TIDMSDI
RNS Number : 5623I
SDI Group PLC
08 August 2023
SDI Group plc
("SDI", "SDI Group", the "Company", or the "Group")
Final Results
SDI Group plc, the AIM quoted Group focused on the design and
manufacture of scientific and technology products for use in
digital imaging and sensing and control applications, is pleased to
announce its final audited results for the year ended 30 April
2023.
Financial and Operational Highlights
-- Revenue increased by 36.0% to GBP67.6m (FY22: GBP49.7m)
-- Adjusted operating profit* increased by 5.8% to GBP12.8m (FY22: GBP12.1m)
-- Reported operating profit reduced to GBP6.8m (FY22: GBP10.2m)
due to a non-cash GBP3.5m impairment charge against
Monmouth/Uniform
-- Adjusted profit before tax* of GBP11.8m (FY22: GBP11.8m)
-- Reported profit before tax decreased to GBP5.8m (FY22: GBP9.9m)
-- Adjusted diluted EPS* increased by 3.6% to 9.02p (FY22: 8.71p)
-- Diluted EPS of 3.72p (FY22: 7.23p)
-- Two new earnings enhancing acquisitions added to the Group -
LTE Scientific Limited and Fraser Anti-Static Techniques
Limited
-- Companies across the Group coped well with challenging supply chain issues and inflation
A copy of the shareholder presentation regarding the financial
results for the year ended 30 April 2023 will be made available on
the Company's website
www.sdigroup.com/investors/reports-presentations/ later today.
Ken Ford, Chairman of SDI said:
"The Group has added two high quality businesses to the
portfolio in FY23. We continue to execute our proven value-creating
business model by investing in capacity and capability to enable
organic growth amongst our portfolio of businesses, as well as
buying and building where acquisition opportunities present
themselves.
Against the backdrop of an uncertain economic environment, the
portfolio effect of a group of agile businesses operating in
multiple markets remains an effective strategy in delivering
organic growth. We will continue to build through acquisition, and
we will look to unlock synergies within our portfolio of
businesses. While we are mindful of the challenging external
environment, we remain optimistic for the year ahead and we expect
to deliver FY24 results in line with expectations."
*before share based payments, acquisition costs, reorganisation
costs (in FY22 only), impairment of intangibles and amortisation of
acquired intangible assets.
FOR FURTHER INFORMATION SDI Group plc
Ken Ford, Chairman
Mike Creedon, Chief Executive Officer
Amitabh Sharma, Chief Financial Officer
www.sdigroup.com 01223 727144
finnCap Ltd
Ed Frisby/Seamus Fricker/Milesh Hindocha
- Corporate Finance
Andrew Burdis/Sunila de Silva - ECM 020 7220 0500
About SDI Group plc:
SDI designs and manufactures scientific and technology products
for use in digital imaging and sensing and control applications
including life sciences, healthcare, astronomy, plastics and
packaging, manufacturing, precision optics, measurement
instrumentation and art conservation. SDI operates through its
company divisions: Atik Cameras, Synoptics, Graticules Optics,
Sentek, Astles Control Systems, Applied Thermal Control, MPB
Industries, Chell Instruments, Monmouth Scientific, Uniform
Engineering, Safelab Systems Limited, Scientific Vacuum Systems
Limited, LTE Scientific Limited and Fraser Anti-Static Techniques
Limited.
Corporate expansion is via organic growth within its subsidiary
companies and through the acquisition of complementary, niche
technology businesses with established reputations in global
markets.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU No. 596/2014) which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon the publication of
this announcement, this inside information is now considered to be
in the public domain.
Audited Report and Financial Statements
The results have been extracted from the audited financial
statements of the Group for the year ended 30 April 2023. The
results do not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. Whilst the financial
information included in this announcement has been prepared in
accordance with UK adopted international accounting standards and
with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Group will publish
full financial statements that comply with IFRS. The audited
financial statements incorporate an unqualified audit report. The
Auditor's report on these accounts did not draw attention to any
matters by way of emphasis and did not contain statements under
S498(2) or (3) Companies Act 2006.
Statutory accounts for the year ended 30 April 2022, which
incorporated an unqualified auditor's report, have been filed with
the Registrar of Companies. The Auditor's report on these accounts
did not draw attention to any matters by way of emphasis and did
not contain statements under S498(2) or (3) Companies Act 2006. The
accounting policies applied for the financial year ending 30 April
2023 are consistent with those described in the Annual Report &
Accounts for the year ended 30 April 2022.
The Group's Annual Report for the year ended 30 April 2023 will,
on 30 August 2023 be available to view on the Company's website:
www.sdigroup.com/investors/reports-presentations/, and be sent to
shareholders together with a notice of AGM which will also be
available on the Company's website.
Notice of AGM
The Company's Annual General Meeting will be held at the offices
of finnCap Ltd, One Bartholomew Close, London, EC1A 7BL on Friday
29 September 2023 at 10.00am.
Chairman's Statement for the year ended 30 April 2023
Performance
I am pleased to report that SDI has delivered another record
year in terms of revenues and adjusted EBIT. This was despite a
volatile economic environment, with high inflation, a tight labour
market and an unpredictable supply chain. Our agile business model,
which involves smaller niche autonomous businesses operating in a
multitude of markets, gives us the ability to respond quickly to
market movements and is a strength during periods of economic
turbulence. The Group continues to deliver on its buy and build
strategy, adding two new businesses during the financial year
whilst most existing businesses within the Group also performed
well.
On 29 July 2022, we completed the acquisition of LTE Scientific
Limited ('LTE'), a UK company which specialises in the design,
manufacture and servicing of sterilizers, decontamination and
thermal processing equipment, used in the life science and medical
sectors . On 21 October 2022, the Group acquired Fraser Anti-Static
Techniques Limited ('FAST'), a leading UK manufacturer of
anti-static products which eliminate, clean, generate or measure
static electricity in a variety of industries including plastics,
packaging and printing, amongst others. FAST's technologies and
markets are unrelated to our current portfolio. However, LTE
operates in a market with which we are already familiar. Both
companies fit perfectly within our acquisition criteria and have
become part of our Sensors and Control segment. These businesses
will be operated separately from our existing businesses. We warmly
welcome our new colleagues to the SDI Group.
These acquisitions were funded from existing cash resources and
debt facilities. Both companies have performed well since joining
the Group.
The Group reported full year revenues of GBP67.6m, an increase
of 36.0% from FY22 (GBP49.7m). SDI benefitted from a full year's
contribution from both Scientific Vacuum Systems (acquired January
2022) and Safelab Systems (March 2022) as well as the FY23
acquisitions noted above. Atik Camera's one-off business with an
overseas OEM for PCR cameras generated GBP8.5m of revenues in FY23,
compared with GBP10.9m in FY22. This business came to an end in
February 2023 and as previously announced there are unlikely to be
any further contracts with this customer. Group organic revenue
growth for the year was 0.9%, and excluding the one-off contracts
and the impact of FX, SDI generated 6.4% organic growth.
Adjusted profit before tax at GBP11.8m remained the same as the
previous year. Adjusted operating profit improved by 5.8% to
GBP12.8m.
As you will read elsewhere in this report, we have written off
the Monmouth Scientific and Uniform Engineering goodwill and
GBP0.3m of the two businesses' intangible assets. The total
non-cash impairment charge, net of applicable deferred tax, is
GBP3.4m whilst the gross impairment charge is GBP3.5m. Whilst this
is not ideal, we remain confident in Monmouth's future prospects.
Its net profit margins have reduced following the end of the
pandemic, however the business has remained profitable and has a
capable new management team. The impairment, together with higher
intangible amortisation and interest charges, has meant the
statutory operating profit has reduced from GBP10.2m in FY22 to
GBP6.8m this year. Statutory profit before tax has reduced from
GBP9.9m last year to GBP5.8m in FY23.
