Judges Scientific plc ANNUAL REPORT & ACCOUNTS 2009 CONTENTS Consolidated financial statements Chairman’s statement Directors’ report Independent auditor’s report Consolidated income statement Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement 2 - 3 4 - 7 8 9 10 11 12 Notes to the consolidated financial statements 13 - 32 Parent company financial statements Independent auditor’s report Parent company balance sheet 34 35 Notes to the parent company financial statements 36 - 39 Notice of Annual General Meeting Form of Proxy 41 - 42 43 - 44 Sales and adjusted operating profit 12,000 10,000 8,000 6,000 4,000 2,000 0 0 0 £ ’ Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Revenue Adjusted operating profit Adjusted operating profit as a percentage of revenue 24% 18% 12% 6% 0% e g a % The decline in 2009 in the operating profit percentage results in part from the acquisition of Quorum Technologies Limited Earnings, dividends and share price 30 25 20 15 10 5 e c n e p n i e r a h s r e p s d n e d i v D e c n e p n i e r a h s r e p i s g n n r a E Share price at the end of each week May 2005 to March 2010 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dividend per share Adjusted basic earnings per share Share price in pence at the end of the week Net debt 2,500 2,000 1,500 1,000 500 0 0 0 £ ’ e g a % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% e c n e p n i e c i r p e r a h S 180.00 160.00 140.00 120.00 100.00 80.00 60.00 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Balance of net debt existing at previous year-end Net debt arising in year from new acquisitions Net debt as a percentage of net assets (shown under IFRS since transition on 1 Jan 2006) All net debt at 31 December 2009 attributable to acquisition in 2009 1 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) CHAIRMAN’S STATEMENT I am pleased to report your Company’s results for the year to 31 December 2009. Revenues advanced from £7.1 million in 2008 to £11.3 million, an increase of 59% (or 20% excluding the impact of the acquisition of Quorum). Profit before tax and minorities but adjusted to exclude amortisation of intangible assets (and also, in respect of 2008, gains on disposals of investments and abortive acquisition costs) rose by 30% from £1.21 million in 2008 to a record £1.57 million in 2009. Basic earnings per share, similarly adjusted, rose from 21.1p to 28p. Unadjusted profit before tax and minorities amounted to £1.16 million (2008: £0.87 million).This equates to unadjusted basic earnings per share of 20.6p (2008: 14.7p). Corporate activity We continued to pursue our stated strategy of seeking acquisition opportunities in the instrumentation sector and were pleased to announce the acquisition on 9 June 2009 of Quorum Technologies Limited. Quorum specialises in the design and manufacture of instruments that prepare samples for examination under electron microscopes. The purchase price amounted to £1.2 million before taking account of a potential £300,000 capped earn-out and a payment of £465,000 in respect of cash in the business in excess of ongoing requirements. Between completion of the acquisition on 9 June 2009 and the end of the year, Quorum generated sales of £2.7 million and an adjusted EBIT contribution of £234,000. The unadjusted pre-tax contribution was a negative £164,000, reflecting the particularly heavy write-offs of intangible assets in the months immediately after completion, as required under IFRS accounting rules. On 18 March 2010, the Group acquired Sircal Instruments (UK) Limited, a company which designs, manufactures and distributes rare gas purifiers for use in metals analysis. contribution in the order of £270,000 before tax and amortisation of intangible assets. Trading The exceptional order book at the close of 2008, together with favourable exchange rates, provided a positive backdrop to a robust trading performance which continued throughout 2009.Those subsidiaries of the Company that predominantly service the public sector enjoyed particular strength and the more difficult trading conditions experienced within our private sector activities gave way to a distinct revival towards the end of the year. The post-acquisition contribution from Quorum has been in line with expectations and we are pleased to report a healthy order intake for this business since completion. Elsewhere, order intake was less exuberant than in 2008; we attribute the buoyancy of the last four months of that year to an acceleration of orders which would have materialised later but for the implications of the world economic downturn. In the wake of this, our order book at the end of 2009 represented 11 weeks of sales, similar to the level that prevailed in December 2007. The basic consideration for the purchase was £1 million, payable in cash and financed by an additional bank loan. Sircal’s most recent annual financial statements showed sales of £785,000. Your directors believe that, had the business been owned by Judges during that period, it would have generated a Although your Company has a clear acquisition strategy, we are also mindful of the need to nurture our existing businesses and it is therefore gratifying to be able to highlight the 20% increase in revenues from continuing operations. In recognition of the importance of this approach, we welcomed 2 David Barnbrook to the Board of Judges Scientific plc at the beginning of 2009 as Chief Operating Officer. He is responsible for supporting and coordinating the operations of our existing business segments and for absorbing new acquisitions into the Group. This focus on our growing operations has allowed us to report a highly creditable Return On Total Invested Capital in 2009 of 40% (2008: 33%). Financial position The solid trading performance in 2009 has enabled the Group to maintain adjusted net debt at £1 million, the same level as at 31 December 2008, despite the Quorum acquisition. Unadjusted net debt (ignoring the capped earn-out on the Quorum acquisition) stood at £0.7 million.Year-end cash balances amounted to £2.5 million (2008: £1.6 million), impacted by the refinancing of our term loan at the time of the Quorum transaction, when £1.6 million of outstanding debt was repaid and a new five-year term loan of £3 million was negotiated.As usual, a significant proportion of our debt is denominated in foreign currency to hedge against the impact of exchange rate fluctuations on our export activities. The picture below is from the plant Arabidopsis (rock cress) imaged in a scanning electron microscope.The specimen is infected with bacteria (the rod-like structures on the surface, which are approximately 20 microns in length). Arabidopsis is one of the model organisms used for studying plant biology and was the first plant to have its entire genome sequenced.The specimen was prepared using a Quorum Technologies PP2000T cryo preparation system fitted to an FEI field emission scanning electron microscope (SEM). Pseudo-colouring was applied after image acquisition. Image courtesy of FEI Company and the University of Aachen. Dividends Your Board is pleased to recommend a final dividend of 3.7p per share (2008: 2.4p per share) which, subject to approval at the forthcoming Annual General Meeting on 25 May 2010, will make a total distribution of 5p per share for 2009 (2008: 3.6p per share). Despite the increase, this is still covered 5.6 times by adjusted earnings per share, the same factor as for 2008. The proposed final dividend will be payable on 2 July 2010 to shareholders on the register on 4 June 2010 and the shares will go ex-dividend on 2 June 2010. Current trading and prospects The Group is in a healthy position with resilient businesses, modest gearing, favourable exchange rates and good visibility, courtesy of its current order book. A full year’s contribution from Quorum and nine months’ input from Sircal will help to underwrite the Group’s ongoing development. Although the current year has started positively, the global economic environment remains uncertain and our acquisition policy will remain focused on prudent earnings-enhancing transactions and the avoidance of excessive debt. Personnel I would like to take this opportunity on behalf of the Board to thank all the Group’s executives and employees for their exemplary and sustained achievements which have found due reflection in 2009’s record results. Alex Hambro Chairman Date: 25 March 2010 3 DIRECTORS’ REPORT not necessarily correlated with the company’s performance. Net debt, adjusted to include deferred consideration potentially payable in respect of the Quorum acquisition, remained steady at £1 million at 31 December 2009, the same level as the year before, despite the financing during 2009 of the acquisition of Quorum. Dividends totalling 5p per share (2008: 3.6p) will be recommended in respect of 2009 (including those that have already been paid at the interim stage); these are covered 4.1 times by earnings (2008: 3.9 times) and 5.6 times in both years by earnings adjusted as set out in note 14 to the financial statements, despite the proposed 39% increase in the dividend. In addition to these trends and 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: Sales trends • sales at Fire Testing Technology (“FTT”) rose by 21% in 2009 on the strength of an exceptional inflow of orders in the final weeks of the previous year.Although this experience was not repeated to the same degree at the end of 2009, the company nevertheless entered 2010 with a satisfactory order backlog, at a level consistent with experience in more normal times. Sales at Aitchee Engineering Limited, which are focused on UK-based private sector customers, fell by 13% in 2009, with trading having been weak for the major part of the year. However, a recovery in the last three months was encouraging. • PE.fiberoptics (“PFO”) supplies predominantly into private sector telecoms customers, and as a result is more exposed than most of the group’s operations to global industrial markets.As a consequence the company experienced particularly difficult trading conditions throughout much of the year. Sales revenue fell by £59,000 in the year, which was also affected by an increase in headcount attributable to research and development activities. However, its order intake lifted significantly in the final weeks of 2009 and it entered 2010 with a record order backlog. • sales at UHV Design (“UHV”) rose by 29% in 2009 compared with 2008, building further on the substantial gains of recent years.The year-end order backlog was down in comparison with the previous year but compared favourably with experience in earlier years. • Quorum’s last annual accounts prior to acquisition showed sales of £4 million. Subsequent to its acquisition, annualised sales have comfortably exceeded this level. Profitability Excluding Quorum, the group’s EBITA margin eased slightly from 19.3% in 2008 to 18.1% in 2009.With Quorum included for the post- acquisition portion of 2009, the group’s EBITA margin was 14.9%. The directors present their report and financial statements for the year ended 31 December 2009. Principal activities The company is the parent of a trading group involved in the design and manufacture of scientific instruments. Business review Order inflows in the last weeks of 2008 were abnormally high and most of the group’s subsidiaries felt the beneficial effects of this on their trading performance for much of 2009. By contrast, order inflows at the end of 2009 followed more normal patterns.The directors consider that the group’s businesses have shown great resilience at a time of severe economic pressure but that the high profitability of 2009 must be regarded as unusual. 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 field 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 earnings before interest, tax and amortisation (“EBITA”) with the investment in property, plant and equipment, intangibles and net current assets (excluding surplus cash). In 2009, the overall return computed in this manner amounted to 40.3%, before taking account of parent company costs (other than foreign exchange losses resulting from the hedging of subsidiary companies’ equivalent exposure) – (2008: 33.5%). • Acquisitions: the directors reported the acquisition on 9 June 2009 of Quorum Technologies Limited (“Quorum”). Quorum specialises in the design and manufacture of instruments that prepare samples for examination under electron microscopes. Its trading performance since the acquisition has been entirely satisfactory. It is regarded as paramount that acquisitions are completed only when the directors are satisfied that the target business has sound long-term strength. • Post Balance Sheet Event – Acquisition: on 18 March 2010, the company’s subsidiary, Fire Testing Technology Limited (“FTT”), acquired the entire issued share capital of Sircal Instruments (UK) Limited (“Sircal”), a company which designs, manufactures and distributes rare gas purifiers for use in metals analysis. Further information is set out in note 33 to the consolidated financial statements. • Ongoing performance: the directors regard the trend of adjusted earnings per share, reduction in net debt and the company’s ability to pay dividends to its shareholders as key indicators of overall group performance.Adjusted undiluted earnings per share rose from 21.1p in 2008 to 28.0p in 2009; the directors consider undiluted earnings to be a better measure than diluted because, under current accounting standards, volatility in the share price affects the latter in a way that is 4 Cash generation and management Consolidated gross cash flow from operating activities amounted to £2,004,000 (2008: £1,923,000), benefiting from a net reduction in working capital of £306,000 (2008: £521,000).The other material cash flows related to the Quorum acquisition; the group’s loans were increased at that time by £1,443,000 as part of the financing of the acquisition. Consolidated net debt at 31 December 2009 amounted to £700,000 (2008: £996,000), a level considered by the directors to reflect encouraging financial strength. Commercial risks and uncertainties An important element of the group’s business model is development through acquisition; the group is exposed to the risk of an insufficient availability of target companies of requisite quality. As regards the group’s existing businesses, activities are concentrated in niche markets, serving a worldwide customer base. As such, all the group’s exporting subsidiaries are exposed to possible adverse impacts on the international competitiveness of their activities caused by fluctuations in exchange rates.