Judges Scientific Regulatory News (JDG)

Judges Scientific plc

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

Interim results for the six months ended 30 June 2021

Performance recovering, order book restored to pre-pandemic levels, and strong cash generation.

15% increase to interim dividend.

Judges Scientific, the group focused on acquiring and developing companies in the scientific instrument sector, announces its Interim Results for the six months ended 30 June 2021. 

Key financials

Other financials

· Organic** revenue increased 5% against H1 2020.

· Organic** order intake up 25% compared with H1 2020; and 3% up compared with record H1 2019.

· Organic** order book at 16.1 weeks (H1 2020: 10.8 weeks); total order book at 17.6 weeks.

· New £60m five-year bank facility to provide greater acquisition financing capability.

Outlook

· Business recovering from the initial impact of Covid-19.

· Environment still challenging, with marked differences between local markets and between the various scientific disciplines we serve.

· Organic orders remain positive and to the end of August are 23% up compared to the same period in 2020.

· Organic order book at the end of August was 18.8 weeks and total order book 20.1 weeks.

· The Board is confident that the Group will exceed 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 notionally includes acquisition-related payments which had yet to be settled at the balance sheet date and excludes IFRS 16 debt. 

** Organic designates group performance excluding the businesses which were not part of the group on 1 January 2020.

Alex Hambro, Chairman of Judges Scientific, commented:

"Pleasingly, the Group's performance has started to recover from the initial impact of the pandemic. Whilst there are further obstacles to overcome, the Group's resilience and adaptability and the contribution of the recent acquisitions have enabled the first half performance to reach the record established in 2019."

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.

For further information please contact: 

Chairman's statement 

The first half of 2021 marked a significant improvement in the Group's performance after the global difficulties caused by Covid-19 in 2020. Although daily life has returned to some normality in those countries with the benefit of a full vaccination programme, the pandemic is still ongoing across the world; our markets are, of course, global and are still affected by the ups-and-downs of the pandemic in various regions. Our markets and customers have managed to adapt to this new environment to a degree, but it is not "business as usual" yet. Our performance should be evaluated in this new context: reaching the adjusted EPS of H1 2019 (108.7p) demonstrates a significant recovery but we would have preferred to have already been able to add the two missing years of organic growth and the full contribution from our recent acquisitions to that result.

Order intake 

Travel restrictions, university closures and the cancellation of scientific conferences have continued to thwart our commercial activities but order intake has strongly rebounded and Organic** order intake for the 6 months to 30 June was up 25% compared to the same period last year which was itself down 17% on H1 2019; this leaves us 3% ahead of our record H1 2019 intake but well below pre-Covid growth levels.

Progress was strongest in geographies which were affected most in 2020 with North America up 41%, the Rest of Europe up 34%, the UK up 26%, China/Hong Kong up 2% and the Rest of the World up 8%. The most notable absolute increases were the US (up £2.5 million), the UK (up £1.4 million), France (up £1.2m), Germany (up £1.1 million), the Czech Republic (up £0.7 million) and Japan (up £0.6 million); the worst absolute decline was Brazil (down £0.3 million).

Order intake still varied considerably from business to business, between various scientific disciplines, and with bookings from large corporate customers being the slowest to revive.

Revenues 

Group revenues for the period increased to £43.0 million (H1 2020: £37.4 million). This included a 5% increase in Organic revenues plus the contribution of the businesses acquired in 2020. Organic revenue expanded less than Organic order intake as the Organic order book was refilled to a robust level. Whilst there is a gap before a recovery in orders translates into sales growth, another factor has been the divergence between the Group's businesses slowest to rebound and those working hard to satisfy a large order book; a further feature has been a change in the way China produces tax exemption certificates on academic imports, deferring sales, profits and cash-flow throughout the period.

Organic sales were strong in the UK (up 39%) and the rest of Europe (up 27%) but were weak in China/Hong Kong (down 33%) and North America (down 16%).

Profits 

Adjusted operating profit improved 31% to £8.8 million (H1 2020: £6.7 million) and adjusted pre-tax profit progressed 32% to £8.5 million (H1 2020: £6.4 million).

