Final Results

22 March 2023

Judges Scientific plc

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

FINAL RESULTS

Record performance, substantial order book and largest acquisition completed

23% increase to full year dividend

Judges Scientific (AIM:JDG), a group focused on acquiring and developing companies in the scientific instrument sector, announces its final results for the year ended 31 December 2022.

Key financials

Other financial highlights

· Organic** revenue increased 8% compared with 2021.

· Organic** order intake up 0.5% compared with 2021.

· Organic** order book*** at 21.1 weeks (2021: 19.8 weeks); total order book at 22.9 weeks.

· Proposed final dividend of 59p, totalling 81p for the year, an increase of 23%; covered 4.5 times by adjusted earnings.

Strategic Highlights

· Completed acquisition of Geotek on 23 May 2022 for a consideration of up to £80 million. Largest acquisition to date which has significantly enhanced full year earnings and achieved the maximum earn-out.

· New £100 million four-year bank facility provides additional capacity to support the Group's buy and build strategy.

· Increased ownership of Bordeaux Acquisition Limited, the holding company of Deben UK and Oxford Cryosystems, from 88% to 100% for a consideration of £2.1 million.

Outlook

· Commencing 2023 with a record Organic order book.

· Solid growth in Organic order intake for the first two months of 2023.

· Supply chain disruptions persist.

* 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 IFRS 16 liabilities.

** Organic describes the performance of the Group including businesses acquired prior to 1 January 2021.

***Order book (weeks) calculated by reference to Judges internal sales budget for the following year.

Alex Hambro, Chairman of Judges Scientific, commented:  

"I am pleased to report that your Group has achieved new records in Organic order intake, revenue and adjusted operating profit, despite contending with a challenging environment.

In May 2022, the Group completed its largest ever acquisition, Geotek, which delivered a strong contribution in the second half of the financial year.

I would like to take this opportunity to sincerely thank our colleagues for their continued diligence. The resilience of the Group's businesses and the validity of its model have once again come to the fore and are reflected in these results."

Investor Presentation

Judges Scientific is hosting a webinar, available to all existing and potential shareholders, covering the results for the year ended 31 December 2022, on 22 March 16:00 UK time. Investors can register for the webinar here: https://bit.ly/JDG_FY22_webinar

For further information please contact:

Notes to editors:

Judges Scientific plc (AIM: JDG), is a group focused on acquiring and developing companies in the scientific instrument sector. The Group currently consists of 20 businesses acquired since 2005.

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

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

Judges Scientific maintains a policy of selectively acquiring businesses that generate sustainable profits and cash. Shareholder returns are created through the reduction of debt, Organic growth and dividends. 

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

Chairman's Statement

The 2022 financial year started under promising auspices: order intake had rebounded past its pre-Covid high watermark and the order book was at a record level. However, the existing supply chain issues were then further aggravated by the war in Ukraine and by successive lockdowns in China. Our teams worked very hard to overcome this challenge and consequently produced record Organic* order intake, Organic revenue and Organic adjusted** profits, which highlights the resilience of our businesses.

The year, whilst arduous from an operational perspective, was our most successful in M&A activity with the acquisition in May 2022 of Geotek, which was by far the largest and most earnings-enhancing transaction in Judges' history. Geotek delivered a strong contribution in the second half of the financial year, and this, together with the Organic performance, contributed to a 53% increase in Adjusted EPS for 2022.

Generating attractive returns for our shareholders remains the core objective of the Group and as such the Board is pleased to be recommending a final dividend of 59p, making a total of 81p in respect of 2022, a 23% increase on the prior year (2021: 66p). Since the payment of the first dividend in respect of 2006, regular dividends have grown at a compound annual rate of 23% and total dividend distributions have aggregated to six and a half times the 2005 re-admission price of 100p.

Strategy

Your Group's strategy remains unchanged and is based on creating shareholder returns through highly selective and carefully structured acquisitions, underpinned by the diversified, solid and growing earnings and cashflows arising from our existing businesses.

The Group's acquisition model is to acquire small/medium-sized scientific instrument manufacturers, 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 seeking to acquire businesses with a history of 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 with robust and defensible margins and is acquired at a sensible multiple.

Post-acquisition, the Group provides a favourable environment for these businesses to continue to prosper. Much effort is invested into helping their autonomous management teams improve their operating metrics as organic growth and operational optimisation is an ever-growing component of shareholder returns.

As a result of the dependable growth of your Group, it has been possible to promptly reduce debt, thereby generating the financial resources necessary to reinvest in further acquisitions and reward shareholders with a progressively increasing dividend, subject always to our prudent approach to gearing and earnings cover.

