Final Results

23 March 2021

Judges Scientific plc

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

FINAL RESULTS

Resilient business model enables sustained execution of strategy with two acquisitions

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 2020.

The figures reflect a period during which order intake, revenue and profits were impacted by COVID-19. The Group's priority throughout this time has been to ensure the health and safety of its colleagues.

Financial Highlights

· Revenues down 3.2% to £79.9 million (2019: £82.5 million), including 12.3% Organic* decline;

· Despite COVID-19 challenges, the Group generated significant profits in every month of 2020;

· Adjusted** operating profit down 17% to £14.4 million (2019: £17.4 million);

o Statutory operating profit of £10.2 million (2019: £14.1 million);

· Adjusted** basic earnings per share down 20% to 177.2p (2019: 222.5p);

o Statutory basic earnings per share of 131.1p (2019: 183.1p);

· Final dividend of 38.5p, totalling 55.0p for the year, an increase of 10% (excluding 2019 special dividend); covered 3.2 times by adjusted earnings;

· Organic* order intake down 13.2% compared with 2019;

· Organic* order book at 14.0 weeks (31 December 2019: 13.2 weeks); total order book 15.8 weeks;

· Cash generated from operations of £14.6 million (2019: £19.1 million);

· Adjusted** net debt of £5.7 million as at 31 December 2020 (31 December 2019: £2.0 million);

o Statutory net debt of £5.7 million at 31 December 2020 (31 December 2019: £0.3 million);

· Cash balances of £15.5 million as at 31 December 2020 (31 December 2019: £14.1 million).

Strategic Highlights

· Heath Scientific acquired on 29 May 2020 for a consideration of £7.3 million plus excess cash;

· Korvus Technology acquired on 19 October 2020 for a consideration of £2.6 million plus a potential £0.4 million earn-out plus excess cash;

· Board strengthened with the appointment of Lushani Kodituwakku as an independent Non-Executive Director.

Outlook

· Effects of pandemic still being felt but signs are positive, and our sector is adapting;

· Recovery in order intake still in progress.

* Organic describes the performance of the Group including businesses acquired prior to 1 January 2019.

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

Alex Hambro, Chairman of Judges Scientific, commented:  

"It was unfortunate that the pandemic interrupted the momentum of our financial progress but I am proud that our businesses took swift, proactive and bespoke action to optimise their performance through this difficult year. I would like to thank our colleagues at every level who worked resolutely to maintain the Group's solid profitability without sacrificing future opportunities. Your Group's resilience has enabled it to continue executing its business model with the completion of two acquisitions and to recommend an increased final dividend for the year."

Notes to editors:

Judges Scientific plc (AIM: JDG), is a group focused on acquiring and developing companies in the scientific instrument sector. The Group consists of 19 businesses acquired since it was re-admitted to AIM in 2005.

The acquired companies are primarily UK-based with products sold worldwide to a diverse range of markets including: higher education institutions, the scientific communities, manufacturers and regulatory authorities. The UK is a recognised centre of excellence for scientific instruments. The Group companies hold 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 repayment of debt, organic growth and dividends. 

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

CHAIRMAN'S STATEMENT

In 2020 the world's economy was dominated by COVID-19 and inevitably Judges wasn't immune with order intake, revenue, profits and cash generation all being impacted. Over the period the Group prioritised the health and safety of all our colleagues whilst determined to protect both profitability and financial strength without sacrificing the initiatives necessary to secure future progress. All our businesses, under the guidance of our COO and their management teams, swiftly took measures to mitigate the impact of the pandemic; illustrating the importance of good proactive management.

The resilience of the Group's business model enabled the completion of two acquisitions: Heath Scientific, which trades as Thermal Hazard Technology ("THT") in May 2020 and Korvus Technology ("Korvus") in October 2020. Despite this past year being the most challenging in terms of trading it was one of the most productive in respect of acquisitions.

Delivering attractive returns to our shareholders remains the core objective of the Group and as such the Board is pleased to be recommending a final dividend of 38.5p, making a total of 55.0p in respect of 2020, a 10% increase on the prior year (2019: 50.0p excluding the 200.0p special dividend). Since the payment of the first dividend in respect of 2006, regular dividends have grown at a compound annual rate of 23.1% and total dividend distributions have aggregated to over 5 times the 2005 re-admission price of 100p.

