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RoperAnnual Report and Accounts 2006 Judges Capital plc Company Information Directors The Hon. Alexander Robert Hambro (Non-Executive Chairman) David Elie Cicurel (Chief Executive) Ralph Leslie Cohen (Finance Director) Ralph Julian Elman (Non-Executive Director) Glynn Carl Reece (Non-Executive Director) Company Secretary Ralph Leslie Cohen Registered Office Unit 19, Charlwoods Road East Grinstead West Sussex RH19 2HL Registrar Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Nominated Adviser Shore Capital and Corporate Ltd Bond Street House 14 Clifford Street London W1S 4JU Stockbroker Shore Capital Stockbrokers Ltd Bond Street House 14 Clifford Street London W1S 4JU Auditor Grant Thornton UK LLP Registered Auditor Chartered Accountants 8 West Walk Leicester LE1 7NH Principal Bankers Bank of Scotland 55 Temple Row Birmingham B2 5LS Solicitors Faegre & Benson LLP 7 Pilgrim Street London EC4V 6LB Registered in England and Wales, Company No. 4597315 Contents Trading Activities Chairman’s Statement Directors' Report Report of the Independent Auditor Consolidated Profit and Loss Account Balance Sheets Consolidated Cash Flow Statement Notes to the Consolidated Cash Flow Statement Page 2 3 – 4 5 – 7 8 9 10 11 12 Other Notes to the Financial Statements 13 – 21 Notice of Annual General Meeting Form of Proxy 22 – 23 23 Trading Activities PE.fiberoptics PE.fiberoptics is a leading provider to the telecommunications industry of a wide range of specialised equipment designed to test the properties of fibre optic and fibre optic networks. Superior technology, design and manufacture serve to ensure that its innovative products play a vital role in resolving fibre characterisation and network problems quickly and efficiently. Recognised for its award winning products, PFO provides customers with equipment that will respond to and resolve the day-to-day challenges experienced in both optical network applications and quality assurance laboratories. Such products include the CHROMOS11-CL-PMD, a unique portable optical analyser which has performed over a world record distance of 15,500 km on a US-Europe-US submarine link involving hundreds of optical amplifiers. UHV Design UHV Design specialises in the development and manufacture of instruments used to create motion, heating and cooling within ultra high vacuum chambers where pressure is several trillion times less than the atmosphere. Designs include the patented MagiGear rotary feedthrough, which enables rotary motion to be transferred into a vacuum system utilising magnetic technology. Complex customised assemblies are also designed and manufactured, tailored to meet customers’ specific requirements. The company’s dedication to innovation and quality has established UHV Design as a major force in its field on a worldwide basis, with overseas markets currently accounting for more than 70% of sales. End-users include academic and research establishments (both public and private sector) and industrial enterprises in sectors such as semiconductors, aerospace, defence and nanotechnology. PFO’s customers include manufacturers of fibre, cable and telecommunications equipment together with network operators. Exports currently account for more than 90% of sales. Website: www.uhvdesign.com Website: www.pefiberoptics.com Fire Testing Technology Established in 1989 and strongly focused on the global export market, FTT has become the world’s leading producer of fire testing instrumentation. With a portfolio of more than 35 instruments, FTT possesses an unrivalled product range and has supplied numerous fire research institutions and testing laboratories. The company’s scientists are recognised authorities on fire testing issues and, as such, are members of national and international Fire and Safety Standards Committees. FTT designs and assembles its product range at its base in East Grinstead, Sussex. Instruments include the Cone Calorimeter, which measures specific fire properties of materials such as rate of heat release and time to ignition, and the NBS Smoke Density Chamber, which measures the density of smoke emission from heated materials. A recent innovation is the Micro Calorimeter, developed in co-operation with the Federal Aviation Administration, which measures fire properties pertaining to specimens that weigh no more than a few milligrams. The principal industries served by FTT are manufacturers of construction, electro-technical and furnishing products together with manufacturers of transport systems. With almost all of its output exported, the company’s products are in everyday use in every continent, supported by a worldwide network of agents and a team of service engineers based at the Sussex HQ. Website: www.fire-testing.com FTT owns Aitchee Engineering Limited, which makes a variety of engineering parts and finished products for a variety of industries. Website: www.aitchee.co.uk 2 Chairman’s Statement I have much pleasure in reporting your company’s results for 2006, its first full year as a scientific instruments group. Sales reached £5.2 million (2005: £2.2 million) while profit before tax but after goodwill amortisation amounted to £350,000 (2005: £163,000). This resulted in an increase in earnings per share to 3.9p (2005: 1.6p). Before goodwill amortisation, pre-tax profit rose from £267,000 to £510,000 and earnings per share from 5.3p to 9.4p; similarly, on a fully diluted basis, earnings per share rose from 4.8p to 8.2p. Your Board is delighted to propose a final dividend of 2p, making a total distribution of 3p for the year. Constitution of the Group Judges Capital is the holding company for a group of companies that specialise in the design and production of scientific instruments. Operations are all based in the UK but the group is a world player in certain niche markets, with exports currently representing 86% of total turnover. The results include a full year’s contribution from Fire Testing Technology (“FTT”), the world’s leading manufacturer of instruments designed to test the reaction of various materials to fire and heat, and from PE fiberoptics (“PFO”), our 51% owned subsidiary, which specialises in the production of instruments that test the properties of fibre optic and fibre optic networks. During the year two additional businesses were purchased. The acquisition of UHV Design (“UHV”) was completed in February 2006 and 10 months of trading are included in these accounts. At the beginning of September 2006, FTT bought the trade of Aitchee Engineering (“Aitchee”), the contribution in this instance being four months. UHV designs and manufactures instruments capable of manipulating objects in ultra high vacuum chambers. The £836,000 purchase price comprised £650,000 in cash, 98,522 Ordinary shares in Judges and an £86,000 earn-out; in addition a £205,000 cash payment was made to reflect excess working capital at completion. The cash element of the purchase price was financed by an extension of the company’s senior term loan. 3 The business of Aitchee, which manufactures engineering parts and is one of FTT’s principal sub-contractors, was acquired by FTT for a maximum consideration of £230,000. FTT is the company’s largest customer. Trading After a strong start to 2006, both FTT and PFO experienced a slow-down in orders towards the summer. This trading pattern proved relatively short-lived and the second half of the year ended favourably on the back of a solid recovery in the order book. UHV experienced strong growth throughout the year and Aitchee performed well during the four months following its purchase. All operations have shown flexibility and resilience and have produced significant profits and cash-flows. Financial Performance In addition to the strong profits performance referred to above, net cash inflow from operating activities (before interest and tax) nearly doubled from £345,000 in 2005 to £614,000 in 2006. Net debt rose from £1.2 million to £2.2 million as a result of acquisitions. forthcoming Annual General Meeting, on Friday 6 July 2007 to shareholders on the record on 8 June 2007. The shares will go ex-dividend on 6 June 2007. The total distribution for the year is 3p, which is more than three times covered by undiluted adjusted earnings per share. Current trading and prospects The group started 2007 with an improved order book and trading activity has been satisfactory. Results for the current financial year will benefit from a full 12 months’ contribution from UHV and Aitchee. The company is actively looking for new acquisitions