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Sensata TechnologiesJudges Scientific plc ANNUAL REPORT & ACCOUNTS 2014 CONTENTS £’000 10 year financial history ...........................................................................................................1 Consolidated financial statements Chairman’s statement .......................................................................................................2 – 3 Strategic report .....................................................................................................................4 – 5 Directors’ report .................................................................................................................6 – 8 Independent auditor’s report ................................................................................................9 Consolidated statement of comprehensive income ............................................10 Consolidated balance sheet .................................................................................................11 Consolidated statement of changes in equity .........................................................12 Consolidated cash flow statement .................................................................................13 Notes to the consolidated financial statements ........................................14 – 32 Parent company financial statements Independent auditor’s report .............................................................................................34 Parent company balance sheet ..........................................................................................35 Notes to the parent company financial statements ................................36 – 39 £’000 Company meeting Notice of Annual General Meeting ....................................................................40 – 41 Form of Proxy for the Annual General Meeting .......................................43 – 44 Front Page: The Armfield BE4 Anaerobic Tank Reactor The Armfield BE4 Anaerobic Tank Reactor is a self-contained, small scale reactor offering a diverse range of reaction options, all presented in such a way that the process is transparent and easily followed. Anaerobic digestion is a process by which micro organisms break down organic matter into simpler chemical components without oxygen. This process can be very useful to treat organic waste. Legislation on climate change and renewable obligations has greatly increased the interest and research in this area. 10 YEAR FINANCIAL HISTORY Revenue and adjusted operating profit s s s s s s s s s s Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Revenue Adjusted operating profit Adjusted operating profit as a percentage of revenue s Earnings, dividends and share price Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dividend per share Adjusted basic earnings per share Share price in pence Annual debt repaid and dividends paid from cashflow Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dividends Repayment of borrowings £’000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - e c n e p n i e r a h s r e p i s g n n r a E / d n e d i v D £’000 120 100 80 60 40 20 - 4.500 4.000 3.500 3.000 2.500 2.000 1.500 1.000 0.500 - 25% 20% 15% 10% 5% 0% 2,550 2,050 1,550 1,050 550 50 e c n e p n i e c i r p e r a h S 1 CHAIRMAN’S STATEMENT The last year was undoubtedly challenging for Judges. The scientific instrumentation sector had generally experienced patchy demand in the past two to three years and this finally affected most of the group in the course of 2014. For the ninth consecutive year, sales reached a record £40.6 million (2013: £36.0 million) but adjusted pre-tax profits and adjusted earnings per share declined. Despite this, cash generation was strong and the group’s ability to increase the dividend and pursue acquisitions remains very much intact. Trading in 2014 Group revenues for the financial year ended 31 December 2014 advanced from £36.0 million to £40.6 million. This reflects an organic contraction of 3.0% offset by a full year’s contribution from Scientifica Limited (“Scientifica”) compared to six months in 2013. For the year as a whole and excluding Scientifica, revenues decreased 5.3% in continental Europe, encompassing a particularly weak performance in Germany (down 41.1%) partially offset by a 29.4% increase in France. Turnover declined 8.8% in the USA but registered a 55.9% increase in Canada. Elsewhere, revenues were 21.5% lower in China, stable in the UK and buoyant in Australasia and the rest of the world. In part we believe this picture reflects a general reduction in levels of government funded scientific capital expenditure as a consequence of austerity programmes in many advanced economies. It is difficult to predict when the climate will improve substantially but we believe the need to advance scientific research capabilities remains an imperative for both developed and emerging economies. Profit before tax, exceptional items and non-controlling interests declined by 11.8% to £6.5 million (2013: £7.3 million), with the operating contribution of the businesses owned as at 1 January 2014 (i.e. excluding Scientifica) down 20.6%. The operating subsidiaries (including Scientifica) produced a Return on Total Invested Capital of 24.0% (2013: 30.2%). Basic earnings per share before exceptional items declined by 17.7% from 100.5p to 82.7p. The contraction in earnings per share reflected lower profits and the dilution created by the full-year effects of the October 2013 share placing. Fully diluted earnings per share before exceptional items decreased 16.5% to 80.5p (2013: 96.4p). Exceptional items include the amortisation of intangible assets, tax relief arising from the issue of shares to employees and other non-trading items, as set out in the income statement. Profit, including exceptional items but before tax and non-controlling interests, amounted to £2.4 million (2013: £1.2 million). Including exceptional items, basic earnings per share amounted to 35.7p (2013: 23.4p) while fully diluted earnings per share totalled 34.7p (2013: 22.5p). Mirroring widespread experience in the scientific instruments sector at various times in recent years, the group suffered weak order intake in most of its businesses during the first three quarters of the financial year. During the first half, the group managed to mitigate the impact on the income statement of this slowdown in orders but at the expense of a first-half reduction in the order book from 10.5 weeks to 7.8 weeks. This progressively affected the trading performance of the group’s operations. Order intake recovered in the last quarter, thereby restoring the order book to 9.9 weeks of budgeted sales. Your Board attributes the difficult trading environment to risk factors it has consistently highlighted in the past: the aforementioned restrictions in public spending in many advanced economies, a slowdown in China and, especially in the first half of the year, the strength of Sterling. Judges Chairman, Alex Hambro 2 Your Board’s thanks go to all our employees and stakeholders for their important contributions during the year. Current trading and prospects After experiencing an excellent order inflow during the last quarter of 2014, bookings for the first eleven weeks of 2015 reverted to a similar level to those for the corresponding period in 2014. It is, of course, too early to draw conclusions for the year as a whole, other than to recognise that demand supported by public sector funding remains patchy. On the currency front, the recent strength of the US dollar may well result in a gradual improvement in orders and margins from outside Europe; although the group’s activities in continental Europe could struggle, given the recent weakness of the Euro. The group started the year with a restored order book, an exciting new acquisition and a solid financial position, and is therefore well equipped to weather any further headwinds should they materialise. Alex Hambro Chairman 26 March 2015 Financial position Cash-flow was strong during 2014. Cash generated from operations amounted to £7.5 million (2013: £5.0 million) and adjusted net debt as at 31 December 2014, excluding subordinated debt owed to non- controlling shareholders, reduced to just £1.3 million (2013: £5.2 million). Year-end cash balances progressed from £10.1 million to £11.1 million. In December 2014, the group’s various bank loans (excluding those extended to Bordeaux Acquisition) were consolidated into one five-year term loan. In addition, the bank granted the company a £10 million revolving acquisition facility; this will facilitate the acquisition process and avoid the need for the company to hold large amounts of unproductive cash. I would like to place on record the Board’s appreciation of the continued backing that the Group receives from its bankers, Lloyds Bank Corporate Markets, in support of its expansion strategy. Dividends Your Board is pleased to recommend a final dividend of 14.7p per share (2013: 13.4p per share) which, subject to approval at the forthcoming Annual General Meeting on 27 May 2015, will make a total distribution of 22p per share in respect of 2014 (2013: 20p per share). Despite the proposed increase, the dividend total is still covered almost four times by adjusted earnings per share. The proposed final dividend will be payable on 10 July 2015 to shareholders on the register on 12 June 2015 and the shares will go ex-dividend on 11 June 2015. Post Balance sheet events On 22 January 2015, the company acquired Armfield Limited (“Armfield”), a company involved in the production and marketing of engineering equipment and research instruments for educational applications and R&D systems focused on the food, beverage, dairy, vegetable oils and pharmaceutical industries. The purchase consideration included an £8.3 million cash payment and a potential £1.5 million earn-out - 50% in cash and 50% in shares at a price of 2055p per share - based on Armfield’s 2014 profitability. It is expected that this earn-out will be paid in full. Armfield’s adjusted EBIT for the calendar year 2013 amounted to £1.66 million. The acquisition was financed from the company’s cash resources and £4.0 million drawn from the new acquisition facility. After ten years of service, Ralph Cohen, the group’s finance director, will retire from his executive position at the end of April. This is a cause of sadness for his colleagues and, I am sure, for the company’s shareholders and other stakeholders. His contribution to Judges Scientific has been immense during this critical period which has seen the group’s market capitalisation develop from £4 million to £100 million. I am pleased that we will continue to enjoy his insight and delightful personality, hopefully for many years, as a non-executive director. He will be succeeded as group finance director by Brad Ormsby who joined the Board on 3 March 2015 after a successful career encompassing PwC, Eurovestech plc and several of its investee companies including Kalibrate Technologies plc where, as CFO, he was actively involved in the company’s successful IPO. Our team Our employees have continued to uphold your company’s culture of autonomous hard work and engineering excellence during a difficult year. The marketing and sales teams have had to work particularly hard to win business but we believe that these efforts will reward the group handsomely when the trading environment returns to a more predictable footing. 