Judges Scientific Regulatory News (JDG)

26 September 2013

Judges Scientific plc

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

Interim results for the six months ended 30 June 2013

JUDGES SCIENTIFIC REPORTS RECORD HALF-YEAR RESULTS

Financial Highlights*:

· Revenues up 14% to a record £15.4 million (H1-2012: £13.5 million) including 5% organic growth

· Adjusted pre-tax profit up 21% to a record £3.1 million (H1-2012: £2.6 million)

· Adjusted basic earnings per share up 7% to a record 41.1p (H1-2012: 38.4p)

· Interim dividend of 6.6p, an increase of 32% (H1-2012: 5.0p); covered six times by adjusted earnings

· Adjusted net debt of £15.0 million at 30 June 2013 (30 June 2012: £4.3 million and 31 December 2012: £1.8 million)

· Cash balances of £2.8 million at 30 June 2013

Operational Highlights:

· Acquisition of Scientifica Limited for up to £13.0 million (plus excess cash), representing the Group's largest acquisition to date

· Construction of purpose built factory for UHV Design and Quorum Technologies in Laughton, East Sussex

* Adjusted earnings figures are stated after adding back exceptional items relating to derivative financial instruments, hedging of risks materialising after the end of the period, amortisation of intangible assets 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:

"I am delighted to be able to announce a record set of interim results for the eighth consecutive year. The acquisition of Scientifica Limited was completed at the end of the period and should make a strong and immediate contribution to earnings. Our Group continues to display encouraging resilience against the backdrop of a generally challenging environment."

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Chairman's Statement

For the eighth consecutive year, I am pleased to be able to announce solid progress at the interim stage with revenues, adjusted operating profits, earnings per share and dividends all at record levels. The period culminated with the Group's £13.0 million acquisition of Scientifica Limited ("Scientifica"), our largest transaction to date.

Revenues for the six months ended 30 June 2013 rose 14% to £15.4 million (H1-2012: £13.5 million), with all regions showing growth with the exception of USA/Canada. The businesses which were owned by the Group on 1 January 2012 achieved organic growth of 5%. The balance of the increase was due to the inclusion of a full six-months of revenues from Global Digital Systems ("GDS") and KE Developments ("KED") as opposed to four months in H1-2012. In view of the fact that Scientifica was purchased on 26 June 2013, no revenues or profits for this company are included in these interim accounts although the effect of the acquisition is recorded in the Group's balance sheet.

Adjusted pre-tax profit for the first half of 2013 rose 21% to £3.1 million (H1-2012: £2.6 million). Organic growth in EBITA contribution amounted to 18.5%, with the balance attributable to the acquisitions completed post 1 January 2012.

Earnings per share figures reflect the advance in profits, the 20% dilution which resulted from the £3.0 million equity placing in May 2012 and the conversion, in the second half of 2012, of almost all of the remaining Convertible Redeemable shares. Adjusted basic earnings per share rose 7% to 41.1p (H1-2012: 38.4p). Adjusted diluted earnings per share progressed 18% to 39.4p (H1-2012: 33.5p). The return on total invested capital ("ROTIC") improved to 41% from 39%, although inevitably this figure will be lower by the year-end following the acquisition of Scientifica.

As in the past, the Group's figures have been adjusted to remove items which have to be included in the IFRS accounts but which, in the opinion of the Directors, serve to obscure rather than clarify the Group's trading performance. These items are treated as exceptional and consist of the transaction costs arising on the Scientifica acquisition (£794,000) and the following non-cash items: the amortisation of intangible assets (£1.25 million), the recognition of the fair value of contracts entered into to hedge risks crystallising after the end of the period, a fair value adjustment to acquisition consideration and a much reduced £111,000 charge (H1-2012: £1.35 million) arising in respect of the Convertible Redeemable shares. The latter reflects the effect of the further increase in the market value of the Company's Ordinary shares during the reporting period on the residual 4% of Convertible Redeemable shares which remain outstanding. These IFRS-related charges reduce profit before tax from £3.1 million to £777,000 (H1-2012: loss £1.1 million) and earnings per share to 7p basic and 6.7p diluted (H1-2012: loss of 36.4p basic and diluted).