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. The principal drivers of the individual businesses within the group, together with their individual commercial risks and uncertainties, 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. The activity is supported through the in-house production of engineering parts by its subsidiary company,Aitchee Engineering Limited.The principal risks facing the company’s business relate to the degree of funding available to its largely public-sector customer base. • PFO is a significant provider to the telecoms industry of equipment to test the properties of fibre optic and fibre optic networks.The principal risk derives from the cyclical nature of this sector. • UHV designs and manufactures instruments to create motion, heating and cooling within ultra high vacuum chambers. It 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. UHV is engaged in a high level of development work, with the attendant risk of technical failure or delays. The directors seek to mitigate this risk through the quality of the company’s technical skills base and through its contractual arrangements with its customers.The degree of funding available to its largely public-sector customer base also represents a risk. • Quorum designs, manufactures and distributes instruments that prepare samples for examination in electron microscopes.The company is seeking to improve its competitive position through a programme of redesign, modernisation and consolidation of its product ranges.This programme brings with it the risk of technical failure.As with UHV, the directors seek to mitigate this risk through the quality of the company’s technical skills base and through its contractual arrangements with its customers.The degree of funding available to its largely public-sector customer base also represents a risk. Financial risk management objectives and policies The group utilises financial instruments, other than derivatives, comprising borrowings, cash and cash equivalents and various other items such as trade receivables and payables 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 described and evaluated in more detail in note 30 to the consolidated financial statements and which are summarised below.The policies have remained unchanged from previous years. • Interest rate risk The group finances its operations through a mixture of bank borrowings (at floating rates), equity and retained profits.With net debt of just £700,000 at 31 December 2009, exposure to interest rate fluctuations 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 that the group currently holds. • Credit risk The group reviews the credit risk relating to its customers by ensuring wherever possible that it deals with long established trading partners, 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 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).The group adopts a strategy to hedge against this risk in whole or in part by maintaining a proportion of its bank loans in these currencies, 5 although this does not represent a hedge under IAS 39.The directors review the value of this economic 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. Capital management objectives The group monitors capital on the basis of carrying amount of equity, less cash and cash equivalents as presented on the face of the balance sheet. Judges Scientific manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain its capital structure the group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. The directors’ capital management objectives are to ensure the group’s ability to continue as a going concern and to provide an adequate return to shareholders.The parent and subsidiary companies’ boards meet regularly to review performance and discuss future opportunities and threats with the aim of optimising sustainable returns and minimising risk. Going concern The consolidated financial statements have been prepared on a going concern basis.The directors have taken note of the recent guidance issued by the Financial Reporting Council on Going Concern Assessments in determining that this is the appropriate basis of preparation of the financial statements.The group’s principal operating companies experienced a strong trading environment in 2009 and overall the group enjoys good visibility for 2010, albeit that the global economic environment remains uncertain.The directors consider the financial position of the group to be healthy, with cash balances at 31 December 2009 in excess of £2.5 million and net debt of just £700,000 (£1 million adjusted to include the possible capped earn-out on the Quorum acquisition). As a consequence, the directors believe that the parent company and group are well placed to manage their business risks successfully despite the uncertainties surrounding the current economic outlook. Friday 4 June 2010.The shares will go ex-dividend on Wednesday 2 June 2010. Directors The following directors have held office during the year: Hon AR Hambro1 - non-executive Mr DE Cicurel Mr D Barnbrook Mr RL Cohen Mr RJ Elman1 - non-executive Mr GC Reece1 - non-executive 1 Member of the audit and remuneration committees Directors’ interests The directors’ interests in the Ordinary shares of the company were as stated below: Ordinary shares of 5p each 31 December 2009 1 January 2009 Shares Options Shares Options Hon AR Hambro Mr DE Cicurel * Mr D Barnbrook Mr RL Cohen Mr RJ Elman Mr GC Reece 100,000 526,356 15,000 10,000 75,791 3,000 - - 50,000 67,000 - - 25,000 526,356 12,500 10,000 45,791 3,000 - - 40,000 57,000 - - * Held by David Cicurel Securities Limited, except for 40 shares held directly. Details of share options are set out in note 25 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 shares of 1p each (quarter-paid) 1 January 2009 Shares 31 December 2009 Shares The directors have a reasonable expectation that the parent company and the group have adequate resources to continue in operational existence for the foreseeable future.Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. Hon AR Hambro Mr DE Cicurel * Mr D Barnbrook Mr RL Cohen Mr RJ Elman Mr GC Reece 468,751 4,166,667 52,083 52,083 260,416 - 416,667 4,166,667 - - 208,333 208,333 Results and dividends The results for the financial year to 31 December 2009 are set out in the Income Statement.The company paid an interim dividend of 1.3p per Ordinary share on 6 November 2009.At the forthcoming Annual General Meeting, the directors will recommend payment of a final dividend for the year of 3.7p per Ordinary share to be paid on Friday 2 July 2010 to shareholders on the register on 6 * Held by David Cicurel Securities Limited. The conversion terms of the Convertible Redeemable shares are detailed in note 26 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 2009 would have been as follows: Hon AR Hambro Mr DE Cicurel * Mr D Barnbrook Mr RL Cohen Mr RJ Elman Mr GC Reece Ordinary Shares 151,657 985,524 20,740 15,740 104,489 3,000 The directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006.They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. * Held by David Cicurel Securities Limited, except for 40 shares held directly In so far as each of the directors is aware: There is a deemed Concert Party including David Cicurel and others which holds 27.7% of the Ordinary share capital.The company had intended to seek shareholder approval as it last did in 2008 for a share buyback authority and associated Takeover Panel ‘whitewash’ in relation to any requirement on the Concert Party to make an offer pursuant to Rule 9 of the City Code on Takeovers and Mergers following any buy- back of ordinary shares pursuant to the authority; however, this project was suspended as the directors considered at the time that the costs outweighed the perceived benefits of proceeding. Existing authorities remain in place to cover any conversion by members of the Concert Party of their Convertible Redeemable shares. 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 27 days (2008: 22 days). Directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the parent company financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs).The financial statements are required by law to give a true and fair view of the state of affairs of the group and parent company and of the profit or loss of the group for that period. 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 or IFRSs 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 company will continue in business. • 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 auditor is aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Information published on the website is accessible in many countries and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 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 has delegated authority to determine the scale and 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. Auditor Grant Thornton UK LLP have expressed willingness to continue in office. In accordance with section 489(4) of the Companies Act 2006, a resolution to reappoint Grant Thornton UK LLP will be proposed at the Annual General Meeting. On behalf of the board RL Cohen Director and Company Secretary Judges Scientific plc Company registration number: 4597315 25 March 2010 7 INDEPENDENT AUDITOR’S REPORT We have audited the consolidated financial statements of Judges Scientific plc for the year ended 31 December 2009 which comprise the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and notes 1 to 33.The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of Judges Scientific plc for the year ended 31 December 2009. Paul Houghton Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants East Midlands 25 March 2010 This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the consolidated financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the consolidated financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/UKNP Opinion on financial statements In our opinion the consolidated financial statements: • give a true and fair view of the state of the group's affairs as at 31 December 2009 and of its profit for the year then ended; • have been properly prepared in accordance with IFRS as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the consolidated financial statements are prepared is consistent with the consolidated financial statements. 8 CONSOLIDATED INCOME STATEMENT Notes 2009) Continuing) activities) 2009) Acquisitions) 2009) Total) 2008) Total) £000) £000) £000) £000) Revenue Abortive acquisition costs Other operating costs, excluding amortisation of intangible assets Operating profit before amortisation of intangible assets Amortisation of intangible assets Operating profit/(loss) after amortisation of intangible assets Profit on disposal of available-for-sale investments Interest receivable Interest payable Profit before tax Taxation Profit and total comprehensive income for the year Attributable to: Equity holders of the parent company Minority interest Earnings per share – total and continuing Basic Diluted 7 8 17 7 11 11 12 14 14 8,546) 2,749) 11,295) 7,104) -) (7,098) 1,448) (17) 1,431) -) (2,515) 234) (398) (164) -) (9,613) 1,682) (415) 1,267) -) 3) (110) 1,160) (325) 835) 832) 3) (310) (5,753) 1,041) (53) 988) 21) 48) (188) 869) (230) 639) 567) 72) 20.6p) 20.0p) 14.7p) 14.7p) There are no items of other comprehensive income for the two years in question. There were no acquisitions in the 2008 financial year. The accompanying notes form an integral part of these consolidated financial statements. 