Strategy

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

The underlying market for scientific instruments remains robust and the sector's long-term growth drivers provide comfort that the Group will continue to deliver durable returns for 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 improved measurement to support the relentless worldwide search for optimisation across science and industry. 

Our team

Our 500-strong team worked extremely hard throughout 2020 to keep everybody safe, satisfy the needs of our customers and protect the Group's business. The Board and, I am sure, our shareholders are grateful to all our colleagues for their efforts in this most challenging of environments. In solidarity with those who suffered a reduction in their income as a result of COVID-19, your Directors reduced their own fixed remuneration by an equal average percentage and renounced any increase for 2021.

In September 2020, the Board was delighted to welcome Lushani Kodituwakku as a new independent Non-Executive Director. Lushani is a distinguished strategy consultant. After several successful years with prestigious accountancy and consulting practices, she opened her own consultancy, Luminii Consulting, specialising in commercial due diligence. We are certain that her strategic vision and entrepreneurial experience will be of great value to the Group over the coming years.

Alex Hambro

Chairman

22 March 2021

CHIEF EXECUTIVE'S REPORT

The outbreak of COVID-19 had a radical effect on the business world. Our Group is fortunate to operate in a sector which does not depend on perishable goods and services or on impulse purchases but rather on actual needs and on well thought-out long-term purchasing decisions; it has however not been immune from the effects of the pandemic. The main impact on the Group has been on order intake which fundamentally drives all other Group key performance metrics.

The pandemic had an impact on the way in which our businesses operated, to which we responded with the implementation of strict social distancing measures. As a result, all of our factories have remained open and pleasingly almost none of our colleagues have been severely ill. In addition, the supply chain issues that we faced at the onset of the pandemic were thankfully not serious and were alleviated by some prudent over-purchasing at an early stage.

Order intake

Order intake was principally hindered by the restrictions on travel, by the closure of universities and by capex freezes imposed by industrial customers. The impossibility of seeing clients and agents face-to-face and the cancellation of scientific conferences and trade shows affected all our businesses to varying degrees. Our sector progressively adapted to the new environment and made extensive use of digital communications and virtual conferences to mitigate the impact of travel bans. We expect that some of these practices will endure after the easing of restrictions.

For the year as a whole, Organic* order intake receded 13%. Following a brutal reduction in April and some improvement in May, bookings recovered but did not reach the level achieved in H2 2019. The poorest performance was recorded in North America (down 26%) followed by the Rest of the World (down 25%) and China/Hong Kong (down 22%); Rest of Europe was up 3% and the UK up 8%. The weakest destinations were the USA, China/Hong Kong and Japan and the strongest were Belgium, the UK and the Netherlands. As a result of healthier intake toward the year-end and of more prudent budgeting for 2021, the Organic order book recovered from 10.8 weeks of budgeted sales at the time of our Interim Results in June, to 14.0 weeks at the year-end (31 December 2019: 13.2 weeks). Thanks to strong order activity at the new subsidiaries acquired since 1 January 2019, the Group's total order book ended the year at 15.8 weeks.

* "Organic" in this report describes the performance of the Group excluding Moorfield, THT and Korvus as they were acquired since 1 January 2019.

Revenues

We faced a number of challenges in generating revenues from the order book but thanks to the proactive attitude of all our operating colleagues, they were largely overcome. Deliveries were delayed in various territories due to customers being unable to receive them, but this peaked at the early stages of the pandemic and the impact on revenue for the year was limited. The most problematic activity was installations, severely curtailed by the international travel restrictions; in spite of the Group's effort to satisfy its clients, a number of installations remained outstanding at the year-end. The Government's furlough scheme facilitated the retention of a number of our colleagues whilst they were unable to work as a result of the Government measures instituted to fight the pandemic. At the height of the initial lockdown around 100 staff were furloughed and 250 were working from home.

Group revenues for the financial year ended 31 December 2020 receded from £82.5 million to £79.9 million. The Organic* decline of 12.3% was mitigated by the full year contribution from Moorfield (acquired in December 2019) and, for part of the year, from the two acquisitions completed in 2020. 

The Group continues to be a strong exporter and is well diversified across the globe, with 22% of the Group's revenues earned in North America, 31% in the Rest of Europe and 17% in China/Hong Kong. Contrary to what might have been expected early in the year, Organic revenues grew strongly in China/Hong Kong (up 18%) but all the other trading zones declined with North America down 32%, the Rest of the World down 18% the UK down 6% and the Rest of Europe down 3%. The most notable swings were the USA (down £7.5 million) and China/Hong Kong (up £1.7 million); the UK, Japan and Germany reduced by £0.5 million each whilst France and the Netherlands progressed by £0.5 million each.