Strategy
We continue to seek targeted acquisitions, funded by earnings
and cashflows from our existing businesses where possible. The
Group's policy is to acquire small/medium-sized companies within
the science and technology sectors with a manufacturing bias. We
seek to acquire businesses with high-quality, niche technologies
and strong existing management teams that have sustainable profits
and cashflows, and the potential to grow.
We continue to service many sectors and geographies with SDI
products, particularly in the industrial products, life sciences
and medical sectors. Our exposure to discretionary consumer
spending is limited and our sales directly to government entities
are not high. And whilst not immune to economic conditions, we
benefit from structural tailwinds in a number of our
businesses.
To ensure we maintain the right level of operating capital and
funding available for acquisitions, the Board has again decided not
to pay a dividend this financial year but will keep this under
review.
Corporate Governance
The Board takes its governance responsibilities very seriously.
Our approach to our wide range of responsibilities is set out in
the Corporate Governance section of our Annual Report, and as we
grow, we expect to continuously improve governance towards the best
practices required of a larger company. Further detail on Corporate
Governance is available on the Group's website
www.sdigroup.com/investors/governance/
The Board, in common with our wider team and other stakeholders,
is determined that the Group play its part in addressing climate
change, and indeed that we reap the benefits of being part of the
solution. We wish to avoid, however, both pointless box-ticking
where possible and exaggerated claims. We have started to take
tangible steps in the last six months to evaluate our
environmental, social and governance ('ESG') position. This is
outlined further in the ESG section of the annual report.
Board
Our new CFO, Ami Sharma, joined the Board in August 2022 taking
over from Jon Abell, who retired in September after a handover
period.
We are also pleased to welcome both Andrew Hosty and Louise
Early to the Board as non-executive directors this year. Andrew
joined in August and Louise started in February. Both Andrew and
Louise have had lengthy careers in decentralised industrial
companies, and we are already seeing the benefits of their
experience.
Team
SDI employs over 500 people across its companies. It has been
another challenging year for the Group and its employees. COVID has
not completely gone away. Recruitment challenges, an unpredictable
supply chain as well as inflation have made the business
environment tricky to navigate for our staff. On behalf of the
Board, I would offer our appreciation and thanks for all our
employees' dedication and efforts throughout the year. I would also
like to thank the wider head office team including CFO Ami Sharma
and our Group Financial Controller for their efforts over the last
year. Our employees' skills and experience are key to the long-term
sustainability of our businesses.
SDI is often asked about its head office structure. This has
been in place over the last decade, but at the same time, both the
CEO and myself have worked in close tandem when evaluating
potential acquisitions. We have an experienced Board, all of whom
have significant M&A knowledge, and this has been strengthened
over the financial year. However, the Board is very aware of SDI's
resourcing structure and continues to evaluate whether additional
skill sets are required to continue growth, both organically and
through acquisition.
Outlook
The Group has added two high quality businesses to the portfolio
in FY23. We continue to execute our proven value-creating business
model by investing in capacity and capability to enable organic
growth amongst our portfolio of businesses, as well as buying and
building where acquisition opportunities present themselves.
Against the backdrop of an uncertain economic environment, the
portfolio effect of a group of agile businesses operating in
multiple markets remains an effective strategy in delivering
organic growth. We will continue to build through acquisition, and
we will look to unlock synergies within our portfolio of
businesses. While we are mindful of the challenging external
environment, we remain optimistic for the year ahead and we expect
to deliver FY24 results in line with expectations.
Ken Ford
Chairman
Date: 7(th) August 2023
Chief Executive Officer's Report for the year ended 30 April
2023
Brexit and COVID-19 have heavily impacted upon our last three
years of trading. The pandemic created both challenges and
opportunities for the Group and active management has allowed the
Group to generate very strong revenues and profits, with the last
of the Atik sales of cameras for PCR machines being despatched to
China in February 2023. The Group's future organic growth rates are
expected to normalise to within the 5%-10% range in the absence of
exceptional revenues and profits.
Brexit has impacted upon the Group, with delays exporting to and
importing from Europe often causing disruption, but we are now
seeing this as less of an issue. As with all UK companies, both
staffing and inflation have had an impact on our businesses but
staff recruitment is improving with few open vacancies remaining.
We have passed on price increases from our supply chain to our
customers with some success.
Revenues and Profit
Overall revenues grew by 36.0%, of which 35.1% was from the full
year impact of the FY22 acquisitions of Scientific Vacuum Systems
and Safelab Systems and from the contributions of LTE Scientific
and Fraser Anti-Static Techniques, both of which were acquired in
the year. Adjusted operating profit grew by 5.8%.
Atik Cameras experienced a surge in one-off demand in respect of
cameras for PCR machines over the last three years. This demand
peaked over FY22 and reduced by GBP2.4m in FY23. Excluding this
one-off business, Atik Camera's revenues grew by 37%, and SDI's
Digital Imaging segment as a whole grew revenues by 16.4%. On a
reported basis, the Digital Imaging segment revenues declined by
2.9%, with revenues at GBP20.9m and adjusted operating profit at
GBP6.9m (down 19.2%). Graticules Optics sales were not as strong as
in the previous year where record sales were achieved, however
trading remained robust in FY23, while sales at Synoptics were
broadly flat.
The Sensors and Control segment grew sales by 65.8% to GBP46.7m.
Organic growth was 3.8%, and the remaining 62.0% growth was from
the FY22 and FY23 acquisitions. Adjusted operating profit grew
55.1% to GBP8.0m.
There are eleven companies in the Sensors and Control segment
and several have made outstanding contributions to the Group this
year. Our recent acquisitions, LTE Scientific ('LTE') and Fraser
Anti-Static Techniques ('FAST'), have performed well since joining
the Group. Safelab Systems (acquired in March 2022) also delivered
revenues and profits which were higher than expected. Applied
Thermal Control achieved record sales of scientific and industrial
chillers and Sentek had record chemical sensor revenues.
Monmouth Scientific was acquired in December 2020, when COVID-19
was driving strong revenues and profits for the business. Revenue
mix has shifted away from standard biological safety cabinets back
towards more custom/modular fume cupboards, laminar flow cabinets
and cleanrooms. This has necessitated a change in Monmouth's
logistics, as the number of units to commission at a site has
declined despite overall sales remaining high. Furthermore, the
business has needed more engineers to commission units in a very
tough labour market. All of this has taken time to implement.
Monmouth also moved to a new purpose-built leased facility in April
2022, which was capitalised at a cost of GBP4.6m on balance sheet
in accordance with IFRS 16. The costs of this brand-new leased site
were higher than anticipated. The combination of the aforementioned
factors has had an impact on Monmouth's trading results. This has
led to an impairment, details of which are provided in the Chief
Financial Officer's report.
Adjusted fully diluted earnings per share increased by 3.6% from
8.71p to 9.02p. Reported diluted earnings per share decreased as a
result of the impairment of Monmouth/Uniform intangibles by 48.8%
from 7.23p to 3.72p.
Acquisitions
Since February 2015 we have acquired 17 businesses within the
UK. Many have achieved significant organic growth over the years
with SDI's investment. An example of this would be Sentek, which
was acquired in October 2015. At the time of acquisition, its sales
were GBP2.5m and the business recorded profits of GBP0.5m. In FY23
Sentek had a record-breaking year, achieving sales of c.GBP5m and
operating profit of c.GBP1m. As a Group employing a buy and build
strategy, finding businesses with niche capabilities is the key to
our success. SDI maintains its reputation as a supportive owner,
investing in our people and facilities, as well as trusting the
subsidiary management teams with their day-to-day operations.
However, if a subsidiary does not achieve long term growth, an
impairment of intangible assets may happen. Sadly, this is the case
with Monmouth Scientific. The company has been profitable but not
at the levels required to maintain the levels of intangible assets
held on the Balance Sheet. We have taken steps to improve
performance and are hopeful that the company can attain the profits
levels that determined the original goodwill valuation.