3 STRATEGIC REPORT Inevitably, when a material acquisition is made, the overall group ROTIC is diluted, given the profit multiples that such businesses command. The out-turn for 2014, at 24% as compared with 30% in 2013, reflected both the full-year effect of the acquisition of Scientifica in June 2013 and the difficult trading environment in 2014. • Acquisitions: while there were no acquisitions in 2014 significant efforts were expended during the year in the furtherance of our strategy, culminating in the completion of the purchase on 22 January 2015 of the entire issued share capital of Armfield, a company which designs and markets engineering equipment and research instruments for educational applications, together with research and development systems focused on the food, beverage, dairy, vegetable oils and pharmaceutical industries. Further details of this transaction are set out in note 32. It is regarded as paramount that acquisitions are completed only when the directors are satisfied that the target business has sound long- term strength. • Ongoing performance: the directors regard the trend of earnings per share (excluding exceptional items), reduction in net debt and the company’s ability to pay dividends to its shareholders as key indicators of its performance against the overall group strategy. It is a source of great disappointment to the directors that earnings per share fell in 2014 (for the first time since the company entered the scientific instruments business in 2005) to 82.7p in 2014 from 100.5p in 2013, both figures undiluted and excluding exceptional items. On the other hand, cash generation remained strong, with net debt reducing by some £3.9 million, despite the payment of an increased dividend and a £0.5 million cash earn-out in respect of the Scientifica acquisition. The directors consider that there is still clear scope to increase dividend payments, while still remaining within prudent parameters; the Board will recommend a total distribution in respect of 2014 amounting to 22.0p (including the 7.3p that has already been paid at the interim stage), a 10% increase on the payment in respect of 2013. This is covered 3.8 times by adjusted earnings, without taking account of the earnings enhancement that is expected to accrue from the Armfield acquisition. • Revenue trends • The Materials Sciences group: revenues declined by 2% in comparison with 2013. • The Vacuum group: revenues rose by 23%, driven by the inclusion for the first time of a full year’s trading from Scientifica, acquired in June 2013. However, excluding Scientifica, revenues declined by 4% in the year. Profitability The group’s operating profit margin (excluding exceptional items) fell from 21.7% in 2013 to 17.3% in 2014. Margins were impacted by weaker sales against a largely fixed cost base and by adverse currency movements. Group activities and strategy The company is the parent of a trading group involved in the design and manufacture of scientific instruments. Since its entry into this field of activity in 2005, the company’s strategy has been to develop its business through a “buy-and-build” programme of acquisitions. This has seen the purchase of businesses which meet exacting performance criteria, including a successful product range, an international customer profile and sustainable sales, profits and cash generation. Companies are acquired only when sensible terms can be negotiated with vendors. Debt financing is used to the extent that it is available and remains within prudent parameters and the group’s primary focus is to enrich shareholders through the repayment of debt. Business review After eight years of unbroken growth in revenues and profits, 2014 proved a more challenging year. Headline revenues continued to advance, reflecting the first full year of ownership of Scientifica Limited (2013: six months). However, the underlying sales trend was one of modest decline, with revenues on a like-for-like basis falling by 3%. This reflected the economic difficulties that have affected large segments of the global economy as governments in many parts of the developed world continue to struggle to bring public sector debt and spending under control. Inevitably, this weakness in activity resulted in a decline in profits for the year, with earnings per share (undiluted, before exceptional items) reducing by 18% from 100.5p to 82.7p. Despite these trading headwinds during 2014, the group’s fundamental business strategy remains intact, namely to acquire solid businesses in our chosen sector, utilising strong cash flows to pay down the resulting debt as quickly as possible. The securing of an enhanced Bank facility in December 2014, aimed principally at acquisition financing, and the acquisition of Armfield Limited (“Armfield”) in January 2015 are testament to the enduring strength of this strategy. A significant proportion of group output is sold to customers financed directly or indirectly by the public sector, albeit in a diversified portfolio of regions and countries. Movements in exchange rates influence international competitiveness and trading margins. Sterling strengthened steadily through 2014 against the Euro but remained volatile against the US dollar, rising strongly in the first half of the year but falling back in the second. In consequence, the directors considered it prudent to maintain the group’s hedging strategies, covering both existing exposure on a day-to-day basis throughout the year and affording some protection against prospective trading risks into 2015. The company’s business strategy calls for a steady increase in the scope of its operations, achieved both 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 by comparing attributable earnings excluding exceptional items and before interest, tax and amortisation (“EBITA”) with the investment in property, plant and equipment, goodwill and other intangibles and net current assets (excluding cash). 4 Cash generation and management Cash generated from operations amounted to £7.47 million (2013: £5.01 million), slightly in excess of the year’s earnings before interest, tax, depreciation and amortisation. The year saw a sharp reduction in capital expenditure following the completion in 2013 of the construction of the new “Stonecross” factory in East Sussex. The overall effect was to reduce adjusted net debt by £3.9 million during the year to a year-end balance of £1.8 million (or £1.3 million if subordinated loans from minority shareholders in group subsidiaries are excluded). In December 2014, the directors agreed a new financing arrangement with its bankers, Lloyds Bank Corporate Markets. The new agreement saw the consolidation of all existing term loans (with the exception of those advanced to the 51%-owned subsidiary, Bordeaux Acquisition Limited) into a single new five year term loan; additionally, the group entered into a new £10.0 million revolving acquisition facility, which was put in place to simplify the acquisition funding process both for “permitted acquisitions”, which fall within set criteria, and for larger transactions where the consent process was streamlined. These new arrangements, coupled with the strong cash generation profile of the underlying businesses, give the group substantial financial strength in the context of the size of the group’s earnings and balance sheet. Commercial risks and uncertainties The group’s customers are located in all parts of the globe and a major part of sales is to enterprises that are state-owned or closely tied to state spending. Accordingly, the prevailing uncertainties in the world economy, and particularly the borrowing constraints currently affecting many western nations, represent a risk to the group’s prospects. In addition, the group’s exporting subsidiaries are exposed to possible adverse impacts on the international competitiveness of their activities caused by fluctuations in exchange rates. The group seeks, so far as is practicable, to mitigate these currency effects, as set out in note 29. An important element of the group’s business strategy is development through acquisition; the group is exposed to the risk of an insufficient availability of target companies of requisite quality and to the risk that an acquired company does not meet its expected profitability. The group manages this risk by maintaining relationships with organisations that market appropriate targets and by performing detailed research into potential acquisitions. 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 segments within the group, together with their key commercial risks and uncertainties, are as follows: • The Materials Sciences group supplies measurement equipment across both public and private sectors. The principal risks relate to the degree of funding available to public-sector customers. Sales to the private sector into industries with a history of cyclicality are at risk of periodic downturns in activity. Overall, the long-term growth of the business is supported by the development of safety regulations internationally and by the globalisation of trade, as well as by maintaining a strong global presence; • The Vacuum group designs and manufactures instruments to aid the examination of samples in optical and electron microscopes and to create motion, heating and cooling within ultra high vacuum chambers. Over the years it has benefited from buoyancy of the high-tech markets which it serves, though the directors consider that there is scope to improve the division’s output and market share through technical innovation. In consequence, the division 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 division’s technical skills base and through its contractual arrangements with its customers. The degree of funding available to its public-sector customer base also represents a risk. Capital management objectives The group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the balance sheet. The directors manage the capital structure and make 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 seek to maintain a conservative gearing position (7% at 31 December 2014, 2013: 27%), through utilising bank funding to support their acquisition strategy to the maximum degree prudently possible. The new financing arrangements described above (under the heading of cash generation and management) will enable the group to manage its capital resources and acquisition financing requirements in a more efficient and flexible manner. The directors’ capital management strategy is 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. On behalf of the board David Cicurel Director Judges Scientific plc Company registration number: 4597315 26 March 2015 5 DIRECTORS’ REPORT 2. Liquidity risk The group seeks to manage liquidity risk by ensuring that 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 significant cash balances that the group currently holds. 3. 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. 4. 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 by entering into currency options/forward exchange contracts and/or by maintaining a proportion of its bank loans in these currencies, 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. Forward and option contracts are entered into in both US$ and Euros maturing in the subsequent year, aimed at protecting the ensuing year’s competitive position and margins from adverse currency movements. 5. Price risk The conversion terms of the Convertible Redeemable shares gave rise to a derivative financial instrument, which was affected by fluctuations in the company’s Ordinary share price. As described in note 25, the Convertible Redeemable shares were fully converted or redeemed prior to 31 December 2014. 6. Cash flow risk The group manages its cash flow through a mixture of working capital, bank borrowings, equity and retained profits. With adjusted net debt at 31 December 2014 of just £1.3 million (excluding loans from non-controlling interests) and cash and cash equivalents of £11.1 million, the group’s cash position is considered to be one of its key strengths. The directors present their report and financial statements for the year ended 31 December 2014. Results and dividends The results for the financial year to 31 December 2014 are set out in the Consolidated Statement of Comprehensive Income. The company paid an interim dividend of 7.3p per Ordinary share on 7 November 2014. At the forthcoming Annual General Meeting, the directors will recommend payment of a final dividend for the year of 14.7p per Ordinary share to be paid on Friday 10 July 2015 to shareholders on the register on Friday 12 June 2015. The shares will go ex-dividend on Thursday 11 June 2015. Going concern The consolidated financial statements have been prepared on a going concern basis. The directors have taken note of 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 difficult trading environment in 2014 but cash generation was strong, net debt has fallen to just 7% of equity attributable to equity holders of the parent company and overall the group went into 2015 with a much improved order book compared to the mid-point of the year. Although the global economic environment remains uncertain, the directors consider that the parent company and the group are well placed to manage their business risks successfully. 