Profits

The most important driver of Judges' operating margins is volume. The impact of the sudden deceleration of revenues was mitigated by swift action to defer budgeted spending where possible, without jeopardising future new product introductions, by cost reductions, by spontaneous savings on international travel and conferences, and by some compression of the order book.

Profit before tax and adjusting items receded 19% to £13.7 million (2019: £17.0 million). Organic operating contribution was down 20%; a majority of the Group businesses reduced their contribution but four managed to beat their all-time record profits, all achieved in 2019. The operating subsidiaries combined produced a Return on Total Invested Capital of 23.5% (2019: 31.4%). In spite of the COVID-19 challenges, the Group generated significant profits every single month of 2020.

Despite the efforts to preserve profitability, the Group increased its investment in the improvement of its existing products and the development of new products. Investment in research and development amounted to £6.2 million in 2020 (2019: £5.2 million), equivalent to 7.7% of Group revenue (2019: 6.4%).

The setback in pre-tax profits was replicated in earnings per share: Adjusted earnings per share receded by 20% to 177.2p from 222.5p; adjusted fully diluted earnings per share also declined 20% to 173.9p (2019: 218.4p).

Acquisitions

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 cost and long-term quality of any potential addition to our Group.

The industry in which we operate contains a multitude of small global niches, as 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.

On 29 May 2020, the Group acquired 100% of the share capital of THT for a total cash consideration of £7.3 million, including a £2.0 million earn-out but excluding excess cash. In the year ended 30 April 2020, THT generated £1.2 million adjusted EBIT. THT makes instruments to measure the heat release of chemical reactions; it is involved in the fast-growing area of Lithium-ion batteries.

On 19 October 2020, the Group acquired 100% of the share capital of Korvus for a cash consideration of £2.6 million plus excess cash. In the year ended 31 March 2020, Korvus generated £0.7 million EBIT; an earn-out capped at £0.4 million will be payable if and to the extent the adjusted EBIT for the current year exceeds this amount. Korvus makes instruments to deposit thin films on surfaces.

During the year, Judges purchased the remaining shares in PE.fiberoptics ("PFO"); the £1.1 million purchase price was covered by the amount of excess cash within PFO, which is now available to the Group. Post year-end, the Group purchased another 12.5% of Bordeaux Acquisition (the holding company for Deben UK and Oxford Cryosystems) for £1.8 million, bringing our ownership to 88%.

Cashflow

In spite of the build-up earlier in the year of precautionary stock and finished products awaiting delivery, and of receivables relating to outstanding installations, cash conversion was satisfactory at 102% (2019: 110%), with cash generated from operations of £14.6 million (2019: £19.1 million). As a result, year-end cash balances increased to £15.5 million from £14.1 million as at 31 December 2019, notwithstanding expenditure of £11.0 million on 2020's acquisitions. Adjusted net debt (excluding subordinated debt owed to non-controlling shareholders but including sums still due in respect of acquisitions) at the year-end amounted to £5.7 million (2019: £2.0 million).

Dividends

Your Board is recommending a final dividend of 38.5p per share subject to approval at the forthcoming Annual General Meeting on 26 May 2021, which will make a total distribution of 55.0p per share in respect of 2020 (2019: 50.0p per share, excluding the special dividend). Despite the impact of the pandemic on financial performance in 2020, the total dividend per share is 3.2 times covered by adjusted earnings per share (2019: 4.5 times). Our policy of increasing the dividend by a minimum of 10% per year is only sustainable because there is ample cover.

The proposed final dividend, if approved by shareholders, will be payable on 9 July 2021 to shareholders on the register on 11 June 2021 and the shares will go ex-dividend on 10 June 2021.

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

Trading environment

The long-term fundamentals supporting demand for scientific instruments remain positive. Market demand is being driven primarily by the strong worldwide growth in higher education and the enduring pursuit of optimisation across science and industry; optimisation requires measurement. 

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

In the medium-term horizon the competing goals, in the various jurisdictions where the Group operates, of stimulating recovery and of reducing exploding government deficits will increase uncertainty in worldwide research funding.

