenue growth has been supported by a good bounce back in organic order intake, up 25% on the previous period. And it now brings us back to the levels we'd last seen two years ago. And our order book is fully restored with organic orders of 16 weeks and 17.6 weeks in total. Now, the improvement in our order book is driven by the improvement in order intake, but also through the lead times to deliver the additional orders.
I'll come back to order intake in somewhat more detail later, but the improvement in the order intake, the improved order book position, and the first half performance have given us confidence to announce this morning our expectations of beating current market consensus for the full year. Now, we have a strong track record of generating cash, and that's pleasingly returned to normal in this first half, with 91% cash conversion and GBP 8 million cash generated from operations. It's enabled us to support a 15% increase in the interim dividend, up GBP 0.025 to GBP 0.19 per share, and also helped reduce our net debt from GBP 5.7 million at the start of the period to GBP 1.7 million at the end of the period. And that includes a GBP 1.8 million outlay in increasing our ownership of Bordeaux Acquisition, up from 75.5% to 88%.
As a reminder, Bordeaux Acquisition is the vehicle that owns two of our trading subsidiaries, Deben UK and Oxford Cryosystems. Our balance sheet remains strong. We have high cash reserves, low gearing, and lots of headroom on our covenants. More recently, and I'll talk about this later, we've also refinanced our group banking facilities. Overall, a really strong picture, but inevitably, there are still challenges to face. We know that the pandemic is not over, and we also, and more currently, are experiencing lots of challenges with supply chain issues that are prevalent across most of our economy. But having said all of that, we are placed for a good 2021 with strong fundamentals and a robust order book with which to fuel the remainder of our trading year. Moving on to the performance slide.
I'm not going to dwell on this for too long because I've already talked through much of the current performance year to date, and I'm also going to talk about the components of our profit growth in a little while, but alongside the profit growth, there's been an improvement in margins, and that's demonstrating the operational gearing of our business, but also in part has been affected by a first-time capitalization of development expenditure, and I'll come back to that in a moment. Just a couple of other points on this slide. Our effective rate of tax on adjusted earnings is 15.6%, and we benefit greatly from the U.K.'s R&D tax credit scheme, which for businesses like ours that invest a lot in R&D and also have less than 500 employees is a fantastic scheme.
However, over the coming years, we are going to lose the best benefits of this scheme as we'll no longer be eligible for them. The last point, for those of you that aren't that familiar with our P&L, we do have adjusting items that take us to our statutory result. The largest component of these by far is the non-cash amortization of the intangible assets we're required to recognize when we acquire businesses. So I wanted to talk about capitalization of R&D expenditure for a moment, and we have for the first time capitalized expenditure on development, on significant improvements or new products that we're in the process of building. Now, this is the first time we've done this in the history of our group, as historically we've always expensed 100% of our R&D costs.
So there is an immediate effect on our P&L, both as I just mentioned before, on our operating margins, up close to 1%, but also in earnings per share, which has benefited by GBP 0.05. Now, going forwards, as these projects complete, we start to amortize them, and I thought it would be beneficial just to quickly talk through an example of what's going to happen because in the short to medium-term, there is an effect on our results. So you can see at the bottom of the slide, I've put a table in, and it's really to provide an example. So these aren't actual numbers, but it's worthwhile to be able to talk you through, try to do them as simple as possible.
So the assumptions in here is we're capitalizing GBP 0.9 million of expenditure each year, that the projects all finish by the end of the year, so that then you start amortizing those at the start of the next year. So what you can see in the first year when you haven't amortized anything because you haven't completed your projects is that you have this one-off performance enhancement. As you then go through the following years, as projects are completed, you start to amortize them, and the effect on the P&L reduces, and by three years later, there's no effect. Now, obviously, these are example figures. They're certainly not the real ones. So, you know, it's key that you don't take that away, but the principle is very important.
And it's important that we wanted to show shareholders this year the largest effect of doing this is in this first year. And it is a performance enhancing effect. Moving on, I've got to say to the real business, though, which is talking about order intake, and it really is, as I've said many times before, the bellwether for our business. To do this and make sure you really understand, I want to talk about the graph on the right-hand side. And there's three lines on this graph, a red line, a black line, and a green line. And the far end of the graph is June 21. So firstly, what are we measuring against? And that's the red lines.
