Final Results

RNS Number : 5371G

Judges Scientific PLC

18 March 2020

 

18 March 2020

Judges Scientific plc

("Judges Scientific", "Judges", the "Company" or the "Group")

FINAL RESULTS

Record revenue, order intake and cash generation underpinning 25% increase in dividend

Judges Scientific, a group involved in the buy and build of scientific instrument businesses, is pleased to announce its Final Results for the year ended 31 December 2019.  

Financial Highlights

· Revenues up 5.9% to a record £82.5 million (2018: £77.9 million), including 5.6% Organic* growth;

· Adjusted** operating profit up 18% to £17.4 million (2018: £14.7 million);

o  Statutory operating profit of £14.1 million (2018: £10.7 million);

· Adjusted** basic earnings per share up 21% to 222.5p (2018: 183.4p);

o  Statutory basic earnings per share of 183.1p (2018: 137.5p);

· Final dividend of 35p, totalling 50p for the year, an increase of 25%; covered 4.5 times by adjusted earnings (this excludes the special dividend of £2 paid on 10 December 2019);

· Organic* order intake up 3.3% compared with 2018;

· Organic order book at 13.2 weeks (1 January 2019: 14.4 weeks); total order book 13.6 weeks;

· Cash generated from operations of £19.1 million (2018: £15.7 million);

· Adjusted** net debt of £2.0 million as at 31 December 2019 (31 December 2018: £0.9 million net cash);

o  Statutory net debt of £0.3 million at 31 December 2019 (31 December 2018: £0.7 million net cash);

· Cash balances of £14.1 million as at 31 December 2019 (31 December 2018: £15.7 million).

Strategic Highlights

· Moorfield Nanotechnology acquired on 3 December 2019 for a consideration of £2.3 million plus excess cash.

Outlook and COVID-19

· The Group commenced 2020 in a strong financial position with a solid order book, both of which remain robust.

· The impact of COVID-19 is being closely monitored with all necessary precautions being taken across Group businesses.

· Pandemic will affect scientific conventions and our ability to travel safely to our customers and therefore impact order intake, sales and installations.

· Effect on current year trading performance will be limited if the outbreak only lasts a further two months and will have a progressively growing and more significant impact thereafter.

· It is currently expected that the impact on the Group will only be temporary and, that with its robust financial position, the Group's ability to conduct its business model will remain intact.

* Organic describes the performance of the Group including businesses acquired prior to 1 January 2018.

** Adjusted earnings figures exclude adjusting items relating to amortisation of acquired intangible assets, acquisition-related costs, share based payments and hedging of risks materialising after the end of the year. Adjusted net debt includes acquisition-related liabilities and excludes subordinated debt owed by subsidiaries to non-controlling shareholders.

Alex Hambro, Chairman of Judges Scientific, commented:  

"In 2019 the Group achieved new records for order intake, sales, adjusted profits, cash generation and earnings per share; this was driven by strong demand for our products, continued operational improvements and very favourable foreign exchange rates. The uncertainty of COVID-19 is clouding the immediate future but the Group's strong financial position ensures it is able to continue pursuing its business model."

For further information please contact:
Judges Scientific plc David Cicurel, CEO Brad Ormsby, FD	Tel: [phone]
Shore Capital (Nominated Adviser & Broker) Stephane Auton Edward Mansfield Sarah Mather	Tel: [phone]
Liberum (Joint Broker) Bidhi Bhoma Euan Brown Alma PR (Financial Public Relations) Rebecca Sanders-Hewett Sam Modlin	Tel: [phone] Tel: [phone]

Notes to editors:  

Judges Scientific plc (AIM: JDG), is a group involved in the buy and build of scientific instrument businesses.  The Group currently consists of 17 businesses acquired since it was re-admitted to AIM in 2005.  

The acquired companies are primarily UK-based with products sold worldwide to a diverse range of markets including: higher education institutions, the scientific communities, manufacturers and regulatory authorities.  The UK is a recognised centre of excellence for scientific instruments. The Group has received five Queens' awards for innovation and export.

Judges Scientific maintains a policy to selectively acquire businesses that generate sustainable profits and cash. Shareholder returns are created through the reduction of debt, payment of increasing dividends and through organic growth which the Group encourages by creating an environment for businesses to thrive in, with support and advice for entity management teams. 

The Group's companies predominantly operate in global niche markets, with long term growth fundamentals and resilient margins.

For further information, please visit www.judges.uk.com  

 

CHAIRMAN'S STATEMENT

I am delighted to report that in the financial year ended 31 December 2019, the Group achieved new records in order intake, revenues, cash generation, adjusted pre-tax profit and adjusted earnings per share. The Group was able to complete a small acquisition, pay a special dividend of £12.4 million and still finish the year with minimal net debt, maintaining a robust ability to take advantage of opportunities as they arise.

As the acquisition of Moorfield Nanotechnology Limited ("Moorfield") completed in December 2019, the growth and record performance this year was predominantly organic. The long-term growth drivers in the scientific instruments industry remain robust and exchange rates continued to favour us throughout the year. Demand for our products, which had been very strong since June 2016, was more volatile in 2019 but order intake still finished ahead of the previous year.

Delivering returns to our shareholders remains the core objective of the Group and as such the Board is pleased to be recommending a final dividend of 35p, making a total of 50p in respect of 2019, a 25% increase on the prior year (2018: 40p); this excludes the special dividend of £2 paid in December 2019. Since the payment of the first dividend in respect of 2006, regular dividends have grown at a compound annual rate of 24.2%.

Strategy

The Group's strategy continues to be based on creating shareholder returns through highly selective and carefully structured acquisitions, underpinned by diversified, solid and consistent earnings and cashflows arising from our existing businesses.  

