JUDGES SCIENTIFIC PLC

Earnings Release • Mar 22, 2013

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RNS Number : 6072A

Judges Scientific PLC

22 March 2013

Judges Scientific plc

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

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

Highlights:

·        Record basic earnings per share, excluding exceptional items, of 81.3p (2011: 61.0p); corresponding figures including exceptional items: 4.2p loss (2011: 45.2p profit)

·        Proposed final dividend of 10.0p (2011: 6.7p), making a total distribution for the year of 15.0p (2011: 10.0p)

·        42% increase in pre-tax profit to a record £5.6million (2011: £3.9 million) before exceptional items, tax and non-controlling interests

·        Record revenues of £28.0 million (2011: £20.8 million), including a 7.5% increase on a like-for-like basis

·        Cash in hand of £5.4 million as at 31 December 2012; adjusted net debt of £1.8 million (2011: £0.7 million)

·        Completion of two acquisitions in 2012

·        £3.0 million placing at 600p completed in May 2012, three times subscribed.

Alex Hambro, Chairman of Judges Scientific, commented:

"A robust performance throughout the Group, including a sizeable first-time contribution from Global Digital Systems, delivered a 42% increase in pre-tax profit and almost £6 million of EBIT. The new year has started well and healthy cash-flow generation together with a £3 million mid-year equity placing in 2012 leave the Group in a strong financial position."

Chairman's Statement

The Group has now completed its first decade and has been engaged in the design and manufacture of scientific instruments for seven and a half years. It gives me much pleasure to be able to report record revenues and profits for the seventh consecutive year.

Group revenues for the financial year ended 31 December 2012 registered a 35% advance from £20.8 million to £28.0 million. This reflects organic growth of 7.5% and includes a full year's contribution from Deben UK Limited ("Deben") and a maiden contribution from Global Digital Systems Limited ("GDS").

Profit before tax, exceptional items and minorities, rose by 42% to a record £5.6 million (2011: £3.9 million), with the operating contribution of the businesses owned as at 1 January 2011 growing by 12.9%. Basic earnings per share, before exceptional items, rose by one third, from 61.0p to 81.3p despite the dilution caused by the placing and the conversion of most of the Convertible Redeemable shares. Fully diluted earnings per share, before exceptional items, progressed 39.5% to 73.5p (2011: 52.7p).

Exceptional items include the amortisation of intangible assets, acquisition expenses and tax relief arising from the issue of shares to employees. They also reflect the difference in valuation from one year-end to the next of the Convertible Redeemable shares, with the strong progress in the Company's share price during 2012 producing an accounting "loss" of £1.6 million. Your Board regards this accounting charge as unrelated to the Group's operating performance and it is therefore treated as an exceptional item. Conscious that this artificial loss was an irritation for the investing community, the Board proposed a resolution to encourage premature conversion. This was duly adopted at the last AGM and all but 4.2% of the original Convertible Redeemable shares were converted before the year-end.  The 2012 IFRS results are thankfully the last ones to be significantly affected by this accounting oddity but, of course, exceptional items will persist as long as the Group continues to complete acquisitions.

Profit, including exceptional items but before tax and minorities, amounted to £321,000 (2011: £2.9 million). After tax, this equates to a basic loss per share, including exceptional items, of 4.2p (2011: 45.2p earnings). The fully diluted loss per share, after exceptional items, amounted to 4.2p (2011: 42.9p earnings).

Corporate activity

On 6 March 2012, Deben completed the purchase of the business of KE Developments Limited ("KED"). KED designs and manufactures accessories for electron microscopes, addressing the same client base as Deben. The purchase price will depend on KED's five year sales and will be capped at a maximum of £340,000. The business was integrated into Deben during the course of 2012 and is expected to contribute to Deben's profitability with effect from 2013.

Also on 6 March 2012, Judges acquired the entire share capital of GDS for a cash consideration of £7.65 million. GDS designs, manufactures and sells instruments used to test the physical properties of soil and rocks. The acquisition was financed by an extension of the facilities provided by Lloyds Bank. It is appropriate to recognise the contribution of Lloyds (and Bank of Scotland until their merger into Lloyds) to the execution of our strategy and we are grateful for this enduring relationship that has persisted despite the recent upheavals within the banking industry; we believe that prudent lending to sensible companies to finance profitable projects is available from Lloyds.

In May, the Company restored its ability to complete acquisitions by raising new equity of £3.0 million (£2.8 million net of costs). The placing comprised of 500,000 new Ordinary shares priced at 600p and was almost three times subscribed. The shares were placed to existing and new institutional holders and to some private investors.