The main driver of improved profitability has been the increase in Organic revenue reflecting the operational gearing within the Group: the EBITA contribution of the Organic businesses progressed 14% versus H1 2020. In addition, the non-Organic businesses added a £0.7m EBITA contribution. Natural savings related to Covid-19 (travel and scientific conferences) continued to benefit our costs but our use of the UK Government's Coronavirus Job Retention Scheme was reduced by 75% versus H1 2020. It should be noted that order book fluctuations have a significant impact on profitability; H1 profits were flattered in 2020 by the compression of the order book and were dampened in 2021 by its rebuilding.

A further impact on our results for the six-month period to 30 June 2021 is that, in accordance with IAS 38, we were required to capitalise £0.4 million of our total R&D expense relating to development of new or significantly improved products. This has had the effect of artificially improving our result for this half year by 5 pence of EPS. Once these products are completed, their development costs will be amortised through the income statement over the next three years. We are likely to have a materially similar run rate of capitalisation over the second half of this year and also in the coming years, so whilst there will be a performance-enhancing effect on the results this year, the effect on the bottom line will diminish over the next two to three years.

Return on Total Invested Capital ("ROTIC") recovered to 25.0% for the trailing 12 months ended 30 June 2021 (31 December 2020: 23.5%; 30 June 2020: 26.6%). The ROTIC calculation excludes any effect of the aforementioned capitalisation of development costs.

Adjusted basic earnings per share grew 32% to 111.0p (H1 2020: 84.2p) and adjusted diluted earnings per share progressed similarly to 109.5p from 82.5p.

Your 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 £1.7 million (H1 2020: £2.1 million) consist primarily of a £1.4 million charge for amortisation of acquired intangible assets arising through acquisition. The adjusting items reduce profit before tax from £8.5 million to £6.7 million (H1 2020: £4.3 million) and earnings per share to 88.4p basic and 87.1p diluted (H1 2020: 57.8p basic and 56.6p diluted). 

Cashflow and net debt 

The Group once again saw strong cash conversion: cash generated from operations grew to £8.0 million (H1 2020: £5.1 million) representing 91% of adjusted operating profit (H1 2020: 76%). Cash generation was still affected by increased working capital requirements from stockpiling of components to counteract potential supply channel difficulties and by payment delays due to our inability to travel and perform installations; the aforementioned issue of Chinese tax certificates has also impacted H1 cash-flow.

The interim balance sheet includes cash balances of £17.6 million and adjusted net debt of £1.7 million, from £5.7 million at the beginning of 2021.

On 26 May 2021 the Group entered into new banking facilities ("Facility") with Lloyds Banking Group plc (the "Bank") for an aggregate £60.0 million, which replaced its previous £35.0 million banking arrangements. The new Facility will provide the Group, in support of its buy and build strategy, with greater acquisition financing capacity, both in terms of higher frequency and/or larger deals.

The Facility consists of a £19.0 million term loan ("Term Loan"), a committed £35.0 million revolving credit facility plus a £6.0 million accordion facility, which can be drawn at the discretion of the Bank. The Facility has a five year term with covenants and interest consistent with the previous bank facilities. The accordion facility increases by the amount paid off the Term Loan, keeping the overall Facility at £60.0 million throughout the five year period (see note 10 for further details).

The existing lending facilities via Bordeaux Acquisition Limited remain unchanged.

Corporate activity

On 16 February 2021, the Group purchased 12.5% of the outstanding shares in Bordeaux Acquisition Limited for a cash consideration of £1.8 million, bringing its shareholding to 88%. Bordeaux owns 100% of Deben UK Limited and Oxford Cryosystems Limited and holds significant net cash.

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 19p (2020: 16.5p), which will be paid on Friday 5 November 2021 to shareholders on the register on Friday 8 October 2021. The shares will go ex-dividend on Thursday 7 October 2021. The interim dividend is covered 5.5 times by adjusted earnings (2020: 5 times). 

