Hello everybody. Thank you for attending our webinar, and we're going to go through the presentation and then have questions. I think most of you know the company well, so we'd spend a lot of time on business model. I just want to remind you the main things that drive our business and it's all in the southeast corner. Long term drivers which are excellent and remain excellent, low capital use and a large pool of deals, and all these things combine to create shareholder value. Just to remind you, we're doing a buy and build model within scientific instruments and we really have two things which are helping us a lot. First, a good track record on the acquisition front, and we have a reputation as a good acquirer and we also very disciplined in what we do, which means we do few deals.
And on average we've done 1.2 deals a year, which is 18 deals in 15 years. So it's not a lot, but it's worked. So the key message is of course the result presentation. What's happened in these six months ending in June. Of course the big thing is COVID-19. It has had a significant impact on our order intake and therefore on our financial performance. Of course we've dealt with it and we put in place the solutions that enable us to keep making the stuff we're making and delivering it.
Big focus on health and safety and keeping all our colleagues safe, and really we've managed luckily to be profitable and cash generative throughout the period which, you know, we're happy to be a resilient company. We've also managed to do a deal, company we really like that we've known for many years and I'll talk more about it later; we completed that in May; it was a GBP 7.3 million deal. It's immediately earnings enhancing as all the deals we're trying to do and I think the fact that in this period we managed to do a deal of some size demonstrate the resilience of our business model. The outlook of course is still clouded by COVID. A lot of uncertainty. We believe that all of the orders we didn't get, we will eventually get them, but people still have the desire to buy.
Really we don't think that the long-term fundamentals of the group are changed in any fashion at all. Just we gone through a bad period and to confirm that confidence we've increased the dividend by 10% which is our stated strategy. On the topic of COVID of course we wanted to protect our colleagues. Half of our staff have been working from home. Each company had different issues to deal with but no factory had to be closed. We didn't have anybody seriously ill so we were very pleased with that. Supply chain issues which have been an enormous issue for many companies haven't been a big issue but we've had some issues and we've mitigated them and I'm sure we'll have questions about that, how we manage that.
Our bigger problem has been the closure of our customers and the inability to travel and to go to scientific conferences and also our inability to i nstall what we've delivered and some of the deliveries were also postponed. We've used the furlough scheme for the benefit of our employees and about 100 of our employees were furloughed because they were unable to work. All the Judges Directors including as a non-executive have reduced the remuneration pro rata to the reduction imposed on staff. We're really being careful with cash and Lloyds Bank has agreed to repurpose five million acquisition facility. So we've drawn on that. So this is where we have nice cash balances. So safety first mostly. At the beginning of the pandemic it was really difficult to know what would happen and whether we would need cash.
Of course we didn't take any cash from the government and we hope to have the return to work bonus since the largest majority of people who went on furlough are coming back and we hope this will still be back on at the end of January and we intend that this amount will be used to compensate the staff who made less money during that period or who had any particular hardship because of COVID. I'm going to pass on to Brad who's going to give you some details on the performance during that period.
Thanks David and good morning everyone. Now I'm going to take you through the key highlights from the past six months and it feels a long time since we were last here in March and we've been through an unprecedented period of trading. But despite these challenges we've produced a decent set of results. Total revenue was only down 7% in the period. It's a mix of a reduction of 12% of organic revenue, partially offset by the contribution from our acquisition of Moorfield in December 2019. And also Heath Scientific which trades as THT at the end of May this year due to our operational gearing. A drop in revenue of this size would ordinarily lead to a drop in operating profits of around a third. But thanks to the actions taken by our businesses under the guidance of Mark, our COO adjusted operating profit reduced by only 22%.
To GBP 6.7 million, down from GBP 8.6 million in H1 2019. And earnings per share also decreased by a similar percentage to GBP 0.842 per share. A usual feature of our businesses is the strength of its cash generation and we generated GBP 5.1 million cash from operations in the period. Cash conversion was 76% which was down a little on our usual 90+% as we had to invest in working capital to assure capacity through lockdown. But the cash we generated saw us comfortably through the past six months and we've been able to maintain and progress a strong financial position. And it's enabled us to, most importantly, continue to our acquisitive buy and build strategy. And we bought Heath Scientific at the end of May this year and it's also allowed us to continue our dividend policy.
