REG - SDI Group PLC - Final Results
21/07/2022 07:00
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RNS Number : 2174T SDI Group PLC 21 July 2022
SDI Group plc
("SDI", 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 2022, with profits ahead of recently upgraded market
expectations.
Financial Highlights
· Revenue increased by 41.6% to £49.7m (2021: £35.1m) including
21.6% organic growth
· Adjusted operating profit* increased by 57.1% to £12.1m (2021:
£7.7m)
o Reported operating profit increased 72.9% to £10.2m (2021: £5.9m)
· Adjusted profit before tax* increased by 59.5% to £11.8m (2021:
£7.4m)
o Reported profit before tax increased 76.8% to £9.9m (2021: £5.6m)
· Adjusted Diluted EPS* increased by 45.9% to 8.71p (2021: 5.97p)
o Reported diluted EPS increased 57.6% to 7.23p (2021: 4.58p)
Operational Highlights
· Two new acquisitions added to the Group - Scientific Vacuum
Systems Ltd and Safelab Systems 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 2022 will be made available on the Company's website
www.sdigroup.com/investors/reports-presentations/ later today.
Ken Ford, Chairman of SDI said:
"Over the last seven years, since the Group's buy and build strategy gathered
pace, the Group has grown its turnover from £8.4m to £49.7m and its reported
profit before tax from £0.5m to £9.9m, through the excellent execution of a
proven value-creating business model. While increasing shareholder returns
consistently and substantially, we have also built capacity and capability to
enable future growth.
The key growth drivers within our business remain organic growth and growth
through acquisition. The Group is in a very strong financial position and has
the resources and flexibility to support these key drivers. While mindful of
the potential for further macro-economic turbulence and despite a challenging
external environment, FY2023 has begun well. In addition to reporting today
FY2022 profits that are ahead of recently upgraded market expectations, I am
pleased to report that the Group now expects to deliver FY2023 adjusted profit
before tax* of not less than £11.0m, also being ahead of recently upgraded
market expectations."
*before reorganisation costs, share based payments, acquisition costs and
amortisation of acquired intangible assets.
FOR FURTHER INFORMATION
SDI Group plc 01223 727144
Ken Ford, Chairman
Mike Creedon, Chief Executive Officer
Jon Abell, Chief Financial Officer
www.sdigroup.com
finnCap Ltd 020 7220 0500
Ed Frisby/Kate Bannatyne/Milesh Hindocha - Corporate Finance
Andrew Burdis/Sunila de Silva - ECM
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, manufacturing, precision optics 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 and Scientific Vacuum Systems Limited.
SDI continues to grow by developing its own technology advancements and by
improving its global sales channels, as well as through pursuing strategic,
complementary acquisitions.
Audited Report and Financial Statements
The results have been extracted from the audited financial statements of the
Group for the year ended 30 April 2022. 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 computed in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 that applies 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 2021, 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 2022 are consistent with those described in the Annual Report
& Accounts for the year ended 30 April 2021.
The Group's Annual Report for the year ended 30 April 2022 will in due course
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.
Chairman's Statement
for the year ended 30 April 2022
Performance
Despite a volatile economic background and residual COVID disruption SDI
achieved another record year, by a wide margin. The Group's business model has
again shown resilience in these challenging times, enabling the Group to grow
sales and profits both as the wider economy entered the COVID-related
recession and as it returned to more normal times. The Group added two new
businesses during the year while existing businesses within the Group also
performed well, with another year of strong organic growth.
On 5 January 2022, we completed the acquisition of Scientific Vacuum Services
("SVS"), a UK manufacturer of physical vapour deposition equipment. On 24
March 2022 SDI acquired Safelab Systems ("Safelab"), a UK manufacturer of fume
cupboards. These businesses will be operated separately from our existing
businesses. While SVS's technology and markets served are mostly unrelated
to our current portfolio, Safelab operates in a market with which we were
already familiar. Both, however, fit perfectly within our acquisition
criteria, and have become part of our Sensors and Control segment.
Additionally, in August 2021 Monmouth Scientific acquired the trade and assets
of the Clean Tent business of Moorfield Technology, for consideration of
£150,000. Total consideration for the acquisitions is forecast to be
approximately £12.0m, net of cash. We warmly welcome our new colleagues to
the SDI Group.
These acquisitions were funded from cash and existing debt facilities. Both
companies are profitable and contribute to earnings immediately, and indeed
have performed very well since joining the Group. SDI's continuing strong cash
generation, along with its borrowing facilities, ensure the Group has a good
level of funding available for acquiring new companies, as well as investing
in our existing companies and technologies.
Full year Revenues of £49.7m have increased by 41.6% from 2021 and Adjusted
Profit before Tax at £11.8m is up 59.5% from the previous year. Reported
Profit before Tax has increased by 76.8% to £9.9m. This performance has been
achieved through an exceptional 21.6% organic sales growth, demonstrating
again continued commercial demand for the niche technologies SDI provides.
Particularly of note, Atik Cameras delivered further growth with increased
deliveries of specialised cameras providing the sensor function for PCR DNA
amplifiers, and Astles Control Systems enjoyed record sales of control
instrumentation for the beverage-can-making process. Further growth was
generated by the newly acquired businesses and by the full year contributions
of Monmouth Scientific and Uniform Engineering acquired in 2021.