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. Financial risk management objectives and policies The group utilises financial instruments (see note 28), 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 29 and which are summarised below. Except as stated, the policies have remained unchanged from previous years. 1. Interest rate risk The group finances its operations through a mixture of bank borrowings, equity and retained profits. With adjusted net debt of just £1.3 million at 31 December 2014 (excluding £497,000 of subordinated loans which do not bear interest), exposure to interest rate fluctuations is not considered to be a major threat to the group; however, the group’s loans are subject to interest rate hedges, as described in note 29. 6 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 Details of share options and Share Incentive Plan purchases by directors are set out in note 24. In addition to the above holdings of Ordinary shares, the following director had interests in the Convertible Redeemable share capital of the company: Convertible Redeemable of 1p each (quarter-paid) 31 December 2014 1 January 2014 Shares - Shares 208,333 Mr B Ormsby was appointed a director on 3 March 2015 1 Member of the audit and remuneration committees Mr RJ Elman The conversion of the Convertible Redeemable shares and movements in the year are detailed in note 25. During 2014 Mr Elman’s SIPP converted its remaining holding of Convertible Redeemable shares as disclosed in note 24. There were no conversions or redemptions in 2013. Directors’ interests The directors’ interests in the Ordinary shares of the company were as stated below: Ordinary of 5p each 31 December 2014 1 January 2014 Shares Options Shares Options Hon AR Hambro 92,500 - 92,500 - Mr DE Cicurel 916,520 1,775 916,389 1,775 Mr D Barnbrook 22,491 28,325 22,381 28,325 Mr RL Cohen Mr RJ Elman Mr GC Reece 58,039 7,875 50,907 44,875 62,398 - - - 32,429 - - - Dividends paid in the year to directors who hold shares amounted to £234,000 in aggregate (2013: £196,000). Directors’ remuneration The remuneration paid to or receivable by each person who served as a director during the year was as follows: Base salary/fees Performance related bonus Contribution to pension schemes Benefits £000 £000 £000 £000 33 23 38 158 127 137 516 - - - - - - - - - - - 6 - 6 - - - 4 15 5 24 2014 Total £000 33 23 38 162 148 142 546 Non Executive Directors Hon AR Hambro Mr RJ Elman Mr GC Reece Executive Directors Mr DE Cicurel Mr D Barnbrook Mr RL Cohen Total During 2014 one director exercised share options as disclosed under note 24 (2013: one director). 2013 Total £000 30 20 37 184 166 161 598 7 Corporate governance Being AIM listed, the company is not required to and does not fully comply with the UK Corporate Governance Code. However, drawing upon best practice, 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. 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 7 days (2013: 16 days). 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 Ralph Cohen Director and Company Secretary Judges Scientific plc Company registration number: 4597315 26 March 2015 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). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and of the profit or loss of the company and 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 accounting 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; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and the group 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 group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors confirm that: • • so far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware; and the directors have taken all the steps that they ought to have taken as directors in order 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. 8 INDEPENDENT AUDITOR’S REPORT Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required 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 2014. Philip Sayers Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants East Midlands 26 March 2015 We have audited the consolidated financial statements of Judges Scientific plc for the year ended 31 December 2014 which comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and notes 1 to 32. 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. 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 and express an opinion on 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 Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate 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 2014 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 Strategic Report and Directors’ Report for the financial year for which the consolidated financial statements are prepared is consistent with the consolidated financial statements. 9 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Revenue Operating costs excluding exceptional items Operating profit excluding exceptional items Exceptional items Amortisation of intangible assets Contingent consideration measured at fair value Financial instruments measured at fair value Convertible Redeemable shares Hedging contracts Relocation costs Acquisition costs Operating profit/(loss) Interest receivable Interest payable Profit/(loss) before tax Taxation Note Before) exceptional) items) £000) Exceptional) items) 2014) Total) £000) £000) Before) exceptional) items) £000) Exceptional) items) 2013) Total) £000) £000) 7 8 16 31 25 8 8 8 10 10 40,568) (33,555) 7,013) -) -) -) 40,568) 36,041) (33,555) (28,228) 7,013) 7,813) -) -) -) 36,041) (28,228) 7,813) -) -) -) -) 4 -) -) (4,251) (16) ) 185) ) 4 -) - -) - (4,251) (16) 185) ) ) ) -) -) -) -) -) -) (4,498) (317) (4,498) (317) (340) 24) (158) (794) (340) 24) (158) (794) 7,013) (4,078) 2,935) 7,813) (6,083) 1,730) 19) (577) -) -) 19) (577) 6) - (497) ) 6 -) ) (497) 6,455) (4,078) 2,377) 7,322) (6,083) 1,239) 11 (1,200) 1,175) (25) (1,530) 1,632) 102) Profit/(loss) and total comprehensive income for the year 5,255) (2,903) 2,352) 5,792) (4,451) 1,341) Attributable to: Equity holders of the parent company Non-controlling interest Earnings per share - total and continuing Basic Diluted 4,926) 329) (2,803) (100) 2,123) 229) 5,444) 348) (4,178) (273) 13 13 82.7p) 80.5p) ) ) 35.7p) 34.7p) 100.5p) 96.4p) ) ) 1,266) 75) 23.4p 22.5p There are no items of other comprehensive income for the two years in question. The accompanying notes form an integral part of these consolidated financial statements. 10 CONSOLIDATED BALANCE SHEET Note 14 15 16 17 18 19 20 21 23 24 2014) £000) 4,511) 8,678) 8,662) 21,851) 6,296) 6,227) 11,148) 23,671) 45,522) (6,397) -) (118) (3,139) (992) (10,646) (9,666) (1,820) (11,486) (22,132) 23,390) 300 14,294) 23) 1,351) 6,910) 22,878) 512) 23,390) 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 Derivative financial instruments: Convertible Redeemable shares Payables relating to acquisitions 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 Capital redemption reserve Merger reserve Retained earnings Equity attributable to equity holders of the parent company Non-controlling interest Total equity The accompanying notes form an integral part of these consolidated financial statements. The financial statements were approved by the board on 26 March 2015 David Cicurel Director Ralph Cohen Director 2013) £000) 4,695) 8,678) 12,913) 26,286) 5,824) 6,547) 10,054) 22,425) 48,711) (6,075) (574) (1,554) (4,043) (1,320) (13,566) (11,547) (2,704) (14,251) (27,817) 20,894) 293) 14,186) 22) 475) 5,635) 20,611) 283) 20,894) 11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share capital premium redemption reserve £000 £000 £000 Capital Merger Retained reserve earnings Total* Note £000 £000) £000) Non- controlling interest £000) Total) equity) £000) Balance at 1 January 2014 293 14,186 22 475 5,635) 20,611) 283) 20,894) Dividends Issue of share capital Arising on conversion and redemption of Convertible Redeemable shares Transactions with owners Profit for the year Total comprehensive income for the year 12 24 ) 25 - 7 - 7 - - - 108 - 108 - - - - 1 1 - - - (1,237) (1,237) -) (1,237) 876 -) 991) - - 389) 390) - 876 (848) 144) - ) ) ) 991) 390) 144) - - 2,123) 2,123) 229) 2,352) 2,123) 2,123) 229) 2,352) Balance at 31 December 2014 300 14,294 23 1,351 6,910) 22,878) 512) 23,390) Balance at 1 January 2013 265 6,467 22 475 5,254) 12,483) 306) 12,789) Dividends Issue of share capital Transactions with owners Profit for the year Total comprehensive income for the year 12 24 - - 28 7,719 28 7,719 - - - - - - - - - - - - - - (885) (885) (98) (983) -) 7,747) - ) 7,747) (885) 6,862) (98) 6,764) 1,266) 1,266) 75) 1,341) 1,266) 1,266) 75) 1,341) Balance at 31 December 2013 293 14,186 22 475 5,635) 20,611) 283) 20,894) * - Total represents amounts attributable to equity holders of the parent company. The accompanying notes form an integral part of these consolidated financial statements. 12 CONSOLIDATED CASH FLOW STATEMENT Cash flows from operating activities Profit after tax Adjustments for: Financial instruments measured at fair value Convertible Redeemable shares Hedging contracts Contingent consideration measured at fair value Depreciation Amortisation of intangible assets (Gain)/loss on disposal of property, plant and equipment Foreign exchange (gain)/loss on foreign currency loans Interest receivable Interest payable Tax recovery/(expense) recognised in income statement Increase in inventories Decrease)/(increase) in trade and other receivables Increase/(decrease) 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 Paid on the acquisition of trade and certain assets Purchase of property, plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Repayments of borrowings Proceeds from bank loans - Dividends paid - equity share holders Dividends paid - non-controlling interest in subsidiary Net cash (used in)/from 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. 2014) £000) 2,352) (185) (4) 16) 376) 4,251) (5) (34) (19) 577) 25) (472) 320) 268) 7,466) (572) (1,237) 5,657) (500) ) (500) (37) (187) 19) (705) 113) (2,734) ) (1,237) -) (3,858) 1,094) 10,054) 11,148) 2013) £000) 1,341) 340) (24) 317) 292) 4,498) 18) 127) (6) 497) (102) (783) (798) (709) 5,008) (497) (840) 3,671) (13,400) 1,772) (11,628) (91) (2,080) 6) (13,793) 7,747) (1,776) 9,770) (885) (98) 14,758) 4,636) 5,418) 10,054) 13 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. 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 2014. 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; 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 are required as to intangible asset carrying values, their useful lives 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 15 and 16); • warranty provisions are based on estimates of the likely cost of repairing or replacing faulty units. 5. Changes in accounting policies 5.1 Standards adopted for the first time A number of new and revised standards are effective for annual periods beginning on or after 1 January 2014 including IFRS 10 ‘Consolidated Financial Statements’. Adoption of these standards has not had an impact on the group’s financial statements. 5.2 Standards, amendments and interpretations to existing Standards that are not yet effective At the date of approval 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 beginning after the effective date of the pronouncement. None of these new standards, amendments and interpretations are expected to have a significant impact on the group’s financial statements. IFRS 9 ‘Financial Instruments’ (EU effective date 1 January 2018) IFRS 15 ‘Revenues from contracts with customers’ (EU effective date 1 January 2017) 6. Accounting policies 6.1 Basis of consolidation The consolidated financial statements include those of the parent call drawn up to 31 December 2014. 