JUDGES SCIENTIFIC PLC

Earnings Release • Mar 28, 2014

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RNS Number : 3661D

Judges Scientific PLC

28 March 2014

Judges Scientific plc

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

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013

Highlights:

·    Fully diluted earnings per share, excluding exceptional items, up 31% to 96.4p (2012: 73.5p)

·    Record basic earnings per share, excluding exceptional items, of 100.5p (2012: 81.3p);  corresponding figures including exceptional items: 23.4p (2012: 4.2p loss)

·    Proposed final dividend increased by 34% to 13.4p (2012: 10.0p), making a total distribution for the year of 20.0p (2012: 15.0p)

·    30% increase in pre-tax profit to a record £7.3 million (2012: £5.6 million) before exceptional items and non-controlling interests

·    Record revenues of £36.0 million (2012: £28.0 million), including a 4.3% increase on a like-for-like basis

·    Cash in hand of £10.1 million as at 31 December 2013;  adjusted net debt of £5.7 million (2012: £1.8 million)

·    Completion of the acquisition of Scientifica Limited, the Group's largest transaction to date

·    A substantially oversubscribed £8.1 million share placing at 1625p in October 2013.

Alex Hambro, Chairman of Judges Scientific, commented:

"The year 2013 was both exciting and rewarding, witnessing the completion of our largest acquisition to date and a substantially oversubscribed share placing.  A resilient operating performance, with a sizeable initial contribution from Scientifica, enabled the Group to generate earnings per share in a single year that exceeded our 2003 IPO price of 95p per share."

Chairman's Statement

I am pleased to be able to report, for the eighth consecutive year, record levels of sales, adjusted pre-tax profits, adjusted earnings per share and dividends.  Your Company enjoyed a successful year, which saw further corporate activity and a satisfactory trading performance achieved in a challenging economic environment.

Group revenues for the financial year ended 31 December 2013 advanced 28% from £28.0 million to £36.0 million.  This reflects organic growth of 4.3% plus a full year's contribution from Global Digital Systems Limited ("GDS" - ten months in 2012) and a maiden six-month contribution from Scientifica Limited ("Scientifica").

Profit before tax, exceptional items and minorities increased by 30% to a record £7.3 million (2012: £5.6 million), with the operating contribution of the businesses owned as at 1 January 2012 growing by 13.8%.  Basic earnings per share, before exceptional items, rose by 23.6% from 81.3p to 100.5p.  This increase was achieved despite the dilution created by the 2012 and 2013 share placings and the conversion in 2012 of almost all of the Convertible Redeemable shares.  Only 4.2% of the original Convertible Redeemable shares now remain outstanding. Fully diluted earnings per share, before exceptional items, progressed 31.2% to 96.4p (2012: 73.5p).

Exceptional items include the amortisation of intangible assets, acquisition expenses, tax relief arising from the issue of shares to employees and other non-trading items as set out in the Income Statement. The accounting "loss" attributable to the few remaining Convertible Redeemable shares was reduced to £340,000 (2012: £1.6 million);  this adjustment is expected to appear for the last time in 2014.  Profit, including exceptional items but before tax and minorities, amounted to £1.2 million (2012: £321,000).  Including exceptional items, basic earnings per share amounted to 23.4p (2012: 4.2p loss) while fully diluted earnings per share totalled 22.5p (2012: 4.2p loss).

Corporate activity

On 26 June 2013, Judges acquired the entire share capital of Scientifica, a leading specialist in the design and manufacture of systems used in neuroscience research.  The consideration amounted to £12.0 million in cash and an earn-out capped at £500,000 in cash and 42,372 Ordinary shares in Judges. The earn-out is based on Scientifica's financial performance in respect of the 12 month period to 31 March 2014.  The acquisition was financed by an extension of the facilities provided by Lloyds Bank Corporate Markets and from existing cash resources.

In October 2013, the Company restored its ability to complete further acquisitions by raising new equity of £8.125 million before expenses. This was achieved through a placing of 500,000 new Ordinary shares priced at 1625p, which was substantially over-subscribed.  In the main, the new Ordinary shares were placed with existing and several new institutional holders.

Trading in 2013

In common with many companies operating within our sector, the year under review proved distinctly challenging.  Despite a promising start, the Company experienced weak order intake, particularly during the second quarter of the year.  A gradual improvement as the year progressed culminated in an excellent fourth quarter.  I am pleased to report that this leaves the Group with a comfortable year-end order book of ten and a half weeks of budgeted sales.