Trading in 2012

Overall trading was positive in 2012, particularly in the vacuum division and the Group achieved a healthy growth in order intake, sales, profit and cash generation. The newly acquired businesses operated in line with management expectations, with a good performance at GDS, including buoyant order intake towards the end of the year.  The Group has continued to focus on the updating of its product range.

As expected, the acquisition of GDS, because of its size and the purchase multiple paid, slightly reduced the Company's Return On Total Invested Capital which eased from 46.2% to 40.3%. The mechanical impact of this large transaction was mitigated by the positive operating performance of GDS and the remainder of the Group.

Planning permission was obtained to develop the Stonecross site in Laughton, beyond the area available at the time of its purchase, and construction is now under way. On completion in 2013, the businesses of UHV Design and of both Quorum locations will be consolidated into one factory, allowing us to improve Quorum's operations and profitability. UHV Design will benefit from the additional space it has been lacking following its rapid growth of recent years.

Financial position

Net debt as at 31 December 2012 stood at £2.0 million; excluding subordinated amounts owed to minority shareholders but including amounts still owed in respect of acquisitions, net debt stood at £1.75 million (2011: £0.73 million). The £8.0 million net debt taken on to purchase GDS was eroded by operating cash flow of £4.7 million and the £2.8 million proceeds from the placing (net of costs). Capital investment increased to £0.9 million primarily due to spending on the new Laughton factory; this will accelerate in 2013 and the asset will, on completion, be partially refinanced by Lloyds.

Year-end cash balances progressed from £4.0 million to £5.4 million.

Although a significant proportion of our debt is denominated in US dollars and Euros in order to hedge our contractual foreign currency exposure, the strength of Sterling during 2012 led to an adverse variance in our gross profit margins against budget. At the conclusion of the financial year we elected to hedge our 2013 budgeted margins through the utilisation of currency options and forward sales contracts.  Should the downward trend in Sterling witnessed during the early months of 2013 continue, these measures will attenuate the unbudgeted gain that would otherwise accrue.

Dividends

Your Board is pleased to recommend a final dividend of 10.0p per share (2011: 6.7p per share) which, subject to approval at the forthcoming Annual General Meeting on 29 May 2013, will make a total distribution of 15.0p per share for 2012 (2011: 10.0p per share). Despite the proposed increase, the dividend total is still covered more than five times by adjusted earnings per share. If the proposed dividend is approved, the total of all dividends paid by the Company since its incorporation will amount to 46.4p, almost half of the 95p invested by the original shareholders at the time of the flotation in January 2003.

The proposed final dividend will be payable on 5 July 2013 to shareholders on the register on 7 June 2013 and the shares will go ex-dividend on 5 June 2013.

Share Incentive Plan

During 2012, the Company launched a Share Incentive Plan ("SIP") to enable all employees with a minimum of 12 months' service to purchase shares in a tax efficient manner up to a value of £1,500 per annum, commencing in April 2012. In the SIP's first tax year, the Company matched, pound-for-pound, individual employees' investments of up to £600 and this will be repeated in 2013/2014. This scheme provides an opportunity for employees, who work hard to support the Group's progress, to have a share in the value that they help to create. The Board is pleased that 67 Group employees, approximately one-third of eligible staff, have elected to participate in the SIP and it is particularly gratifying that the early participants have already benefited from the momentum in the Company's share price.

As ever, we are grateful to our employees for their ingenuity and hard work which has contributed so decisively to the results that we are able to announce this year.

Current trading and prospects

The global economic background may well show some improvement in 2013. Trading conditions in Europe are lacklustre rather than dire, there are plausible grounds for anticipating some recovery in the US but the onus for significant growth still lies essentially with the developing nations. With Sterling retreating from its 2012 gains, our export-dominated sector, resilient at the worst of times, may enjoy a more benign trading environment than in the recent past. The new year has started well for the Group and a solid order intake is buttressing the visibility afforded by the satisfactory year-end backlog.

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 (PR)