The underlying global market for scientific instrumentation remains robust and the sector's long-term growth drivers provide comfort that the Group will continue to deliver durable returns for our shareholders despite the potential for some short-term variability in performance. These long-term market drivers are rooted in the global expansion of higher education and the need for measurement tools to support the relentless worldwide search for optimisation and discovery across industry and science. 

Our team

Once more, global events conspired to make life difficult for all our colleagues but they again proved themselves up to the task. I am sure our shareholders join the Board in appreciating their unremitting dedication to overcoming the challenges they encountered.

During the year we were pleased to welcome Peter Schultheiss, Tony Bosley, and the rest of the Geotek team, to the Judges group.

Post year-end, our Board was delighted to add Dr Tim Prestidge to the Executive team, as Group Business Development Director. Tim has significant and relevant experience having spent his career to date in senior roles at Renishaw plc and Halma plc. This appointment reinforces our executive team and we are certain that his strategic vision and business acumen will be of great value to your Group over the coming years. We wish him much success at Judges.

Alex Hambro

Chairman

21 March 2023

* Organic describes the performance of the Group including businesses acquired prior to 1 January 2021.

**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 cash payables that had yet to be settled at the balance sheet date and excludes IFRS 16 liabilities.

Chief Executive's Report

At the turn of 2022, the Group had seen a strong rebound in Organic order intake and held a record order book; thanks to the vaccination campaign, restrictions on travel easing and our own factories returning towards normality. Supply chain difficulties had increased during 2021 and became a serious yet generally manageable problem throughout 2022, exacerbated by the war in Ukraine and the multiple Chinese lockdowns. Our ability to deliver the Organic growth expected from the large opening order book was made more difficult by the challenges of sourcing the large variety of components, often highly specialised, that are needed to manufacture our instruments. Despite this, through our team's resourcefulness and determination, the Group still achieved new records in all essential measures of Organic performance. The acquisition of Geotek in May ensured that our full year results were well ahead of our Organic records.

Whilst we all hoped and expected to experience a more consistent year in 2022, these continued challenges had a varied impact on each of our Group businesses. Once again, the pace of R&D fluctuated whilst others had to be nimble in the way in which they operated. Notwithstanding these challenges, several of our businesses still delivered all-time records, and many ended the year with significantly higher orderbooks than historic norms, providing them with a good foundation for growth in 2023. Our dedication to raising the operational bar across the Group has not wavered and throughout the year we have spent time promoting leadership skills, information systems and focusing on new product development to ensure that we remain well placed to create excellent new products to meet ever-evolving customer needs on tight deadlines.

Order intake

Order intake is the main driver of our business. Organic intake was up 0.5% year-on-year after surging 25% in 2021. This quasi stagnation, after the strong 2021 rebound, is 9% above the pre-Covid 2019 record, but that level of growth over three years shows that the post-Covid recovery is still a work in progress.

The best performance was recorded in the Rest of the World (up 19%), followed by North America and China/Hong Kong (up 6% each); the Rest of Europe was down 2.5% and the UK receded 28% after its strong progress in 2021. The largest year-on-year absolute increase was achieved in Taiwan, South Africa, the USA and Sweden. The largest declines were in the UK, France and Germany. Order intake still fluctuated between our various businesses and the capital expenditure freezes by large corporations, previously seen through the pandemic, abated during the year. We believe Organic order intake was affected by supply shortages at our OEM (Original Equipment Manufacturer) customers and by the Chinese lockdowns which were only reversed shortly before year-end.

Although our aim is to restore the growth of Organic intake to pre-Covid levels, intake for 2022 was sufficient to deliver Organic revenue growth and also add to our already substantial order book; the Organic order book grew to 21.1 weeks at 31 December 2022 from 19.8 weeks at the end of 2021. The total order book at 31 December 2022 stood at 22.9 weeks.

Revenues

Converting a large order book into sales revenue was our main challenge in 2022 as a result of the deteriorating supply of components. The Group succeeded in satisfying orders although we were not immune to delays, extra costs, extra effort required and higher levels of inventory. This may imply slowed revenue growth, margin pressure, R&D effort diverted away from new projects and some balance sheet expansion; our mission however is to ensure that we keep progressing all key performance measures.

Group revenues for the financial year ended 31 December 2022 progressed from £91.3 million to £113.2 million, including Organic growth of 8% and the contribution from the Geotek acquisition completed in May 2022. 

The Group continues to be a strong exporter and is well diversified across the globe, with 28% of the Group's revenues earned in North America, 28% in the Rest of Europe and 12% in China/Hong Kong. Organic revenues grew strongly in all regions except the UK (down 15% after growing 43% in 2021). North America advanced 21%, China/Hong Kong rebounded 15% (from minus 28% in 2021), the Rest of the World grew 10% and the Rest of Europe grew 6%. The highest absolute increases were the US, the Czech Republic and China/Hong Kong. The most notable decreases were the UK, France and Egypt.

