JUDGES SCIENTIFIC PLC

Earnings Release • Mar 27, 2015

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RNS Number : 6114I

Judges Scientific PLC

27 March 2015

Judges Scientific plc

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

27 March 2015

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

Highlights:

·    Record revenues of £40.6 million (2013: £36.0 million) but a 3.0% decrease on a like-for-like basis

·    Pre-tax profit before exceptional items and non-controlling interests down 11.8% to £6.5 million (2013: £7.3 million)

·    Basic earnings per share, excluding exceptional items, down 17.7% to 82.7p (2013: 100.5p); corresponding figures including exceptional items: 35.7p (2013: 23.4p)

·    Fully diluted earnings per share, excluding exceptional items, down 16.5% to 80.5p (2013: 96.4p)

·    Proposed final dividend of 14.7p (2013: 13.4p), making a total distribution for the year of 22.0p (2013: 20.0p), a 10.0% increase

·    Cash generated from operations of £7.5 million (2013: £5.0 million)

·    Cash in hand of £11.1 million as at 31 December 2014; adjusted net debt of £1.3 million (2013: £5.2 million)

·    New £10 million acquisition facility arranged in December

·    Acquisition of Armfield Limited post year end

Alex Hambro, Chairman of Judges Scientific, commented:

"The year just closed proved disappointing with weak order intake in most of our businesses progressively affecting all measures of performance. On the other hand our business model remains intact, supported by solid cash generation, as evidenced by the £10 million acquisition of Armfield announced early in the New Year."

Chairman's Statement

The last year was undoubtedly challenging for Judges. The scientific instrumentation sector had generally experienced patchy demand in the past two to three years and this finally affected most of the Group in the course of 2014. For the ninth consecutive year, sales reached a record £40.6 million (2013: £36.0 million) but adjusted pre-tax profits and adjusted earnings per share declined. Despite this, cash generation was strong and the Group's ability to increase the dividend and pursue acquisitions remains very much intact.

Trading in 2014

Group revenues for the financial year ended 31 December 2014 advanced from £36.0 million to £40.6 million. This reflects an organic contraction of 3.0% offset by a full year's contribution from Scientifica Limited ("Scientifica") compared to six months in 2013. For the year as a whole and excluding Scientifica, revenues decreased 5.3% in continental Europe, encompassing a particularly weak performance in Germany (down 41.1%) partially offset by a 29.4% increase in France. Turnover declined 8.8% in the USA but registered a 55.9% increase in Canada. Elsewhere, revenues were 21.5% lower in China, stable in the UK and buoyant in Australasia and the rest of the world. In part we believe this picture reflects a general reduction in levels of government funded scientific capital expenditure as a consequence of austerity programmes in many advanced economies. It is difficult to predict when the climate will improve substantially but we believe the need to advance scientific research capabilities remains an imperative for both developed and emerging economies.

Profit before tax, exceptional items and non-controlling interests declined by 11.8% to £6.5 million (2013: £7.3 million), with the operating contribution of the businesses owned as at 1 January 2014 (i.e. excluding Scientifica) down 20.6%. The operating subsidiaries (including Scientifica) produced a Return on Total Invested Capital of 24.0% (2013: 30.2%).

Basic earnings per share before exceptional items declined by 17.7% from 100.5p to 82.7p. The contraction in earnings per share reflected lower profits and the dilution created by the full-year effects of the October 2013 share placing. Fully diluted earnings per share before exceptional items decreased 16.5% to 80.5p (2013: 96.4p).

Exceptional items include the amortisation of intangible assets, tax relief arising from the issue of shares to employees and other non-trading items, as set out in the Income Statement. Profit, including exceptional items but before tax and non-controlling interests, amounted to £2.4 million (2013: £1.2 million). Including exceptional items, basic earnings per share amounted to 35.7p (2013: 23.4p) while fully diluted earnings per share totalled 34.7p (2013: 22.5p).

