Richard Tyson: Right. Good morning, everyone, and welcome to Oxford Instruments' half-year results presentation. I am here today with our CFO, Paul Fry, and thank you for joining us in the room and online. As you may have seen from our announcement this morning, we have had a strong H1 this year, and I am really pleased with the progress that we are seeing across the group. Perhaps most importantly, it is clear that the strategic actions we have taken over the last few years are paying off, with an exciting period ahead of us. Let us get started. I am going to briefly touch on a few of the highlights, and then we will hand over to Paul to take you through the detail of the financials, and then I will come back and give you more color on our markets, our strategic progress, and what is driving the opportunity for the future.
Richard Tyson: As usual, we will take questions at the end, both in the room and online. Clearly, a H1 of good progress in both divisions. Imaging & Analysis has seen good order growth, driven by commercial customer success in both materials analysis and semiconductors. Academia also grew, despite further US weakness. With the order book up 8% on last year's position, we have better cover for H2 revenue expectations. The step-up has been significant in Advanced Technologies. Growth in demand has accelerated, winning new business in datacom and widening the range of new customers in volume manufacturing. Revenue growth has also been very strong at 27%, as we start to increase output and deliver systems to customers in more volume. Given the order intake level, we now have revenue expectations fully covered for FY 2027, with bookings extending well into next financial year.
Richard Tyson: We expect revenue growth rates to continue, and we are increasing our Advanced Technologies outlook for FY28 as a result. Paul will go through those details shortly. Additionally, we have continued to invest to support the revenue growth and for future opportunities as well. The result in H1 is that orders are up 44%, revenue up 9%, adjusted operating profit up 28%, and margin progressing nicely. Our balance sheet also remains strong. As expected, we have delivered a step change in free cash flow. We remain focused on capital deployment options and continue to seek M&A opportunities. Our current buyback program of GBP 100 million should conclude early in the new year, and given the strength of the cash forecast, we announced this morning that we intend to continue the program through to the middle of 2027, with a further GBP 25 million allocated to buy back shares.
Richard Tyson: A good start to FY27. The strategy is delivering, momentum is building across the group, and we are continuing to invest in the long-term future of Oxford Instruments. With that, I will pass you over to Paul to take you through the detail of the numbers.
Paul Fry: Great. Thank you, Richard, and good morning. As Richard has described, we have had a strong start to the year, reflecting the financial metrics on this slide. Order intake was up 44%, with growth across both divisions, but a particularly strong momentum in Advanced Technologies, where order intake in H1 was very close to the order intake we saw for the whole of last year. We are now seeing that order growth converting into revenue, helping the group to grow reported revenue by just over 8% and by 9% at constant currency. Reported adjusted operating profit increased by 21.5%, supported by the profit drop-through from Advanced Technologies and from continued margin progression in Imaging & Analysis.
Paul Fry: Reported margin increased by 160 basis points to 14.9%, despite a GBP 1.7 million currency headwind in the period, and this headwind continues to broadly track to our full-year guidance. Cash performance has also improved significantly.
Paul Fry: Normalized cash conversion was 85% compared with 41% in the prior period, and free cash flow stepped up nearly GBP 19 million, and I will come back to the drivers of that shortly. Adjusted diluted EPS increased 29%, reflecting both high profit and the accretive effect of the share buyback program, which contributed around a fifth of that growth. Then finally, on capital employed, return on capital employed moved into our target range at 30.1%, reflecting improved profitability, strong cash conversion, and disciplined investment. So overall, good progress across the financial framework, with almost all of our key metrics at or above the medium-term target ranges, and margin continuing to move towards our 20% target. Moving now to the key movements in revenue and margin.
Paul Fry: The chart at the top of this slide shows Advanced Technologies contributing the majority of absolute sales growth in H1, and the important feature here is the operating leverage coming through in Advanced Technologies as revenue grows, with around 30% of the revenue growth dropping through to profit, in turn driving up margin from just over 2% to 7.5%. Margins also progressed in Imaging & Analysis, which, given its relative size, made the biggest contribution to the underlying group margin improvement. This underlying improvement was then partially offset by two factors. The first is mix. As Advanced Technologies becomes a larger proportion of group revenue, there is currently a mix headwind because its margins remain below the group average, despite having made very strong progress in H1. The second, of course, is currency, which reduced group margin by around 80 basis points in the half.