Overall gross margin was slightly down on last year (63.8% compared with
65.2%) due to the increased mix this year of Monmouth Scientific and Uniform
Engineering sales which are at lower than our average gross margin. 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
activity and selected investments to facilitate growth. Our experienced
business managers remain focused on delivering products and services that
represent good value to our customers while earning an appropriate return for
our shareholders.
Cash flow has also been excellent, and metrics relating to returns on capital
employed are also at record high levels.
Strategy
The Group's successful buy and build strategy is unchanged. We will 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 that have sustainable profits and cashflows and the potential to
grow.
We continue to service many sectors with SDI products, particularly in the
life sciences and medical sectors. Our exposure to discretional consumer
spending is limited. Our sales directly to government entities are not high,
but government spending in healthcare and scientific research underpins a
significant portion of our sales. Demand for Atik cameras for use in the
fight against the COVID-19 pandemic continued strongly throughout this
financial year and remains robust into the new financial year. We are
confident that the demand related to the current pandemic will be replaced
over time by demand for similar products in the broader life sciences domain.
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 are
proud of the actions taken so far, and our focus is on taking tangible steps
to reduce our carbon footprint and that of our products and services.
Board
The Board of Directors remained unchanged throughout the year. Our CFO Jon
Abell advised in January that he wished to retire in the Summer of 2022, and
the Board followed a thorough process led by the Nomination Committee, leading
to the hiring of Ami Sharma as his successor starting in August. Jon's
contribution to the development and growth of the SDI Group over his tenure
has been fundamental.
Isabel Napper has also decided to step down as non-executive director, which
will be in August 2022 and the hiring process to find a replacement is well
advanced. We wish Jon and Isabel all the best for the future.
Team
SDI now employs over 400 staff across its companies. Their skills and
experience are key to the long-term sustainability of our businesses. To
deliver another record year would not have been possible without their hard
work and flexible approach as we return back towards normality. We operate
with caution and discipline to protect our teams of employees and we offer our
appreciation and thanks to them for their hard work and dedication throughout
the year.
Outlook
Over the last seven years, since the Group's buy and build strategy gathered
pace, the Group has grown its turnover from £8.4m to £49.7m and its reported
profit before tax from £0.5m to £9.9m, through the excellent execution of a
proven value-creating business model. While increasing shareholder returns
consistently and substantially, we have also built capacity and capability to
enable future growth.
The key growth drivers within our business remain organic growth and growth
through acquisition. The Group is in a very strong financial position and has
the resources and flexibility to support these key drivers. While mindful of
the potential for further macro-economic turbulence and despite a challenging
external environment, FY2023 has begun well. In addition to reporting today
FY2022 profits that are ahead of recently upgraded market expectations, I am
pleased to report that the Group now expects to deliver FY2023 adjusted profit
before tax* of not less than £11.0m, also being ahead of recently upgraded
market expectations.
Ken Ford
Chairman
21 July 2022
Chief Executive's Operating Report for the year ended 30 April 2022
Our financial year from May 2021 to April 2022 coincided with the second year
of the COVID-19 pandemic, under which most restrictions to normal life and
work were lifted in the UK (with limited and temporary restrictions put back
in place for the milder Omicron wave), and from February 2022 the start of the
Ukraine conflict (which has had limited impact on the Group).
In the previous year (2020-21), while all of our businesses had remained in
production throughout, with some exceptions where their customers reduced
their purchases, and all businesses had to cope with uncertainty, logistics
challenges, employee safety and well-being concerns, and travel
restrictions. The exceptional cases, notably at our MPB and Atik Camera
businesses, and at Monmouth Scientific (acquired in December 2020), had
additionally the welcome challenge of significantly increased demand for
products related to the diagnosis and treatment of COVID-19.
This financial year (2021-22) was thus characterised by a substantial
progression towards normality, although certainly tempered by persistent
travel restrictions (especially outside of Europe), trade fair cancellations,
face-to-face customer access difficulties and ongoing supply chain challenges,
with difficulties in accessing some components at any cost and large price
increases demanded for others in short supply. Customers resumed buying, and
while the exceptional demand at MPB and Monmouth Scientific was no longer
there, demand for cameras supplied into the PCR testing market remained high.
Against this background, I am pleased to report that our very flexible
structure and the dedication of our staff across the Group have allowed us to
maintain our growth rate, already strong in 2020-21 and previously, and we are
reporting again record financial results.
Revenues and profit
Overall revenues grew by 41.6%, of which 21.6% was organic growth and 20.0%
was from the full year impact of the 2020-21 acquisitions of Monmouth
Scientific and Uniform Engineering and from the contributions of Scientific
Vacuum Systems and Safelab acquired in the year. Adjusted Operating Profit
grew by 57.1%, mainly resulting from the organic sales growth.
SDI's digital imaging segment delivered 36.1% organic sales growth, with
revenues at £21.5m and Adjusted Operating Profit at £8.5m, up 64.4%. At Atik
Cameras, sales of cameras for PCR machines, previously expected to be
essentially one-off due to COVID-19 demand, increased further, and in fact
they are now expected to continue at least for the first half of 2022-23. At
the same time, demand from our other camera customers has been recovering over
the course of the year. Graticules Optics also achieved record sales, while
sales at Synoptics were flat overall but 3% higher than in 2019-20.