9 CONSOLIDATED BALANCE SHEET ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Current portion of long-term borrowings Current tax payable Non-current liabilities Long-term borrowings Deferred tax liabilities Total liabilities Net assets EQUITY Share capital Share premium account Merger reserve Retained earnings Equity attributable to equity holders of the parent company Minority interest Total equity The accompanying notes form an integral part of these consolidated financial statements. The financial statements were approved by the board on 25 March 2010 Note 15 16 17 18 19 20 21 22 24 25 2009) £000) 921) 4,497) 594) 6,012) 1,241) 1,803) 2,540) 5,584) 11,596) (2,197) (650) (638) (3,485) (2,590) (188) (2,778) (6,263) 5,333) 202) 2,959) 475) 1,532) 5,168) 165) 5,333) 2008) £000) 861) 4,383) 23) 5,267) 672) 1,364) 1,621) 3,657) 8,924) (1,337) (625) (292) (2,254) (1,992) (34) (2,026) (4,280) 4,644) 202) 2,956) 475) 849) 4,482) 162) 4,644) D.E. Cicurel Director 10 R.L. Cohen Director CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Balance at 1 January 2009 Dividends Issue of share capital Transactions with owners Profit for the year Total comprehensive income for the year Share capital Share premium Merger Retained) earnings) reserve Total**) Minority) interest) Total) equity) Note £000 £000 £000 £000) £000) £000) £000) 13 202 2,956 475 849) 4,482) 162) 4,644) - - - - - - 3 3 - - - - - - - (149) (149) -) 3) (149) (146) 832) 832) 832) 832) -) -) -) 3) 3) (149) 3) (146) 835) 835) Balance at 31 December 2009 202 2,959 475 1,532) 5,168) 165) 5,333) 178 2,501 475 410) 3,564) 121) 3,685) Balance at 1 January 2008 Dividends Issue of share capital Transactions with owners Profit for the year Total comprehensive income for the year 13 - 24 24 - - - 455 455 - - - - - - - Balance at 31 December 2008 202 2,956 475 ** - Total represents amounts attributable to equity holders of the parent company. The accompanying notes form an integral part of these consolidated financial statements. (128) (128) (31) (159) -) (128) 567) 567) 849) 479) 351) 567) 567) -) (31) 72) 72) 479) 320) 639) 639) 4,482) 162) 4,644) 11 CONSOLIDATED CASH FLOW STATEMENT Cash flows from operating activities Profit after tax Adjustments for: Depreciation Amortisation of intangible assets Loss on disposal of property, plant and equipment Profit on disposal of available-for-sale investments Foreign exchange (gains)/losses on foreign currency loans Interest receivable Interest payable Tax expense recognised in income statement Decrease/(increase) in inventories Decrease in trade and other receivables (Decrease)/increase in trade and other payables Cash generated from operations Interest paid Tax paid Net cash from operating activities Cash flows from investing activities Paid on acquisition of new subsidiary Gross cash inherited on acquisition Acquisition of subsidiaries, net of cash acquired Purchase of property, plant and equipment Proceeds from disposal of equipment Proceeds from disposal of available-for-sale investments Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Repayments of borrowings (including hire purchase contracts) Proceeds from bank loans Dividends paid to equity holders of the parent company Dividends paid to minority shareholders of subsidiary companies Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The accompanying notes form an integral part of these consolidated financial statements. 12 2009) £000) 835) 107) 415) 3) -) (92) (4) 110) 325) 144) 257) (95) 2,005) (107) (401) 1,497) (1,914) 889) (1,025) (125) 1) -) 4) (1,145) 3) (730) 1,443) (149) -) 567) 919) 1,621) 2,540) 2008) £000) 639) 81) 53) -) (21) 280) (48) 188) 230) (118) 179) 460) 1,923) (188) (238) 1,497) -) -) -) (668) -) 40) 48) (580) 479) (527) -) (127) (31) (206) 711) 910) 1,621) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General information Judges Scientific plc is the ultimate parent company of the group, whose principal activities comprise the design, manufacture and sale of scientific instruments. and goodwill impairment charges.These are assessed by reference to budgeted profits and cash flows for future periods for the relevant income generating units and an estimate of their values in use (see notes 16 and 17). 2. Registered office The address of the registered office and principal place of business of Judges Scientific plc is Unit 19, Charlwoods Road, East Grinstead,West Sussex RH19 2HL. 3. Basis of accounting The consolidated financial statements have been prepared under the historical cost convention except for certain financial instruments which are carried at fair value. Being listed on the Alternative Investment Market of the London Stock Exchange, the company is required to present its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Accordingly, these financial statements have been prepared in accordance with the accounting policies set out below which are based on the IFRS in issue as adopted by the European Union (EU) and in effect at 31 December 2009. 4. Use of accounting estimates and judgements Many of the amounts included in the consolidated financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the consolidated financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the consolidated financial statements and the key areas are summarised below: Judgements in applying accounting policies: • the directors must judge whether all of the conditions required for revenues to be recognised in the income statement of the financial year, as set out in note 6.4 below, have been met; the directors must judge whether future profitability is likely in making the decision whether or not to create a deferred tax asset (see note 24). • Sources of estimation uncertainty: • depreciation rates are based on estimates of the useful lives and residual values of the assets involved (see note 6.6); estimates of future profitability are required for the decision whether or not to create a deferred tax asset (see note 24); estimates are required as to intangible asset carrying values • • 5. Changes in accounting policies 5.1 Standards adopted for the first time The Group has adopted IAS 1 Presentation of Financial Statements (Revised 2007) in its consolidated financial statements, and it has been applied retrospectively.The adoption of the standard does not affect the financial position or profits of the Group, but gives rise to additional disclosures.The measurement and recognition of the Group’s assets, liabilities, income and expenses is unchanged; however some items that were recognised directly in equity are now recognised in other comprehensive income. IAS 1 (Revised 2007) affects the presentation of owner changes in equity and introduces a ‘Statement of comprehensive income’. A ‘Statement of recognised income and expenses’ (SORIE) is no longer required. Further, a ‘Statement of changes in equity’ is presented as a primary statement. IAS 1 (Revised 2007) requires presentation of a comparative balance sheet as at the beginning of the first comparative period, in some circumstances.The directors consider that this is not necessary this year because the 2007 balance sheet is the same as that previously published. The group has adopted IFRS 8 Operating Segments, which replaces IAS 14 Segment Reporting. The Standard has been applied retrospectively. Generally, financial information is reported under IFRS 8 on the same basis as is used internally to enable the chief operating decision maker (the board of directors) to evaluate operating segment performance and to decide how to allocate resources to operating segments. In contrast, IAS 14 required the group to identify two sets of segments (business and geographical) based on risks and rewards of the operating segments.The principal change is that segment performance is now reported by reference to its contribution to group earnings before interest, tax and amortisation of goodwill and intangible assets. Segment information is set out in note 7. 5.2 Standards, amendments and Interpretations to existing Standards that are not yet effective At the date of authorisation of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the pronouncements will be adopted in the Group’s accounting policies for the first period 13 beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. IFRS 3 Business Combinations (Revised 2008) (effective from 1 July 2009) The standard is applicable for business combinations occurring in reporting periods beginning on or after 1 July 2009 and will be applied prospectively.The new standard introduces changes to the accounting requirements for business combinations, but still requires use of the purchase method, and will have a significant effect on any business combinations occurring in future reporting periods. In particular, transaction costs must be expensed in the Income Statement rather than previously when these were capitalised and dealt with as part of the acquisition accounting. IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective from 1 July 2009) The revised standard introduces changes to the accounting requirements for the loss of control of a subsidiary and for changes in the Group’s interest in subsidiaries.These changes will be applied prospectively in accordance with the transitional provisions and so do not have an immediate effect on the Group's financial statements. 6. Accounting policies 6.1 Basis of consolidation The consolidated financial statements include those of the parent company and its subsidiaries, all drawn up to 31 December 2009. Subsidiaries are entities over which the group has the power to control the financial and operating policies so as to obtain benefits from their activities.The group obtains and exercises control through voting rights. Income, expenditure, unrealised gains and intra-group balances arising from transactions within the group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method.The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. In the case of acquisitions after 31 December 2005, goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of 14 acquisition cost over the fair value of the group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. The parent 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 Fire Testing Technology Limited and UHV Design Limited. 6.2 Business combinations completed prior to the date of transition to IFRS The group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to the date of transition to IFRS on 1 January 2006. Accordingly the classification of the combination (acquisition, reverse acquisition or merger) remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at the date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amounts immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Amounts recorded as goodwill under UK GAAP have not been re-assessed to identify intangible assets. Deferred tax and minority interest are adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. 6.3 Goodwill Goodwill, representing the excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the income statement. The carrying value of negative goodwill at the date of transition has been credited to reserves.There is no re-instatement of goodwill or negative goodwill that was amortised prior to transition to IFRS. 6.4 Revenue Revenue from the sale of goods is measured by reference to the fair value of consideration received or receivable by the group for goods supplied, excluding Value Added Tax, and is recognised when all the following conditions have been satisfied: • the group has transferred to the buyer the significant risks and rewards of ownership of the goods and effective control over them, generally on despatch or delivery; the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably; and • • it is probable that the economic benefits associated with the transaction will flow to the group. Installation revenues are deferred and held on the balance sheet within trade and other payables pending recognition as revenue on completion of installation. Interest income is recognised using the effective interest method which calculates the amortised cost of a financial asset and allocates the interest income over the relevant period. Dividend income is recognised when the shareholder’s right to receive payment is established. • • • • • Property: 2% straight-line on cost of buildings Plant and machinery: 15% on written down value to 25% straight-line on cost Fixtures, fittings and equipment: 15% on written down value to 33% straight-line on cost Motor vehicles: 25% on written down value to 25% straight-line on cost Building improvements: 20% straight-line on cost 6.5 Intangible assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the group of its fair value at the acquisition date.The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the group. Amortisation charges are included in operating costs in the income statement. Amortisation begins when the intangible asset is first available for use and is provided at rates calculated to write off the cost of each intangible asset over its expected useful life, as follows: Material residual value estimates are updated as required but at least annually. 6.7 Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash- generating unit level. Goodwill is allocated to those cash- generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the group at which management monitors goodwill. Customer relationships Non-competition agreements Distribution agreements Research and development Sales order backlog Advertising Domain names Between 2 and 3 years 5 years 3 years 5 years On shipment 1 year 5 years Subsequent to initial recognition, intangible assets are stated at deemed cost less accumulated amortisation and impairment charges. 