Supported by a healthy order book at the beginning of 2013 and thanks in part to the diversity of the markets that we serve, the Group produced 4.3% organic growth in revenues.  This encompassed a modest reduction in North America, but a solid advance in Europe.  The respective revenues of GDS and Scientifica, both of which have increased strongly post acquisition, are not included in the figures for organic growth, these companies having been acquired after January 2012.

As highlighted in previous annual reports, the inevitable consequence of a large acquisition at a multiple of six times EBIT is to reduce the Company's Return On Total Invested Capital;  this was again the case with Scientifica which served to reduce ROTIC from 40.3% in 2012 to 30.2% in 2013.

The development of the Stonecross factory was completed in the summer of 2013 and the UHV Design and Quorum businesses were successfully re-located into the new facility in August.  Your Board expects these businesses to derive significant benefits during the current financial year and beyond from operating in this purpose-built unit.

Financial position

Net debt as at 31 December 2013 stood at £5.5 million;  excluding subordinated debt owed to minority shareholders but including cash amounts still payable in respect of acquisitions, this figure rises to £5.7 million (2012: £1.7 million).  The Group's cash position during the year reflected £12.4 million of net debt taken on to purchase Scientifica, £1.8 million spent in 2013 to complete the Stonecross factory and the net proceeds from the share placing.

Year-end cash balances progressed from £5.4 million to £10.1 million.

Dividends

Your Board is pleased to recommend a final dividend of 13.4p per share (2012: 10p per share) which, subject to approval at the forthcoming Annual General Meeting on 28 May 2014, will make a total distribution of 20.0p per share in respect of 2013 (2012: 15.0p per share).  Despite the proposed increase, the dividend total is still covered five times by adjusted earnings per share.

The proposed final dividend will be payable on 4 July 2014 to shareholders on the register on 6 June 2014 and the shares will go ex-dividend on 4 June 2014.

Personnel

The Judges Share Incentive Plan was launched in 2012 to enable all employees with a minimum of 12 months' service to purchase shares in a tax efficient manner.  In the coming tax year, the Company will continue to match individual employees' investments with free shares, up to a maximum value of £600.

The addition of Scientifica brings our total number of Group employees to more than 260 at the end of 2013.  Each company within the Group has, in its own way, demonstrated resilience and dedication to its particular plans and the enthusiasm and energy of our stakeholders is the primary reason why this year's results have been so gratifying.  Our thanks go to them and all the executive management for their continued commitment to Judges' future trajectory.

Current trading and prospects

Commercial activity in the early weeks of 2014 was sedate but, following the buoyant final quarter of the previous year, the Group continues to enjoy a robust order book.  As in the past we are conscious of the potential impact of Sterling strengthening and of the Chinese economy weakening.  Our export driven business should benefit from the best climate in the developed world since 2008 and it is hoped that it will not be spoilt by the political tensions playing out on the world stage.

Alex Hambro

Chairman

For further information please contact:

Judges Scientific plc

David Cicurel, CEO

Tel: 01342 323 600

Shore Capital (Nominated Adviser & Broker)

Pascal Keane

Edward Mansfield

Tel: 020 7408 4090

Cardew Group (Financial Public Relations)

Melvyn Marckus

Tel: 0207 930 0777 or 07775 896 491

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

				2013				2012
	Note	Before exceptional items	Exceptional items	Total		Before exceptional items	Exceptional items	Total
---	---	---	---	---	---	---	---	---
		£000	£000	£000		£000	£000	£000
---	---	---	---	---	---	---	---	---
---	---	---	---	---	---	---	---	---
Revenue	2	36,041	-	36,041		28,041	-	28,041
Operating costs excluding exceptional items		(28,228)	-	(28,228)		(22,097)	-	(22,097)
Operating profit excluding exceptional items		7,813	-	7,813		5,944	-	5,944
Exceptional items
Amortisation of intangible assets		-	(4,498)	(4,498)		-	(3,294)	(3,294)
Contingent consideration measured at fair value		-	(317)	(317)		-	-	-
Financial instruments measured at fair value
Convertible Redeemable shares		-	(340)	(340)		-	(1,573)	(1,573)
Hedging contracts		-	24	24		-	-	-
Relocation costs		-	(158)	(158)		-	-	-
Acquisition costs		-	(794)	(794)		-	(444)	(444)
Operating profit/(loss)		7,813	(6,083)	1,730		5,944	(5,311)	633
Interest receivable		6	-	6		7	-	7
Interest payable		(497)	-	(497)		(319)	-	(319)
Profit/(loss) before tax		7,322	(6,083)	1,239		5,632	(5,311)	321
Taxation		(1,530)	1,632	102		(1,302)	850	(452)
Profit/(loss) and total comprehensive income for the year		5,792	(4,451)	1,341		4,330	(4,461)	(131)
Attributable to:
Equity holders of the parent company		5,444	(4,178)	1,266		3,887	(4,087)	(200)
Non-controlling interest		348	(273)	75		443	(374)	69
Earnings per share - total and continuing
Basic	1	100.5p	-	23.4p		81.3p	-	(4.2)p
Diluted	1	96.4p	-	22.5p		73.5p	-	(4.2)p