The sensors and control segment grew sales by 46.0%, to £28.2m. Organic
growth was 9.7%, and the remaining 36.3% growth was from the acquisitions of
last year and this year. Adjusted Operating Profit grew 19.4% to £5.2m.
Astles Control Systems grew substantially over the previous year, with a
partial recovery of its global service revenue and very strong sales of
equipment into new aluminium can production lines (linked to a slow transition
away from plastic bottles). Sales of scientific and industrial chillers at
ATC and of chemical sensors at Sentek saw good growth (last year they were
flat on the previous year). MPB sales were slightly lower, without the
benefit of sales of flowmeters for medical ventilators but were 13% higher
than in 2019-20. Sales at Chell Instruments were also lower than in 2020-21
when they benefited from a large equipment order received pre-pandemic. The
level of sales at Monmouth Scientific, acquired in December 2020, continued at
a high level, although the mix in demand has shifted away from standard
biological safety cabinets (used to ensure operator safety and reduce
contamination in COVID-19 test equipment) towards a more normal mix of
custom/modular fume cupboards, laminar flow cabinets and cleanrooms. Both
Scientific Vacuum Systems (acquired in January 2022) and Safelab Systems
(acquired in March 2022) delivered revenues and profits which were consistent
with our modelling at the time of their acquisitions.
Basic earnings per share increased by 56.7% from 4.81p to 7.53p; fully diluted
earnings per share also improved by 57.6% to 7.23p (2021: 4.58p).
Acquisitions
The UK is a centre of excellence for product innovation and manufacturing with
many world-leading businesses operating in life science and technology niches.
As a buy and build group, finding those businesses with niche capabilities is
key to our success. The SDI Group has a reputation as a supportive owner that
invests to improve staff expertise and facilities, as well as trusting
subsidiary management teams with their day-to-day operations. This approach
has allowed companies in our group to upgrade capacity, efficiency and safety
in their manufacturing facilities and their businesses to thrive.
This year we have focused much attention on embedding last year's acquired
businesses into the Group, and we have acquired two additional high-quality
and profitable UK-based businesses, extending our technology and customer base
and providing further scope for future organic growth.
On 5 January 2022, the Group acquired 100% of the share capital of Scientific
Vacuum Systems Limited ("SVS"), for total consideration estimated at £5.5m,
of which £4.5m has been paid in cash and the remaining £1.0m is contingent
on SVS achieving expected profit for the year to 30 September 2022. On the
date of the acquisition, SVS had £1.25m of cash in hand. SVS specialises in
custom Physical Vapour Deposition (PVD) systems for the deposition of thin
film coatings typically on semiconductor wafers, for use in scientific
research, industrial and semiconductor manufacturing applications, and is the
market leader in the manufacture of production sputter coaters for premium
brand razor blade coating. SVS brings considerable technology and
engineering expertise to the Group in high vacuum and PVD applications, as
well as blue chip customers, and may be a springboard for future
acquisitions. SVS is based in Finchampstead, Berkshire.
On 24 March 2022, the Group acquired 100% of the share capital of Safelab
Systems Limited ("Safelab") for £8.5m (including £0.2m in SDI Group shares,
£5.9m in cash paid before the year end and £2.4m in cash paid after the year
end). On the date of the acquisition, Safelab had £0.8m of cash in hand. The
company owns its main manufacturing building valued at £1.4m. Safelab
produces high specification fume cupboards and similar cabinets, for both
commercial and research laboratories and with a special focus on the education
sector which requires versatile and fully featured ducted cabinets often
specified in newly built or refurbished laboratory facilities. Safelab is
based in Weston-Super-Mare. The acquisition follows the Group's December 2020
acquisition of Monmouth Scientific which manufactures clean rooms, fume
cabinets and safety cabinets and is based in Bridgwater. The Group will
maintain the identity and autonomy of both companies in their current
locations, but the businesses are actively seeking and finding areas of
co-operation to reduce costs and enhance their total customer offer. Our
Uniform Engineering business is a supplier of sheet metal fabrications to both
Monmouth Scientific and to Safelab.
We have funded the cash elements paid for both acquisitions from our existing
cash resources and from our revolving credit facility with HSBC UK Bank. The
acquired companies contributed £1.7m of revenues to the Group this year and
as expected, both acquisitions have been earnings enhancing to the Group in
2021-22 immediately following initial acquisition-related costs.
Operations
We have now learnt to live with the pandemic, and although enhanced safety
measures are still in place and some staff work some of their days from home,
our focus across the Group is very much on working closely together and with
our customers to build for the future.
In common with manufacturing industry across the world, and perhaps especially
in the UK following Brexit, the pandemic is causing supply chain issues to all
of our businesses, and a tight labour market is further forcing cost increases
which have recently been compounded by the impact of Russia's invasion of
Ukraine. We have been delighted with the response from our businesses'
management and staff who have worked tirelessly to find solutions to component
shortages, and the results can be seen in our record levels of sales and
profit. We now look forward to an expansion of new product launch activity,
by our customers and by our own businesses, and we believe this brings the
Group new opportunities to gain market share following a period in which the
focus has been on supplying existing products.
Our rolling programme of upgrading manufacturing facilities across the Group
continued with the completion in March of the consolidation of Monmouth
Scientific's production and administration activities from several buildings
to a single purpose-built site in Bridgwater, the start of a substantial
refurbishment of the Graticules Optics factory in Tonbridge, and the doubling
of engineering and manufacturing space at Astles Control Systems in Princes
Risborough. Such investments typically have a very good payback, as they are
justified by the capacity increase but bring many other benefits including
efficiency, staff comfort, product quality and image.