Melvyn Marckus

Tel: 07775 896 491

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2012

				2012				2011
	Note	Before exceptional items	Exceptional items	Total		Before exceptional items	Exceptional items	Total
---	---	---	---	---	---	---	---	---
		£000	£000	£000		£000	£000	£000
---	---	---	---	---	---	---	---	---
---	---	---	---	---	---	---	---	---
Revenue	2	28,041	-	28,041		20,810	-	20,810
Operating costs excluding exceptional items		(22,097)	-	(22,097)		(16,677)	-	(16,677)
Operating profit excluding exceptional items		5,944	-	5,944		4,133	-	4,133
Exceptional items
Amortisation of intangible assets		-	(3,294)	(3,294)		-	(1,155)	(1,155)
Net insurance recovery		-	-	-		-	596	596
Charge relating to derivative financial instruments		-	(1,573)	(1,573)		-	(304)	(304)
Acquisition costs		-	(444)	(444)		-	(196)	(196)
Operating profit/(loss)		5,944	(5,311)	633		4,133	(1,059)	3,074
Interest receivable		7	-	7		7	-	7
Interest payable		(319)	-	(319)		(195)	-	(195)
Profit/(loss) before tax		5,632	(5,311)	321		3,945	(1,059)	2,886
Taxation		(1,302)	850	(452)		(1,017)	210	(807)
Profit/(loss) and total comprehensive income for the year		4,330	(4,461)	(131)		2,928	(849)	2,079
Attributable to:
Equity holders of the parent company		3,887	(4,087)	(200)		2,588	(668)	1,920
Non-controlling interest		443	(374)	69		340	(181)	159
Earnings per share - total and continuing
Basic	1	81.3p	-	(4.2)p		61.0p	-	45.2p
Diluted	1	73.5p	-	(4.2)p		52.7p	-	42.9p

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2012

		2012		2011
	Note	£000		£000
ASSETS
Non-current assets
Property, plant and equipment		2,702		1,940
Goodwill		5,809		5,316
Other intangible assets		7,095		2,133
		15,606		9,389
Current assets
Inventories		3,529		2,052
Trade and other receivables		3,988		3,674
Cash and cash equivalents		5,418		3,954
		12,935		9,680
Total assets		28,541		19,069
LIABILITIES
Current liabilities
Trade and other payables		(5,659)		(3,465)
Derivative financial instruments		(234)		(1,739)
Payables relating to acquisitions		(246)		-
Current portion of long-term borrowings	3	(2,028)		(1,762)
Current tax payable		(633)		(851)
		(8,800)		(7,817)
Non-current liabilities
Long-term borrowings	3	(5,390)		(3,419)
Deferred tax liabilities		(1,562)		(122)
		(6,952)		(3,541)
Total liabilities		(15,752)		(11,358)
Net assets		12,789		7,711

EQUITY
Share capital		265		214
Share premium account		6,467		3,195
Capital redemption reserve		22		3
Merger reserve		475		475
Retained earnings		5,254		3,489
Equity attributable to equity holders of the parent company		12,483		7,376
Non-controlling interest		306		335
Total equity		12,789		7,711

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

		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 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
Balance at 1 January 2011		209	3,092	-	475	1,606	5,382	249	5,631
Dividends		-	-	-	-	(351)	(351)	(73)	(424)
Issue of share capital		5	103	-	-	-	108	-	108
Arising on conversion and redemption of Convertible Redeemable shares		-	-	3	-	314	317	-	317
Transactions with owners		5	103	3	-	(37)	74	(73)	1
Profit for the year		-	-	-	-	1,920	1,920	159	2,079
Total comprehensive income for the year		-	-	-	-	1,920	1,920	159	2,079
Balance at 31 December 2011		214	3,195	3	475	3,489	7,376	335	7,711

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

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

		2012		2011
		£000		£000
Cash flows from operating activities
(Loss)/profit after tax		(131)		2,079
Adjustments for:
Charge relating to derivative financial instruments		1,573		304
Depreciation		235		170
Amortisation of intangible assets		3,294		1,155
Foreign exchange (gain)/loss on foreign currency loans		(78)		3
Interest receivable		(7)		(7)
Interest payable		319		195
Tax expense recognised in income statement		452		807
(Increase)/decrease in inventories		(581)		220
Decrease/(increase) in trade and other receivables		277		(577)
Increase in trade and other payables		1,007		401
Cash generated from operations		6,360		4,750
Interest paid		(324)		(190)
Tax paid		(1,374)		(1,136)
Net cash from operating activities		4,662		3,424
Cash flows from investing activities
Paid on acquisition of new subsidiary		(8,022)		(4,622)
Gross cash inherited on acquisition		1,378		1,655
Acquisition of subsidiaries, net of cash acquired		(6,644)		(2,967)
Paid on the acquisition of trade and certain assets		(94)		-
Purchase of property, plant and equipment		(909)		(579)
Interest received		7		7
Net cash used in investing activities		(7,640)		(3,539)
Cash flows from financing activities
Proceeds from issue of share capital		3,323		108
Repaid on conversion/redemption of Convertible Redeemable shares		(516)		(1)
Repayments of borrowings		(3,155)		(1,075)
Proceeds from bank loans		5,475		2,422
Issue of loan notes		-		497
Dividends paid - equity share holders		(587)		(351)
Dividends paid - non-controlling interest in subsidiary		(98)		(73)
Net cash from financing activities		4,442		1,527
Net increase in cash and cash equivalents		1,464		1,412
Cash and cash equivalents at beginning of year		3,954		2,542
Cash and cash equivalents at end of year		5,418		3,954