in the scientific instruments sector. Our recent acquisitions have doubled the average number of employees within the Judges group and I would like to take this opportunity to thank them all for their dedication and hard work which was integral to our achievements during 2006. I would also like to thank our shareholders, both long-standing and more recent, for their invaluable support. During the year the company continued to realise the investment portfolio built up through its former business activity and divested its holding in Dickinson Legg plc. The book value of the remaining investments has been reduced to £220,000, almost entirely attributable to the company’s holding in Poole Investments Plc. Alex Hambro Chairman Date: 22 March 2007 Dividend After paying a maiden interim dividend of 1p, your Board is delighted to propose a final dividend of 2p payable, subject to approval at the 4 Directors’ Report The directors present their report and financial statements for the year ended 31 December 2006. Principal activities The company is the parent of a trading group involved in the design and manufacture of scientific instruments. Business review The company’s business model calls for a steady increase in the scope of its operations, achieved through acquisitions of companies operating in its chosen fields of activity and through the ongoing performance of its established subsidiaries. In addition to the dilution of head office costs that results from acquisitions, the company closely monitors the return it derives on the capital invested in its subsidiaries. The annual rate of return on total invested capital (“ROTIC”) is computed monthly, both overall and in respect of each subsidiary, by comparing attributable EBITA with the investment in fixed and net current assets (excluding surplus cash). In 2006, the overall return computed in this manner amounted to 21.5% (before taking account of parent company costs). • Acquisitions: UHV Design Limited (“UHV”) was acquired in February 2006 and has significantly out-performed the targets established at that time. In September 2006, the company’s subsidiary, Fire Testing Technology Limited (“FTT”), acquired the goodwill and certain assets of an important supplier of engineering services, Aitchee Engineering Associates. This acquisition, too, has more than fulfilled its budgets in the short time since it was acquired. Further information on both of these acquisitions is set out in the Chairman’s Statement and in notes 26 and 27 to the financial statements. • Ongoing performance: the directors regard the trend of adjusted diluted earnings per share and the company’s ability to pay dividends to its shareholders as key indicators of overall group performance. These indicators are monitored closely. In addition to the above “ROTIC” measure for the rate of return on investments, the company measures the performance of its individual subsidiaries in a number of ways: (a) sales trends: sales at FTT in 2006 were 10% below those in 2005 (the year of handover from the previous owners of the business), while sales at UHV were 42% above those for 2005, both measured in 12 month totals irrespective of the dates of acquisition. (b) sales order intake: improvements in manufacturing efficiency, particularly at FTT, have resulted in a reduction in the order backlog, resulting in a higher degree of sensitivity to the timing of receipt of orders. The directors regard the rate of order intake as a more consistent indicator of performance. At FTT, order intake in 2006 registered a 15% increase compared with 2005; at UHV, the increase was 43%. (c) operating profits: as percentages of sales, the group achieved 10.6% in 2006 compared with 5.7% in 2005, reflecting steady performance by the companies and the dilution of head office costs as the group grows, as referred to above. In absolute terms, growth in consolidated operating profits in 2006 amounted to some 330%. (d) cash generation and management: consolidated gross cashflow from operating activities amounted to £756,000, of which £142,000 was reinvested in working capital leaving net cash inflow from operating activities of £614,000. • Commercial risks and uncertainties: in general, the group’s activities are concentrated in niche markets, serving a worldwide customer base. The principal drivers of the individual businesses within the group are as follows: • FTT is the world’s major producer of instruments designed to measure the reaction of materials to fire; the long-term growth of the business is supported by the development of related safety regulations internationally and by the globalisation of trade. • PE.fiberoptics Limited (“PFO”) is a significant provider to the telecoms industry and is influenced by the cyclical nature of this sector. • UHV is benefiting from the buoyancy of the high-tech markets which it serves and their requirements for ultra high vacuum products. The directors consider that there is scope to improve the company’s output and market share through technical innovation and increased production capability. Across all the group’s activities lies the exposure to human resource shortages. This reflects the small niche-serving nature of the group’s businesses and the impracticality at this stage of the group’s development of providing significant back-up support in respect of key roles. • Financial risk management objectives and policies: the group utilises financial instruments, other than derivatives, comprising borrowings, cash and other liquid resources and various other items such as trade debtors and creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the group's operations. The main risks arising from the group’s financial instruments relate to interest rates, liquidity, credit and foreign currency exposure. The directors review and agree policies for managing each of these risks, which are summarised below. The policies have remained unchanged from previous periods, subject to the implementation in 2006 of a currency hedging strategy as described below. 5 Interest rate risk The group finances its operations through a mixture of bank and hire purchase borrowings (predominantly at floating rates), equity and retained profits. Exposure to interest rate fluctuations in respect of its borrowings is not considered to be a major threat to the group. Liquidity risk The group seeks to manage liquidity risk by ensuring sufficient funds are available to meet foreseeable needs and to invest cash assets safely and profitably. Primarily this is achieved through loans arranged at group level. Short term flexibility is achieved through the availability of overdraft facilities and through the significant cash balances available since the group adopted its new strategy as an industrial enterprise in 2005. Credit risk The group reviews the credit risk relating to its customers by ensuring wherever possible that it deals with long established trading partners and agents and government / university backed bodies, where the risk of default is considered low. Where considered appropriate, the group insists on up-front payment and requires letters of credit facilities to be provided. Currency risk With exports representing a significant proportion of its sales, the main risk area to which the group is exposed is that of foreign currencies (principally US$ and Euros). During 2006, the group adopted a strategy to hedge against this risk in whole or in part by maintaining a proportion of the group’s bank loans in these currencies. The directors review the value of this hedge on a regular basis. There remains, nevertheless, an ongoing threat to the group’s competitive position in international markets from any sustained period of sterling strength. 6 Results and dividends The results for the financial year to 31 December 2006 are set out on page 9. The company paid a maiden dividend of 1p per Ordinary share on 3 November 2006. At the forthcoming Annual General Meeting, the directors will recommend payment of a final dividend for the year of 2p per Ordinary share to be paid on Friday 6 July 2007 to shareholders on the register on Friday 8 June 2007. The shares will go ex-dividend Wednesday 6 June 2007. Directors The following directors have held office during the year: Hon AR Hambro1 - non-executive Mr DE Cicurel Mr RL Cohen Mr RJ Elman1 - non-executive Mr GC Reece1 - non-executive 1Member of the audit and remuneration committees Directors’ interests The directors' interests in the Ordinary shares of the company were as stated below: Ordinary of 5p each 31 December 2006 1 January 2006 Shares Options Shares Options Details of share options are set out in note 17 to the financial statements. In addition to the above holdings of Ordinary shares, the directors had the following interests in the Convertible Redeemable share capital of the company: Convertible Redeemable of 1p each (quarter-paid) 31 December 2006 1 January 2006 Shares Hon AR Hambro Mr DE Cicurel* Mr RL Cohen Mr RJ Elman Mr GC Reece * Held through David Cicurel Securities Limited. 