And we've increased the interim dividend by 10% to GBP 0.165 per share. We started the period with GBP 2 million of net debt and we ended the period with GBP 6.4 million of net debt, despite the GBP 7.3 million outlay on Heath Scientific. In summary, whilst we've had a tough six months and we've still got ongoing major uncertainties around COVID-19, we've produced a resilient set of results and maintain a strong financial position with high liquidity, low gearing and plenty of headroom on our covenants. I'm not going to dwell for too long on this slide because I've already talked through quite a lot of this, but you can see the impact of the control we put over our operating costs during the period. Just move on to tax, where our effective rate of tax on adjusted earnings has reduced a little to 14.6%.
Really, an impact of reduced profit, and also the benefit we get from the U.K.'s R&D tax credit scheme, which is very beneficial for businesses like ours that invest heavily in R & D. And lastly, as you can see at the bottom of the slide, we do have adjusting items that take us to the statutory result. These primarily relate to amortization of intangible assets that arise from the acquisitions we make, and the increase in this period is a consequence of the two recent acquisitions. Moving on to order intake. Really, performance is underpinned by order intake, so I want to talk to you through the graph that's on the right hand side and you can see there's three lines on it. There's a red line, a black line and a green line, and the far end of the graph is the end of June this year.
So the red line is our internal sales budget. And we set this every year as part of the annual budgeting process. And that line doesn't change unless we make an acquisition. And so you can see the bump towards the end of the graph and that's where we acquired THT. And the black line is our trailing 12 months of orders and the green line is the last four months of orders annualized. And what we're looking for is for the black line come the end of the year to be at least touching the red line, such that we've had sufficient orders with which to meet the sales budget and the green line. We're looking to track the red line, but it's always a more jagged line because it's a shorter term measure. And order intake is never smooth. So what's happened in the period?
But you can see the pandemic had a significant impact on our order intake. And in particular you can see the sharp drop in April where we had really low order intake. Intake recovered into May and through to June, but we finished the period 17% down on organic order intake. Geographically we're affected across the world, but in particular you can see North America and Rest of World suffering quite a bit. And the majority of our businesses were impacted. The weakness in our order intake did mean we used up a portion of our order book, but we still ended the period with close to 11 weeks of organic future orders and 12.4 weeks the total order book.
After the end of the first half, orders continue to recover, but you can still see that H2 orders to date are still down and year to date, organic orders are now 16.2% down, which is slightly better than the position was at the end of the first half which was 17% down. Our order book has also partially recovered. It's gone up from 12.4 weeks at the end of the first half to a total of 13.2 weeks at the end of August, and this gives us cautious confidence of being able to meet market expectations.
Moving on to the brief summary of revenue. We're a business which exports the vast majority of what we make and you can see 85+% of revenue achieved across the globe. The high point performance in China, which was up 30% really as a result of really good order intake towards the end of last year and into the beginning of this year. At the same time, North America got hit pretty hard and you can see there's an alignment between orders and revenue and it's gone down by around 30%. Moving on to the next slide which is a summary of what's happened to our profit in the year. There's a slide reconciling between the contribution in the first half of last year to the contribution of from the businesses in the first half of this year.
The contribution to the profit from the businesses before central costs. Unsurprisingly, you can see a big red block in the middle where a large number of our businesses’ performance are down compared to the same position last year. But a couple of our businesses have creditably performed better than they did last year. The third block in the middle you can see is the contribution from our acquisitions of Moorfield and the one month of THT, were still strongly profitable, albeit not quite as good as 2019. Moving on to balance sheet and cash flow, the group has an excellent track record of cash generation and maintaining a strong financial position. Little has changed in this. Cash generation was GBP 5.1 million in the period, as I mentioned before, 76% cash conversion.
As we did invest into working capital and you can see here for the first time in a long time, working capital being more than 10% of annual revenue. It's a rarity for us in terms of a strong financial position. We started the year with GBP 2 million of net debt. We finished the period with GBP 6.4 million of net debt despite the acquisition of THT for GBP 7.3 million and the acquisition of the remaining shares that we didn't own previously in PE Fiber optics for GBP 1.1 million. We also drew down GBP 5 million as a working capital buffer which our bank Lloyds kindly agreed to repurpose from our acquisition facility. And it meant that we finished the period with GBP 19.4 million of cash.