The red line is our internal sales budget, and we set this once a year as part of our annual budgeting process, and that line stays the same throughout the year unless we acquire a business, in which case we add their cumulative budget to it. And you can see this year our budget is a bit more conservative than it was compared to 2020's, simply because 2020's budget was one set pre-COVID. So what we're measuring against this, well, the black line is the trailing 12 months of orders. So what are we looking for this time? Well, ideally, by the end of the year, the black line will at least be touching the red line. That way we've had sufficient orders for which to satisfy our sales budget. And the green line is the last four months of orders annualized.
And again, we want this to be tracking the red line because then we've had relatively consistent order intake, and that is good for us operationally. So what's happened in the period? Well, the black line in the middle of H1 has climbed above the red line, which is pleasing. And at the same time, the green line was for most of the period ahead of the red line. So all in all, a good performance and why you can see we ended up with a 25% increase in our organic order intake, and also why that's fed into the improvement in our order book, up to 16 weeks of organic and close to 18 weeks in total. Now, it's important to note that intake across all our businesses varied greatly.
So whilst we've had this good improvement, it's certainly not been a consistent recovery or improvement across all of the businesses. So lastly, since what happened in the first half, what's happened in the last couple of months? Well, you know, orders remain positive. We are still nicely ahead at the end of August, and we have a really strong order book of 20 weeks in total. And consequently, this performance, as I mentioned earlier, the strength of our order book, the strength of our order intake, and the performance in the first half has enabled us to today show with confidence our expectations to exceed market expectations for the full year. Moving on to the next slide. It's a quick summary of our revenue. We export more than 80% of what we make across the globe.
I just wanted to pick on one thing in this slide, particularly on China and where we've had. I think it illustrates the point. We've had challenges with delays in receiving tax exemption certificates from China, and that has inevitably resulted in delays in us being able to ship to China and into the region, and consequently, the decline in revenue there. Moving on to the next slide. This slide summarizes our profit growth and particularly reconciles between the H1 2020 and the H1 2021 contribution of our businesses before central costs. They're the two blocks on the left and right-hand side of the slide. Now, in between this, you can see a really big block of organic growth, and that's showing our businesses returning back to growth, albeit there are a few that have gone backwards.
But in fairness, when you look at this picture and you compare it to last year, it's the absolute reverse of what happened in 2020. And then we also have on the third block the contribution from our acquisitions of THT and Korvus. Overall, a good picture. However, when you look at where this is compared to the contribution we achieved in the first half of 2019, whilst we've got back to that level, we've added three businesses, and David mentioned this earlier as well. And so we know we've still got some way to go before we complete the recovery, and we have lots of work still to do. Moving on to the next slide. Going on to balance sheet and cash flows. You know, we continue to have a great track record of cash generation and a strong balance sheet.
David mentioned earlier, we have low capital requirements, normally around 10% of annual revenue for working capital, although this time a little bit higher, and you know, the usual benefit for us of the low working capital is that we don't need to invest in working capital to drive growth, but we are a little bit higher on working capital in this period, you know, particularly as a consequence of the supply chain challenges, and so supply chain conservatism is important for us to make sure we can satisfy orders for the rest of the year. At the same time, we're also a little bit higher on finished goods as we haven't been able to ship to all our destinations, China as an example, and debtors are also a little bit higher, although for slightly different reasons.
We certainly have very good billing at the end of June, so that raised the level of our debtors. But also, you know, our inability to travel has meant that we haven't been able to complete all installations, and so we've still got a reasonable amount of receivables to collect once we complete those, and we can travel again. We are fortunate, though, to have great blue chip customers both in university and industry, and consequently, we experience minimal, minimal bad debt. Our strong cash flow provides the group with resilience in tough times, enables us to reduce our acquisition debt, be able to invest in future acquisitions, and also provide shareholders with progressively increasing dividends, and the interim dividend is up 15% to GBP 0.19, and we've reduced our net debt from GBP 5.7 million to GBP 1.7 million at the end of the period. All in all, a good position.