416,667 4,166,667 - 208,333 208,333 Shares 416,667 4,166,667 - 208,333 208,333 The conversion terms of the Convertible Redeemable shares are detailed in note 18 to the financial statements. Following a full conversion of the Convertible Redeemable shares to Ordinary shares, the directors’ interests in the enlarged share capital of the company as at 31 December 2006 would have been as follows: Hon AR Hambro Mr DE Cicurel Mr RL Cohen Mr RJ Elman Mr GC Reece Ordinary Shares 65,465 931,001 - 40,232 20,232 Hon AR Hambro Mr DE Cicurel* Mr RL Cohen Mr RJ Elman Mr GC Reece 25,000 526,356 - 20,000 - - - 37,000 - - - 526,356 - 20,000 - - - - - - *Held through David Cicurel Securities Limited, except for 40 shares held directly. Payment policy The group’s policy is to agree terms and conditions with suppliers before business takes place and to pay agreed invoices in accordance with the terms of payment. Trade creditor days of the company at the end of the year represented 34 days (2005: 6 days). structure of the executive directors’ remuneration and the terms of their service contracts. The remuneration of the non-executive directors is determined by the board as a whole. No directors participate in setting their own pay. Auditor Grant Thornton UK LLP offer themselves for reappointment as auditor in accordance with section 385 of the Companies Act 1985. On behalf of the board RL Cohen Director and Company Secretary 22 March 2007 Directors' responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that year. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of both the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In as far as the directors are aware: • there is no relevant audit information of which the company's auditor is unaware, and • the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the company's auditor is aware of that information. The maintenance and integrity of the Judges Capital website is the responsibility of the directors: the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. International Financial Reporting Standards The group is required to issue its financial statements for the year ending 31st December 2007 in accordance with IFRS, including the June 2007 interims, in line with mandatory AIM rules. The directors have started to consider the implications of these requirements, and in particular which areas of the group’s balance sheet and results would be significantly affected by the adoption of IFRS. This process has not been completed to date, but the key areas where differences in treatment between UK GAAP and IFRS may arise include: IFRS 3 IAS 12 IAS 39 Business Combinations Income Taxes (Deferred Tax) Financial Instruments: Recognition and Measurement Corporate Governance The directors have established an audit committee and a remuneration committee with formally delegated duties and responsibilities. The members of both committees are the non-executive directors. The audit committee determines the terms of engagement of the company’s auditor and, in consultation with the company’s auditor, the scope of the audit. The audit committee has unrestricted access to the company’s auditor. The remuneration committee reviews the scale and 7 Report of the Independent Auditor to the Members of Judges Capital plc financial statements. The information given in the Directors' Report includes that specific information presented in the Chairman's Statement that is cross referred from the Business Review section of the Directors' Report. with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained within the Annual Report and consider whether it is consistent with the audited parent company financial statements. The other information comprises only the Chairman's Statement and the Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us Opinion In our opinion • the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the group's and the parent company's affairs as at 31 December 2006 and of the group's profit for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors' Report is consistent with the financial statements. Grant Thornton UK LLP Registered Auditor Chartered Accountants Leicester 22 March 2007 We have audited the group and parent company financial statements (the “financial statements”) of Judges Capital plc for the year ended 31 December 2006 which comprise the consolidated profit and loss account, the group and company balance sheets, the consolidated cash flow statement and associated notes a to c and notes 1 to 28. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the 8 Consolidated Profit and Loss Account Turnover Operating costs Goodwill amortisation Total operating costs Operating profit (Loss)/profit on disposal of investments Net interest payable Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit on ordinary activities after taxation Minority interests Profit for the year Earnings per share Basic Diluted Notes 2 3 5 4 6 19 7 Continuing` activities` £` 3,900,477` (3,546,856) (105,741) (3,652,597) 247,880` 2006` Acquisitions` £` 1,294,848` (936,996) (54,215) (991,211) 303,637` Total` £` 5,195,325` (4,483,852) (159,956) (4,643,808) 551,517` (6,145) (195,377) 349,995` (173,265) 176,730` (36,440) 140,290` 2005` £` 2,211,521` (1,981,776) (103,750) (2,085,526) 125,995` 89,842` (52,632) 163,205` (100,777) 62,428` (15,499) 46,929` 3.9p 3.6p 1.6p 1.7p There are no recognised gains and losses other than the results for the year set out above. The accompanying notes form an integral part of these financial statements. 9 Balance Sheets Notes 8 9 10 11 12 13 14 15 16 17 19 19 19 20 2006 2005 Group` £` 4,430,826` 295,468` -` 4,726,294` 402,941` 1,249,039` 219,155` 824,156` 2,695,291` (1,463,239) 1,232,052` 5,958,346` Company` £` -` -` 5,620,080` 5,620,080` -` 384,878` 219,155` 218,514` 822,547` (513,838) 308,709` 5,928,789` Group` £` 3,638,059` 114,336` -` 3,752,395` 413,130` 692,350` 427,911` 1,148,619` 2,682,010` (1,044,264) 1,637,746` 5,390,141` Company` £` -` -` 4,579,564` 4,579,564` -` 145,242` 427,911` 742,337` 1,315,490` (305,776) 1,009,714` 5,589,278` (2,835,940) (2,799,775) (2,528,959) (2,528,959) (43,676) (51,992) -` -` (23,557) (15,548) -` -` 3,026,738` 3,129,014` 2,822,077` 3,060,319` 178,044` 2,501,430` 475,074` (127,810) 3,026,738` 178,044` 2,501,430` -` 449,540` 3,129,014` 173,118` 2,501,430` 380,000` (232,471) 2,822,077` 173,118` 2,501,430` -` 385,771` 3,060,319` Fixed assets Intangible assets Tangible assets Investments in subsidiaries Current assets Stocks Debtors Investments Cash in hand and at bank Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities Minority interests Total net assets Capital and reserves Called up share capital Share premium Merger reserve Profit and loss account Shareholders' funds The accompanying notes form an integral part of these financial statements. The financial statements were approved by the board on 22 March 2007 D.E. Cicurel Director 10 R.L. Cohen Director Consolidated Cash Flow Statement Notes 2006 £` 613,983` (195,377) (294,693) 2005 £` 345,217` (52,632) -` £` 54,462` (107,094) (11,704) -` (15,681) (11,704) Net cash inflow from operating activities a Returns on investments and servicing of finance Interest received Interest paid Taxation paid Capital expenditure Purchases of fixed assets Proceeds from sale of fixed assets Acquisitions and disposals Investments in subsidiaries Net cash from purchase of subsidiary undertaking Net cash outflow before management of liquid resources and financing Management of liquid resources Sales of investments Equity dividend paid Net cash outflow before financing Financing Issue of Ordinary shares Expenses paid in connection with share issues Bank loans drawn down Loan repayments Repayments of Contracts for Differences Net cash inflow from financing (Decrease)/increase in cash in the year c The accompanying notes form an integral part of these financial statements. £` 32,041` (227,418) (31,336) 15,655` (1,215,090) 178,867` -` -` 700,000` (263,454) -` (4,059,564) 579,949` 956,000` (102,264) 2,448,959` (164,000) (451,421) (1,036,223) (927,991) 202,611` (35,629) (761,009) 