Interim Results

Judges Scientific plc

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

Interim results for the six months ended 30 June 2022

Recovery continuing, large order book and largest acquisition completed

16% increase to interim dividend

Judges Scientific, the group focused on acquiring and developing companies in the scientific instrument sector, announces its unaudited interim results for the six months ended 30 June 2022. 

Key financials

Other financial highlights

· Organic** revenue increased 7% against H1 2021.

· Organic** order intake up 4% compared with H1 2021.

· Organic** order book at 21.3 weeks (H1 2021: 17.6 weeks).

Strategic highlights

· Completed acquisition of Geotek on 23 May 2022 for a consideration of up to £80 million. Largest acquisition to date and expected to significantly enhance full year earnings.

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

· Organic business continues to recover from the impact of Covid-19 but the rate of recovery has been affected by increasing supply chain issues during the period.

Outlook

· The external environment is still challenging, with variations between local markets and between the various scientific disciplines we serve.

· Resurgence of inflation, mitigated by Sterling weakness.

· Organic orders remain positive and to the end of August are 3% up compared to the same period in 2021.

· Organic order book at the end of August was 21 weeks.

· Strong second half anticipated from Geotek and the Board now expects that the full earn-out will be payable.

· The Board now expects that the Group will be significantly ahead of existing market expectations for the current year.

* Adjusted earnings figures are stated before adjusting items relating to hedging of risks materialising after the end of the period, amortisation of acquired intangible assets, share based payments and acquisition-related costs. Adjusted net debt includes acquisition-related cash payables which had yet to be settled at the balance sheet date and excludes IFRS 16 debt. 

** Organic denotes Group performance excluding the businesses which were not part of the Group on 1 January 2021.

Alex Hambro, Chairman of Judges Scientific, commented:

"During the period the Group generated record Organic order intake, revenues and profits in spite of increasing supply chain challenges, whilst still continuing to recover from the challenges created by Covid-19. At the end of May, the Group completed its largest acquisition to date, Geotek. After four months of ownership, the Board expects a strong contribution from Geotek for the second half of the financial year resulting in Adjusted Earnings per Share for the full year being significantly ahead of current market expectations.

The resilience of the Group's business model alongside the hard work by all our colleagues have once again been evident throughout the period and are reflected in the results."

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Investor Presentation

Judges Scientific is hosting a webinar, available to all existing and potential shareholders, covering the interim results for the six months to 30 June 2022, on Friday 30 September at 13:00 UK time. Investors can register for the webinar here: https://bit.ly/JDG_H122_webinar

For further information please contact: 

Chairman's statement 

The Group's businesses continued their recovery from the pandemic during the first half of 2022 and generated record Organic order intake, Organic revenues, Adjusted profits and Adjusted earnings per share. Travel restrictions were gradually eased in most regions, with the exception of China which saw the return of severe lockdowns. The easing enabled us progressively to resume visits to our customers, proceed with installations and attend conferences and trade shows. Nevertheless, this performance was still delivered as supply chain issues deteriorated during the period, probably aggravated by the Chinese lockdowns and the war in Ukraine. "Business as usual" in comparison to pre-pandemic has not returned yet.

The Group's ability to deliver this record performance would not have been possible without our colleagues, all of whom have yet again worked very hard in a challenging environment. I would like to thank them for their continued dedication and commitment.

On 23 May 2022, the Group completed its largest ever acquisition with the purchase of Geotek Holding Limited and Geotek Coring Limited (together 'Geotek') for a consideration of up to £80 million; references to "Organic" information in this update exclude any contribution from Geotek. Geotek's impact on the Group's full year results is expected to be significant but, in view of the timing of the transaction, the impact on the first half is modest. 

Order intake 

Order intake across the Group benefited from the gradual return of international travel but was dampened by the resurgence of Covid-19 in China.

Organic order intake was up 4% after a 25% gain in H1 2021; this shows 8% progress compared to H1 2019 although this cannot be considered a full recovery to the pre-Covid growth trajectory. The Group saw growth in North America, up 15% (after 41% growth in H1 2021) and the Rest of the World, up 13% (after 8% improvement in H1 2021). The Rest of Europe was flat (after 34% growth in H1 last year) reflecting erratic performances across the region. China/Hong Kong, which continued to be affected by strict lockdowns over the period, receded 5% (after 2% growth in H1 2021). The UK, which had progressed 26% in H1 2021, was down 9%. Order intake still varied considerably from business to business, although less so than in H1 2021.

Revenues 

Organic revenues were driven by the large order book available at the start of the year/throughout the period and by the modest H1 growth in intake, hindered by increasing supply chain difficulties and, to a lesser extent, by Covid-related absenteeism and recruitment challenges.

Group revenues for the period increased to £46.4 million (H1 2021: £43.0 million) including a 7% increase in Organic revenues. Revenues from China/Hong Kong were very strong (up 30%) in spite of the lockdowns; North America showed 21% growth and the Rest of the World 15%. The UK was down 21% and the rest of Europe was stable. The largest absolute changes were the US (up £1.9 million), the UK (down £1.5 million), China Hong Kong (up £1.4 million) and the Czech Republic (up £1.2 million). The best revenue performances were achieved in the areas which were weak in H1 2021 and vice versa, illustrating the erratic impact of Covid-19 and the ability, in our sector, to catch up over time.