Profits

The most important driver of Judges' operating margins is volume. The 8% growth in Organic revenue maintained our Organic EBITA margin before central costs at 25% (2021: 25%) and Organic operating contribution increased 8%. The increased procurement costs and inflationary pressures, combined with the delayed impact of our own price increases affected the EBITA margin in the second half of the year.

Adjusted profit before tax and adjusting items progressed to a record £28.3 million (2021: £18.1 million). The operating subsidiaries combined produced an Organic Return on Total Invested Capital ("ROTIC") of 28.7% (2021: 28.3%); total ROTIC (including Geotek) was 21.3%, reflecting the size and multiple paid for this acquisition. Statutory profit before tax was £16.0 million (2021: £14.9 million), influenced by significant adjusting items primarily arising from acquisition costs and amortisation of acquired intangible assets.

The Group continued to invest in the improvement of its existing products and the development of new products. Investment in research and development amounted to £6.8 million in 2022 (2021: £6.2 million), equivalent to 6.0% of Group revenue (2021: 6.8%).

The increase in pre-tax profits was replicated in earnings per share: Adjusted earnings per share progressed by 53% from 238.1p to 363.8p; adjusted fully diluted earnings per share similarly progressed to 359.0p (2021: 234.9p). Statutory basic earnings per share were 196.1p (2021: 201.0p) and statutory diluted earnings per share were 193.5p (2021: 198.2p).

Corporate activity

On 23 May 2022, we completed the acquisition of Geotek. Geotek manufactures instruments used for the high-resolution, non-destructive analysis of geological cores and provides related services. The £80 million transaction (including a £35 million earnout and excluding excess cash) is by far the largest acquisition in the history of our Group. The full earnout is due as Geotek achieved its target EBIT of £11.4 million for the 2022 calendar year. The acquisition was financed under a new £100 million multi-bank facility led by Lloyds Banking Group plc alongside Santander UK plc and Bank of Ireland. The quality of Geotek's business and the size of its contribution to the Group's adjusted earnings make it a significant step forward for the Group.

During the year we acquired the remaining 12% shareholding of Bordeaux Acquisition, the holding company for Deben UK and Oxford Cryosystems for a consideration of £2.1 million. The price was 4.5 times historical adjusted EBIT and the payment was largely in new Judges shares valued at 6850p, the market price on the day the deal completed.

As a buy and build focused group, the acquisition of new businesses is a fundamental feature of Group strategy. Executing this effectively is key to ensure that long-term value is generated for shareholders. We retain a strict acquisition discipline and are highly selective in relation to both the acquisition multiple 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 illustrated 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 strong reputation over the past decade as an ethical, 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, stimulates intra-group cooperation, 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.

Cashflow

Cash conversion, impacted by the supply chain difficulties and the measures taken to mitigate them, was lower than usual at 80% (2021: 104%), with cash generated from operations of £24.0 million (2021: £19.6 million). Year-end cash balances increased to £20.8 million from £18.4 million at 31 December 2021. Adjusted net debt (excluding IFRS 16 lease liabilities but including sums still due in respect of acquisitions) at the year-end amounted to £52.0 million (2021: £1.4 million net cash).

Dividends

Your Board is recommending a final dividend of 59p per share subject to approval at the forthcoming Annual General Meeting on 22 May 2023, which will make a total distribution of 81p per share in respect of 2022 (2021: 66p per share). The total dividend per share is 4.5 times covered by adjusted earnings per share (2021: 3.6 times). Our policy of increasing the dividend by a minimum of 10% per year remains sustainable as long as we have ample cover.

The proposed final dividend, if approved by shareholders, will be payable on 7 July 2023 to shareholders on the register on 9 June 2023 and the shares will go ex-dividend on 8 June 2023.

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 driven primarily by the strong worldwide growth in higher education and the enduring pursuit of optimisation across science and industry and, of course, optimisation requires measurement. 

In parallel to 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, research funding, currency fluctuations and the business climate in major trading blocs, particularly the USA and China. 

In the medium-term horizon, the competing goals in the various jurisdictions where the Group operates, of stimulating recovery and of reducing ballooning government deficits should increase uncertainty in worldwide research funding. It also appears that re-emerged inflation may not be as temporary as proclaimed and higher interest rates could accentuate government deficits and bring back austerity. At the same time, higher interest rates may also alter the competitive balance in larger M&A activity to the detriment of more highly geared participants.

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 the Group's revenue originates from countries where the standard of value is the US Dollar (approximately one half of total revenue) or the Euro (around one third of total revenue). The currency movements since the Brexit referendum vote in 2016 have had a positive influence on our margins and our competitiveness; exchange rates have continued to remain favourable to our Group.