The Group's model is to acquire small/medium-sized scientific instrument companies, paying a disciplined multiple of earnings and to finance any acquisition, ideally, through existing cash resources and/or bank borrowings. We are highly selective in acquiring businesses with sustainable profits and cashflows in order to obtain immediate and enduring earnings enhancement for our shareholders. It is paramount that acquisitions are completed only when the Directors are satisfied that the target business has sound underlying strength. As a result of the consistent growth of our Group it has been able to promptly reduce the acquisition debt, generating the resources to reinvest in further acquisitions, subject always to our prudent approach on gearing.

The underlying market for scientific instruments remains robust and the sector's long-term growth drivers provide comfort that the Group will continue to deliver durable returns for shareholders despite, as we have observed since 2014, the potential for some short-term variability in performance. Long-term market drivers are rooted in the global expansion of higher education and the need for improved measurement to support the relentless worldwide search for optimisation across science and industry. 

Our team

David Barnbrook, our valued colleague, passed away in early January 2020. He contributed his experience and intelligence to the Group for thirteen years with hard work and fierce loyalty including nine years on the board until his recent retirement. His contribution to the early years of the Group was invaluable and the sadness of the Directors is shared by many of our co-workers.

The whole team worked hard in 2019 to produce these results. The energy deployed since 2018 under the leadership of Chief Operating Officer, Mark Lavelle, to achieve operating excellence contributed significantly to the 2019 performance.

The Board and, I am sure, our shareholders are grateful to all our colleagues for the efforts that have delivered such a positive performance. 

Alex Hambro

Chairman

17 March 2020

 

CHIEF EXECUTIVE'S REPORT

Revenues

Group revenues for the financial year ended 31 December 2019 progressed from £77.9 million to £82.5 million, an increase of 5.9%. This reflects Organic* growth of 5.6% and a minor contribution from Moorfield which was acquired in December 2019. 

The Group continues to be a strong exporter and is well diversified across the globe, with 30% of the Group's revenues earned in North America, 28% in the Rest of Europe and 11% in China/Hong Kong. Revenues grew strongly in North America (up 17%) and in China/Hong Kong (up 23%); the good progress in China/Hong Kong follows a pause in 2018 after a few years of strong growth. The UK receded 10%, continuing the erratic trend observed since 2016; the Rest of Europe was stationary and so was the Rest of the World. In absolute values and among the countries where the frequency and volume of trade makes comparisons meaningful, the most impressive swings were in the USA (up £3.5 million) and in China/Hong Kong (up £1.7 million) followed by Germany, Australia and Japan. Switzerland, Denmark and the Netherlands receded by £0.5 million each and the UK gave back £1.1 million of its £1.5 million progress the previous year.

Profits

Profit before tax and adjusting items progressed 19% to £17.0 million (2018: £14.3 million). Organic operating contribution was up 13%; the majority of the Group businesses showed good or excellent progress and a small number reduced their contribution. Demand was more variable than in the past couple of years and the main drivers of growth within our businesses were the effect of the efforts deployed since 2018 to improve their operating performance and the continuation of very favourable exchange rates prevailing since the Brexit vote. The operating subsidiaries combined produced a Return on Total Invested Capital of 31.4% (2018: 27.6%).

The Group has continued to invest in the improvement of its existing products and the development of new products. Investment in research and development amounted to £5.2 million in 2019 (2018: £4.6 million), equivalent to 6.4% of Group revenue (2018: 5.9%).

The progress in pre-tax profits was replicated in earnings per share: EPS before adjusting items advanced by 21% to 222.5p from 183.4p; fully diluted earnings per share before adjusting items also improved 21% to 218.4p (2018: 180.6p).  

Order intake

Order intake was positive but the strong momentum benefitting the Group since June 2016 decelerated; some businesses fared much better than others and periods of buoyancy alternated with spells of quiet. We experienced strong growth in order intake across China/Hong Kong (39%) and of 10% in the Rest of the World. Europe was flat, in line with revenue, but we experienced decreases of 2.7% in North America and 14% in the United Kingdom. This resulted in an overall 3% increase in Organic order intake compared to 2018. The uneven but positive demand and the operational improvement efforts enabled the increased sales and left the Group with a still healthy order book at 31 December 2019 representing 13.2 weeks of budgeted sales (2018: 14.4 weeks).  The year-end value of the order book is static compared to its opening value, implying that the progress in profits and earnings per share was not enhanced by order book compression.

Cashflow

Cashflow was fuelled by the solid trading performance and the 110% cash conversion, with cash generated from operations of £19.1 million (2018: £15.7 million). This enabled the payment on 10 December 2019 of a £2 special dividend, still leaving the Group with cash balances amounting to £14.1 million at 31 December 2019. After the £12.4 million cost of the special dividend and the £2.3 million cost of the Moorfield acquisition, the Group ended the year in a statutory net debt position of £0.3 million (2018: statutory net cash of £0.7 million) with adjusted net debt (excluding subordinated debt owed to non-controlling shareholders but including sums still due in respect of the acquisition) amounting to £2.0 million (2018: £0.9 million adjusted net cash).

* "Organic" in this report describes the performance of the Group excluding Moorfield as it was acquired since 1 January 2018; in most cases the difference is minimal and the Organic qualification is omitted.

 

Dividends

Your Board is recommending a final dividend of 35p per share subject to approval at the forthcoming Annual General Meeting on 20 May 2020, which will make a total distribution (excluding the special dividend) of 50p per share in respect of 2019 (2018: 40p per share). Despite the proposed 25% increase, the total dividend per share is 4.5 times covered by adjusted earnings per share (2018: 4.6 times). 

The proposed final dividend, if approved by shareholders, will be payable on 3 July 2020 to shareholders on the register on 5 June 2020 and the shares will go ex-dividend on 4 June 2020.  

The Company's shareholders are reminded that a Dividend Reinvestment Plan (DRIP) is in place to enable shareholders to automatically reinvest their dividends into additional Judges shares should they so wish. 