Of course, as I mentioned before, we've refinanced our group facilities, and I'll talk about that shortly. But I would say one thing about Lloyds, who have been supporting us throughout our life. They continue to provide us with unwavering support, and we're grateful for the continued support they give us and the belief they have in our business model. We turn to total invested capital or RO TIC, and really in its simplest form is a function of the multiples we pay for the businesses we acquire. So on the left-hand side of the slide, when we made our first acquisition, we closed at five times when we bought FTT. We started around 20%. And growing ROTIC thereafter requires improved financial performance and/or buying businesses at lower multiples.
Where you can see the dips in the middle of the graph, where we paid six times for our larger acquisitions earlier in the life of Judges Scientific, you get some fairly big drops. Larger acquisitions now make less of an impact, and smaller ones certainly make minimal impact. We're pleased that we've improved ROTIC for the first half of this year up to 25% from around 23% at year-end. We know that, you know, we were back around 30% pre-COVID, and that's what we've got to drive and work hard towards. This slide summarizes some features of our business. You can see on the left-hand side, you know, that's a share of our group revenue by company, and that no single company dominates this. At the same time, all our businesses manufacture instruments for different scientific markets, and so we're diversified by scientific application.
And also, you can see on the right-hand side that no one single geographic area or country overly dominates. A good diversified picture. So moving on to my penultimate slide. And this slide summarizes some of the key financial statistics about the long-term success of our group. Revenue, profit, EPS have all grown strongly over the life of our group, and we still have an over 7% compound organic annual growth rate of revenue, which for a business that has a business model to acquire sustainably profitable businesses is creditable. Dividends have also increased by at least 10% per annum, and we've increased the interim dividend by 15% to GBP 0.19 per share, and our compound growth rate of the dividend remains comfortably above 20%.
Lastly, our continued focus on cash generation serves to provide us with resilience in tough times, enables us to reduce our acquisition debt, make space for further acquisitions, and continue to provide increasing returns for shareholders in the form of dividends. Lastly, I just want to briefly talk about our refinance. In May this year, we entered into new banking facilities with Lloyds, a new five-year facility, GBP 60 million, which replaced our previous GBP 35 million facility. What's in that? We have a GBP 19 million term loan, which is repayable on a straight line basis over the five-year term. We have a GBP 35 million pound revolving credit facility, which is committed, and that's for acquisitions only, and a GBP 6 million uncommitted accordion also for acquisitions. The covenants remain consistent with the previous deal, and our interest payments are also closely aligned.
All in all, this provides us with far greater acquisition power. And on that note, I'm going to pass you back to David, who's going to talk about the growth strategy of our group and possibly how he might spend it.
Thank you very much, Brad. So next slide, please. So really, there's two things driving our growth: M&A and organic growth. I have to say that with the passage of time, you know, at the beginning of the life of the group, we, you know, M&A was really, you know, by far the biggest component in our growth. But now it's changing, and organic growth is playing an important part. Really, M&A. Where's the growth? Well, you need to find the deals. There's still a lot of deals. There's a lot of companies which occupy a strong position in global niche.
Just in the U.K., although we're not exclusively looking at deals in the U.K., but that's what we've done. There used to be 2,000 companies in the U.K. in our business that some of them need to be sold every year. We reckon people keep these businesses 20 years. So really, you should have something like 100 companies changing hands every year. So we see a lot of those. Organic growth comes really largely from the secular growth in our scientific sector. And this really has two predominant components. One is colossal growth in higher education. We all know that. It's interesting to see the, you know, there was a doubling of first-year students in universities in the 10 years before COVID, which means that, you know, if this happens in a super developed country like the U.K., what happens in the rest of the world?
The other component is a constant effort by everybody who does anything to improve what they're doing, and of course, industry, science, everybody is trying to improve the way they're doing things, and you can't optimize without measuring, so we provide the way to measure, so these are two things which we believe are absolutely secular factors which will affect us in the next 50 years or 100 years, this will not change, so another thing which, of course, so we're in a good sector, and the second thing which affects our organic growth is research and development. A lot of the companies we buy belong to people who are very conservative, and this is why they've survived the 20 years and thrived. They're usually swimming in cash when we buy the companies.