While face-to-face sales activity, including trade fairs and exhibitions,
remained difficult (although it has picked up substantially in the last couple
of months), we have continued to make good progress with website enhancement,
on-line sales, virtual selling techniques and social media activity, and we
have been able to leverage our capability across the Group.
During the 2020-21 year at Atik Cameras, we strengthened the management team
at both company sites, near Norwich for overall business management, sales and
marketing and research and development, and near Lisbon, Portugal, for
manufacturing, logistics, account management and finance. During the 2021-22
year, we have further developed the organisation so that all invoicing to
customers is now direct from our Portuguese operation and the UK organisation
provides management, sales and marketing and R&D services to Portugal.
This has been very well received by customers.
When acquiring businesses, it is imperative for us that they have a strong
management team usually led by the founder of the business. This year two of
our managing directors decided to step down but I am pleased to say, still
continue in consultancy roles. Steve Chambers, one of the founders of Atik
Cameras, stepped down at the beginning of April 2022. He was replaced by Panos
Kapetanopoulos, who was the R&D director. David Pomeroy decided to step
down in December 2021 at Monmouth Scientific and was replaced by Alan
Holcombe, who also remains Managing Director at Uniform Engineering. I wish
Panos and Alan well in their new roles and am certain they can be successful
with the support of the SDI directors and their fellow subsidiary directors.
Cash and Liquidity
SDI has a strong balance sheet with current year-end gross cash at more than
£5.1m, and £16.0m of undrawn bank facility, which remains available (unless
extended) until November 2024. The Group therefore has sufficient funds that
can be used, with its steady cash flow, to acquire new companies and invest in
our current portfolio of profitable businesses.
Trading Outlook
Our businesses remain busy, and several are operating at full capacity with
their current staffing. 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.
We have budgeted for organic growth, and, although mindful of a possible
consumer-led recession and levels of inflation that have been absent for many
years, we have had a good start to the 2022-23 financial year and are
confident that we can continue to trade profitably over the coming months.
The market for acquisitions appears buoyant, and SDI expects to acquire
additional businesses in the 2022-23 financial year.
Mike Creedon
Chief Executive Officer
21 July 2022
Chief Financial Officer's Report
Revenue and Profits
SDI Group revenues for the year were £49.7m, compared with £35.1m in
2020-21, an increase of 41.6%. Sales growth from acquired businesses,
including sales of Monmouth Scientific and of Uniform Engineering in the
periods to their acquisition anniversaries and post-acquisition sales of
Scientific Vacuum Systems and Safelab Systems, contributed £7.0m, while
organic sales growth was £7.6m or 21.6%. This builds on top of organic sales
growth in 2020-21 of 19%.
From the outset of the COVID-19 pandemic, in 2020-21, our Atik Cameras
business received substantial orders from an existing OEM customer for cameras
designed into the customer's PCR instrument. At the time, we considered
these to be one-off orders, and we viewed follow-on orders from the same
customer in the same light. Further and larger orders have followed in the
2021-22 year, and sales are continuing at a high rate in 2022-23. The
expansion of Atik Cameras sales represents a large proportion of the Group's
organic sales growth in both years. We can no longer consider these sales to
be one-off, but it is also prudent to assume that at some point the demand for
PCR instruments will normalise at a lower level. However, having
demonstrated the efficacy and competitiveness of its camera, we also expect
Atik to successively pursue a wider market for its products. Organic growth
from other portfolio companies averaged 9%.
Gross profit increased to £31.7m (2021: £22.9m), with margin reduced to
63.8% (2021: 65.2%) due to significant product mix changes including lower
than average gross margins at recently acquired companies.
Operating profit for the year was £10.2m (2021: £5.9m) and Adjusted
Operating Profit (AOP) was £12.1m (2021: £7.7m) before reorganisation costs,
share based payments, acquisition costs and amortisation of acquired
intangible assets, an increase of 57.1%. Significant drivers of the increase
were the organic sales increase, plus the added contributions of the acquired
businesses.
Investment in R&D
Under IFRS we are required to capitalise certain development expenditure, and
in the year ended 30 April 2022, £0.4m (2021: £0.4m) of cost was
capitalised. Much of the work of our growing R&D teams does not qualify
for capitalisation and is charged directly to expense. Amortisation for 2022
were £0.4m (2021: £0.4m). The carrying value of the capitalised development
at 30 April 2022 was £0.9m (2021: £1.0m) to be amortised over 3 years.
Reorganisation
The Board carried out a thorough review of the operations and cost structure
of the Group and this gave rise to £0.1m (2021: £0.1m) of reorganisation
costs in the year, which should bring benefits in the current year.
Acquisition Costs
The Group incurred costs of £0.3m (2021: £0.2m) in relation to stamp duty,
legal fees, and other advisor remuneration for the acquisitions completed in
the year.
Financing
Financing costs totalled £0.3m (2021: £0.3m), including interest costs
estimated within leases.
Taxation
Taxation charge for the year was £2.3m (2021: £0.9m). Included in the
charge is £0.7m representing the increase in net deferred tax liabilities due
to the enacted change in UK taxation rates (from 19% to 25%) in force from
March 2023. The remainder of the increase results mostly from increased
profitability. Excluding the rate change on the deferred tax position the
net tax rate was 16.3% (2021: 16.6%). The Group continues to benefit from
R&D tax credits.