Paul Fry: Despite those two effects, we now expect to more than offset the full-year currency headwinds at a group level and continue to improve group margin versus the prior year. Turning now to Imaging & Analysis. Reported order intake was up 11.7% or 12.6% OCC, growing well on what was a challenging first half last year, which was in turn down nearly 7%, in turn nearly 7% down on the year before. For context, H1 order intake this year has now recovered to be about 4% higher than H1 FY 2025. As Richard mentioned, the customer mix this half is encouraging. Commercial orders were strong, increasing by just over 20%, but academic demand has also been resilient. Despite continuing weakness in the US, particularly in healthcare and life sciences, overall I&A academic orders increased by nearly 3%.
Paul Fry: Recovering order intake has helped replenish the order book, which started this year lower than the start of the prior year, driven by the book-to-bill ratio in H2 last year being below 1. Despite a weaker opening order book this year, the very positive order intake in H1 enabled the division both to rebuild its order book to GBP 144 million by the end of the half and to grow revenue by 2.4%, or just over 3% at constant currency. Around 70% of the closing order book is scheduled for delivery in H2, meaning as we enter the second half, we have an improved revenue cover compared to the same time last year. The next slide brings together the I&A P&L performance and outlook.
Paul Fry: Staying with revenue, given the order book we already have for delivery in H2, and assuming Q3 order intake continues at a similar run rate, we expect second-half revenue to be around 25% higher than H1. This would translate to a low single-digit revenue growth for both H2 and for the full year, which remains in line with our guidance. Of course, we also continue to be vigilant as to the potential impact of what remains an uncertain macro environment. Moving now to profit. The improved H1 margin benefited from a favorable product mix and from restructuring and operational improvements delivered last year.
Paul Fry: We expect those mix benefits to unwind to some degree during H2, and we will also see the full-year impact of some further investments we've made in our regional sales organization, which is helping to drive the strong order performance that Richard will talk about later. Taking those factors together, we expect the full-year divisional margin to be broadly steady on a constant currency basis, but on a reported basis, we expect a currency headwind of around 120 basis points. Moving now to Advanced Technologies. Order intake was GBP 132 million H1, more than double the intake seen in the same period last year. The growth has been predominantly from commercial customers, with commercial orders now representing around 93% of divisional order intake. Of these orders, around 75% have been for datacom applications.
Paul Fry: That growth has driven a significant expansion of the order book, which finished the half almost 90% higher than at the same point last year. Importantly, we're now seeing last year's order momentum convert into revenue, which was up over 26% in H1. Revenue remains relatively diversified, with no one customer accounting for more than 8% of revenue in the first half. Around 40% of the closing order book is scheduled for delivery in H2, with FY27 revenue now effectively covered, and new orders in H2 are being booked for delivery in FY28 and FY29. Our lead times remain competitive and are currently averaging around 12 months, influenced both by our production capacity and customers' ramp-up requirements. These dynamics are now clearly putting us in a strong position for FY 2028, which I'll come back to in a moment.
Paul Fry: On the next slide, you will see that the growth in order book is beginning to reshape both revenue and margins in Advanced Technologies. Adjusted operating margin stepped up 540 basis points versus last year, reflecting the operational leverage benefit we have talked about as revenue grows. There are still some offsets to that leverage. We have the full-year effect of depreciation and running costs associated with Severn Beach, with incremental maintenance depreciation running around GBP 2 million in H1, and we will continue to invest in scaling operational capacity through the second half. Despite this, we expect further margin progression in H2 and continue to expect a high single-digit margin for FY 2027, alongside high teens revenue growth.
Paul Fry: The more significant changes in the outlook for FY 2028, and given the strong growth we have already seen in the FY28 order book during H1, with further growth anticipated through H2, we now expect FY28 revenue growth of around 20%, assuming our lead times remain broadly where they are today. That growth and the resulting drop-through to profits are expected to move Advanced Technologies up into its 12% to 15% medium-term margin range next year, earlier now than we had expected. We are seeing a clear progression here, order growth translating into revenue growth, which is in turn driving a meaningful improvement in profitability. Moving briefly to adjusting items, I mean, the main takeaway here is that cash-related items have reduced substantially from last year, as the significant restructuring activity undertaken across the group has largely concluded, reducing these costs by nearly GBP 5 million.
Paul Fry: We did incur GBP 0.6 million of acquisition costs in H1, reflecting our continued active assessment of potential opportunities. Overall, we expect the cash impact of adjusting items to be around GBP 2 million to GBP 3 million for the full year, though that may move depending on further M&A activity. The majority of the remaining adjusting items are non-cash, principally amortization and acquired intangibles. Looking slightly further ahead, we also know that we do need to make some selected ERP upgrades in the group over the next two to three years to ensure we can support our growth execution plans, and these will also give us opportunities to simplify some of the operating processes in the group, particularly in I&A. We are currently working through those deployment options in more detail and will provide a further update in due course as our plans crystallize.