436,546` (324,463) (3,479,615) (3,198,734) 1,364,006` -` (1,834,728) 2,687,274` 852,546` 11 Notes to the Consolidated Cash Flow Statement a Reconciliation of operating profit to net cash inflow from operating activities Operating profit Depreciation of fixed assets Amortisation of goodwill Profit on disposal of fixed assets Decrease/(increase) in stocks Exchange differences on foreign currency bank loans Increase in debtors Increase in creditors due within one year Net cash inflow from operating activities 2006` £` 551,517` 53,644` 159,956` (2,078) 104,775` (7,335) (364,429) 117,933` 613,983` 2005` £` 125,995` 10,767` 103,750` -` (60,880) -` (43,247) 208,832` 345,217` b Analysis of net debt Net cash: Cash at bank and in hand Liquid resources: Current asset investments Debt due < one year Debt due > one year Hire purchase Net debt 1 January 2006` £` Acquisitions` £` Cash flow` £` Other movements` £` 31 December 2006` £` 1,148,619` 427,911` (256,000) (2,528,959) -` (2,784,959) (1,208,429) -` -` (100,000) (600,000) -` (700,000) (700,000) (324,463) -` 824,156` -` (48,000) 304,000` 7,454` 263,454` (61,009) (208,756) -` 25,184` (61,432) (36,248) (245,004) 219,155` (404,000) (2,799,775) (53,978) (3,257,753) (2,214,442) Other movements reflect disposals of current asset investments (£208,756), non-cash debt adjustments (£25,184) comprising foreign exchange differences and interest accrual changes, and the inception of hire purchase obligations. c Reconciliation of net cash flow to movement in net debt (Decrease) / increase in cash in the year Cash flow from decrease in liquid resources (Loss) / profit on disposal of investments Amount repaid under Contracts for Differences New loans entered into, net of repayments Non cash debt adjustments (2005: issue of loan notes) Inception of hire purchase obligation Hire purchase obligation acquired with subsidiary Movement in net debt in the year Opening net (debt) / funds Closing net debt 12 2006` £` (324,463) (202,611) (6,145) -` (436,546) 25,184` (56,550) (4,882) (1,006,013) (1,208,429) (2,214,442) 2005` £` 852,546` (1,364,006) 89,842` 451,421` (2,284,959) (500,000) -` -` (2,755,156) 1,546,727` (1,208,429) Notes to the Financial Statements 1 Accounting policies 1.1 Accounting convention The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and under the historical cost convention. The principal accounting policies of the group are set out below. The policies have remained unchanged from the previous year, apart from the adoption of FRS 20. This change is described in more detail below. Change in accounting policy In preparing the financial statements for the current year, the group has adopted the following Financial Reporting Standard: FRS 20 – Share based payments The adoption of FRS 20 has resulted in a change in accounting policy in respect of share options granted since the incorporation of the company that had not vested prior to 1 January 2006. The standard requires share-based payments to be recognised at fair value as an expense commencing in the year of grant. Previously share-based payments had not been recognised in the profit and loss account. This change in accounting policy had no material effect on figures previously reported or on the results for the year. 1.2 Basis of consolidation The group financial statements consolidate those of the company and of its subsidiaries, drawn up to a coterminous accounting date. The results of companies acquired during the year are consolidated from the date of acquisition. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting. The company is entitled to the merger relief offered by section 131 of the Companies Act 1985 in respect of the fair value of the consideration received in excess of the nominal value of the equity shares issued in connection with the acquisition of UHV Design Limited. The share of net assets of subsidiaries which are not wholly owned are disclosed as minority interests. 1.3 Goodwill Goodwill arising on the acquisition of subsidiary companies or of business undertakings is the difference between the fair value of the purchase consideration and the fair value of the net assets acquired. Goodwill is capitalised and amortised on a straight line basis over its estimated useful economic life up to a maximum of 20 years for acquisitions of subsidiary companies. Negative goodwill is written back to the profit and loss account to match the consumption of the non-monetary assets acquired. 1.6 Investment income Investment income comprises dividends declared during the accounting period and interest receivable on quoted and unquoted investments. 1.7 Tangible fixed assets Fixed assets are stated at cost or at fair value if part of an acquisition, net of any depreciation and any provision for impairment. Depreciation is provided at annual rates calculated to write off the cost or fair value less residual value of each asset over its expected useful life, within the following ranges: Plant and machinery: 15% on written down value to 20% on cost 15% on written down value to 33% on cost 25% on written down value to 25% on cost 20% on cost Fixtures, fittings and equipment: Motor vehicles: Building improvements: 1.8 Stocks 1.4 Cashflow statement Movement of liquid resources relates to net cash cost of current investments acquired and sold in the year. All current asset investments are held as liquid resources. Stocks are stated at the lower of cost and net realisable value or at fair value if part of an acquisition. Cost includes materials, direct labour and an attributable proportion of manufacturing overheads based on normal levels of activity. 1.5 Turnover 1.9 Investments Revenue recognition policies in respect of the group's principal revenue streams are as follows: • Sales of instruments and spares are recognised at the point of • despatch. Installation revenues are deferred and recognised on completion of installation. All revenues are stated exclusive of value added tax. Fixed asset investments in subsidiaries are stated at cost less provision for impairment. Other investments are treated as current assets, reflecting the group’s strategic investment policy actively to pursue appropriate exit routes on all such investments. Current asset investments are stated at the lower of cost and the directors’ estimate of near-term net realisable value. 13 1.10 Deferred taxation 1.13 Leasing 3 Operating costs Deferred tax is recognised on all timing differences where the transactions or events that give the group and the company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is not discounted and is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date. Rentals payable under operating leases are charged against income on a straight line basis over the lease term. Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their estimated useful economic lives. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the profit and loss account over the period of the lease. 1.11 Pensions 1.14 Convertible redeemable shares Companies in the group operate defined contribution pension schemes for employees and directors. The assets of the schemes are held by investment managers separately from those of the company and group. The annual contributions payable are charged to the profit and loss account. 1.12 Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date. Transactions in foreign currencies are recorded at the rate of exchange prevailing at the date of transaction. All differences are taken to the profit and loss account. In accordance with FRS 4, the convertible redeemable shares have been recorded as a liability at the net proceeds received and the future conversion into Ordinary shares has not been taken into account. 