Interim Results

Judges Scientific plc

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

Interim results for the six months ended 30 June 2018 and Trading Update

 Key financials 

· Revenues up 13% to a record £37.0 million (H1 2017: £32.7 million) including 5.7% Organic growth;

· Adjusted* pre-tax profit up 50% to £6.6 million (H1 2017: £4.4 million);

o Statutory pre-tax profit of £4.2 million (H1 2017: £2.1 million);

· Adjusted* basic earnings per share up 52% to 83.4p (H1 2017: 54.8p);

o Statutory basic earnings per share of 53.3p (H1 2017: 23.9p);

· Interim dividend of 12.0p (H1 2017: 10.0p), an increase of 20%; covered 7 times by adjusted earnings;

· Organic order intake up 2.3% compared with H1 2017;

· Organic order book at 15.0 weeks (H1 2017: 15.4 weeks);

· Cash generated from operations of £6.3 million (H1 2017: £4.4 million);

· Adjusted* net debt of £2.2 million as at 30 June 2018 (31 December 2017: £8.0 million);

o Statutory net debt of £2.4 million as at 30 June 2018 (31 December 2017: £7.6 million);

· Cash balances of £14.4 million as at 30 June 2018 (31 December 2017: £10.7 million);

· Bank debt refinanced with new facilities of £35 million;

· Post period end buy-back by PFO of one half of the shares held by its minority holders for a cash consideration of £1.5 million, increasing the Group's share in PFO from 51% to 67.5%.

Trading update 

· Adjusted profit before tax and Earnings per Share anticipated to be ahead of FY 2018 expectations.

* 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 notionally includes acquisition-related payments which had yet to be settled at the balance sheet date and excludes subordinated debt owed by subsidiaries to minority shareholders.

Alex Hambro, Chairman of Judges Scientific, commented:

"During the period, the Company achieved new records in terms of revenues, adjusted profit before tax, adjusted earnings per share and dividends. This strong momentum has been maintained since the end of the period and as such, the Board anticipates that full year adjusted profit before tax and EPS will be ahead of current market expectations.

During the period we welcomed Charles Holroyd to the Board with Glynn Reece transitioning to become the Group's Company Secretary. The Group continues to pursue its disciplined strategy and benefits from a broad range of revenue streams, diversified by geography and market, partially insulating it against wider external volatility."

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Chairman's Statement

It is pleasing to report for the first half of 2018 record figures across revenues, adjusted profit before tax, adjusted earnings per share and dividends, maintaining the positive momentum experienced since the middle of 2016.

The Group's results for the six-month period to 30 June 2018 include a full contribution from Oxford Cryosystems Limited, which was acquired in July 2017. "Organic" in this statement excludes the performance of that business.

Trading performance

Group revenues for the six months ended 30 June 2018 increased 13% to a record £37.0 million (H1 2017: £32.7 million) as a result of 5.7% Organic growth and of the contribution from Oxford Cryosystems. Organic sales were particularly strong in the Rest of Europe (up 31%) and North America (up 16%); after its recent weakness, the UK showed some improvement (up 9%) but the Rest of the world receded 21%, mainly due to a pause in China/Hong Kong (down 17% after many years of strong, albeit erratic, growth). The non-Organic business produced revenues in line with the Board's expectations. 

Profitability primarily driven by Organic revenue growth was bolstered by the underlying favourable foreign exchange environment, despite the tentative strengthening of Sterling for a period in the six months being reported; it was also reinforced by the progress made with the previously communicated localised production issues. Organic contribution to EBITA and central costs advanced by 36% which, with the contribution from Oxford Cryosystems, led to a 50% increase in adjusted pre-tax profit to £6.6 million (H1 2017: £4.4 million). Return on total invested capital ("ROTIC") recovered to 24.2% for the trailing 12 months ended 30 June 2018 (30 June 2017: 17.4%) evidencing the performance momentum we have been building.

The strong Organic EBITA performance was the main factor behind earnings growth but they were also enhanced by the Oxford Cryosystems contribution and the increased shareholding in Bordeaux. Adjusted basic earnings per share progressed 52% to 83.4p (H1 2017: 54.8p) and adjusted diluted earnings per share grew similarly from 54.1p to 82.1p.