6.6 Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Disposal of assets: the gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation: Depreciation is provided at annual rates calculated to write off the cost less residual value of each asset over its expected useful life, within the following ranges: Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount.The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on estimated future cash flows from each cash-generating unit, discounted at a suitable rate in order to calculate the present value of those cash flows.The data used for impairment testing procedures is directly linked to the group’s latest approved budgets, adjusted as necessary to exclude any future restructuring to which the group is not yet committed. Discount rates are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by the directors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash- generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may 15 no longer exist. Impairment charges are included in operating costs in the income statement. An impairment charge that has been recognised is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. 6.8 Leases For finance leases, in accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset.The related asset is recognised as an asset in the balance sheet at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability.The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the period of the lease term. Lease incentives are spread over the term of the lease. 6.9 Inventories Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first-in, first-out cost formula. Cost includes materials, direct labour and an attributable proportion of manufacturing overheads based on normal levels of activity. 6.10 Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of those temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences 16 will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited • directly to equity in which case the related deferred tax is also charged or credited directly to equity, or where items are recognised in other comprehensive income, in which case the related deferred tax is recognised in other comprehensive income. • 6.11 Share-based payments IFRS 2 has been applied, in accordance with IFRS 1 and where the effect is material, to equity-settled share options granted on or after 7 November 2002 and not vested prior to 1 January 2006. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values.Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee.This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. All equity-settled share-based payments are ultimately recognised as an expense in the income statement, with a corresponding credit to “other reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period.The impact of the revision of the original estimates, if any, is recognised in the income statement over the remaining vesting period, with a corresponding adjustment to the appropriate reserve. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 6.12 Financial assets Financial assets are assigned to relevant categories by management on initial recognition, depending on the purpose for which they were acquired. At the balance sheet date, the group held only loans and receivables. All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. Loans and receivables are recognised at fair value plus transaction costs. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in operating costs in the income statement. Provision against trade and other receivables is made when there is objective evidence that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables.The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the group transfers substantially all the risks and rewards of ownership of the asset, or if the group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. 6.13 Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instrument. Financial liabilities are recorded initially at fair value net of direct issue costs if they are not held at fair value through profit and loss. All financial liabilities with the exception of Convertible Redeemable shares (see paragraph 6.19) are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance • cost in the income statement.These financial liabilities include trade and other payables and borrowings, including bank loans, subordinated loan notes and hire purchase commitments. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. 6.14 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 6.15 Pensions 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 pension costs charged against profits are the contributions payable to the schemes in respect of the accounting period. 6.16 Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the period in which they arise. 6.17 Dividends Dividend distributions payable to equity shareholders are included in trade and other payables when the dividends are approved in general meeting but not paid prior to the balance sheet date. 6.18 Equity Equity comprises the following: • “Share capital” represents the nominal value of equity shares. “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. 17 • • • • “Merger reserve” represents the fair value of the consideration received in excess of the nominal value of equity shares issued in connection with acquisitions where the company has exercised entitlement to the merger relief offered by section 131 of the Companies Act 1985. “Retained earnings” represents retained profits and losses. “Revaluation reserve” represents gains and losses due to the revaluation of certain financial assets. “Minority interest” represents retained profits and losses attributable to minority shareholders in subsidiary companies. 6.19 Convertible Redeemable shares In accordance with IAS 32, 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. Segment reporting 7. 7.1 Identification of operating segments The group’s activities are predominantly in or in support of the design and manufacture of scientific instruments. Separate subsidiary companies operate to produce the different ranges of instruments that fall within the group’s portfolio and these subsidiaries are considered by the board of directors to constitute the group’s operating segments. Fire Testing Technology Limited and Aitchee Engineering Limited are considered to form one operating segment. 7.2 Management of operating segments Each of the operating segments is managed independently, each range of instruments having its individual requirements in terms of design, manufacture and marketing. 7.3 Measurement policies The results of operating segments are prepared by reference to their contributions to group earnings before interest, tax and amortisation of goodwill and intangible assets (“group EBITA”). This is stated before the allocation of head office costs and after elimination of minority interest. Assets and liabilities directly attributable to the activities of the operating segments are included in their respective balance sheets; corporate assets and liabilities held by the parent company are not allocated to subsidiaries. In prior years, segment profits and losses were reported by reference to operating profits, after the allocation of head office costs and before the elimination of minority interest.This change of policy results from the application of IFRS 8 for the first time. Comparative figures have been restated accordingly. 18 7.4 Segment analysis Segment analysis is as follows: 2009 Consolidated group revenues from external customers Contributions to group EBITA Depreciation Amortisation of intangible assets Segment assets Segment liabilities Intangible assets - goodwill Other intangible assets Additions to non-current assets 2008 Consolidated group revenues from external customers Contributions to group EBITA Depreciation Amortisation of intangible assets Segment assets Segment liabilities Intangible assets - goodwill Other intangible assets Additions to non-current assets Fire testing equipment and engineering parts Fibre optic testing equipment Ultra high vacuum manipulation equipment Sample preparation for electron microscopy £000 £000 4,844 1,404 29 13 1,049 1,236 3,871 - 49 973 2 14 - 410 247 - - 5 £000 2,729 706 47 4 757 333 512 5 40 £000 2,749 234 9 398 1,255 820 114 589 1,177 Fire testing equipment and engineering parts Fibre optic testing equipment Ultra high vacuum manipulation equipment £000 4,134 1,263 25 21 1,321 1,323 3,871 13 21 £000 1,032 101 12 - 344 250 - 4 £000 1,938 635 38 32 772 410 512 10 52 Total £000 11,295 2,346 99 415 3,471 2,636 4,497 594 1,271 Total £000 7,104 1,999 75 53 2,437 1,983 4,383 23 77 The geographical analysis of the group’s revenues from external customers and its non-current assets (excluding deferred tax assets) are as follows: United Kingdom (domicile) Rest of Europe United States/Canada Rest of the world Total 2009 2008 Revenue Non-current assets Revenue Non-current assets £000 1,564 4,042 2,157 3,532 £000 6,012 - - - 11,295 6,012 £000 940 2,665 1,577 1,922 7,104 £000 5,267 - - - 5,267 19 7.4 Segment analysis - continued Reconciliations between totals presented by operating segment and the group’s consolidated figures are as follows: Contribution to group EBITA Total contribution to group EBITA Amortisation of intangible assets Expenses not allocated Elimination of minority interest adjustment in contribution to group EBITA Operating profit after amortisation of intangible assets Profit on disposal of available for sale investments Interest receivable Interest payable Profit before tax Depreciation Total segment depreciation charge Head office depreciation not allocated Consolidated depreciation charge Segment assets and liabilities Total segment assets Parent company assets Assets eliminated on consolidation Other assets - goodwill - intangible assets - cash and cash equivalents Consolidated total assets Total segment liabilities Parent company liabilities Liabilities eliminated on consolidation Other liabilities Convertible redeemable shares Deferred tax Consolidated total liabilities 2009) £000) 2,346) (415) (666) 2) 1,267) -) 3) (110) 1,160) 99) 8) 107) 3,471) 851) (357) 4,497) 594) 2,540) 11,596) 2,636) 3,672) (306) 83) 12) 166) 6,263) 2008) £000) 1,999) (53) (1,055) 97) 988) 21) 48) (188) 869) 75) 6) 81) 2,437) 830) (369) 4,383) 22) 1,621) 8,924) 1,983) 2,589) (307) -) 12) 3) 4,280) Revenues are derived from the sales of manufactured products; revenues from installation and support services are not material.There are no major customers which make up 10% or more of the group’s revenues. Expenses not allocated comprise head office costs which, in 2008, included abortive acquisition costs of £310,000. Parent company assets include £577,000 (2008: £585,000) in respect of a freehold property partly let at open market value to the subsidiary engaged in the manufacture of engineering parts. 20 8. Operating costs 11. Interest receivable and payable Raw materials and consumables Other external charges Staff costs (note 28) Depreciation Other operating costs, excluding amortisation of intangible assets Amortisation of intangible assets Other operating costs, including amortisation of intangible assets Abortive acquisition costs Total operating costs 9. Operating profit 2009 2008 £000 £000 4,340 1,488 3,678 107 9,613 415 10,028 - 10,028 2,241 1,037 2,394 81 5,753 53 5,806 310 6,116 2009 2008 £000 £000 Operating profit is stated after charging: Loss on disposal of property, plant and equipment Fees payable to the company’s auditor for the audit of the company’s annual accounts 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 Amortisation of intangible assets Operating lease rentals - land and property Operating lease rentals - vehicles 3 20 37 14 4 107 415 195 9 - 18 32 10 4 81 53 174 - In addition, fees were paid to the auditor in 2009 in respect of corporate finance transaction work undertaken in connection with the acquisition of Quorum Technologies Limited. The costs of £39,000 are included in investments in subsidiaries in the parent company’s financial statements. 10. Profit on disposal of available-for-sale investments The parent company completed the realisation of its available- for-sale investments in 2008. 2009) 2008) £000) £000) Interest receivable - short-term bank deposits 3) 48) Interest payable - bank and hire purchase loans Interest payable - loan notes (97) (13) (155) (33) Net interest payable 12. Taxation UK corporation tax at 28% (2008: 281/2%) - current year - prior years Deferred tax - origination and reversal of temporary differences: Current year Prior years Tax on profit for the year - current year - prior years (110) (188) 107) 140) 2009) 2008) £000) £000) 460) (1) 459) (132) (2) (134) 328) (3) 325) 292) (61) 231) (9) 8) (1) 283) (53) 230) Factors affecting the tax charge for the year: Profit before tax 1,160) 869) Profit before tax multiplied by weighted average standard rate of UK corporation tax of 28% (2008: 281/2%) Tax relief available on purchased goodwill Provisions and expenditure not deductible for tax purposes Marginal relief Tax on profit for the year - current year - prior years Total net taxation charge 325) 247) (12) 19) (4) 328) (3) 325) (19) 56) (1) 283) (53) 230) 21 13. Dividends Year to 31 December 2009 Earnings Weighted Earnings average per share attributable 2009 2008 p/share £000 p/share £000 Final dividend for the previous year Interim dividend for the current year 2.4 1.3 3.7 97 52 149 2.2 1.2 3.4 78 49 127 The directors will propose a final dividend of 3.7p per share, amounting to £150,000, for payment on 2 July 2010. As this remains conditional on shareholders’ approval, provision has not been made in these consolidated financial statements. 