2 Turnover and profit on ordinary activities before taxation Turnover and profit on ordinary activities before taxation are attributable to the group's continuing activities of the design and manufacture of scientific instruments and undertaking of investments, as set out on the face of the profit and loss account. An analysis of turnover by destination for the group is set out below: United Kingdom Europe United States / Canada Rest of the World 2006 £ 2005 £ 710,496 1,731,933 1,075,996 1,676,900 103,416 891,050 475,886 741,169 5,195,325 2,211,521 2006 2006 Continuing Acquisitions activities £ Raw materials and consumables1,322,051 906,304 Other external charges 1,246,104 Staff costs 25,102 Depreciation 47,295 Other operating charges £ 297,169 177,997 426,331 28,542 6,957 2006 Total £ 1,619,220 1,084,301 1,672,435 53,644 54,252 2005 Total £ 761,433 573,191 631,371 10,767 5,014 3,546,856 936,996 4,483,852 1,981,776 4 Profit on ordinary activities before taxation Profit on ordinary activities before taxation is stated after charging / (crediting): Loss/(profit) on disposal of investments Profit on disposal of fixed assets Fees payable to the company's auditor 2006` £` 2005` £` 6,145` (2,078) (89,842) -` for the audit of the company's annual accounts 12,400` 10,500` Fees payable to the company's auditor for other services: for the audit of the company's subsidiaries, pursuant to legislation for tax services for all other services Depreciation Goodwill amortisation Release of negative goodwill Operating lease rentals - land and buildings 18,320` 7,450` 800` 53,644` 247,519` (87,563) 162,068` 12,500` 5,650` 2,300` 10,767` 113,050` (9,300) 62,026` In addition fees were paid to the auditor in 2006 in respect of corporate finance transaction work undertaken in connection with the acquisition of UHV Design Limited. The costs of £28,727 plus VAT were charged to investments in subsidiaries. 14 The group and company have unrelieved tax losses at 31 December 2006 of £325,259 (2005 £311,000). The group and company have not recognised a deferred tax asset (2006: £97,578, 2005: £93,300) in respect of these losses as the timing and extent of recovery is insufficiently certain. These losses are available to be offset against future profits of the parent company. Earnings per share Options and warrants over Ordinary shares and rights of conversion of the Convertible Redeemable shares are described in notes 17 and 18. 2006 2005 Basic Diluted Basic Diluted 8 Intangible assets Group Cost 1 January 2006 Arising during the year 31 December 2006 Amortisation 1 January 2006 Charge / (credit) for the year 31 December 2006 Goodwill’ Negative’ goodwill’ Total’ £’ £’ £’ 3,875,374’ 952,723’ (133,565)’ -’ 3,741,809’ 952,723’ 4,828,097’ (133,565) 4,694,532’ 113,050’ 247,519’ (9,300) (87,563) 103,750’ 159,956’ 360,569’ (96,863) 263,706’ 140,290 140,290 46,929 46,929 Net book value – 31 December 2006 4,467,528’ (36,702) 4,430,826’ Net book value – 31 December 2005 3,762,324’ (124,265) 3,638,059’ Diluted profit 140,290 156,975 46,929 - 16,685 - 11,744 58,673 Goodwill arose in the year in connection with the acquisition of UHV Design Limited and of a trade and certain business assets by Aitchee Engineering Limited, as set out in notes 26 and 27 respectively. 5 Net interest payable Interest receivable Interest payable - bank and hire purchase loans and overdrafts Interest payable - loan notes 6 Taxation UK Corporation tax at 30% (2005: 30%) - current year - prior years Deferred tax - origination and reversal of timing differences: Current year Prior years 2006` £` 2005` £` 32,041` 54,462` (194,219) (33,199) (87,077) (20,017) 7 (195,377) (52,632) 2006` £` 2005` £` 160,305` 852` 100,559` -` 161,157` 100,559` 11,138` 970` 12,108` 218` -` 218` Tax on profit on ordinary activities 173,265` 100,777` Factors affecting the tax charge for the year: Profit on ordinary activities before taxation 349,995` 163,205` Profit on ordinary activities before taxation multiplied by standard rate of UK corporation tax of 30% Goodwill charges not deductible for tax purposes Losses carried forward Provisions and expenditure not deductible for tax purposes Marginal relief Capital allowances in excess of depreciation Adjustment in respect of prior years 104,998` 67,401` -` 8,587` (10,559) (10,122) 852` 48,961` 33,915` 19,238` (813) (524) (218) -` Earnings Basic: profit for the financial year Notional taxed interest income accruing on dilution Adjusted: Add back goodwill charge, net of £36,051 (2005: £4,557) relating to tax and minority interest in negative goodwill write back 196,007 Adjusted profit - basic / diluted 336,297 Number of shares Basic: weighted average in year 3,544,953 Adjusted: weighted average increase on dilution Earnings per share Basic / diluted 196,007 352,982 108,307 155,236 108,307 166,980 3,544,953 2,931,101 2,931,101 161,157` 100,559` Adjusted - basic / diluted - 718,852 - 513,593 3,544,953 4,263,805 2,931,101 3,444,694 3.9 9.4 3.6 8.2 1.6 5.3 1.7 4.8 15 9 Tangible assets 10 Investments in subsidiaries 11 Stocks Plant &’ machinery’ Fixtures,’ fittings &’ equipment’ Motor’ vehicles’ Building’ improve-’ ments’ Total’ £’ £’ £’ £’ £’ Group Cost / deemed cost 1 January 2006 Acquisitions Additions Disposals 71,736’ 181,143’ 72,880’ (26,000) 127,928’ 18,369’ 12,706’ -’ 31,739’ 19,450’ 2,300’ (14,550) 29,367’ 25,125’ -’ -’ 260,770’ 244,087’ 87,886’ (40,550) 31 December 2006 299,759’ 159,003’ 38,939’ 54,492’ 552,193’ Depreciation 1 January 2006 Acquisitions Charge Disposals 50,039’ 61,634’ 36,759’ (13,840) 39,017’ 6,805’ 9,169’ -’ 28,011’ 7,911’ 3,406’ (13,133) 29,367’ 7,270’ 4,310’ -’ 146,434’ 83,620’ 53,644’ (26,973) 31 December 2006 134,592’ 54,991’ 26,195’ 40,947’ 256,725’ Net book value 31 December 2006 Net book value 31 December 2005 165,167’ 104,012’ 12,744’ 13,545’ 295,468’ 21,697’ 88,911’ 3,728’ -’ 114,336’ Included above are plant & machinery assets held under hire purchase contracts with a net book value at 31 December 2006 of £68,110 (2005: nil). The depreciation charge in the year on these assets was £3,440 (2005: nil). 16 Company: Cost 1 January 2006 Acquisition in year (see note 26) Adjustment in respect of prior year acquisition 31 December 2006 £` 4,579,564` 1,046,214` (5,698) 5,620,080` Raw materials Work in progress Finished goods Group Company 2006 £ 288,839 100,646 13,456 2005 £ 253,462 159,668 - 402,941 413,130 2006 £ 2005 £ - - - - - - - - The group’s trading subsidiaries at 31 December 2006, all of which were incorporated and operate in the United Kingdom, were as follows: 12 Debtors Company Principal activity Class of shares % held Fire Testing Technology Limited Design and assembly of fire testing instruments Ordinary £1 100% PE.fiberoptics Limited Design and assembly of fibre-optic testing instruments “A” Ordinary £1 100% of “A” class; being 51% of total equity UHV Design Limited Design and manufacture Ordinary £1 of instruments used to manipulate objects in ultra high vacuum chambers 100% Aitchee Engineering Manufacture of Limited engineering parts and finished products Ordinary £1 100% All of the above companies are owned directly by Judges Capital plc, with the exception of Aitchee Engineering Limited, which is owned directly by Fire Testing Technology Limited (see note 27). 2006 £ 1,137,693 - - 45,680 Group Company 2005 £ 559,436 - - 44,942 2006 £ - 2005 £ - 275,125 106,857 - 111,978 28,853 - 65,666 87,972 2,896 4,411 Trade debtors Amounts owed by group companies Corporation tax - group relief Other debtors Prepayments and accrued income 1,249,039 692,350 384,878 145,242 13 Current asset investments Group and company Unquoted investments Quoted investments Historical’ cost’ £’ 19,373’ 199,782’ Market’ valuation’ £’ -’ 190,950’ Period end value Directors'’ valuation’ £’ Total’ valuation’ £’ 45,500’ -’ 45,500’ 190,950’ At 31 December 2006 219,155’ 190,950’ 45,500’ 236,450’ Net unrealised (loss) / gain at 31 December 2006 -’ (8,832) 26,127’ 17,295’ Details of the investments held at 31 December 2006 are: quoted investment - Poole Investments plc - 5,700,000 shares (representing 3.08%, part of a 13% concert party); unquoted investments - Fortress Holdings plc (in members' voluntary liquidation) - 800,100 shares (representing 1.68%). Historical` cost` £` Market` valuation` £` Period end value Directors'` valuation` £` Total` valuation` £` 19,373` 508,538` -` 318,825` 45,500` -` 45,500` 318,825` (100,000) -` -` -` Unquoted investments Quoted investments Less: provision against investments At 31 December 2005 427,911` 318,825` 45,500` 364,325` Net unrealised (loss) / gain at 31 December 2005 -` (89,713) 26,127` (63,586) 14 Creditors: amounts falling due within one year 2006 £ Trade creditors 339,377 Accruals and deferred income 298,036 Social security and other taxes 101,795 261,718 Corporation tax Bank loan 404,000 Net obligations under hire purchase contracts Other creditors 17,813 40,500 Group Company 2005 £ 224,203 111,096 47,073 315,798 256,000 - 90,094 2006 £ 43,000 39,970 14,368 - 404,000 - 12,500 2005 £ - 33,284 3,992 - 256,000 - 12,500 1,463,239 1,044,264 513,838 305,776 Other creditors include £12,500 of non equity shares classed as financial liabilities (see note 18). 