We are pleased to have acquired two high-quality and profitable
UK-based businesses over the last financial year, extending the
technology within the Group as well as our customer base. It is
expected that these two acquisitions will provide further scope for
future organic growth and provide a base to acquire further
businesses within these technology sectors.
On 1 August 2022, the Group announced that it had acquired 100%
of the share capital of LTE. Total consideration was GBP5.4m and
this included GBP1.65m of freehold property and GBP2.6m of cash.
LTE manufactures and services sterilizers, decontamination and
thermal processing equipment, used in the life science and medical
sectors. LTE fits within SDI's target acquisition profile:
complementary technology and products with capable management teams
in place and ability to grow under SDI ownership. LTE is based in
Greenfield, Oldham.
On 22 October 2022, the Group announced the acquisition of FAST
for GBP16.9m. This included GBP1.76m of freehold property and
GBP4.1m of cash immediately prior to the acquisition (at time of
acquisition this being GBP1.0m of cash and GBP3.1m loaned to SDI
Group). FAST is one of the world's leading static control and
generation solutions to OEMs, end users and distributors of
machinery and materials around the world. The business is based in
Bampton, Devon with sales offices in Germany and China. One of the
positive aspects of this acquisition is that it gives SDI a base in
China that could provide an opportunity for our other subsidiary
brands to expand into this particular market.
We have funded both acquisitions from our existing cash
resources and from our revolving credit facility with HSBC UK Bank.
The acquired companies contributed GBP11.2m of revenues to the
Group this year and both acquisitions have been earnings enhancing
to the Group in FY23.
Operations
As the number of manufacturing businesses increases within the
Group, the opportunity for synergies is developing across several
business units. It has been encouraging to see lines of
communication opening between our laboratory products businesses;
Safelab Systems, Monmouth Scientific, LTE and Synoptics in
particular. We have seen them consolidate product lines into a
single SDI Group tender, giving the target customer a full turnkey
solution. We would look for this to continue in future years.
As in previous years SDI has continued to invest in the
improvement of its current product range, as well as developing new
products and technologies. We are also looking to improve our
manufacturing facilities to increase capacity but also to provide a
better service to our customers.
We have invested in the acquisition of a CNC milling machine for
the Atik facility in Lisbon. A CNC machine supports rapid
turnaround of prototypes. The machine has several other uses. It
de-risks our supply chain as it provides cover for a particular
single source Portuguese supplier, and it can be used for low
volume production to cover gaps when we have issues with other
suppliers. We will also use the machine to produce simple, low
volume parts that can be expensive to buy externally, without
disturbing the flow of the main site operations.
Other investments include laser etching machines for each of MPB
Industries, Scientific Vacuum Systems and Graticules Optics. These
can be used in many applications but Scientific Vacuum Systems, as
a recent example, have added QR codes to each part (of which there
were many thousand items) within a sputter coater for a premium
brand razor blade manufacturer to enable the customer to purchase
spare parts via an easily accessible format.
Our rolling programme of upgrading manufacturing facilities
across the Group continues with the refurbishment of the Graticules
Optics factory in Tonbridge, which started in 2021 and is nearing
completion. Sentek increased capacity by building a mezzanine floor
and creating a new room for engineering. These investments will
bring a capacity increase as well as improving efficiency, staff
comfort, product quality and image.
We have also created a forum for marketing teams to share best
practice. Initiatives include more effective social media usage and
the use of artificial intelligence.
As we mentioned at the half year, in-person trade fairs and
exhibitions have re-started in FY23 and several of our businesses
have attended them, with positive feedback received. Examples
include ACHEMA (Berlin), Analytica (Frankfurt) and VISION
(Stuttgart). Direct face to face meetings with customers, an
effective method of launching new products , have become routine
once again.
Whilst staff turnover generally remains low, we continue to
experience a tight labour market. We have managed to fill most, but
not all, skilled vacancies relatively quickly. Cost increases, in
relation to materials, have generally been passed on to
customers.
Trading Outlook
Our businesses are currently performing well and SDI continues
to invest to support organic growth. We expect to deliver FY24
revenues and profits in line with market expectations.
Finding good staff and circumventing supply chain issues are now
part of daily business, and our managers have demonstrated their
ability to solve these challenges and more. Supply chain delays
were prevalent in the first half of FY23. These still exist but
have eased somewhat in recent months.
The market for acquisitions appears buoyant, and SDI expects to
acquire additional businesses in the FY24 financial year.
The economic backdrop does remain a concern. There is a threat
of recession in the UK and the Bank of England has been raising
interest rates continuously over recent months to try and tame
inflation. We have not seen a high interest rate environment for
some time and SDI will experience higher interest charges on its
debt. Inflation will also remain a concern. However, SDI has
started the FY24 financial year well and we are confident that we
can continue to trade profitably and generate free cash flow over
the coming financial year.
Mike Creedon
Chief Executive Officer
Date:7(th) August 2023
Chief Financial Officer's Report for the year ended 30 April
2023
Revenue and Profits
SDI Group revenues increased by 36.0%, from GBP49.7m in FY22 to
GBP67.6m in FY23. The two new acquisitions in the year, Fraser
Anti-Static Techniques ('FAST') and LTE Scientific ('LTE'),
together with the prior year acquisitions, Scientific Vacuum
Systems and Safelab Systems (prior to the acquisition
anniversaries) contributed GBP17.5m in additional turnover.
From the outset of the COVID-19 pandemic in FY21, our Atik
Cameras business received substantial orders from one customer for
cameras designed into an OEM's PCR equipment. Revenues in FY23
relating to this represented GBP8.5m (FY22: GBP10.9m). Excluding
this 'one-off' business, organic revenue growth was 6.4% on a
constant currency basis; 7.2% in absolute terms (GBP2.8m).
Encouragingly, Atik Camera's business grew organically by 37% when
this 'one-off' business is excluded.
Gross profit increased to GBP42.8m (FY22: GBP31.7m) whilst
margin was marginally down to 63.3% (FY22: 63.8%) with the
acquisitions having slightly lower gross margins than the Group
average . On a like-for-like basis (including prior year
acquisitions from the anniversary of the acquisition), gross
margins increased compared to FY22, which was pleasing. We have
generally been able to pass through increasing raw material costs.
Our overheads have increased compared with last year given an
increase in sales and marketing activity.
Adjusted operating profit improved to GBP12.8m (FY22: GBP12.1m)
being operating profit before the impairment charge, share based
payments, acquisition costs, reorganisation costs (in FY22 only),
and amortisation of acquired intangible assets, an increase of
5.8%.
Reported operating profit reduced to GBP6.8m (FY22: GBP10.2m)
because of the gross impairment charge of GBP3.5m against the
Monmouth and Uniform CGU (see below) and a GBP0.7m increase in
amortisation of intangible assets relating to the four most recent
acquisitions.
Impairment
SDI acquired Monmouth Scientific Limited ('Monmouth') and
Uniform Engineering ('Uniform') in December 2020 and January 2021
respectively. These two companies work very closely together and
are regarded as one cash generating unit. Accounting standards
require companies to evaluate annually whether the future cash
flows ('value in use') exceed the value of acquired goodwill,
intangible and other fixed assets and working capital.
Monmouth's performance in FY23 was impacted by the factors
described in the Chief Executive Officer's report including the
annual costs relating to the purpose-built facility which started
from March 2022. The impairment review calculation has also been
affected by the current higher interest rate environment increasing
the weighted cost of capital in the calculation. Therefore, we have
impaired a total of GBP3.5m of Monmouth and Uniform's goodwill and
intangible assets. The impairment review calculation includes the
costs of Monmouth's premises prepared on an IFRS 16 basis; had the
calculation been prepared on a pre IFRS 16 basis, the impairment
would have been approximately GBP1m less.