Mirroring widespread experience in the scientific instruments sector at various times in recent years, the Group suffered weak order intake in most of its businesses during the first three quarters of the financial year. During the first half, the Group managed to mitigate the impact on the income statement of this slowdown in orders but at the expense of a first-half reduction in the order book from 10.5 weeks to 7.8 weeks. This progressively affected the trading performance of the Group's operations. Order intake recovered in the last quarter, thereby restoring the order book to 9.9 weeks of budgeted sales.

Your Board attributes the difficult trading environment to risk factors it has consistently highlighted in the past: the aforementioned restrictions in public spending in many advanced economies, a slowdown in China and, especially in the first half of the year, the strength of Sterling.

Financial position

Cash-flow was strong during 2014. Cash generated from operations amounted to £7.5 million (2013: £5.0 million) and adjusted net debt as at 31 December 2014, excluding subordinated debt owed to non-controlling shareholders, reduced to just £1.3 million (2013: £5.2 million). Year-end cash balances progressed from £10.1 million to £11.1 million.

In December 2014, the Group's various bank loans (excluding those extended to Bordeaux Acquisition) were consolidated into one five-year term loan. In addition, the bank granted the Company a £10 million revolving acquisition facility; this will facilitate the acquisition process and avoid the need for the Company to hold large amounts of unproductive cash. I would like to place on record the Board's appreciation of the continued backing that the Group receives from its bankers, Lloyds Bank Corporate Markets, in support of its expansion strategy.

Dividends

Your Board is pleased to recommend a final dividend of 14.7p per share (2013: 13.4p per share) which, subject to approval at the forthcoming Annual General Meeting on 27 May 2015, will make a total distribution of 22p per share in respect of 2014 (2013: 20p per share). Despite the proposed increase, the dividend total is still covered almost four times by adjusted earnings per share.

The proposed final dividend will be payable on 10 July 2015 to shareholders on the register on 12 June 2015 and the shares will go ex-dividend on 11 June 2015.

Post Balance sheet events

On 22 January 2015, the Company acquired Armfield Limited ("Armfield"), a company involved in the production and marketing of engineering equipment and research instruments for educational applications and R&D systems focused on the food, beverage, dairy, vegetable oils and pharmaceutical industries. The purchase consideration included an £8.3 million cash payment and a potential £1.5 million earn-out -- 50% in cash and 50% in shares at a price of 2055p per share -- based on Armfield's 2014 profitability. It is expected that this earn-out will be paid in full. Armfield's adjusted EBIT for the calendar year 2013 amounted to £1.66 million. The acquisition was financed from the Company's cash resources and £4.0 million drawn from the new acquisition facility.

After ten years of service, Ralph Cohen, the Group's Finance Director, will retire from his executive position at the end of April. This is a cause of sadness for his colleagues and, I am sure, for the Company's shareholders and other stakeholders. His contribution to Judges Scientific has been immense during this critical period which has seen the Group's market capitalisation develop from £4 million to £100 million. I am pleased that we will continue to enjoy his insight and delightful personality, hopefully for many years, as a Non-Executive Director. He will be succeeded as Group Finance Director by Brad Ormsby who joined the Board on 3 March 2015 after a successful career encompassing PwC, Eurovestech plc and several of its investee companies including Kalibrate Technologies plc where, as CFO, he was actively involved in the company's successful IPO.

Our team

Our employees have continued to uphold your Company's culture of autonomous hard work and engineering excellence during a difficult year. The marketing and sales teams have had to work particularly hard to win business but we believe that these efforts will reward the Group handsomely when the trading environment returns to a more predictable footing. Your Board's thanks go to all our employees and stakeholders for their important contributions during the year.

Current trading and prospects

After experiencing an excellent order inflow during the last quarter of 2014, bookings for the first eleven weeks of 2015 reverted to a similar level to those for the corresponding period in 2014. It is, of course, too early to draw conclusions for the year as a whole, other than to recognise that demand supported by public sector funding remains patchy. On the currency front, the recent strength of the US dollar may well result in a gradual improvement in orders and margins from outside Europe; although the Group's activities in continental Europe could struggle, given the recent weakness of the Euro. The Group started the year with a restored order book, an exciting new acquisition and a solid financial position, and is therefore well equipped to weather any further headwinds should they materialise.

