Judges Scientific Regulatory News (JDG)

20 March 2018

Judges Scientific plc

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

PRELIMINARY STATEMENT OF RESULTS

Judges Scientific, a group involved in the buy and build of scientific instrument businesses, is pleased to announce its Preliminary Results for the year ended 31 December 2017.

Financial Highlights:

· Revenues up 24.6% to a record £71.4 million (2016: £57.3 million), including 17.7% Organic* growth;

· Adjusted** operating profit up 52% to £10.9 million (2016: £7.1 million);

o Statutory operating profit of £5.7 million (2016: £1.0 million);

· Adjusted** basic earnings per share up 56% to 131.9p (2016: 84.8p);

o Statutory basic earnings per share of 65.6p (2016: 1.0p);

· Final dividend of 22p, totalling 32p for the year, an increase of 16%; covered 4 times by adjusted earnings;

· Organic* order intake up 16% compared with 2016;

· Organic* order book at 16.6 weeks (1 January 2017: 14.8 weeks);

· Cash generated from operations of £10.9 million (2016: £6.2 million);

· Adjusted** net debt of £8.0 million as at 31 December 2017 (31 December 2016: £9.9 million);

o Statutory net debt of £7.6 million at 31 December 2017 (31 December 2016: £8.6 million);

· Cash balances of £10.7 million as at 31 December 2017 (31 December 2016: £7.9 million).

Strategic Highlights

· Acquisition of Oxford Cryosystems by Bordeaux on 18 July 2017 for £5.1m cash (including earn-out);

· Increase in Judges' shareholding in Bordeaux to 75.5%.

* Organic describes the performance of the Group including businesses acquired prior to 1 January 2016.

** Adjusted earnings figures exclude adjusting items relating to amortisation of 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 minority shareholders.

Alex Hambro, Chairman of Judges Scientific, commented:

"2017 was a record year for order intake, sales, adjusted profits and earnings per share; this was driven by good demand for our products and very favourable foreign exchange rates."

Notes to editors:

Judges Scientific plc (AIM: JDG), is a group involved in the buy and build of scientific instrument businesses. The Group currently consists of 16 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 has received five Queens' awards for innovation and export.

Judges Scientific maintains a policy to selectively acquire businesses that generate sustainable profits and cash. Shareholder returns are created through the repayment of debt, dividends and through organic growth which the Group encourages by creating an environment for businesses to thrive in, with support and advice for entity management teams.

The Group's companies predominantly operate in global niche markets, with long term growth fundamentals and resilient margins.

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

CHAIRMAN'S STATEMENT

I am delighted to be able to report record order intake, record revenues, record adjusted pre-tax profit and record earnings per share for the year ended 31 December 2017. Pleasingly, performance has been achieved through both organic growth and contributions from our acquisitions, illustrating the execution of both facets of our strategy. The long-term growth drivers in the scientific instruments industry remain robust and, whilst volatility in short term demand remains a feature within our industry, the climate was in our favour as evidenced by the strong demand for our products observed over the last 18 months.

As well as record financial results, 2017 has been a year of significant progress for the Group and within our businesses. The Group completed its 16th acquisition and the two businesses that had experienced lower demand in 2016 returned to normal levels of orders, sales and profitability.

Delivering returns to our shareholders remains the objective of the Group and as such the Board is pleased to be recommending a final dividend of 22.0p, making a total of 32.0p in respect of 2017, a 16.4% increase on the prior year (2016: 27.5p).

Acquisitions

On 18 July our 51% subsidiary Bordeaux Acquisition Limited ("Bordeaux") acquired 100% of the issued share capital of Crystallon Limited ("Crystallon") for a total consideration of £5.1 million (including an earn-out payment of £0.6 million) plus excess cash; Crystallon is the holding company of Oxford Cryosystems Limited ("Oxford Cryosystems"), a manufacturer of cryogenic cooling systems used for x-ray crystallography and other applications. Simultaneously, Judges purchased an additional 24.5% of the shares in Bordeaux, increasing its shareholding to 75.5%; this was completed at a cost of £1.3 million. The accounts under review include the post-acquisition performance of Oxford Cryosystems, which was in line with the Board's expectation at the time of the transaction.