We have high liquidity, low gearing, lots of room on our covenants and also very importantly a bank which really stands behind us in support of our acquisitive buy and build strategy. Moving on to return on total invested capital on the next slide. Another key measure for us, in its simplest form a function of the multiples you pay for the businesses you acquire. You can see on the left hand side, when we first bought FTT we paid close to five times and consequently we were around 20% and growing ROTIC thereafter requires improvement in financial performance and or buying businesses at lower multiples. You can see in the middle of the slide where we paid six times for GDS in 2012 and six times for Scientifica in 2013.
At the end of the graph where we've recently acquired THT, a multiple of six times as well. That will act as a drag on ROTIC going forwards. However, at the same time we finished the period with a ROTIC of 26.6% which we consider as a creditable performance considering the difficult business climate. This slide shows you a summary on the left-hand side of the revenue contribution from all our businesses and you can see that there's no one business which overly dominates. Each of our businesses are scientific instrument manufacturers that make different things for different markets. So we're diversified by scientific application. On the right-hand side you can see that no single country or region overly dominates as well.
Lastly from me on the last slide, just want to take you through a bit of the history of the key financial statistics about the long term success of our group and we've had 15 years of great growth. Although it is clear to see that 2020 will not be as good as 2019. However it will still be strongly profitable and cash generative and therefore we're able to one, quickly reduce our net debt, two, continue to support the progressive dividend policy of at least 10% per annum growth in the dividend and we've continued that with a 10% increase in our interim dividend to GBP 0.165 per share and, three, to support the continued acquisition of businesses into our group.
On that note, I'm going to pass you back to David, who's going to talk to you about the latest business to join Judges.
Thank you very much, Brad. Yes, so we're very pleased with this deal. Heath Scientific. It's a company that we've known for 14 years. It's a company which is very similar in what it does to the first company we bought. FTT is about calorimetry and about safety. This is a company that was a nice little company but not very exciting for many years this way we didn't buy but recently. It had a fantastic growth because one of the thing it does test is. Lithium batteries, and we all know that lithium batteries have a tendency to burn and explode, and they're being used more and more in everything we touch, including all the devices we're using this minute and also i n motor vehicles and a lot of other stuff.
So, t his company had suddenly became extremely profitable and we were able to buy, having lost the first round of offers. But the deal became live again in January and I think the fact that we got this deal on the bounce back, which is the fourth time that this happens, shows a lot that people who for some reason have failed to do a deal with somebody else they feel that if they agree a deal with us, it will be done and it would be done according to w hat we've shaken hands on. Of course, what added to t his feeling of comfort of the sellers in this particular case is that the company does half of their business in China.
And when we agreed the deal back in January, a lot of people w ouldn't touch anything to do with China. But of course we have a lot of experience of doing deals with China. W e could convince the sellers that the deal would go through. So it's a very good market they're in. They do other things, of course, the batteries and they sell to many other places, China. But it's a highly profitable company with good growth and we're very excited if we look at what drives us is really, you know, w hat I've alluded to before is r eally secular drivers, w hich is really fantastic growth in university education throughout the world and the constant thriving for optimization of everything that one does in life and to optimize anything you need to measure it.
So these long term drivers are there to stay. We're going through a difficult period, everybody knows that. But at the other end of that period, the long term drivers will be there and I'm confident they will be there for the next hundred years. What drives growth also is research and development. We spend 5%-6% of our annual revenue on that. It's a lot more than the companies we buy. So we accelerate that and we found that, you know, it was very profitable to do that. Of course we, since Mark joined two and a half years ago, you know, made big efforts to optimize the way the business is run and I'm sure you'd have a lot of question about that.