Earnings per Share
Diluted earnings per share for the Group was 7.23p (2021: 4.58p). Adjusted
diluted EPS, an alternative performance measure which excludes certain
non-cash and non-recurring expenses was 8.71p (2021: 5.97p), an increase of
45.9%.
Cash Flow and Working Capital
During the year the Group generated cash from operations of £14.7m (2021:
£11.7m). In the prior year, we benefited from an increase of £3.2m in
customer advanced payments received, largely related to COVID-19 related
contracts in Atik. The balance of these is £1.5m lower at 30 April 2022
compared with a year ago.
Taxes paid have increased to £1.3m (2021: £1.2m). The lower payments,
relative to £2.5m taxes charged to the income statement, result partly from
the tax deductions available to the Group on exercise by directors and
employees of share options. As noted above, taxes on the income statement also
include a £0.7m non-cash charge to update deferred tax balances to the
enacted future UK tax rate of 25%.
Our investment in fixed assets increased to £7.0m (2021: £0.6m) with
significant investments in company-owned fixtures to our new leased building
at Monmouth Scientific and at Graticules Optics.
As in prior years, our biggest investment was in the acquisition of new
businesses, with £12.0m deployed on a cash-free basis (including contingent
consideration) of which £0.2m in shares (2021: £6.6m of which £0.2m in
shares). At the end of the year contingent consideration of £3.4m was
outstanding (2021: £2.35m), of which £2.4m has been paid since the end of
the year to the sellers of Safelab Systems and £1.0m remains outstanding
relating to the acquisition of SVS, to be settled after 30 September 2022.
Funding
Our investments were financed out of our own cash flow, except for the issue
of 117,716 shares valued at £200,000 as part payment for our Safelab Systems
acquisition. Having started the year with net cash of £0.7m (£3.8m of cash
less £3.1m of bank loans) we closed the year with net cash of £1.1m (£5.1m
of cash less £4.0m of bank loans).
On 1 November 2021 we renewed and expanded our committed loan facility with
HSBC from £7.4m to a £20m revolving loan facility, with a further accordion
option of an additional £10m (at the discretion of HSBC), and with repayment
date of November 2024 extendable for two further years. The new facility has
been tailored to our business model with fewer restrictions on acquisitions
and allows for higher leverage if necessary.
Jon Abell
CFO
21 July 2022
Strategic Overview
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 eight years has been good, with fifteen 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.
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 as a whole on a monthly basis against budget and
over time by the Board and by management, including order pipeline, revenue,
gross profit, costs, adjusted operating profit, and cash.
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.
The Board regularly discusses progress in all major research and development
and other projects with project and business leaders, including with respect
to cost, timelines and adherence to the projects' initial objectives.
Additionally, the Board reserves a specific agenda item for discussion of
health and safety and other employee welfare-related issues.
Consolidated income statement and statement of comprehensive income
Note 2022 2021
£'000
£'000
Revenue 3 49,656 35,076
Cost of sales (17,998) (12,206)
Gross profit 31,658 22,870
Other income 55 21
Operating expenses (21,534) (16,960)
Operating profit 10,179 5,931
Net financing expenses (295) (287)
Profit before tax 9,884 5,644
Income tax 4 (2,341) (936)
Profit for the year 7,543 4,708
Statement of Comprehensive Income
Profit for the year 7,543 4,708
Other comprehensive income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translating foreign operations (46) (96)
Total comprehensive income for the year 7,497 4,612
Earnings per share
Basic earnings per share 6 7.53p 4.81p
Diluted earnings per share 6 7.23p 4.58p
All activities of the Group are classed as continuing.