Strategy

The Group's strategy is based on creating shareholder returns through highly selective and carefully structured acquisitions, underpinned by diversified, solid and consistent earnings and cash-flows arising from our acquired businesses.

The Group's overall criteria are to acquire small/medium-sized scientific instrument companies, 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 acquiring businesses with sustainable profits and cash-flows, 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 longstanding strength. As our Group grows it is then able to promptly pay down the acquisition debt, making space to reinvest in further acquisitions, 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 shareholders despite, as we have observed since 2014, the potential for some short-term variability in performance. Long-term market drivers are rooted in the general 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

David Barnbrook, our Chief Operating Officer since 2009, retired from full time duties at the end of 2017 after twelve and a half years with the Group. His contribution has been considerable, as a Board director, as COO and as temporary MD in four subsidiaries. I am sure our shareholders will join the Board in thanking him for his hard work, loyalty and competence and in wishing him a happy retirement. He will continue to chair Scientifica on a part time basis. David's successor, Mark Lavelle, joined the Group in November 2017; we are pleased to have found someone with such relevant experience, having spent 15 years with Halma plc, including five years as divisional CEO, and we wish Mark great success within Judges.

Our thanks also go out to all our employees for the evident success they have made of their businesses throughout the past 12 months.

Alex Hambro

Chairman

19 March 2018 

CHIEF EXECUTIVE'S REPORT

Performance

Revenues

Group revenues for the financial year ended 31 December 2017 progressed from £57.3 million to £71.4 million, an increase of 24.6%. This reflects Organic growth of 17.7%, the full year contribution of the four businesses acquired during 2016 and the maiden contribution from Oxford Cryosystems which was acquired in July 2017. For the year as a whole and excluding the businesses acquired since 1 January 2016 (this is the meaning of "Organic" in these Report and Accounts), revenues progressed across all regions except the UK, which declined by 15%. The Board believe this may be in part due to the uncertainties affecting research funding since the Brexit referendum. The rest of Europe progressed 20%, USA/Canada 14%, China/Hong Kong 36% and the rest of the World 31%; customers outside the UK appraise the value of what they purchase in currencies other than Sterling and the weakness in Sterling throughout the year assisted the strength of our exports. Country by country, the most impressive increases in absolute terms were in China/Hong Kong (up £2.1 million), in the USA (up £1.8 million) and in India (up £1.3 million thanks to one large order); in Europe, the best performer was Germany (up £0.8 million).

Profits

Profit before tax and adjusting items progressed 57% to £10.4 million (2016: £6.6 million). Organic operating contribution was up 50% driven by improved demand throughout the Group, including the two businesses that had suffered from low order intake in 2016, and by the very favourable exchange rates prevailing since the Brexit vote. After extensive changes to its management team, the business in the Vacuum division that suffered production and supply chain issues made some progress particularly in the last four months of 2017; much remains to be done and, of course, operating progress takes time to translate into financial performance. All operating subsidiaries combined (including the 2016 acquisitions and Oxford Cryosystems) produced a Return on Total Invested Capital of 20.6% (2016: 15.2%).

The Group has continued to invest in the improvement of its existing products and the development of new products. Investment in research and development amounted to £3.5 million in 2017 (2016: £3.8 million), equivalent to 5.0% of Group revenue, somewhat reduced from the 2016 ratio of 6.6% due to the strength in 2017 sales.

Basic earnings per share before adjusting items advanced by 56% to 131.9p from 84.8p, while fully diluted earnings per share before adjusting items also improved 56% to 130.3p (2016: 83.7p).

Order intake

The improved demand benefitting the Group since June 2016 continued throughout 2017; this strength was observed across most Group companies and progress was made across all major export zones with Europe up 14%, USA/Canada up 21%, China/Hong Kong up 32% and the rest of the World up 15% whilst the UK was down 9%. This resulted in a 16% increase in Organic order intake compared to 2016. The healthy intake fuelled the improved sales and produced an increased Organic year-end order book of 16.6 weeks (31 December 2016: 14.8 weeks). The total order book at 31 December 2017 including recent acquisitions represented 14.9 weeks of budgeted sales.