So that's organic growth. Of course there's mergers and acquisitions. There's a lot of business around there. Which eventually will be sold, about 2,000 in the U.K. only, and but of course we don't buy them all. We buy 1.2 a year and that's enough. We think that there's about a hundred of those 2,000 which need to find a home when the owners retire. So we able to buy those which we think are the very best, don't all buy the very best, but we always buy those which are very close to the very best. And of course we want to buy the niche ones. And there's a lot of these global niches that are tiny and you know, whether spending a few million on a business, you can buy a company which dominates the world in this niche and that's a very good feature of our business.
So the outlook, you know, it was a difficult period. I think we've proved our resilience. But we have to live with continued uncertainty at this point. We believe that people who want to buy an instrument, they will still probably order it in the future, but we don't know when w e also believe that research funding and the whole university scheme will take a bit of time to recover. Although, I recently read that the flow of Chinese applications to U.K. universities is actually growing rather than reducing. So maybe that very profitable business which is to teach foreign students will carry on and of course it helped these universities. But just after 2008 there was a period of belt tightening. I think we'll see that again. So the recovery might not be as smooth as we would like.
And of course there's now the threat of a second wave in many countries, particularly in Europe. And this is not helpful because we like to travel and we like to all be free like everybody else. But our business likes that too. Order intake to date in the second half. We're still down on last year so you know, we're still in a recovery mode and certainly not where we should be o ur order book is comfortable, which gives us the degree of confidence that we can encourage people to look at the brokers' expectation for the year-end, which we didn't encourage them to do until now. But I think we have enough visibility to say yeah, we have some confidence.
But of course we assume that the world will not change in a very unpredictable fashion until the end of the year. But of course, you know, our business model has been resilient. We have good balance sheet, very cash generative businesses. We don't think that the group. In the long term will change at all. As a result of this difficult period. Of course we're not congratulating ourselves, we just happen to be in a sector which is excellent and which doesn't rely on people congregating together. So there's a bit of luck there, we have to recognize it.
But we're still there and we're still doing exactly the same thing and our ability to do deals is unchanged and we think that we may have a good period when people who have been worried decide that they don't want to take that risk anymore and it's time to sell their business. So we think we might have a good period ahead of us and we keep just focusing on shareholder value and that's a good recipe for any public company. So, really, the case for investing in our shares is a robust business model and discipline.
We really see ourselves more like a tank than like a Formula One car. So, you know, we've had a very slow start in the last 15 years, but what we hope is that when times are difficult and we have a lot of missiles sent to us, we still survive and we get to the other side of the war and we haven't lost too much. A lot of targets. We only buy earnings-enhancing acquisitions, the good growth drivers. Good diversification in discipline and geography, total focus on shareholder value and d ividend policies that we've kept on for the last 14 years, which is never less than 10%.
Of course, in the good years, which is not the case this year, we pay more, but we've managed to grow that by compound 24%, which I think is good for shareholders. And then at this point, the shares are free of inheritance tax. That's it. Thank you very much for listening.
We have a question from Nick Cotton, who asks, David, why, in your view, has the U.S. revenue fallen by 32% versus the U.K., which has only fallen 5%?
Nick, thank you very much. It's a good question. I think that the situation i n the U.S. is very difficult. The pandemic has hurt them very badly, and I think it is. Although it's happened later than here, I think it has been harsher, and of course, there's the added difficulty for us that. It's a lot more difficult to travel to the U.S. And that has compounded the, Great. It has increased a period where we're unable to operate properly. So I think this is. There's a bit of that. The universities largely been closed in the U.S. for a long period of time, and I don't know, you know. The U.K. hasn't been as bad as we thought it would be, but of course, it's easier to keep contact and keep active in the U.K. for us in that period of time.
Thank you, and we now have a question from Robin Speakman from Shore Capital.
Good morning, gentlemen, and many congratulations on, you know, a very robust, good set of results. Three questions, if I may. I mean, first of all, for Mark, if I may. Clearly the operational improvements that have been put through the business over the last few years have delivered, you know, some excellent trends within the business. Is there more to go, do you think? I mean, can you sort of sweat these businesses to a noticeable degree further?
Yeah, I'm not. I'm not quite sure I'd use the word sweat. But I think that a number of our businesses have got some opportunities. I mean, I would probably say that most of the businesses are operating the various aspects. I tend to think of a business as logical flow. You invent a product, you produce it, you sell it, and you count the money. So those four areas of R & D, production, sales, and finance, most of our businesses, I'd give them sort of seven or eight out of ten. One or two are maybe six and one or two are maybe nine.