The GBP3.5m gross impairment includes the entire Monmouth
goodwill balance of GBP3.0m and all the Uniform goodwill of
GBP0.2m. The balance represents an impairment of GBP0.1m of Uniform
and GBP0.2m of Monmouth customer relationships respectively. At the
year end, Monmouth retains GBP1.6m of customer relationships/trade
names as intangible assets. Uniform has no intangible assets
remaining.
Uniform is a key service provider to Monmouth, and also sells to
Safelab Systems. In FY23, c.50% of Uniform's sales were to Monmouth
and Safelab Systems, with the remainder of sales external to the
Group. Monmouth and Uniform on a combined basis, as a single cash
generating unit ('CGU') have been profitable within the Group since
acquisition and are forecast to continue to be profitable in FY24
and beyond.
Intangible Assets (excluding R&D)
Intangible assets increased by a net GBP5.3m from GBP36.0m to
GBP41.3m at the end of FY23. Gross intangible assets (excluding
R&D) grew by GBP10.8m with the two acquisitions in FY23
contributing to GBP10.5m of the increase. GBP1.8m of amortisation
was charged in the period (FY22: GBP1.1m) against customer
relationships, trade names and other intangible assets as well as
the impairment charge of GBP3.5m noted above. The GBP10.5m in
increased intangible cost was split as follows: GBP1.4m relates to
LTE and GBP9.1m to the acquisition of FAST. Goodwill rose by
GBP5.5m before the impairment charge: LTE contributed GBP0.7m and
FAST GBP4.8m. Customer relationships, trade names and other
intangibles cost increased by GBP5.0m before the impairment charge:
LTE represented GBP0.7m and FAST GBP4.3m.
Investment in R&D
Under IFRS we are required to capitalise certain development
expenditure, and in the year ended 30 April 2023, GBP0.3m (FY22:
GBP0.4m) of cost was capitalised. Much of the work of our R&D
teams does not qualify for capitalisation and is charged directly
to expense. Amortisation for 2023 was GBP0.5m (FY22: GBP0.4m). The
carrying value of the capitalised development at 30 April 2023 was
GBP0.7m (FY22: GBP0.9m) to be amortised over 3 years.
Interest Payable
Interest charges for the year increased to GBP1.0m (FY22:
GBP0.3m). This increase was due to the higher levels of debt
through the year as well as rising interest rates.
Taxation
The taxation charge for the year was GBP1.9m (FY22: GBP2.3m)
representing a tax effective rate of 33.2% compared to 23.7% in
FY22. The tax effective rate for both FY23 and FY22 include one-off
factors which will not repeated: the impairment of intangibles not
being deductible for tax purposes in FY23 and the inclusion last
year of a deferred tax adjustment to align certain deferred tax
assets and liabilities to 25%. Excluding these one-off adjustments
results in an effective rate of tax of 20.7% (FY22: 16.3%). The
Group continues to benefit from R&D tax credits.
Earnings per Share
Adjusted diluted EPS, an alternative performance measure which
excludes certain non-cash and non-recurring expenses was 9.02p
(FY22: 8.71p), an increase of 3.6%. As a result of the impairment
charge noted above, the diluted earnings per share for the Group
reduced to 3.72p (FY22: 7.23p).
Cash Flow and Working Capital
Cash generated from operations reduced to GBP10.9m (FY22:
GBP14.7m). The reduction was due to a GBP2.9m build-up of
inventories and a GBP3.5m reduction in customer advances, offset by
a GBP2.7m reduction in debtors. GBP2.1m of the inventory build-up
was to mitigate against the impact of component shortages and the
balance related to Scientific Vacuum Services building a sputtering
machine for a large OEM customer, which will become revenues in
FY24. The GBP3.5m reduction in customer advances was due to GBP2.7m
in COVID related cash flow at Atik received in prior years and
GBP0.8m from a pre-acquisition advance at LTE.
Taxes paid have increased to GBP2.2m (FY22: GBP1.3m). This
included GBP0.4m of FY22 tax relating to acquisitions.
Our investment in fixed assets totalled GBP1.1m (FY22: GBP1.4m)
which included investments in machinery at Atik Cameras.
Acquisition of new businesses remains our largest cash outlay,
with GBP18.7m deployed on a cash-free basis (FY22: GBP11.0m of
which GBP0.2m was in shares). A further GBP2.4m was paid in
relation to prior period deferred consideration. At the end of the
year contingent consideration of GBP1.0m was outstanding (FY22:
GBP3.4m) relating to the acquisition of SVS, which is to be settled
over FY24 pending assessment of the relevant earn-out
conditions.
Funding
The Group acquired two businesses over the period, funded
through additional debt.
Net debt (excluding lease liabilities), or bank debt less cash,
was GBP13.3m at the end of the year, compared to a net cash
position at the beginning of the year of GBP1.1m. This represents a
net debt: EBITDA ratio of 0.9x, which is well within the ceiling
provided by our bank facility. On 30 November 2022, the Group
reached agreement with HSBC to exercise GBP5m of an available
GBP10m accordion option, which increased the committed loan
facility from GBP20m to GBP25m. The balance of the accordion option
(GBP5m) remains available to the Group (at the discretion of HSBC)
for future exercise. In March 2023, HSBC approved an extension of
the repayment date by one year to November 2025. The revolving
credit facility can be extended for a further year at HSBC's
discretion. At the end of the financial year the Group had drawn
down GBP16m of its revolving credit facility (FY22: GBP4m), leaving
GBP9m in headroom (excluding the additional GBP5 million accordion
option).
The Group has an unstretched balance sheet and has sufficient
access to funds, alongside its steady cash flow, to acquire new
companies and invest in our current portfolio of businesses.
Amitabh Sharma
Chief Financial Officer
Date: 7(th) August 2023
Strategic report - Strategy and KPIs
SDI Group is an AIM-quoted group specialising in the acquisition
and development of a portfolio of companies that design and
manufacture products for use in digital imaging and sensing and
control applications in science, technology and medical markets.
Corporate expansion is being pursued, both through organic growth
within its subsidiary companies and through the acquisition of
high-quality businesses with established reputations in global
markets.
The Board believes there are many businesses operating within
the market, a number of which have not achieved critical mass, and
that presents an ideal opportunity for consolidation. This strategy
will be primarily focused within the UK but, where opportunities
exist, acquisitions in Europe and the United States and elsewhere
will also be considered, particularly if these also enable
geographic expansion of our existing businesses.
We intend to continue to buy stand-alone businesses as well as
smaller entities and technology acquisitions which bolt onto our
existing ones. Our track record over the last seven years has been
good, with seventeen businesses acquired across our digital imaging
and sensors and controls segments.
An important element of our strategy is that we are known to be
a good acquirer, able to help sellers to achieve a sale quickly and
easily, and without surprises.
We keep a lean headquarters and our businesses are run by
seasoned local management with broad discretion within defined
limits. Our aim is to grow them, profitably, and we seek to provide
them with the resources necessary to grow. Acquired businesses
often find that they can grow faster within the SDI Group than they
were prepared to do under private ownership, and they are able to
learn from and share experience with other companies in the
Group.
Our current businesses fall broadly into two segments, which we
call Digital Imaging and Sensors & Control, and within these
groupings there are significant commonalities of applications,
industries served and technologies employed. This provides
additional opportunity for knowledge sharing, which we encourage.
The ability to generate synergies has increased as the Group has
grown in scale and SDI has acquired businesses in closely related
segments.
Growth in revenues and profit within our businesses depends on
both technology advancement and seeking new customers, often by
expanding geographical reach, and the Board sees geographical
expansion as a driver of organic growth for the future.
By lowering the cost of capital of businesses we acquire and by
facilitating their profitable growth, our business model has
demonstrated that it can provide good returns to shareholders and
can be scaled into the future.
Key Performance Indicators
A range of financial key performance indicators are monitored
for each business and for the Group monthly against budget and over
time by the Board and by management, including order pipeline,
revenue, gross profit, costs, adjusted operating profit, and free
cashflow.