Consolidated balance sheet
Company registration number: 6385396 Note 2022 2021
£'000 £'000
Assets
Intangible assets 7 36,035 26,237
Property, plant and equipment 4,074 1,733
Right-of-use leased assets 7,305 2,398
Deferred tax asset 1,586 1,697
49,000 32,065
Current assets
Inventories 7,273 6,059
Trade and other receivables 7,544 6,743
Cash and cash equivalents 5,106 3,836
19,923 16,638
Total assets 68,923 48,703
Liabilities
Non-current liabilities
Borrowings 5 (10,656) (3,764)
Deferred tax liability (4,417) (2,479)
(15,073) (6,243)
Current liabilities
Trade and other payables (16,089) (12,826)
Provisions for warranties (163) (230)
Borrowings 5 (779) (1,880)
Current tax payable (1,027) (750)
(18,058) (15,686)
Total liabilities (33,131) (21,929)
Net assets 35,792 26,774
Equity
Share capital 1,022 984
Merger reserve 2,606 2,606
Merger relief reserve 424 424
Share premium account 9,905 9,092
Share based payment reserve 320 714
Foreign exchange reserve 39 85
Retained earnings 21,476 12,869
Total equity 35,792 26,774
Consolidated statement of cashflows
Note 2022 2021
£'000 £'000
Operating activities
Net profit for the year 7,543 4,708
Depreciation 1,197 973
Amortisation 7 1,576 1,589
Finance costs and income 295 287
Impairment of intangible assets 30 130
Decrease in provisions (97) (15)
Taxation in the income statement 2,341 936
Employee share-based payments 313 305
Operating cash flows before movement in working capital 13,198 8,913
Decrease in inventories (365) (977)
Decrease/(increase) in trade and other receivables 652 (2,363)
Increase in trade and other payables 1,204 6,137
Cash generated from operations 14,689 11,710
Interest paid (295) (287)
Income taxes paid (1,290) (1,166)
Cash generated from operating activities 13,104 10,257
Investing activities
Capital expenditure on fixed assets (1,426) (667)
Sale of property, plant and equipment 66 67
Expenditure on development and other intangibles (415) (367)
Acquisition of subsidiaries, net of cash 8 (10,995) (4,057)
Net cash used in investing activities (12,770) (5,024)
Financing activities
Finance leases net repayments 5 (583) (489)
Proceeds from bank borrowing 5 9,000 5,404
Repayment of borrowings 5 (8,086) (11,652)
Issues of shares and proceeds from option exercise 651 155
Net cash from/(used in) financing 982 (6,582)
Net changes in cash and cash equivalents 1,316 (1,349)
Cash and cash equivalents, beginning of year 3,836 5,290
Foreign currency movements on cash balances (46) (105)
Cash and cash equivalents, end of year 5,106 3,836
Consolidated statement of changes in equity
Share capital Merger reserve Merger relief reserve Foreign exchange Share premium Share based payment reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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
Consolidated statement of changes in equity
Share capital Merger reserve Merger relief reserve Foreign exchange Share premium Share based payment reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2020 (previously stated) 975 3,030 - 181 8,746 467 6,665 20,064
Restatement - (424) 424 - - - - -
Restated balance at 30 April 2020
975 2,606 424 181 8,746 467 6,665 20,064
Shares issued 9 - - - 346 - - 355
Tax in respect of share options - - - - - - 1,438 1,438
Share based payment transfer - - - - - (58) 58 -
Share based payment charge - - - - - 305 - 305
Transactions with owners 9 - - - 346 247 1,496 2,098
Profit for the year - - - - - - 4,708 4,708
Foreign exchange on consolidation of subsidiaries
- - - (96) - - - (96)
Total comprehensive income for the period
- - - (96) - - 4,708 4,612
Balance at 30 April 2021 984 2,606 424 85 9,092 714 12,869 26,774
Notes to the financial information
1 Going Concern
The Group ended 2022 with net cash of £1.1m compared to £0.7m at 30 April
2021 and generated cash from operations of £14.7m. This cash generation arose
from the strong performance of the Group's principal operating companies,
enabled by 21.6% organic growth, and was mostly deployed in acquiring
profitable businesses. In addition, the Group also increased its borrowing
facilities on 01 November 2021 to £20m and extended the repayment date to
November 2024, providing the Group with greater certainty over long-term
liquidity. An amount totalling £4m is currently drawn down under this
facility (see note 5).
The Board have considered the ongoing impacts of the Covid-19 pandemic and the
war in Ukraine, including their effects on the wider economy. The Group is in
a strong financial position with high cash balances and available facilities,
sufficient headroom on all covenants associated with the debt, 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, including severe downside scenarios which the Board considers extremely
unlikely and 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.
2 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).
The following table is included to define the term Adjusted Operating Profit:
2022 2021
£'000 £'000
Operating Profit (as reported) 10,179 5,931
Adjusting items (all costs):
Non-underlying items
Share based payments 313 305
Amortisation of acquired intangible assets 1,115 1,153
Exceptional items
Reorganisation costs 125 132
Acquisition costs 341 179
Total adjusting items 1,894 1,769
Adjusted Operating Profit 12,073 7,700
Adjusted Profit Before Tax is defined as follows:
2022 2021
£'000 £'000
Profit before tax (as reported) 9,884 5,644
Adjusting items (all costs):
Non-underlying items
Share based payments 313 305
Amortisation of acquired intangible assets 1,115 1,153
Exceptional items
Reorganisation costs 125 132
Acquisition costs 341 179
Total adjusting items 1,894 1,769
Adjusted Profit Before Tax 11,778 7,413
Adjusted EPS is defined as follows:
2022 2021
£'000 £'000
Profit for the year 7,543 4,708
Adjusting items (all costs):
Non-underlying items
Share based payments 313 305
Amortisation of acquired intangible assets 1,115 1,153
Exceptional items
Reorganisation costs 125 132
Acquisition costs 341 179
Total adjusting items 1,894 1,769
Less taxation on adjusting items calculated at the UK statutory rate (360) (336)
Adjusted profit for the year 9,077 6,141
Divided by diluted weighted average number of shares in issue 104,259,085 102,799,084
(note 6)
Adjusted Diluted EPS 8.71p 5.97p
The following table is included to define the term Net Operating Assets:
2022 2021
£'000 £'000
Net assets 35,792 26,774
Deferred tax asset 1,586 1,697
Corporation tax asset 137 17
Cash and cash equivalents 5,106 3,836
Borrowings and lease liabilities (current and non-current) (11,435) (5,644)
Deferred & contingent consideration (3,305) (2,350)
Deferred tax liability (4,417) (2,479)
Current tax payable (1,027) (750)
Total adjusting items within Net assets (13,355) (5,673)
Net Operating Assets 49,147 32,447
3 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 and
Safelab Systems 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.