Order intake during the six-month period showed only modest organic growth, with a strong first quarter being followed by a weaker second quarter. Had GDS and Scientifica been part of Judges throughout the first-half periods of both 2012 and 2013, the Group as presently constituted would have shown 13% organic growth in order intake for the period. The order book at 30 June 2013 (excluding Scientifica) represented 10.6 weeks of revenues, slightly ahead of the 10-week level at 30 June 2012.

The balance sheet shows the impact of the Scientifica acquisition and payment of the major part of the financial commitment in respect of the new Laughton factory for UHV Design and Quorum Technologies, both of which successfully relocated into the new facility in August 2013. Scientifica was purchased with a £9 million term loan but the acquisition cost of £13.3 million (excluding anticipated payments in shares but including transaction costs) and the Laughton factory investment of £2.4 million to date contributed to adjusted net debt of £15.0 million at 30 June 2013 (H1-2012: £4.3 million); without these investments, net debt would have been eliminated at the half-year. Cash flow in the first half was solid and the balance sheet remains prudent with a £2.8 million cash balance at 30 June 2013 (H1-2012: £3.9 million).

The Group's dividend policy is to maintain solid visibility of future progression. The Board views the level of earnings as sufficient to justify a further step increase and, accordingly, an interim dividend of 6.6p (2012: 5p) will be paid on Friday 8 November 2013 to shareholders on the register on Friday 11 October 2013. The shares will go ex-dividend on Wednesday 9 October 2013.

Trading at the start of the second half of the current year has been in line with the Group's budgets. Order inflow is recovering from the levels seen in the second quarter but remains somewhat subdued; these early signs of an improvement in market conditions, bolstered by a solid order backlog, give the Directors confidence that our full year targets will be met.

The Hon. Alexander Hambro

Chairman

26 September 2013

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

There are no items of other comprehensive income for the three periods in question.

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

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

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

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Nature of operations

Judges Scientific plc is the ultimate parent company of the Group, whose principal activities comprise the design, manufacture and sale of scientific instruments. The subsidiaries are grouped into two segments.

· Material Sciences Group

· Fire Testing Technology Limited is the world's major producer of instruments designed to measure the reaction of materials to fire; the activity is supported through the in-house production of engineering parts by its subsidiary company, Aitchee Engineering Limited. Its other trading subsidiary, Sircal Instruments (UK) Limited, designs, manufactures and sells rare gas purifiers for use in metals analysis.

· PE.fiberoptics Limited is a significant provider to the telecoms industry of equipment to test the properties of fibre optic and fibre optic networks.

· Global Digital Systems Limited designs, develops and manufactures equipment and software used for the computer-controlled testing of soils and rocks.

· Vacuum Group

· Quorum Technologies Limited designs, manufactures and sells instruments that prepare samples for examination in electron microscopes.

· UHV Design Limited designs, manufactures and sells instruments to create motion, heating and cooling within ultra high vacuum chambers.

· Deben UK Limited designs, manufactures and sells devices used to enable or to improve the observation of objects under microscopes.

· Scientifica Limited designs, manufactures and sells complete instrument rigs used in electrophysiology, comprised of micromanipulators, optical microscopes and associated mounting solutions.

2. General information and basis of preparation

The financial information set out in these condensed consolidated interim financial statements for the six months ended 30 June 2013 and the comparative figures for the six months ended 30 June 2012 are unaudited. They have been prepared taking into account the requirements of IAS 34 Interim Financial Reporting and the AIM Rules. They do 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 2012, which have been prepared in accordance with IFRS as adopted by the European Union.

The financial information for the year ended 31 December 2012 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 2012 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.

The condensed consolidated interim financial statements are presented in Sterling, which is also the functional currency of the parent company.

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 Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL. Its shares are listed on the Alternative Investment Market.

The condensed consolidated interim financial statements have been approved for issue by the Board of Directors on 25 September 2013.

3. Significant accounting policies

The condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2012, except for the taxation policy where, for the purposes of the interims, the tax charge on underlying business performance is calculated by reference to the estimated effective rate for the full year.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.

4. Significant events and transactions

The Group recorded a solid trading performance during the six-month period ended 30 June 2013. Organic growth in revenues of companies which were owned throughout the first half of both 2012 and 2013 amounted to 5%. This figure rose to 14% when the results of businesses acquired after 1 January 2012 are taken into account. Adjusted pre-tax profits increased to £3.1 million, a rise of 21% compared with the first half of 2012.