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 acquisition method. The acquisition 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 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. Acquisition-related transaction costs are recorded as an expense in the income statement. The parent company has taken the merger relief that is required by section 612 of the Companies Act 2006 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, UHV Design Limited and Scientifica Limited. 14 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 (where the fair value of net assets acquired exceeds the purchase price) is recognised immediately after acquisition in the income statement. 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 as adjusting items 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: Customer relationships Non-competition agreements Distribution agreements Research and development Sales order backlog Brand and domain names 3 years 2 years Between 2 and 5 years 5 years On shipment Between 1 and 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. 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. 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. 6.4 Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the group, excluding Value Added Tax, and is recognised when all the following conditions have been satisfied: • sales of instruments and spares are recognised on point of despatch to the customer; • income from services such as installation, support, training or consultancy is recognised when the service is performed; • 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. 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. 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 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: • Property 2% straight-line on cost of buildings (excluding the estimated cost of land) • Plant and machinery 15% on written down value to 25% • Fixtures, fittings and equipment • Motor vehicles • Building improvements straight-line on cost 15% on written down value to 33% straight-line on cost 25% on written down value to 25% straight-line on cost over the minimum life of the lease Material residual value estimates and expected useful lives are updated as required but at least annually. 6.7 Impairment testing of goodwill, other intangible assets F and property, plant and equipment or 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 15 6.7 Impairment testing of goodwill, other intangible assets and property, plant and equipment - continued within the group at which management monitors goodwill. 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. Value in use is 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 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 lease 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 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. 16 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 (see note 24). 6.12 Financial assets Financial assets (other than cash) 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, receivables and derivatives. All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. Loans and receivables are recognised initially 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. Derivatives are recorded at fair value through profit or loss. The fair value of derivative financial instruments is determined by reference to active market transactions or using a valuation technique where no active market exists. All financial liabilities with the exception of Convertible Redeemable shares (see paragraph 6.19), interest rate swaps and foreign currency options 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 loans 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. Interest rate swaps and foreign currency options are treated as derivative financial instruments and are accounted for at fair value through profit and loss. 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 group. The pension costs charged against profits are the contributions payable to the schemes in respect of the accounting period. 17 6.16 Foreign currencies 6.20 Exceptional items 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 Final 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. Interim dividends are recognised in the periods in which they are paid. 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. “Capital redemption reserve” represents amounts set aside from retained earnings on conversion of Convertible Redeemable shares equal to the reduction then arising in the overall nominal value of share capital of all classes. “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 taken the merger relief that is required by section 612 of the Companies Act 2006. “Retained earnings” represents retained profits and losses. “Revaluation reserve” represents gains and losses due to the revaluation of certain financial assets. “Non-controlling interest” represents retained profits and losses attributable to minority shareholders in subsidiary companies. 6.19 Convertible Redeemable shares Under the terms of IAS 39 Financial Instruments – Recognition and Measurement, the Convertible Redeemable shares in the company are deemed to represent a derivative financial instrument. As such, it is a requirement that they be fair- valued at each accounting date, with changes in fair-value being recognised through profit and loss. The fair value is calculated with reference to the market price of the company’s Ordinary shares and the exercise price. In accordance with IAS 32 Financial Instruments: Presentation, on conversion the fair value of the Convertible Redeemable shares converted is transferred directly to equity. As described in note 25, the Convertible Redeemable shares were fully converted or redeemed prior to 31 December 2014. Exceptional items (and their related tax impact) are those which by their size or nature are disclosed separately for the purposes of presenting results and earnings per share figures so as to enable users of the financial statements to evaluate more effectively the ongoing performance of the group. 6.21 Research and development Research and development expenditure is recognised in the income statement as an expense as incurred until it can be demonstrated that the conditions for capitalisation under IAS 38 apply. The criteria for capitalisation include demonstration that the project is technically and commercially feasible, the group has sufficient resources to complete development and the asset will generate probable future economic benefit. 6.22 Provisions for warranty claims Provisions for warranty claims are recognised when; the company has a legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are discounted where the time value of money is material. 7. Segment reporting 7.1 Identification of reportable segments The group’s activities are predominantly in or in support of the design and manufacture of scientific instruments. The group operates two main operating segments: the Materials Sciences group and the Vacuum group. No operating segments have been aggregated. 7.2 Management of operating segments The operating segments are monitored by the group’s Chief Operating Decision Maker. 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 exceptional items (“group EBITA”). This is stated before the allocation of head office costs and after elimination of non- controlling 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. 18 7.4 Segment analysis Segment analysis is as follows: 2014 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 Materials Sciences £000 14,427 3,175 76 1,641 6,548 4,892 5,156 2,515 14 2013 Materials Sciences 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 £000 14,764 3,710 91 1,647 7,375 5,009 5,156 4,156 39 Vacuum £000 26,141 4,235 243 2,610 12,021 19,318 3,522 6,147 177 Vacuum £000 21,277 4,631 177 2,851 13,234 21,225 3,522 8,757 13,647 Total £000 40,568 7,410 319 4,251 18,569 24,210 8,678 8,662 191 Total £000 36,041 8,341 268 4,498 20,609 26,234 8,678 12,913 13,686 Segment revenue is presented on the basis of the destination of the goods where known, failing which on the geographical location of customers. Segment assets are based on the geographical location of assets. United Kingdom (domicile) Rest of Europe United States/Canada Rest of the world Total 2014 2013 Revenue £000 Non-current assets £000 7,160 12,799 8,235 12,374 40,568 21,851 - - - 21,851 Revenue £000 6,680 11,434 6,055 11,872 36,041 Non-current assets £000 26,286 - - - 26,286 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 Expenses not allocated Exceptional items Amortisation of intangible assets Contingent consideration measured at fair value Financial instruments measured at fair value Convertible Redeemable shares Hedging contracts Relocation costs Acquisition costs Elimination of non-controlling interest adjustment in contribution to group EBITA Operating profit after exceptional items 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 (excluding corporation tax) Assets eliminated on consolidation Other assets - goodwill Other assets - intangible assets Consolidated total assets Total segment liabilities Parent company liabilities Derivative financial instruments Liabilities eliminated on consolidation Acquisition related loans Other liabilities Convertible Redeemable shares Deferred tax Consolidated total liabilities 2014) £000) 7,410) (830) (4,251) (16) 185) 4) ) ) 433) 2,935) 19) (577) 2,377) 319) 57) 376) 18,569) 25,327) (15,714) 8,678) 8,662) 45,522) 24,210) 11,605) ) (24,132) 8,421) 302) ) 1,726) 22,132) ) - - - - 2013) £000) 8,341) (980) (4,498) (317) (340) 24) (158) (794) 452) 1,730) 6) (497) 1,239) 268) 24) 292) 20,609) 16,510) (9,999) 8,678) 12,913) 48,711) 26,234) 6,661) 574) (11,312) 1,316) 1,711) 1) 2,632) 27,817) 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. Parent company assets include £3,256,000 (2013: £3,318,000) in respect of two freehold properties. One is partly let at open market value to a member of the Materials Sciences segment, whilst the other is let at open market value to two members of the Vacuum segment. 20 8. Operating costs 11. Taxation charge/(credit) Raw materials and consumables Other external charges Staff costs Depreciation Other operating costs, excluding exceptional items Amortisation of intangible assets Contingent consideration measured at fair value (Credit)/charge relating to derivative financial instruments Hedging contracts Relocation costs Acquisition costs Total operating costs, including exceptional items 2014) £000) 2013) £000) 17,548) 14,232) 4,435) 4,806 9,269) 10,825 292) 376 33,555 28,228) 4,498 4,251 317 16 (185) (4) - - 340) (24) 158 794 37,633 34,311) Research and development expensed in the year totalled £1,629,000 (2013: £1,366,000). This does not include amortisation of research and development intangibles arising on acquisition. 9. Operating profit 2014 £000 2013 £000 23 70) 31) -) 12) 376) Operating profit is stated after charging: 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 corporate finance transactions for all other services Depreciation Crystallised loss on foreign exchange (prior to accounting for enhanced gross profits estimated in a similar amount arising from currency movements) Amortisation of intangible assets Operating lease rentals - land and property Operating lease rentals - vehicles Operating lease rentals - other -) 4,251) 363) 32) 6) - 20 70) 29) 66) 13) 292) 431) 4,498) 322) 24) ) 10. Interest receivable and payable Interest receivable - short-term bank deposits Interest payable - bank loans Net interest payable 2014) £000) 2013) £000) 19) 6 (577) (558) ) (497) (491) UK corporation tax at 21.5% (2013: 23.25%) Current year Prior years Deferred tax - origination and reversal of temporary differences: Current year Prior years Tax on profit for the year - current year Tax on profit for the year - prior years 2014) 2013) £000) £000) 1,101) 1,339) (192) (163) 909) 1,176) (890) (1,271) (7) (884) (1,278) 6) 211) (186) 25) 68) (170) (102) Factors affecting the tax charge for the year: Profit before tax 2,377) 1,239) Profit before tax multiplied by standard rate of UK corporation tax of 21.5% (2013: 23.25%) Carry back against prior year losses Exercise of share options Provisions and expenditure not deductible for tax purposes Derivative (credit)/charge Contingent consideration Other timing differences Tax on profit for the year - current year Tax on profit for the year - prior years Total net taxation charge/(credit) 511) -) (255) ) 16) (59) 3) (5) 211) (186) 25) 288) (40) (154) 128) 79) 74) (307) 68) (170) (102) 12. Dividends 2014 2013 p/share £000 p/share £000 Final dividend for the previous year Interim dividend for the current year 13.4 7.3 799 438 20.7 1,237 10.0 6.6 16.6 532 353 885 The directors will propose a final dividend of 14.7p per share, amounting to £882,000, for payment on 10 July 2015. As this remains conditional on shareholders’ approval, provision has not been made in these consolidated financial statements. Dividends declared by subsidiaries that are not wholly-owned are paid to the non-controlling interest in the period in which they are declared and amounted to £nil in the year (2013: £98,000). 