15 Creditors: amounts falling due after more than one year Bank loan Subordinated loan notes Net obligations under hire purchase contracts Group Company 2006 £ 2005 £ 2006 £ 2005 £ 2,299,775 500,000 2,028,959 500,000 2,299,775 500,000 2,028,959 500,000 36,165 - - - 2,835,940 2,528,959 2,799,775 2,528,959 The bank loan is secured on assets of the group, is repayable in quarterly instalments over a 6 year period ending 31 March 2011 and bears interest at 21/4% above LIBOR-related rates. The subordinated loan notes are unsecured, repayable on 23 May 2010 and bear interest at Bank of Scotland base rate plus 2%. The hire purchase obligations are secured on the related assets. The repayment profile of borrowings is as follows: Bank loan Subordinated loan notes £ £ Hire purchase £ Total £ Repayable in less than 1 year 404,000 508,000 Repayable in years 1 to 2 1,791,775 Repayable in years 2 to 5 - - 500,000 17,813 17,156 19,009 421,813 525,156 2,310,784 16 Provisions for liabilities Deferred tax – group 1 January 2006 Acquisitions Charge 31 December 2006 £ 23,557 8,011 12,108 43,676 Amounts provided in respect of deferred tax are computed at 30% and relate to accelerated capital allowances. 17 Equity share capital (Group and Company) Authorised 10,000,000 Ordinary shares of 5p each 2006 £ 2005 £ 500,000 500,000 Allotted, called up and fully paid 3,560,878 (2005: 3,462,356) Ordinary shares of 5p each 178,044 173,118 The increase in 2006 in the number of shares issued amounted to 98,522, representing shares which were issued on 6 March 2006 at a fair value of £1.015 in respect of the acquisition of UHV Design Limited. The company has taken advantage of the merger relief available under section 131 of the Companies Act 1985 and recorded the issue of these shares at nominal value. 2,703,775 500,000 53,978 3,257,753 Equity share options and warrants During the year, a proportion of the group’s bank loans were converted into foreign currencies to provide a hedge against assets denominated in those currencies. The sterling equivalent at 31 December 2006 of loans denominated in US$ was £144,436 and in Euros was £148,229. These amounts are included in the figures above for bank loans, repayable in years 2 to 5. Options issued under Employee Share Option Plans Options were granted on 20 October 2005 under the company’s Unapproved Plan at £1.015 per share, exercisable between the third and tenth anniversaries of grant and conditional on achievement of group earnings targets, as follows: • to a director of the company (Mr R.L. Cohen) 37,000 shares • other 5,000 shares 17 Further options were granted on 22 March 2006 at £1.035 per share, exercisable between the third and tenth anniversaries of grant, over 28,000 shares under the company’s Approved Plan (conditional on achievement of group earnings targets in the case of 10,000 shares) and over 14,000 shares under the Unapproved Plan. None of these options was granted to directors of the company. The market price of the company’s Ordinary shares on 31 December 2006 was £0.975, the highest price during 2006 was £1.04 on 3 to 13 January, the lowest price during 2006 was £0.95 on 3 July and 23 September and the price on 15 March 2007 was £1.025. Warrants to subscribe Under an agreement dated 22 October 2004, Invex Capital LLP was granted unquoted warrants to subscribe for Ordinary shares in the company in connection with the acquisition of Fire Testing Technology Limited. This warrant has an exercise price of £1 per share, expires on 23 May 2010 and relates to 133,564 shares. Convertible Redeemable shares The conversion rights set out in note 18 would have resulted in the issue of 485,574 Ordinary shares if conversion of all the Convertible Redeemable shares had taken place on 31 December 2006. 18 Shares classed as financial liabilities (Group and Company) 2006 £ 2005 £ Authorised 5,000,000 Convertible Redeemable shares of 1p each 50,000 50,000 Allotted, called up and fully paid 5,000,000 Convertible Redeemable shares of 1p each – quarter paid 12,500 12,500 18 • The holders of the Convertible Redeemable shares are not Group In accordance with FRS 25 - Financial Instruments: Disclosure and Presentation, the preference shares are classified as financial liabilities and included in other creditors (see note 14). The principal terms of the Convertible Redeemable shares are as follows: • There is no right to participate in the profits of the company. • On a winding up or other return of capital the surplus assets remaining after payment of liabilities shall be applied: i) First in repaying the capital paid up on the Ordinary shares; ii) Secondly in repaying the capital paid up on the Convertible Redeemable shares; and iii) Thirdly distributed amongst the holders of the Ordinary shares according to the amounts paid up. entitled to attend or vote at General Meetings of the company unless the meeting considers a resolution for winding up the company. • On payment to the company of the aggregate of (i) a sum equal to any amount which has not been called or which is otherwise unpaid in respect of all of the Convertible Redeemable shares to be converted and (ii) a further sum equal to 95 pence multiplied by the number of Ordinary shares to be issued as a result of the conversion less the amount paid up or deemed paid up (including the amount referred to in (i) above) in respect of the Convertible Redeemable shares to be converted (“Conversion Price”), each holder of Convertible Redeemable shares shall be entitled to convert all or any of his Convertible Redeemable shares into such number of fully paid Ordinary shares which represents 0.24 per cent of the number of Ordinary shares in issue, assuming that all the Convertible Redeemable shares remaining capable of being convertible into Ordinary shares at the date of which the conversion takes place had been converted at the time, for every 100,000 Convertible Redeemable shares so converted and in proportion for any greater or lesser number of Convertible Redeemable shares (“Conversion Rate”). • The holders of Convertible Redeemable shares shall (subject to the provisions of the Companies Act) be entitled at any time to redeem all or any of the Convertible Redeemable shares outstanding out of any profits or monies of the company which may lawfully be applied for that purpose. 19 Statement of movements on reserves Share` premium` account` £` Merger` reserve` £` 380,000` -` -` 95,074` Profit and` loss` account` £` (232,471) 140,290` (35,629) -` 1 January 2006 Profit for the year Dividend paid in the year Merger reserve arising on shares issued 2,501,430` -` -` -` Balance at 31 December 2006 2,501,430` 475,074` (127,810) The company paid its maiden dividend of 1p per Ordinary share on 3 November 2006. The company has taken advantage of the relief available under section 131 of the Companies Act 1985 and recorded the shares issued in connection with the acquisition of UHV Design Limited (98,522 shares at a fair value of £1.015 per 5p share) at nominal value. Company 1 January 2006 Profit for the year Dividend paid in the year Share` premium` account` Profit` and loss` account` £` £` 2,501,430` -` -` 385,771` 99,398` (35,629) 22 Employees Group Number of employees - manufacturing - sales and administration Balance at 31 December 2006 2,501,430` 449,540` Employment costs The parent company has taken advantage of section 230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The parent company's profit for the year was £99,398 (2005: £665,171). Wages and salaries Social security costs Pension costs 20 Reconciliation of movements in shareholders’ funds 2006 no. 25 26 51 2006 £ 1,471,845 166,021 34,569 2005 no. 11 11 22 2005 £ 560,781 57,284 13,306 1,672,435 631,371 Profit for the year Dividend paid in the year Issue of shares Net addition to shareholders' funds Opening shareholders' funds Closing shareholders' funds 21 Directors’ emoluments 2006` £` 2005` £` 140,290` (35,629) 100,000` 46,929` -` 1,253,736` 204,661` 2,822,077` 1,300,665` 1,521,412` 3,026,738` 2,822,077` Emoluments Defined contribution pension scheme contributions 178,660` 3,792` 2006` £` 2005` £` 89,110` -` During the year one director participated in a defined contribution pension scheme (2005 nil). 