14. Earnings per share Options and warrants over Ordinary shares and rights of conversion of the Convertible Redeemable shares are described in notes 25 and 26.The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period.The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options and other dilutive potential Ordinary shares in line with the treasury method prescribed in IAS 33.This regards the assumed proceeds from these instruments as having been received from the issue of Ordinary shares at the average market price of Ordinary shares during the period.The difference between the number of Ordinary shares issued on the assumed exercise of the dilutive options and warrants and the number of Ordinary shares that would have been issued at the average market price of Ordinary shares during the period is treated as an issue of Ordinary shares for no consideration, and thus dilutive. Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below: 22 to equity number of holders of shares the parent company £000 no. pence Profit after tax for calculation of basic and diluted earnings per share Add-back: amortisation of intangible assets, net of tax 832 299 Adjusted basic and diluted profit 1,131 Number of shares for calculation of basic earnings per share Dilutive effect of potential shares Number of shares for calculation of diluted earnings per share Basic earnings per share Diluted earnings per share Adjusted basic earnings per share Adjusted diluted earnings per share 4,038,434 108,212 4,146,646 Year to 31 December 2008 attributable Earnings Weighted average to equity number of holders of shares the parent company 20.6 20.1 28.0 27.3 Earnings per share £000 no. pence Profit after tax for calculation of basic and diluted earnings per share Add-back: amortisation of intangible assets, net of tax provision for abortive acquisition costs, net of tax Less: profit on disposal of available -for-sale investments, net of tax and tax adjustment in respect of prior year Adjusted basic and diluted profit 567 38 263 (57) 811 Number of shares for calculation of basic earnings per share Dilutive effect of potential shares Number of shares for calculation of diluted earnings per share Basic earnings per share Diluted earnings per share Adjusted basic earnings per share Adjusted diluted earnings per share 3,849,565 - 3,849,565 14.7 14.7 21.1 21.1 Due to the average market price of the Ordinary shares for the year ended 31 December 2008, none of the options or warrants were considered dilutive. 15. Property, plant and equipment Cost / deemed cost 1 January 2008 Additions Disposals 31 December 2008 Additions Acquisitions Disposals 31 December 2009 Depreciation 1 January 2008 Charge Disposals 31 December 2008 Charge Disposals 31 December 2009 Net book value - 31 December 2009 Net book value – 31 December 2008 16. Goodwill Cost 1 January Addition in year 31 December 2009 2008 £000 £000 4,383 114 4,497 4,383 - 4,383 An analysis of goodwill by business segment is given in note 7. The increase in goodwill during 2009 related to the acquisition of Quorum Technologies Limited. There have been no impairment charges in either 2009 or 2008. Goodwill is tested annually for impairment by reference to the value in use of the relevant cash generating units, which are the group’s business segments. This is calculated on the basis of projected cash flows for the following five years derived from detailed budgets for the ensuing year based on past experience, with subsequent years including modest nominal rates of sales and cost growth of 3% per annum and steady gross margins. Plant & machinery Fixtures,) fittings &) equipment) Motor) vehicles) Property & building improvements £000 £000) £000) £000 308 33 - 341 5 8 - 354 181 48 - 229 47 - 276 78 112 178) 37) -) 215) 93) 38) (6) 340) 69) 21) -) 90) 46) (4) 132) 208) 125) 50) 7) (6) 51) 14) -) (13) 52) 20) 8) (5) 23) 9) (11) 21) 31) 28) 54 591 - 645 13 - - 658 45 4 - 49 5 - 54 604 596 Total) £000) 590) 668) (6) 1,252) 125) 46) (19) 1,404) 315) 81) (5) 391) 107) (15) 483) 921) 861) These cash flows are adjusted to present day values at a discount rate based on a weighted average cost of capital of 12.04% (2008: 12.15%) per annum, calculated by reference to year-end data on equity values and interest, dividend and tax rates. The residual value at the end of the five years, computed by reference to projected year six cash flows and discounted, is also included. There was no requirement for any impairment provision at 31 December 2009. The directors have considered the sensitivity of the key assumptions and have concluded that any possible changes that may be reasonably contemplated in these key assumptions would not result in the value in use falling below the carrying value of goodwill, given the amount of headroom available. 23 17. Other intangible assets Customer relationships Non-competition agreements Distribution agreements Research and development Sales order backlog Advertising Domain names Total Customer relationships Non-competition agreements Total Carrying amount at 1 January 2009 Additions Amortisation Carrying amount at 31 December 2009 £000 £000 £000 £000 14 9 - - - - - 23 - - 398 180 244 91 73 986 14 4 74 20 244 51 8 415 - 5 324 160 - 40 65 594 Carrying amount at 1 January 2008 Additions Amortisation Carrying amount at 31 December 2008 £000 £000 £000 £000 62 14 76 - - - 48 5 53 14 9 23 An analysis of other intangible assets by business segment is given in note 7. The additions to other intangible assets during 2009 related to the acquisition of Quorum Technologies Limited. 18. Inventories 19. Trade and other receivables Raw materials Work in progress Finished goods 2009 2008 £000 £000 959 253 29 1,241 542 102 28 672 Trade receivables Prepayments and accrued income Other receivables 2009 2008 £000 £000 1,557 140 106 1,201 92 71 1,803 1,364 In 2009, a total of £4,340,000 of inventories was included in the income statement as an expense (2008: £2,241,000). This includes an amount of £15,000 (2008: £12,000) resulting from write-downs of inventories. The carrying amount of inventories held at fair value less costs to sell is £10,000 (2008: nil). There were no reversals of previous write-downs that were recognised in the income statement in either 2009 or 2008. All group inventories form part of the assets pledged as security in respect of bank loans. The carrying value of receivables, all of which are short-term, is considered a reasonable approximation of fair value. All trade and other receivables have been reviewed for impairment with no material provision being required. In addition, some of the unimpaired trade receivables were past due at the balance sheet date as follows: Not more than 3 months More than 3 months but not more than 6 months More than 6 months but not more than 1 year Greater than one year 2009 2008 £000 £000 479 17 1 12 509 336 18 26 3 383 24 20. Trade and other payables 23. Maturity of borrowings and net debt Trade payables Accruals and deferred income Social security and other taxes Other payables 2009 2008 £000 £000 675 753 231 538 386 758 116 77 2,197 1,337 All amounts are short-term and their carrying values are considered reasonable approximations of fair value. Other payables include £300,000 in relation to the earn-out terms of the Quorum acquisition, being the maximum amount payable computed by reference to profits for the period up to 30 June 2010. Other payables also include £12,500 of non equity shares classed as financial liabilities (see note 26). 21. Current portion of long-term borrowings Bank loan Net obligations under hire purchase contracts Subordinated loan notes 2009 2008 £000 £000 150 - 500 650 608 17 - 625 All amounts are short-term and their carrying values are considered reasonable approximations of fair value. The subordinated loan notes are unsecured, repayable on 23 May 2010 and bear interest at Bank of Scotland base rate plus 2%. 22. Long-term borrowings Bank loan Subordinated loan notes 2009 2008 £000 £000 2,590 - 1,492 500 2,590 1,992 The bank loan is secured on assets of the group, is repayable in quarterly instalments over the period ending 30 June 2014 and bears interest at 31/4% 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 repayment profile of borrowings is as set out in note 23. 31 December 2009 Bank loan Subordinated loan notes Hire purchase Total £000 £000 £000 £000 Repayable in less than 6 months Repayable in months 7 to 12 Current portion of long -term borrowings Repayable in years 1 to 5 Total borrowings 120 170 290 2,927 3,217 Less: interest included above cash and cash equivalents Total net debt 505 - 505 - 505 - - - - - 31 December 2008 Bank Subordinated loan notes loan Hire purchase 625 170 795 2,927 3,722 482 2,540 700 Total £000 £000 £000 £000 Repayable in less than 6 months Repayable in months 7 to 12 Current portion of long -term borrowings Repayable in years 1 to 5 Total borrowings 352 347 699 1,585 2,284 Less: interest included above cash and cash equivalents Total net debt - 15 15 506 521 10 7 17 - 17 362 369 731 2,091 2,822 205 1,621 996 A proportion of the group’s bank loans is drawn in foreign currencies to provide a hedge against assets denominated in those currencies. The Sterling equivalent at 31 December 2009 of loans denominated in US$ was £765,000 (2008: £681,000) and in Euros was £777,000 (2008: £505,000). These amounts are included in the figures above for bank loans, repayable in years 1 to 5. The components of the hire purchase debt are as follows: Future payments Less: Carrying amount – 31 December interest component of future payments 2009 2008 £000 £000 - - - 17 - 17 25 Equity share options and warrants At 31 December 2009, options had been granted and remained outstanding in respect of 291,000 Ordinary shares in the company, all priced by reference to the mid-market price of the shares on the date of grant and all exercisable, following a 3-year vesting period, between the third and tenth anniversaries of grant, as below: 2009 2008 Number) Weighted Number Weighted average exercise price average exercise price p/share p/share 2005 Approved Plan 141,450) Outstanding at 1 January 44,400) Granted in year Exercised or lapsed in year (6,000) Outstanding at 31 December 179,850) 109.2 92.0 113.8 104.8 90,000 51,450 - 141,450 100.7 124.0 - 109.2 Of which exercisable at 31 December 25,000) 103.5 - - 2005 Unapproved Plan 95,550) Outstanding at 1 January 15,600) Granted in year Outstanding at 31 December 111,150) 106.7 92.0 104.6 70,000 25,550 95,550 100.4 124.0 106.7 Of which exercisable at 31 December 56,000) 102.0 42,000 101.5 Total 237,000) Outstanding at 1 January 60,000) Granted in year (6,000) Exercised or lapsed in year Outstanding at 31 December 291,000) 108.2 92.0 113.8 104.7 160,000 77,000 - 237,000 100.6 124.0 - 108.2 Of which exercisable at 31 December 81,000) 102.5 42,000 101.5 24. Deferred tax liabilities ) 1 January Acquisition in year – amount recognised – attributable to intangible assets Credit to income statement in the year 31 December Deferred tax balances relate to temporary differences as follows: Accelerated capital allowances Provisions allowable for tax in subsequent period Goodwill and other intangible assets Fair value adjustment arising on acquisition of FTT Total 2009) 2008) £000) £000) 34) 11) 277) (134) 188) 39) (17) 168) (2) 188) 36) -) -) (2) 34) 32) -) 11) (9) 34) Amounts provided in respect of deferred tax are computed at 28% (2008: 28%). The group has unrelieved tax losses at 31 December 2009 of £325,000 (2008: £325,000). The group has not recognised a deferred tax asset (2009 and 2008: £91,000) in respect of these losses as it is not considered probable that taxable profits will be available in the near term against which they can be utilised. However they are available to be offset against future profits of the parent company. 25. Share capital Authorised - Ordinary shares of 5p each 10,000,000 shares Allotted, called up and fully paid - Ordinary shares of 5p each 1 January – 4,037,678 shares (2008 – 3,560,878) Allotted in the year – 3,000 shares (2008 – 476,800) 31 December – 4,040,678 shares (2008 – 4,037,678) 2009 2008 £000 £000 500 500 202 178 - 24 202 202 The allotment of shares in 2009 was made to satisfy the exercise of share options on 20 October 2009, when the share price was 177p.The allotment in 2008 was made pursuant to a placing to provide additional working capital and to facilitate potential acquisition opportunities in line with the group’s strategy. 