21 13. Earnings per share Options over Ordinary shares and rights of conversion of the Convertible Redeemable shares are described in notes 24 and 25. The calculation of basic earnings per share is derived from 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 derived from 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 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. Year to 31 December 2014 Earnings attributable to equity) Weighted average) number of shares) holders of the parent company) no.) £000) Earnings) per share) pence) Profit after tax including exceptional items for calculation of basic and diluted earnings per share Add-back exceptional items net of tax and non-controlling interest, as applicable: Charge relating to derivative financial instruments Hedging contracts Convertible Redeemable shares Contingent consideration measured at fair value Tax relief on exercise of share options Amortisation of intangible assets Utilisation of prior year tax losses Basic and diluted profit after tax, excluding exceptional terms Number of shares for calculation of basic earnings per share including exceptional items Effect of potential shares Number of shares for calculation of diluted earnings per share including exceptional items Dilutive effect of potential derivative financial instruments Number of shares for calculation of diluted earnings per share excluding exceptional items 2,123) (3) (204) 16 (255) 3,244) 5) 4,926) ) 5,952,952) 151,350) 6,104,302) 17,002) 6,121,304) Basic earnings per share (including exceptional items) Diluted earnings per share (including exceptional items) Basic earnings per share (excluding exceptional items) Diluted earnings per share (excluding exceptional items) Year to 31 December 2013 35.7) 34.7) 82.7) 80.5) Earnings attributable to equity) Weighted average number of shares holders of the parent company) no. £000) Earnings) per share) pence) Profit after tax including exceptional items for calculation of basic and diluted earnings per share Add-back exceptional items net of tax and non-controlling interest, as applicable: Charge relating to derivative financial instruments Hedging contracts Convertible Redeemable shares Contingent consideration measured at fair value Tax relief on exercise of share options Amortisation of intangible assets Acquisition costs Relocation costs Utilisation of prior year tax losses Basic and diluted profit after tax, excluding exceptional terms Number of shares for calculation of basic earnings per share including exceptional items Effect of potential shares Number of shares for calculation of diluted earnings per share including exceptional items Dilutive effect of potential derivative financial instruments Number of shares for calculation of diluted earnings per share excluding exceptional items Basic earnings per share (including exceptional items) Diluted earnings per share (including exceptional items) Basic earnings per share (excluding exceptional items) Diluted earnings per share (excluding exceptional items) 1,266) (18) 340) 317) (154) 2,897) 716) 120) (40) 5,444) ) 5,417,971) 201,205) 5,619,176) 26,068) 5,645,244) 23.4) 22.5) 100.5) 96.4) 22 14. Property, plant and equipment Cost / deemed cost 1 January 2013 Additions Acquisitions Disposals 31 December 2013 Additions Disposals 31 December 2014 Depreciation 1 January 2013 Charge Disposals 31 December 2013 Charge Disposals 31 December 2014 Net book value – 31 December 2014 Net book value – 31 December 2013 Plant &) machinery) £000) Fixtures,) fittings &) equipment) £000) Motor) vehicles) £000) Property) & building) improvements) £000) 633) 38) -) (22) 649) 112) -) 761) 402) 63) (12) 453) 59) -) 512) 249) 196) 597) 159) 67) (34) 789) 54) (12) 831) 306) 120) (26) 400) 151) (12) 539) 292) 389) 108) 67) 37) (28) 184) 16) 5 (28) 172) 75) 39) (28) 86) 40) (33) 93) 79) 98) 2,277) 1,816) 119) (59) 4,153) ) -) 4,158) 130) 70) (59) 141) 126) -) 267) 3,891) 4,012) Total) £000) 3,615) 2,080) 223) (143) 5,775) 187) (40) 5,922) 913) 292) (125) 1,080) 376) (45) 1,411) 4,511) 4,695) Included in the net book value of property and building improvements at 31 December 2014 is £2,710,000 (2013: £2,764,000) relating to the development of a new factory in Laughton, East Sussex. Quorum Technologies Limited and UHV Design Limited relocated to the premises in September 2013. The remaining contractual commitment under this project, not provided for in these financial statements, amounted to £36,000 at 31 December 2014 (2013: £36,000). The net book value of plant, machinery and vehicles included above held under finance leases and hire purchase contracts amounted to £48,000 at 31 December 2014 (2013: £70,000). 15. Goodwill Cost 1 January Addition in year 31 December 2014 £000 8,678 - 8,678 2013 £000 5,809 2,869 8,678 An analysis of goodwill by operating segment is given in note 7. There have been no impairment charges in either 2014 or 2013. Goodwill is tested annually for impairment by reference to the value in use of the relevant cash generating units, which are the group’s operating 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 generally steady gross margins. The 3% long term growth rate takes into account both UK and overseas markets. These cash flows are adjusted to present day values at a discount rate based on a weighted average cost of capital of 11.3% (2013: 10.6%) per annum, calculated by reference to year-end data on equity values and interest, dividend and tax rates. The long term growth rate and discount rate is consistent for all segments on the basis that they all operate in similar markets and are exposed to similar risks. 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 2014. The directors have considered the sensitivity of the key assumptions, including the weighted average cost of capital and long term growth rates, 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 16. Other intangible assets Non- Distribution compete agreements Research Sales order backlog agreement £000 and development £000 £000 Gross carrying amount 1 January 2013 Additions At 31 December 2013 and 31 December 2014 Amortisation 1 January 2013 Charge for the year 31 December 2013 Charge for the year 31 December 2014 Carrying amount 31 December 2014 Carrying amount 31 December 2013 497 - 497 448 49 497 - 497 - - 1,519 430 1,949 826 257 1,083 304 1,387 562 866 2,930 1,508 4,438 634 737 1,371 868 2,239 2,199 3,067 An analysis of other intangible assets by operating segment is given in note 7. Brand and Customer domain relationships names £000 £000 2,892 4,456 7,348 725 995 1,720 1,427 3,147 3,424 3,001 6,425 1,534 1,539 3,073 1,652 4,725 Total £000 12,617 10,316 22,933 5,522 4,498 10,020 4,251 14,271 4,201 1,700 8,662 5,628 3,352 12,913 £000 1,355 921 2,276 1,355 921 2,276 - 2,276 - - 17. Inventories 18. Trade and other receivables Raw materials Work in progress Finished goods 2014 £000 4,331 895 1,070 6,296 2013 £000 4,326 848 650 5,824 Trade receivables Prepayments and accrued income Other receivables 2014 £000 5,221 542 464 6,227 2013 £000 5,595 417 535 6,547 In 2014, a total of £17,548,000 of inventories was included in the income statement as an expense (2013: £14,232,000). This includes an amount of £95,000 (2013: £52,000) resulting from write-downs of inventories and an amount of £44,000 (2013: £64,000) which is the reversal of previous write-downs. The carrying amount of inventories held at fair value less costs to sell is £859,000 (2013: £463,000). 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 2014 £000 1,525 71 48 44 1,688 2013 £000 2,189 737 131 12 3,069 24 All amounts are short-term and their carrying values are considered reasonable approximations of fair value. 31 December 2013 19. Trade and other payables Trade payables Accruals and deferred income Social security and other taxes Other payables 2014 £000 3,517 1,875 496 509 6,397 2013 £000 3,617 1,694 428 336 6,075 All amounts are short-term and their carrying values are considered reasonable approximations of fair value. Other payables include £nil (2013: £521) of non equity shares classed as financial liabilities (see note 25). 20. Current portion of long-term borrowings Bank loans Subordinated loans Net obligations under hire purchase contracts 2014 £000 2,625 497 17 3,139 2013 £000 3,523 497 23 4,043 The subordinated loans were advanced by minority shareholders in Bordeaux Acquisition Limited. They are unsecured, interest free and repayable at the discretion of that company. 21. Long-term borrowings Bank loans Net obligations under hire purchase contracts 2014 £000 9,655 11 9,666 2013 £000 11,519 28 11,547 Borrowings comprise three bank loans secured on assets of the group. The hire purchase obligations are secured on the related assets. The repayment profile of borrowings is as set out in note 22: • The first loan, amounting to £11,228,000 and negotiated in December 2014, is repayable in quarterly instalments over the period ending 31 December 2019 and bears interest at 1.75 to 2.75% (depending upon gearing) above LIBOR-related rates. • The second loan, amounting to £860,000 (2013: £1,180,000), is repayable in quarterly instalments with a final payment in March 2016 and bears interest at 3.25% above LIBOR-related rates. • The third loan, amounting to £192,000 (2013: £238,000), is repayable in quarterly instalments over the period ending 31 March 2019 and bears interest at 3.75% above LIBOR-related rates. 22. Maturity of borrowings and net debt 31 December 2014 Bank Subordinated loans £000 loans purchase £000 £000 £000 Hire Total Repayable in less than 6 months 1,456 Repayable in months 7 to 12 1,441 Current portion of long-term borrowings Repayable in years 1 to 5 Total borrowings 2,897 10,101 12,998 718 Less: interest included above cash and cash equivalents 11,148 497 - 497 - 497 - - 8 1,961 9 1,450 17 3,411 11 10,112 28 13,523 718 - - 11,148 Total net debt 1,132 497 28 1,657 Adjusted net debt (including accrued deferred consideration) 1,775 Hire Total Bank Subordinated loans £000 loans purchase £000 £000 £000 Repayable in less than 6 months 2,069 2,036 Repayable in months 7 to 12 Current portion of long-term borrowings Repayable in years 1 to 5 Later than 5 years Total borrowings 4,105 12,331 11 16,447 Less: interest included above 1,405 cash and cash equivalents 10,054 497 - 497 - - 497 - - 15 2,581 11 2,047 26 4,628 25 12,356 11 51 16,995 - - 1,405 - 10,054 Total net debt 4,988 497 51 5,536 Adjusted net debt (including accrued deferred consideration) 5,691 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 2014 of loans denominated in Euros was £466,000 (2013: £499,000). These amounts are included in the figures above for bank loans, repayable in years 1 to 5. 