Outlook

As we look ahead, the macro environment remains uncertain, with differing factors impacting our business both positively and negatively. Whilst we are encouraged that the market in China is more stable as Covid restrictions are eased and we continue to see Sterling benefit UK exporters, we are cognisant of continued geopolitical uncertainty and supply chain challenges, alongside higher levels of inflation and interest rates. In addition, the increase in UK headline corporation tax from 19% to 25% from April 2023 will affect EPS going forwards. Despite these varied conditions across the globe, our sizeable order book, allied with the enduring long-term drivers of our business, allow us to remain confident in the Group's resilience and adaptability.

Our Group started the year with a record Organic order book and has since benefitted from solid growth in Organic intake versus the first two months of 2022. With the significant addition of Geotek, Judges is well equipped to face the challenges of 2023. 

David Cicurel

Chief Executive

21 March 2023

Finance Director's Report

The Group's strategy is based on acquiring companies within the scientific instruments sector and continued profitable performance at its existing subsidiary businesses. 

Key Performance Indicators

The Group's financial Key Performance Indicators ("KPIs"), which are aligned with the ability to reduce acquisition debt and fund dividend payments to shareholders, are basic adjusted earnings per share, Organic operating margins, Organic return on total invested capital and cash conversion. We have a further non-financial KPI of Organic order intake which is the bellwether of future short-term financial performance. All five KPIs are commented on during this report.

The Group considers that the use of adjusted figures rather than statutory figures provides users of the accounts a clearer picture of the Group's actual trading performance. Organic describes the performance of the Group including businesses acquired prior to 1 January 2021. Adjusted earnings figures exclude adjusting items. Return on total invested capital and cash conversion are defined within the relevant sections of this report.

Revenue

Group revenues increased to £113.2 million, 24% ahead of 2021's £91.3 million. Organic revenues grew by 8% (2021: Organic growth of 10%) enabled by a strong order book and full year Organic order intake being ahead of prior year. The balance of the growth was provided by the Group's material acquisition of Geotek in May 2022.

Across our two segments, Vacuum revenues increased by £2.7 million to £53.3 million (2021: £50.6 million) and Materials Sciences total revenues grew by £19.2 million to £59.9 million (2021: £40.7 million) strongly influenced by Geotek, which sits within the Material Sciences segment.

Profits

Revenue growth supported growth in profits and profitability and adjusted operating profits surged by 60% to £30.1 million, an increase of £11.3 million (2021: £18.8 million). This strong growth reflects the material impact on profit from our recent acquisition, but also masks some effects of supply chain and inflationary issues on our Organic performance in the second half of the year and hence our full year Organic profit growth was only slightly ahead of Organic revenue growth, whereas over the longer-term, the level of Organic revenue growth would usually elicit a double-digit Organic profit uplift. This therefore resulted in Organic operating margins of 21% in line with last year (2021: 21%).

Whilst Sterling was on average stable against the Euro it weakened by 10% against the US Dollar, which benefited our competitiveness as a high exporter, and overall exchange rates continue to be helpfully aligned for the Group. Adjusted profit before tax was £28.3 million compared to £18.1 million in 2021, an increase of 57%.

Statutory operating profit increased to £18.2 million (2021: £15.6 million), and statutory profit before tax was £16.0 million compared to £14.9 million in 2021. Both figures were affected by significantly increased adjusting items, which are detailed further below.

Capitalisation of development costs

We capitalised £1.5 million (2021: £0.8 million) of our total R&D expense relating to development of new or significantly improved products. The related amortisation on these amounts capitalised is £0.1 million (2021: £0.0 million) as many of the projects we have worked on in 2021 and 2022 have not fully completed due to challenges in acquiring parts to complete prototypes and hence ensure that new products are ready for production.

Adjusting items

£12.4 million of pre-tax adjusting items were recorded in 2022 (2021: £3.2 million). This substantially increased from the prior year as a result of the acquisition of Geotek. The key constituents were amortisation of intangible assets recognised upon acquisition which totalled £8.4 million (2021: £2.6 million), acquisition costs of £3.0 million (2021: £nil) and a further £2.6 million interest charge arising from unwinding of the discount against the Geotek earn-out expected payment. As the earn-out was material and due 10 months post-completion, we were required to discount the £35 million expected payment at the date of acquisition (to reflect the time value of money) and then unwind the discount as we approach the expected date of settlement in March 2023. These expenses were partially offset by a credit of £2.3 million which mainly arose from valuation of future interest rate hedging. 

Finance costs

Net finance costs (excluding adjusting items) totalled £1.8 million (2021: £0.7 million). This increase arose from the Group's higher levels of external debt following the acquisition of Geotek and also due to the increasing UK base rates. The interest rates that our Group pays are based upon two factors; the floating interest rate of SONIA (the LIBOR replacement), plus an interest rate margin dependent upon the Group's level of gearing. Following the acquisition of Geotek, we saw the impending increases in interest rates and promptly entered into a further interest rate swap to fix any unhedged debt, such that we have basically fixed the maximum rate on the Group's existing debt at approximately 5%, ensuring that any risk of rising interest rates is mitigated for the duration of the Group's existing facilities.