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

Outlook

One might have hoped that the comments about COVID-19 were made in the past tense. Sadly, they are not but there are reasons to be positive as worldwide weekly cases halved in the six weeks leading to 20 February 2021 despite regional spikes, even before the acceleration of global vaccinations over the past month.

Our Group has shown its resilience in the face of the pandemic; our sector has been relatively protected and our market has adapted well. As we look ahead, we are starting 2021 with a good order book and a strong financial position although the recovery is still tentative with Organic order intake for the first 10 weeks of the year slightly ahead of the same period last year. Whilst uncertainty around COVID-19 remains, the medium to long-term outlook for the Group remains positive.

David Cicurel

Chief Executive

22 March 2021

FINANCE DIRECTOR'S REPORT

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

The Group's Key Performance Indicators, which are aligned with the ability to reduce acquisition debt and fund dividend payments to shareholders, are earnings per share, operating margins, return on invested capital and cash conversion. All four KPIs have unsurprisingly fallen back in 2020 as a result of the impact that COVID-19 has had on performance although this has not stopped the Group from delivering on its acquisition strategy and producing a strongly profitable performance, albeit well below our previous high watermarks.

Revenue

Group revenues decreased by 3.2% to £79.9 million compared with £82.5 million in the prior year. Organic revenues declined by 12.3% (2019: Organic growth of 5.6%) due to COVID-19's impact on order intake and were partially offset by the full year contribution from Moorfield and also from THT and Korvus, the businesses that we acquired in May 2020 and October 2020, respectively.

Across our two segments, Materials Sciences total revenues reduced by £1.6 million to £33.2 million (2019: £34.8 million) whilst Vacuum revenues declined by £1.0 million to £46.7 million (2019: £47.7 million).

Profits

The effect of COVID-19 on revenues flowed through into profitability. Adjusted operating profits reduced by 17.4% to £14.4 million from £17.4 million in 2019 and operating margins declined to 18.0% (2019: 21.1%). Due to the Group's high operational gearing, any reduction in revenue significantly affects profitability, but due to the actions taken by our businesses in controlling costs (particularly around travel and sales and marketing) we were able to partially mitigate this impact on overall performance. The Group also accepted furlough monies from the UK Government on behalf of those employees unable to work due to the lockdown. These were mainly as a result of reduced production due to social distancing but also affected those whose roles required them to travel such as installation and service engineers. Sterling remained weak through 2020 which continued to benefit the Group, although since the start of 2021 and following the completion of a Brexit deal, Sterling has started to strengthen. Adjusted profit before tax was £13.7 million compared to £17.0 million in 2019, a decrease of 19.1%.

Statutory operating profit decreased to £10.2 million (2019: £14.1 million), and statutory profit before tax was £9.5 million compared to £13.6 million in 2019.

Adjusting items

The total pre-tax adjusting items of £4.2 million were recorded in 2020 (2019: £3.3 million). The main constituents were amortisation of intangible assets recognised upon acquisition of £3.2 million (2019: £2.7 million) with the increase arising from the recent acquisitions of Moorfield in December 2019 and THT and Korvus in 2020, and £0.6 million of acquisition costs relating to the two 2020 acquisitions (2019: £0.3 million).

Finance costs

Net finance costs (excluding adjusting items) totalled £0.6 million (2019: £0.4 million). Interest income decreased by £0.1 million as we carried far higher cash balances in 2019 and with higher interest rates. A further £0.1 million related to greater interest charges arising from the additional borrowing required to finance the two acquisitions made during 2020. Statutory net finance costs were £0.7 million (2019: £0.5 million), the £0.1 million difference between the statutory and adjusted figures is attributable to the net finance cost arising from the defined benefit pension scheme acquired with Armfield in 2015.

Taxation

The Group's tax charge arising from adjusted profit before tax was £2.0 million (2019: £2.5 million). The effective tax rate on adjusted profits is 14.8% compared with 14.7% in the prior year. 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 and as we have remained an SME for R&D tax credits. Whilst the Group had less than 500 full-time equivalent employees during 2020 it is likely that we will exceed this amount in 2021 and, over time, move into the large companies R&D scheme which is less generous.

Earnings per share

Adjusted basic earnings per share reduced by 20.4% to 177.2p from 222.5p and adjusted diluted earnings per share was 20.4% lower at 173.9p (2019: 218.4p).