26 Exercise prices at 31 December 2009 ranged from 92p/share to 124p/share (2008: 94p/share to 124p/share), with a weighted average remaining contractual life of 7.83 years (2008: 8.28 years). Options over 37,000 shares were conditional upon the achievement of earnings targets in 2009 and 2010. Subsequent to the year-end, options over 10,000 shares were granted at 142.5p/share to a newly-appointed executive. Options have been granted to two directors as follows: Number of shares 20 October 2005 at 101.5p 22 March 2006 at 103.5p 23 March 2007 at 106.5p 24 September 2007 at 94p 28 April 2008 at 124p 23 July 2009 at 92p Mr D Barnbrook Mr R L Cohen 5,000 10,000 10,000 5,000 10,000 10,000 50,000 37,000 - - 10,000 10,000 10,000 67,000 The market price of the company’s Ordinary shares on 31 December 2009 was 119.5p, the highest price during 2009 was 178.5p on 19 October, the lowest price during 2009 was 59.5p on 19 and 20 January and the price on 22 March 2010 was 162.5p. Subsequent to the year end and for the duration of the close period in force until the preliminary announcement of the 2009 financial results, the company put in place an irrevocable non-discretionary share repurchase programme to purchase up to 300,000 Ordinary shares. At the date of approval of these financial statements, no repurchases had been made under this programme. In accordance with IFRS 2, a Black Scholes valuation model has been used. This has indicated that no material expense is required to be charged for the years ended 31 December 2009 and 31 December 2008. As such, no adjustment has been made to either the consolidated or parent company financial statements. 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. Loeb Aron & Company Limited, the brokers who conducted the 2008 share placing, were granted unquoted warrants to subscribe for Ordinary shares in the company at an exercise price of £1.10 per share, expiring on 20 May 2013 and relating to 23,840 shares.The Invex warrants have not been accounted for in accordance with IFRS 2 as they were issued before the effective date of the Standard. The Loeb Aron warrants have not been accounted for in accordance with IFRS 2 on the grounds of materiality. Convertible Redeemable shares The conversion rights set out in note 26 would have resulted in the issue of 551,001 Ordinary shares if conversion of all the Convertible Redeemable shares had taken place on 31 December 2009. 26. Shares classed as financial liabilities Authorised 5,000,000 Convertible Redeemable shares of 1p each Allotted, called up and fully paid 5,000,000 Convertible Redeemable shares of 1p each – quarter paid 2009 2008 £000 £000 50 50 12 12 In accordance with IAS 32, Financial Instruments: Presentation, the Convertible Redeemable shares are classified as financial liabilities and included in other payables – less than one year (see note 20). Under the Articles of Association the principal conditions attached to 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, any surplus assets remaining after payment of liabilities shall be applied: i) Firstly in equally repaying the paid up capital on both the Ordinary shares and the Convertible Redeemable shares; ii) Secondly in distributing the remainder amongst the holders of the Ordinary shares according to the amounts paid up. • The holders of the Convertible Redeemable shares are not entitled to attend or vote at General Meetings of the company unless the meeting is to consider a resolution for the winding up of the company. • The Convertible Redeemable shares are convertible no later than 31 December 2014 into such number of Ordinary shares as would represent 12% of the company’s Ordinary share capital as enlarged if all convertible shares were converted; the exercise price is 95p per Ordinary share less amounts already paid on the Convertible Redeemable shares. 27 28. Employees Number of employees By function – manufacturing – sales and administration By business segment fire testing equipment and engineering parts fibre optic testing equipment ultra high vacuum manipulation equipment sample preparation for electron microscopy (pro-rata since acquisition – 30 employed at year-end) head office (including 3 non-executive directors in both years) Employment costs Wages and salaries Social security costs Pension costs 2009 no. 2008 no. 45 45 90 33 9 23 17 8 90 33 30 63 30 9 17 - 7 63 2009 2008 £000 £000 3,248 348 82 2,110 235 49 3,678 2,394 29. Financial instruments The group’s policies on treasury management and financial instruments are given in the directors’ report. Fair value of financial instruments Financial instruments include the borrowings set out in note 23. All financial instruments denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. The directors believe that there is no material difference between the book value and fair value of all financial instruments. Borrowing facilities The group had an un-drawn committed overdraft facility of £500,000 at 31 December 2009 (2008: £500,000). • The holders of Convertible Redeemable shares shall (subject to the provisions of the Companies Acts) 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 such purpose. 27. Emoluments of directors and key management personnel Executive directors Non-executive directors Total directors’ emoluments: Emoluments Defined contribution pension scheme contributions Emoluments of the highest paid director: Emoluments Defined contribution pension scheme contributions 2009 no. 2008 no. 3 3 6 2 3 5 £000 £000 399 10 409 118 5 123 219 4 223 104 4 108 During the year two directors participated in a defined contribution pension scheme (2008: one). Compensation of key management personnel Emoluments, benefits and pension contributions 717 478 Short term employee benefits: Salaries including bonuses Company car allowance and other benefits Total short term employee benefits Post-employment benefits: Defined contribution pension plans Total post-employment benefits: 671 19 690 27 27 455 11 466 12 12 Total remuneration 717 478 Key management personnel comprise directors of the parent company and the managing directors of the principal operating companies. The compensation of the non-executive directors of the parent company is determined by the board of directors as a whole, that of the executive directors of the parent company is determined by the Remuneration Committee of the board (comprising the non-executive directors) and that of the managing directors of the principal operating companies is determined by the group Chief Executive. 28 Financial liabilities The group’s principal financial liabilities are bank loans, subordinated loan notes issued in connection with the acquisition of Fire Testing Technology Limited in 2005, trade and other payables (including £300,000 in relation to the earn-out terms of the Quorum acquisition) and Convertible Redeemable shares classed as financial liabilities: • The costs attributable to these liabilities and included as interest expense in the income statement amounted to £110,000 (2008: £188,000), as analysed in note 11. Foreign exchange gains attributable to bank loans (see below) and included as operating costs in the income statement amounted to £93,000 (2008: loss of £282,000); this approximately equates to the foreign exchange gains arising in the subsidiary companies whose currency exposure the foreign exchange bank loans are designed to hedge. Summary of financial assets and financial liabilities by category Trade and other receivables Cash and cash equivalents Loans and receivables Trade payables Accruals and deferred income Other payables Current portion of long-term borrowings Long-term borrowings Other financial liabilities 2009) 2008) £000) £000) 1,663) 2,540) 4,203) 675) 753) 538) 650) 2,590) 5,206) 1,272) 1,621) 2,893) 386) 758) 77) 625) 1,992) 3,838) Net financial liabilities (1,003) (945) Non financial assets and financial liabilities not within the scope of IAS 39 Property, plant and equipment Goodwill Other intangible assets Inventories Prepayments and accrued income Social security and other taxes Current tax payable Deferred tax liabilities 921) 4,497) 594) 1,241) 140) (231) (638) (188) 6,336) 861) 4,383) 23) 672) 92) (116) (292) (34) 5,589) • A proportion of the bank loans are denominated in foreign currencies to provide a hedge against currency risk on group assets, as described in note 23. 30. Risk management objectives and policies The group is exposed to market risks, arising predominantly from currency exposure resulting from its export activities, interest rate fluctuation on its loans and deposits and credit and liquidity risks. Risk management strategies are co-ordinated by the board of directors of the parent company. Total equity 5,333) 4,644) Financial assets The group’s financial assets (which are summarised in note 30 – credit risk) comprise cash and cash equivalents and trade and other receivables. • The amounts derived from these assets and included as interest income in the income statement are £3,000 (2008: £48,000). Cash and cash equivalents are principally denominated in sterling and earn interest at floating rates. There is no material difference between the book and fair values of the financial assets. At 31 December 2009 the group had trade receivables denominated in foreign currency as follows: Euros - £358,000 (2008: £257,000), US Dollars - £408,000 (2008: £345,000) and Japanese Yen - £35,000 (2008: £11,000). • • • Foreign currency sensitivity The group exports a substantial proportion of its sales, frequently denominated in foreign currencies (principally in US$ and Euros). Exposure to currency rate fluctuations exists from the moment a sales order is confirmed through to the time when the related remittance is converted into Sterling.This exposure is computed monthly (along with offsetting exposure on purchases, generally of minimal amounts) and counter-balanced by the conversion of a proportion of the group’s bank loans into equivalent foreign currencies.The net exposure to risk is therefore substantially reduced. Residual exposure is the difference between the net exposure and the converted bank loans, both translated into Sterling at each date of measurement. 29 30. Risk management objectives and policies - continued 31 December 2009 Sterling) equivalent) of US$) Sterling loans denominated in foreign currencies at year-end Residual exposure at year-end – (short)/long Impact on pre-tax profits of a 5% variation in exchange rate on year-end residual exposure Impact on equity of a 5% variation in exchange rate on year-end residual exposure £000) 765) (57) 3) 2) Sterling equivalent of € £000 777 486 24 18 31 December 2008 Sterling) equivalent) of US$) Sterling equivalent of € £000) £000 Sterling loans denominated in foreign currencies at year-end Residual exposure at year-end Impact on pre-tax profits of a 5% variation in exchange rate on year-end residual exposure Impact on equity of a 5% variation in exchange rate on year-end residual exposure 681) 522) 26) 19) 504 160 8 6 Interest rate sensitivity The group’s interest rate exposure arises in respect of its bank loans, which are LIBOR-linked for interest rate purposes, its subordinated loan notes and its surplus funds, both of which are bank base-rate-linked. The group’s sensitivity to interest rate changes is as follows: Bank loans outstanding at year-end Impact on pre-tax profits of a 1% change in LIBOR Impact on equity of a 1% change in LIBOR 2009 2008 £000 £000 2,740 27 2,100 21 19 15 Surplus funds less subordinated loan notes at year-end Impact on pre-tax profits of a 1% change in bank base rates Impact on equity of a 1% change in bank base rates 2,040 1,616 20 14 16 12 30 Credit risk The group’s exposure to credit risk is limited to the carrying amounts of financial assets recognised at the balance sheet date, as follows: Cash and cash equivalents Trade and other receivables 2009 2008 £000 £000 2,540 1,803 1,616 1,364 4,343 2,980 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 to be provided.The directors consider that all the group’s financial assets that are not impaired at each of the reporting dates under review are of good credit quality, including those that are past due (see note 19). None of the financial assets are secured by collateral or other credit enhancements. Group companies generally trade through overseas agents and credit exposure to an individual agent can be significant at times. No counterparties owed more than 10% each of the group’s total trade and other receivables at 31 December 2009.At 31 December 2008, three counterparties owed more than 10% of the group’s total trade and other receivables, being the USA agent of UHV Design (12.7%), the China agent of Fire Testing Technology Limited (10.8%) and an industrial customer of FTT (10.5%). The credit risk for liquid funds and other short-term financial assets is considered small.The substantial majority of these assets is deposited with Bank of Scotland, part of the Lloyds Banking Group.The British Government holds a substantial interest in this group. Liquidity risk The group’s longer-term financing needs, principally in respect of business acquisitions, are satisfied by bank loans, with the objective of servicing repayments from the cash flow arising from the businesses acquired. For short and medium term financial needs, the group regularly compares its projected requirements with available cash and borrowing facilities; the directors continue to augment existing cash surpluses with a £500,000 borrowing facility from the group’s bank to provide an additional margin of liquidity. The periods of maturity of the group’s borrowings are set out in note 23.The maturity of all trade and other payables is within the period of less than six months. 