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2013

		2013		2012
	Note	£000		£000
ASSETS
Non-current assets
Property, plant and equipment		4,695		2,702
Goodwill		8,678		5,809
Other intangible assets		12,913		7,095
		26,286		15,606
Current assets
Inventories		5,824		3,529
Trade and other receivables		6,547		3,988
Cash and cash equivalents		10,054		5,418
		22,425		12,935
Total assets		48,711		28,541
LIABILITIES
Current liabilities
Trade and other payables		(6,075)		(5,659)
Derivative financial instruments:  Convertible Redeemable shares		(574)		(234)
Payables relating to acquisitions		(1,554)		(246)
Current portion of long-term borrowings	3	(4,043)		(2,028)
Current tax payable		(1,320)		(633)
		(13,566)		(8,800)
Non-current liabilities
Long-term borrowings	3	(11,547)		(5,390)
Deferred tax liabilities		(2,704)		(1,562)
		(14,251)		(6,952)
Total liabilities		(27,817)		(15,752)
Net assets		20,894		12,789

EQUITY
Share capital		293		265
Share premium account		14,186		6,467
Capital redemption reserve		22		22
Merger reserve		475		475
Retained earnings		5,635		5,254
Equity attributable to equity holders of the parent company		20,611		12,483
Non-controlling interest		283		306
Total equity		20,894		12,789

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

		Share capital	Share premium	Capital redemption reserve	Merger reserve	Retained earnings	Total*	Non-controlling interest	Total equity
		£000	£000	£000	£000	£000	£000	£000	£000
Balance at 1 January 2013		265	6,467	22	475	5,254	12,483	306	12,789
Dividends		-	-	-	-	(885)	(885)	(98)	(983)
Issue of share capital		28	7,719	-	-	-	7,747	-	7,747
Transactions with owners		28	7,719	-	-	(885)	6,862	(98)	6,764
Profit for the year		-	-	-	-	1,266	1,266	75	1,341
Total comprehensive income for the year		-	-	-	-	1,266	1,266	75	1,341
Balance at 31 December 2013		293	14,186	22	475	5,635	20,611	283	20,894
Balance at 1 January 2012		214	3,195	3	475	3,489	7,376	335	7,711
Dividends		-	-	-	-	(587)	(587)	(98)	(685)
Issue of share capital		51	3,272	-	-	-	3,323	-	3,323
Arising on conversion and redemption of Convertible Redeemable shares		-	-	19	-	2,552	2,571	-	2,571
Transactions with owners		51	3,272	19	-	1,965	5,307	(98)	5,209
(Loss)/profit for the year		-	-	-	-	(200)	(200)	69	(131)
Total comprehensive income for the year		-	-	-	-	(200)	(200)	69	(131)
Balance at 31 December 2012		265	6,467	22	475	5,254	12,483	306	12,789

* - Total represents amounts attributable to equity holders of the parent company.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

