Final Results

RNS Number : 6622F

Judges Scientific PLC

23 March 2022

 

23 March 2022

Judges Scientific plc

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

FINAL RESULTS

Post-Covid recovery enables record performance

Judges Scientific (AIM:JDG), a  group focused on acquiring and developing companies  in the scientific instrument sector, announces its final results for the year ended 31 December 2021.  

Key financials

Year ended 31 December	2021	2020	Change
Revenue	£91.3m	£79.9m	14%
Adjusted* operating profit	£18.8m	£14.4m	31%
Adjusted* basic earnings per share	238.1p	177.2p	34%
Cash generated from operations	£19.6m	£14.6m	34%
Final dividend per share	47.0p	38.5p	22%
Statutory operating profit	£15.6m	£10.2m	53%
Statutory basic earnings per share	201.0p	131.1p	53%
As at:	31 Dec 2021	31 Dec 2020
Adjusted* net cash/(debt) (excl. IFRS 16)	£1.4m	£(5.7)m
Cash balances	£18.4m	£15.5m
Statutory net cash/(debt) (excl. IFRS 16)	£1.4m	£(5.7)m

Other financial highlights

· Organic** revenue increased 10% against 2020;

· Organic** order intake up 25% compared with 2020; and 8.5% up compared with record 2019***;

· Organic** order book at 22.6 weeks (2020: 14.7 weeks); total order book at 23.0 weeks;

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

· Proposed final dividend of 47p, totalling 66p for the year, an increase of 20%; covered 3.6 times by adjusted earnings.

Strategic Highlights

· Holding in Bordeaux Acquisition increased from 75.5% to 88%.

Outlook

· More normalised trading environment resuming;

· War in Ukraine further exacerbating supply chain issues;

· Record order book is a strong indicator of further recovery.

*  Adjusted earnings figures exclude adjusting items relating to amortisation of acquired 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 IFRS 16 liabilities.

** Organic describes the performance of the Group including businesses acquired prior to 1 January 2020.

***   For this measure only, Organic excludes the performance of Moorfield which was acquired in 2019.

Alex Hambro, Chairman of Judges Scientific, commented:   

"I am pleased to report that your Group has delivered record revenue, profits, cash generation and dividends in a year which still presented challenges as a consequence of the pandemic. The resilience of the Group's business model and a good performance from recent acquisitions alongside the hard work by all our colleagues have enabled Judges to stage a solid recovery."

 

For further information please contact:

Judges Scientific
David Cicurel, CEO Brad Ormsby, Group FD	Tel: [phone]
Shore Capital (Nominated Adviser & Broker)
Stephane Auton Iain Sexton	Tel: [phone]
Liberum (Joint Broker) Bidhi Bhoma William Hall Media enquiries: Alma PR (Financial Public Relations)	Tel : [phone]
Sam Modlin Rebecca Sanders-Hewett Justine James Joe Pederzolli	Tel: [phone] [e-mail]

Notes to editors:

Judges Scientific plc (AIM: JDG), is a group focused on acquiring and developing companies in the scientific instrument sector.  The Group currently consists of 19 businesses acquired since 2005.

The acquired companies are primarily UK-based with products sold worldwide to a diverse range of markets including: higher education institutions, scientific research facilities, manufacturers and regulatory authorities.  The UK is a recognised centre of excellence for scientific instruments.  The Group has received five Queen's Awards for innovation and export. 

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

Judges Scientific maintains a policy of selectively acquiring businesses that generate sustainable profits and cash.  Shareholder returns are created through the reduction of debt, organic growth and dividends. 

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

 

CHAIRMAN'S STATEMENT

The Group demonstrated its resilience and adaptability in 2020 at the onset of the Covid-19 pandemic. Throughout 2021 we still had to navigate numerous challenges as the uncertainty caused by the pandemic continued to impact the world, with travel restrictions and new variants having to be managed. Despite this, the Group experienced progressive improvement enabling it to recover and to deliver, once again, record revenue, profit and cash generation supported by a record order intake. Notwithstanding the utterly deplorable events unfolding in Ukraine, we enter 2022 with cautious optimism as our business model has proven its resilience and the strength of our order book gives confidence for further recovery.

Generating attractive returns for our shareholders remains the core objective of the Group and as such the Board is pleased to be recommending a final dividend of 47p, making a total of 66p in respect of 2021, a 20% increase on the prior year (2020: 55p). Since the payment of the first dividend in respect of 2006, regular dividends have grown at a compound annual rate of 22.9% and total dividend distributions have aggregated to nearly six times the 2005 re-admission price of 100p.

Strategy

The Group's strategy remains unchanged, based as it is on creating shareholder returns through highly selective and carefully structured acquisitions, underpinned by the diversified, solid and growing earnings and cashflows arising from our existing businesses.  

The Group's acquisition model is to acquire small/medium-sized scientific instrument manufacturers, 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 seeking to acquire businesses with a focus on sustainable profits and cashflows, 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 underlying strength with robust and defensible margins.

Post-acquisition the Group provides a favourable environment for these businesses to continue to prosper. Much effort is invested into helping their autonomous management improve their operating metrics as organic growth and optimisation is an ever-growing component of shareholder returns.