Statutory basic earnings per share, after reflecting adjusting items which are influenced by the amortisation of intangible assets arising from recent acquisitions, was 131.1p (2019: 183.1p) and statutory diluted earnings per share totalled 128.7p (2019: 179.8p).

Order intake

The Group suffered as a consequence of the pandemic with an overall decline of 13.2% in Organic order intake. Order intake dropped steeply during the early stages of the various national lockdowns but recovered somewhat in the second half of the year. This meant that we were able to rebuild a good proportion of the orders that had been used up in the first half of the year and meant that we held a substantial order book at the start of 2021. 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 whilst the impact of the lower order intake was evident in our trading performance in 2020, the Organic order book at 31 December 2020 was 14.0 weeks of budgeted sales (31 December 2019: 13.2 weeks) although in quantum the order book was £1.7 million lower than at the prior year end. Total order book was 15.8 weeks, including Moorfield, THT and Korvus.

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 2020 reflected the weaker performance in 2020 and receded to 23.5% compared with 31.4% in 2019. We expect to improve this as those businesses in our Group whose performance was affected by the pandemic seek to return to their previous levels of performance.

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

ROTIC is influenced by the overall performance of our businesses and the size of, and multiple paid for, acquisitions. We continue to aim for improved ROTIC whilst accepting the downward pressure on overall returns from acquiring businesses at higher multiples.

Dividends

In relation to the financial year ended 31 December 2020 the Company paid an interim dividend of 16.5p per share in November 2020. The Board is recommending a final dividend of 38.5p per share giving a total dividend for the year of 55.0p per share (2019: 50.0p per share), an increase of 10%. Dividend cover is approximately three and a quarter times earnings per share. No special dividends were paid in 2020 (2019: 200.0p per share).

Your 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 policies.

Headcount

The Group's full time equivalent (FTE) employees for 2020 stood at 499 (2019: 466). We expect that FTEs will exceed 500 in 2021, particularly following the acquisitions of THT in May 2020 and Korvus in October 2020.

Share capital and share options

The Group's issued share capital at 31 December 2020 totalled 6,299,163 Ordinary shares (2019: 6,226,291). The shares issued during 2020 arose from the exercise of share options by various members of staff during the year.

Share options issued during the year under the 2015 scheme totalled 6,151 (2019: 13,905) and the total share options in issue at the year-end under both the 2005 and 2015 schemes amounted to 160,026 (2019: 228,300).

Defined benefit pension scheme

The Group has a defined benefit pension scheme which was assumed as part of the acquisition of Armfield in 2015. This scheme has been closed to new members from 2001 and closed to new accrual in 2006. A new triennial full actuarial valuation was performed in 2020 and following this valuation, the annual contributions to the scheme have been increased to £0.4 million as a result of increases to the pension scheme deficit. The Group accounts for post-retirement benefits in accordance with IAS 19 Employment Benefits. The Consolidated balance sheet reflects the net deficit on the pension scheme, based on the market value of the assets of the scheme and the valuation of liabilities using year end AA corporate bond yields. At 31 December 2020, the pension liability (net of deferred tax) was £2.7 million (31 December 2019: £1.7 million). The net liability has increased due to a sizeable reduction in discount rates during 2020 from 2.1% to 1.4%, lengthening in mortality rates and also increases in inflation. These increases in the pension liability were only slightly offset by growth in the fund's assets. Armfield takes its responsibility seriously to ensure the pension is adequately funded whilst also continuing to review appropriate deficit control strategies.

Cashflow and net debt

Whilst we have had a challenging year's trading, the Group continued to deliver strong cash generation with cash generated from operations of £14.6 million (2019: £19.1 million). The Group's excellent track record of converting profit into cash is reflected in the high conversion rate of adjusted operating profit into cash of 102% (2019: 110%) even if this figure was mildly impacted by an increase in receivables, where at year-end we were holding £1.8 million more short-term overdue receivables (less than six months overdue) largely due to the Group's inability to travel to, and complete, installations and training across the globe and consequently be paid upon completion. Total capital expenditure on property, plant and equipment amounted to £1.3 million (2019: £1.3 million). The figure is inflated due to £0.3 million spent on purchasing Moorfield's property at the start of 2020 and otherwise reflects the prudence throughout the year in avoiding non-essential capital expenditure to preserve cash. Year-end cash balances totalled £15.5 million compared to £14.1 million in 2019.