182,452` 89,110` 23 Related Party Transactions The company entered into the following transactions during the year with its 51%-owned subsidiary, PE.fiberoptics Limited (“PFO”): (a) in January 2006, PFO repaid the outstanding balance of £25,000 of a loan facility of £250,000 (reducing annually by £62,500) granted by the company in 2005. No further drawdowns were made during the year. Interest of £1,702, calculated at the rate of 7% per annum on outstanding amounts, was paid by PFO on 2 September 2006. Any amounts outstanding under this loan facility are secured by way of a first charge over the assets and undertaking of PFO. (b) an additional loan to PFO amounting to £40,800 was outstanding on 1 January and 31 December 2006. This loan is unsecured, does not bear interest and is repayable at the discretion of the directors of PFO. 24 Financial Instruments The group’s policies on treasury management and financial instruments are given in the Directors’ Report. As permitted by FRS 13, short-term debtors and creditors have been excluded from the disclosures below, except as set out in relation to foreign currencies. Financial assets The group’s financial assets comprise cash at bank, which is principally denominated in sterling and earns interest at floating rates. There is no difference between the book and fair values of the financial assets. At 31 December 2006 the group had debtors denominated in foreign currency as follows: Euros - £197,558 (2005: £155,492) and US Dollars - £294,228 (2005: £91,743) Financial liabilities The group's principal financial liabilities are bank debt and the unsecured loan notes issued in connection with the acquisition of Fire Testing Technology Limited in 2005. A proportion of the bank debt is denominated in foreign currencies to provide a hedge against currency risk on group assets, as described in note 15. Fair value of financial instruments Financial instruments include the borrowings above. All financial instruments denominated in foreign currencies are translated into sterling at market prices at balance sheet dates. The directors believe that there is no material difference between the book value and fair value of such financial instruments. Borrowing facilities The group had an undrawn committed overdraft facility of £500,000 at 31 December 2006 (2005: £500,000). 19 25 Dividends p/share 2006 £ p/share 2005 £ Paid in the year, on 3 November 2006 Accrued at the year-end 1.0 - 35,629 - Proposed after the year-end, for payment on 6 July 2007 2.0 71,258 - - - - - - 26 Acquisition of UHV Design Limited (“UHV”) On 21 February 2006 the company acquired 100 Ordinary shares of £1 each in UHV Design Limited (“UHV”), being 100% of its issued share capital. Goodwill arising on the acquisition of UHV has been capitalised and the purchase has been accounted for by the acquisition method of accounting. Advantage has been taken of Section 131 of the Companies Act 1985 to take merger relief in respect of the premium on the issue of shares to the vendors of UHV (see note 17). UHV drew up statutory accounts for the period from 1 April 2005 to 20 February 2006, the day immediately prior to the acquisition. These showed turnover of £899,465, operating profit of £321,229, profit before tax of £326,001, tax of £77,113 and profit after tax of £248,888. The profit after tax for the year ended 31 March 2005 was £231,742. 20 The assets and liabilities of UHV at the date of acquisition were as follows: UHV made the following contributions to, and utilisations of, group cash flow: Fixed assets Current assets Current liabilities Long term liabilities Total net assets at date of acquisition Consideration paid or provided for, including transaction costs Goodwill Consideration satisfied by: Cash falling due on completion, including transaction costs Cash paid subsequently - earn-out Estimate of cash payable in 2007 – earn-out - working capital adjustment Cash consideration paid or provided for Issue of shares – 98,522 Ordinary 5p shares at fair value of £1.015 each Total fair value of consideration Less: merger relief Company - cost of investment recorded Book and` fair values` £` 127,602` 460,713` (191,797) (8,011) 388,507` 1,141,288` 752,781` 750,288` 43,000` 205,000` 43,000` 1,041,288` 100,000` 1,141,288` (95,074) 1,046,214` Net cash inflow from operating activities Returns on investment and servicing of finance Capital expenditure and financial investment Financing Increase in cash Analysis of net outflow of cash in respect of the purchase of UHV: 2006` post` acquisition` £` 363,294` 3,715` (61,144) 53,977` 359,842` £` Cash at bank and in hand at the date of acquisition Cash consideration (excluding expected 2007 payment of £43,000) 178,867` (998,288) Net cash outflow (excluding expected 2007 payment of £43,000) (819,421) 27 Acquisition of Aitchee Engineering Limited (“Aitchee”) On 4 September 2006 the company’s subsidiary, Fire Testing Technology Limited (“FTT”), subscribed in cash and at par for 2 ordinary shares of £1 each in Aitchee Engineering Limited (“Aitchee”), being 100% of its issued share capital. On commencement of its trade on 4 September 2006, Aitchee acquired the goodwill and certain assets of Aitchee Engineering Associates, a business previously carried on by its proprietors in the manufacture of a variety of engineering parts and finished products for a variety of industries. Goodwill arising on the acquisition of these assets has been capitalised within the consolidated accounts of Judges Capital plc. The purchase of Aitchee has been accounted for by the acquisition method of accounting. 28 Operating lease commitments At 31 December 2006 the group had annual commitments under non-cancellable operating leases as follows: Expiry date: Land and buildings - between one and five years - after five years 2006 £ 2005 £ 164,691 - 93,000 - Apart from cash raised on subscription for its shares, Aitchee had no assets or liabilities at the date of acquisition of its shares by FTT, nor any accumulated profits or losses. The fair values attributed by the directors of Aitchee to the assets acquired from Aitchee Engineering Associates were as follows: Fixed assets Stocks Total net assets at date of acquisition Consideration paid or provided for, including transaction costs Goodwill Consideration satisfied by: Cash falling due on completion, including transaction costs Estimate of cash payable in 2007 – earn-out and transaction costs Total fair value of consideration Aitchee made the following contributions to, and utilisations of, group cash flow: Net cash inflow from operating activities Returns on investment and servicing of finance Increase in cash Fair values` £` 32,865` 5,000` 37,865` 243,500` 205,635` 222,500` 21,000` 243,500` 2006` post` acquisition` £` 4,415` (63) 4,352` Analysis of net outflow of cash in respect of the purchase of Aitchee: Cash consideration for shares Net cash outflow £` 2` 2` 21 Notice of Annual General Meeting Notice is hereby given that the fourth Annual General Meeting of Judges Capital plc (“the Company”) will be held at 17 Grosvenor Gardens, London SW1W 0BD on 21 May 2007 at 12.00 noon for the purpose of dealing with the following business of which items 6, 7 and 8 are special business. Ordinary Business 1 To receive the reports of the directors and the auditor and the audited financial statements of the Company for the year ended 31 December 2006. To re-appoint Hon Alexander Hambro, who retires by rotation, as a director. To re-appoint Ralph Elman, who retires by rotation, as a director. agreement or other arrangements as if the authority conferred hereby had not expired, this authority to replace any previous authority under section 80 of the Act which is hereby revoked with immediate effect. That: Special Resolutions 7 (a) subject to and conditional upon the passing of resolution 6 above, the directors of the Company be and they are hereby empowered pursuant to section 95(1) of the Act to allot equity securities (as defined for the purposes of section 95 of the Act) for cash, pursuant to the authority granted by resolution 6 above, as if section 89(1) of the Act did not apply to any such allotment, provided that such power shall be limited to: To approve a final dividend of 2 pence per Ordinary share. (i) To re-appoint Grant Thornton UK LLP as auditor to hold office from the conclusion of this meeting until the conclusion of the next general meeting at which financial statements are laid before the Company and to authorise the directors to fix the remuneration of the auditor. the allotment of equity securities in connection with a relevant rights issue or open offer in favour of Ordinary shareholders where the equity securities attributable to the respective interests of all Ordinary shareholders are proportionate to the respective numbers of Ordinary Shares held by them on the record date for such allotment, but subject to such exclusions as the directors may deem fit to deal with fractional entitlements or problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange; and 2 3. 