As a result of the dependable growth of our Group, it has been possible to promptly reduce debt, thereby generating the financial resources necessary to reinvest in further acquisitions and reward shareholders with a progressively increasing dividend, subject always to our prudent approach to gearing.

The underlying market for scientific instrumentation remains robust and the sector's long-term growth drivers provide comfort that the Group will continue to deliver durable returns for our shareholders despite the potential for some short-term variability in performance. These long-term market drivers are rooted in the global expansion of higher education and the need for measurement tools to support the relentless worldwide search for optimisation and discovery across industry and science. 

Our team

The Group's ability to deliver this record performance would not have been possible without our colleagues, all of whom have yet again worked very hard in a challenging environment in order to further develop our businesses and take full advantage of a gradual return toward normality. Whilst we remained impacted by the pandemic our 500-strong team continued to exercise caution and discipline to protect their colleagues and keep each other safe.  I am sure our shareholders join the Board in thanking them for their continued dedication.

Alex Hambro

Chairman

22 March 2022

 

CHIEF EXECUTIVE'S REPORT

Whilst we started the 2021 financial year with renewed optimism looking forward to a more familiar environment as a consequence of the mass vaccination programmes, we still had to navigate external challenges throughout the year under review. The continued restrictions on travel were the biggest hurdle to overcome as our ability to visit customers and attend scientific conferences and trade conventions was hindered, as most were held virtually; and to a lesser extent, a number of our corporate customers retained freezes on capital expenditure. The Group was also not immune to the widely reported supply chain issues seen across the globe. These supply chain issues, which had been benign at the start of the pandemic, surfaced as an increasing but still manageable headwind. Despite these challenges our Group showed its resilience, delivering a strong recovery and a record performance. 

With the constant changes in the UK Covid situation, the year was particularly suited to devolved local tactical improvements that the Group's structure and culture promotes so effectively.  With each business seeing a different market situation, a varied degree of staff availability and Covid resilience, and with differing building layouts influencing options, each of our businesses responded differently.  Given market conditions, some found that R&D could be accelerated, while others had to pause; some were able to upgrade their online presence and impact (including remote installations) while some markets resisted this. The fact that six of our businesses recorded not just full recoveries but all-time record profits suggests that many emerged from the pandemic fundamentally stronger than they entered it.  The businesses have also become better at constantly sharing their challenges and successes, so that best practice can be continually developed across the Group, a fundamental part of our strategy as we look to drive organic growth.  2022 began with the widely reported component shortages and delivery restrictions, so whilst life is not completely back to normal, we will continue with our dedication to raise the operational bar across the Group: seeking to improve the less advanced production processes, upgrade the less integrated IT systems, and focus R&D efforts to deliver fewer but more targeted innovations more quickly.

Order intake

Order intake is the main driver of our business. With the easing of restrictions, intake improved throughout the year: Organic* intake was up 25% year-on-year in the first half and accelerated to maintain its advance at 25% for the year as a whole, in spite of tougher comparatives in the second half (H1 2020 intake suffered the worst effect of Covid). Organic** order intake progressed 8.5% against 2019, our previous record.

The best performance was recorded in North America (up 39%, following a 26% decline in 2020) followed by the Rest of the World (up 31% following a 25% decline), the UK (up 27% after growing 8% in 2020) and the Rest of Europe (up 22% after growing 3% in 2020). China/Hong Kong, which had receded 22% in 2020, stabilised and was broadly flat. The largest year-on-year absolute progress was achieved in the USA, followed by the UK, the Czech Republic, Japan, France, Germany and Australia. The Netherlands and Belgium showed the largest absolute declines after strong progress in 2020. Order intake still varied considerably from business to business and between scientific disciplines; all businesses except one grew from 2020 and among those servicing large corporate customers enforcing capex freezes, one staged a strong revival and one only improved late in the year.

As a result of the accelerating order intake, the Organic order book progressed from 16.1 weeks of budgeted sales on 30 June to 22.6 weeks at the year-end (31 December 2020: 14.7 weeks). The Group's total order book ended the year at 23.0 weeks.

* "Organic" in this report describes the performance of the Group excluding THT and Korvus as they were acquired since 1 January 2020.

** For this measure only, Organic excludes the performance of Moorfield which was acquired in 2019.

Revenues

Although Covid continued to challenge our operations, disruptions were less prevalent than in 2020 and alleviated as the year progressed; the use of the furlough scheme shrank strongly and many of our colleagues were able to return to their offices, although a degree of flexibility will endure. Installations remained disrupted by travel restrictions and logistic difficulties slowed down the recognition of some revenue. Global supply chain issues became more challenging; they were successfully managed albeit with some impact in terms of management effort, purchase prices, excess inventory and product redesign.

Group revenues for the financial year ended 31 December 2021 progressed from 79.9 million to 91.3 million, including Organic* growth of 10% and the full year contribution from the two acquisitions completed in 2020. 

The Group continues to be a strong exporter and is well diversified across the globe, with 22% of the Group's revenues earned in North America, 32% in the Rest of Europe and 12% in China/Hong Kong. Organic revenues grew strongly in all regions except China/Hong Kong (down 28% after growing 18% in 2020). North America recovered 11% (down 32% in 2020), the Rest of the World grew 3% (down 18% in 2020), and the Rest of Europe 16% (down 3% in 2020); the UK, which had receded 6% in 2020, grew 43%.The most notable absolute swings were the UK (up £4 million), Germany (up £2 million), the USA (up £2 million) and the Czech Republic (up £1 million) whilst China/Hong Kong was down £3 million (up 2 million in 2020).