Cashflow

The strong trading performance produced healthy cashflow with cash generated from operations of £10.9 million (2016: £6.2 million). Adjusted net debt as at 31 December 2017, excluding subordinated debt owed to non-controlling shareholders and including sums still due in respect of an acquisition, amounted to £8.0 million (2016: £9.9 million) as cash generation after tax and dividends exceeded the £6.4 million spent on acquisitions.

Dividends

Your Board is recommending a final dividend of 22.0p per share which, subject to approval at the forthcoming Annual General Meeting on 30 May 2018, will make a total distribution of 32.0p per share in respect of 2017 (2016: 27.5p per share). Despite the proposed 16.4% increase, the total dividend per share is more than four times covered by adjusted earnings per share.

The proposed final dividend, if approved by shareholders, will be payable on 6 July 2018 to shareholders on the register on 8 June 2018 and the shares will go ex-dividend on 7 June 2018.

The Company's shareholders are reminded that a Dividend Reinvestment Plan (DRIP) is in place to enable shareholders to automatically reinvest their dividends in new 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 increased worldwide investment in higher education and a growing trend towards 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. Alongside these external variables the uncertainty in research funding in the UK resulting from Brexit may also have an influence on commercial activity in some of our businesses.

As a large percentage of the Group's sales are 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. Current exchange rates during the year have been the most favourable we have seen since 2009 but since the year-end, Sterling has recovered some of the lost ground.

Acquisitions

As a buy and build group, the acquisition of new businesses is a fundamental feature of Group strategy. Executing this effectively is required to ensure that long-term value is generated for shareholders. In July 2017 Judges acquired Crystallon, the holding company of Oxford Cryosystems for £5.1 million. The acquisition was effected by Judges' subsidiary, Bordeaux, and the Group simultaneously increased its shareholding in Bordeaux from 51% to 75.5% at a cost of £1.3 million. The total spent on both transactions was £6.4 million (excluding payment for excess cash) and each was immediately earnings enhancing. Oxford Cryosystems makes cooling systems for X-Ray Crystallography and it has recently expanded into radiotelescopy by supplying cooling devices for the Meerkat project, a forerunner of the square kilometre array project ("SKA").

The industry in which we operate consists of a multitude of small global niches as highlighted 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 reputation over the past decade as a worthwhile 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, aids 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.

Current trading and prospects

The Group is starting 2018 on solid foundations with a strong order book. Order intake in the first ten weeks has been satisfactory and trading at this early stage is consistent with the Company's target for the year.

Our environment continues to be influenced by global public spending and by currency movements. Sterling has recovered from the abyss of 2017 but is still at levels that are very favourable to local manufacturers heavily engaged in exports; we are well hedged for the current year but further strengthening of Sterling would not be positive.

On the back of the progress made last year, with a healthy order visibility and an increased contribution from Bordeaux and Oxford Cryosystems, the Board has confidence in the prospects for a positive year. 

David Cicurel

Chief Executive

19 March 2018

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 repay acquisition debt and fund dividend payments to shareholders, are earnings per share, operating margins, return on capital and cashflow generation. All four KPIs have improved in 2017 reflecting positive, profitable order intake across the business and its subsequent conversion into cash.

Revenue

Group revenues increased by 24.6% to £71.4 million (2016: £57.3 million). This strong overall revenue growth included 17.8% organic growth in the year (2016: 2.5%), which was driven by positive performance across our businesses as a whole. The acquisitions executed in 2016 and 2017 performed as expected. The businesses which were impacted by reductions in demand during 2016 recovered satisfactorily in 2017.

The overall revenue growth was driven by performance across both segments. The Materials Sciences segment revenues grew by 21% to £34.1 million, up £5.9 million from £28.2 million in 2016, and Vacuum revenues improved by 28% to £37.3 million (2016: £29.1 million). The Material Sciences segment benefited from the improvement in demand at Armfield as well as good performance across the rest of the trading companies in this segment. The Vacuum segment also saw improvements in general performance coupled with recovery in the business that suffered from lower demand in 2016 and to a lesser degree some improvement from our business with ongoing production issues.