And they improve their product, and usually they have because they have the best product, because that's what we try to buy. But they're not spending so much money on research and development. And we found quite at an early stage that if we boost investment in new products, we always do well. So we have done this. We spend in a normal year 5% or 6% of annual revenue. We spent a bit more last year because we had less revenue than we anticipated, but we certainly didn't cut our spending on research and development. And this is a big driver of growth. And then, of course, the last thing is how you run your business.
Predominantly in the last three years, when we've had the privilege of having Mark Lavelle, big, big efforts in business optimization, getting people to work together, doing, you know, training courses at every level. This has really improved our business in a very significant fashion. This is why we have organic growth. A lot of people ask me, you know, you say you buy sustainable companies, but you know, actually you're buying growth companies. You're not seeing the truth. There's always a risk involved in that. I think it's because of these three things that you can have sustainability and growth at the same time. Brad pointed out that we have 7% compound growth rate since we started. I think it's even remarkable because the last year, which obviously is the one we compared to the first year, is the year of COVID.
So, of course, you know, without COVID, it would be much higher than that. So, acquisition, yes, next. We're very disciplined in acquiring companies. We like to buy companies which are very niche, which means they need to export a lot because all these companies operate in global markets. So, people don't buy scientific instruments just because the supply is next door. So, if you want to be strong in a niche, it means you're going to export a lot. And we look for solid EBIT margins. And you know that when you have good EBIT margin, it means that you're not in a price battlefield. We try never to buy businesses which compete by price. And the reason for that is we know in the end, if that's what we got, well, we're going to be beaten by the Chinese.
We're looking for companies which generate sustainable profits, sustainable cash flow. We've been paying three to six times according to size. The key to size is one million EBIT. Below one million EBIT, you haven't got so much competition. We had zero. We have a bit now, and we've paid three to five times. And for those above a million EBIT, we've had to pay six times. And if you look at much bigger companies, you have to pay even more than that because there's a lot of competition, predominantly from private equity. So, you know, of course, at some point, we will buy bigger businesses. It's interesting to see that Halma, in the last year, they bought 10 businesses for a total of 100 million. And they've only announced the bigger ones, which were a lot more than 10 million a piece.
And they're paid typically 12 times, and they're still doing fantastically well. So we know that at some point, we'll buy bigger companies, and we'll have to pay more than what we've been paying. But it's still very good. But it's even better if you have a choice, which clearly, you know, when you're Halma and you have to spend GBP 100 million, you don't have a choice. You have to buy big businesses. But when you have a choice, you're doing very well with the little ones also. So we'll keep, in the next few years, I can say we'll keep doing the small deals. They're enormously earnings-enhancing. We'll try to do, like we've done, a lot of the medium-sized deal around GBP 1 million-GBP 2 million. But it's possible that from time to time, we buy something bigger, and we'll have to pay more.
We're allowed to borrow two and a half times EBITDA. We pay between 2% and 4% interest. You know, I think we might see interest rates going up in spite of every announcement that inflation is not going to stay. Well, we'll see that. But anyway, if you pay that sort of interest rates and you pay the sort of multiple, the business model is quite obvious. I don't need to explain more. So deals have a long incubation period. There's a lot of frustration because some of them look like they're going to be done and they don't get done. It's a very erratic crystallization.
But because of our reputation that we always end up doing the deal according to the heads of agreement we've signed and the fact that we're well-financed and never relying on an issue of shares to complete the transaction, we really offer financial certainty to the sellers. And this is why people like to deal with us. Next one, please. Since the beginning of the year, we haven't done any deal. But we, as Brad explained, we increase our stake in Bordeaux Acquisition. Bordeaux Acquisition is the holding company which owns 100% of Deben UK and of Oxford Cryosystems. We pay GBP 1.8 million. And of course, you know, it's earnings-enhancing because Bordeaux generated nearly GBP 3 million of EBIT in 2020, which, you know, was not its best year. So it's like a small deal.
The financial effect of it is just buying a small company on four and a half times EBIT for GBP 1.8 million. Next one, please. So what do we do after acquisition? Robust financial controls. And we try to reduce debt, reinvest in acquisitions. That's our business model. From an operating point of view, we really try to create a good environment for businesses that they can thrive. They always need a very good managing director, but we're not on their back micromanaging. But we give them the support, advice, a lot of networking between the various companies, and a lot of benchmarking to encourage, you know, people to look at every aspect of their performance and look at what the others do in the group. And there's, you know, a bit of friendly competition to try to do as well as the best ones.