Profits

The most important driver of Judges' operating margins is volume. The strong recovery in Organic revenue, with some help from savings on travel and exhibitions still continuing, drove our EBITA margin before central costs to 25% (2020: 21.2%, 2019: 24%). Adjusted profit before tax and adjusting items progressed to a record 18.1 million (2020: £13.7 million, 2019: 17.0 million). All measures of profitability were flattered compared to previous years as, for the first time, £0.8 million of R&D expenditure was capitalised in compliance with IAS 38, with no meaningful amortisation to offset it. Organic operating contribution increased 28%. All the Group businesses increased their contribution except two, one of which had achieved its record in 2020; six companies achieved new record contribution in 2021. The operating subsidiaries combined produced a Return on Total Invested Capital of 28.3% (2020: 23.5%, 2019: 31.4%).

The Group continued to invest in the improvement of its existing products and the development of new products. Investment in research and development amounted to 6.2 million in 2021 (2020: 6.2 million), equivalent to 6.8% of Group revenue (2020: 7.7%).

The increase in pre-tax profits was replicated in earnings per share: Adjusted earnings per share progressed by 34% from 177.2p to 238.1p beating the 2019 record of 222.5p; adjusted fully diluted earnings per share similarly progressed to 234.9p (2020: 173.9p).  

Corporate activity

The Group purchased a further 12.5% interest in Bordeaux Acquisition (the holding company for Deben UK and Oxford Cryosystems) for 1.8 million, bringing our ownership to 88%.

As a buy and build focused group, the acquisition of new businesses is a fundamental feature of Group strategy. Executing this effectively is key to ensure that long-term value is generated for shareholders. We retain a strict acquisition discipline and are highly selective in relation to both the acquisition cost and long-term quality of any potential addition to our Group.

The industry in which we operate contains a multitude of small global niches, as illustrated 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 strong reputation over the past decade as an ethical, experienced and well-financed buyer and a supportive 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, stimulates intra-group cooperation, participates 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.

The uncertainty caused by Covid didn't encourage owners to offer their businesses for sale and the Group didn't complete any acquisitions during the year.

Cashflow

In spite of the build-up of precautionary stock, of logistical issues delaying revenue recognition and of receivables relating to outstanding installations, cash conversion was satisfactory at 104% (2020: 102%), with cash generated from operations of 19.6 million (2020: 14.6 million). As a result, year-end cash balances increased to 18.4 million from 15.5 million as at 31 December 2020. Adjusted net cash (excluding IFRS 16 lease liabilities but including sums still due in respect of acquisitions) at the year-end amounted to 1.4 million (2020: 5.7 million net debt).

Dividends

Your Board is recommending a final dividend of 47p per share subject to approval at the forthcoming Annual General Meeting on 24 May 2022, which will make a total distribution of 66p per share in respect of 2021 (2020: 55p per share). The total dividend per share is 3.6 times covered by adjusted earnings per share (2020: 3.2 times). Our policy of increasing the dividend by a minimum of 10% per year remains sustainable as long as we have ample cover.

The proposed final dividend, if approved by shareholders, will be payable on 8 July 2022 to shareholders on the register on 10 June 2022 and the shares will go ex-dividend on 9 June 2022.  

The Company's shareholders are reminded that a Dividend Reinvestment Plan (DRIP) is in place to enable shareholders to automatically reinvest their dividends into additional 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 the strong worldwide growth in higher education and the enduring pursuit of optimisation across science and industry, and of course optimisation requires measurement. 

In parallel to 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, research funding, currency fluctuations and the business climate in major trading blocs, particularly the USA and China. 

In the medium-term horizon the competing goals, in the various jurisdictions where the Group operates, of stimulating recovery and of reducing ballooning government deficits will increase uncertainty in worldwide research funding. It appears that re-emerging inflation may not be as temporary as proclaimed and higher interest rates could accentuate government deficits and bring back austerity, whilst higher interest rates may alter the competitive balance in M&A activity to the detriment of more highly geared participants.

As a large percentage of the Group's revenue is 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 US Dollar (one half of total revenue) or the Euro (one third of total revenue). The currency movements since the run-up to the Brexit referendum vote have had a positive influence on our margins and our competitiveness; the recent resolution of the Brexit uncertainty might have improved the outlook for Sterling but exchange rates have continued to remain favourable to our Group.

Outlook

The long-term drivers for our business are as strong as ever and we remain confident in the Group's resilience and adaptability. The expectation of a year less dominated by Covid has been overshadowed with Europe being shaken by the Russian leadership's invasion of Ukraine. Whilst our direct exposure to Russia and Ukraine is limited (0.4% of group revenue over the past three years), the war is further exacerbating supply chain difficulties and may in future create competing claims for public funds across the world.

Nevertheless, the Group is starting the year with a record order book, order intake slightly ahead of the first 11 weeks of 2021 and a robust financial position, leaving it well equipped to pursue its unchanged strategy.