Outlook

As the Group emerges from the worst of the pandemic, it is still faced by many challenges; whilst traveling restrictions and university closures are progressively alleviated, capital expenditure freezes are still affecting some of our operations and supply chain issues, which were benign in 2020, are now generating much unproductive management effort. Nevertheless, the Company is consolidating its recovery: Organic order intake remains positive and for the eight months to the end of August was 23% up on 2020, when the total order book stood at 20.1 weeks. Our financial position is robust and the Board has confidence that the performance for the year as a whole will be ahead of consensus expectations.

The Hon. Alexander Hambro

Chairman

23 September 2021

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 25 May 2021, £19.0 million of outstanding loans were repaid and simultaneously reborrowed as the Group renewed its banking facilities (see note 10). On 29 June 2020, £5.0 million was borrowed as a working capital buffer, and was subsequently repaid in December 2020.

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 2021 and the comparative figures for the six months ended 30 June 2020 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 2020, 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 2020 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 2020 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 23 September 2021.

Going concern

The consolidated financial statements have been prepared on a going concern basis. The Group ended the first half of 2021 with total net debt of £1.8 million (equal to 5% of equity) compared to adjusted net debt of £5.7 million at 31 December 2020. This reduction in net debt arose through profitable and cash generative trading of the Group's principal operating companies throughout the first half of 2021, driven by the 25% growth in Organic order intake, partially offset by £1.9 million allocated to increase the Group's shareholding in one of its majority-owned businesses (see Note 9). Further outlays were also made, paying instalments towards our fair share of tax (£0.6 million) and ongoing investment into capital expenditure (£0.5 million).

The Directors have considered the ongoing impact of the COVID-19 pandemic, and a summary of the implications is included in the Chairman's Statement. The Group is in a robust financial position, with high cash balances, low gearing and a strong future order book enabling it to face the challenge of the continued uncertain global economic environment due to COVID-19. The Directors have also performed reasonably possible stress testing on forecast cashflows, considering potential scenarios from the pandemic and, as a result, consider that the Group is appropriately placed to manage its business risks.

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 2020, 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

3. Segmental analysis (continued)

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

Segment assets and liabilities

3. Segmental analysis (continued)

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:

Allotments of Ordinary shares in the first six months of 2021 were made to satisfy the exercise of 12,676 share options in aggregate on 16 occasions during the period when the share price was within the range of 5800p to 6408p (2020: exercise of 48,650 share options when the share price was within the range of 4300p to 5680p).

8. Changes in net debt

Changes in net debt for the six months ended 30 June 2021 were as follows:

Non-cash items primarily represent foreign exchange differences on foreign currency bank balances.

The movement in borrowings over the period was as follows:

On 25 May 2021, £19.0 million of outstanding loans were repaid and simultaneously reborrowed as the Group renewed its banking facilities (see note 10).

9. Acquisitions

Increased 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.

10. Banking arrangements

On 25 May 2021, 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 £60.0 million consisting of a £19.0 million term loan ("Term Loan"), a committed £35.0 million revolving credit facility ("RCF") plus a £6.0 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 £19.0 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 accordion facility increases by the amount paid off the Term Loan, keeping the overall Facility at £60.0 million throughout the Borrowing Term.

The existing lending facilities via Bordeaux Acquisition Limited ("Bordeaux"), the Group's 88% 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 net liability has decreased to £2.0 million, compared to £3.3 million at 31 December 2020, primarily due to an increase of 0.5% in the discount rate to 1.85% from 1.35% at 31 December 2020.

12. Dividends

During the period, the Company paid no dividends (period to 30 June 2020: £nil).

The Company paid a final dividend of 38.5p per share totalling £2.4 million to shareholders on 9 July 2021 relating to the financial year ended 31 December 2020 (35.0p per share totalling £2.2 million relating to the financial year ended 31 December 2019).

The Company will pay an interim dividend for 2021 of 19.0p per share (2020: interim dividend of 16.5p per share) on 5 November 2021 to shareholders on the register on 8 October 2021. The shares will go ex-dividend on 7 October 2021.