REG - SDI Group PLC - Final Results
08/08/2023 07:00
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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 £67.6m (FY22: £49.7m)
· Adjusted operating profit* increased by 5.8% to £12.8m (FY22:
£12.1m)
· Reported operating profit reduced to £6.8m (FY22: £10.2m) due
to a non-cash £3.5m impairment charge against Monmouth/Uniform
· Adjusted profit before tax* of £11.8m (FY22: £11.8m)
· Reported profit before tax decreased to £5.8m (FY22: £9.9m)
· 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 01223 727144
Ken Ford, Chairman
Mike Creedon, Chief Executive Officer
Amitabh Sharma, Chief Financial Officer
www.sdigroup.com (http://www.sdigroup.com)
finnCap Ltd 020 7220 0500
Ed Frisby/Seamus Fricker/Milesh Hindocha - Corporate Finance
Andrew Burdis/Sunila de Silva - ECM
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 £67.6m, an increase of 36.0% from
FY22 (£49.7m). 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 £8.5m of revenues in
FY23, compared with £10.9m 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 £11.8m remained the same as the previous year.
Adjusted operating profit improved by 5.8% to £12.8m.
As you will read elsewhere in this report, we have written off the Monmouth
Scientific and Uniform Engineering goodwill and £0.3m of the two businesses'
intangible assets. The total non-cash impairment charge, net of applicable
deferred tax, is £3.4m whilst the gross impairment charge is £3.5m. 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 £10.2m in FY22 to
£6.8m this year. Statutory profit before tax has reduced from £9.9m last
year to £5.8m 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 £2.4m 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 £20.9m and adjusted operating profit at
£6.9m (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 £46.7m. 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 £8.0m.
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 £4.6m 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 £2.5m and the business recorded profits
of £0.5m. In FY23 Sentek had a record-breaking year, achieving sales of
c.£5m and operating profit of c.£1m. 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 £5.4m and this included £1.65m of
freehold property and £2.6m 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 £16.9m.
This included £1.76m of freehold property and £4.1m of cash immediately
prior to the acquisition (at time of acquisition this being £1.0m of cash and
£3.1m 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 £11.2m 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 £49.7m in FY22 to £67.6m 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 £17.5m 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 £8.5m
(FY22: £10.9m). Excluding this 'one-off' business, organic revenue growth was
6.4% on a constant currency basis; 7.2% in absolute terms (£2.8m).
Encouragingly, Atik Camera's business grew organically by 37% when this
'one-off' business is excluded.
Gross profit increased to £42.8m (FY22: £31.7m) 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 £12.8m (FY22: £12.1m) 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 £6.8m (FY22: £10.2m) because of the
gross impairment charge of £3.5m against the Monmouth and Uniform CGU (see
below) and a £0.7m 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 £3.5m 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 £1m less.
The £3.5m gross impairment includes the entire Monmouth goodwill balance of
£3.0m and all the Uniform goodwill of £0.2m. The balance represents an
impairment of £0.1m of Uniform and £0.2m of Monmouth customer relationships
respectively. At the year end, Monmouth retains £1.6m 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 £5.3m from £36.0m to £41.3m at the end
of FY23. Gross intangible assets (excluding R&D) grew by £10.8m with the
two acquisitions in FY23 contributing to £10.5m of the increase. £1.8m of
amortisation was charged in the period (FY22: £1.1m) against customer
relationships, trade names and other intangible assets as well as the
impairment charge of £3.5m noted above. The £10.5m in increased intangible
cost was split as follows: £1.4m relates to LTE and £9.1m to the acquisition
of FAST. Goodwill rose by £5.5m before the impairment charge: LTE contributed
£0.7m and FAST £4.8m. Customer relationships, trade names and other
intangibles cost increased by £5.0m before the impairment charge: LTE
represented £0.7m and FAST £4.3m.
Investment in R&D
Under IFRS we are required to capitalise certain development expenditure, and
in the year ended 30 April 2023, £0.3m (FY22: £0.4m) 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
£0.5m (FY22: £0.4m). The carrying value of the capitalised development at 30
April 2023 was £0.7m (FY22: £0.9m) to be amortised over 3 years.