David Cicurel

Chief Executive

22 March 2022

 

FINANCE DIRECTOR'S REPORT

The Group's strategy is based on acquiring companies within the scientific instruments sector and continued profitable performance at its existing subsidiary businesses. 

Key Performance Indicators

The Group's financial Key Performance Indicators, which are aligned with the ability to reduce acquisition debt and fund dividend payments to shareholders, are adjusted earnings per share, adjusted operating margins, return on total invested capital and cash conversion. We have a further non-financial KPI of Organic order intake which is the bellwether of future short-term financial performance. All five KPIs delivered well in 2021 as the Group has delivered a strongly profitable performance in returning to normal after the effects of Covid-19 in 2020.

	2021	2020
Adjusted basic earnings per share	238.1p	177.2p
Adjusted operating profit margin	21%	18%
Return on total invested capital	28.3%	23.5%
Cash conversion	104%	102%
Organic order intake	+25%	-13%

Revenue

Group revenues increased to £91.3 million, up 14% on the £79.9 million in 2020. Organic revenues grew by 10% (2020: Organic decline of 12%) as much improved order intake enabled higher throughput. The balance of the growth was provided by full year contributions from THT and Korvus, the businesses acquired in May 2020 and October 2020, respectively.

Across our two segments, Materials Sciences total revenues improved by £7.5 million to £40.7 million (2020: £33.2 million) whilst Vacuum revenues rose by £3.9 million to £50.6 million (2020: £46.7 million).

Profits

The improvement in revenue supported strong growth in profits and profitability. Adjusted operating profits increased by £4.4 million to £18.8 million, a 31% uplift and, due to the operational gearing of the Group, this also meant that the Group achieved operating margins of 21%, up from 18% in 2020. This shows the Group's good recovery from the challenges of the previous year and despite having to navigate the global supply chain challenges that the Group, amongst many others, faced in particular through the second half of this year. 

Compared with the pre Covid-19 performance in 2019, on the face of it the results are better, with adjusted operating profit up £1.4 million. However it is important to appreciate a few items that affect this comparison. Firstly, we have acquired 3 businesses since December 2019; secondly we have incurred lower travel and marketing costs as a result of the inability to travel; and thirdly, this year, for the first time, we have also capitalised £0.8 million of internally generated development costs; all of which flatter any comparison to 2019.

Average sterling rates strengthened in 2021, as an example by around 7% against the US Dollar, which was a minor drag on our performance, but overall rates remained at a beneficial level for the Group and we enter 2022 with the environment remaining fairly aligned with 2021. Adjusted profit before tax was £18.1 million compared to £13.7 million in 2020, an increase of 32%.

Statutory operating profit increased to £15.6 million (2020: £10.2 million), and statutory profit before tax was £14.9 million compared to £9.5 million in 2020.

Capitalisation of development costs

This year for the first time, in accordance with IAS 38, we were required to capitalise £0.8 million of our total R&D expense relating to development of new or significantly improved products. The related amortisation on these amounts capitalised is £0.0 million. This has had the effect of artificially improving our result for the year by approximately 10 pence of earnings per share. As 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 coming years, so whilst there has been a performance-enhancing effect on the results this year, this effect will diminish over the next two to three years.

Adjusting items

The total pre-tax adjusting items of £3.2 million were recorded in 2021 (2020: £4.2 million). The main constituents were amortisation of intangible assets recognised upon acquisition of £2.6 million (2020: £3.2 million), lower due to no acquisitions having completed in 2021 and hence also £nil of acquisition costs (2020: £0.6 million).

Finance costs

Net finance costs (excluding adjusting items) totalled £0.7 million (2020: £0.6 million) arising from the Group's existing debt. Given recent increases to Bank of England interest rates, this will likely mean that interest costs will remain relatively stable despite amounts being repaid. Statutory net finance costs were £0.8 million (2020: £0.7 million), the £0.1 million difference between the statutory and adjusted figures is attributable to the net finance cost arising from the defined benefit pension scheme acquired with Armfield in 2015.

Taxation

The Group's tax charge arising from adjusted profit before tax was £2.8 million (2020: £2.0 million). The effective tax rate on adjusted profits is 15.2% compared with 14.8% in the prior year and this increase reflects relatively stable benefits from research and development tax credits set against the significant growth in profits this year.

The effective tax rate is influenced by the wider regime of low UK and US corporate tax rates and by claims for UK research and development tax credits. The Group benefits from a tax rate lower than the standard UK corporation rate as we continue to invest heavily in R&D, although now that the Group exceeds 500 full-time equivalent employees, we will in future move into the large companies R&D scheme which provides a lower level of credit against the standard UK corporate rate, which itself is also due to substantially rise in the coming years.

Earnings per share

Adjusted basic earnings per share increased from 177.2p to 238.1p, an increase of 34% and adjusted diluted earnings per share was 35% higher at 234.9p (2020: 173.9p).

Statutory basic earnings per share, after reflecting adjusting items which are influenced by the amortisation of intangible assets arising from recent acquisitions, was 201.0p (2020: 131.1p) and statutory diluted earnings per share totalled 198.2p (2020: 128.7p).