The Group finished 2020 with adjusted net debt of £5.7 million compared to £2.0 million of adjusted net debt at the end of 2019. Statutory net debt was £5.7 million (2019: statutory net debt of £0.3 million).

The small increase in our net debt is as a result of continuing to deliver on our strategy with capital allocated to acquiring THT in May 2020 for £7.3 million, Korvus in October 2020 for £2.6 million, together with £1.1 million spent in making PE.fiberoptics a wholly-owned subsidiary of Judges. This significant investment in the future of our Group was more than covered by the cash generated in 2020 thanks to the efforts by all our team to deliver good profitability in a very tough year and also convert that into cash. We were therefore able to continue our policy of paying progressively increasing dividends to shareholders (£3.2 million in 2020) and finished 2020 still in a conservative position. Gearing, calculated as the proportion of adjusted net debt compared to adjusted operating profit, at 31 December 2020 was 0.40 times (2019: 0.12 times) and we remain committed to maintaining a conservative gearing position whilst at the same time taking the opportunities of acquiring strong, sound businesses at disciplined multiples as illustrated both this year and across the history of our Group.

The Group's financial position continues to be a strength and we have suitable banking facilities to support inorganic growth. Our Group bank facility with Lloyds Banking Group (the "Bank") is for an aggregate £35.0 million consisting of a £10.0 million term loan ("Term Loan"), a committed £20.0 million revolving credit facility ("RCF") plus a £5.0 million accordion facility, which can be drawn at the discretion of the Bank; the facility expires in April 2023 ("the Borrowing Term"). The Term Loan amortises on a straight-line basis via quarterly payments and the RCF is repayable in a bullet at the end of the Borrowing Term. In November 2020 the accordion facility was activated and consequently this increased the committed RCF to £25.0 million.

During the year, the Bank agreed to repurpose £5.0 million of the RCF as a working capital buffer which the Group drew down in the first half of the year. This was repaid in December 2020 as we had sufficient cash reserves for the foreseeable future.

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

At the year-end the Term Loan had reduced to £4.5 million (2019: £6.5 million) and the RCF was drawn down to £15.0 million (2019: £5.2 million), with £10.0 million available to drawdown for future acquisitions. At 31 December 2020, the Bordeaux loan had also reduced to £1.7 million (2019: £2.6 million).

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

Overall, and despite the challenges that the pandemic has caused, the Group has delivered a good performance given the circumstances and it remains well placed, with a strong balance sheet and significant available borrowing capacity, to continue its strategy of achieving growth in earnings via selective acquisitions of strong niche businesses in the scientific instruments sector, alongside the ongoing performance of its existing businesses.

Brad Ormsby

Group Finance Director

22 March 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2020

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2020

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2020

*Includes £5,000,000 borrowed as working capital buffer and subsequently repaid in 2020

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2020

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.

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

Segment assets and liabilities

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

Analysis 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.

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

3. Adjusting items

4. Borrowings and net debt

Borrowings mature as follows:

5. Acquisitions

Acquisition of Heath Scientific Company Limited

On 29 May 2020 the Company acquired 100% of the issued share capital of Heath Scientific Company Limited, together with its wholly owned subsidiaries Thermal Hazard Technology Limited and THT Inc. ("THT"). THT is based in Bletchley, Buckinghamshire and specialises in the design and manufacture of scientific instruments focusing on calorimeters that are principally used to quantify thermal properties of lithium batteries as well as other reactive chemicals and materials.

The initial purchase price of THT, paid in cash at completion, amounted to £5.3 million. Additionally, an earn-out was payable based on THT's adjusted EBIT in the year to 30 April 2020, capped at £2.0 million, together with an amount to reflect any excess cash and working capital over and above the ongoing requirements of the business. The earn-out was achieved in full and the excess cash was covered by cash inherited at the completion date. Both amounts were paid in August 2020.

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

The acquisition of THT was financed via drawdown from the Group's £35.0 million acquisition facility from Lloyds Bank Corporate Markets.

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 and domain 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 deferred tax liabilities recognised represent the tax effect which will result from the amortisation of the intangible assets, estimated using the tax rate substantively enacted at the balance sheet date and the fair value of the assets. Additional fair value adjustments include stock, doubtful debt, commission and warranty provisions together with any related deferred tax. Adjustments to property, plant and equipment and right-of-use assets and liabilities were made to align with Group accounting policies.