In support of our acquisition strategy as outlined above, we
monitor our acquisition pipeline, including any prospects that fail
to progress. Post-acquisition, the Board discusses integration
progress, and monitors financial performance against our initial
plans. Over a longer period, we monitor the return on total
invested capital of all of our businesses.
Additionally, the Board reserves specific agenda items for
discussion of environment, social and governance matters, health
and safety and other employee welfare-related issues.
Consolidated income statement and statement of comprehensive
income
For the year ended 30 April 2023
2023 2022
Note GBP'000 GBP'000
Revenue 4 67,577 49,656
Cost of sales (24,810) (17,998)
---------- --------
Gross profit 42,767 31,658
Other income 112 55
Operating expenses (32,547) (21,534)
Impairment of intangible assets 8 (3,520) -
---------- --------
Total operating expenses (36,067) (21,534)
Operating profit 6,812 10,179
Net financing expenses (970) (295)
Profit before tax 5,842 9,884
Income tax 5 (1,939) (2,341)
Profit for the year 3,903 7,543
---------- --------
Attributable to:
Equity holders of the parent
company 3,871 7,543
Non-controlling interest 32 -
---------- --------
Profit for the year 3,903 7,543
---------- --------
Statement of Comprehensive Income
Profit for the year 3,903 7,543
Other comprehensive income
Items that will not be reclassified
subsequently to profit and loss:
Remeasurement of net defined
benefit liability 95 -
Items that will be reclassified
subsequently to profit and loss:
Exchange differences on translating
foreign operations 142 (46)
Total comprehensive income for the year 4,140 7,497
---------- --------
Attributable to:
Equity holders of the parent company 4,108 7,497
Non-controlling interest 32 -
---------- --------
Total comprehensive income for the year 4,140 7,497
---------- --------
All activities of the Group are classed as continuing.
Earnings per share
Basic earnings per share 7 3.80p 7.53p
Diluted earnings per share 7 3.72p 7.23p
Consolidated balance sheet
As at 30 April 2023
Company registration number: 2023 2022
06385396 Note
GBP'000 GBP'000
Non-current assets
Intangible assets 8 41,350 36,035
Property, plant and equipment 8,219 4,074
Right-of-use leased assets 6,469 7,305
Investments in associated undertakings 24 -
Deferred tax asset 734 1,586
-------- --------
56,796 49,000
Current assets
Inventories 13,504 7,273
Trade and other receivables 11,980 7,544
Cash and cash equivalents 2,711 5,106
-------- --------
28,195 19,923
Total assets 84,991 68,923
-------- --------
Liabilities
Non-current liabilities
Borrowings 6 (21,996) (10,656)
Provisions for liabilities and
charges
Deferred tax liability (5,336) (4,417)
-------- --------
(27,332) (15,073)
Current liabilities
Trade and other payables (15,444) (16,089)
Provisions for warranties (67) (163)
Borrowings 6 (745) (779)
Current tax payable (111) (1,027)
-------- --------
(16,367) (18,058)
Total liabilities (43,699) (33,131)
-------- --------
Net assets 41,292 35,792
======== ========
Equity
Share capital 1,041 1,022
Merger reserve 2,606 2,606
Merger relief reserve 424 424
Share premium account 10,778 9,905
Share based payment reserve 557 320
Foreign exchange reserve 181 39
Retained earnings 25,673 21,476
Total equity due to shareholders 41,260 35,792
-------- --------
Non-controlling interest 32 -
-------- --------
Total equity 41,292 35,792
-------- --------
Consolidated statement of cashflows
As at 30 April 2023
Note 2023 2022
GBP'000 GBP'000
Operating activities
Net profit for the year 3,903 7,543
Depreciation 1,941 1,197
Amortisation 8 2,315 1,576
Finance costs and income 970 295
Impairment of intangible assets 8 3,520 30
Decrease in provisions (96) (97)
Taxation in the income statement 5 1,939 2,341
Employee share-based payments 351 313
----------- ---------
Operating cash flows before movement
in working capital 14,843 13,198
Increase in inventories (2,929) (365)
Decrease in trade and other receivables 2,689 652
(Decrease)/increase in trade and other
payables (3,730) 1,204
----------- ---------
Cash generated from operations 10,873 14,689
Interest paid (970) (295)
Income taxes paid (2,161) (1,290)
----------- ---------
Cash generated from operating activities 7,742 13,104
Investing activities
Capital expenditure on fixed assets (1,085) (1,426)
Sale of property, plant and equipment 84 66
Expenditure on development and other intangibles (323) (415)
Acquisition of subsidiaries, net of cash 9 (21,056) (10,995)
----------- ---------
Net cash used in investing activities (22,380) (12,770)
Financing activities
Finance leases repayments 6 (789) (583 )
Proceeds from bank borrowing 6 15,000 9,000
Repayment of borrowings 6 (3,000) (8,086 )
Issues of shares and proceeds from option
exercise 892 651
----------- ---------
Net cash from financing 12,103 982
Net changes in cash and cash equivalents (2,535) 1,316
Cash and cash equivalents, beginning
of year 5,106 3,836
Foreign currency movements on cash balances 140 (46)
=========== =========
Cash and cash equivalents, end of year 2,711 5,106
=========== =========
Consolidated statement of changes in equity
As at 30 April 2023
Share Merger Merger Foreign Share Share Retained Non-controlling Total
capital reserve relief exchange premium based earnings interest
reserve payment
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 April 2022 1,022 2,606 424 39 9,905 320 21,476 - 35,792
Shares issued 19 - - - 873 - - - 892
Tax in respect of share
options - - - - - - 117 - 117
Share based payment
transfer - - - - - (114) 114 - -
Share based payment charge - - - - - 351 - - 351
Transactions with owners 19 - - - 873 237 231 - 1,360
Profit for the year - - - - - - 3,871 32 3,903
Other comprehensive income
for the year:
Actuarial gain on defined
benefit pension - - - - - - 95 - 95
Foreign exchange on
consolidation of
subsidiaries - - - 142 - - - - 142
-------- -------- -------- --------- -------- ------------- ----------- ---------------- --------
Total comprehensive income
for the period - - - 142 - - 3,966 32 4,140
Balance at 30 April 2023 1,041 2,606 424 181 10,778 557 25,673 32 41,292
======== ======== ======== ========= ======== ============= =========== ================ ========
Consolidated statement of changes in equity
As at 30 April 2023
Share Merger Merger Foreign Share Share Retained Non-controlling Total
capital reserve relief exchange premium based earnings interest
reserve payment
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 April 2021 984 2,606 424 85 9,092 714 12,869 - 26,774
Shares issued 38 - - - 813 - - - 851
Tax in respect of share
options - - - - - - 357 - 357
Share based payment
transfer - - - - - (707) 707 - -
Share based payment charge - - - - - 313 - - 313
Transactions with owners 38 - - - 813 (394) 1,064 - 1,521
Profit for the year - - - - - - 7,543 - 7,543
Foreign exchange on
consolidation of
subsidiaries - - - (46) - - - - (46)
-------- -------- -------- --------- -------- ------------- -------------- ---------------- --------
Total comprehensive income
for the period - - - (46) - - 7,543 - 7,497
Balance at 30 April 2022 1,022 2,606 424 39 9,905 320 21,476 - 35,792
======== ======== ======== ========= ======== ============= ============== ================ ========
Notes to the financial information for the year ended April
2023
1 1. GENERAL INFORMATION
2
SDI Group PLC is a public company incorporated in England and
Wales under the Companies Act 2006. The registered office is at
Beacon House, Nuffield Road, Cambridge, Cambs, CB4 1TF.
The summary accounts set out above do not constitute statutory
accounts as defined by Section 434 of the UK Companies Act 2006.