2022 2021
Total
Total
£'000
£'000
Revenues
Digital Imaging 21,492 15,788
Sensors & Control 28,164 19,288
Group 49,656 35,076
Adjusted Operating Profit
Digital Imaging 8,502 5,165
Sensors & Control 5,188 4,360
Other (1,617) (1,825)
Group 12,073 7,700
Amortisation of acquired intangible assets
Digital Imaging (175) (175)
Sensors & Control (940) (978)
Group (1,115) (1,153)
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.
2022 2021
Total
Total
£'000
£'000
Operating assets excluding acquired intangible assets
Digital Imaging 7,501 7,895
Sensors & Control 19,045 9,683
Other 247 131
Group 26,793 17,709
Acquired intangible assets
Digital Imaging 5,019 5,195
Sensors & Control 30,282 20,251
Group 35,301 25,446
Operating Liabilities
Digital Imaging (4,905) (5,439)
Sensors & Control (7,075) (4,204)
Other (968) (1,064)
Group (12,948) (10,707)
Net operating assets
Digital Imaging 7,616 7,650
Sensors & Control 42,251 25,731
Other (720) (934)
Group 49,147 32,447
Depreciation
Digital Imaging 474 461
Sensors & Control 717 505
Other 7 7
Group 1,198 973
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 2022 2021
£'000 £'000
United Kingdom (country of domicile) 21,330 15,343
Europe 7,381 5,137
America 4,226 3,365
China 10,798 6,854
Asia (excluding China) 4,652 3,088
Rest of World 1,269 1,289
49,656 35,076
Revenue by product or service: 2022 2021
£'000 £'000
Instruments and spare parts 48,253 34,640
Services 1,403 436
49,656 35,076
21.7% of Group revenue (2021: 16%) was from a single customer during the year.
Analysis of revenue by performance obligation: 2022 2021
£'000 £'000
Sale of goods, recognised at a point in time 47,531 34,193
Sale of services, recognised over time 1,403 436
Sale of goods, recognised over time 722 447
49,656 35,076
Non-current assets by location 2022 2021
£'000 £'000
United Kingdom 46,721 29,824
Portugal 586 396
America 107 148
47,414 30,368
4 TaxATION
2022 2021
£'000 £'000
Corporation tax:
Prior year corporation tax adjustment 38 -
Current tax charge 1,141 1,220
1,179 1,220
Deferred tax 1,162 (284)
Income tax charge 2,341 936
Reconciliation of effective tax rate
2022 2021
£'000 £'000
Profit on ordinary activities before tax 9,884 5,644
Profit on ordinary activities multiplied by standard rate of 1,878 1,072
Corporation tax in the UK of 19% (2021: 19%)
Effects of:
Expenses not deductible for tax purposes 61 30
Additional deduction for R&D expenditure (219) (162)
Prior year tax adjustments 38 (18)
Foreign tax rate 54 -
Remeasurement of unused tax losses in year at future tax rate (164) -
Update deferred tax liabilities and assets to enacted future tax rate of 25% 728 -
(2021: 19%)
Other (35) 14
2,341 936
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 has been applied when calculating the deferred tax
at the year end.
5 Borrowings
Borrowings are repayable as follows:
2022 2021
£'000 £'000
Within one year
Bank finance - 1,371
Finance lease liabilities 779 509
779 1,880
After one and within five years
Bank finance 4,000 1,714
Finance lease liabilities 6,656 2,050
10,656 3,764
Total borrowings 11,435 5,644
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. Until 01
November 2021, the facility consisted of a revolving facility of £5.0m and an
amortising facility which reduced in quarterly instalments from £4.8m when it
was taken out in November 2019 to zero by November 2024, when the agreement
was due to expire. On 1 November 2021 the Group renewed and expanded its
committed loan facility with HSBC to £20m, with a further accordion option of
an additional £10m (at the discretion of HSBC), and with repayment date of
November 2024 extendable for two further years. The revolving facility is
available for general use. The facility has covenants relating to leverage
(net debt to EBITDA) and interest coverage.
6 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 Weighted Earnings
attributable to average per share
shareholders number of amount in
£'000 shares
pence
Basic earnings per share:
Year ended 30 April 2022 7,543 100,122,394 7.53
Year ended 30 April 2021 4,708 97,852,313 4.81
Dilutive effect of share options:
Year ended 30 April 2022 4,136,692
Year ended 30 April 2021 4,946,771
Diluted earnings per share:
Year ended 30 April 2022 7,543 104,259,085 7.23
Year ended 30 April 2021 4,708 102,799,084 4.58
At the year end, there were 791,000 (2021: nil) share options which were
anti-dilutive but may be dilutive in the future.
7 INTANGIBLE ASSETS
The amounts recognised in the balance sheet relate to the following:
Customer relationships Other intangibles Goodwill Development costs Total
£'000 £'000 £'000 £'000 £'000
Cost
As at 1 May 2021 12,468 1,694 13,973 2,860 30,995
Additions - - - 415 415
Additions on acquisition 4,139 716 6,134 - 10,989
Disposals/Eliminations - - - (407) (407)
As at 30 April 2022 16,607 2,410 20,107 2,868 41,992
Amortisation
As at 1 May 2021 2,095 790 - 1,873 4,758
Amortisation for the year 913 214 - 449 1,576
Disposals/Eliminations - - - (377) (377)
At 30 April 2022 3,008 1,004 - 1,945 5,957
Net book value
As at 30 April 2022 13,599 1,406 20,107 923 36,035
As at 30 April 2021 10,373 904 13,973 987 26,237
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:
2022 2021
£'000 £'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 3,077
Scientific Vacuum Systems 2,444 -
Safelab Systems 3,561 -
20,107 13,973
The individual impairment assessments for the cash generating units were based
on value-in-use calculations covering a five-year forecast followed by an
extrapolation of expected cash flows to perpetuity using a long-term growth
rate of 2%.