		2013		2012
		£000		£000
Cash flows from operating activities
Profit/(loss) after tax		1,341		(131)
Adjustments for:
Financial instruments measured at fair value
Convertible Redeemable shares		340		1,573
Hedging contracts		(24)		-
Contingent consideration measured at fair value		317		-
Depreciation		292		235
Amortisation of intangible assets		4,498		3,294
Loss on disposal of property, plant and equipment		18		-
Foreign exchange loss/(gain) on foreign currency loans		127		(78)
Interest receivable		(6)		(7)
Interest payable		497		319
Tax expense recognised in income statement		(102)		452
Increase in inventories		(783)		(581)
(Increase)/decrease in trade and other receivables		(798)		277
(Decrease)/increase in trade and other payables		(709)		1,007
Cash generated from operations		5,008		6,360
Interest paid		(497)		(324)
Tax paid		(840)		(1,374)
Net cash from operating activities		3,671		4,662
Cash flows from investing activities
Paid on acquisition of new subsidiary		(13,400)		(8,022)
Gross cash inherited on acquisition		1,772		1,378
Acquisition of subsidiaries, net of cash acquired		(11,628)		(6,644)
Paid on the acquisition of trade and certain assets		(91)		(94)
Purchase of property, plant and equipment		(2,080)		(909)
Interest received		6		7
Net cash used in investing activities		(13,793)		(7,640)
Cash flows from financing activities
Proceeds from issue of share capital		7,747		3,323
Repaid on conversion/redemption of Convertible Redeemable shares		-		(516)
Repayments of borrowings		(1,776)		(3,155)
Proceeds from bank loans		9,770		5,475
Dividends paid - equity share holders		(885)		(587)
Dividends paid - non-controlling interest in subsidiary		(98)		(98)
Net cash from financing activities		14,758		4,442
Net increase in cash and cash equivalents		4,636		1,464
Cash and cash equivalents at beginning of year		5,418		3,954
Cash and cash equivalents at end of year		10,054		5,418

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

1.         Earnings per share

	Year to 31 December 2013	Earnings attributable to equity holders of the parent company	Weighted average number of shares	Earnings per share
		£000	no.	pence
	Profit after tax including exceptional items for calculation of basic and diluted earnings per share	1,266
	Add-back exceptional items net of tax and non-controlling interest, as applicable:
	Charge relating to derivative financial instruments
	Hedging contracts	(18)
	Convertible Redeemable shares	340
	Contingent consideration measured at fair value	317
	Tax relief on exercise of share options	(154)
	Amortisation of intangible assets	2,897
	Acquisition-related transactions costs	716
	Relocation costs	120
	Utilisation of prior year tax losses	(40)
	Basic and diluted profit after tax, excluding exceptional items	5,444
	Number of shares for calculation of basic earnings per share including exceptional items		5,417,971
	Effect of potential shares		201,205
	Number of shares for calculation of diluted earnings per share including exceptional items		5,619,176
	Dilutive effect of potential derivative financial instruments		26,068
	Number of shares for calculation of diluted earnings per share excluding exceptional items		5,645,244
	Basic earnings per share (including exceptional items)			23.4
	Diluted earnings per share (including exceptional items)			22.5
	Basic earnings per share (excluding exceptional items)			100.5
	Diluted earnings per share (excluding exceptional items)			96.4

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

1.         Earnings per share (continued)

	Year to 31 December 2012	Earnings attributable to equity holders of the parent company	Weighted average number of shares	Earnings per share
		£000	no.	pence
	Loss after tax including exceptional items for calculation of basic and diluted earnings per share	(200)
	Add-back exceptional items net of tax and non-controlling interest, as applicable:
	Charge relating to derivative financial instruments
	Convertible Redeemable shares	1,895
	Tax relief on exercise of share options	(133)
	Amortisation of intangible assets	1,972
	Acquisition-related transactions costs	358
	Utilisation of prior year tax losses	(5)
	Basic and diluted profit after tax, excluding exceptional items	3,887
	Number of shares for calculation of basic earnings per share including exceptional items		4,780,562
	Effect of potential shares		209,208
	Number of shares for calculation of diluted earnings per share including exceptional items		4,989,770
	Dilutive effect of potential derivative financial instruments		299,106
	Number of shares for calculation of diluted earnings per share excluding exceptional items		5,288,876
	Basic earnings per share (including exceptional items)			(4.2)
	Diluted earnings per share (including exceptional items)			(4.2)
	Basic earnings per share (excluding exceptional items)			81.3
	Diluted earnings per share (excluding exceptional items)			73.5

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

2.         Segment analysis

2013	Materials Sciences	Vacuum	Total
	£000	£000	£000
Consolidated group revenues from external customers	14,764	21,277	36,041
Contributions to group EBITA	3,710	4,631	8,341
Depreciation	91	177	268
Amortisation of intangible assets	1,647	2,851	4,498
Segment assets	7,375	13,234	20,609
Segment liabilities	5,009	21,225	26,234
Intangible assets - goodwill	5,156	3,522	8,678
Other intangible assets	4,156	8,757	12,913
Additions to non-current assets	39	13,647	13,686

2012	Materials Sciences	Vacuum	Total
	£000	£000	£000
Consolidated group revenues from external customers	12,949	15,092	28,041
Contributions to group EBITA	3,448	2,700	6,148
Depreciation	72	155	227
Amortisation of intangible assets	2,184	1,110	3,294
Segment assets	6,141	6,273	12,414
Segment liabilities	3,180	5,764	8,944
Intangible assets - goodwill	5,157	652	5,809
Other intangible assets	5,802	1,293	7,095
Additions to non-current assets	8,740	174	8,914

Segmental revenue is presented on the basis of the destination of the goods where known, failing which on the geographical location of customers.  Segment assets are based on the geographical location of assets.