The summarised consolidated income statement and other
comprehensive income summarised, the consolidated balance sheet at
30 April 2023, the summarised consolidated cash flow statement and
the summarised consolidated statement of changes in equity for the
year then ended have been extracted from the Group's 2023 statutory
financial statements upon which the auditor's opinion is
unqualified and did not contain a statement under either sections
498(2) or 498(3) of the Companies Act 2006. The audit report for
the year ended 30 April 2022 did not contain statements under
sections 498(2) or 498(3) of the Companies Act 2006. The statutory
financial statements for the year ended 30 April 2022 have been
delivered to the Registrar of Companies. The 30 April 2023 accounts
were approved by the directors on 7(th) August 2023 but have not
yet been delivered to the Registrar of Companies.
2 Significant Accounting policies
Basis of accounting
The summary accounts are based on the consolidated financial
statements that have been prepared in accordance with UK-adopted
international accounting standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those
standards.
They have been prepared under the assumption that the Group
operates on a going concern basis and on the historical cost basis.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
Going concern
The Group ended FY23 with net debt (excluding lease liabilities)
of GBP13.3m compared to a net cash position of GBP1.1m as at 30
April 2022 and generated free cash flow (before acquisition
consideration) of GBP6.4m. Free cash flow was lower than FY22 due
to a GBP3.5m unwind of customer advances received in previous
periods and a GBP2.9m increase in inventories - to mitigate against
component shortages and build an asset for shipping to a customer
in FY24. This was offset by a GBP2.7m reduction in debtors. On 30
November 2022, the Group reached agreement with HSBC to exercise
GBP5m of an available GBP10m accordion option, which increased the
committed loan facility from GBP20m to GBP25m. GBP16m was drawn
down under this facility at the year-end (see note 6). In March
2023, HSBC approved an extension of the repayment date by one year
to November 2025. This provides the Group with greater certainty
over long-term liquidity .
The Board has considered the potential of a downturn given the
current economic environment. The Group is in a strong financial
position with available facilities, sufficient headroom on all
covenants associated with the revolving credit facility, good
profitability, and a strong future order book, enabling it to face
any reasonable likely challenge of the continued uncertain global
economic environment. The Board has reviewed forecasts for the
period to 31 October 2024, evaluated a severe downside scenario and
performed a sensitivity analysis, all of which the Board considers
extremely unlikely. In the event of a more severe scenario (without
applying any mitigations), only the interest cover covenant would
come under stress. However, mitigations would be obviously applied
should this unlikely scenario present itself, such as (but not
restricted to) further cost cutting, sale and leaseback of freehold
property and potential disposal of assets. This would not cause any
significant challenges to the Group's continued existence.
The Board therefore have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future and therefore continue to adopt the going
concern basis in preparing the Annual Report and Accounts.
3 ALTERNATIVE PERFORMANCE MEASURES
The Group uses Adjusted Operating Profit, Adjusted Profit Before
Tax, Adjusted Diluted EPS and Net Operating Assets as supplemental
measures of the Group's profitability and investment in
business-related assets, in addition to measures defined under
IFRS. The Group considers these useful due to the exclusion of
specific items that are considered to hinder comparison of
underlying profitability and investments of the Group's segments
and businesses and is aware that shareholders use these measures to
evaluate performance over time. The adjusting items for the
alternative measures of profit are either recurring but non-cash
charges (share-based payments and amortisation of acquired
intangible assets) or exceptional items (reorganisation costs and
acquisition costs). Some items, e.g., impairment of intangibles are
both non-cash and exceptional.
The following table is included to define the term Adjusted
Operating Profit:
2023 2022
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Operating Profit (as reported) 6,812 10,179
---------
Adjusting items (all costs):
---------
Non-underlying items
---------
Share based payments 351 313
---------
Amortisation of acquired intangible assets 1,795 1,115
---------
Exceptional items
---------
Reorganisation costs - 125
---------
Impairment of intangible assets 3,520 -
---------
Acquisition costs 331 341
---------
Total adjusting items 5,997 1,894
---------
Adjusted Operating Profit 12,809 12,073
-------------------------------------------- --------- ---------
Adjusted Profit Before Tax is defined as follows:
2023 2022
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Profit before tax (as reported) 5,842 9,884
---------
Adjusting items (all costs):
---------
Non-underlying items
---------
Share based payments 351 313
---------
Amortisation of acquired intangible assets 1,795 1,115
---------
Exceptional items
---------
Reorganisation costs - 125
---------
Impairment of intangible assets 3,520 -
---------
Acquisition costs 331 341
-------------------------------------------- --------- ---------
Total adjusting items 5,997 1,894
---------
Adjusted Profit Before Tax 11,839 11,778
-------------------------------------------- --------- ---------
Adjusted EPS is defined as follows:
2023 2022
GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Profit for the year 3,903 7,543
------------
Adjusting items (all costs):
------------
Non-underlying items
------------
Share based payments 351 313
------------
Amortisation of acquired intangible assets 1,795 1,115
------------
Exceptional items
------------
Reorganisation costs - 125
------------
Impairment of intangible assets (net of 3,441 -
tax)
------------
Acquisition costs 331 341
--------------------------------------------- ------------ ------------
Total adjusting items 5,918 1,894
------------
Less taxation on adjusting items calculated
at the UK statutory rate (369) (360)
------------ ------------
Adjusted profit for the year 9,452 9,077
------------
Divided by diluted weighted average number
of shares in issue
(note 7) 104,799,252 104,259,085
------------
Adjusted Diluted EPS 9.02p 8.71p
--------------------------------------------- ------------ ------------
The following table is included to define the term Net Operating
Assets:
2023 2022
GBP'000 GBP'000
------------------------------------------- --------- ---------
Net assets 41,292 35,792
---------
Deferred tax asset (734) (1,586)
---------
Corporation tax asset - (137)
---------
Cash and cash equivalents (2,711) (5,106)
---------
Borrowings and lease liabilities (current
and non-current) 22,741 11,435
---------
Deferred & contingent consideration 961 3,305
---------
Deferred tax liability 5,336 4,417
---------
Current tax payable 111 1,027
------------------------------------------- --------- ---------
Total adjusting items within Net assets 25,704 13,355
---------
Net Operating Assets 66,996 49,147
------------------------------------------- --------- ---------
4 SEGMENT ANALYSIS
The Digital Imaging segment incorporates the Synoptics brands
Syngene, Synbiosis, Synoptics Health and Fistreem, the Atik brands
Atik Cameras, Opus and Quantum Scientific Imaging, and Graticules
Optics. These businesses share significant characteristics
including customer application, technology, and production
location. Revenues derive from the sale of instruments, components
for OEM customers' instruments, from accessories and service and
from licence income.
The Sensors & Control segment combines our Sentek, Astles
Control Systems, Applied Thermal Control, Thermal Exchange, MPB
Industries, Chell Instruments, Monmouth Scientific, Uniform
Engineering, Scientific Vacuum Systems, Safelab Systems, LTE
Scientific and Fraser Anti-Static Techniques businesses. All of
these businesses provide products that enable accurate control of
scientific and industrial equipment. Their revenues also derive
from the sale of instruments, major components for OEM customers'
instruments, and from accessories and service.
The Board of Directors reviews operational results of these
segments on a monthly basis and decides on resource allocations to
the segments and is considered the Group's chief operational
decision maker.
2023 2022
Total Total
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Revenues
---------
Digital Imaging 20,870 21,492
---------
Sensors & Control 46,707 28,164
---------
Group 67,577 49,656
---------
Adjusted Operating Profit
---------
Digital Imaging 6,873 8,502
---------
Sensors & Control 8,045 5,188
---------
Other (2,109) (1,617)
-------------------------------------------- --------- ---------
Group 12,809 12,073
---------
Amortisation of acquired intangible assets
---------
Digital Imaging (175) (175)
---------
Sensors & Control (1,620) (940)
-------------------------------------------- --------- ---------
Group (1,795) (1,115)
---------
Analysis of amortisation of acquired intangible assets has been
included separately as the Group considers it to be an important
component of profit which is directly attributable to the reported
segments.