The Organic order book remained robust, partially due to the operating difficulties, and reached a mid-year record of 21.3 weeks (17.6 weeks at 30 June 2021 and 23 weeks at 1 January 2022).

Profits 

Adjusted operating profit improved 15% to £10.1 million (H1 2021: £8.8 million) and adjusted pre-tax profit progressed 13% to £9.6 million (H1 2021: £8.5 million).

The main driver of improved profitability was the increase in Organic revenue reflecting the operational gearing within the Group: the EBITA contribution of the Organic businesses progressed 14% versus H1 2021 in spite of a gradual increase in travel spending.

Organic Return on Total Invested Capital ("ROTIC") recovered to 29.6% for the trailing 12 months ended 30 June 2022 (30 June 2021: 25.0%). However, once Geotek is included, a sharp reduction of ROTIC must be expected.

Adjusted basic earnings per share grew 12% to 124.6p (H1 2020: 111.0p) and Adjusted diluted earnings per share progressed similarly to 123.0p from 109.5p.

The Directors continue to publish adjusted figures alongside the statutory results, prepared consistently with past reports, in order to communicate to shareholders what is, in the Directors' opinion, the true operating performance of the Group. The total adjustments of £5.7 million (H1 2021: £1.7 million) consist primarily of a £2.3 million charge for amortisation of acquired intangible assets arising through acquisition and £2.9 million of Geotek acquisition related costs. These adjusting items reduce profit before tax from £9.6 million to £3.9 million (H1 2021: £6.7 million) and earnings per share to 44.4p basic and 43.8p diluted (H1 2021: 88.4p basic and 87.1p diluted). 

Corporate activity

On 23 May 2022, the Group completed the largest acquisition in its history. Geotek was acquired for £45 million plus an earn-out capped at £35 million plus excess cash at completion. The earn-out is based on the EBIT generated by Geotek in the calendar year 2022 and is payable to the extent such EBIT exceeds £6.4 million at the rate of 7 times such excess, until EBIT reaches £11.4 million, payable 50% in cash and 50% in new Judges shares. Geotek is a world leader in instruments conducting non-destructive testing on geological cores and in providing related services. Geotek's contribution to these interim results is modest but the acquisition is expected to be strongly earnings enhancing in the full year and the Board now expects that the full earn-out will be payable, around March 2023.

The acquisition was financed by a new £100 million club facility granted by Lloyds Banking Group plc, Bank of Ireland and Santander UK plc which replaced the previous £60 million facility which was solely with Lloyds. The new facility which is co-terminous with the previous facility and has a term of four years until 25 May 2026, consists of a £25 million straight-line amortising term loan, a £55 million committed revolving credit facility, repayable in a bullet at the end of the term, and a £20 million uncommitted accordion. Further details are included in Note 10.

On 27 June 2022, the Group purchased the remaining 12% of the outstanding shares in Bordeaux Acquisition Limited for a consideration of £2.1 million including excess cash, bringing its shareholding to 100%. £2 million of the consideration was settled in new Judges shares based on the prevailing share price at the date of the transaction and the balance paid in cash. Bordeaux owns 100% of Deben UK Limited and Oxford Cryosystems Limited and holds significant net cash balances. This transaction is expected to be earnings enhancing in the second half.

Cashflow and net debt 

The Group once again saw good cash conversion: cash generated from operations grew to £8.2 million (H1 2021: £8.0 million) representing 81% of adjusted operating profit (H1 2021: 91%). Cash generation was still affected by increased working capital requirements from stockpiling of components to counteract supply channel difficulties and by continued payment delays arising from our inability to travel and perform installations in certain regions, particularly China.

The interim balance sheet includes cash balances of £36.4 million and adjusted net debt of £54.9 million (inclusive of the cash element of the expected Geotek earn-out), from £1.4 million net cash at the beginning of 2022. The overwhelming majority of investment expenditure in H1 was related to the Geotek acquisition but the Group also spent £4.6 million on new industrial properties and related improvements for our businesses. Ownership of factories improves our flexibility in organising them in accordance with our needs and may prove favourable in an inflationary climate.

Dividend 

In accordance with the Company's policy of increasing dividends by no less than 10% per annum, the Board is declaring an interim dividend of 22p (2021: 19p), which will be paid on Friday 4 November 2022 to shareholders on the register on Friday 7 October 2022. The shares will go ex-dividend on Thursday 6 October 2022. The interim dividend is covered 5.7 times by adjusted earnings (2021: 5.5 times). 

Outlook

As the world emerges from the Covid-19 engendered pandemic, and subsequently deals with the challenging external environment, our ecosystem is still unstable. Localised lockdowns remain, as well as continuing supply chain and recruitment challenges. The invasion of Ukraine has not only exacerbated some of these issues but also stimulates tensions in other regions of the world. Our scientific communities are global and cosmopolitan, and we thrive in a world at peace where commerce is conducted freely.