	2013			2012
	Revenue	Non-current assets		Revenue	Non-current assets
	£000	£000		£000	£000
United Kingdom (domicile)	6,680	26,286		3,517	15,606
Rest of Europe	11,434	-		9,375	-
United States/Canada	6,055	-		4,434	-
Rest of the world	11,872	-		10,715	-
Total	36,041	26,286		28,041	15,606

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

3.         Maturity of borrowings and net debt

	31 December 2013	Bank loan	Subordinated	Total
			loans
		£000	£000	£000
	Repayable in less than 6 months	2,069	497	2,566
	Repayable in months 7 to 12	2,036	-	2,036
	Current portion of long-term borrowings	4,105	497	4,602
	Repayable in years 1 to 5	12,331	-	12,331
	Later than 5 years	11	-	11
	Total borrowings	16,447	497	16,944
	Less:  interest included above	1,405	-	1,405
	cash and cash equivalents	10,054	-	10,054
	Total net debt	4,988	497	5,485

In addition, hire purchase debts amounted to £51,000.

	31 December 2012	Bank loan	Subordinated	Total
			loans
		£000	£000	£000
	Repayable in less than 6 months	934	497	1,431
	Repayable in months 7 to 12	919	-	919
	Current portion of long-term borrowings	1,853	497	2,350
	Repayable in years 1 to 5	5,832	-	5,832
	Later than 5 years	59	-	59
	Total borrowings	7,744	497	8,241
	Less:  interest included above	823	-	823
	cash and cash equivalents	5,418	-	5,418
	Total net debt	1,503	497	2,000

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

4.         Acquisition of Scientifica Limited

On 26 June 2013 the Company's wholly owned subsidiary, Judges Capital Limited, acquired the entire issued share capital of Scientifica Limited ("Scientifica"), a company based in the UK.  The total cost of acquisition included the components stated below.

Consideration	£000
Initial cash payment to vendors	12,000
Contingent consideration - fair value at date of acquisition	1,047
	13,047
Gross cash inherited on acquisition	1,772
Cash retained in the business	(372)
Payment to vendors in respect of surplus working capital	1,400
Total consideration transferred	14,447
Acquisition-related transaction costs charged in the income statement	794

Additional contingent consideration will be payable on an incremental basis in the event that Scientifica generates higher operating profits in the twelve months period to 31 March 2014 than those calculated in the prior year in accordance with the sale and purchase agreement.  The maximum value of additional contingent consideration will be achieved if operating profits of £2.167m are generated in this period and would bring the total consideration to £12.5 million in cash, 42,372 Ordinary shares in Judges Scientific plc and a payment of £1.4 million to reflect excess working capital at the time of the acquisition.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

4.         Acquisition of Scientifica Limited (continued)

The amounts recognised for each class of the acquiree's assets, liabilities and contingent liabilities at the acquisition date are as follows:

	Pre-acquisition carrying amount	Adjustment to fair value	Recognised at acquisition date
	£000	£000	£000
Property, plant and equipment	223	-	223
Intangible assets	-	10,316	10,316
Inventories	1,512	-	1,512
Trade and other receivables	1,738	-	1,738
Cash and cash equivalents	1,772	-	1,772
Total assets	5,245	10,316	15,561
Deferred tax liabilities	(48)	(2,372)	(2,421)
Trade payables	(1,212)	-	(1,212)
Current tax liability	(351)	-	(351)
Total liabilities	(1,611)	(2,372)	(3,983)
Net identifiable assets and liabilities	3,634	7,944	11,578
Goodwill arising on acquisition			2,869
Total cost of acquisition			14,447

5.         Preliminary Announcement

This preliminary announcement, which has been agreed with the auditors, was approved by the board of directors on 27 March 2014.  It is not the group's statutory accounts.  Copies of the group's audited statutory accounts for the year ended 31 December 2013 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 Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL.

The audit reports for the years ended 31 December 2013 and 31 December 2012 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 2012 have been delivered to the Registrar of Companies, but the 31 December 2013 accounts have not yet been filed.

This information is provided by RNS

The company news service from the London Stock Exchange

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