Trading environment

The long-term fundamentals supporting demand for scientific instruments remain positive. Market demand is being driven primarily by increased worldwide investment in higher education and a growing trend towards optimisation across science and industry; optimisation requires measurement. 

Despite these positive long-term trends, the markets across which Judges and its peers operate are characterised by a degree of shorter-term variability, influenced mostly by government spending, currency fluctuations and the business climate in major trading blocs, particularly the USA and China. In smaller territories, year-on-year comparisons are not necessarily illustrative of performance, partly due to the high value of some individual orders and the long gestation period often occurring before purchasing intentions crystallise into orders and sales. Alongside these external variables, the uncertainty in research funding in the UK resulting from Brexit may have a continuing influence on UK sales. 

As a large percentage of the Group's revenue is overseas, exchange rates have a significant influence on the Group's business: Judges' manufacturing costs are largely denominated in Sterling and most of its revenue originates from countries where the standard of value is the Euro (one quarter of total revenue) or the US Dollar (two thirds of total revenue). The currency movements in the run-up to the Brexit vote and since have had a positive influence (mitigated to an extent by hedging) on our margins and our competitiveness.

Acquisitions

As a buy and build group, the acquisition of new businesses is a fundamental feature of Group strategy. Executing this effectively is required to ensure that long-term value is generated for shareholders, as we are highly selective in relation to both the acquisition cost and long-term quality of any potential addition to our Group.

The industry in which we operate contains a multitude of small global niches as highlighted by the diverse nature of the new entrants to our Group. The UK is recognised in this arena as a centre of excellence for product innovation and manufacturing with world-leading businesses. Our Group has built a reputation over the past decade as an experienced and well-financed buyer and a supportive home for businesses in our sector whose owners wish to sell. We are trusted to act decisively and to complete deals under the initial terms agreed. For the businesses we acquire, the Group offers advice and support wherever necessary, participates in succession planning and implements robust financial controls. We trust subsidiary management teams with the day-to-day running of their businesses. This has been a successful operating model for the Group, as management teams are given responsibility for their own destinies, as well as an environment in which they can thrive.  

On 3 December 2019, the Group acquired 100% of the share capital of Moorfield for a cash consideration of £2.3 million, including a £0.7 million earn-out. In addition, the value of Moorfield's excess cash was calculated and paid after the year-end and the property it occupies was purchased for its £0.3 million valuation. In the year ended 30 June 2019, Moorfield generated £0.6 million EBIT.

Following the 2018 buy-in of half of the shares held by its founders, PE.fiberoptics ("PFO") purchased further shares from a minority shareholder using part of its surplus cash. As a result, the Group's percentage holding in PFO increased from 67.5% to 74.5%.

 

Outlook and COVID-19

Ten weeks into the new financial year, the world is in a period of great uncertainty. The Group started the year in a strong financial position with the visibility provided by a solid order book. Orders since then have been slower compared to the excellent start in 2019 but the order book is still robust. The next few months are however unpredictable as the COVID-19 epidemic is now global. The pandemic will affect scientific conventions and our ability to travel safely to our customers and therefore impact order intake, sales and installations. We are ensuring that our businesses are taking all necessary precautions, in line with government guidelines, and of course we hope that our factories and employees will remain safe and that production is unaffected. It is impossible, at this stage, to quantify any impact on current year trading as the duration of the pandemic is unpredictable. We are currently in a strong financial position with high cash balances and low gearing together with a robust order book, however, the only guidance your Board can provide on trading performance is that the effect will be limited if the outbreak lasts only a further two months and will have a progressively growing and more significant impact thereafter.

Your directors do however believe that the Group will only be affected temporarily and that with its robust financial position, its ability to conduct its business model will remain intact.

David Cicurel

Chief Executive

17 March 2020

 

FINANCE DIRECTOR'S REPORT

The Group's strategy is based on the acquisition of companies operating in the scientific instruments sector and the continuing generation of profitable performance at its existing subsidiary businesses. 

The Group's Key Performance Indicators, which are aligned with the ability to reduce acquisition debt and fund dividend payments to shareholders, are earnings per share, operating margins, return on invested capital and cashflow generation. All four KPIs have improved in 2019 which reflects positive order intake, proactive deliveries and their subsequent conversion into cash.

Revenue

Group revenues increased by 5.9% to £82.5 million compared with £77.9 million in the prior year. This revenue growth was almost entirely Organic as we acquired Moorfield in December 2019 (2018: Organic growth of 5.5%).

Across our two segments, Materials Sciences revenues reduced slightly by 0.7% to £34.8 million whilst Vacuum revenues improved strongly by £4.9 million to £47.7 million (2018: £42.8 million).

Profits

Adjusted operating profits grew strongly to £17.4 million from £14.7 million in 2018, an increase of 18.0%. This improvement was driven by the overall revenue growth, good control of our cost base together with operational improvements across our businesses and, as a Group that exports more than 85% of our instruments, we continued to benefit from the weakness in Sterling that has prevailed over the past three years. As our business has a fairly high fixed cost base, marginal sales improve operating performance, and, together with the operational improvements, we have seen operating margins continue to improve to 21.1% (2018: 18.9%). Adjusted profit before tax was £17.0 million compared to £14.3 million in 2018, an increase of 18.7%.

Statutory operating profit increased to £14.1 million (2018: £10.7 million), and statutory profit before tax was £13.6 million compared to £10.2 million in 2018.

Adjusting items

The total pre-tax adjusting items recorded in 2019 were £3.3 million compared to £4.1 million in 2018. The main constituent, amortisation of intangible assets recognised upon acquisition, totalled £2.7 million (2018: £3.6 million) and this reduced as we only acquired Moorfield in December 2019; there was £0.3 million of acquisition costs relating to this transaction.