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

1.      Earnings per share

	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	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 2012

1.       Earnings per share (continued)

	Year to 31 December 2011	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	1,920
	Add-back exceptional items net of tax and non-controlling interest, as applicable:
	Charge relating to derivative financial instruments	351
	Net insurance recovery	(224)
	Amortisation of intangible assets	481
	Acquisition-related transactions costs	95
	Utilisation of prior year tax losses	(35)
	Basic and diluted profit after tax, excluding exceptional items	2,588
	Number of shares for calculation of basic earnings per share including exceptional items		4,243,571
	Dilutive effect of potential shares		231,433
	Number of shares for calculation of diluted earnings per share including exceptional items		4,475,004
	Dilutive effect of potential derivative financial instruments		432,959
	Number of shares for calculation of diluted earnings per share excluding exceptional items		4,907,963
	Basic earnings per share (including exceptional items)			45.2
	Diluted earnings per share (including exceptional items)			42.9
	Basic earnings per share (excluding exceptional items)			61.0
	Diluted earnings per share (excluding exceptional items)			52.7

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

2.       Segment analysis

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

2011	Materials Sciences	Vacuum	Total
	£000	£000	£000
Consolidated group revenues from external customers	8,177	12,633	20,810
Contributions to group EBITA	2,298	2,083	4,381
Depreciation	37	126	163
Amortisation of intangible assets	24	1,131	1,155
Segment assets	3,211	6,150	9,361
Segment liabilities	1,564	5,212	6,776
Intangible assets - goodwill	4,664	652	5,316
Other intangible assets	29	2,104	2,133
Additions to non-current assets	30	3,568	3,598

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.

	2012			2011
	Revenue	Non-current assets		Revenue	Non-current assets
	£000	£000		£000	£000
United Kingdom (domicile)	3,517	15,606		2,660	9,389
Rest of Europe	9,375	-		7,164	-
United States/Canada	4,434	-		3,635	-
Rest of the world	10,715	-		7,351	-
Total	28,041	15,606		20,810	9,389

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

3.       Maturity of borrowings and net debt

	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

	31 December 2011	Bank loan	Subordinated	Total
			loans
		£000	£000	£000
	Repayable in less than 6 months	686	497	1,183
	Repayable in months 7 to 12	772	-	772
	Current portion of long-term borrowings	1,458	497	1,955
	Repayable in years 1 to 5	3,611	-	3,611
	Later than 5 years	109	-	109
	Total borrowings	5,178	497	5,675
	Less:  interest included above	494	-	494
	cash and cash equivalents	3,954	-	3,954
	Total net debt	730	497	1,227

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

4.       Acquisition of Global Digital Systems Limited

On 6 March 2012 the company acquired the entire issued share capital of Global Digital Systems Limited ("GDS"), a company based in the UK.  The total cost of acquisition, all of which was paid in cash, includes the components stated below.

Consideration	£000
Payment to vendors	7,650
Gross cash inherited on acquisition	1,378
Cash retained in the business	(1,006)
Payment to vendors in respect of surplus working capital (paid in July 2012)	372
Total consideration transferred	8,022
Acquisition-related transaction costs charged in the income statement	411

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	48	-	48
Intangible assets	-	7,957	7,957
Inventories	896	-	896
Trade and other receivables	591	-	591
Cash and cash equivalents	1,378	-	1,378
Total assets	2,913	7,957	10,870
Deferred tax liabilities	(3)	(1,989)	(1,992)
Trade payables	(1,197)	-	(1,197)
Current tax liability	(151)	-	(151)
Total liabilities	(1,351)	(1,989)	(3,340)
Net identifiable assets and liabilities	1,562	5,968	7,530
Goodwill arising on acquisition			492
Total cost of acquisition			8,022

NOTES TO THE PRELIMINARY ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

5.         Acquisition of certain assets and the trade of KE Developments Limited

On 6 March 2012, the company's indirect subsidiary, Deben UK Limited ("Deben") acquired certain assets and the trade of KE Developments Limited ("KED"), a company based in the UK.  Deben purchased KED's fixed assets for £40,000 being their fair value and will make a contingent goodwill payment capped at £300,000 based on the existing customer relationships.  Acquisition-related transaction costs charged in the income statement amounted to £33,000.

6.      Preliminary Announcement

This preliminary announcement, which has been agreed with the auditors, was approved by the board of directors on 21 March 2013.  It is not the group's statutory accounts.  Copies of the group's audited statutory accounts for the year ended 31 December 2012 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 2012 and 31 December 2011 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 2011 have been delivered to the Registrar of Companies, but the 31 December 2012 accounts have not yet been filed.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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