Sdi Group (LSE:SDI) — Full Year Results

0:01 Good afternoon, and welcome to the SDI GROUP PLC full year results investor presentation. Throughout this recorded presentation, investors are being in listen only mode. Questions are encouraged. It can be submitted at any time via the q and a tab situated in the right hand corner of your screen. Just click q and a, scroll to the bottom, type your question, press send. The company may not be in a position to answer every question it receives during the meeting itself. It will review all questions submitted today and publish responses where appropriate to do so.

0:25 I would now like to hand you over to Michael Creedon, CEO, John Abel, CFO. Good afternoon. Good afternoon. Good afternoon. Oh, quick intro. Just before we do a quick intro, I actually did this in the last meeting. I'll just show you our head office. How big it is. That's John's desk. That's Johnson's desk. So that's how we keep our costs under control by just having three people in a very small serviced office. Anyway, let's start the presentation, but just to give you some idea of where we work. So on the first page will be the board of directors, John. Just a couple of points on that. And this is the last performance of this famous double act of John and Mike. John is leaving us in September, and he'll he'll he'll be replaced by Ami Sharma who joins on the August 8.

1:16 The second point is Isabelle is leaving on the August 8, and we are advanced stages of recruiting a replacement for her.

1:25 The next page, group overview. As you can see, the hexagons have got smaller because we've added another two further hexagons at the bottom of the slide. We acquired two businesses during the financial year, Scientific Vacuum Systems in January 2022. They're based in Finchhamstead, which is very close to the Widdish Triangle or near Reading. And then in March 2022, we applied SafeLab Systems, and they're based in Western Supermare. John will go through this in more detail in the slides. Our business model still remains strong having now acquired 15 profitable cash generative businesses in eight years. I'll just hand you over to John now who can go through the nitty gritty of the numbers.

2:14 Thank you, Mike. So, well, not so nitty gritty, actually. Our track record over the last seven or eight years has been pretty good, and 2022 was no exception. So as you can see with the graphs, revenue continued to increase quite strongly. Operating profit also, and cash generation from generated from operations also very strong. So over the last seven years, some of these metrics have grown quite quite strongly with a compound average growth rate annual growth rate of revenues of 34%, adjusted operating profit of 57% per year for seven years, and operating profit 63%, cash generated from operations 50%, and adjusted diluted earnings per share up 32%.

3:08 And this year, most of the those same same metrics, we've grown even faster. So it's been a good year. Now I've lost it. I'm gonna move on. I put in a new slide this year, which is about capital employed and return on capital capital employed. Employed. So the red bars are showing how much capital is employed in the business over the last seven years. So starting from about 5,000,000, 6,000,000, and this year, we've reached 35,000,000 of capital employed. That is cap total equity, added bank borrowings, and deducted cash. So this is almost entirely due to acquisitions and is the by part of that buy and build strategy.

3:59 So it it's it's due to acquisitions because our net tangible assets are in fact negative. So all of this is really intangible assets and due to the goodwill of acquisitions we've bought. Then moving to the orange line, this is the return on capital employed. And here, I'm using EBIT, so reported EBIT divided by the average capital employed in a year, so beginning and end. And it started off in 2016 in at about 12%, so reasonable but not brilliant level. And over these last seven years, it's grown until this year, we hit 34% return on capital employed beginning and ending average.

4:47 And when you think about it, we're buying businesses which typically yield at that same kind of metric at about 14 to 20%. So we're buying businesses on a on a a a multiple of roughly six five, six, 7% seven times EBIT. So that we're adding those at 14 to 20, but nevertheless, doing that over time, we've managed to increase return on capital employed to 35%, 34% this year. And that reflects our investing in the businesses, which generates and allows the organic growth and operating margin improvement. And that's the build part of our business model.

5:34 We've made 15 acquisitions since 2014, six of them combined with existing units and nine becoming new standalone operating units to add to the two that existed before 2014. So it's making a total of 11. I'm gonna move on to how we fund that important to investors. So on this slide, the orange line is the cumulative amount of acquisition cash paid. So this is what we've paid for the businesses over the years, cumulative. So over the years, we've spent £36,000,000 investing in new businesses for the group. And you can see that the red line, which is the equity raised after the initial placement, we started raising further funds for acquisitions in around 2013, 2014.

6:32 And for the first two or three years of of the acquisition buy and build model, we were raising money in order to buy new building new businesses and adding them on. But since around 2018, our cash flow, which is the the blue line, the cumulative free cash flow that the the business has generated, start to become much more important. And now, you know, since since our last equity raise of 2019, the free the company's own free cash flow has been the major source of of acquisition funding. So since in 2019, we purchased, I think, four businesses.

7:17 And for one of those, we we raised £2,400,000 of of fresh equity. Since then, we haven't raised anymore. We have, in a couple of cases, the and and and even before 2019, some of the sellers opted to take a portion of their consideration in SDI equity. But, generally, that's been a small element, and that's that's the reason why you see the red line only slightly increasing towards the last last three or four years. Otherwise, yeah, we free cash flow is the major source of acquisition funding. But now as profit has increased as well, our borrowing capacity is is growing in line with that growth in free cash flow. So we've also got another source of funding, which is our borrowing capacity.