Your Directors continue to show adjusted figures, 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 £2.4 million (H1 2017: £2.3 million) include a £2.1 million charge for amortisation of acquired intangible assets (H1 2017: £2.2 million) arising through acquisition. The adjusting items reduce profit before tax from £6.6 million to £4.2 million (H1 2017: £2.1 million) and earnings per share to 53.3p basic and 52.4p diluted (H1 2017: 23.9p basic and 23.6p diluted).

Cashflow and net debt

Cash flow during the first half of 2018 was in tune with the improved trading, with cash from operations of £6.3 million (H1 2017: £4.4 million) representing 92% of adjusted EBIT (H1 2017: 95%). The interim balance sheet includes cash balances of £14.4 million and adjusted net debt of £2.2 million, down from £8.0m at the beginning of 2018.

In April, the Company entered into an agreement with Lloyds Banking Group plc to refinance and expand the Group facilities for another five years; the new facilities consist of a £10 million term loan, a £20 million committed acquisition facility and a £5 million uncommitted acquisition facility (accordion) on similar terms to the previous agreement. Bordeaux Acquisition Limited's ("Bordeaux") facilities remain unchanged and separate from the Group's facilities. The Group owns 75.5% of the shares in, and shareholders loans to, Bordeaux.

Order intake

As previously announced, Organic order intake in the first half was solid, showing a progression of 2.3% on the excellent performance achieved in the same period last year. On 30 June 2018, the Organic order book stood at 15.0 weeks of sales against 15.0 weeks at the beginning of 2018 and 15.4 weeks at 30 June 2017. With satisfactory bookings at Oxford Cryosystems, the Group's overall order book, including Oxford Cryosystems, at 30 June 2018 stood at 14.6 weeks.

Geographic Organic order intake grew strongly in the UK (by 27%) and in the Rest of Europe (by 24%), was flat in North America and down by 20% in China. This illustrates both the differential in timing between receipt of orders and their subsequent delivery, and also the variability of orders by geography over short periods. This is somewhat mitigated by the Group's diversity both by geography and by market.

Dividend

In accordance with the Company's dividend policy and in view of the positive performance in the period, the Board is declaring an interim dividend of 12.0p (2017: 10.0p), which will be paid on Friday 2 November 2018 to shareholders on the register on Friday 5 October 2018. The shares will go ex-dividend on Thursday 4 October 2018. The interim dividend is covered 7 times by adjusted earnings.

Board composition

On 1 June 2018, we were delighted to welcome Charles Holroyd to the Board as a Non-Executive Director replacing Glynn Reece who stepped down from the Board but remains as Company Secretary. Having been with the Group since its inception, Glynn has worked with the Board to grow the business and deliver significantly value for our shareholders, and we thank him for his hugely valuable contribution.

Charles most recently worked at Oxford Instruments plc, which he joined in 1999 and where he served on the board from 2005 until 2013 and was responsible for group business development. Charles has a BSc in Electrical and Electronics Engineering from Bristol University and an MBA from INSEAD and is a Chartered Engineer and a Fellow of the Institution of Engineering and Technology. Charles is the senior independent Non-Executive Director and is a member of both the remuneration and audit committees.

Post balance sheet event

On 8 August 2018 PE Fiberoptics Limited ("PFO"), the vehicle for a 2005 management buy-out backed by Judges, purchased half of its own shares from all shareholders other than Judges, satisfied by a portion of its surplus cash balances. As a result, PFO purchased 24.5% of its issued share capital and subsequently cancelled these shares, increasing the Group's share in PFO from 51% to 67.5%. The total value of the repurchase was £1.5m and the Board expects the transaction to be immediately earnings enhancing for the Group.

Outlook

Currency fluctuations and the ups and downs of government spending in various parts of the global market for our products continue to be the main factors influencing demand in the short term and causing it to oscillate around the long term positive trend driving the scientific sector.

In the last three years, trading has displayed a second half bias which is not expected to be replicated this year. Despite this, since the end of the period under review, order intake has continued to be positive and Organic intake for the first ten weeks of the second half is significantly ahead of the same period in 2017 giving the Board confidence that adjusted profit before tax and EPS will be ahead of current market expectations for the year as a whole.