And I think it's just really a question of bringing the sixes and sevens up to the eights and nines. The business we've just bought. I think there's a couple of areas that could be improved, but a couple of areas that are already excellent. It's really a question of just spending time in each of the businesses and just tweaking, identifying the bits that are the sixes and sevens and just tweaking them up to seven and eight. And in many cases.
Many of these businesses, THT. We tend to call it THT because that's what they trade as. Although the company's name is Heath Scientific, you know, THT's staffed by a lot of people who've never worked anywhere else. And they're finding it very interesting going around our other businesses and really getting more of a sense of what good looks like. So it's not a question of having to squeeze them. It's more a question of a number of eureka moments of, oh, okay, that's. That's how good production could be. Perhaps we should try a bit harder there. So definitely some opportunities, but none of the business have, you know, are awful in any areas. Just all with some scope for a gentle improvement.
Good. Of course. Okay. A question for Brad, if I may. Just in terms of the inventory increase over the period, that's increased by about GBP 2 million -GBP 14 million. How do you see this unwinding? I mean, is this sort of capital that you think you'll sort of keep in the business? Does it confer useful flexibility, I guess, for Mark, you know, to Mark's point, or do you think that capital you will take out over the next year or so?
I think that, you know, to address the first part of that, it was very evident to us that our businesses needed to take whatever decisions they needed to take around the lockdown to ensure security of supply. And if that's meant that we've needed to invest some more money into stock, then frankly, it was absolutely the right thing for them to do. If you stand back from the scenario of the pandemic and go back to a normal business operation, we would always be encouraging our businesses to have the most efficient use of their working capital. And Mark might want to add to this as well. But my feeling is that if you're running efficiently, your stock will reduce a little bit.
So if you've got good supply, if your supply chain is working properly, then you don't need to hold as much stock as you might otherwise. And so you would expect some unwinding of the increase. How quickly that's going to happen is really going to determine, you know, be determined by the speed in which we come out of the pandemic. And I'm not sure anyone's got an answer for that at the moment.
No, of course. Okay. Okay. The most difficult question for David, of course, in terms of the acquisition. Not so much the pipeline, but just about your sort of overall thoughts on where opportunity may lie. Clearly, the history of the group has been a success built on consolidating scientific instrument companies within the U.K. But clearly there must be opportunities overseas as well. Clearly, economies such as Germany, Japan, Italy, the United States. Are you looking in these countries as well? Do you see prospects for, you know, obviously the group sells globally? Is there an opportunity to bring in businesses in other jurisdictions?
Thank you, Rob. Look, I mean, we've been constantly looking abroad also, but we've done most of our deals, with exception, very small one in the U.K., and we always have foreign companies in our pipeline. So there's really two factors. One is, of course, we get a better deal flow in the U.K., because in the U.K. we have a very strong reputation. I think a lot of the companies which are for sale, the owners say, well, I'd rather sell to Judges, because they see us as a good home and as a reliable buyer. And this is not so strong in other countries. We don't get the same deal flow abroad. But I think the main reason we do get deal flow and we have tried to buy some companies abroad. I think it's more a question of pricing.
We find that in continental Europe, people have a completely different perception of how to value a company. And, you know, for us, the key to our business model is paying a reasonable multiple of EBIT. Clearly we don't mind if people have a different method to value them, but we have to get a result which is consistent with what we need, and it never works, so that's why we haven't been very active in Continental Europe and in the States in Canada. We've looked at many deals there and understand precisely how we value the companies in terms of EBIT multiple, but the concept of multiple is a bit different, and also I would add so they're expensive, but I would add that if we're going to buy something across the pond it needs to be big because you don't want to have a tiny company.
If anything goes wrong, it's really a pain in the neck, and we have so we have to look for bigger companies. And you know, typically in the U.S., Canada we'd like at least like GBP 1 million EBIT and already they're not cheap here but in America they're going to be even more expensive. So it's really about pricing, about deal flow and pricing. But I hope that we will and you know, as we gain size, you know, we have to accept that at some point we will have to do bigger deals and maybe pay higher multiples and maybe we'll be then more active in North America and maybe even in Europe.