Profits

Adjusted operating profits increased by 52% in 2017 to £10.9 million (2016: £7.1 million). This improvement was driven by the strong revenue growth and, as a Group that exports more than 85% of our goods, we also benefited from the weakness in Sterling. The two businesses that had performed poorly following weak demand returned to satisfactory performance. As our business has a fairly high fixed cost base, marginal sales will improve operating performance, and consequently operating margins bounced back to 15.3% (2016: 12.5%) aided by improvements across both of our segments. These margins however remain impacted somewhat by our business that is recovering from production issues. Whilst we were pleased that it has made some progress in 2017, more remains to be achieved before it is back to its former position. Adjusted profit before tax was £10.4 million compared to £6.6 million in 2016.

Statutory operating profit increased to £5.7 million from £1.0 million in 2016, and statutory profit before tax was £5.1 million (2016: £0.4 million).

Adjusting items

The total adjusting items recorded in 2017 were £5.3 million compared to £6.2 million in 2016. Amortisation of intangible assets recognised upon acquisition, as required under IFRS, totalled £4.6 million compared to £5.2 million in 2016 and acquisition costs reduced from £0.7 million in 2016 to £0.3 million reflecting the lower volume of completed acquisitions during 2017.

Finance costs

Net finance costs (excluding adjusting items) totalled £0.5 million (2016: £0.5 million). Statutory net finance costs were £0.6 million (2016: £0.6 million), the difference is due to the £0.1 million net finance cost of the defined benefit pension scheme acquired with Armfield in 2015.

Taxation

The Group's tax charge arising from adjusted profit before tax was £1.5 million compared to £0.8 million in 2016. The effective tax rate for adjusted profit is 14.2% (2016: 11.6%). The effective tax rate is influenced by the reducing UK corporation tax rate and by significantly improved claims for research and development tax credits. This year we have performed more successfully in the US and consequently we are paying more tax there compared to 2016 which is why the effective rate is higher than last year. Whilst we remain an SME for R&D tax credits, as the Group has less than 500 employees, the Group, as an investor in R&D, will derive benefit from this scheme.

Earnings per share

Adjusted basic earnings per share strongly increased by 56% to 131.9p (2016: 84.8p) and adjusted diluted earnings per share improved to 130.3p compared to 83.7p in 2016, an increase of 56%.

Statutory basic earnings per share, after reflecting adjusting items which are influenced by the amortisation of intangible assets arising from recent acquisitions, was 65.6p (2016: 1.3) and statutory diluted earnings per share totalled 64.8p (2016: 1.3p).

Order intake

2017's Organic order intake was strong for the entire year and followed satisfactory order intake in the second half of 2016. Overall organic order intake was up by 16% compared to the small increase of 3% in 2016, and this consistent order intake fuelled 2017's performance and provided a strong order book with which to commence 2018. 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. Our organic order book at 1 January 2018 was a robust 16.6 weeks of budgeted sales (1 January 2017: 14.8 weeks). Total order book which includes our 2017 acquisition of Oxford Cryosystems and the 2016 acquisitions, totalled 14.9 weeks.

Return on Capital

The Group closely monitors the return it derives on the capital invested in its subsidiaries. At 31 December 2017 the annual rate of Return on Total Invested Capital ("ROTIC") was 20.6% compared with 15.2% at the end of 2016, which is a welcome recovery and reflects improved performance at our businesses.

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 investment in plant and equipment, goodwill and unamortised intangibles and net current assets (excluding cash).

ROTIC is influenced by the overall performance of our businesses and the size of, and multiple paid for, acquisitions. We continue to strive to improve ROTIC although we remain cognisant of the downward impact that acquiring businesses at higher multiples has on overall ROTIC.

Dividends

In relation to the financial year ended 31 December 2017 the Company paid an interim dividend of 10.0p per share in November 2017. The Board is recommending a final dividend of 22.0p per share giving a total dividend for the year of 32.0p per share (2016: 27.5p per share), an increase of 16.4%. Dividend cover is more than four times adjusted earnings per share.