Statutory net finance costs were £2.2 million (2021: £0.8 million). The two key differences between the adjusted and statutory figures are a £2.6 million expense for the unwinding of the discount on the Geotek deferred consideration and a £2.3 million credit relating to valuation of the interest rate hedging (both as explained above).

Taxation

The Group's tax charge arising from adjusted profit before tax was £4.9 million (2021: £2.8 million). The effective tax rate on adjusted profits is 17.2% compared with 15.2% in the prior year. This increase reflects the substantial growth in profits (both UK and US) this year compared with a similar level of benefit from research and development tax credits.

The effective tax rate is influenced by the wider regime of low UK and US corporate tax rates and by claims for UK research and development 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, although now that the Group exceeds 500 full-time equivalent employees, we are moving into the large companies R&D scheme which provides a lower level of credit. Further, the UK corporate tax rate is rising from 19% to 25% in April 2023, the Group's tax rate is set to significantly rise to closer to this prevailing rate.

Earnings per share

Adjusted basic earnings per share increased to 363.8p from 238.1p, an increase of 53%, and adjusted diluted earnings per share was 53% higher at 359.0p (2021: 234.9p).

Statutory basic earnings per share, after reflecting adjusting items which this year are heavily influenced by the amortisation of intangible assets arising from recent acquisitions, was 196.1p (2021: 201.0p) and statutory diluted earnings per share totalled 193.5p (2021: 198.2p).

Order intake

Organic order intake was slightly ahead of 2021's strong intake, and continued to be ahead of revenue. 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, and this intake resulted in a closing Organic order book at 31 December 2022 of 21.1 weeks of budgeted sales (31 December 2021: 19.8 weeks). Total order book was 22.9 weeks, including Geotek, and we commence 2023 with a strong base.

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 2022 on an Organic basis reflected a small improvement during 2022 with Organic ROTIC rising to 28.7% (2021: 28.3%). There is still room to improve this, and is reflective of some inconsistency in the performance of our group of businesses.

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. Therefore the acquisition of Geotek, for a consideration for £80.0 million at a multiple of seven times EBIT, had a significant impact on the Group's total ROTIC. Partly because the multiple paid of seven times results in an opening ROTIC for Geotek of approximately 14.5%, substantially below the Group's prevailing ROTIC, and exacerbated by the fact that the acquisition cost of Geotek was close to the total value of the acquisition costs of all our previous businesses. Therefore the overall impact on total ROTIC was significant and resulted in a total ROTIC of 21.3%, down by 7.4% at 31 December 2022.

As mentioned in previous reports, this is the mechanical impact of acquiring businesses at higher multiples, but despite this we continue to strive to raise Group ROTIC through performance improvements across our businesses.

Dividends

For the financial year ended 31 December 2022 the Company paid an interim dividend of 22.0p per share in November 2022. Following a good performance in 2022, the Board is recommending a final dividend of 59.0p per share giving a 23% increase in the total dividend for the year of 81.0p per share (2021: 66.0p per share). Dividend cover is approximately 4.5 times earnings per share.

The Group's policy is to pay a progressively increasing dividend covered by earnings provided the Group retains sufficient cash and borrowing resources with which to pursue its longstanding acquisition strategy.

Headcount

The Group's full time equivalent (FTE) employees for 2022 stood at 595 (2021: 519). This growth reflects recruitment in support of the Group's long-term growth strategy coupled with the contribution from our 2022 acquisition of Geotek.

Share capital and share options

The Group's issued share capital at 31 December 2022 totalled 6,369,746 Ordinary shares (2021: 6,318,415). The shares issued during 2022 arose from the issue of shares to satisfy acquisition consideration for the final 12% purchase of Bordeaux, the exercise of share options by various members of staff during the year and settlement in ordinary shares of a portion of the introduction fee payable to Charles Holroyd upon the acquisition of Geotek.

Share options issued during the year under the 2015 scheme totalled 4,735 (2021: 60,986) and the total share options in issue at the year-end under both the 2005 and 2015 schemes amounted to 184,740 (2021: 201,460).

Defined benefit pension scheme

The Group has a defined benefit pension scheme which was acquired with Armfield in 2015. This scheme has been closed to new members from 2001 and closed to new accrual in 2006. The next triennial full actuarial valuation will be in 2023 and the current annual contributions to the scheme are £0.4 million. The Group accounts for post-retirement benefits in accordance with IAS 19 Employment Benefits. The Consolidated balance sheet reflects the net surplus or 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 2022, the pension scheme was in a position of a £0.9 million surplus (net of deferred tax) (31 December 2021: £1.0 million net deficit). This significant swing from liability to surplus reflects the significant increase in discount rates, and the deficit reduction payment, partially offset by weaker fund asset performance.