8:09 And and, you know, going forward, I think it's it's the case that we want to you know, if we're if we have acquisitions to fund, which we will have, the first port of call is our own cash and our own cash flow, after which it's going to be debt funding. And then if necessary, if we have an you know, in the in the good case that we have more acquisitions than we can fund internally, we will then go back to the market. But that's the the prospect of that is is is is lower than it's ever been, I think. Gonna move on to the more more in detail on the 2022 financial numbers. We've really seen these numbers before, so all kind of levels of profitability are up quite dramatically again this year.

9:02 Revenue up 42%, EPS up 44%, adjusted diluted EPS up 44%. That's what shareholders see. And cash generated from operations up 25%, slightly lower, and we'll explain that in a minute.

9:22 What are the growth drivers? What's causing this this growth? This year, our organic sales growth has been 22%, and that builds on 19% of last year. So that's if you like, the last year, 2021 coincided more or less with the first year of of the COVID pandemic. So now we are on average, our our existing businesses are 45% bigger than before the the COVID pandemic. So that's that's quite a number, I think. Of course, attic is well known that attic cameras contributed a lot of that growth. So attic cameras of the 22% organic sales growth in 2022, most of that, 16% of that came from attic cameras.

10:14 The other businesses grew by 9% organically. Now I think cameras as as is well known, we're selling cameras, which specifically for this, we're selling cameras that are being built into PCR equipment. The PCR is is used for testing for COVID nineteen amongst other uses. And the sales in attic are expected to be slightly lower in 2023 than in 2022, but that's based on our confirmed PCR PCR orders only plus other sales of chromatic cameras. It our history of that particular contract is we received a one what we thought was a onetime contract for cameras for PCR machines back in twenty twenty twenty, and then another one, and then another one.

11:09 And each time, we're thinking, well, these are onetime orders. And so far, that that hasn't turned out really to be the case because we still got orders on hand for 2223 shipment. I think cameras as well has, you know, has grown a lot over the years, and and we have a slide on that later on. But it's got good prospects of levering leveraging what it's done, its growth and its its now range of products into other life science applications, and that's really the focus for the future is is certainly PCR applications and certainly gel doc applications, but there are plenty of other life science applications that we're we're aiming to be supplying into in the future. The other driver for SDI of growth is mergers and acquisitions acquisitions.

12:03 We've historically done between one and four acquisitions every year since 2014. We've grown to 11 operating businesses, 11 or 12 depending on definition. Really, our key constraints there are not so much the fact that we're in competition with others to do that, though there's some competition. It's not really price expectations, although some buyers, you know, are not willing to accept the kind of price that we would we would pay and therefore don't sell their business. It's not funding, and it's not really our own management time because we will we will bring in any resources necessary, but it's it's really just the availability of appropriate targets.

12:49 And there are there are plenty around, but they're not you know, we we don't have a list of a 100 to execute this year, but we have we have a good portfolio now of of, let's say, good funnel of acquisition targets now, then some of which are in different different stages, but some will will we would certainly expect to execute this year. Our favorite, if you like, acquisition, our most successful way of of finding an acquisition is those of founders who want financial security, but but also want to remain in involved in the business and see it grow further.

13:34 Maybe they want to reduce the risk, or maybe they they simply think that being part of a group like SDI will help their business to grow. So so we we like that kind of business, but we've also got good examples where manage where the founders have already sold out, good non owner management is in place, and and and we're happy to to look at those as well. What we don't do is buy businesses where we don't we where we would have to provide new management, and then we just can't do that because we don't have spare management going around. The current status is no change in our criteria. There's been somewhat of a shift, I think, over COVID that that sellers are require an earn out, a short one, so within the year in order to to reconcile their price expectations of what the business is really worth with what we're prepared to pay based on recent history.

14:36 But and and maybe we've seen one or two other trends, like in the past, until our latest acquisition, SafeLabs, we haven't bought businesses with buildings. Now we're very happy to do that, and we're seeing more of that, I think, in our current funnel.

14:56 We can fund larger acquisitions than we've done so far if we can find them with reasonable prices. You know? And I think attic cameras demonstrates that we can manage larger larger businesses than we've we've acquired to date. And and, really, our track record is the key asset a very key asset when we go to to speak with potential sellers. So as I said, the the pipeline is strong. I'm gonna go into our seg reporting segments. As you probably know, we report our numbers under two segments. They they are groups of businesses, and the the first is digital imaging, which comprises the two original businesses, Sync and Optics and Attic Cameras and also graphics.

15:53 And sensor controls groups more or less all well, groups all of the other ones that aren't really digital digital imaging businesses, but are largely in in a kind of sensors and control space. In digital imaging, turnover increased by 36%, and that's all organic. So no acquisitions there. It's a lot of that has been to do with the continued growth of attic camera sales for PCR amplifiers. That's continuing at a high rate currently in in the first half of twenty twenty three, and we've got confirmed orders going to roundabout September, after which we'll have to see when they get renewed or further orders may or may not come in.