Finance costs

Net finance costs (excluding adjusting items) totalled £0.4 million (2018: £0.4 million). Whilst interest income increased in 2019 due to the higher cash balances held through most of 2019, we recorded a charge of £0.1 million relating to interest arising from the right-of-use liabilities recognised due to the new IFRS 16 standard on leases. Statutory net finance costs were £0.5 million (2018: £0.5 million), the £0.1 million difference between the statutory and adjusted figures is attributable to the net finance cost arising from the defined benefit pension scheme acquired with Armfield in 2015.

Taxation

The Group's tax charge arising from adjusted profit before tax was £2.5 million (2018: £2.1 million). The effective tax rate for adjusted profit is 14.7% compared with 15.0% in the prior year. The effective tax rate is influenced by the wider regime of reducing UK and US corporate tax rates and by claims for UK research and development tax credits. This year the Group's effective tax rate has marginally decreased due to higher claims from R&D tax credits. The Group benefits from a tax rate lower than the standard UK corporation rate as we continue to invest heavily in R&D and as we have remained an SME for R&D tax credits (with the Group having less than 500 full-time equivalent employees during 2019).

Earnings per share

Adjusted basic earnings per share significantly improved to 222.5p 21.3% ahead of 2018's 183.4p and adjusted diluted earnings per share increased by 20.9% to a total of 218.4p (2018: 180.6p).

Statutory basic earnings per share, after reflecting adjusting items which are influenced by the amortisation of intangible assets arising from recent acquisitions, was 183.1p (2018: 137.5p) and statutory diluted earnings per share totalled 179.8p (2018: 135.4p).

New accounting standard

From 1 January 2019, the Group adopted the new accounting standard IFRS 16 "Leases", which meant that the original method of accounting for leases as a rental charge has been replaced with a combination of depreciation from right-of-use leased assets and an interest charge from right-of-use lease liabilities. In the year of adoption, the Group's operating profit has increased, but profit before tax has decreased, and earnings per share is likewise reduced.

The overall impact of the new standard on our results for the year to 31 December 2019 has been to lower earnings per share from 223.4p to 222.5p. This is a reduction of less than 1%, and the effect is summarised in the table below:

	£000
Rental lease charges under previous accounting standard	927
Depreciation of right-of-use leased assets	(863)
Increase in operating profit due to IFRS 16	64
Interest charge from right-of-use liabilities	(135)
Decrease in profit before tax due to IFRS 16	(71)
Decrease in earnings per share due to IFRS 16	(0.9p)

Subject to no further changes to existing leases, in future years the increase to operating profit endures however the interest charge will reduce as the discount unwinds.

In relation to the impact of the new standard on the balance sheet, a right-of-use asset of £3.0m was recognised with an offsetting right-of-use lease liability. The cashflow statement was also impacted as lease repayments are now treated as a financing activity instead of within operating cashflows. This has resulted in Cash generated from operations increasing by £0.9 million and cash outflows from financing activities increasing by £0.9 million. There is no overall impact on total cashflow, but the new standard has created a small artificial improvement to the Group's cash conversion as explained below in the Cashflow section of this report. There is no change to the prior year comparatives as this standard was implemented prospectively from 1 January 2019.

Order intake

The Group benefited from healthy but uneven order intake in 2019. Overall Organic order intake was up by 3.3% compared to 2018, and this order intake contributed to the strong financial performance over 2019 and we have been able to retain a substantial order book with which to start 2020.  Your Board considers order intake and the resultant year-end order book as an important bellwether to the Group's ability to achieve its expected results. Our Organic order book at 1 January 2020 was a robust 13.2 weeks of budgeted sales (1 January 2019: 14.4 weeks). Total order book was 13.6 weeks, including Moorfield Nanotechnology.

Return on Capital

The Group closely monitors the return it derives on the capital invested in its subsidiaries. The annual rate of Return on Total Invested Capital ("ROTIC") at 31 December 2019 was 31.4% which is a creditable improvement on the 27.6% achieved at the end of 2018. This reflects an overall strong performance across our businesses, whilst noting that not all our businesses were better than in previous years, meaning there is still room for improvement.

The annual rate of ROTIC is calculated by comparing attributable earnings excluding central costs, adjusting items and before interest, tax and amortisation ("EBITA") with the amounts invested in plant and equipment, net current assets (excluding cash) and unamortised intangible assets and goodwill (as recognised at the initial acquisition date). 

ROTIC is influenced by the overall performance of our businesses and the size of, and multiple paid for, acquisitions. We continue to aim for improved ROTIC although we remain cognisant of the downward impact that acquiring businesses at higher multiples has on overall ROTIC.

 

Dividends

In relation to the financial year ended 31 December 2019 the Company paid an interim dividend of 15.0p per share in November 2019. The Board is recommending a final dividend of 35.0p per share giving a total dividend for the year of 50.0p per share (2018: 40.0p per share), an increase of 25%. Dividend cover is approximately four and a half times adjusted earnings per share. The Group also paid a one-off special dividend in December 2019 of 200.0p per share.

Your Group's policy is to pay a progressively increasing dividend provided the Group retains sufficient cash and borrowing resources with which to pursue its longstanding business acquisition policies.

Headcount

The Group's full time equivalent (FTE) employees for 2019 stood at 497 (2018: 467). The change in staff numbers during the year was due to growth in all areas of our businesses. We expect that FTEs will exceed 500 in 2020, particularly following the acquisition of Moorfield Nanotechnology in December 2019.

Share capital and share options

The Group's issued share capital at 31 December 2019 totalled 6,226,291 Ordinary shares (2018: 6,196,678). The shares issued during 2019 arose from the exercise of share options by various members of staff during the year.

Share options issued during the year under the 2015 scheme totalled 13,905 (2018: 4,000) and the total share options in issue at the year-end under both the 2005 and 2015 schemes amounted to 224,967 (2018: 249,675).