Paul Fry: Moving now to cash flow, where we have seen a significant step-up in the first half, increasing nearly GBP 19 million. Of this, around GBP 5 million can be attributed to the increase in profits, around GBP 7 million to an improvement in normalized cash conversion, more than doubling versus last year. The biggest driver of cash conversion improvement has been working capital, which has reduced by nearly 1% of revenue, and within that, inventory increased as we positioned both divisions to execute against their larger order books and to continue to invest in supply chain resilience. Specifically in Advanced Technologies, inventory increases of around GBP 9 million were more than offset by increased customer deposits as order intake grew, and we are likely to see the division to be able to fund its own working capital requirements for the remainder of the year.
Paul Fry: We've also benefited from the reduction in cash restructuring items I mentioned earlier and the cessation of contributions to the UK defined benefit pension scheme following the buy-in completed last December. In H1 last year, those pension contributions were GBP 4.5 million. This year, they were zero. Tax payments increased this half as they normalized following the benefit of overpayments made last year. We finally finished the half with nearly GBP 75 million of net cash after GBP 21 million of share buybacks and a GBP 10 million dividend payment made during the period. Which brings me finally to capital allocation, and here our priorities are unchanged. Our first priority remains organic investment, where we are seeing attractive opportunities to generate growth and returns.
Paul Fry: We continue to invest around 8% to 9% of revenue in R&D, alongside capital investment in areas including customer demonstration facilities and new equipment and tooling to support the development of our semiconductor capabilities. As Advanced Technologies scales, we're also investing in operational capacity, supply chain resilience, and inventory to support production execution. Our second priority is the dividend, which remains progressive in line with underlying earnings, and here we've increased the interim dividend this time by 7.4%. Beyond those priorities, we continue to actively review inorganic investment opportunities where there is a compelling strategic case and where returns exceed our investment hurdles. Aligning with that, we continue to ensure we retain the strategic flexibility that comes from a strong balance sheet. Finally, to capital returns, and here we continue to return surplus capital where we believe that creates value for shareholders.
Paul Fry: At the half year, we completed GBP 83 million of the current GBP 100 million share buyback program, and we expect the remainder of that program to complete early in the new year. Given the strength of the balance sheet and our confidence in future cash generation, we've announced this morning that we intend to continue the program with a further GBP 25 million buyback, which we would expect to complete by summer next year. With that, I'll hand back to Richard.
Richard Tyson: Excellent. Thank you, Paul Fry. Now I'm going to talk through what's driving performance and, importantly, why we believe there is further opportunity ahead. As we said at the full-year results, Oxford Instruments is today a much simpler, more commercially focused business than it was three years ago. We've retained the technology leadership that has always differentiated Oxford Instruments and continue to invest significantly in maintaining this. But we've also been working hard to build the commercial and operational capabilities at the same time. Over the last 18 months, we've seen good evidence of these elements coming together. I'll start with our markets. We continue to focus on three core markets where we see strong, ongoing structural growth drivers that support our organic growth targets, these being materials analysis, semiconductors, and healthcare and life science.
Richard Tyson: I&A has seen strong order growth in materials analysis applications, up 10% year-on-year, and materials analysis remains the biggest market segment with a diverse range of use cases spanning structural materials, chemicals, aerospace, metals, and many other industries from clean energy to food production. The standout performer in the H1 is clearly semiconductors, with GBP 164 million worth of orders, and importantly, strong growth in both silicon semiconductor and compound semiconductors. Advanced Technologies, which operates in the compound semiconductor market, grew orders 173%, benefiting from strong growth in datacom. Imaging & Analysis, which supports all parts of the market, saw excellent order growth too, up 59%. The growth is benefiting both divisions, and I will show you why on the next slide. In healthcare and life science, it remains the softer of our three core markets, largely reflecting continued weakness in academia in the US.
Richard Tyson: This is despite us seeing some encouraging external signals and the fact that we have improved OEM camera orders as well. Overall, we continue to benefit from the breadth of Imaging & Analysis portfolio and the market segments, which provide valuable diversification and resilience. But given the strength in the semiconductor demand, I wanted to pause for a moment to provide some color on this increasingly important market for Oxford Instruments. As some of you may know, we participate in two distinct parts of the semiconductor industry. In silicon, it is a very large market and it is well-established, but continues to evolve as demand for processing power, memory, and storage grows and devices become more complex. In Imaging & Analysis, we support customers right across the silicon life cycle and the supply chain, from R&D through development and packaging to quality control and failure analysis.