Order intake

Organic order intake was pleasingly 25% ahead of the Covid-19 affected prior year and was strong throughout 2021. This allowed our businesses to finish rebuilding their order books and then deliver higher performance as we progressed through the year. 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, and this strong intake resulted in a closing Organic order book at 31 December 2021 of 22.6 weeks of budgeted sales (31 December 2020: 14.7 weeks). Total order book was 23.0 weeks, including THT and Korvus, giving a healthy platform to commence 2022.

Return on Capital

The Group closely monitors the return it derives on the capital invested in its subsidiaries. The annual rate of Return on Total Invested Capital ("ROTIC") at 31 December 2021 reflected a good recovery throughout 2021 and hence ROTIC improved to 28.3% (2020: 23.5%). There is still room to improve this, and it reflects that not all our businesses are back operating at their full potential following the pandemic.

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 amounts invested in plant and equipment, net current assets (excluding cash) and unamortised intangible assets and goodwill (as recognised at the initial acquisition date). 

ROTIC is influenced by the overall performance of our businesses and the size of, and multiple paid for, acquisitions. We always strive to improve Group ROTIC whilst accepting the inevitable downward pressure on overall returns that would arise from acquiring businesses at multiples higher than 3 times.

Dividends

For the financial year ended 31 December 2021 the Company paid an interim dividend of 19.0p per share in November 2021. Following a good performance in 2021, the Board is recommending a final dividend of 47.0p per share giving a 20% increase in the total dividend for the year of 66.0p per share (2020: 55.0p per share). Dividend cover is approximately 3.6 times adjusted earnings per share.

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

Headcount

The Group's full time equivalent (FTE) employees for 2021 stood at 519 (2020: 499). This growth reflects the full year contribution from our 2020 acquisitions and also a return to recruitment to support the Group's long-term growth strategy.

Share capital and share options

The Group's issued share capital at 31 December 2021 totalled 6,318,415 Ordinary shares (2020: 6,299,163). The shares issued during 2021 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 60,986 (2020: 6,151) and the total share options in issue at the year-end under both the 2005 and 2015 schemes amounted to 201,460 (2020: 160,026).

Defined benefit pension scheme

The Group has a defined benefit pension scheme which was acquired with Armfield in 2015. This scheme has been closed to new members from 2001 and closed to new accrual in 2006. The next triennial full actuarial valuation will be in 2023 and the current annual contributions to the scheme are £0.4 million. The Group accounts for post-retirement 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 2021, the pension liability (net of deferred tax) was £1.0 million (31 December 2020: £2.7 million). This reduction to the net liability primarily resulted from the deficit reduction payments, good fund asset performance and an increase to the discount rates. 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

The Group has an enduring track record of converting profits into cash and this year's profitable trading delivered a strong cash performance with cash generated from operations of £19.6 million (2020: £14.6 million), and a high conversion rate of adjusted operating profit into cash of 104% (2020: 102%). This was achieved despite having to invest in our inventory levels following the growing challenges with global supply chain issues and still experiencing delays in collections due to ongoing restrictions which impacted on our ability to travel to customers to complete installations and training across the world and consequently be paid upon completion.

Total capital expenditure on property, plant and equipment amounted to £2.7 million (2020: £1.3 million). This figure is higher than usual due to a £1.3 million property purchase to enable the relocation of Oxford Cryosystems from two small units into a single building, and from utilising the Government's special investment allowance. Year-end cash balances totalled £18.4 million (2020: £15.5 million).

The Group ended 2021 with net cash (excluding IFRS 16 liabilities) of £1.4 million compared with £5.7 million of adjusted net debt at the end of 2020. Gearing, calculated as the proportion of net cash/debt compared to adjusted operating profit, at 31 December 2021 was -0.07 times (2020: 0.40 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. The £7.1 million growth in net cash is a result of the strong 2021 performance offset partially by the investments in capital expenditure (£2.7 million), settling corporate taxes (£2.2 million), the continuation of our policy of paying progressively increasing dividends to shareholders (£3.6 million in 2021) and a £1.8 million outlay on acquiring additional shares in Bordeaux.

The Group's financial position continues to be a strength and we have suitable banking facilities to support inorganic growth. 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 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 ("RCF") plus a £6.0 million uncommitted accordion facility, which can be drawn at the discretion of the Bank. The Term Loan amortises 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 Facility has a five year term ("Borrowing Term") with interest consistent with previous banking arrangements and likewise with banking covenants, namely:

· Gearing no greater than 2.5 times Adjusted EBITDA

· Interest cover no less than 3 times; and

· Adjusted EBITDA cover of greater than £7.5 million plus 75% of any future acquired company's adjusted EBITDA.

The accordion 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 the Group's 88% owned subsidiary remain unchanged. Bordeaux owns the trading companies of Deben UK Limited and Oxford Cryosystems Limited.

At the year end the Term Loan was £16.1 million (2020: £4.5 million) and the RCF was undrawn (2020: £15.0 million), with £35.0 million available to drawdown for future acquisitions. At 31 December 2021, repayments on the Bordeaux loan had reduced the outstanding balance to £0.9 million (2020: £1.7 million).

The ongoing long-term support of Lloyds Bank is greatly appreciated and continues to provide the Group with major capacity to capitalise on opportunities to support the Group's buy and build strategy.