Defined benefit pension scheme

The Group has a defined benefit pension scheme which was assumed as part of the acquisition of Armfield in 2015. This scheme has been closed to new members from 2001 and closed to new accrual in 2006. The next full actuarial valuation for the scheme will be from March 2020 and, subject to this valuation, the annual contributions to the scheme are £0.2 million. The Group accounts for postretirement benefits in accordance with IAS 19 Employment Benefits. The Consolidated balance sheet reflects the net deficit on the pension scheme, based on the market value of the assets of the scheme and the valuation of liabilities using year end AA corporate bond yields. At 31 December 2019, the pension liability (net of deferred tax) was £1.7 million (31 December 2018: £1.5 million). The net liability has increased due to a sizeable reduction in discount rates during 2019 from 2.8% to 2.1% offset partially by improvements to fund assets. Armfield takes its responsibility seriously to ensure the pension is adequately funded whilst also continuing to review appropriate deficit control strategies.

Cashflow and net debt

This year's strong trading performance resulted in cash generated from operations of £19.1 million (2018: £15.7 million). The Group has a strong track record of converting profit into cash, and this is reflected in the high cash conversion rate of 110% (2018: 106%). It is to be noted that the new accounting standard on leases has caused rental payments to be reclassified lower down in the cashflow statement and hence on a like-for-like basis, cash conversion would have otherwise been 105%.  Total capital expenditure on property, plant and equipment amounted to £1.3 million (2018: £1.0 million). Year-end cash balances totalled £14.1 million compared to £15.7 million in 2018.

The Group finished 2019 with adjusted net debt of £2.0 million compared to £0.9 million of adjusted net cash at the end of 2018. Statutory net debt was £0.3 million (2018: statutory net cash of £0.7 million). This small overall outflow reflects the excellent cash generation achieved throughout 2019 from strong operational performance across our businesses as a whole, supporting the business model we continue to deliver of enabling investment in acquisitions (Moorfield Nanotechnology in December 2019) and payment of progressively increasing dividends (£2.7 million in 2019). Further, we were able to return to shareholders £12.4 million in the form of a special dividend in December 2019. Gearing at 31 December 2019 was 0.12 times adjusted operating profit and we remain committed to maintaining a conservative gearing position whilst at the same time taking the opportunities of acquiring strong, sound businesses at disciplined multiples as illustrated over the history of our Group.

 

The Group's financial position continues to be strong and we have appropriate banking facilities to support suitable inorganic growth. Our Group bank facility is for an aggregate £35.0 million consisting of a £10.0 million term loan ("Term Loan"), a committed £20.0 million revolving credit facility ("RCF") plus a £5.0 million accordion facility, which can be drawn at the discretion of the Bank; the facility expires in April 2023 ("the Borrowing Term"). The Term Loan amortises on a straight-line basis via quarterly payments and the RCF is repayable in a bullet at the end of the Borrowing Term.

The existing lending facilities via Bordeaux Acquisition ("Bordeaux"), the Group's 75.5% owned subsidiary, which owns Deben UK and Oxford Cryosystems, remain unchanged.

At the year-end the Term Loan had reduced to £6.5 million (2018: £8.5 million) and the RCF was drawn down to £5.2 million (2018: £2.9 million). At 31 December 2019, the Bordeaux loan had also reduced to £2.6 million (2018: £3.4 million).

The ongoing long-term support of Lloyds Banking Group continues to provide the Group with significant capacity to finance acquisitions in support of the Group's buy and build strategy.

Overall, your Group has had a positive year for performance and we are well placed, with a strong balance sheet and significant available borrowing capacity, to continue with its enduring strategy of achieving growth in earnings via selective acquisitions of strong niche businesses in the scientific instruments sector, alongside the ongoing performance of its existing businesses.

Brad Ormsby

Group Finance Director

17 March 2020

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

				2019				2018
	Note	Adjusted	Adjusting items	Total		Adjusted	Adjusting items	Total
		£000	£000	£000		£000	£000	£000
Revenue	2	82,499	-	82,499		77,868	-	77,868
Operating costs	2	(65,115)	-	(65,115)		(63,137)	-	(63,137)
Adjusted operating profit	2	17,384	-	17,384		14,731	-	14,731
Adjusting items	3	-	(3,274)	(3,274)		-	(4,045)	(4,045)
Operating profit/(loss)		17,384	(3,274)	14,110		14,731	(4,045)	10,686
Interest income		101	-	101		41	-	41
Interest expense		(532)	(48)	(580)		(485)	(54)	(539)
Profit/(loss) before tax		16,953	(3,322)	13,631		14,287	(4,099)	10,188
Taxation (charge)/credit		(2,484)	707	(1,777)		(2,138)	1,085	(1,053)
Profit/(loss) for the year		14,469	(2,615)	11,854		12,149	(3,014)	9,135
Attributable to:
Owners of the parent		13,828	(2,446)	11,382		11,329	(2,834)	8,495
Non-controlling interests		641	(169)	472		820	(180)	640
Profit/(loss) for the year		14,469	(2,615)	11,854		12,149	(3,014)	9,135
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Retirement benefits actuarial (loss)/gain				(375)				168
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign subsidiaries				(62)				66
Other comprehensive income for the year, net of tax				(437)				234
Total comprehensive income for the year				11,417				9,369
Attributable to:
Owners of the parent				10,945				8,729
Non-controlling interests				472				640

Earnings per share - adjusted				Pence				Pence
Basic	1			222.5				183.4
Diluted	1			218.4				180.6
Earnings per share - total
Basic	1			183.1				137.5
Diluted	1			179.8				135.4

 