Richard Tyson: Our exposure is broad in terms of both customers and applications. Compound semiconductors are a faster-growing part of the market, driven by new applications and technology transitions. They offer capabilities beyond silicon, particularly in speed, power efficiency, and the generation and detection of light. Advanced Technologies has leading technology and expertise in front-end wafer processing, a critical stage in manufacturing compound semiconductor devices for datacom, power electronics, and microLED applications. But I&A has a growing role here too. Its established metrology capabilities are also valuable in compound semiconductor applications. We now have a full suite of I&A tools in our Severn Beach clean room to characterize materials, assess performance, and identify defects, all helping us develop and optimize processes for compound semiconductor customers.
Richard Tyson: These complementary positions, broad exposure across the silicon life cycle and supply chain, alongside expected multiple growth opportunities in compound semiconductors, are an exciting place for us to be. Let us now take a closer look at Imaging & Analysis. The division made good progress in the H1. Overall, orders grew nearly 13% at constant currency. The stronger order intake has also improved the order book by 8%, and this gives good cover for planned H2 revenues at this stage of the year. Profit and margin progression was pleasing, but clearly against a weaker H1 last year. The majority of the order growth came from commercial customers, where we have targeted our sales activity. Academia, which still represents 41% of the division, remained robust, with low single-digit growth despite the further headwind in the US.
Richard Tyson: These academic customer relationships have built over many years and remain very important. They give us early insight into the emerging science and technologies and help us inform where we invest our R&D. We continue to invest for the long-term growth of the division in both R&D and our customer sales and service activities, and more on both of these in a moment. Firstly, let me give you a little more color on some of the application areas that support the growth for Imaging & Analysis. Materials analysis remains the largest market for the division, generating GBP 82 million of orders and growing by just over 10%. The strength of this market lies in the need for new capabilities, materials with improved performance, lighter weight, stronger composition, and lower costs to produce. They are all in constant demand.
Richard Tyson: Oxford Instruments has market-leading imaging and detection capabilities at the atomic and molecular layer that enable this. Some example applications are on the left-hand side of the slide. Structural materials, the automotive and aerospace sector, and chemical applications have been the largest drivers of demand in H1. Here, examples include customers investigating wear and failure modes in engine parts or researching how chemicals react to help develop new processes. The diversity you can see here is one of the attractive characteristics of I&A, with demand spread across many applications, customers, and industries. On the right-hand side of the chart are some of the semiconductor examples. Overall, as I have mentioned, we have seen excellent growth, with orders up 59% in the division. As we just discussed, the products are used across the life cycle.
Richard Tyson: As chips become smaller, packaging becomes more complex, the need for our imaging and analytical capabilities continues to increase. Turning now to some of the investments we are making to continue to grow the business. We continue to invest around 9% of group revenue in advancing our technology and product portfolio. In the first half, we have launched AI-powered upgrades to several of our software packages, which are helping customers interpret the data our technology acquires from their samples. Some of the wider priorities in R&D are shown here as well, as we continue to increase the levels of investment to maintain our leading edge and support future growth opportunities. We are also continuing to invest in our operations. In Belfast, where we have made changes to improve operational performance, earlier this year, we invested in a full refurbishment of the clean room to help embed these improvements.
Richard Tyson: Clearly, with the level of growth we have in front of us, we are also investing in talent and strengthening supply chain resilience as well. Another important area is the front end of the business. Historically, Oxford Instruments was a very product and technology-led organization, with commercial activity largely driven from our major R&D and manufacturing sites. Over the last three years, we have deliberately rebalanced that model. We now have four strong regional commercial organizations across the Americas, Europe, China, and Asia Pacific, with more decision-making and accountability closer to our customers. We are investing in the infrastructure around those teams, including extending our network of demonstration centres where customers can experience our equipment at firsthand. As you can see from the slide, we have expanded our presence and opening new centers in Taiwan and Seoul, and a new facility in Wiesbaden, Germany.
Richard Tyson: These facilities allow us to better understand our customers' requirements, improving the quality of the opportunity pipeline. In the US, for example, we typically see conversion rates almost 40% higher when customers have had the benefit of a firsthand demonstration. Let's now turn to Advanced Technologies where the scale of the opportunity has moved on significantly. Orders more than doubled in the H1, reaching GBP 132 million. Revenue grew around 27% as we are starting to see the operating leverage come through as well, with good margin progression. As you are aware, we secured a large multi-year contract early in the year, but in addition, we received a number of new orders from other volume manufacturing customers across multiple geographies, diversifying our customer base. The strategy to move from a mainly research-led business towards becoming a technology partner for volume manufacturers is delivering tangible results.