The need to pay the bill for Covid-19 is starting to be recognised and inflation and higher interest rates no longer appear so transient. Our Group needs to adapt to this new climate. We have recently increased our indebtedness, but we have fixed the interest rates to protect the Group from the consequences of any inflationary spiral. The market leadership of most of our businesses, their continuous search for innovation and the weakness of Sterling will alleviate the inflationary pressures we will unavoidably encounter.

Whilst the near-term trading environment does remain volatile, 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.

At the end of August the Organic order intake was 3% above the comparable period in 2021 and the Organic order book stood at a robust 21 weeks. The Group's Organic businesses overall are performing in line with management's expectations and, after four months of ownership, the Board expects a strong contribution from Geotek for the second half of the financial year resulting in Adjusted Earnings per Share for the full year being significantly ahead of current market expectations.

The Hon. Alexander Hambro

Chairman

22 September 2022

Condensed consolidated interim statement of comprehensive income

Condensed consolidated interim balance sheet

Condensed consolidated interim statement of changes in equity

Condensed consolidated interim cashflow statement

* 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 Notes 10 and 11). 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 interim report

1. General information and basis of preparation

The Judges Scientific plc Group's principal activities comprise the design, manufacture and sale of scientific instruments. The subsidiaries are grouped into two segments: Materials Sciences and Vacuum. The recent acquisition of Geotek has been included in the Material Sciences segment.

The financial information set out in this Interim Report for the six months ended 30 June 2022 and the comparative figures for the six months ended 30 June 2021 are unaudited. The Interim Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The Interim Report does not contain all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2021, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 (IFRS).

The financial information for the year ended 31 December 2021 set out in this Interim Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2021 have been filed with the Registrar of Companies. The Auditor's Report in respect of those financial statements was unqualified and did not contain statements under section 498 of the Companies Act 2006.

Judges Scientific plc is the Group's ultimate parent company. The Company is a public limited company incorporated and domiciled in the United Kingdom. Its registered office and principal place of business is 52c Borough High Street, London SE1 1XN and the Company's shares are quoted on the Alternative Investment Market. The Interim Report is presented in Sterling, which is the functional currency of the parent company. The Interim Report has been approved for issue by the Board of Directors on 22 September 2022.

Going concern

The consolidated financial statements have been prepared on a going concern basis. The Group ended the first half of 2022 with adjusted net debt of £54.9 million compared to adjusted net cash of £1.4 million at 31 December 2021. The Group refinanced its borrowing facilities in May 2022 for a four-year term providing the Group with certainty over long-term liquidity; as part of the financing, the Group increased borrowings by £45.1 million, in order to finance the acquisition of Geotek, and there are additional cash liabilities in respect of the acquisition of £32.1 million (see notes 9 to 11). Aside from the increase in borrowing and amounts payable in respect of the acquisition, the Group's cash position improved in the period as a result of consistent cash generation arising from strong performance of the Group's principal operating companies, supported by growth in Organic order intake and a large forward order book. The improvement in cash is after outlays for paying our fair share of tax (£0.7 million) and ongoing investment into capital expenditure (£5.1 million).

The Directors have considered the ongoing impact of the events in Ukraine and the Covid-19 pandemic. The Group remains in a strong financial position, with high cash balances, high cash generation and a solid future order book enabling it to face the challenge of the continued uncertain global economic environment. The Directors have planned for reasonably foreseeable worsening scenarios including a repetition of the same level of reduction in orders in 2022 as happened in 2020 (at the start of Covid-19) which would not cause any significant challenges to the Group's continued existence.

The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis in preparing the Interim Report.

2. Significant accounting policies

The Interim Report has been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2021, except for the taxation policy where, for the purposes of the interim results, the tax charge on adjusted business performance is calculated by reference to the estimated effective rate for the full year.

3. Segmental analysis

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

Segment assets and liabilities

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

4. Adjusting items

5. 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 period.

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 is calculated as above whilst substituting total profit for adjusted profit.

6. Goodwill

The following tables show the additions to goodwill:

7. Other intangible assets

The following tables show the additions to, and amortisation of, intangible assets:

8. Share capital

Movements in the Group's Ordinary shares in issue are summarised as follows:

Allotments of Ordinary shares in the first six months of 2022 were made to satisfy the exercise of 3,876 share options in aggregate on 5 occasions during the period when the share price was within the range of 7500p to 8360p (2021: exercise of 12,676 share options when the share price was within the range of 5800p to 6408p).

9. 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 purchase price of Geotek consists 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 and will be 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 is expected to be paid, however as the amount is likely to fall due around March 2023, it has been discounted to £31.7 million. The payment in respect of surplus working capital is a provisional figure and will be agreed and settled in October 2022.

The estimated total fair value of the future liabilities relating to the Geotek acquisition as at 23 May and 30 June 2022 consists of the following:

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

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