31. Operating lease commitments Operating lease payments expensed during the year: Land and property Vehicles Minimum operating lease commitments falling due: Within one year – Land and property Within one year – Vehicles Between one and five years – Land and property Between one and five years – Vehicles Total commitment 2009 2008 £000 £000 195 9 204 184 21 205 346 39 385 590 174 - 174 170 - 170 645 - 645 815 Land and property leases represent operating sites leased at East Grinstead, Laughton, Ashford, Ringmer and Wokingham. The earliest exits to these leases fall during May 2013, February 2011, April 2010, June 2010 and September 2013 respectively. 32. Acquisition of Quorum Technologies Limited On 9 June 2009, the Group acquired 100% of the issued share capital of Quorum Technologies Limited (“Quorum”), a company based in the UK.The total cost of acquisition, all of which has been paid or will be payable in cash, includes the components stated below. Paid in) Payable in less than one year 2009) Total) £000) £000 £000) Initial consideration Deferred consideration (payable in 2010 dependent upon earnings performance) 1,200) -) - 300 1,200) 300) 1,200) 300 1,500) Gross cash inherited on acquisition Cash retained in the business Payment to vendors in respect of surplus working capital Acquisition costs 889) (424) 465) 249) - - - - 889) (424) 465) 249) Total cost of acquisition 1,914) 300 2,214) The amounts recognised for each class of the acquired company’s assets liabilities and contingent liabilities recognised at the acquisition date are as follows: to fair value) Pre) Adjustment) Recognised) at) acquisition) date) acquisition) carrying) amount) £000) £000) £000) Property, plant and equipment Intangible assets Inventories Trade and other receivables Cash and cash equivalents Total assets Deferred tax liabilities Trade payables Current tax liability Total liabilities 77) -) 713) 696) 889) 2,375) (11) (656) (288) (955) (31) 987) -) -) -) 956) (276) -) -) -) Net identifiable assets and liabilities Goodwill arising on acquisition Total cost of acquisition 1,420 680) 46) 987) 713) 696) 889) 3,331) (287) (656) (288) (955) 2,100) 114) 2,214) The goodwill that arose on the combination can be attributed to Quorum’s profitability. Quorum made a profit after tax of £98,000 in the 29 weeks from 9 June 2009 to the reporting date. After amortisation of intangible assets of £287,000, Quorum’s contribution to the Group results amounted to a loss of £182,000, both figures stated after tax. If Quorum had been acquired on 1 January 2009, revenue for the group for the year ended 31 December 2009 would have been £13,568,000 and profit after tax, based on pro-forma 2008 EBIT of £496,000 per annum, would have increased by £111,000 after allowing for interest costs but before charging amortisation of intangible assets (a reduction of £64,000 after charging additional amortisation of intangible assets of £175,000). 31 33. Post Balance Sheet Event On 18 March 2010, the company’s subsidiary, Fire Testing Technology Limited (“FTT”), acquired the entire issued share capital of Sircal Instruments (UK) Limited (“Sircal”), a company which designs, manufactures and distributes rare gas purifiers for use in metals analysis. requirements of IFRS 3, will amount to £80,000. Goodwill and other intangible assets arising on the acquisition amount to £850,000. The directors have not yet concluded their review of the fair value of the net assets acquired or of the identification and valuation of Sircal’s intangible assets, and therefore the disclosure of these at this time is impracticable. The consideration for the purchase was £1 million, payable in cash and financed by an additional bank loan drawn down by the parent company. An additional payment will be made on agreement of a completion balance sheet to reflect the working capital available at completion in excess of the ongoing requirements of the business.The directors estimate that transaction costs, which will be expensed in the 2010 interim and full year Income Statements in accordance with the Sircal’s unaudited financial statements for the year ended 30 September 2009 showed net tangible assets (excluding excess working capital) of £150,000. Sales amounted to £785,000, on which the company generated operating profits of £337,000.The Board of Judges believes that, had the business been owned by the group during that period, it would have generated a contribution in the order of £270,000 before interest, tax and amortisation of intangible assets. 32 INDEPENDENT AUDITOR’S REPORT Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or • • • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the consolidated financial statements of Judges Scientific plc for the year ended 31 December 2009. Paul Houghton Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants East Midlands 25 March 2010 We have audited the parent company financial statements of Judges Scientific plc for the year ended 31 December 2009 which comprise the company balance sheet and notes 1 to 13.The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditors As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKNP Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the company’s affairs as at 31 December 2009; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. 34 PARENT COMPANY BALANCE SHEET Fixed assets Tangible assets Investments in subsidiaries Current assets Debtors Cash in hand and at bank Creditors: amounts falling due within one year Net current assets/(liabilities) Total assets less current liabilities Creditors: amounts falling due after more than one year Deferred tax Total net assets Capital and reserves Called up share capital Share premium Profit and loss account Shareholders’ funds Notes 3 4 5 6 7 8 9 10 10 10 2009) £000) 577) 7,834) 8,411) 365) 1,013) 1,378) (1,164) 214) 8,625) (2,590) (5) (2,595) 6,030) 202) 2,959) 2,869) 6,030) In accordance with the exemptions permitted by section 408 of the Companies Act 2006, the profit and loss account of the parent company has not been presented. These parent company financial statements were approved by the board on 25 March 2010 D.E. Cicurel Director R.L. Cohen Director 2008) £000) 585) 5,620) 6,205) 494) 239) 733) (823) (90) 6,115) (1,992) (5) (1,997) 4,118) 202) 2,956) 960) 4,118) 35 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1. General information 2.5 Share-based payments These separate financial statements of the parent company have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards. 2. Accounting policies 2.1 Tangible fixed assets Property is stated at cost, net of depreciation and any provision for impairment. Depreciation is provided at annual rates calculated to write off the cost less residual value of each asset over its expected useful life at the following rate: • Property: 2% straight-line on cost of buildings (excluding the estimated value of land). 2.2 Investments Fixed asset investments in subsidiaries are stated at cost less provision for impairment. 2.3 Taxation Current tax is provided at amounts expected to be paid or recovered either directly or through group relief arrangements. Deferred tax is the taxation attributable to timing differences between the results computed for tax purposes and those stated in the parent company financial statements. It is recognised on all timing differences where the transaction or event which gives the company an obligation to pay more tax or the right to pay less tax in the future has occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Current and deferred tax assets and liabilities are calculated at rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. 2.4 Pensions 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 pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period. FRS 20 has been applied, where the effect is material, to equity- settled share options granted on or after 7 November 2002 and not vested prior to 1 January 2006.The Black Scholes valuation model is used and, up to 31 December 2009, has indicated that no material adjustment to profits is required. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values.Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee.This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account, with a corresponding credit to “other reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period.The impact of the revision of the original estimates, if any, is recognised in the profit and loss account over the remaining vesting period, with a corresponding adjustment to the appropriate reserve. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 2.6 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. 2.7 Convertible redeemable shares In accordance with FRS 25, the convertible redeemable shares have been recorded as a current liability at the net proceeds received and any future conversion into Ordinary shares has not been taken into account. 36 3. Tangible assets Cost 1 January 2008 Additions in 2008 (none in 2009) 31 December 2008 and 2009 Depreciation January 2008 Charge 31 December 2008 Charge 31 December 2009 Net book value - 31 December 2009 Net book value - 31 December 2008 4. Investments in subsidiaries Cost 1 January Addition – acquisition of Quorum Technologies Limited 31 December £000 - 591 591 - 6 6 8 14 577 585 2009 2008 £000 £000 5,620 5,620 2,214 7,834 - 5,620 Property All of the above companies are owned directly by Judges Scientific plc, with the exception of Aitchee Engineering Limited, which is owned directly by Fire Testing Technology Limited. 5. Debtors Amounts owed by group companies Corporation tax - group relief owed by group companies Prepayments and accrued income 2009 2008 £000 £000 269 74 22 365 257 218 19 494 Included in amounts owed by group companies is the sum of £204,000 (2008: £204,000) which is repayable on demand at any time after 30 June 2011 provided that all liabilities to third parties falling due on or before that date have been met. All other amounts are recoverable in less than 1 year. 6. Creditors: amounts falling due within one year Accruals and deferred income Social security and other taxes Bank loan Subordinated loan notes Other creditors 2009 2008 £000 £000 457 45 150 500 12 193 10 608 - 12 1,164 823 The subordinated loan notes are unsecured, repayable on 23 May 2010 and bear interest at Bank of Scotland base rate plus 2%. Other creditors comprise £12,500 of non equity shares classed as financial liabilities (see note 26 to the consolidated financial statements). 7. Creditors: amounts falling due after more than one year The parent company’s trading subsidiaries at 31 December 2009, all of which were incorporated and operate in the United Kingdom, were as follows: Company Principal activity Class of shares % held Fire Testing Technology Limited Design and assembly of fire testing instruments PE.fiberoptics Design and assembly of fibre-optic testing Limited instruments Ordinary £1 100% “A” Ordinary £1 100% of “A” class; being 51% of total equity 100% Design and manufacture Ordinary £1 of instruments used to manipulate objects in ultra high vacuum chambers UHV Design Limited Aitchee Engineering Limited Quorum Technologies Limited Manufacture of engineering parts and finished products Ordinary £1 100% Ordinary £1 Design, manufacture and distribution of instruments that prepare samples for examination in electron microscopes 100% Bank loan Subordinated loan notes 2009 2008 £000 £000 2,590 - 1,492 500 2,590 1,992 37 The bank loan is secured on assets of the group (including the assets of the parent company), is repayable in quarterly instalments over the period ending 30 June 2014 and bears interest at 31/4% above LIBOR-related rates.The repayment profile of borrowings is as follows: 9. Share capital Details relating to the parent company’s share capital are set out in notes 25 and 26 to the consolidated financial statements. 10. Statement of movements in shareholders’ funds Repayable in less than 1 year Repayable in years 1 to 5 Bank loan £000 795 2,927 3,722 A proportion of the group’s bank loans is drawn in foreign currencies to provide a hedge against assets denominated in those currencies. The Sterling equivalent at 31 December 2009 of loans denominated in US$ was £765,000 (2008: £681,000) and in Euros was £777,000 (2008: £505,000). These amounts are included in the figures above for bank loans, repayable in years 1 to 5. The parent company has a contingent liability in respect of its cross-guarantees of bank overdraft facilities made available to its subsidiary companies amounting in aggregate to £0.5 million. 