So I'm sure, you know, if you have questions about this, you're going to have Mark to answer them because he's the one who does all these things. And then, of course, there's more strategic things like succession planning. You know, unfortunately, I mean, fortunately, we've been doing this for 16 years. So, but after 16 years, we start to have people leaving and going into retirement. And so we have more and more to deal with these succession issues. And we talked about the leadership program. If you want to know more, Mark will give you a lot more information about this. And we try to keep everybody with a long-term focus. And we want everybody to be like an entrepreneur. You know, everybody knows about return on investment. And we try, you know, a third of our employees are shareholders.
We try everybody to be joining the effort to create shareholder value. But then we can, when people know what is expected of them, they can be very autonomous. That's what we like. Next one, please. Basically, you know, we think we have, you know, a good business model. We're certain of that. Very strong balance sheet. We have, you know, unchanged long-term fundamentals in spite of the hiccup of COVID, which is not finished. We have, at all time, we've always been able to conduct our deal activities, never by lack of resources, the bad years, the dry patches, was never because of lack of ability to do them. It was more lack of opportunity. Complete focus on shareholder value. I know that it's not a fashion to say that, but, you know, our purpose is to improve shareholder value.
You know, we have to be good people, and we, I think we're very good people. We're a very ethical company. I have no doubt about this, but why do we work? We work to create shareholder value, and this is well understood within the whole group. We have still a lot of uncertainty in this COVID time. It's not over. Everybody's more or less vaccinated in Europe now, and so the risk of ending up in hospital is much reduced, but we have to remember, we're a global company. We have many areas where we do business which are actually getting worse rather than getting better, so we're not at the end of the impact on us. There's also CapEx freeze and supply chain issues. We've talked about them before, so you know, still, we're out of the hole where we were last year.
But we're not where we should be. And we're restless. We're not happy where we are. And we really have hope of, and prepared to work really hard to get where we should have been having done a couple of deals. And we, the two years of organic growth that we've missed. But current trading is positive. Order intake was good in the first eight months. And it's 23% up on last year. The order book is at a very high level at this point, at 20 weeks. And we're confident that we will beat market expectations. Next one. Yeah, the investment case. Well, you know, we have a very diverse portfolio. It's very helpful at this point because I think we pointed out that not all the businesses have done very well. Some businesses have done exceptionally well.
Last year, in 2020, we have four businesses who beat the record of 2019. And they still kept doing well. So we have some others haven't recovered as much as the average. We generate sustainable return. And we pay a growing dividend. And we have this unwritten promise to pay always 10% more every year, which means that's what we pay in a bad year. The compound growth rate of dividend, we talk about final dividends, is 23%. So robust model, a lot of targets, good growth drivers, well-diversified in terms of destination, in terms of application, complete focus on shareholder value, which is profits, cash, reducing debt, increasing the dividend, and creating good return on capital. And then the shares are free of inheritance tax if they've held for at least two years. And I think that's it. Next one is Q&A. So I'm passing on to you.
Tamsin if you can take the questions.
We'll go to Robin Speakman at Shore Capital.
Good morning, team. Many congratulations on an excellent set of results in a still challenging period. I have three questions to run through, if I may. I'm getting mine out of the way all in one go. The first one, just on the inventory, I mean, your comments here are noted. I just wondered whether you perhaps are signaling any sort of longer-term change in view as to the level of stocks that you intend to hold. Do you intend to put additional capital into stocks through the second half and into next year? So do you think you will maintain higher levels of stocks in the future, if you like, as in insurance?
Second question, in terms of the acquisition references you made, David, I just wondered whether you had any comments to make on the pricing environment. Clearly, we're coming out of the pandemic period. But as you say, many challenges remain. Are those challenges being faced by, you know, sort of smaller scientific instrument companies, making them think about the pricing that they require for their businesses, do you think? And the third question, just on China, I mean, China has been an important and successful market for us. I note that the comments are around tax and China, tax for academic investment, etc. But I mean, do you think there may be any sort of further fundamental changes to the opportunities in China for you? Thank you. Thanks.
And thank you so much, Robin. And yeah, acquisitions, I mean, as I said, notoriously erratic.