25 Equity share options and warrants At 31 December 2014, options had been granted and remained outstanding in respect of 180,254 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: 2014 2013 Number)) Weighted Number) Weighted average exercise price p/share average exercise price p/share 2005 Approved Plan 113,554)) Outstanding at 1 January 5,200)) Granted in year Exercised or lapsed in year (29,850)) Outstanding at 31 December 88,904)) 563.0 140,450) 22,875) 1,794.7 442.4 (49,771) 675.5 113,554) 229.9 1,642.6 119.3 563.0 Of which exercisable at 31 December 56,079)) 240.5 55,179) 110.5 2005 Unapproved Plan 127,650)) Outstanding at 1 January 700)) Granted in year Exercised or lapsed in year (37,000)) Outstanding at 31 December 91,350)) 186.1 127,650) -) - 2,180.0 101.5 -) - 235.6 127,650) 186.1 186.1 Of which exercisable at 31 December 90,650)) 220.6 99,150 104.5 Total 241,204)) Outstanding at 1 January 5,900)) Granted in year Exercised or lapsed in year (66,850)) Outstanding at 31 December 180,254)) 363.5 268,100) 22,875) 1,840.4 253.7 (49,771) 452.6 241,204) 209.1 1,642.6 119.3 363.5 Of which exercisable at 31 December 146,729)) 228.2 154,329) 106.6 Exercise prices at 31 December 2014 ranged from 92.0p/share to 2317.5p/share (2013: 92.0p/share to 1690.0p/share), with a weighted average remaining contractual life of 4.98 years (2013: 5.32 years). 23. Deferred tax liabilities 2014) £000) 2013) £000) 1 January Acquisition in year - amount recognised Acquisition in year - attributable to intangible assets Credit to income statement in the year 31 December 2,704) -) -) (884) 1,820) 1,562) 48) 2,372) (1,278) 2,704) Deferred tax balances relate to temporary differences as follows: Accelerated capital allowances Provisions allowable for tax in subsequent period Intangible assets Total 94) 6) 5 1,720) 1,820) 72) ) 2,627) 2,704) Amounts provided in respect of deferred tax are computed at 20% (2013: 21%). 24. Share capital Allotted, called up and fully paid - Ordinary shares of 5p each 1 January: 5,862,270 shares (2013: 5,312,499) 2014 £000 2013 £000 293 265 Placing of 500,000 new Ordinary shares at 1625p/share in 2013 - 25 Issue of 42,372 Ordinary shares as part of the deferred consideration due following the acquisition of Scientifica Limited Exercise of share options: 61,600 shares (2013: 49,771) Conversion of Convertible Redeemable shares: 29,969 Ordinary shares (2013: nil) 2 - 3 3 2 - 31 December: 5,996,211 shares (2013: 5,862,270) 300 293 Allotments of Ordinary shares in 2014 were made: by way of the issue of 42,372 Ordinary shares on 22 May, when the share price was 2080.0p, to satisfy the deferred consideration due following the acquisition of Scientifica Limited in June 2013; on the conversion of 208,333 Convertible Redeemable shares (1p paid/share) into 29,969 Ordinary shares (at a subscription price of 95.0p/Ordinary share) on 18 August when the • Ordinary share price was 1392.5p; and • to satisfy the exercise of 61,600 share options in aggregate on 13 occasions during the year when the share price was within the range of 1530.0p to 2375.0p (2013: the exercise of 49,771 share options when the share price was within the range 975.0p to 1830.0p). • 26 Options were exercised during 2014 by one director (2013: one) as follows: 25. Convertible Redeemable shares classed as financial liabilities Grant of options Market price on date of exercise per share Number of shares Mr R L Cohen 20 October 2005 at 101.5p 2000.0p 37,000 Options remain exercisable by three directors as follows: Allotted - shares of 1p each 1 January 2014: 208,333 shares (2013: 208,333) - ¼p paid Paid up to 1p per share - 208,333 shares (2013: nil) Conversion into Ordinary shares: 208,333 shares (2013: nil) - see note 24 Grant of options Number of shares Mr D E Cicurel Mr D Barnbrook Mr R L Cohen 31 December 2014: nil shares (2013: 208,333) - ¼p paid 2014) £000) 2013) £000) ) 1) 1 1) - ) (2) ) ) -) -) 1 ) The last outstanding holding of Convertible Redeemable shares was converted into Ordinary shares in 2014. Under the terms of IAS 39 Financial Instruments, Recognition and Measurement, the conversion and redemption feature within the Convertible Redeemable shares was deemed to represent a derivative financial instrument. As such, it is a requirement that they be fair-valued at each accounting date, with changes in fair-value being recognised through the income statement. The increase in the market price of the company’s Ordinary shares over time has correspondingly increased the fair value of the Convertible Redeemable shares. This has resulted in a £185,000 credit (before and after tax) in the year ended 31 December 2014 (2013: £340,000 charge before and after tax), arising from changes in the Ordinary share price between 1 January 2014 and the date of conversion. Reductions in the provision arising on redemptions and conversions into Ordinary shares are transferred directly to equity. The fair value liability at 31 December 2014 was £nil (2013: £574,000). 20 October 2005 at 101.5p 28 April 2008 at 124p 23 July 2009 at 92p 9 May 2011 at 470p 25 October 2013 at 1690p - - - - 1,775 1,775 5,000 6,550 10,000 5,000 1,775 28,325 - - 1,100 5,000 1,775 7,875 The market price of the company’s Ordinary shares on 31 December 2014 was 1375.0p, the highest price during 2014 was 2375.0p on 11 April, the lowest price during 2014 was 1095.0p on 15 October and the price on 18 March 2015 was 1687.5p. 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 2014 and 31 December 2013. As such, no adjustment has been made to either the consolidated or parent company financial statements. Throughout 2014, the group continued to award a free “matching share” under the Judges Scientific Share Incentive Plan for every share purchased up to a maximum value of £600 per employee per tax year. In 2014, an average of 63 employees participated in the scheme each month (2013: 55 employees), purchasing 6,762 shares in total, including matching shares (2013: 8,560 shares). Included in these figures, shares acquired by directors, including matching shares, were 131 acquired by Mr D E Cicurel (2013: 153), 110 by Mr D Barnbrook (2013: 133) and 132 by Mr R L Cohen (2013: 152). 27 26. Emoluments of directors and key management personnel 27. Employees Executive directors Non-executive directors Total directors’ emoluments: Emoluments Defined contribution pension scheme contributions Emoluments of the highest paid director: Emoluments 2014 no. 2013 no. 3 3 3 3 6 6 £000 £000 540 6 6 546 592 598 162 184 During the year one director participated in a defined contribution pension scheme (2013: one). Compensation of key management personnel Emoluments, benefits, pension contributions and social security costs 1,331 1,355 Short term employee benefits: Salaries including bonuses and social security costs 1,229 54 Company car allowance and other benefits 1,283 Total short term employee benefits 1,251 57 1,308 Post-employment benefits: Defined contribution pension plans Total post-employment benefits: Total remuneration 48 48 47 47 1,331 1,355 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. Number of employees – average in the year By function - manufacturing - sales and administration By operating segment Materials Sciences group Vacuum group Head office (including 3 non-executive directors in both years) Employment costs Wages and salaries Social security costs Pension costs 2014 no. 2013 no. 125 145 270 94 168 114 108 222 91 123 8 8 270 222 2014 £000 9,591 1,000 234 2013 £000 8,209 866 194 10,825 9,269 28. Financial instruments The group’s policies on treasury management, capital management objectives and financial instruments are given in the Strategic Report. Fair value of financial instruments Financial instruments include the borrowings set out in note 22. The group enters into derivative financial instruments in order to manage its interest rate and foreign currency exposure. The principal derivatives used include interest rate swaps and foreign currency options. Material changes in the carrying values of these instruments are recognised in the income statement in the periods in which the changes arise. Such recognition is treated as an exceptional item in the income statement where the foreign currency hedge was entered into in order to protect profits in later accounting periods. In such cases, the charge or credit will be reversed out of exceptional items in the accounting period for which the hedge was intended and will be shown in results before exceptional items. 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 undrawn revolving acquisition facility of £10 million at 31 December 2014. 28 Trade payables All amounts are short-term (all payable within six months) and their carrying values are considered reasonable approximations of fair value. The values are set out in note 19. Fair value hierarchy The fair value hierarchy has the following levels: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices) • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The interest rate swaps and foreign currency hedges are measured at fair value in accordance with the fair value hierarchy and are classed as level 2. Summary of financial assets and financial liabilities by category Financial Assets Trade and other receivables Cash and cash equivalents Loans and receivables Financial Liabilities Derivative financial instruments - Financial liabilities designated at fair value through profit or loss 2014) £000) 2013) £000) 5,685) 6,130) 11,148) 10,054) 16,833) 16,184) ) -) 574) 574) Trade payables Accruals and deferred income Other payables Trade and other payables relating to acquisitions Current portion of long-term borrowings Long-term borrowings Financial liabilities measured at amortised cost 3,617) 3,517) 1,694) 1,875) 336) 509) 1,554) 118) 3,139) 4,043) 9,666) 11,547) 18,824) 22,791) The derivative financial instruments in respect of the Convertible Redeemable shares are measured at fair value in accordance with the fair value hierarchy and are classed as level 2. Total financial liabilities Net financial liabilities 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 Total equity 18,824) 23,365) 1,991) 7,181) 4,695) 4,511) 8,678) 8,678) 8,662) 12,913) 5,824) 6,296) 417) 542) (428) (496) (1,320) (992) (2,704) (1,820) 25,381) 28,075) 23,390) 20,894) 29 31 December 2014 Sterling) equivalent) of US$) £000) Sterling) equivalent) of €) £000) Amount of foreign currency hedged at year-end ) 2,750) Residual exposure at year-end - short 108) Impact on pre-tax profits of a 5% variation in exchange rate on year-end residual exposure Impact on equity of a 5% variation in exchange rate on year-end residual exposure ) 5) 4) 2,716) 911) 46) 36) 31 December 2013 Sterling) equivalent) of US$) £000) Sterling) equivalent) of €) £000) Amount of foreign currency hedged at year-end Residual exposure at year-end - long ) 1,000) 2,418) 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 121) 93) 1,499) 700) 35) ) 27) In addition to the hedging of existing measured foreign currency exposure, the group seeks to mitigate the impact of currency fluctuations on future trading performance. This was achieved at 31 December 2014 by entering into currency forward contracts and options to sell €4.1 million and $6.4 million during 2015, at pre-determined exchange rates. These were over and above the hedges already in place to cover measured currency exposure at that date. The fair value of these financial instruments is an asset of £101,000, offset by a fair value liability of £73,000 on interest rate swaps. These transactions have been recognised in these accounts and are held within other receivables. 28. Financial instruments - continued Financial assets The group’s financial assets (which are summarised in note 29 – credit risk) comprise cash and cash equivalents and trade and other receivables. • The amounts derived from these assets and included as interest income in the income statement are £19,000 (2013: £6,000) (see note 10). • Cash and cash equivalents are principally denominated in sterling and earn interest at floating rates. • There is no material difference between the book and fair values of the financial assets. • At 31 December 2014 the group had trade receivables denominated in foreign currency as follows: US$ - £1,239,000 (2013: £1,606,000) and Euros - £726,000 (2013: £655,000). Financial liabilities The group’s principal financial liabilities are bank loans, trade and other payables and derivative financial instruments. The group also holds interest rate swaps and foreign currency forward contracts and options: • The costs attributable to these liabilities and included as interest expense in the income statement amounted to £577,000 (2013: £497,000) (see note 10). • A proportion of the bank loans are denominated in foreign currencies to provide a hedge against currency risk on group assets (see note 22). Foreign exchange gains attributable to bank loans and included as operating income in the income statement amounted to £34,000 (2013: £127,000 charge). 