Richard Tyson: The order book and visibility is now excellent. Planned FY27 revenue is covered in the current order book, with bookings extending well into next year, leading to our upgraded revenue and profit outlook. We are increasing investments to support delivering this growth, including supply chain resources and inventory, building our team in operations to add capacity, and continuing to focus on productivity. Next, I want to explore the drivers of this increased demand. The enormous amount of data that needs to move around an AI datacentre is driving the need for new technology and an increased volume in indium phosphide datacom chips. It is important to understand what is driving the demand and what differentiates our technology. As computing power increases, connectivity becomes increasingly critical.
Richard Tyson: Traditional copper-based connections cannot efficiently provide the bandwidth, reach, and power efficiency required at these higher data rates, leading to the need for optical connectivity, an area where we excel. The current technology standard is driving incredible demand, but this will be followed by further developments in technology that will require additional optical device production lines. The middle of the slide explains why Oxford Instruments is particularly well-positioned as the market scales. We are able to produce high-quality optical surfaces these devices demand through very precise control of the fabrication process, especially when working with indium phosphide, a notably fragile material. Our proprietary process technology, including our hot wafer clamping, enables customers to achieve that high performance and repeatability across a range of wafer sizes without compromising the precision and the quality that they require. The third element is scale.
Richard Tyson: We have evolved our offering from standalone tools designed for low-volume applications towards automated multi-chamber cluster systems designed for high-volume manufacturing, where robotic wafer handling improves repeatability and throughput. As I said earlier, the compound semiconductor opportunity is much broader than just indium phosphide. While datacom is a major source of demand today, there are a number of important target applications for us where we have developed critical processes and intellectual property. You can think of these markets as being at different stages of maturity. Datacom and optical infrastructure are in a significant ramp-up today, as we have just explored. In the middle of the slide, there is a further important area of opportunity in power electronics and RF. Gallium nitride and silicon carbide can enable more efficient power conversion and lower thermal loads, with potential applications spanning AI infrastructure, automotive, consumer electronics, and future communications technologies.
Richard Tyson: Here, our order pipeline is growing as customers anticipate their next phase of growth. Slightly further out, we are working with a number of customers in microLED and augmented reality for the next generation of consumer devices, where much of the activity today remains in corporate R&D. Datacom is driving growth today, while the technology base positions the business well for further opportunities in compound semiconductor applications. With the significant growth in the Advanced Technologies order book, we are ensuring we have the right capacity and operational capability to deliver to our customers and set ourselves up for sustained growth in future years. Firstly, on supply chain, we are working much more strategically with our key suppliers, putting longer-term agreements in place and making targeted investments in inventory where that helps us protect customer deliveries.
Richard Tyson: Second, on operational execution, we are continuing to optimize our clean room processes, improve production planning, and simplify and standardize products where appropriate. That focus on the clean room is supporting increased volumes of customer demonstrations, which we know is key for validating processes, especially in a high-volume manufacturing environment, and which in turn drives an increased pipeline and conversion rates. Third, in people and capability, we are making targeted additions across operations, supply chain, and service, while investing in our in-house Talent Academy, where we have more than doubled the number of apprentices coming through. All of these initiatives will help us deliver for our customers and convert the exceptional demand we are seeing into sustainable revenue and margin growth.
Richard Tyson: I hope that has given you a flavor of the exciting demand picture and what we are doing to support execution. To conclude then, it has been a strong H1.
Richard Tyson: We are seeing strategic progress translate into commercial and financial outcomes. We are getting closer to our customers and broadening the client base. Imaging & Analysis has good order momentum and is well-placed for full-year expectations. In Advanced Technologies, it is exciting. Excellent demand for our products and starting to step up in revenue and margins. As a result, we have increased next year's outlook for Advanced Technologies today. We continue to invest significantly in technology, customer engagement, and operational resilience to support future sustainable growth for the group. The balance sheet remains strong and gives us flexibility in capital deployment, and we have confirmed our intent to extend the buyback through to the middle of next year. Of course, we are mindful and continue to be mindful of the operating environment that remains complex and challenging, as well as navigating the growth opportunity in Advanced Technologies.
Richard Tyson: The strength of the H1 performance, the order cover in both divisions, give us confidence in meeting full-year expectations as we demonstrate strong progress to our medium-term targets. We have an exciting future ahead at Oxford Instruments. Thank you very much, and Paul and I will be very happy to take your questions. Go ahead, Tom. First up.
Tom Rands: Is there a mic or should I just-
Richard Tyson: There should be. Is there one? Someone got a mic? Yeah.