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 2014

				2014				2013
	Note	Before exceptional items	Exceptional items	Total		Before exceptional items	Exceptional items	Total
---	---	---	---	---	---	---	---	---
		£000	£000	£000		£000	£000	£000
---	---	---	---	---	---	---	---	---
---	---	---	---	---	---	---	---	---
Revenue	2	40,568	-	40,568		36,041	-	36,041
Operating costs excluding exceptional items		(33,555)	-	(33,555)		(28,228)	-	(28,228)
Operating profit excluding exceptional items		7,013	-	7,013		7,813	-	7,813
Exceptional items
Amortisation of intangible assets		-	(4,251)	(4,251)		-	(4,498)	(4,498)
Contingent consideration measured at fair value		-	(16)	(16)		-	(317)	(317)
Financial instruments measured at fair value
Convertible Redeemable shares		-	185	185		-	(340)	(340)
Hedging contracts		-	4	4		-	24	24
Relocation costs		-	-	-		-	(158)	(158)
Acquisition costs		-	-	-		-	(794)	(794)
Operating profit/(loss)		7,013	(4,078)	2,935		7,813	(6,083)	1,730
Interest receivable		19	-	19		6	-	6
Interest payable		(577)	-	(577)		(497)	-	(497)
Profit/(loss) before tax		6,455	(4,078)	2,377		7,322	(6,083)	1,239
Taxation		(1,200)	1,175	(25)		(1,530)	1,632	102
Profit/(loss) and total comprehensive income for the year		5,255	(2,903)	2,352		5,792	(4,451)	1,341
Attributable to:
Equity holders of the parent company		4,926	(2,803)	2,123		5,444	(4,178)	1,266
Non-controlling interest		329	(100)	229		348	(273)	75
Earnings per share - total and continuing
Basic	1	82.7p		35.7p		100.5p		23.4p
Diluted	1	80.5p		34.7p		96.4p		22.5p

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2014

		2014		2013
	Note	£000		£000
ASSETS
Non-current assets
Property, plant and equipment		4,511		4,695
Goodwill		8,678		8,678
Other intangible assets		8,662		12,913
		21,851		26,286
Current assets
Inventories		6,296		5,824
Trade and other receivables		6,227		6,547
Cash and cash equivalents		11,148		10,054
		23,671		22,425
Total assets		45,522		48,711
LIABILITIES
Current liabilities
Trade and other payables		(6,397)		(6,075)
Derivative financial instruments:  Convertible Redeemable shares		-		(574)
Payables relating to acquisitions		(118)		(1,554)
Current portion of long-term borrowings	3	(3,139)		(4,043)
Current tax payable		(992)		(1,320)
		(10,646)		(13,566)
Non-current liabilities
Long-term borrowings	3	(9,666)		(11,547)
Deferred tax liabilities		(1,820)		(2,704)
		(11,486)		(14,251)
Total liabilities		(22,132)		(27,817)
Net assets		23,390		20,894

EQUITY
Share capital		300		293
Share premium account		14,294		14,186
Capital redemption reserve		23		22
Merger reserve		1,351		475
Retained earnings		6,910		5,635
Equity attributable to equity holders of the parent company		22,878		20,611
Non-controlling interest		512		283
Total equity		23,390		20,894

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2014

		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 2014		293	14,186	22	475	5,635	20,611	283	20,894
Dividends		-	-	-	-	(1,237)	(1,237)	-	(1,237)
Issue of share capital		7	108	-	876	-	991	-	991
Arising on conversion and redemption of Convertible Redeemable shares		-	-	1	-	389	390	-	390
Transactions with owners		7	108	1	876	(848)	144	-	144
Profit for the year		-	-	-	-	2,123	2,123	229	2,352
Total comprehensive income for the year		-	-	-	-	2,123	2,123	229	2,352
Balance at 31 December 2014		300	14,294	23	1,351	6,910	22,878	512	23,390
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