29. 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. 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 economically hedged, predominantly through the use of currency forward contracts and options. The net exposure to risk is therefore substantially reduced. This does not however represent a hedge under IAS 39. Residual exposure is the difference between the net exposure and the amounts of currency hedges, both translated into Sterling at each date of measurement. 30 The credit risk for liquid funds and other short-term financial assets is considered small. The substantial majority of these assets are deposited with Bank of Scotland, part of the Lloyds Banking Group. The British Government continues to hold a significant interest in this group. Liquidity risk Longer-term finance is required to enable the group to pursue it strategic goal of growing through acquisitions as well as through organic development. This financing need has been satisfied for the foreseeable future by a newly-secured £10 million revolving acquisition facility advanced by Lloyds Bank Capital Markets. The group’s strategy envisages the servicing of this debt to be achieved 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 periods of maturity of the group’s borrowings are set out in note 22. The maturity of all trade and other payables is within the period of less than six months. 30. Operating lease commitments Operating lease payments expensed during the year: Land and property Vehicles Other Minimum operating lease commitments falling due: Within one year - Land and property Within one year - Vehicles Within one year - Other Between one and five years - Land and property Between one and five years - Vehicles Between one and five years - Other 2014 £000 2013 £000 363 32 6 - 401 328 29 39 - 396 354 36 56 - 446 322 24 346 307 23 330 756 41 797 Total commitment 842 1,127 Interest rate sensitivity The group’s interest rate exposure arises in respect of its bank loans, which are LIBOR-linked for interest rate purposes and its surplus funds, which are bank base-rate-linked. To hedge this risk the group is party to interest rate swaps at pre-determined rates. The fair value of these financial instruments has been recognised in these accounts. The group’s sensitivity to interest rate changes is as follows: 2014 £000 2013 £000 Unhedged bank loans outstanding at year-end 2,270 1,101 Impact on pre-tax profits of a 1% change in LIBOR Impact on equity of a 1% change in LIBOR 23 18 11 8 Surplus funds at year-end 11,148 10,054 Impact on pre-tax profits of a 1% change in bank base rates Impact on equity of a 1% change in bank base rates 111 87 101 78 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 2014 £000 2013 £000 11,148 5,685 10,054 6,130 16,833 16,184 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 18). 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. At 31 December 2014, no counterparty owed more than 10% of the group’s total trade and other receivables (2013: none). 31 of £1.96 million or more in respect of the twelve month period to 31 December 2014, reducing by five times any shortfall below £1.96 million. Half of the earn-out will be paid in cash and half through the issue of new Ordinary shares in Judges Scientific plc at a price of 2055p per Ordinary share, based on the prevailing price of Judges’ Ordinary shares on the day the headline terms of the acquisition were agreed. An additional payment will be made to reflect any excess working capital over and above the ongoing requirements of the business; the company expects such payment to be covered by the cash inherited at the completion date. A further payment capped at £360,000 may become due if the triennial actuarial valuation of Armfield’s defined benefit pension fund as at 31 March 2017 shows a reduction in the yearly contribution required to eliminate its funding deficit. The defined benefit scheme closed to new members with effect from 2001 and closed to new accrual in 2006. The acquisition was financed from existing cash resources and an additional £4 million drawn down from the £10 million revolving acquisition facility recently agreed with Lloyds Bank Corporate Markets. Accounts to the date of completion will be drawn up promptly. However at the time of finalising these financial statements the information required under IFRS 3R concerning the acquired net identifiable assets and liabilities, the fair value of the contingent consideration and the residual goodwill to be recognised was not yet available. 31. Prior year acquisition of Scientifica Limited – contingent consideration On 26 June 2013 the Company’s wholly owned subsidiary, Judges Capital Limited, acquired the entire issued share capital of Scientifica Limited (“Scientifica”). During 2014, Scientifica reached the profit threshold that triggered the payment of the maximum deferred consideration due under the terms of the share purchase agreement. This deferred consideration was satisfied by the payment during 2014 of £500,000 in cash plus the issue of 42,372 Ordinary shares in Judges Scientific plc (see note 24). Both the cash and share elements of the contingent consideration were recognised at fair value. The maximum contingent consideration was assumed in the calculation of fair value as the best estimate of the amounts payable. The fair value of the share contingent consideration at acquisition was based on the mid-market share price on 31 December 2013 of £20.42, less expected dividends to be paid in the remainder of the contingent period; this reflected an estimate of a contract to issue shares at the end of the contingent period. The movement in the Ordinary share price from 1 January 2014 to the date of issue of the deferred consideration shares has resulted in a £16,000 increase to the fair value of the contingent consideration and this movement has been recognised in the income statement as an exceptional item. The fair value of £877,000 at the date of issue has been transferred to equity. 32. Post Balance Sheet Event – acquisition of Armfield Limited On 22 January 2015, the company acquired the entire issued share capital of Armfield Limited (“Armfield”). Armfield designs and markets engineering equipment and research instruments for educational applications, together with research and development systems focused on the food, beverage, dairy, vegetable oils and pharmaceutical industries. The company is based in Ringwood, Hampshire and New Jersey, USA. Armfield’s audited accounts for the financial year to 31 December 2013 show revenues of £12.2 million and pre- tax profits of £1.3 million. The directors believe that, had the business been owned by the group during that year and excluding one-off items, Armfield would have generated operating profits in the order of £1.66 million (before interest, tax, amortisation of intangible assets and expensed transaction costs). The audited accounts also show net tangible assets of £3 million, including cash of £2.56 million. The acquisition was completed for a cash consideration of £8.28 million, plus estimated transaction costs of £800,000 and an earn-out capped at £1.51 million. The maximum earn-out will be payable if Armfield has generated adjusted operating profits 32 A scanning electron microscopy (SEM) image showing red palm mites preparing to mate. Prepared using a Quorum Technologies cryo preparation system in combination with a Hitachi S-4700 SEM. The smaller male positions itself under the immature female and curls up its posterior end for mating. Image courtesy of Dr. Gary Bauchan and Dr. Ronald Ochoa, USDA-ARS, Beltsville, MD USA. 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 2014. Philip Sayers Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants East Midlands 26 March 2015 We have audited the parent company financial statements of Judges Scientific plc for the year ended 31 December 2014 which comprise the parent 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 and express an opinion on 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 Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate 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 2014; 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 Total assets less current liabilities Creditors: amounts falling due after more than one year Deferred tax liability Total net assets Capital and reserves Called up share capital Share premium Capital redemption reserve Profit and loss account Shareholders’ funds Note 3 4 5 6 7 8 9, 10 10 10 10 10 2014) £000) 3,256) 16,537) 19,793) 15,799) 6,245) 22,044) (2,630) 19,414) 39,207) (8,968) (56) - 30,183) 300) 14,294) 23) 15,566) 30,183) 2013) £000) 3,318) 16,535) 19,853) 8,694) 4,475) 13,169) (2,828) 10,341) 30,194) (3,835) ) 26,359) 293) 14,186) 22) 11,858) 26,359) 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 26 March 2015. David Cicurel Director Ralph Cohen Director 35 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1. General information 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 All material 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. Fixed asset investments in subsidiaries are stated at cost less provision for impairment. 2.6 Foreign currencies 2.3 Taxation Current tax is provided at amounts expected to be paid or recovered either directly or through group relief arrangements. 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 The company operates a defined contribution pension scheme for employees and directors. The assets of the scheme are held by investment managers separately from those of the company and group. The pension costs charged against operating results represent the amount of the contributions payable to the scheme in respect of the accounting period. 2.5 Share-based payments 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 2014, has indicated that no material adjustment to results is required. The impact of a material adjustment would be reflected in the accounts of any affected subsidiary company. 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. 36 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. The underlying finance cost is not reflected until conversion takes place. As described in note 25 to the consolidated financial statements, the Convertible Redeemable shares were fully converted or redeemed prior to 31 December 2014. 3. Tangible assets Cost 1 January 2014 Reclassification 31 December 2014 Depreciation 1 January 2014 Charge 31 December 2014 Net book value - 31 December 2014 Net book value - 31 December 2013 Property) £000) 3,379) (5) 3,374) 61) 57) 118) 3,256) 3,318) 4. Investments in subsidiaries Cost 1 January Addition 31 December 2014 £000 2013 £000 16,535 2 16,537 16,535 - 16,535 All of the above companies are owned directly by Judges Scientific plc, with the exception of Aitchee Engineering Limited and Sircal Instruments (UK) Limited, both of which are owned directly by Fire Testing Technology Limited, Deben UK Limited, which is wholly-owned by a 51%-owned intermediate holding company, Bordeaux Acquisition Limited and Scientifica Limited, which is owned directly by a wholly-owned intermediate holding company, Judges Capital Limited. The addition in the year relates to shares in the company issued as part of the deferred consideration due on the acquisition of Scientifica Limited by the company’s subsidiary, Judges Capital Limited. 