Your Group's policy is to pay a progressively increasing dividend provided the Group retains sufficient cash and borrowing resources with which to pursue its longstanding business acquisition policies.

Headcount

The Group's total number of employees at year end stood at 456 (2016: 417). The growth in staff during the year was mainly driven by the full year effect of the 2016 acquisitions, the 2017 acquisition of Oxford Cryosystems and growth in manufacturing staff to meet the increased demand.

Share capital and share options

The Group's issued share capital at 31 December 2017 totalled 6,141,128 Ordinary shares (2016: 6,107,628). The shares issued during 2017 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 85,792 (2016: 29,500) and the total share options in issue under both the 2005 and 2015 schemes amounted to 306,203 (2016: 268,411).

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. 2017 saw a full actuarial valuation for the scheme and the annual contributions to the scheme were increased by 20% to £0.2 million subject to the next full actuarial valuation in 2020. The Group accounts for postretirement 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 2017, the net pension liability was £1.8 million (31 December 2016: £1.8 million). The net liability has remained constant reflecting a decrease in discount rates during 2017 from 2.8% to 2.5% offset by shortening in post-retirement mortality rates and satisfactory returns achieved on fund 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

This year's strong trading performance has resulted in cash generated from operations of £10.9 million (2016: £6.2 million). The Group has a strong track record of converting profit into cash, and this is reflected in the improved cash conversion rate of 100% (2016: 87%). Total capital expenditure on property, plant and equipment amounted to £0.7 million compared to £0.8 million in 2016. Year-end cash balances totalled £10.7 million (2016: £7.9 million).

Adjusted net debt at 31 December 2017 reduced to £8.0 million compared with £9.9 million at 31 December 2016. This reduction in net debt resulting from the strong operational performance supports the outlay on the acquisitions (£6.4 million) and dividends (£1.7 million), reflecting the business model we are continuing to deliver. The acquisition of Oxford Cryosystems was financed by a new £4.5 million loan facility for Bordeaux, our majority owned subsidiary. Gearing at 31 December 2017 was 0.73 times adjusted operating profit (31 December 2016: 1.39 times). 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 over the history of our Group.

The Group's financial position continues to be strong. The existing five-year banking arrangements with Lloyds Bank Corporate Markets which were put in place in December 2014, have enabled the Group to pursue its acquisitive strategy. Our historical acquisition loans were consolidated into one single five-year amortising loan, which is repaid at over £2 million per annum, and a £10.0 million revolving acquisition facility, which following the four acquisitions made in 2016 is drawn to £9.0 million (2016: £9.3 million). We are able to activate the uncommitted and undrawn accordion facility of £10 million with the bank, at any time. We are seeking to renew our banking facilities over the coming months and will update shareholders in due course.

Overall, your Group has had a positive year for acquisitions, with the acquisition of Oxford Cryosystems and the increased shareholding in our majority owned subsidiary, Bordeaux. Adding to this a recovery from the demand and operational challenges faced in 2016, has meant that 2017 returned Judges to its normal trajectory. Your Group remains well placed to continue with its enduring 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

19 March 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

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 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.

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

2. Segment 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.

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

2. Segment analysis (continued)

Segmental revenue is presented on the basis of the destination of the goods where known, otherwise the geographical location of customers is utilised.

3 Adjusting items

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

4. Maturity of borrowings and net debt

Borrowings mature as follows:

A proportion of the group's bank loans is drawn in foreign currencies to provide a hedge against assets denominated in those currencies. The Sterling equivalent at 31 December 2017 of loans denominated in Euros was £1,265,000 (2016: £1,217,000). These amounts are included in the figures above for bank loans, repayable in years 1 to 5.

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

5. Acquisitions

On 18 July 2017, Judges' majority owned subsidiary Bordeaux Acquisition Limited ("Bordeaux") acquired 100% of the issued share capital of Crystallon Limited ("Crystallon"), the holding company of Oxford Cryosystems Limited ("Oxford Cryosystems"). Oxford Cryosystems is based in Long Hanborough, Oxfordshire and manufactures cryogenic cooling systems used for X-Ray crystallography and other applications. Simultaneously with the acquisition of Crystallon, Judges purchased the 24.5% shareholding held by Tracey Edwards in Bordeaux.