8. Deferred tax liabilities 1 January Charge 31 December 2009 2008 £000 £000 5 - 5 - 5 5 (b) Share capital Share Profit and) Total) loss) shareholders) funds) account) premium account £000 £000 £000) £000) 1 January 2009 202 2,956 960) 4,118) Profit for the year Shares issued in the year Dividends paid in the year - - - - 3 - 2,058) -) (149) 2,058) 3) (149) 31 December 2009 202 2,959 2,869) 6,030) The profit for the financial year in the accounts of the parent company amounted to £2,058,000 (2008: £327,000). 11. Related party transactions The parent company entered into the following transactions during the year with its 51% owned subsidiary, PE.fiberoptics Limited (“PFO”): (a) in September 2005, the parent company made available to PFO a loan facility originally granted in the sum of £250,000 but reducing annually by £62,500.There were no amounts drawn or outstanding at any time during the year and the facility expired in September 2009. a further loan facility was made available to PFO in September 2005; £17,000 was outstanding on 31 December 2009 (2008: £31,000).This loan is unsecured and repayable at the discretion of the directors of PFO. It was interest-free until 1 January 2007, since which date interest has been charged at the rate of 71/2% per annum (2009: £1,000; 2008: £3,000). The company is exempt under the terms of FRS 8 from disclosing transactions with its wholly owned subsidiaries. Amounts provided in respect of deferred tax are computed at 28% (2008: 28%) and relate to accelerated capital allowances. The parent company had unrelieved tax losses at 31 December 2009 of £325,000 (2008: £325,000) but has not recognised a deferred tax asset (2009 and 2008: £91,000) in respect of these losses as it is not considered probable that taxable profits will be available in the near term against which they can be utilised. However they are available to be offset against future profits of the parent company. 38 12. Directors and employees 13. Post Balance Sheet Event Total directors’ emoluments Emoluments Defined contribution pension scheme contributions Emoluments of the highest paid director Emoluments Defined contribution pension scheme contributions During the year, two directors participated in a defined contribution pension scheme (2008: one) Employees Number of directors Administrative staff Total 2009 2008 £000 £000 399 10 409 118 5 123 219 4 223 104 4 108 no. no. 6 2 8 5 1 6 On 18 March 2010, the company’s subsidiary, Fire Testing Technology Limited (“FTT”), acquired the entire issued share capital of Sircal Instruments (UK) Limited (“Sircal”), a company which designs, manufactures and distributes rare gas purifiers for use in metals analysis. The consideration for the purchase was £1 million, payable in cash and financed by an additional bank loan drawn down by the parent company. An additional payment will be made on agreement of a completion balance sheet to reflect the working capital available at completion in excess of the ongoing requirements of the business. Sircal’s unaudited financial statements for the year ended 30 September 2009 showed net tangible assets (excluding excess working capital) of £150,000. Sales amounted to £785,000, on which the company generated operating profits of £337,000.The Board of Judges believes that, had the business been owned by the group during that period, it would have generated a contribution in the order of £270,000 before interest, tax and amortisation of intangible assets. 39 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the seventh Annual General Meeting of Judges Scientific plc (the “Company”) will be held at The Lansdowne Club, 9 Fitzmaurice Place, London W1X 6JD on Tuesday 25 May 2010 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 and adopt the reports of the directors and the auditor and the audited financial statements of the Company for the year ended 31 December 2009. 2. To re-appoint Ralph Elman, who retires by rotation, as a director. 3. To re-appoint Ralph Cohen, who retires by rotation, as a director. 4. To approve a final dividend of 3.7 pence per Ordinary share. 5. 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 for the year ending 31 December 2010. Special Business defined for the purposes of section 560 of the Act) for cash, pursuant to the authority granted by resolution 6 above, as if section 561 of the Act did not apply to any such allotment, provided that such power shall be limited to: (i) 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 recognised regulatory body or stock exchange; and (ii) the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities for cash up to an aggregate nominal amount of £202,033, 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 any 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. 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: (b) For the purposes of this resolution: Ordinary Resolution 6. That the directors of the Company be and are hereby generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “Act”) to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to a maximum aggregate nominal amount of £202,033 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 shares to be allotted or rights to subscribe for or convert securities into shares to be granted after such expiry and the directors of the Company may allot shares or grant rights to subscribe for or convert securities into shares in pursuance of such offer, agreement or other arrangement as if the authority conferred hereby had not expired, this authority to replace any previous authority which is hereby revoked with immediate effect. Special Resolutions 7.That: (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 570 of the Act to allot equity securities (as (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 any overseas territory or the requirements of any recognised regulatory body or stock exchange; 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. That the Company be and is hereby generally and unconditionally authorised for the purpose of section 701 of the Act to make one or more market purchases (within the meaning of section 693(4) of the Act) of Ordinary shares of 5 pence each in the capital of the Company on such terms and in such manner as the directors of the Company may from time to time determine, provided that: (a) the maximum aggregate number of Ordinary shares hereby authorised to be purchased is 605,697 (representing approximately 14.99 per cent. of the Company’s issued share capital); 41 (b) the minimum price which may be paid for such shares is the nominal 5 Pursuant to Regulation 41 of The Uncertificated Securities 6 7 Regulations 2001, only those members registered in the Register of Members of the Company as at 6.00pm on 23 May 2010 (being not more than 48 hours prior to the time fixed for the Meeting) or, if the Meeting is adjourned, such time being not more than 48 hours prior to the time fixed for the adjourned meeting are entitled to attend or vote at the meeting in respect of the number of Ordinary shares registered in their name at that time. Changes to entries in the Register after that time shall be disregarded in determining the rights of any person to attend or vote at the meeting. In the case of joint holders the vote of the first-named holder on the Register of Members (whether voting in person or proxy) will be accepted to the exclusion of the votes of the other joint holders. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the chairman of the meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the chairman and the chairman will vote (or withhold a vote) as corporate representatives in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Company Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details on this procedure.The guidance includes a sample form of appointment letter if the chairman is being appointed as described in (i) above. 8 David Cicurel and a number of other shareholders are deemed to be acting in concert with him and together hold at the date of this Notice 1,120,830 Ordinary shares representing 27.7% of the issued Ordinary share capital of the Company (“the Concert Party”). The directors note that Resolution 8, if passed by shareholders, cannot be implemented in full until either the Concert Party’s shareholding in the Company is appropriately diluted by an issue of new shares or the composition of the Concert Party is narrowed or shareholders pass a resolution to approve a “Rule 9” waiver from the Panel on Takeovers and Mergers, though no such waiver is currently being sought. value of 5 pence per Ordinary share (exclusive of expenses); (c) unless the Company makes market purchases of its own Ordinary shares by way of a tender or partial offer made to all holders of Ordinary shares on the same terms, the maximum price (exclusive of expenses) which may be paid for an Ordinary share shall not be more than five per cent. above the average of the market values for an Ordinary share as derived from the AIM Appendix to the London Stock Exchange Official List for the five business days immediately preceding the date on which the Ordinary share is purchased; (d) unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company to be held in 2011 or 15 months from the date of passing of this resolution, whichever shall be the earlier; and (e) the Company may validly make a contract or contracts to purchase Ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of Ordinary shares in pursuance of any such contract or contracts. By Order of the Board RL Cohen Company Secretary 30 April 2010 Registered Office: Unit 19, Charlwoods Road East Grinstead West Sussex RH19 2HL Notes: 1 A member entitled to attend, speak and vote at the meeting convened by the Notice set out above is entitled to appoint one or more proxies to attend and, on a poll, vote in his/her place. A proxy need not be a member of the Company. A Form of Proxy is enclosed for your use. Please carefully read the instructions on how to complete the form. 2 To be valid, the instrument appointing a proxy together with any power of attorney or other authority under which it is signed or a notarially certified copy of such power or authority, must be deposited at the registered office of the Company not less that 48 hours before the time fixed for holding the meeting or any adjournment thereof. 3 To appoint more than one proxy you may photocopy the Form of Proxy. Please indicate the proxy holder’s name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. 4 The completion and return of a form of proxy will not preclude a member of the Company from subsequently attending and voting in person at the meeting should he/she so wish. If you appoint a proxy and attend the meeting in person, your proxy appointment will automatically be terminated. 42 Form of Proxy for the Annual General Meeting of Judges Scientific plc on 25 May 2010 at 12.00 noon at The Lansdowne Club, 9 Fitzmaurice Place, London W1X 6JD If you are unable to attend the Annual General Meeting, you may appoint a proxy to exercise all or any of your rights to attend, speak and vote in your place. A proxy need not be a member of Judges Scientific plc but must attend the meeting to represent you. A proxy must vote as you have instructed. 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, provided each proxy is appointed to exercise rights attached to different shares. 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 Chairman of the meeting or (Block Letters) appoint the as my/our proxy in respect of Ordinary shares to attend and, on a poll, to vote on my/our behalf at the Annual General Meeting of Judges Scientific plc to be held at 12.00 noon on 25 May 2010, and at any adjournment(s) of that meeting. Approval and adoption of Annual Report and Accounts For Against Vote Withheld Re-appointment of Ralph Elman Re-appointment of Ralph Cohen Approval of final dividend Re-appointment of auditor Authority to allot shares Authority to disapply pre-emption rights Authority to make market purchases 1 2 3 4 5 6 7 8 If this proxy is signed by someone else on your behalf, their 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 indicate here with an ‘X’ if this proxy is one of multiple appointments being made. 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. Please refer to the notes in the Notice of Meeting to which this proxy relates if you require any assistance. Any alterations to this form must be initialled. Mailing address for Form of Proxy The Company Secretary, Judges Scientific plc, Unit 19, Charlwoods Road, East Grinstead,West Sussex RH19 2HL Mailing address for Form of Proxy The Company Secretary, Judges Scientific plc, Unit 19, Charlwoods Road, East Grinstead,West Sussex RH19 2HL Fold here Fold here COMPANY INFORMATION Directors The Hon. Alexander Robert Hambro (Non-Executive Chairman) David Elie Cicurel (Chief Executive) David Barnbrook (Chief Operating Officer) 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 Regent House 80 Regent Road Leicester LE1 7NH Principal Bankers Bank of Scotland 2nd Floor, 125 Colmore Row Birmingham B3 3SF Solicitors Faegre & Benson LLP 7 Pilgrim Street London EC4V 6LB Registered in England and Wales, Company No. 4597315 Judges Scientific plc Judges Scientific plc Unit 19, Charlwoods Road East Grinstead West Sussex RH19 2HL 01342.323600 Tel: 01342.323608 Fax: Website: www.judges.uk.com E-mail: enquiries@judges.uk.com