Tom Rands: Thank you. Good morning. Tom Rands from Berenberg. Two questions. First one's maybe more for Paul Fry on AT and the upgraded margin guidance. Obviously, it's two years ago, it was 10% at GBP 150 million, then it went to 12%, and now you've upgraded 12% to 15%, GBP 450 million revenue. Obviously, that site is GBP 250 million in revenue total potential in time. How do we see the margin potential at GBP 250 million panning out, and what sort of timescale do you think we should be baking into our forecasts for that? Thank you.
Paul Fry: Like you say, in terms of product revenue, that facility should be able to cope with GBP 250 million. That's with current labor practices, so you maybe could squeeze a bit more. You should also think about service revenue obviously being on top of that, so that's not the total capacity for that division. Then you've also got the AT division, AT piece in there as well. I mean, we've seen the drop through about 30%, and when we think about this over the next few years, that feels like a reasonable number. There may be some years where it's slightly better, some years where it's slightly worse. So if you continue to think that revenue growth should continue to drop through around 30%, then you can work through the margin as a result of that.
Tom Rands: Okay, great. Thank you. Second question, it is at a high level, maybe more for Richard Tyson. The way you win in AT and the flexibility of moving up the wafer size, as the demand for indium phosphide and datacom seems to, well, depending on which data, the demand for investment there, what is the competitive position within 6-inch wafer at the moment, and how do you see that progressing given where silicon has gone up to 12-inch wafers over the last few decades? How quickly could it ramp, or is 6 inch enough for the next five or 10 years to give the volume needed?
Richard Tyson: Well, okay. Let us start with this. Should we talk about 5? Let us start talking about 5. I do not think we think it is going to 300 millimeter in that first phase, right? I mean, in general, we have machine capability and a development path to 300 millimeters overall. The technology plans or product plans are there for that, but we do not see it as a need in indium phosphide in the next 5, I think the team would probably say. The wafer sizes are moving up from smaller to the 200 millimeter, if you like, right? In terms of competitive position and customers, some customers are still staying at smaller wafer sizes because it works for them today. They can get volume through. It is a low-risk addition of a production line to just add another one at those sizes.
Richard Tyson: We have sold some of the equipment to support those wafer sizes. Equally, we have got a very good value proposition, we believe, that I was articulating just now at the higher wafer sizes as well, and definitely gives us differentiation, is getting us to the table with some of these customers. All of that is important to converting brand new customers, because we are needing to offer something in addition to what they have seen before. But we are clearly getting the sense that we have got that.
Richard Tyson: I would say, I know it was a little bit flippant about the demand point about today versus. But the demand from these customers is very significant, and it goes out to. I was with a few of them only a couple of weeks ago, quite a few of them, and they are all booked out to talking about 2029 to 2030, in that sort of range, where they are talking about giving volumes of chips right now. I know there is the macro uncertainty, and I totally get it, but these customers need product, they need it now, and to be able to build out the compute that is expected today.
Tom Rands: Okay, great. One quick follow-up, if I may, just on that kind of the demand's there. How quickly can you add people, which seems to be the key bottleneck at the moment, to kind of match your production to that kind of demand over the next three to five years?
Richard Tyson: Yeah, I think I've probably said it to at least some of you, if not all of you before, but we see it as a six-monthly cycle of adding people, training them up, and getting them productive. So, we're thinking constantly 12 to 18 months ahead about what we think is a sensible amount of capacity based on current run rates of demand, thinking about that longer-term macro picture, partly why we've suggested that we think the outlook should move to around that 20% growth rate next year. That's a balance of all of those things we're trying to judge. As I've just said, the current demand seems to continue to move, and in terms of growth going into 2029, if you take the pipeline visibility. So, we'll see how that evolves. But we don't want to get ahead of that either.
Richard Tyson: We want to stay competitive on lead time, and not put too much capacity in case that growth rate comes off back down to, I don't know, 15% or 10% or something. So, we're just trying to judge all of that on a continual basis.
Tom Rands: Great. Sounds very sensible. Thank you.
Richard Tyson: Okay. Hi, David.
David Farrell: Hi. David Farrell from Jefferies. Two questions from myself as well. Firstly, if I look at the semiconductor growth in I&A, I think it was 59%. How much of that is being driven by what is happening in AT? You alluded to the synergies between the two divisions. How much of that is market growth, and how much of that is you kind of taking share through AT?
Richard Tyson: I would say that, so the read across from AT is a helpful dynamic that we are able to bring. It is like a way to sort of showcase our capabilities in metrology, for both sides of the customer base, because, I mean, those of you that got involved in the site visit down there, I think probably saw some of the capabilities being demonstrated. It is a very good way, regardless of the customer, to show them real-time the equipment in a clean room in the fab. In terms of that actual contribution to the order intake, I would say I would call it relatively low in terms of really cross-sell at this stage, but it is net helpful.