Interest Payable
Interest charges for the year increased to £1.0m (FY22: £0.3m). 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 £1.9m (FY22: £2.3m) 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 £10.9m (FY22: £14.7m). The
reduction was due to a £2.9m build-up of inventories and a £3.5m reduction
in customer advances, offset by a £2.7m reduction in debtors. £2.1m 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
£3.5m reduction in customer advances was due to £2.7m in COVID related cash
flow at Atik received in prior years and £0.8m from a pre-acquisition advance
at LTE.
Taxes paid have increased to £2.2m (FY22: £1.3m). This included £0.4m of
FY22 tax relating to acquisitions.
Our investment in fixed assets totalled £1.1m (FY22: £1.4m) which included
investments in machinery at Atik Cameras.
Acquisition of new businesses remains our largest cash outlay, with £18.7m
deployed on a cash-free basis (FY22: £11.0m of which £0.2m was in shares). A
further £2.4m was paid in relation to prior period deferred consideration. At
the end of the year contingent consideration of £1.0m was outstanding (FY22:
£3.4m) 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 £13.3m at
the end of the year, compared to a net cash position at the beginning of the
year of £1.1m. 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 £5m of an available £10m
accordion option, which increased the committed loan facility from £20m to
£25m. The balance of the accordion option (£5m) 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 £16m of
its revolving credit facility (FY22: £4m), leaving £9m in headroom
(excluding the additional £5 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
Note 2023 2022
£'000
£'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: 06385396 Note 2023 2022
£'000 £'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
£'000 £'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 capital Merger reserve Merger relief reserve Foreign exchange Share premium Share based payment reserve Retained earnings Non-controlling interest Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 capital Merger reserve Merger relief reserve Foreign exchange Share premium Share based payment reserve Retained earnings Non-controlling interest Total
£'000 £'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
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 £13.3m
compared to a net cash position of £1.1m as at 30 April 2022 and generated
free cash flow (before acquisition consideration) of £6.4m. Free cash flow
was lower than FY22 due to a £3.5m unwind of customer advances received in
previous periods and a £2.9m increase in inventories - to mitigate against
component shortages and build an asset for shipping to a customer in FY24.
This was offset by a £2.7m reduction in debtors. On 30 November 2022, the
Group reached agreement with HSBC to exercise £5m of an available £10m
accordion option, which increased the committed loan facility from £20m to
£25m. £16m 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
£'000 £'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
£'000 £'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
£'000 £'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 tax) 3,441 -
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 104,799,252 104,259,085
(note 7)
Adjusted Diluted EPS 9.02p 8.71p
The following table is included to define the term Net Operating Assets:
2023 2022
£'000 £'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
£'000
£'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
£'000
£'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
Digital Imaging (1,489) (4,905)
Sensors & Control (11,024) (7,075)
Other (2,038) (968)
Group (14,551) (12,948)
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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'000
United Kingdom 55,668 46,721
Portugal 701 586
America 89 107
56,458 47,414
5 TaxATION
2023 2022
£'000 £'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 £'000 £'000
Profit on ordinary activities before tax 5,842 9,884
Profit on ordinary activities multiplied by standard rate of 1,139 1,878
Corporation tax in the UK of 19.493% (2022: 19%)
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
£'000 £'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 £20m, with an accordion option of an additional £10m 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 £5m of an
available £10m accordion option, which increased the committed loan facility
from £20m to £25m. The balance of the accordion option (£5m) 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 Weighted Earnings
attributable to average per share
shareholders number of amount in
£'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 relationships Other intangibles Goodwill Development costs Total
£'000 £'000 £'000 £'000 £'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 £243k (2022: £31k)
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
£'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
-
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 £3.5m 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 £1m
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 £3.5m impairment includes the entire goodwill balance of £3.2m and
£0.3m of customer relationships. At the year end, £1.6m 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 value Fair Value
£'000 adjustment Fair Value
£'000 £'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 £6,193k revenue and approximately £525k
to the Group's profit before tax for the period between the date of
acquisition and the balance sheet date, not including £95k 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 £1,636k and the additional impact on group profit
would have been approximately £93k, before additional £32k of amortisation
expense.
The goodwill of £676k 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 value Fair Value
£'000 adjustment Fair Value
£'000 £'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 £4,966k revenue and
approximately £930k 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 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 £4,695k and the additional impact on
group profit would have been approximately £671k, before additional £152k of
amortisation expense.
The goodwill of £4,824k 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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