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

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2014

		2014		2013
		£000		£000
Cash flows from operating activities
Profit after tax		2,352		1,341
Adjustments for:
Financial instruments measured at fair value
Convertible Redeemable shares		(185)		340
Hedging contracts		(4)		(24)
Contingent consideration measured at fair value		16		317
Depreciation		376		292
Amortisation of intangible assets		4,251		4,498
(Gain)/loss on disposal of property, plant and equipment		(5)		18
Foreign exchange (gain)/loss on foreign currency loans		(34)		127
Interest receivable		(19)		(6)
Interest payable		577		497
Tax recovery/(expense) recognised in income statement		25		(102)
Increase in inventories		(472)		(783)
Decrease/(increase) in trade and other receivables		320		(798)
Increase/(decrease) in trade and other payables		268		(709)
Cash generated from operations		7,466		5,008
Interest paid		(572)		(497)
Tax paid		(1,237)		(840)
Net cash from operating activities		5,657		3,671
Cash flows from investing activities
Paid on acquisition of new subsidiary		(500)		(13,400)
Gross cash inherited on acquisition		-		1,772
Acquisition of subsidiaries, net of cash acquired		(500)		(11,628)
Paid on the acquisition of trade and certain assets		(37)		(91)
Purchase of property, plant and equipment		(187)		(2,080)
Interest received		19		6
Net cash used in investing activities		(705)		(13,793)
Cash flows from financing activities
Proceeds from issue of share capital		113		7,747
Repayments of borrowings		(2,734)		(1,776)
Proceeds from bank loans		-		9,770
Dividends paid - equity share holders		(1,237)		(885)
Dividends paid - non-controlling interest in subsidiary		-		(98)
Net cash (used in)/from financing activities		(3,858)		14,758
Net increase in cash and cash equivalents		1,094		4,636
Cash and cash equivalents at beginning of year		10,054		5,418
Cash and cash equivalents at end of year		11,148		10,054

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2014

1.         Earnings per share

	Year to 31 December 2014	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	2,123
	Add-back exceptional items net of tax and non-controlling interest, as applicable:
	Charges relating to derivative financial instruments
	Hedging contracts	(3)
	Convertible Redeemable shares	(204)
	Contingent consideration measured at fair value	16
	Tax relief on exercise of share options	(255)
	Amortisation of intangible assets	3,244
	Utilisation of prior year tax losses	5
	Basic and diluted profit after tax, excluding exceptional items	4,926
	Number of shares for calculation of basic earnings per share including exceptional items		5,952,952
	Effect of potential shares		151,350
	Number of shares for calculation of diluted earnings per share including exceptional items		6,104,302
	Dilutive effect of potential derivative financial instruments		17,002
	Number of shares for calculation of diluted earnings per share excluding exceptional items		6,121,304
	Basic earnings per share (including exceptional items)			35.7
	Diluted earnings per share (including exceptional items)			34.7
	Basic earnings per share (excluding exceptional items)			82.7
	Diluted earnings per share (excluding exceptional items)			80.5

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2014

1.         Earnings per share (continued)

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 2014

2.         Segment analysis

2014	Materials Sciences	Vacuum	Total
	£000	£000	£000
Consolidated Group revenues from external customers	14,427	26,141	40,568
Contributions to Group EBITA	3,175	4,235	7,410
Depreciation	76	243	319
Amortisation of intangible assets	1,641	2,610	4,251
Segment assets	6,548	12,021	18,569
Segment liabilities	4,892	19,318	24,210
Intangible assets - goodwill	5,156	3,522	8,678
Other intangible assets	2,515	6,147	8,662
Additions to non-current assets	14	177	191

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

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.