5. Debtors The group’s trading subsidiaries at 31 December 2014, all of which were incorporated and operate in the United Kingdom, were as follows: Amounts owed by group companies Prepayments and accrued income Company Principal activity Class of shares % held 2014 £000 2013 £000 15,552 247 15,799 8,604 90 8,694 Fire Testing Design and assembly of Ordinary £1 Technology fire testing instruments Limited PE.fiberoptics Design and assembly of fibre-optic testing Limited instruments 100% “A” Ordinary 50p 100% of “A” class; being 51% of total equity 100% UHV Design Design and manufacture Ordinary £1 of instruments used to Limited manipulate objects in ultra high vacuum chambers Manufacture of Aitchee engineering parts and Engineering finished products Limited Quorum Design, manufacture Technologies and distribution of Limited Ordinary £1 Ordinary £1 instruments that prepare samples for examination in electron microscopes Design, manufacture Ordinary £1 and distribution of Sircal Instruments (UK) Limited rare gas purifiers for use in metals analysis Deben UK Design and manufacture Ordinary £1 Limited of devices used to enable or improve the observation of objects under a microscope Global Digital Design and manufacture “A” and “B” of instruments used to Ordinary £1 Systems test the physical Limited properties of soil and rocks Design and manufacture Ordinary £1 of instruments used in electrophysiology to enable or improve the observation of objects under a microscope Scientifica Limited 100% 100% 100% 51% 100% 100 % Included in amounts owed by group companies are: • the sum of £13,846,000 (2013: £6,150,000) which is repayable on demand at any time after 30 June 2016 provided that all liabilities to third parties falling due on or before that date have been met; and a loan to Fire Testing Technology Limited, made during 2010 to finance the acquisition of Sircal Instruments (UK) Limited, amounting to £1,316,000 at 31 December 2014 (2013: £1,316,000). This loan is unsecured, repayable on demand and bears interest at the rate of 7.5% per annum. • Except as stated, all amounts are recoverable in less than 1 year. 6. Creditors: amounts falling due within one year Trade and other payables Amounts owed to group companies Corporation tax Accruals and deferred income Social security and other taxes Current portion of bank loans Other creditors 2014 £000 2013 £000 71 - 49 84 155 2,260 11 1 2,630 47 1,162 69 165 121 1,263 2,828 Other creditors include £nil (2013: £521) of non equity shares classed as financial liabilities (see note 25 to the consolidated financial statements). 37 7. Creditors: amounts falling due after more than one year 9. Share capital Bank loans 2014 £000 2013 £000 8,968 3,835 Details relating to the parent company’s share capital are set out in notes 24 and 25 to the consolidated financial statements. 10. Statement of movements in shareholders’ funds Share Share capital premium £000 £000 redemption reserve Capital Profit and) Total) loss) share-) account) holders’) funds) £000) £000) £000 1 January 2014 293 14,186 22 11,858) 26,359) Profit for the year - - Shares issued in the year Arising on conversion of Convertible) Redeemable shares Dividends paid in the year 7 ) - - 108 - - - - 1 - 4,945) 4,945) -) 115) -) 1) (1,237) (1,237) 31 December 2014 300 14,294 23 15,566) 30,183) The profit for the financial year in the accounts of the parent company amounted to £4,945,000 (2013: £2,868,000). Details relating to the dividends paid in the year are set out in note 12 to the consolidated financial statements. 11. Related party transactions The company is exempt under the terms of FRS 8 from disclosing transactions with its wholly owned subsidiaries. Funds were advanced by the company in 2011 to its 51%- owned subsidiary, Bordeaux Acquisition Limited, to facilitate the purchase during that year of the entire issued share capital of Deben UK Limited. The amount of £517,000 was outstanding at 31 December 2014 (2013: £517,000). There are no interest or repayment terms to these advances. Dividends paid in the year to directors who hold shares amounted to £234,000 in aggregate (2013: £196,000). Borrowings comprise a bank loan secured on assets of the group. The loan is repayable in quarterly instalments over the period ending 31 December 2019 and bears interest at 1.75% to 2.75% above LIBOR-related rates, depending upon gearing. The repayment profile of borrowings is as follows: Repayable in less than 1 year Repayable in years 1 to 5 Less: interest included above Bank loan £000 2,471 9,399 11,870 642 11,228 A proportion of the company’s bank loans is drawn in foreign currencies to provide a hedge against group assets denominated in those currencies. The Sterling equivalent at 31 December 2014 of loans denominated in Euros was £466,000 (2013: £499,000). These amounts are included in the figures above for bank loans, repayable in years 1 to 5. The company enters into derivative financial instruments in order to manage its interest rate and foreign currency exposure. The principal derivatives used include interest rate swaps and foreign currency forward contracts and options. The parent company guarantees bank loans advanced to its 51% owned subsidiary Bordeaux Acquisition Limited and to its wholly owned subsidiary Judges Capital Limited amounting in aggregate at 31 December 2014 to £1,052,000 (2013: £9,379,000). During 2014, a bank loan to Judges Capital Limited was replaced by a loan from the parent company. 8. Deferred tax liability 1 January Charge 31 December 2014 £000 - 56 56 Amounts provided in respect of deferred tax are computed at 20% and relate to accelerated capital allowances. 38 12. Directors and employees Further details of the transaction are set out in note 32 to the consolidated financial statements. Staff costs (including directors) Wages and salaries Social security costs Other pension costs Total directors’ emoluments Emoluments Defined contribution pension scheme contributors 2014 £000 2013 £000 612 75 10 9 697 540 6 546 674 84 767 592 6 598 Emoluments of the highest paid director Emoluments 162 184 During the year, one director participated in a defined contribution pension scheme (2013: one). Average number of persons employed Directors Administrative staff Total no. no. 6 2 8 6 2 8 13. Post Balance Sheet Event On 22 January 2015, the company acquired the entire issued share capital of Armfield Limited (“Armfield”). Armfield designs and markets engineering equipment and research instruments for educational applications, together with research and development systems focused on the food, beverage, dairy, vegetable oils and pharmaceutical industries. The acquisition was completed for a cash consideration of £8.28 million, plus estimated transaction costs of £800,000 and an earn-out capped at £1.51 million. An additional payment will be made to reflect any excess working capital over and above the ongoing requirements of the business; the company expects such payment to be covered by the cash inherited at the completion date. A further payment capped at £360,000 may become due if the triennial actuarial valuation of Armfield’s defined benefit pension fund as at 31 March 2017 shows a reduction in the yearly contribution required to eliminate its funding deficit. The defined benefit scheme closed to new members with effect from 2001 and closed to new accrual in 2006. The acquisition was financed from existing cash resources and an additional £4 million drawn down from the £10 million revolving acquisition facility recently agreed with Lloyds Bank Corporate Markets. 39 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the twelfth Annual General Meeting of Judges Scientific plc (the “Company”) will be held at The Lansdowne Club, 9 Fitzmaurice Place, London W1X 6JD on Wednesday 27 May 2015 at 12 noon for the purpose of dealing with the following business of which items 7, 8 and 9 are special business. ORDINARY BUSINESS 1. To receive and adopt the audited financial statements of the Company for the year ended 31 December 2014, together with the strategic report, the directors’ report, and the report of the auditor. 2. To re-appoint Hon. Alexander Hambro, who retires by rotation, as a director. 3. To re-appoint David Barnbrook, who retires by rotation, as a director. 4. To re-appoint Bradley Ormsby, who was appointed by the board on 3 March 2015, as a director. 5. To approve a final dividend of 14.7 pence per Ordinary share. 6. 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 2015. SPECIAL BUSINESS To consider and, if thought fit, to pass the following resolutions, as to the resolution numbered 7 as an ordinary resolution and as to the resolutions numbered 8 and 9 as special resolutions: ORDINARY RESOLUTION 7. 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 £99,936 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 8. That: (a) subject to and conditional upon the passing of resolution 7 above, the directors of the Company be and they are hereby empowered pursuant to section 570 of the Act to allot equity securities (as defined for the purposes of section 560 of the Act) for cash, pursuant to the authority granted by resolution 7 above, as if section 561(1) 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 impediments 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 £99,936. 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. (b) For the purposes of this resolution: (i) “relevant rights issue” means an offer of equity securities open for acceptance for a period fixed by the directors of the Company to holders on the register on a fixed record date of Ordinary shares in the Company in proportion (or as nearly as may be practicable) to their respective holdings but subject in any case to such exclusions or other arrangements as the directors of the Company may deem necessary or desirable to deal with fractional entitlements or legal or practical impediments 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. 40 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 he/she is 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. 5 Pursuant to Regulation 41 of The Uncertificated Securities Regulations 2001, only those members registered in the Register of Members of the Company as at 12 noon on 25 May 2015 (being not more than 48 weekday hours prior to the time fixed for the Meeting) or, if the Meeting is adjourned, such time being not more than 48 weekday 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. 6 7 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; or (ii) any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 9. 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 898,832 (representing approximately 14.99 per cent. of the Company’s issued share capital at 31 December 2014); (b) the minimum price which may be paid for such shares is the nominal 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 2016 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 Chris Talbot Company Secretary 4 May 2015 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 exercise all or any of your rights to attend, speak and vote at a general meeting of the Company. 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 than 48 weekday hours before the time fixed for holding the meeting or any adjournment thereof. 41 A GDS Instruments triaxial cell allows pressure and load to be applied to soil and rock samples for the assessment of strength properties for the civil engineering industry. Form of Proxy for the Annual General Meeting of Judges Scientific plc on 27 May 2015 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 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 27 May 2015, and at any adjournment(s) of that meeting. Ordinary shares to For Against Withheld Vote 1 Approval and adoption of Annual Report and Accounts 2 Re-appointment of Hon Alexander Hambro 3 Re-appointment of David Barnbrook 4 Re-appointment of Bradley Ormsby 5 Approval of final dividend 6 Re-appointment of auditor 7 Authority to allot shares 8 Authority to disapply pre-emption rights 9 Authority to make market purchases 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 weekday 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 (Non-Executive Director) Ralph Julian Elman (Non-Executive Director) Brad Ormsby (Finance Director) Glynn Carl Reece (Non-Executive Director) Company Secretary Ralph Leslie Cohen Chris Talbot (from 1 May 2015) Registered Office Unit 19, Charlwoods Road East Grinstead West Sussex RH19 2HL Registrar Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 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 Statutory Auditor Chartered Accountants Regent House 80 Regent Road Leicester LE1 7NH Principal Bankers Lloyds Bank Corporate Markets 125 Colmore Row Birmingham B3 3SF Solicitors Hogan Lovells International LLP Atlantic House Holborn Viaduct London EC1A 2FG 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
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