We'll now go to Sanjay Vidyarthi at Liberum.
Question on product development. How has the COVID period affected product development, if at all? And do you think you'll still spend 5%-6% of sales on R&D this year?
Actually, perversely, it's been actually a pretty good period for R&D. Clearly in large organizations you've got very clear delineation between R&D, sales support, technical support, production engineering, et cetera. But if you've got a business with only 20 people and there tends to be a pool of engineers who do all sorts of stuff. And what this period has meant is frankly there have been fewer technical queries, there's been less in terms of production engineering. So the general sense I get from most of the businesses is that the R&D people have actually been able to concentrate more on doing R&D and less on interruption. So certainly our smaller businesses in particular have seen this as actually a wonderful period in six months, uninterrupted, lock the door and get on with it.
So some very positive signs and in general, absolutely, we see massive opportunities not to change the world in terms of products, but some really important product evolution, adding a few bells and whistles to the businesses' products but also helping to engineer price down. So we've got increasing sell price and lower buy price, improving our margins as well as the occasional very important new product. So surprisingly a very positive period during this time for R & D.
I'd probably add to that, Sanjay, we certainly haven't looked at reducing R&D costs during this period. You know, we've been careful when we've taken careful control of our costs over the past six months. R&D is certainly an area which we haven't looked to reduce. And I would expect i n a funny way, because revenue is likely to be a bit lower than it was last year, that you could see that R&D is a percentage of total revenue actually looking higher this year. I certainly expect us to spend something similar, if not more than we did last year on R&D.
We'll now go to Mark Loveland.
I think you made the judgment that some of your orders or requirements have been deferred and not cancelled. Do you believe that those will be awarded or re-awarded in 2020 and do those contribute to your confidence regarding revised expectations? And I wonder if that is the case. What's the criteria that you establish? Is it that previously there was a ban on further investment within the particular organization and there are now meetings to approve investments? How's that process working within the various constituent companies?
You know, it takes a long time sometimes to get orders, sometimes months or even years, and we have a lot of interaction with our customers about these orders. Sometimes there's tenders also. So when we win a tender, we have a degree of confidence we could go to get the order, but it takes still a lot of time before they put their money together and they sign a purchase order. Orders then often come out of the blue. We work on them and we interact. When the purchase order doesn't come, you know, the customer says, well, it was good, it will come in the next month or in two months. We don't always believe the timing they tell us, but we do believe. This is the reason we have this feeling that. lot of the orders we didn't get we will eventually get.
We're certainly not seeing this year. Some of them will come still this year. Maybe not for delivery this year, but some of them will take more time to come. But what I want to explain is very different. If you're talking about the academic world and the commercial world, big corporates, when there is a period of stress, the first thing they do is a ban on CapEx. So we have a number of companies which are servicing mostly the industrial sector as opposed to academic, although the majority of our business is probably academic. And in these companies we've seen a lot of CapEx freezes and you know, we interact with the people who want to buy the thing, but they say we can't buy it. You know, so when will this, these CapEx freezes be lifted? We don't know.
You know, often things happen at the end of the year that you get a new budget period. And sometimes it's the time when people say, okay, maybe we could be able to spend a bit of money, but we don't have a clue. But the academic world is different. They don't have CapEx freezes. It's just sometimes that they're just closed. They don't have the people that deal with t hese purchases, but sometimes also they're worried about their funding. We have an enormous u ncertainty on timing. But the message we get very most often is you get, you're going to get your orders, just relax and wait. You're going to get it. And they don't say, you know, you're going to get it on this date. And even if they say that, we don't always believe them because it's when they are able to produce.
So big uncertainty. But we think that people are buying, fundamentally people are buying things that they need and the need hasn't disappeared as a result of COVID.
That's the end of questions. David, do you have any closing remarks?
Thank you for all of you who attended our webinar. I hope soon we're going to be able to go back to breakfast with proper food and a more convivial atmosphere, but in the meantime, thanks a lot and I hope to see you all physically for our final result in March.