I mean, certainly in the run-up to COVID, before we even heard about the coronavirus, there was, you know, a little feeling that maybe valuations were increasing and that maybe we needed to be just a little bit more aggressive to increase our hit rate. I think COVID has been a game changer in two ways. I mean, first of all, you know, you have undoubtedly people who own a company and they have everything invested in that company must have been, you know, frightened by this crisis. And all of them were in business 12 years ago in 2008. I think they're undoubtedly worried at the time that they would lose everything. They survived. And I think with COVID, at the beginning of COVID, nobody knew really what was happening. I mean, I'm not sure we know even now how it will finish.
You know, they must have been really worried again about losing everything. Those who are, you know, in sort of 60s or mid-60s, well, anyway, these people are thinking of selling their business. You know, everybody who gets to a certain age has all his money in a business and runs the business. Nobody wants to leave a widow with a business to sell which has no management. I mean, this is, you know, like a horrible thought. Everybody thinks at some point I'm going to have to stop and then I have to sell. You know, so there's the, in everybody's mind.
I think that something like a second crisis like this over a period of 12 years has to tell people, and not everybody owns a business, but there has to be a proportion of these people thinking, "Oh my God, what happens if it happens a third time?" It does crystallize. We believe that once people have, you know, recreated good trading performance, there will be a lot of people who are more ready to sell than they were and feel a bit of urgency of doing it. You know, an increased supply should actually put a bit of a cap on people's expectations. This is it, you know. I think maybe there was a trend towards higher valuation pre-COVID. I don't expect that there will be now. There's also, of course, the question of interest rates.
So if interest rates go up, which I believe is a possibility, and luckily, you know, we're well hedged against that, we may see that bidders are a bit less aggressive because, you know, the high valuations come from the fact there's nowhere else to invest your money, really. So we may see that there's a good climate faster by businesses. Yeah.
Yeah, if I take your other two points, Robin, I guess, you know, my thoughts on inventory are, we've got probably three factors which are driving it up at the moment. First of all, the shortage of components means that when we can get hold of components, we're tending to keep more than we used to have just as a safety stock.
That same effect means that there will be some work in progress, some machines that we're, some instruments that we're building, which we haven't quite finished and are waiting for scarce components. So that has another increase. And then finally, as Brad mentioned, we've got some orders that are delayed either because customers don't want to accept them briefly because they can't get them installed or because of import restrictions. So there's three factors really increasing inventory. But I see that as completely temporary. So those issues are going to wash out. Who knows exactly when that's going to be? Six months, 12 months, 15 months, maybe. But if you take out that blip, I would actually see acquisitions aside that the inventory levels in the group in future will be stable, if not slightly declining.
I think that as our production gets better and as our benchmarking that David referred to improves, many of these businesses will be able to operate on slightly lower inventories. We're never going to be a just-in-time type operation. But I do feel there's a few percent scope for inventory reductions over the sort of medium-term.
Okay.
And then in terms of China, in a way, it's sort of in all the discussions I've had with all of our companies and with their end users, we just see the China tax certificate issue as a blip. And we would expect that to reverse in very much the same way as the inventory situation will do over the short to medium- term. We haven't detected any other underlying issues which would cause us to either increase or decrease our sort of medium-term China expectations.
Great.
And we'll go to Sanjay Vidyarthi at Liberum.
Sure. Thanks very much. Morning all. A couple of questions for me. One is on travel. I guess from two sides, in terms of your own policies internally, where it's possible, are people being encouraged to get back on the road? Obviously, it will differ by market. Second element, in terms of conferences, are there any signs that there are live conferences being planned maybe for later this year, early next year already in certain markets? And then the second question is on the benchmarking and the operational improvements in the business. Has that, to an extent, been waylaid during this year or two of disruption, or has there been a continual process of that happening?
I'm just kind of wondering if there is a kind of step change that we could expect to see as we return to normality and you can focus more on the kind of day-to-day operational improvements. Thanks.
Okay. That sounds like those are all for me. So in terms of travel, you know, we maintain a pretty decentralized view on this. What you have to remember is that a lot of our businesses have foreign distributors, foreign agents, or in a few cases, even foreign employees. And therefore, travel around the world is not always as important as you might think in that there are other people to do that.