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2019

		2019 £000	2018 £000
ASSETS
Non-current assets
Goodwill		15,265	14,650
Other intangible assets		4,458	5,373
Property, plant and equipment		6,107	5,524
Right-of-use leased assets		4,428	-
Deferred tax assets		1,873	719
		32,131	26,266
Current assets
Inventories		12,543	10,502
Trade and other receivables		11,814	13,231
Cash and cash equivalents		14,123	15,727
		38,480	39,460
Total assets		70,611	65,726
LIABILITIES
Current liabilities
Trade and other payables		(15,322)	(13,977)
Trade and other payables relating to acquisitions		(1,896)	-
Borrowings		(3,051)	(3,058)
Right-of-use lease liabilities		(757)	-
Current tax liabilities		(2,258)	(2,204)
		(23,284)	(19,239)
Non-current liabilities
Borrowings		(11,399)	(11,968)
Right-of-use lease liabilities		(3,689)	-
Deferred tax liabilities		(1,447)	(1,477)
Retirement benefit obligations		(2,100)	(1,836)
		(18,635)	(15,281)
Total liabilities		(41,919)	(34,520)
Net assets		28,692	31,206
EQUITY
Share capital		311	310
Share premium account		15,453	15,164
Other reserves		2,059	2,121
Retained earnings		10,048	13,049
Equity attributable to owners of the parent company		27,871	30,644
Non-controlling interests		821	562
Total equity		28,692	31,206

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

	Share  capital £000	Share premium £000	Other  reserves £000	Retained earnings £000	Total attributable to owners of the parent £000	Non-controlling interests £000	Total equity £000
At 1 January 2019	310	15,164	2,121	13,049	30,644	562	31,206
Dividends	-	-	-	(15,126)	(15,126)	-	(15,126)
Adjustment arising from change in non-controlling interest	-	-	-	(204)	(204)	(213)	(417)
Issue of share capital	1	289	-	-	290	-	290
Deferred tax on share-based payments	-	-	-	1,027	1,027	-	1,027
Share-based payments	-	-	-	295	295	-	295
Transactions with owners	1	289	-	(14,008)	(13,718)	(213)	(13,931)
Profit for the year	-	-	-	11,382	11,382	472	11,854
Retirement benefit actuarial loss	-	-	-	(375)	(375)	-	(375)
Foreign exchange differences	-	-	(62)	-	(62)	-	(62)
Total comprehensive income for the year	-	-	(62)	11,007	10,945	472	11,417
At 31 December 2019	311	15,453	2,059	10,048	27,871	821	28,692
At 1 January 2018	307	14,529	2,055	6,688	23,579	1,077	24,656
Dividends	-	-	-	(2,103)	(2,103)	(162)	(2,265)
Adjustment arising from change in non-controlling interest	-	-	-	(518)	(518)	(993)	(1,511)
Issue of share capital	3	635	-	-	638	-	638
Share-based payments	-	-	-	319	319	-	319
Transactions with owners	3	635	-	(2,302)	(1,664)	(1,155)	(2,819)
Profit for the year	-	-	-	8,495	8,495	640	9,135
Retirement benefit actuarial losses	-	-	-	168	168	-	168
Foreign exchange differences	-	-	66	-	66	-	66
Total comprehensive income for the year	-	-	66	8,663	8,729	640	9,369
At 31 December 2018	310	15,164	2,121	13,049	30,644	562	31,206

 

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

	2019 £000	2018 £000
Cashflows from operating activities
Profit after tax	11,854	9,135
Adjustments for:
Financial instruments measured at fair value:
Hedging contracts	(37)	56
Share-based payments	295	319
Depreciation of property, plant and equipment	771	746
Depreciation of right-of-use leased assets	863	-
Amortisation of intangible assets	2,739	3,633
Loss on disposal of property, plant and equipment	1	18
Charge on exit from right-of-use leases	39	-
Foreign exchange (gain)/loss on foreign currency loans	-	(18)
Interest income	(101)	(41)
Interest expense	397	485
Interest payable on right-of-use lease liabilities	135	-
Retirement benefit obligation net finance cost	48	54
Contributions to defined benefit plans	(236)	(236)
Tax expense recognised in income statement	1,777	1,053
Increase in inventories	(1,794)	(122)
Decrease/(increase) in trade and other receivables	1,566	(1,404)
Increase in trade and other payables	763	2,000
Cash generated from operations	19,080	15,678
Tax paid	(2,205)	(2,351)
Net cash from operating activities	16,875	13,328
Cashflows from investing activities
Paid on acquisition of subsidiaries	(2,288)	(599)
Gross cash inherited on acquisition	2,201	-
Acquisition of subsidiaries, net of cash acquired	(87)	(599)
Purchase of property, plant and equipment	(1,303)	(955)
Proceeds on disposal of property, plant and equipment	22	18
Interest received	101	41
Net cash used in investing activities	(1,267)	(1,495)
Cashflows from financing activities
Proceeds from issue of share capital	290	638
Finance costs paid	(393)	(525)
Repayments of borrowings*	(2,868)	(3,183)
Repayments of right-of-use lease liabilities	(926)	-
Proceeds from bank loans*	2,288	-
Equity dividends paid	(15,126)	(2,103)
Share repurchase - non-controlling interest in subsidiary	(417)	(1,511)
Dividends paid - non-controlling interest in subsidiary	-	(162)
Net cash used in financing activities	(17,152)	(6,846)
Net change in cash and cash equivalents	(1,544)	4,986
Cash and cash equivalents at the start of the year	15,727	10,681
Exchange movements	(60)	60
Cash and cash equivalents at the end of the year	14,123	15,727

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

1.  Earnings per share

	Note	2019 £000	2018 £000
Profit attributable to owners of the parent
Adjusted profit		13,828	11,329
Adjusting items	3	(2,446)	(2,834)
Profit for the year		11,382	8,495

		Pence	Pence
Earnings per share - adjusted
Basic		222.5	183.4
Diluted		218.4	180.6
Earnings per share - total
Basic		183.1	137.5
Diluted		179.8	135.4

		Number	Number
Issued Ordinary shares at the start of the year		6,196,678	6,141,128
Movement in Ordinary shares during the year		29,613	55,550
Issued Ordinary shares at the end of the year		6,226,291	6,196,678
Weighted average number of shares in issue		6,215,817	6,176,315
Dilutive effect of share options		115,517	96,800
Weighted average shares in issue on a diluted basis		6,331,334	6,273,115

Adjusted basic earnings per share is calculated on the adjusted profit, which excludes any adjusting items, attributable to the Company's shareholders divided by the weighted average number of shares in issue during the year.