 

Overall 2021 was a positive year for the Group. Thanks to the outstanding efforts by all our team, we achieved a strong performance with excellent cash generation despite having to battle through many problems caused by the global supply chain issues and the enduring uncertainty surrounding the Covid-19 pandemic and its many variants. The Group remains in a strong position, with a healthy balance sheet, robust opening order book with which to start 2022 and significant available borrowing capacity, and is therefore well positioned to continue its 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

22 March 2022

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

				2021				2020
	Note	Adjusted	Adjusting items	Total		Adjusted	Adjusting items	Total
		£000	£000	£000		£000	£000	£000
Revenue	2	91,289	-	91,289		79,865	-	79,865
Operating costs	2	(72,512)	(3,158)	(75,670)		(65,508)	(4,191)	(69,699)
Operating profit/(loss)		18,777	(3,158)	15,619		14,357	(4,191)	10,166
Interest income		2	-	2		14	-	14
Interest expense		(713)	(48)	(761)		(654)	(53)	(707)
Profit/(loss) before tax		18,066	(3,206)	14,860		13,717	(4,244)	9,473
Taxation (charge)/credit		(2,753)	797	(1,956)		(2,029)	1,204	(825)
Profit/(loss) for the year		15,313	(2,409)	12,904		11,688	(3,040)	8,648
Attributable to:
Owners of the parent		15,027	(2,345)	12,682		11,108	(2,888)	8,220
Non-controlling interests		286	(64)	222		580	(152)	428
Profit/(loss) for the year		15,313	(2,409)	12,904		11,688	(3,040)	8,648
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Retirement benefits actuarial gain/(loss)				1,445				(1,378)
Deferred tax on retirement benefits actuarial gain/(loss)				(206)				286
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign subsidiaries				22				(82)
Other comprehensive income for the year, net of tax				1,261				(1,174)
Total comprehensive income for the year				14,165				7,474
Attributable to:
Owners of the parent				13,943				7,046
Non-controlling interests				222				428

Earnings per share - adjusted				Pence				Pence
Basic	1			238.1				177.2
Diluted	1			234.9				173.9
Earnings per share - total
Basic	1			201.0				131.1
Diluted	1			198.2				128.7

 

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2021

		2021 £000	2020 £000
ASSETS
Non-current assets
Goodwill		18,713	18,713
Other intangible assets		5,056	6,909
Property, plant and equipment		8,254	6,678
Right-of-use leased assets		4,186	5,125
Deferred tax assets		3,081	2,153
		39,290	39,578
Current assets
Inventories		14,133	12,585
Trade and other receivables		17,146	14,340
Cash and cash equivalents		18,408	15,523
		49,687	42,448
Total assets		88,977	82,026
LIABILITIES
Current liabilities
Trade and other payables		(19,373)	(15,828)
Borrowings		(4,657)	(3,857)
Right-of-use lease liabilities		(887)	(947)
Current tax liabilities		(1,726)	(1,539)
		(26,643)	(22,171)
Non-current liabilities
Borrowings		(12,351)	(17,358)
Right-of-use lease liabilities		(3,420)	(4,209)
Deferred tax liabilities		(1,845)	(1,945)
Retirement benefit obligations		(1,324)	(3,295)
		(18,940)	(26,807)
Total liabilities		(45,583)	(48,978)
Net assets		43,394	33,048
EQUITY
Share capital		316	315
Share premium account		16,667	16,429
Other reserves		1,999	1,977
Retained earnings		23,794	13,469
Equity attributable to owners of the parent company		42,776	32,190
Non-controlling interests		618	858
Total equity		43,394	33,048

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

	Share  capital £000	Share premium £000	Other  reserves £000	Retained earnings £000	Total attributable to owners of the parent £000	Non-controlling interests £000	Total equity £000
At 1 January 2021	315	16,429	1,977	13,469	32,190	858	33,048
Dividends	-	-	-	(3,630)	(3,630)	-	(3,630)
Change in non-controlling interest	-	-	-	(1,371)	(1,371)	(462)	(1,833)
Issue of share capital	1	238	-	-	239	-	239
Purchase of own shares for Company reward scheme	-	-	-	(53)	(53)	-	(53)
Deferred tax on share-based payments	-	-	-	823	823	-	823
Share-based payments	-	-	-	635	635	-	635
Transactions with owners	1	238	-	(3,596)	(3,357)	(462)	(3,819)
Profit for the year	-	-	-	12,682	12,682	222	12,904
Retirement benefit actuarial loss	-	-	-	1,239	1,239	-	1,239
Foreign exchange differences	-	-	22	-	22	-	22
Total comprehensive income for the year	-	-	22	13,921	13,943	222	14,165
At 31 December 2021	316	16,667	1,999	23,794	42,776	618	43,394
At 1 January 2020	311	15,453	2,059	10,048	27,871	821	28,692
Dividends	-	-	-	(3,231)	(3,231)	-	(3,231)
Change in non-controlling interest	-	-	-	(680)	(680)	(391)	(1,071)
Issue of share capital	4	976	-	-	980	-	980
Deferred tax on share-based payments	-	-	-	(113)	(113)	-	(113)
Share-based payments	-	-	-	317	317	-	317
Transactions with owners	4	976	-	(3,707)	(2,727)	(391)	(3,118)
Profit for the year	-	-	-	8,220	8,220	428	8,648
Retirement benefit actuarial loss	-	-	-	(1,092)	(1,092)	-	(1,092)
Foreign exchange differences	-	-	(82)	-	(82)	-	(82)
Total comprehensive income for the year	-	-	(82)	7,128	7,046	428	7,474
At 31 December 2020	315	16,429	1,977	13,469	32,190	858	33,048