The Other category includes costs which cannot be allocated to
the other segments and consists principally of Group head office
costs.
2023 2022
Total Total
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Operating assets excluding acquired intangible
assets
---------
Digital Imaging 7,585 7,501
---------
Sensors & Control 32,155 19,045
---------
Other 1,075 247
------------------------------------------------ --------- ---------
Group 40,815 26,793
---------
Acquired intangible assets
---------
Digital Imaging 4,844 5,019
---------
Sensors & Control 35,888 30,282
---------
Group 40,732 35,301
---------
Operating Liabilities
---------
( 4,905
Digital Imaging (1,489) )
---------
Sensors & Control (11,024) (7,075)
---------
Other (2,038) ( 968 )
------------------------------------------------ --------- ---------
( 12,948
Group (14,551) )
---------
Net operating assets
---------
Digital Imaging 10,940 7,616
---------
Sensors & Control 57,019 42,251
---------
Other (963) ( 720 )
------------------------------------------------ --------- ---------
Group 66,996 49,147
---------
Depreciation
---------
Digital Imaging 506 474
---------
Sensors & Control 1,428 717
---------
Other 7 7
------------------------------------------------ --------- ---------
Group 1,941 1,198
---------
The geographical analysis of revenue by destination, analysis of
revenue by product or service, and non-current assets by location
are set out below:
Revenue by destination of external customer 2023 2022
GBP'000 GBP'000
United Kingdom (country of domicile) 35,387 21,330
Europe 10,038 7,381
America 5,392 4,226
China 8,543 10,798
Asia (excluding China) 6,712 4,652
Rest of World 1,505 1,269
------- -------
67,577 49,656
======= =======
Revenue by product or service: 2023 2022
GBP'000 GBP'000
Instruments and spare parts 63,616 48,253
Services 3,961 1,403
67,577 49,656
======= =======
12.6% of Group revenue (2022: 21.7%) was from a single customer
during the year.
Analysis of revenue by performance obligation: 2023 2022
GBP'000 GBP'000
Sale of goods, recognised at a point in time 61,490 47,531
Sale of services, recognised over time 3,961 1,403
Sale of goods, recognised over time 2,126 722
------- -------
67,577 49,656
======= =======
Non-current assets by location 2023 2022
GBP'000 GBP'000
United Kingdom 55,668 46,721
Portugal 701 586
America 89 107
------- -------
56,458 47,414
======= =======
5 TaxATION
2023 2022
GBP'000 GBP'000
Current tax charge
Current year 1,728 1,179
Deferred tax charge
Origination and reversal of temporary differences 211 1,162
Total tax charge 1,939 2,341
======= =======
2023 2022
Reconciliation of effective tax rate GBP'000 GBP'000
Profit on ordinary activities before tax 5,842 9,884
------- -------
Profit on ordinary activities multiplied
by standard rate of
Corporation tax in the UK of 19.493% (2022:
19%) 1,139 1,878
Effects of:
Permanent difference 870 (103)
R&D expenditure credits (234) (219)
Adjustments to tax charge in respect of
previous periods - current tax (481) 38
Adjustments to tax charge in respect of
previous periods - deferred tax 633 -
Remeasurement of deferred tax for changes
in tax rates (20) 728
Difference in overseas tax rate 32 19
------- -------
1,939 2,341
======= =======
The Group takes advantage of the enhanced tax deductions for
Research and Development expenditure in the UK and expects to
continue to be able to do so.
The UK Finance Act 2021 which was substantively enacted on 24
May 2021 included provisions to increase the corporation tax rate
to 25% effective from 1 April 2023 and this rate had been applied
when calculating the deferred tax in the previous period.
6 Borrowings
Borrowings are repayable as follows:
2023 2022
GBP'000 GBP'000
Within one year
Bank finance - -
Finance lease liabilities 745 779
------- -------
745 779
------- -------
After one and within five years
Bank finance 16,000 4,000
Finance lease liabilities 5,996 6,656
------- -------
21,996 10,656
------- -------
Total borrowings 22,741 11,435
======= =======
Bank finance relates to amounts drawn down under the Group's
bank facility with HSBC Bank plc, which is secured against all
assets of the Group. On 1 November 2021 the Group renewed and
expanded its committed loan facility with HSBC to GBP20m, with an
accordion option of an additional GBP10m and with a termination
date of 1 November 2024 extendable for two further years. On 30
November 2022, the Group reached agreement with HSBC to exercise
GBP5m of an available GBP10m accordion option, which increased the
committed loan facility from GBP20m to GBP25m. The balance of the
accordion option (GBP5m) remains available to the Group (at the
discretion of HSBC) for future exercise. On 29 March 2023 the
termination date was extended by a further year to 1 November 2025.
This is extendable by another year at HSBC's discretion. The
revolving facility is available for general use. The facility has
covenants relating to leverage (net debt to EBITDA) and interest
cover.
7 Earnings per share
The calculation of the basic earnings per share is based on the
profits attributable to the shareholders of SDI Group plc divided
by the weighted average number of shares in issue during the
period. All profit per share calculations relate to continuing
operations of the Group.
Profit
attributable Weighted Earnings
to average per share
shareholders number of amount in
GBP'000 shares pence
----------------------------- -------------- ------------ -----------
Basic earnings per share:
-----------
Year ended 30 April 2023 3,903 102,761,812 3.80
-----------
Year ended 30 April 2022 7,543 100,122,394 7.53
-----------
Dilutive effect of share
options :
-----------
Year ended 30 April 2023 2,037,440
-----------
Year ended 30 April 2022 4,136,692
-----------
Diluted earnings per share:
-----------
Year ended 30 April 2023 3,903 104,799,252 3.72
-----------
Year ended 30 April 2022 7,543 104,259,085 7.23
----------------------------- -------------- ------------ -----------
At the year end, there were 587,000 (2022: 791,000) share
options which were anti-dilutive but may be dilutive in the
future.
8 INTANGIBLE ASSETS
The amounts recognised in the balance sheet relate to the
following:
Customer Development
relationships Other intangibles Goodwill costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 2022 16,607 2,410 20,107 2,868 41,992
Additions - - 290 323 613
Additions on acquisition 4,643 394 5,500 - 10,537
Disposals/Eliminations - - - (1,178) (1,178)
As at 30 April 2023 21,250 2,804 25,897 2,013 51,964
============== ================= ======== =========== =======
Amortisation and impairment
As at 1 May 2022 3,008 1,004 - 1,945 5,957
Amortisation for the
year 1,271 533 - 511 2,315
Impairment 314 - 3,206 - 3,520
Disposals/Eliminations - - - (1,178) (1,178)
-------------- ----------------- -------- ----------- -------
At 30 April 2023 4,593 1,537 3,206 1,278 10,614
============== ================= ======== =========== =======
Net book value
============== ================= ======== =========== =======
As at 30 April 2023 16,657 1,267 22,691 735 41,350
============== ================= ======== =========== =======
As at 30 April 2022 13,599 1,406 20,107 923 36,035
============== ================= ======== =========== =======
Capitalised development costs include amounts totalling GBP243k
(2022: GBP31k) relating to incomplete projects for which
amortisation has not yet begun.