Adjusted diluted earnings per share is calculated on the adjusted basic earnings per share, adjusted to allow for the issue of Ordinary shares on the assumed conversion of all dilutive share options and any other dilutive potential Ordinary shares. The calculation is based on the treasury method prescribed in IAS 33. This calculates the theoretical number of shares that could be purchased at the average middle market price in the period out of the proceeds of the notional exercise of outstanding options. The difference between this theoretical number and the actual number of shares under option is deemed liable to be issued at nil value and represents the dilution.

Total earnings per share are calculated as above whilst substituting total profit for adjusted profit.

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

2.  Segmental analysis

For the year ended 31 December 2019	Note	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Revenue		34,819	47,680	-	82,499
Operating costs		(27,169)	(35,569)	(2,377)	(65,115)
Adjusted operating profit		7,650	12,111	(2,377)	17,384
Adjusting items	3				(3,274)
Operating profit					14,110
Net interest expense					(479)
Profit before tax					13,631
Income tax charge					(1,777)
Profit for the year					11,854

For the year ended 31 December 2018	Note	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Revenue		35,058	42,810	-	77,868
Operating costs		(27,018)	(33,445)	(2,674)	(63,137)
Adjusted operating profit		8,040	9,365	(2,674)	14,731
Adjusting items	3				(4,045)
Operating profit					10,686
Net interest expense					(498)
Profit before tax					10,188
Income tax charge					(1,053)
Profit for the year					9,135

Unallocated items relate to the Group's head office costs.

Segment assets and liabilities

At 31 December 2019	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Assets	20,392	30,351	19,868	70,611
Liabilities	(10,357)	(17,027)	(14,535)	(41,919)
Net assets	10,035	13,324	5,333	28,692
Capital expenditure	411	836	56	1,303
Depreciation of property, plant and equipment	189	552	30	771
Depreciation of right-of-use leased assets	410	399	54	863
Amortisation	1,209	1,530	-	2,739

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

2.  Segmental analysis (continued)

At 31 December 2018	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Assets	17,275	24,410	24,041	65,726
Liabilities	(7,888)	(11,838)	(14,794)	(34,520)
Net assets	9,387	12,572	9,247	31,206
Capital expenditure	185	770	-	955
Depreciation	231	481	34	746
Amortisation	1,519	2,114	-	3,633

Unallocated items are borrowings, intangible assets and goodwill arising on acquisition, deferred tax, defined benefit obligations and parent company net assets.

Geographic analysis	Year to 31 December 2019 £000	Year to 31 December 2018 £000
UK (domicile)	9,690	10,729
Rest of Europe	23,418	23,156
North America	24,459	20,884
China/Hong Kong	9,487	7,716
Rest of the world	15,445	15,383
	82,499	77,868

Segmental revenue is presented on the basis of the destination of the goods where known, otherwise the geographical location of customers is utilised.

No customer makes up more than 10% of the Group's revenues.

3.  Adjusting items

	2019 £000	2018 £000
Amortisation of intangible assets	2,739	3,633
Financial instruments measured at fair value:
Hedging contracts	(37)	56
Share-based payments	295	319
Acquisition costs	277	37
Total adjusting items in operating profit	3,274	4,045
Retirement benefits obligation net interest cost	48	54
Total adjusting items	3,322	4,099
Taxation	(707)	(1,085)
Total adjusting items net of tax	2,615	3,014
Attributable to:
Owners of the parent	2,446	2,834
Non-controlling interest	169	180
	2,615	3,014

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

4.  Borrowings and net debt

Borrowings mature as follows:

31 December 2019	Bank loans £000	Subordinated loan £000	Total £000
Repayable in less than six months	1,614	190	1,804
Repayable in months seven to twelve	1,593	-	1,593
Current portion of long-term borrowings	3,207	190	3,397
Repayable in years one to five	11,896	-	11,896
Total borrowings	15,103	190	15,293
Less: interest included above	(843)	-	(843)
Less: cash and cash equivalents	(14,123)	-	(14,123)
Total net debt	137	190	327
Adjusting items
Subordinated debt to non-controlling shareholders			(190)
Accrued deferred consideration			1,896
Adjusted net debt			2,033

31 December 2018	Bank loans £000	Subordinated loan £000	Total £000
Repayable in less than six months	1,639	190	1,829
Repayable in months seven to twelve	1,611	-	1,611
Current portion of long-term borrowings	3,250	190	3,440
Repayable in years one to five	12,653	-	12,653
Total borrowings	15,903	190	16,093
Less: interest included above	(1,067)	-	(1,067)
Less: cash and cash equivalents	(15,727)	-	(15,727)
Total net cash	(891)	190	(701)
Adjusting items
Subordinated debt to non-controlling shareholders			(190)
Adjusted net cash			(891)

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

5.  Acquisitions

On 3 December 2019, in accordance with the Group's buy and build strategy, Judges' wholly owned subsidiary, Quorum Technologies Limited ("Quorum") acquired 100% of the issued share capital of Moorfield Nanotechnology Limited ("Moorfield").  Moorfield is based in Knutsford, Cheshire and specialises in the design and manufacture of physical and chemical vapour deposition instruments used to cover materials with thin films.

The purchase price of Moorfield, paid in cash at completion amounted to £2.3 million (inclusive of an earn-out based on Moorfield's adjusted EBIT in the year to 30 June 2019, capped at £0.7 million). An additional amount was payable to reflect any excess cash and working capital over and above the ongoing requirements of the business. This was covered by cash inherited at the completion date and was paid in February 2020. 