 

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

	2021 £000	2020 £000
Cashflows from operating activities
Profit after tax	12,904	8,648
Adjustments for:
Financial instruments measured at fair value:
Hedging contracts	(190)	72
Share-based payments	635	317
Depreciation of property, plant and equipment	1,039	926
Depreciation of right-of-use leased assets	1,066	935
Amortisation of acquired intangible assets	2,638	3,179
Amortisation of internally generated intangible assets	11	-
Profit on disposal of property, plant and equipment	(37)	(4)
Interest income	(2)	(14)
Interest expense	516	464
Interest payable on right-of-use lease liabilities	197	190
Retirement benefit obligation net finance cost	48	53
Contributions to defined benefit plans	(574)	(236)
Tax expense recognised in Consolidated Statement of Comprehensive Income	1,956	825
Decrease/(increase) in inventories	(1,548)	1,099
(Increase)/decrease in trade and other receivables	(2,806)	(1,232)
(Decrease)/increase in trade and other payables	3,726	(598)
Cash generated from operations	19,579	14,624
Tax paid	(2,180)	(2,377)
Net cash from operating activities	17,399	12,247
Cashflows from investing activities
Paid on acquisition of subsidiaries	-	(8,857)
Payment of deferred consideration	-	(3,922)
Gross cash inherited on acquisition	-	1,363
Acquisition of subsidiaries, net of cash acquired	-	(11,416)
Purchase of property, plant and equipment	(2,652)	(1,268)
Capitalised development costs	(796)	-
Proceeds on disposal of property, plant and equipment	74	14
Interest received	2	14
Net cash used in investing activities	(3,372)	(12,656)
Cashflows from financing activities
Proceeds from issue of share capital	239	980
Purchase of own shares for Company reward scheme	(53)	-
Finance costs paid	(516)	(468)
Repayments of borrowings*	(4,207)	(7,857)
Repayment of subordinated loan notes	-	(190)
Repayments of right-of-use lease liabilities	(1,164)	(1,108)
Proceeds from bank loans*	-	14,816
Equity dividends paid	(3,630)	(3,231)
Share repurchase - non-controlling interest in subsidiary	(1,833)	(1,071)
Net cash used in financing activities	(11,164)	1,871
Net change in cash and cash equivalents	2,863	1,462
Cash and cash equivalents at the start of the year	15,523	14,123
Exchange movements	22	(62)
Cash and cash equivalents at the end of the year	18,408	15,523

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

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

1.  Earnings per share

	Note	2021 £000	2020 £000
Profit attributable to owners of the parent
Adjusted profit		15,027	11,108
Adjusting items	3	(2,345)	(2,888)
Profit for the year		12,682	8,220

		Pence	Pence
Earnings per share - adjusted
Basic		238.1	177.2
Diluted		234.9	173.9
Earnings per share - total
Basic		201.0	131.1
Diluted		198.2	128.7

		Number	Number
Issued Ordinary shares at the start of the year		6,299,163	6,226,291
Movement in Ordinary shares during the year		19,252	72,872
Issued Ordinary shares at the end of the year		6,318,415	6,299,163
Weighted average number of shares in issue		6,310,608	6,269,437
Dilutive effect of share options		87,786	117,551
Weighted average shares in issue on a diluted basis		6,398,394	6,386,988

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 share options and any other dilutive potential Ordinary shares. The calculation is based on the treasury method prescribed in IAS 33. This calculates the theoretical number of shares that could be purchased at the average middle market price in the period out of the proceeds of the notional exercise of outstanding options. The difference between this theoretical number and the actual number of shares under option is deemed liable to be issued at nil value and represents the dilution.

Total earnings per share are calculated as above whilst substituting total profit for adjusted profit.

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

2.  Segmental analysis

For the year ended 31 December 2021	Note	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Revenue		40,716	50,573	-	91,289
Operating costs		(33,251)	(35,531)	(3,730)	(72,512)
Adjusted operating profit		7,465	15,042	(3,730)	18,777
Adjusting items	3				(3,158)
Operating profit					15,619
Net interest expense					(759)
Profit before tax					14,860
Income tax charge					(2,061)
Profit for the year					12,799

For the year ended 31 December 2020	Note	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Revenue		33,210	46,655	-	79,865
Operating costs		(28,341)	(34,564)	(2,603)	(65,508)
Adjusted operating profit		4,869	12,091	(2,603)	14,357
Adjusting items	3				(4,191)
Operating profit					10,166
Net interest expense					(693)
Profit before tax					9,473
Income tax charge					(825)
Profit for the year					8,648

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

Segment assets and liabilities

At 31 December 2021	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Assets	27,087	35,671	26,219	88,977
Liabilities	(13,423)	(11,873)	(20,287)	(45,583)
Net assets	13,664	23,798	5,932	43,394
Capital expenditure	384	2,253	15	2,652
Depreciation of property, plant and equipment	362	624	53	1,039
Depreciation of right-of-use leased assets	536	474	56	1,066
Amortisation of acquired intangible assets	1,070	1,568	-	2,638

At 31 December 2020	Materials Sciences £000	Vacuum £000	Unallocated items £000	Total £000
Assets	23,566	31,713	26,747	82,026
Liabilities	(11,468)	(11,702)	(25,808)	(48,978)
Net assets	12,098	20,011	939	33,048
Capital expenditure	355	902	11	1,268
Depreciation of property, plant and equipment	285	591	50	926
Depreciation of right-of-use leased assets	465	413	57	935
Amortisation of acquired intangible assets	1,345	1,834	-	3,179

Unallocated items are borrowings, intangible assets and goodwill arising on acquisition, deferred tax, defined benefit obligations and parent company net assets. There are no material assets outside the UK.