Cashflow and net debt

The Group has an enduring track record of converting profits into cash and this year's profitable trading delivered a strong cash performance with cash generated from operations of £24.0 million (2021: £19.6 million), although only at a cash conversion rate of adjusted operating profit into cash of 80% (2021: 104%) . This was lower than our usual expected 90+% conversion rate due to the requirement to increase our levels of inventory, in reflection of the continuing global supply chain issues and also by growth in our receivables as we ended the year strongly. The recent relaxation of Chinese lockdown rules should also help us this year to complete some long outstanding installations and collect the related receipts.

Total capital expenditure on property, plant and equipment amounted to £6.4 million (2021: £2.7 million). This figure is higher than usual; particularly influenced by the purchase and subsequent refurbishment of two factories for our trading businesses. Year-end cash balances totalled £20.8 million (2021: £18.4 million).

From a borrowings perspective, we started this year with £1.4 million of adjusted net cash and ended the year with £52.0 million of adjusted net debt. Adjusted net debt includes acquisition-related cash payables that had yet to be settled at the balance sheet date and excludes IFRS 16 liabilities. The Group uses adjusted net debt rather than statutory net debt, as this figure includes actual cash liabilities arising from acquisitions which are due within one year. Gearing, calculated as the proportion of adjusted net cash/debt compared to adjusted EBITDA, at 31 December 2022 was 1.6 times (2021: -0.1 times). We remain committed to maintaining a prudent gearing position whilst at the same time taking the opportunities of acquiring strong, sound businesses at disciplined multiples. The acquisition of Geotek added £62.5 million of debt (£45 million external debt plus £17.5 million earnout payable in March 2023) and we also paid £4.4 million of dividends to shareholders, £2.1 million to HMRC for our tax liabilities, and invested £6.4 million in capital expenditure; overall a £75.4 million outflow but only a £53.4 million increase in net debt, exhibiting the benefits to shareholders of the Group's cash generating capability and its ability to de-leverage quickly.

As part of the acquisition of Geotek, the Group entered into a new £100 million multi-bank facility ("Facility") with Lloyds Banking Group plc, Santander UK plc and Bank of Ireland (the "Banks") which replaced its existing unilateral facility arranged with Lloyds Bank, which was for an aggregate £60.0 million. The new Facility will provide the Group, in support of its buy and build strategy, with greater acquisition capacity, both in terms of higher frequency and/or larger deals and the initial consideration for the acquisition of Geotek was financed from this Facility.

The Facility is for an aggregate £100 million consisting of a £25 million term loan ("Term Loan"), a committed £55 million revolving credit facility ("RCF") plus a £20 million uncommitted accordion facility, which can be drawn with the agreement of the Banks. The Facility replaced the Group's previous facilities of which £15.2 million was outstanding at the time of the acquisition of Geotek. The life of this new Facility is coterminous with the previous facility and therefore had, at its commencement, a term of four years until 25 May 2026 ("Borrowing Term").

The Term Loan amortises on a straight line basis over the Borrowing Term by quarterly instalments. The RCF is repayable in a bullet at the end of the Borrowing Term.

The banking covenants have been adjusted from the previous banking arrangements, namely:

· Gearing no greater than 3.0 times Adjusted EBITDA (an increase from 2.5 times in the previous arrangement);

· Interest cover no less than 3 times; and

· Minimum EBITDA covenant within the previous facilities is no longer required.

Interest rate margins are consistent with the previous facilities, save for an additional rate between 2.5 and 3.0 times gearing.

The existing lending facilities advanced via Bordeaux Acquisition ("Bordeaux"), the Group's majority-held subsidiary that owned two of the Group's trading subsidiaries, Deben UK and Oxford Cryosystems, were unchanged at the date of the refinancing. Following Judges' purchase of the remaining 12% of Bordeaux on 27 June 2022, Bordeaux repaid in full its outstanding loan of £0.4 million on 28 July 2022.

At the year end the Term Loan was £20.3 million (2021: £16.1 million) and the RCF was £35.3 million drawn (2021: undrawn), with £19.7 million available to drawdown for future acquisitions.

The ongoing long-term support of Lloyds Bank who have been our cornerstone lender for the life of Judges, together with Santander and Bank of Ireland, our new long-term relationship banks, is greatly appreciated and continues to provide the Group with major capacity to capitalise on opportunities to support the Group's buy and build strategy.