This acquisition resulted in a profit after tax (before adjusting items) attributable to owners of the parent company of £400,000 in the period post-acquisition. After amortisation of intangible assets, the contribution to owners of the parent company's results amounted to a loss of £395,000 after tax.

If the acquisition had completed on 1 January 2020, based on pro-forma results, revenue for the Group for the year ended 31 December 2020 would have increased by a further £2,100,000 and profit after tax (before adjusting items) attributable to the owners of the parent company would have increased by a further £360,000 after allowing for interest costs. Amortisation of intangible assets on a pro-forma basis from 1 January 2020 to the date of acquisition would have been £645,000.

Acquisition of Korvus Technology Limited

On 19 October 2020 the Company acquired 100% of the issued share capital of Korvus Technology Limited ("Korvus"). Korvus is based in Tavistock, Devon, and specialises in the design and manufacture of vapour deposition systems used to coat materials with thin films and are used for academic and industrial research.

The initial purchase price of Korvus, paid in cash at completion, amounted to £2.6 million. Additionally, an earn-out of up to £0.4 million is payable based on Korvus' adjusted EBIT in the year to 31 March 2021, together with an amount to reflect any excess cash and working capital over and above the ongoing requirements of the business. The excess cash was covered by cash inherited at the completion date and was paid in December 2020.

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

The acquisition of Korvus was primarily financed via drawdown from the Group's £35.0 million acquisition facility from Lloyds Bank Corporate Markets.

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

Intangible assets recognised were acquired customer relationships, the value of the acquired future committed order book, acquired technology and Korvus' brand. The goodwill recognised, inclusive of the workforce and knowhow, has been allocated to the Vacuum Sciences segment.

The deferred tax liabilities recognised represent the tax effect which will result from the amortisation of the intangible assets, estimated using the tax rate substantively enacted at the balance sheet date and the fair value of the assets. A further fair value adjustment was made to inventory provisions together with the related deferred tax. Adjustments to property, plant and equipment and right-of-use assets and liabilities were made to align with Group accounting policies.

This acquisition resulted in a profit after tax (before adjusting items) attributable to owners of the parent company of £136,000 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 £39,000 after tax.

If the acquisition had completed on 1 January 2020, based on pro-forma results, revenue for the Group for the year ended 31 December 2020 would have increased by a further £1,000,000 and profit after tax (before adjusting items) attributable to the owners of the parent company would have increased by a further £375,000 after allowing for interest costs. Amortisation of intangible assets on a pro-forma basis from 1 January 2020 to the date of acquisition would have been £245,000.

Increased shareholding in PE.fiberoptics Limited

On 31 March 2020, Judges purchased the remaining 25.5% minority shareholding held in PE.fiberoptics Limited ("PFO") for a cash consideration of £1.1 million. As a result, Judges increased its ownership of the shares in PFO from 74.5% to 100%. The transaction was financed from Judges existing cash resources.

As this acquisition results in the entity becoming a wholly owned subsidiary, the purchase was accounted for by reducing the Non-Controlling Interest as at the date of the acquisition to £nil, and the remaining balance recorded through equity reserves.

Acquisition of Moorfield Nanotechnology Limited

No changes were made to the provisional acquisition accounting as presented in the 2019 Annual Report and Accounts.

Post balance sheet increase of shareholding in Bordeaux Acquisition Limited

On 16 February 2021, Judges acquired 12.5% of the shares in Bordeaux Acquisition Limited for a cash consideration of £1.8 million, increasing its shareholding from 75.5% to 88%. The transaction was financed from Judges existing cash resources.

6. Dividends

The Directors will propose a final dividend of 38.5p per share, amounting to £2,425,000, for payment on 9 July 2021. 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.

7. Final Results Announcement

This final results announcement, which has been agreed with the auditors, was approved by the Board of Directors on 22 March 2021. It is not the Group's statutory accounts. Copies of the Group's audited statutory accounts for the year ended 31 December 2020 will be available at the Company's website, www.judges.uk.com, promptly after the release of this preliminary announcement and a printed version will be dispatched to shareholders shortly. Copies will also be available to the public at the Company's Registered Office at 52c Borough High Street, London SE1 1XN.

The audit reports for the years ended 31 December 2020 and 31 December 2019 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 2019 have been delivered to the Registrar of Companies, but the 31 December 2020 accounts have not yet been filed.