Scientifica Limited ("Scientifica") was acquired on 26 June 2013 for the sum of £12 million plus an earn-out capped at £1 million and a payment in respect of surplus cash. These sums have been or will be settled in cash except for the earn-out, half of which will be paid in Ordinary shares priced at £11.80 per share, the mid-market price on the day on which negotiation of the heads of terms was concluded. The acquisition was financed from existing cash resources, together with an additional £9 million bank loan. Since its acquisition, Scientifica has traded in line with expectations.

5. Intangible assets

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

6. Earnings per share

Basic earnings per share is calculated on the earnings attributable to Ordinary shareholders divided by the weighted average number of shares in issue during the period.

Diluted earnings per share is calculated on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options and 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.

Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below:

No account has been taken in the above figures of shares that will be issued to the vendors of Scientifica Limited in the event that profits of that company in the twelve months period ending 31 March 2014 are above the rate prevailing at the time of acquisition . This is in accordance with the requirements of IAS 33 - Earnings per Share.

7. Share issue

During the first six months of 2013 the following allotments took place:

· to satisfy the exercise of share options as follows:

§ 2,000 share options on 14 January 2013 when the mid-market share price was 975.0p

§ 1,500 share options on 16 January 2013 when the mid-market share price was 975.0p

§ 3,000 share options on 12 April 2013 when the mid-market share price was 1,215.0p

Ordinary shares in issue are summarised as follows:

8. Changes in net debt in the 6 months ended 30 June 2013 were as follows:

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

9. Acquisition of Scientifica Limited

On 26 June 2013 the Company's wholly owned subsidiary, Judges Capital Limited, acquired the entire issued share capital of Scientifica Limited ("Scientifica"), a company based in the UK. The total cost of acquisition includes the components stated below.

9. Acquisition of Scientifica Limited (continued)

Additional contingent consideration will be payable on an incremental basis in the event that Scientifica generates higher operating profits in the twelve months period to 31 March 2014 than those calculated in the prior year in accordance with the sale and purchase agreement. The maximum value of additional contingent consideration will be achieved if operating profits of £2.167m are generated in this period and would bring the total consideration to £12.5 million in cash, 42,372 Ordinary shares in Judges Scientific plc and a payment of £1.4 million to reflect excess working capital at the time of the acquisition.

Both the cash and share contingent consideration have been recognised at fair value. The maximum contingent consideration has been assumed in the calculation of fair value as the best estimate of the contingent consideration payable. The fair value of the share contingent consideration at acquisition is also based on the mid-market share price at the acquisition date deducting expected dividends to be paid in the contingent period which reflects an estimate of a contract to issue shares at the end of the contingent period. The movement in the share price from £12.95 to £13.85 (excluding expected dividends to be paid in the contingent period) between the acquisition date and 30 June 2013 has resulted in a £38,000 increase to the fair value of the contingent consideration and this movement has been recognised in the Condensed Consolidated Interim Statement of Comprehensive Income.

The amounts recognised for each class of the acquiree's assets, liabilities and contingent liabilities at the acquisition date are as follows:

The goodwill that arose on the combination can be attributed to the profitability of Scientifica.

The figures described below include interest charges that have been incurred by the Company as a result of this acquisition.

Given the proximity of the acquisition date to the reporting date of 30 June 2013, no trading results for Scientifica have been included in the Condensed Consolidated Interim Statement of Comprehensive Income. If Scientifica had been acquired on 1 January 2013, based on unaudited accounts for the financial year to 31 March 2013, revenue for the Group for the period to 30 June 2013 would have increased by £4,600,000 and profit after tax attributable to equity holders of the parent company would have increased by £665,000 after allowing for interest costs but before charging amortisation of intangible assets (a reduction of £944,000 after charging additional amortisation of intangible assets of £1,609,000).

10. Dividends

The Company paid an interim dividend of 5.0p per share (£261,910) on 2 November 2012 and a final dividend of 10.0p per share (£531,900) on 5 July 2013, both relating to the financial year ended 31 December 2012.

The Company will pay an interim dividend for 2013 of 6.6p per share on 8 November 2013 to shareholders on the register on 11 October 2013. The shares will go ex-dividend on 9 October 2013.

11. Distribution of document

Copies of these condensed consolidated interim financial statements will be sent to shareholders and the AIM team and will be available on the Company's website at www.judges.uk.com.