Goodwill relates to various acquisitions and has been allocated
to each cash generating unit as appropriate. The cash generating
units used to test impairment are generally the individual acquired
businesses, or, where these have been operationally merged with
others, the resulting merged businesses. Goodwill is not amortised
but tested for impairment annually with the recoverable amount
being determined from value in use calculations. Goodwill has been
allocated for impairment testing to each Cash Generating Unit
(CGU), as follows:
2023 2022
GBP'000 GBP'000
Synoptics 453 453
Atik 1,229 1,229
Graticules 1,278 1,278
Sentek 1,282 1,282
Astles Control Systems 2,503 2,503
Applied Thermal Control 1,028 1,028
MPB Industries 630 630
Chell Instruments 2,492 2,492
Monmouth Scientific incorporating
Uniform Engineering and Moorfield
Technology - 3,207
Scientific Vacuum Systems 2,734 2,444
Safelab Systems 3,561 3,561
LTE Scientific 676 -
Fraser Anti-Static Techniques 4,825 -
22,691 20,107
======= =======
During the year, Goodwill was tested for impairment in
accordance with IAS 36. The recoverable amount of the Group's
Goodwill was assessed by reference to the Value-In-Use ("VIU")
calculations derived from 3-year budgeted cash flows and 2 years of
extrapolated cash flows using inflationary growth rates (2% to 10%
p.a.). This is equivalent to a 5-year forecast period, which is the
maximum period expected unless a longer period is justifiable.
Management's key assumption for all cash generating units and
resulting cash flows is to maintain market share in their markets.
Thereafter, the VIU is based on estimated long-term growth ("LTG")
rates of 2% (2022: 2%).
A risk-adjusted, pre-tax discount rate of 17.0% (2022: 13.6%)
was used for all companies except for the Monmouth Scientific
incorporating Uniform Engineering and Moorfield Technology
('Monmouth Scientific'), Synoptics and LTE Scientific CGUs, where a
risk-adjusted, pre-tax discount rate of 15.33% was adopted. This
latter rate was judged to be appropriate for the Monmouth
Scientific, Synoptics and LTE Scientific CGUs as their asset
structures (i.e., weight of the fixed assets vs the VIU/carrying
value) differ from those observed for the Group and other CGUs. As
a significant part of the CGU value could be securitised and
financed by debt (building, plant and equipment), these particular
CGUs are deemed to have a lower weighted average cost of capital
(WACC).
The Directors have concluded that an impairment totalling
GBP3.5m has arisen in relation to Monmouth Scientific's goodwill
and intangible assets, which has been subsequently recognised in
the Consolidated income statement and statement of comprehensive
income as an exceptional item. Approximately GBP1m of the
impairment is caused by IFRS 16 not permitting leased buildings to
be revalued during the lease in the absence of a rent
renegotiation.
The GBP3.5m impairment includes the entire goodwill balance of
GBP3.2m and GBP0.3m of customer relationships. At the year end,
GBP1.6m of customer relationships/trade names remains as intangible
assets.
No other impairments have been recognised across any other
CGUs.
The Directors have further considered the sensitivity of the key
assumptions to changes, including reduced growth rates and
operating margins, and increased discount rates. The Growth rates
are based on economic data for the wider economy and represent a
prudent expectation of growth.
Management has performed a sensitivity analysis for the Fraser
Anti-Static Techniques CGU, for which a) there is a 1% headroom
above carrying cost of the CGU, based on the VIU applying the base
assumptions and b) reasonably possible, but not probable, changes
in the key assumptions could give rise to an impairment. If any one
of the following occurred, the headroom would become de minimis
:
- discount rate increased to from 17% to 17.2%
- sales volume reduced by 0.5%, with no action on costs
- operating margins reduced by 0.5%
The average remaining amortisation period of intangible assets
excluding Goodwill is 8.1 years (2022: 10.1 years).
9 BUSINESS COMBINATIONS
On 29 July 2022, the Company acquired 100% of the share capital
of LTE Scientific Limited, a company incorporated in England and
Wales, for a consideration payable in cash.
The assets and liabilities acquired were as follows:
Book Fair Value
value adjustment Fair Value
GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Intangible assets - 761 761
Property, plant & equipment 1,643 578 2,221
Total non-current assets 1,643 1,339 2,982
Current assets
Inventories 1,109 - 1,109
Trade and other receivables 1,596 - 1,596
Cash and cash equivalents 2,606 - 2,606
Liabilities
Trade and other payables (3,192) - (3,192)
Defined benefit liability (net) (95) - (95)
Borrowings - lease commitments (35) - (35)
Deferred tax liability (10) (190) (200)
Net assets acquired 3,622 1,149 4,771
Goodwill 676
-------------
Consideration and cost of investment 5,447
-------------
Fair value of consideration transferred
Cash paid in year 5,447
5,447
-------------
LTE Scientific Limited contributed GBP6,193k revenue and
approximately GBP525k to the Group's profit before tax for the
period between the date of acquisition and the balance sheet date,
not including GBP95k of acquired intangible asset amortisation.
If the acquisition of LTE Scientific Limited had been completed
on the first day of the financial year, the additional impact on
group revenues for the period would have been GBP1,636k and the
additional impact on group profit would have been approximately
GBP93k, before additional GBP32k of amortisation expense.
The goodwill of GBP676k arising from the acquisition relates to
the assembled workforce and to expected future profitability,
synergy and growth expectations.
A third-party expert performed a detailed review of the acquired
intangible assets and recognised acquired customer relationships
and order book. The customer relationships intangible asset was
valued using a multi-period excess earnings methodology. The
estimated fair value of the customer relationships therefore
reflects the present value of the projected stream of cash flows
that are expected to be generated by existing customers going
forwards, net of orders on hand at the date of acquisition. Key
assumptions are the discount rate and attrition rate. Values of
14.7% and 15% were selected.
The deferred tax liability has been calculated on the
amortisable intangible assets using the current enacted statutory
tax rate of 25%.
The last financial year for LTE Scientific Limited before the
acquisition completed was to 31 December 2021. LTE Scientific's
current financial year has been extended by four months to April
2023 to align with that of SDI Group plc.
On 21 October 2022, the Company acquired 100% of the share
capital of Fraser Anti-Static Techniques Limited, a company
incorporated in England and Wales, for a consideration payable in
cash.
The assets and liabilities acquired were as follows:
Book Fair Value
value adjustment Fair Value
GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 16 4,260 4,276
Property, plant & equipment 1,970 - 1,970
Investments 24 - 24
Total non-current assets 2,010 4,260 6,270
Current assets
Inventories 1,793 - 1,793
Trade and other receivables 5,593 - 5,593
Corporation tax 29 - 29
Cash and cash equivalents 1,049 - 1,049
Liabilities
Trade and other payables (1,456) - (1,456)
Deferred tax liability (95) (1,065) (1,160)
Net assets acquired 8,923 3,195 12,118
Goodwill 4,824
-------------
Consideration and cost of investment 16,942
-------------
Fair value of consideration transferred
Cash paid in year 16,942
16,942
-------------
Fraser Anti-Static Techniques Limited contributed GBP4,966k
revenue and approximately GBP930k to the Group's profit before tax
for the period between the date of acquisition and the balance
sheet date, not including GBP68k of acquired intangible asset
amortisation.
If the acquisition of Fraser Anti-Static Techniques Limited had
been completed on the first day of the financial year, the
additional impact on group revenues for the period would have been
GBP4,695k and the additional impact on group profit would have been
approximately GBP671k, before additional GBP152k of amortisation
expense.
The goodwill of GBP4,824k arising from the acquisition relates
to the assembled workforce and to expected future profitability,
synergy and growth expectations.
A third-party expert performed a detailed review of the acquired
intangible assets, and recognised acquired customer relationships
and order book. The customer relationships intangible asset was
valued using a multi-period excess earnings methodology. The
estimated fair value of the customer relationships therefore
reflects the present value of the projected stream of cash flows
that are expected to be generated by existing customers going
forwards, net of orders on hand at the date of acquisition. Key
assumptions are the discount rate and attrition rate. Values of
16.7% and 8.5% were selected.
The deferred tax liability has been calculated on the
amortisable intangible assets using the current enacted statutory
tax rate of 25%.
The last financial year for Fraser Anti-Static Techniques
Limited before the acquisition closed was to 30 November 2021. Its
current financial year has been extended by five months to April
2023 to align with that of SDI Group plc.
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END
FR BLGDILXGDGXR
(END) Dow Jones Newswires
August 08, 2023 02:00 ET (06:00 GMT)
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