	2014			2013
	Revenue	Non-current assets		Revenue	Non-current assets
	£000	£000		£000	£000
United Kingdom (domicile)	7,160	21,851		6,680	26,286
Rest of Europe	12,799	-		11,434	-
United States/Canada	8,235	-		6,055	-
Rest of the world	12,374	-		11,872	-
Total	40,568	21,851		36,041	26,286

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2014

3.         Maturity of borrowings and net debt

31 December 2014	Bank loans	Subordinated	Hire	Total
		loan	purchase
	£000	£000	£000	£000
Repayable in less than 6 months	1,456	497	8	1,961
Repayable in months 7 to 12	1,441	-	9	1,450
Current portion of long-term borrowings	2,897	497	17	3,411
Repayable in years 1 to 5	10,101	-	11	10,112
Total borrowings	12,998	497	28	13,523
Less:  interest included above	718	-	-	718
cash and cash equivalents	11,148	-	-	11,148
Total net debt	1,132	497	28	1,657
Adjusted net debt (including accrued deferred consideration)				1,775

31 December 2013	Bank loans	Subordinated	Hire	Total
		loan	purchase
	£000	£000	£000	£000
Repayable in less than 6 months	2,069	497	15	2,581
Repayable in months 7 to 12	2,036	-	11	2,047
Current portion of long-term borrowings	4,105	497	26	4,628
Repayable in years 1 to 5	12,331	-	25	12,356
Later than 5 years	11	-	-	11
Total borrowings	16,447	497	51	16,995
Less:  interest included above	1,405	-	-	1,405
cash and cash equivalents	10,054	-	-	10,054
Total net debt	4,988	497	51	5,536
Adjusted net debt (including accrued deferred consideration)				5,691

A proportion of the Group's bank loans is drawn in foreign currencies to provide a hedge against assets denominated in those currencies.  The Sterling equivalent at 31 December 2014 of loans denominated in Euros was £466,000 (2013: £499,000).  These amounts are included in the figures above for bank loans, repayable in years 1 to 5.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2014

4.         Post Balance Sheet Event - acquisition of Armfield Limited

On 22 January 2015, the Company acquired the entire issued share capital of Armfield Limited ("Armfield").  Armfield designs and markets engineering equipment and research instruments for educational applications, together with research and development systems focused on the food, beverage, dairy, vegetable oils and pharmaceutical industries.  The company is based in Ringwood, Hampshire and New Jersey, USA.

Armfield's audited accounts for the financial year to 31 December 2013 show revenues of £12.2 million and pre-tax profits of £1.3 million. The Directors believe that, had the business been owned by the Group during that year and excluding one-off items, Armfield would have generated operating profits in the order of £1.66 million (before interest, tax, amortisation of intangible assets and expensed transaction costs). The audited accounts also show net tangible assets of £3 million, including cash of £2.56 million.

The acquisition was completed for a cash consideration of £8.28 million, plus estimated transaction costs of £800,000 and an earn-out capped at £1.51 million.  The maximum earn-out will be payable if Armfield has generated adjusted operating profits of £1.96 million or more in respect of the twelve month period to 31 December 2014, reducing by five times any shortfall below £1.96 million. Half of the earn-out will be paid in cash and half through the issue of new Ordinary shares in Judges Scientific plc at a price of 2055p per Ordinary share, based on the prevailing price of Judges' Ordinary shares on the day the headline terms of the acquisition were agreed.

An additional payment will be made to reflect any excess working capital over and above the ongoing requirements of the business; the Company expects such payment to be covered by the cash inherited at the completion date. A further payment capped at £360,000 may become due if the triennial actuarial valuation of Armfield's defined benefit pension fund as at 31 March 2017 shows a reduction in the yearly contribution required to eliminate its funding deficit.  The defined benefit scheme closed to new members with effect from 2001 and closed to new accrual in 2006. 

The acquisition was financed from existing cash resources and an additional £4 million drawn down from the £10 million revolving acquisition facility recently agreed with Lloyds Bank Corporate Markets.

Accounts to the date of completion will be drawn up promptly.  However at the time of finalising these financial statements the information required under IFRS 3R concerning the acquired net identifiable assets and liabilities, the fair value of the contingent consideration and the residual goodwill to be recognised was not yet available.

5.         Preliminary Announcement

This preliminary announcement, which has been agreed with the auditors, was approved by the Board of Directors on 26 March 2015.  It is not the Group's statutory accounts.  Copies of the Group's audited statutory accounts for the year ended 31 December 2014 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 2014 and 31 December 2013 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 2013 have been delivered to the Registrar of Companies, but the 31 December 2014 accounts have not yet been filed.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SEEFIMFISELD