David Farrell: Yeah. Thanks. My second question, I would be interested to get your thoughts on what is going on in China, generally kind of what that market looks like for you.
Richard Tyson: As a whole, as you know, we've tried to de-risk China from the technology perspective, and that brought revenue and contribution to group down over the last 18 months. In the dynamics of the last six to 12 months, it's started to return to growth again from an order intake perspective. Again, it's a repositioning of the sales activity to commercial customers that has driven that opportunity coming back. It's not super high, David, but it's returned to growth. So, it's all right.
David Farrell: Thanks.
Richard Paige: Morning. It's Richard Paige from Deutsche Numis. I'll stick to the pattern of two questions for you this morning. Firstly, on I&A, if I back out the maths of what you've presented for the H2, I think it's about, you've got about 60% more to cover in terms of the revenue. Could I just ask about what you need to see happen over the ensuing time, and what sort of timeline you might have full cover within I&A for the year?
Paul Fry: I think I said in the presentation, if we continue to see order intake at roughly the run rate that we've seen in the H1, and we continue to see that right now, then by the end of this quarter, we should be in a position to have an order book that just needs execution. Now, there may still be a bit of book and ship that may come after that, but we'd like to finish this half with a positive book-to-bill. So really, if we continue that same run rate and we see that during Q3, that should give us enough to deliver the year.
Paul Fry: And just as, I think, a point of reference, you saw the numbers on the chart, the order book that we have today, very similar to the situation, if not almost identical situation we had same time FY 2025, where again, we executed quite a strong H2. So, I think we are quite confident we will have the order book.
Richard Paige: It has stepped up quite significantly in Q2 as well, hasn't it?
Paul Fry: Yes, indeed. Yep.
Richard Paige: Secondly, on Advanced Technologies, you have touched on some of the other technology pipelines that could happen above the datacom. It is 75% of your order book as of today. When might we see that mix move towards other technologies, or inherently looking at other waves of potential growth within that order book?
Richard Tyson: Yeah, good question. I think what I was trying to articulate here is we are starting to see the pipeline evolve of opportunity, which tends, we are often looking at that 18 to 24 months out. You could point to a few of the peer groups where they may have seen orders starting, let us say, but they are often 12 to 18 months ahead of when we would expect to see orders. I think if you think in that sort of 18-month timeline, it will evolve. It will not suddenly arrive, if you see what I mean. In that time period, we are fully expecting datacom to continue. You could expect to see that sort of different phase of growth come through.
Richard Tyson: But yeah, I would point to the opportunity pipeline, which is full, and it is given, you would expect the order intake to have taken an awful lot out of it, given the strength of order intake. But actually, it has been fully replenished in terms of future visibility. That is good, and that is probably when you can expect to see it evolve. I would also maybe just going back to the I&A point, not just about specific technical cover, but is it just the point I was making about the growth being broad-based? It is like the momentum is coming from multiple areas. We have got materials analysis, multi-industry, multi-geography at 10% growth in I&A.
Richard Tyson: Then you have got semiconductors, not just the CapEx build-out in semiconductors, right? It is not just that race for capacity. It is R&D, it is new applications for, and what they need as they get more complex.
Richard Tyson: The complexity is driving more of the sort of equipment we can provide because of our capability to image at that level.
Richard Paige: Brilliant. Thank you.
Richard Tyson: Okay. Anyone else in the room? We got any online, Steven?
[Company Representative] (Oxford Instruments): Thank you. It is a question from Sinha at JPMorgan. There is three parts to the question. I will do each in turn. First of all, what is the level of confidence in execution that has led you to the growth and margin guidance in AT for 2028?
Richard Tyson: Well, the confidence on execution, I think, is built from clearly actions and activity we are happening right now. The fact that we have started to see the revenue run rate increase, the 27% in H1, the plan in H2. If you roll that forward into H1, H2 next year, that is really what we are saying. You couple that with the level of cover we have got in the order book and the run rate of order intake, then we think that is broadly a sensible number that we can get to. It is not without risk, though. The supply chain has to move as fast as us. We were gearing up this division to roll at 10% to 15%, and we are needing to roll it higher than that. So, we have got to be on it all the time. But so far, it is going okay.
[Company Representative] (Oxford Instruments): Thank you. Second question. Read across from players such as Aixtron is very positive, and they are not seeing a slowdown. How do you see the outlook into next year from an orders perspective for AT?