So for instance, those businesses with good agents or good employees in the States have been in a very good position, whereas previously, for some businesses who didn't, you know, obviously, the travel to the States has been impossible for the last 18 months. So we've encouraged each business to take an individual view on that. And in most cases, there's been very little travel. But in a few cases, particularly where there have been some urgent installations, we have found ways to do it. People are now beginning to move back and particularly around their local countries do a lot more travel. We've just had our first conference confirmed. One of our businesses, Dia-Stron, is just about to attend the first show for 18 months in France at the early part of next month. So they're beginning to come back.
One or two other businesses have started up doing them in the States. In terms of the benchmarking, I have to say it has been quite difficult to carry on doing that. The main environment which can benefit from that is production. The type of people that run production operations work much better in a sort of physical rather than a virtual environment. Therefore, getting people together is the real driver of a lot of the improvements there. Whether there's a sort of pent-up step change, which I think is the sort of basis of your question, I'm not expecting us to suddenly leap to a new world or a new level. I would hope that progressively over the next, let's say, year or two, that gradually each of the production operations is going to improve. In a few cases, we've made some changes to space.
Actually, it's perhaps an opportunity to talk about that. Some of our businesses have expanded very well, and over the last year, getting on for half of our businesses have either moved into larger premises or have expanded their existing premises. That's given some opportunities for some reorganization, which they have been able to get on and do during COVID, and we're now in a position where we can start doing some of the production improvements, which we would like to do. So I think there's more to come, but I don't see any step changes. It's going to be a question of progressive improvement. As well as the space, my sort of next step has tended to be working with the benchmarking that David mentioned to try and improve the levels across the businesses.
We've had a couple of important new hires in the last few months who I think are going to make some big improvements there as well. A number of different facets are all feeding into giving us some real upside potential in our production operations.
Thanks very much, Mark. Just to follow on from that, in terms of the new product pipeline, I know that you've tried to maintain spend on R&D. But has that been impacted as well just with all the disruptions within the businesses?
Yeah, that's an interesting one, actually, because we had a sort of two-phased approach on that. At the beginning, I was hearing a lot from the businesses that actually the move away from the office was having quite a beneficial impact on R&D. I mean, clearly, it was a problem for salespeople. It was a problem for finance people.
But they quickly got on top of it. Production people had to be in the factory. But the R&D people were sort of slightly in limbo between those two. There were some things they could do from home, some things they had to be in the operation. And certainly, for the first few months, people were saying, "This is giving us more time to do stuff." But that seemed to peter off quite quickly. And I think that a lot of the technical people, because in a big business with 1,000 employees or something, you can very much compartmentalize your R&D team and say, "Right, these guys are on new products and these are doing technical support." But if your business only employs 20 people, 10 of whom are on production, you can't do that.
You end up with a technical pool that tends to get pulled between product support and R&D. Certainly, during COVID, what we found was that it was difficult to maintain that barrier between the two. I think that whereas COVID seemed positive originally for it, we're now having to work quite hard to make sure that we spend the appropriate amount of time on R&D. That's very much a focus of the coming year.
Understood. Thank you very much.
Alan Mayer asks, "Can Brad talk through how the tax rate will change when the R&D tax credit benefits can no longer be used?"
Yeah, of course. Not to make it too complicated, but getting over 500 staff means that we move out of the SME scheme for R&D. So the extra benefit you get in that, we won't any longer have.
What it means for us is over the next couple of years, once we're out of a grace period, etc., that we will move a lot closer towards the statutory rate of 19%. So we'll certainly expect to lose a couple of percent benefit on our effective tax rate.
Great. Thank you very much. And that's the end of questions. David, do you have any closing remarks?
Thank you. I wanted to thank you and Tim. And I wanted to thank everybody who joined in. And of course, Mark and Brad, who answered a lot of the questions. And I would say, to conclude, we feel a bit of frustration that we live in this environment, which has been adverse and has been really slowing down our progress. But we feel very energetic. The morale in the companies is great.
And we treated everybody very well during the most difficult period. And I think everybody's, I think, aware of that and keen to do well for the group. So yeah, we hope that the next results will be with proper food and proper face-to-face and with catching up a bit to where we should have been. Good health to all. Bye.