The Hon. Alexander Hambro

Chairman

17 September 2018

Condensed consolidated interim statement of comprehensive income

Condensed consolidated interim balance sheet

Condensed consolidated interim statement of changes in equity

Condensed consolidated interim cash flow statement

*- On 27 April 2018, £12,896,000 of outstanding loans were repaid and simultaneously reborrowed as the Group renewed its banking facilities (see note 10).

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 financial information set out in this interim report for the six months ended 30 June 2018 and the comparative figures for the six months ended 30 June 2017 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 2017, which have been prepared in accordance with IFRS as adopted by the European Union.

The financial information for the year ended 31 December 2017 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 2017 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 is 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 17 September 2018.

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 2017, 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. Additionally, the Group has adopted IFRS 15 'Revenues from Contracts with Customers' as of 1 January 2018. No restatement to prior period comparatives was required.

3. Segmental analysis

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.

4. Adjusting items

5. Earnings per share

Adjusted basic earnings per share is calculated on the adjusted profit, which is presented before 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 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. Other intangible assets

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

7. Share capital

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

During the first six months of 2018 the following allotments took place:

- 43,050 Ordinary shares were issued to satisfy the exercise of share options as follows:

o on 22 January 2018 when the mid-market share price was 2,350.0p;

o on 31 January 2018 when the mid-market share price was 2,290.0p;

o on 6 April 2018 when the mid-market share price was 2,350.0p;

o on 9 April 2018 when the mid-market share price was 2,350.0p;

o on 13 April 2018 when the mid-market share price was 2,350.0p; and

o on 4 May 2018 when the mid-market share price was 2,550.0p.

8. Changes in net debt

Changes in net debt for the six months ended 30 June 2018 were as follows:

Non-cash items represent foreign exchange differences on bank loans.

9. Acquisitions

In March 2018, deferred consideration of £0.599 million was paid to the vendors of Crystallon Limited ("Crystallon") following achievement by Crystallon of EBITA in excess of £0.899 million for the financial year ended 30 November 2017.

10. Banking arrangements

On 27 April 2018, the Group entered into new banking facilities ("Facility") with Lloyds Banking Group plc (the "Bank") replacing its existing banking arrangements. The Facility was 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 replaced the previous facilities for which the Group had a total of £12.9 million outstanding. The Facility has a five year term ("Borrowing Term") with covenants and interest consistent with the previous bank facilities. The Term Loan shall amortise 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 existing lending facilities via Bordeaux Acquisition Limited ("Bordeaux"), the Group's 75.5% owned subsidiary, remain unchanged. Bordeaux was set up as a vehicle to acquire Deben UK Limited and was used in 2017 to acquire Crystallon, the parent of Oxford Cryosystems Limited.

11. Defined Benefit Scheme

The Group's defined benefit pension scheme liability has reduced to £2.1 million compared to £2.2 million at 31 December 2017, due to a small increase in the discount rate.

12. Dividends

During the period, the Company paid no dividends (2017: £nil).

The Company paid a final dividend of 22.0p per share (£1.4 million) on 6 July 2018 relating to the financial year ended 31 December 2017.

The Company will pay an interim dividend for 2018 of 12.0p per share on 2 November 2018 to shareholders on the register on 5 October 2018. The shares will go ex-dividend on 4 October 2018.

13. Post Balance Sheet Event

On 8 August 2018 the Company's interest in its majority owned subsidiary PE Fiberoptics Limited ("PFO") increased from 51% to 67.5%. 

In 2005, Judges financed the management buy-out of a business manufacturing instruments to test fibre optics. The buy-out vehicle, PFO, was owned by Judges (51%), the seller (14%) with the management of PFO owning the balance of the equity (35%).

PFO purchased half of the shares owned by all shareholders other than Judges, totalling 24.5% of its issued share capital, satisfied by a portion of its surplus cash balances and subsequently cancelled those shares acquired. The total value of the repurchase was £1.5m, based on an enterprise value of £3.8m for 100% of PFO. In 2017, PFO generated £1.1m EBIT.