Crystallon

The purchase price of Crystallon amounted to £4.495 million in cash plus an additional payment to reflect any excess cash and working capital over and above the ongoing requirements of the business. This was covered by the cash inherited at the completion date. In addition, an earn-out was payable if Crystallon's adjusted EBITA in the financial year ended 30 November 2017 exceeded £0.899 million, payable at five times such excess, capped at £1.576 million. Crystallon achieved an earn-out of £0.599 million, which was paid in March 2018.

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

* The deferred consideration of £599,000 was paid in March 2018.

The acquisition of Crystallon was financed by Bordeaux via a new £4.5 million five-year term loan granted by Lloyds Bank Corporate Markets and guaranteed by Judges, with associated transaction costs being funded from Bordeaux's cash resources.

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

5. Acquisitions (continued)

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

Management performed a detailed review of each of the acquiree's intangible assets. The intangible assets recognised reflect recognition of acquired customer relationships, the value of the acquired future committed order books, internally generated technology, trademarks, domain names and distributor relationships. A significant amount of the value of the acquired business is attributable to its workforce and sales knowhow. As no assets can be recognised in respect of these factors, they contribute to the goodwill recognised upon acquisition.

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.

The acquisitions resulted in a profit after tax (before adjusting items) attributable to owners of the parent company of £274,000 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 £43,000 after tax.

If the acquisitions had been acquired on 1 January 2017, based on pro-forma results, revenue for the Group for the year ended 31 December 2017 would have increased by £2,344,000 and profit after tax (before adjusting items) attributable to owners of the parent company would have increased by £352,000 after allowing for interest costs. After charging amortisation of intangible assets, the pro-forma result would have decreased by £62,000.

Increased shareholding in Bordeaux

Simultaneously with the acquisition of Crystallon, Judges purchased the 24.5% shareholding held by Tracey Edwards in Bordeaux for a cash consideration of £1.15 million and also her 24.5% share in the shareholders' loan to Bordeaux for its nominal amount of £0.19 million. As a result, Judges increased its ownership of the shares in, and shareholders loans to, Bordeaux from 51% to 75.5%. The transaction was financed from Judges existing cash resources. The acquisition costs for this transaction were £24,000.

As this was an acquisition of an additional shareholding in a majority owned subsidiary (50% of the remaining stake not owned by Judges), the purchase was accounted for by reducing the Non- Controlling Interest as at the date of the acquisition by 50% of its value and the remaining balance recorded through equity reserves.

.

NOTES TO THE RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

5. Acquisitions (continued)

2015 and 2016 acquisitions

There have been no amendments to the fair values presented in the 2016 consolidated financial statements. A payment in respect of surplus working capital of £1,598,000 was paid to the vendors of EWB Limited in 2017. This had already been accrued in the 2016 financial statements.

As part of the terms of the 2015 Armfield acquisition, there was a further contingent payment of £360,000 which may have become due if the triennial actuarial valuation of Armfield's defined benefit pension fund as at 31 March 2017 showed a reduction in the yearly contribution required to eliminate its funding deficit. The March 2017 triennial actuarial valuation showed an increase in the yearly contribution required to eliminate the funding deficit, hence the contingent payment of £360,000 was not required to be made.

6. Dividends

The Directors will propose a final dividend of 22.0p per share, amounting to £1,351,000, for payment on 6 July 2018. 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.

Dividends declared by subsidiaries that are not wholly owned are paid to the non-controlling interest in the period in which they are declared and amounted to £nil in the year (2016: £49,000).

7. Preliminary Announcement

This preliminary announcement, which has been agreed with the auditors, was approved by the Board of Directors on 19 March 2018. It is not the Group's statutory accounts. Copies of the Group's audited statutory accounts for the year ended 31 December 2017 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 2017 and 31 December 2016 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 2016 have been delivered to the Registrar of Companies, but the 31 December 2017 accounts have not yet been filed.