Richard Tyson: Well, it's always difficult to directly comment on the timing of conversion, but I guess I'd point back to the opportunity funnel and the fact that, I think we've talked before about it being over half a billion, and the level of order intake we've had, it's been fully replenished. I think say, look, at the moment, the opportunity looks good for continued momentum. As I just mentioned, I think answering Tom Rands' question, the customers that I saw very, very recently on the West Coast, every single one of them was just talking about how big and how fast. I think that speaks to it. This feels like this dynamic is ongoing at the moment.
[Company Representative] (Oxford Instruments): Thank you. And final question. Given your strong cash generation and potential, what are your capital allocation priorities? I guess it's probably more of a question on maybe M&A, given that the priorities are clearly laid out.
Paul Fry: Yeah, I mean, the priorities are unchanged, as you say, and we're continuing to buy back. We tend to. Maybe on the M&A front, we're very active, continue to look for opportunities. I don't know if you want to talk about characteristics.
Richard Tyson: Yeah, I mean, I think we, I've tried to signal, it's a balanced. The capital allocation priorities are clear, they are consistent, and there's a balance after organic investment and dividend between looking for M&A deployment opportunities as well as return to shareholders. So, hopefully we've demonstrated that we are active in that balance and the allocation of the buyback stuff. But on M&A, yeah, we are keen to accelerate the strategy, and we are looking, and we have been more active. We got close to something in H1 that we couldn't make the equation work in terms of returns because of the valuation expectations. But, so what read into that, we'll continue to be disciplined. We're not going to run after it, but we would like to do some of it.
Richard Tyson: We think there's opportunities through the way we've set I&A up, particularly to bring new other technologies and products into the portfolio and accelerate it through our divisional regional network that we've got. We're going to keep looking at that, and hopefully we can find something.
[Company Representative] (Oxford Instruments): Thank you. There's no further questions online.
Richard Tyson: Okay, thanks. Yes, David, you want one more?
David Farrell: Yeah, please.
David Farrell: Thanks. In the presentation, you talked about the negative mix effects from AT growing in terms of margin.
Richard Tyson: Group margin.
David Farrell: Group margin. I just wondered in terms of the seasonality of the business, is AT going to be less Q4 weighted than the I&A, and therefore you get a smoother revenue profile going forward?
Richard Tyson: Well, in general, I think we would expect the production run rate to gradually step up and be more like a regular drumbeat. But obviously, the level of growth that is being layered on and us layering in capacity means it is naturally the next Q4 ahead, if you like, because of the way that you are layering in capacity. But as that growth rate stabilizes, then I think that is not an unreasonable assumption that over time it does that, yeah.
David Farrell: Yeah. Thanks.
Richard Tyson: Oh. Sorry.
Harry Philips: Can't resist it. Harry Philips at Peel Hunt. Just thinking about sort of supply chain security and what have you, and just thinking around pricing out of that supply chain, because obviously the growth dynamics are very clear. In the whole presentation, pricing almost hasn't been mentioned at all because clearly there's strong demand and effort just pulling through the entire system. But as the sort of bottlenecks in production are reached, is there a risk that you get sort of super normal pricing at points, and your ability to pass that on, would it be a sort of surcharge situation, or am I sort of envisaging a scenario that is not going to happen?
Richard Tyson: I mean, there's industry examples of that over the last few years, right, when things get really, really tight. I think firstly on pricing, we haven't mentioned, but we're basically pricing ahead of any inflation dynamics and managing to pass that on fine. You can see that in the shape of the business and the margins. I think the question on AT is, we think we've got a really good value proposition, but we're also trying to get into new customers. So it's always competitive, but we're trying to price the value proposition. So we're always trying to make sure we're getting the right kind of level of margin for the capability we're bringing, but we want to win the new customer. So that's a bit of a balancing act, Harry, just to sort of talk about the pricing.
Richard Tyson: But I think you should think of us constantly trying to optimize that position, and not take super advantage of a tight position above us, if you like, but reflect activity and the benefits we can bring. If you look down into supply chain, I think you can envisage from time to time things getting tight in certain products that are required across the whole industry. So that is why we were talking earlier on about trying to get ahead of that, buying inventory, looking more than just the next sort of six months worth of demand coming through, and talking longer term with the supply chain to try and avoid it. So, that is the point of that. We have got to constantly stay on top of it and try and manage our way through.
Harry Philips: Okay.
Richard Tyson: Very good. All right. Well, thank you all for your questions and your time this morning.
Richard Tyson: Hopefully we have conveyed we feel like we are in a good place and it has been a good start to the year with plenty of opportunity ahead. So thank you all very much. We will see you on the way around.