Overall, 2022 was therefore a positive year for the Group and resulted in a very different looking Judges. Thanks to the uncompromising efforts by all our team, we navigated through the myriad challenges and knock-on effects in the supply chain and Chinese lockdowns to deliver Organic growth and good cash generation, coupled with the material effect on earnings from the Group's acquisition of Geotek. The Group remains strongly positioned, with a healthy balance sheet which continues to deleverage following the Geotek acquisition, a substantial 2023 opening order book and significant available borrowing capacity, and is therefore well positioned to continue its strategy of achieving growth in earnings via selective, reasonably priced acquisitions of strong niche businesses in the scientific instruments sector, alongside the ongoing performance of its existing businesses.

Brad Ormsby

Group Finance Director

21 March 2023

Consolidated statement of comprehensive income

For the year ended 31 December 2022

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated balance sheet

As at 31 December 2022

Consolidated statement of changes in equity

For the year ended 31 December 2022

Consolidated cashflow statement

For the year ended 31 December 2022

* On 23 May 2022, £15.2 million of outstanding loans were repaid and £60.3 million was simultaneously reborrowed as the Group renewed its banking facilities (see Note 21). On 25 May 2021, £19.0 million of outstanding loans were repaid and simultaneously reborrowed as the Group renewed its banking facilities.

Notes to the Final Results

For the year ended 31 December 2022

1. Earnings per share

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.

2. Segmental analysis

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

Segment assets and liabilities

Head office items include borrowings, intangible assets and goodwill arising on acquisition, deferred tax, defined benefit obligations and parent company net assets.

2. Segmental analysis (continued)

Analysis of revenue by geographical areas

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

Analysis of revenue by performance obligation

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

3. Adjusting items

4. Goodwill

£43,151,000 of goodwill resides in the Material Sciences segment and £8,285,000 resides in the Vacuum segment. There are 9 CGU's within the Material Sciences segment and 9 within the Vacuum segment. Goodwill is tested annually for impairment by reference to the value in use of each of the relevant cash-generating units it is allocated to and aggregated for disclosure purposes into the respective operating segments. The value in use is calculated on the basis of projected cashflows for five years together with the terminal value at the end of the five years, which is computed by reference to projected year six cashflows and discounted. There was no requirement for any impairment provision at 31 December 2022 (2021: £nil). The key assumptions in determining the value in use are:

Revenue and margins: These are derived from the detailed 2023 budgets which are built up with reference to markets and product categories with projected medium term growth factors. Projected margins reflect historical performance and the expected impact of efforts to improve operational efficiency.

Discount rate: Cashflows are discounted using a pre-tax discount rate of 16.4% (2021: 13.8%) per annum, calculated by reference to year‑end data on equity values and interest, dividend and tax rates. The increased discount rate in 2022 reflects the higher expected interest rate horizon.

Long-term growth rates: 2.1% long-term revenue growth rate takes into account both UK and overseas markets and the 2.1% cost growth broadly aligns with long-term inflation, and enables gross margins to be maintained (2021: 2.1%).

The long-term growth rate and discount rate are consistent for all cash-generating units on the basis that the businesses operate in similar markets and are exposed to similar risks.

The Directors have considered the sensitivity of the key assumptions, including the discount rate and long-term growth rates, and have concluded that any possible changes that may be reasonably contemplated in these key assumptions would not result in the value in use falling below the carrying value of goodwill, given the amount of headroom available, and the conservative nature of the assumptions.

5. Other intangible assets

5. Other intangible assets (continued)

The key assumptions in valuing the acquired intangible assets of technology and customer relationships at the date of acquisition are:

Discount rate: Cashflows are discounted using a pre-tax discount rate ranging between 14.5% to 17% per annum.

Long-term growth rates: 2-2.9% long-term revenue growth rate takes into account both UK and overseas markets and 3% cost growth to maintain margin which broadly aligns with long-term inflation.

6. Borrowings

The movement in borrowings over the year was as follows:

* On 23 May 2022, £15.2 million of outstanding loans were repaid and £60.3 million was simultaneously reborrowed as the Group renewed its banking facilities.

On 23 May 2022, the Group entered into a new £100 million multi-bank facility ("Facility") with Lloyds Banking Group plc, Santander UK plc and Bank of Ireland (the "Banks") which replaced its existing unilateral banking arrangements with Lloyds Bank, which were for an aggregate amount of £60 million. The initial consideration for the acquisition of Geotek was financed from this Facility.

The Facility is for an aggregate £100 million consisting of a £25 million term loan ("Term Loan"), a committed £55 million revolving credit facility ("RCF") plus a £20 million uncommitted accordion facility, which can be drawn with the agreement of the Banks. The Facility replaced the Group's previous facilities of which £15.2 million was outstanding at the time of the acquisition of Geotek. The life of this new Facility is coterminous with the previous facility and therefore has a term of four years until 25 May 2026 ("Borrowing Term").

The Term Loan amortises on a straight line basis over the Borrowing Term by quarterly instalments. The RCF is repayable in a bullet at the end of the Borrowing Term.