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

2.  Segmental analysis (continued)

Analysis of revenue by geographical areas

	Revenue			Non-current assets
Geographic analysis	Year to 31 December 2021 £000	Year to 31 December 2020 £000		Year to 31 December 2021 £000	Year to 31 December 2020 £000
UK (domicile)	14,776	10,167		38,862	39,288
Rest of Europe	29,488	24,784		-	-
North America	20,034	17,289		217	290
China/Hong Kong	11,103	13,721		-	-
Rest of the World	15,888	13,904		-	-
	91,289	79,865		39,079	39,578

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

Analysis of revenue by performance obligation

	2021 £000	2020 £000
Sale of goods, recognised at a point in time	87,622	77,316
Sale of services, recognised at a point in time	3,259	2,338
Sale of services, recognised over time	408	211
	91,289	79,865

No customer makes up more than 10% of the Group's revenues.

3.  Adjusting items

	2021 £000	2020 £000
Amortisation of acquired intangible assets	2,638	3,179
Financial instruments measured at fair value: hedging contracts	(190)	72
Share-based payments	635	317
Employment taxes arising from share-based payments	90	64
Acquisition costs	(15)	559
Total adjusting items in operating profit	3,158	4,191
Retirement benefits obligation net interest cost	48	53
Total adjusting items	3,206	4,244
Taxation	(797)	(1,204)
Total adjusting items net of tax	2,409	3,040
Attributable to:
Owners of the parent	2,345	2,888
Non-controlling interest	64	152
	2,409	3,040

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

4.  Other intangible assets

	Internally generated development costs £000	Acquired distribution agreements £000	Acquired technology £000	Acquired sales order backlog £000	Acquired  brand and domain names £000	Acquired customer relationships £000	Total £000
Gross carrying amount
1 January 2020	-	3,784	10,539	4,907	12,774	9,080	41,084
Acquisitions	-	-	2,100	500	830	2,200	5,630
31 December 2020	-	3,784	12,639	5,407	13,604	11,280	46,714
Additions	796	-	-	-	-	-	796
31 December 2021	796	3,784	12,639	5,407	13,604	11,280	47,510
Amortisation
1 January 2020	-	3,384	8,612	4,788	11,266	8,576	36,626
Charge for the year	-	208	1,057	586	772	556	3,179
31 December 2020	-	3,592	9,669	5,374	12,038	9,132	39,805
Charge for the year	11	100	964	33	648	893	2,649
31 December 2021	11	3,692	10,633	5,407	12,686	10,025	42,454
Carrying amount
At 31 December 2021	785	92	2,006	-	918	1,255	5,056
At 31 December 2020	-	192	2,970	33	1,566	2,148	6,909
At 31 December 2019	-	400	1,927	119	1,508	504	4,458

5.  Borrowings and net debt

Borrowings mature as follows:

31 December 2021	Bank loans £000
Repayable in less than six months	2,504
Repayable in months seven to twelve	2,481
Current portion of long-term borrowings	4,985
Repayable in years one to five	12,810
Total borrowings	17,795
Less: interest included above	(787)
Less: cash and cash equivalents	(18,408)
Total net cash	(1,400)

31 December 2020	Bank loans £000
Repayable in less than six months	2,115
Repayable in months seven to twelve	2,100
Current portion of long-term borrowings	4,215
Repayable in years one to five	17,704
Total borrowings	21,919
Less: interest included above	(704)
Less: cash and cash equivalents	(15,523)
Total net debt	5,692

 

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

6.  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.

Acquisitions of Heath Scientific Company Limited and Korvus Technology Limited

No changes were made to the provisional acquisition accounting as presented in the 2020 Annual Report and Accounts.

7.  Dividends

	2021		2020
	Pence per share	£000	Pence per share	£000
Final dividend for the previous year	38.5	2,430	35.0	2,195
Interim dividend for the current year	19.0	1,200	16.5	1,036
Total final and interim dividend	57.5	3,630	51.5	3,231

The Directors will propose a final dividend of 47.0p per share, amounting to £2,970,000, for payment on 8 July 2022. 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.

8.  Final Results Announcement

This final results announcement, which has been agreed with the auditors, was approved by the Board of Directors on 22 March 2022.  It is not the Group's statutory accounts.  Copies of the Group's audited statutory accounts for the year ended 31 December 2021 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 2021 and 31 December 2020 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 2020 have been delivered to the Registrar of Companies, but the 31 December 2021 accounts have not yet been filed.

 

END

 

 

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