4 5 Special Business To consider and, if thought fit, to pass the following resolutions, as to the resolution numbered 6 as an Ordinary Resolution and as to the resolutions numbered 7 and 8 as Special Resolutions: Ordinary Resolution 6 That the directors of the Company be and are hereby generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities (as defined for the purposes of section 80 of the Companies Act 1985 (“the Act”) up to an aggregate nominal amount of £178,043 provided that this authority unless renewed shall expire at the close of the next Annual General Meeting of the Company, save that the Company may before such expiry make any offer, agreement or other arrangement which would or might require relevant securities to be allotted after such expiry and the directors of the Company may allot the relevant securities in pursuance of such offer, 22 (ii) the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities for cash up to an aggregate nominal amount of £178,043. (c) and, unless previously renewed, revoked or varied, such power shall expire at the close of the next Annual General Meeting of the Company, save that the Company may before such expiry make an offer, agreement or other arrangement which would or might require equity securities to be allotted after such expiry and the directors of the Company may allot equity securities in pursuance of such offer, agreement or other arrangement as if the power conferred hereby had not expired; (b) For the purposes of this resolution: (i) "relevant rights issue" means an offer of equity securities open for acceptance for a period fixed by the directors of the Company to holders on the register on a fixed record date of Ordinary shares in the Company in proportion (or as nearly as may be practicable) to their respective holdings but subject in any case to such exclusions or other arrangements as the directors of the Company may deem necessary or desirable to deal with fractional entitlements or legal or practical problems under the laws of, or the requirements of, any recognised regulatory body or any stock exchange in any territory; and (ii) the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or convert any securities into shares of the Company, the nominal amount of such shares, which may be allotted pursuant to such rights. 8 (a) That the Company is hereby generally and unconditionally authorised to make market purchases (within the meaning of section 163(3) Companies Act 1985) of Ordinary shares of 5p each in the capital of the Company ("Ordinary Shares") provided that:- the maximum number of Ordinary Shares authorised to be acquired is 356,087; (b) the minimum price which may be paid for each Ordinary Share is 5p (exclusive of expenses); the maximum price (exclusive of expenses) which may be paid for each Ordinary Share is, in respect of a share contracted to be purchased on any day, an amount equal to 105 per cent of the average of the middle market quotations of Ordinary Shares taken from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day on which the contract of purchase is made; (d) this authority will (unless renewed) expire at the conclusion of the next Annual General Meeting of the Company held after the date on which this resolution is passed or, if earlier, 18 months after that date; and the Company may make a contract of purchase of Ordinary Shares under this authority before this authority expires which will or may be executed wholly or partly after its expiration. (e) 4 . P u r s u a n t t o R e g u l a t i o n 4 1 o f T h e U n c e r t i f i c a t e d S e c u r i t i e s r e g i s t e r e d i n t h e i r n a m e a t t h a t t i m e . C h a n g e s t o e n t r i e s i n t h e R e g i s t e r a f t e r 1 2 . 0 0 n o o n o n 1 9 M a y 2 0 0 7 s h a l l b e d i s r e g a r d e d i n d e t e r m i n i n g t h e r i g h t s o f a n y p e r s o n t o a t t e n d o r v o t e a t t h e m e e t i n g . o r v o t e a t t h e m e e t i n g i n r e s p e c t o f t h e n u m b e r o f O r d i n a r y s h a r e s p r i o r t o t h e t i m e f i x e d f o r t h e a d j o u r n e d m e e t i n g a r e e n t i t l e d t o a t t e n d t h e M e e t i n g i s a d j o u r n e d , s u c h t i m e b e i n g n o t m o r e t h a n 4 8 h o u r s n o t m o r e t h a n 4 8 h o u r s p r i o r t o t h e t i m e f i x e d f o r t h e M e e t i n g ) o r , i f M e m b e r s o f t h e C o m p a n y a s a t 1 2 . 0 0 n o o n o n 1 9 M a y 2 0 0 7 ( b e i n g R e g u l a t i o n s 2 0 0 1 o n l y t h o s e m e m b e r s r e g i s t e r e d i n t h e R e g i s t e r o f h e / s h e s o w i s h . 3 T h e c o m p l e t i o n a n d r e t u r n o f a f o r m o f p r o x y w i l l n o t p r e c l u d e a m e m b e r f r o m a t t e n d i n g a n d v o t i n g i n p e r s o n a t t h e m e e t i n g s h o u l d 2 T o b e v a l i d , t h e i n s t r u m e n t a p p o i n t i n g a p r o x y t o g e t h e r w i t h a n y p o w e r o f a t t o r n e y o r o t h e r a u t h o r i t y u n d e r w h i c h i t i s s i g n e d o r a t h e t i m e f i x e d f o r h o l d i n g t h e m e e t i n g o r a n y a d j o u r n m e n t t h e r e o f . a t t h e r e g i s t e r e d o f f i c e o f t h e C o m p a n y n o t l e s s t h a t 4 8 h o u r s b e f o r e n o t a r i a l l y c e r t i f i e d c o p y o f s u c h p o w e r o r a u t h o r i t y , m u s t b e d e p o s i t e d m e m b e r o f t h e C o m p a n y . a t t e n d a n d , o n a p o l l , v o t e i n h i s / h e r p l a c e . A p r o x y n e e d n o t b e a n o t i c e s e t o u t h e r e i n i s e n t i t l e d t o a p p o i n t o n e o r m o r e p r o x i e s t o 1 A m e m b e r e n t i t l e d t o a t t e n d a n d v o t e a t t h e m e e t i n g c o n v e n e d b y t h e N o t e s : 2 3 A p r i l 2 0 0 7 R L C o h e n C o m p a n y S e c r e t a r y B y O r d e r o f t h e B o a r d E a s t G r i n s t e a d W e s t S u s s e x R H 1 9 2 H L R e g i s t e r e d O f f i c e : U n i t 1 9 , C h a r l w o o d s R o a d Form of Proxy for the Annual General Meeting of Judges Capital plc on 21 May 2007 at 12.00 noon at 17 Grosvenor Gardens, London SW1W 0BD If you are unable to attend the Annual General Meeting, you may appoint a proxy to attend and vote in your place. A proxy need not be a member of Judges Capital plc. A proxy must vote as you have instructed and cannot vote on a show of hands. If you wish to appoint a proxy other than the Chairman of the meeting you may do so by crossing out the words ‘Chairman of the meeting’ and writing another proxy’s name and address in the space provided. You may appoint more than one proxy. Please indicate for each Resolution how you wish your proxy to vote by placing a tick in the relevant box. If you do not tell your proxy how to vote, your proxy may vote or withhold his/her vote as he/she thinks fit on the Resolutions or any other business at the meeting (including amendments to Resolutions). I/We of (Block Letters) appoint the Chairman of the meeting or proxy to attend and, on a poll, to vote on my/our behalf at the Annual General Meeting of Judges Capital plc to be held at 12.00 noon on 21 May 2007, and at any adjournment(s) of that meeting. as my/our For Against Vote Withheld 1 2 3 4 5 6 7 8 Approval of Annual Report and Accounts Re-appointment of Hon Alexander Hambro Re-appointment of Ralph Elman Approval of final dividend Re-appointment of auditor Authority to allot relevant securities Authority to disapply pre-emption rights * Authority to purchase own shares * *Special resolutions If this proxy is signed by someone else on your behalf, his/her authority must also be returned with this form. In the case of joint holdings, any one holder may sign this form. In the case of a corporation, the proxy must be executed under its common seal or under the hand of a duly authorised officer or attorney. Even if you complete and return this proxy form, you may still attend the meeting and vote in person should you later decide to do so. Please sign here: Date: Please post this form once you have completed it to the address printed overleaf. To be valid, this form must be received no later than 48 hours before the time fixed for holding the meeting or any adjournment thereof. Mailing address for Form of Proxy The Company Secretary, Judges Capital plc, Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL Mailing address for Form of Proxy The Company Secretary, Judges Capital plc, Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL Fold here Judges Capital plc Judges Capital plc, Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL Tel: 01342 323600 Fax: 01342 323608 E-mail: enquiries@judges.uk.com Website: www.judges.uk.com
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