The banking covenants have been adjusted from the previous banking arrangements, namely:

· Gearing no greater than 3.0 times Adjusted EBITDA (an increase from 2.5 times in the previous arrangement);

· Interest Cover no less than 3 times; and

· Minimum EBITDA covenant within the previous facilities is no longer required.

Interest rates are consistent with the previous facilities, save for an additional rate between 2.5 and 3.0 times gearing. The Banks have a fixed and floating charge over the Group's UK assets.

6. Borrowings (continued)

The existing lending facilities via Bordeaux were unchanged at the date of the refinancing. Following Judges' purchase of the remaining 12% of Bordeaux (see note 7) on 27 June 2022, Bordeaux repaid in full its outstanding loan of £0.4 million on 28 July 2022.

As at 31 December 2022, the Group's loans that were refinanced in 2022 were as follows:

- The term loan outstanding was £20,312,500;

- The committed RCF was £35,329,501 drawn; and

- The accordion remained uncommitted.

Borrowings mature as follows:

7. Acquisitions

Acquisition of Geotek Holding Limited and Geotek Coring Limited

On 23 May 2022, Judges Scientific acquired 100% of the entire issued share capital of Geotek Holding Limited and Geotek Coring Limited (together "Geotek" or the "Acquisition"), a world leading developer and manufacturer of instruments used to measure and log various characteristics of geological cores and a supplier of related services. The acquisition is well aligned with the Group's buy and build strategy within the scientific instrument market.

The purchase price of Geotek consisted of:

· The initial consideration, paid in cash at completion, of £45 million.

· Contingent consideration of up to a maximum £35 million ("Earn-out") to be satisfied half in cash and half in new Judges Ordinary shares to be issued at a price of £76.80 per new Ordinary share, Judges' prevailing share price at the time of signing heads of terms with Geotek's vendors.

· The Earn-out starts to become payable on achievement of a minimum adjusted EBIT of £6.4 million for the calendar year 2022 increasing pro rata on a 7:1 ratio until it reaches a cap when an adjusted EBIT of £11.4 million is achieved.

· An additional payment for excess cash (surplus working capital) at completion over and above the ongoing requirements of the business, covered by the cash inherited at completion.

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

The maximum Earn-out of £35 million is expected to be paid, however as the amount is likely to fall due around March 2023, it was discounted to £31.7 million upon initial recognition. The payment in respect of surplus working capital was settled in December 2022.

The estimated total fair value of the future liabilities relating to the Geotek acquisition as at 23 May 2022 and 31 December 2022 consists of the following:

The non-cash item is the unwinding of the discount on the Earn-out consideration.

7. Acquisitions (continued)

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

The intangible assets recognised reflect recognition of acquired customer relationships, the value of the acquired future committed order book, acquired technology together with brand names. A significant amount of the value of the acquired business is attributable to its workforce and sales knowhow and contributes to the goodwill recognised upon acquisition. This goodwill has been allocated to the Materials Sciences segment.

The majority of 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. Additional fair value adjustments include stock, doubtful debt, and warranty provisions together with the related deferred tax. Adjustments to recognition of revenue for certain contracts, and recognition of right-of-use assets and liabilities were made to align with Group accounting policies.

This acquisition resulted in revenue of £14,988,000 and a profit after tax (before adjusting items) attributable to owners of the parent company of £7,342,000 in the period post-acquisition. After amortisation of intangible assets, the contribution to owners of the parent company's results amounted to a profit of £2,187,000 after tax.

If the acquisition had completed on 1 January 2022, revenue for the Group for the year ended 31 December 2022 would have increased by a further £5,012,000 and profit after tax (before adjusting items) attributable to the owners of the parent company would have increased by a further £2,100,000. After amortisation of intangible assets, the contribution to owners of the parent company's results would have amounted to a loss of £620,000 after tax.

Increased shareholding in Bordeaux Acquisition Limited

On 27 June 2022, Judges acquired 12.0% of the shares in Bordeaux Acquisition Limited ("Bordeaux") for a consideration of £2.1 million, increasing its shareholding from 88% to 100%. £2 million of the consideration was settled via the issue of 29,197 new Judges Ordinary shares issued at a price of £68.50 per share, equal to the mid-market price at close of business on Friday 24 June 2022, with the balance paid in cash.

8. Dividends

The Directors will propose a final dividend of 59.0p per share, amounting to £3,760,000, for payment on 7 July 2023. 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.

9. Final Results Announcement

This final results announcement, which has been agreed with the auditors, was approved by the Board of Directors on 21 March 2023. It is not the Group's statutory accounts. Copies of the Group's audited statutory accounts for the year ended 31 December 2022 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 auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention to by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The consolidated financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies, but the 31 December 2022 accounts have not yet been filed.