The summary provisional fair value of the cost of this acquisition includes the components stated below:

	Consideration	£000
	Initial cash consideration	1,568
	Earn-out	720
		2,288
	Gross cash inherited on acquisition	2,201
	Cash retained in the business	(305)
	Payment in respect of surplus working capital*	1,896
	Total consideration	4,184
	Acquisition-related transaction costs charged to the income statement	277

*Paid in February 2020

The acquisition of Moorfield was financed via drawdown from the Group's £35 million acquisition facility from Lloyds Bank Corporate Markets.

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

5.  Acquisitions (continued)

The summary provisional fair values recognised for the assets and liabilities acquired are as follows:

	Book value £000	Fair value adjustments £000	Fair value £000
Intangible assets	-	1,824	1,824
Property, plant and equipment	77	-	77
Deferred tax assets	-	20	20
Inventories	297	(50)	247
Trade and other receivables	329	(45)	284
Cash and cash equivalents	2,201	-	2,201
Total assets	2,904	1,749	4,653
Deferred tax liabilities	-	(312)	(312)
Trade payables	(639)	(20)	(659)
Current tax liability	(113)	-	(113)
Total liabilities	(752)	(332)	(1,084)
Net identifiable assets and liabilities	2,152	1,417	3,569
Total consideration			4,184
Goodwill recognised			615

Management performed a detailed review of each of the acquiree's intangible assets. The intangible assets recognised reflect recognition of acquired customer relationships, the value of the acquired future committed order book, internally generated technology, trademarks, domain names and distributor relationships. A significant amount of the value of the acquired business is attributable to its workforce and sales knowhow. As no assets can be recognised in respect of these factors, they contribute to the goodwill recognised upon acquisition. This goodwill has been allocated to the Vacuum segment.

The deferred tax liabilities recognised represent the tax effect which will result from the amortisation of the intangible assets, estimated using the tax rate substantively enacted at the balance sheet date and the fair value of the assets. Additional fair value adjustments include stock, bad debt and warranty provisions together with any related deferred tax.

This acquisition resulted in a profit after tax (before adjusting items) attributable to owners of the parent company of £53,000 in the period post-acquisition. After amortisation of intangible assets, the contribution to owners of the parent company's results amounted to a loss of £10,000 after tax.

If the acquisition had completed on 1 January 2019, based on pro-forma results, revenue for the Group for the year ended 31 December 2019 would have increased by £2,300,000 and profit after tax (before adjusting items) attributable to owners of the parent company would have increased by £400,000 after allowing for interest costs. Were a full year's amortisation of intangible assets charged, the pro-forma result (after adjusting items) would have been reduced by £430,000.

Increased shareholding in PE.fiberoptics Limited

On 29 March 2019 PE.fiberoptics Limited ("PFO"), one of the Company's subsidiaries, acquired the remaining shares of a third party shareholder for a consideration of £0.4 million. As a result, the Group's interest in PFO increased from 67.5% to 74.5%.

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

6.  Dividends

	2019			2018
	Pence per share	£000		Pence per share	£000
Final dividend for the previous year	28.0	1,742		22.0	1,361
Interim dividend for the current year	15.0	933		12.0	742
Total final and interim dividend	43.0	2,675		34.0	2,103
Special dividend	200.0	12,451		-	-
	243.0	15,126		34.0	2,103

The Directors will propose a final dividend of 35.0p per share, amounting to £2,179,000, for payment on 3 July 2020. As the final dividend remains conditional on shareholders' approval at the Annual General Meeting, provision has not been made for this dividend in these consolidated financial statements.

Dividends declared by subsidiaries that are not wholly owned are paid to the non-controlling interest in the period in which they are declared and amounted to £nil in the year (2018: £162,000).

7.  New accounting standard - Leases

The Group has adopted IFRS 16 'Leases' as of 1 January 2019. The modified retrospective approach was applied on transition. Prior period comparatives have not been restated, and there was no adjustment to equity on transition.

IFRS 16 requires the capitalisation of operating leases, such as the Group's building and vehicle leases, as right-of-use leased assets with an offsetting financial liability. The Group has elected to measure the right-of-use leased assets at an amount equal to the lease liabilities adjusted for any prepaid or accrued lease payments that existed at the date of transition. Right-of-use assets and liabilities are presented separately in the Consolidated Balance Sheet. On transition to IFRS 16 the weighted average incremental borrowing rate used to measure lease liabilities was 4.25%.

In the Consolidated Statement of Comprehensive Income the previous rental charge has been replaced with a combination of depreciation from the right-of-use leased assets and an interest charge from the lease liabilities. The effect for the year ended 31 December 2019 is as follows:

	Year to 31 December 2019 £000
Rental lease charges under previous accounting standard	927
Depreciation of right-of-use leased assets	(863)
Increase in operating profit due to IFRS 16	64
Interest charge from right-of-use liabilities	(135)
Decrease in profit before tax due to IFRS 16	(71)
Decrease in earnings per share due to IFRS 16	(0.93p)

In the year of adoption operating profit increases, but profit before tax decreases, and earnings per share is reduced. Assuming no further changes to the Group's leases, the increase in operating profit will endure, however in future years the interest charge will reduce as the discount unwinds.

8.  Final Results Announcement

This final results announcement, which has been agreed with the auditors, was approved by the Board of Directors on 17 March 2020.  It is not the Group's statutory accounts.  Copies of the Group's audited statutory accounts for the year ended 31 December 2019 will be available at the Company's website, www.judges.uk.com, promptly after the release of this preliminary announcement and a printed version will be dispatched to shareholders shortly.  Copies will also be available to the public at the Company's Registered Office at 52c Borough High Street, London SE1 1XN.

The audit reports for the years ended 31 December 2019 and 31 December 2018 did not contain statements under Sections 498(2) or 498(3) of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2018 have been delivered to the Registrar of Companies, but the 31 December 2019 accounts have not yet been filed.

 

END

 

 

FR SFFESWESSELD