7 INTANGIBLE ASSETS (continued)
A risk-adjusted, pre-tax discount rate of 13.6% (2021: 13.7%) which was judged
to be appropriate for each of the CGUs given that they operate in similar
markets and the risk profiles are similar. Management's key assumption for all
cash generating units and resulting cash flows is to maintain market share in
their markets.
The Directors have concluded that Goodwill is not impaired for any of the cash
generating units. They have further considered the sensitivity of the key
assumptions which were most sensitive 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 Monmouth Scientific
CGU for which with the base assumptions there is a 13% headroom of value in
use above carrying cost of the CGU, and for which 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 disappear:
- discount rate increased to from 13.6% to 15.1%
- sales volume reduced by 3.5%, with no action on costs
- operating margins reduced by
1.8%
The average remaining amortisation period of intangible assets excluding
Goodwill is 10.1 years (2021: 7.8 years).
8 BUSINESS COMBINATIONS
On 5 January 2022, the Company acquired 100% of the share capital of
Scientific Vacuum Systems Limited, a company incorporated in England and
Wales, for a consideration payable in cash, including an earnout element
dependent on financial performance to September 2022.
The assets and liabilities acquired were as follows:
Book value Fair Value
£'000 adjustment Fair Value
£'000 £'000
Assets
Non-current assets
Intangible assets - 2,228 2,228
Property, plant & equipment 38 - 38
Total non-current assets 38 2,228 2,266
Current assets
Inventories 270 (27) 243
Trade and other receivables 549 - 549
Cash and cash equivalents 1,249 - 1,249
Liabilities
Trade and other payables (584) 64 (520)
Borrowings - lease commitments (4) - (4)
Corporation tax (140) - (140)
Deferred tax liability - (557) (557)
Provisions for warranty and dilapidations (9) (21) (30)
Net assets acquired 1,369 1,687 3,056
Goodwill 2,444
Consideration and cost of investment 5,500
Fair value of consideration transferred
Cash paid in year 5,539
Estimate of Earnout payment 961
5,500
Scientific Vacuum Systems Limited contributed £1,174k revenue and
approximately £363k to the Group's profit before tax for the period between
the date of acquisition and the balance sheet date, not including £133k of
acquired intangible asset amortisation.
If the acquisition of Scientific Vacuum Systems Limited had been completed on
the first day of the financial year, the additional impact on group revenues
for the period would have been £1,499k and the additional impact on group
profit would have been approximately £437k, before additional £267k of
amortisation expense.
The goodwill of £2,444k arising from the acquisition relates to the assembled
workforce and to expected future profitability, synergy and growth
expectations.
A third party 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 10% were selected.
8 BUSINESS COMBINATIONS (CONTINUED)
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 Scientific Vacuum Systems Limited before the
acquisition closed was to 30 September 2021. The current financial year has
been shortened by five months to April 2022 to align with that of SDI Group
plc.
On 24 March 2022, the Company acquired 100% of the share capital of Safelab
Systems Limited, a company incorporated in England and Wales, for a
consideration payable in cash and shares.
The assets and liabilities acquired were as follows:
Book value Fair Value
£'000 adjustment Fair Value
£'000 £'000
Assets
Non-current assets
Intangible assets - 2,612 2,612
Property, plant & equipment 1,593 72 1,665
Total non-current assets 1,593 2,684 4,277
Current assets
Inventories 599 - 599
Trade and other receivables 784 - 784
Cash and cash equivalents 758 - 758
Liabilities
Trade and other payables (585) - (585)
Borrowings - lease commitments - (72) (72)
Corporation tax (128) - (128)
Deferred tax liability (34) (653) (687)
Net assets acquired 2,987 1,959 4,946
Goodwill 3,561
Consideration and cost of investment 8,507
Fair value of consideration transferred
Cash paid in year 5,920
Deferred consideration 2,387
SDI Group shares issued to sellers 200
8,507
Safelab Systems Limited contributed £522k revenue and approximately £98k to
the Group's profit before tax for the period between the date of acquisition
and the balance sheet date, not including £68k of acquired intangible asset
amortisation.
If the acquisition of Safelab Systems Limited had been completed on the first
day of the financial year, the additional impact on group revenues for the
period would have been £4,730k and the additional impact on group profit
would have been approximately £713k, before additional £342k of amortisation
expense.
The goodwill of £3,561k arising from the acquisition relates to the assembled
workforce and to expected future profitability, synergy and growth
expectations.
8 BUSINESS COMBINATIONS (CONTINUED)
Management performed a detailed review of the acquired intangible assets, and
recognised acquired customer relationships, tradename 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 14.8% and 20% were selected.
A total of 117,716 shares were issued for consideration for £200k.
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 Safelab Systems Limited before the acquisition
closed was to 28 February 2022. The current financial year has been extended
by two months to April 2023 to align with that of SDI Group plc.
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