16:41 We've had good growth also in sales at graphical op graphical optics and in Synoptics. So it's been a good year for digital imaging and a good year too for sensors and controls. The turnover increased by 46% year on year of that. So our two acquisitions in the year came in into the sensor and control segment, SVS, Scientific Vacuum Systems, and SafeLab Systems. And our organic growth of businesses already in the in the sensor control segment grew by 9.7% in the year. Adjusted operating profit up to 5,200,000. Strong sales at ASTORS Control Systems and Applied Thermal Controls, Very happy with with progress in both of those businesses.

17:33 Some of it coming kind of off a a COVID year where where sales were down, but also good progress, I think, for going forwards as well. Monmouth Scientific, we purchased in December 2020. Their sales remain very strong, so they're they are a bigger business than they were a couple of years ago before we bought them. When we bought them, they were at a peak of sales in in cabinets which were related somehow to COVID nineteen, the pandemic, so biological safety cabinets. And at that time, they were selling lots of them and in batches, so to the same customer. So kitting out a whole series of cabinets for a for customers.

18:20 So we might sell 10 or 20 at a time to the same customer at the same same specification. This year, their sales remain very strong, but there's a more usual kind of more historical mix of fume cupboards and clean rooms and laminar flow cabinets as well.

18:42 We acquired into the sensor control segment Scientific Vacuum Systems in January 2022. SVS manufactures physical vapor deposition systems. So these are vacuum vacuum engineered highly engineered vacuum instruments in which metals or other or other material is deposited onto in thin coatings onto substrates, which could be metal or semiconductors or others. Very pleased with that acquisition. And in March 2023, we acquired SafeLab Systems.

19:30 SafeLab makes fume cupboards. They are high specification and and fully featured cabinets. Their their main customer base is eventually for schools, universities, and and other institutions where they they require a flexible flexible fume cupboard, so very high specification. We sell to individual schools and colleges, universities, and and institutes as well as to building contractors that are kitting out, especially in in the state school sector, for example. They're kitting out lots of new newly built schools and laboratories.

20:21 So I just got a phone going there. So that's that's the movement in the sense of controls and in digital imaging. I'm going to move on to the income statement, actually, only briefly because we've seen already the growth in revenues, the growth in in profits of various lines. So I'm not gonna dwell here. I'm, of course, happy to come back in in questions to to the income statement.

20:49 I'm showing a revenue bridge that's from 2020 sales to 2021 and to 2022. So 2020 was very largely pre COVID, so we our year closes in April 2020. The the pandemic started really in earnest in about March 2020, so most of most of 2020 was pre COVID. The the bridge to 2021 is that we have the the contribution of 2020 acquisitions that added £2,500,000 to revenues. That's the Shell acquisition of of 2020, the the full year effect of that. And then we add on the 2021 acquisitions, that's Monmouth Scientific and Uniform Engineering, That added £6,000,000 in the year, and they were acquired in December 2020 and in, I think, January 2021.

21:51 Then on top of that, we had the positive effect of products being sold due to the COVID pandemic that added 6,100,000 of sales in 2021, and they were some flow meters going into ventilators and cameras going into PCR testing equipment.

22:14 And then finally, the impact of the the the negative impact of the pandemic on our other businesses was a drop of £4,000,000 in revenues. So that took us from 24,500,000 in 2020 to thirty five point one million in 2021. Then this past year, the year we're talking about, those 2021 acquisitions of Monmouth and Uniform added a further 5,200,000, so adding to the 6,000,000 in their first part year of of ownership.

22:48 And then our acquisitions towards the back end of this last year, Scientific Vacuum Systems and SafeLab Systems added this year 1,700,000 and will add further growth to next year. Again, the organic one time sales, this time only really cameras for for PCR machines added a further 1.9, adding to the 6,100,000 of last year. So adding to a total of 8,000,000 of of what we call one time sales for COVID, but, you know, the the definition of that is is kind of in the eyes of the beholder.

23:31 And then finally, organic growth in all of our other sales was 5,800,000, so reversing the the 4,000,000 drop of last year and adding again an an extra 1,800,000. So total sales in 2022 are £49,700,000.

23:54 Moving on to the balance sheet. That's there there to be seen, and and you can get it from a handout. I'm just focusing on the cash situation top right, which is important to us. We closed the year at 5,100,000 of gross cash and £4,000,000 of debt bank debt. That's from our £20,000,000 facility, so leaving £6,000,000 undrawn gives us net cash at the end of the year of 1,100,000.

24:24 Not paid at that point, so the the balance sheet at the end of 2022, the year just closed, we still owed £3,300,000 on the two acquisitions for made in 2022. So that is £2,300,000. It's a final payment for SafeLab Systems, which we paid in June of of June twenty two, and a further million pounds for SVS, which is contingent on SVS financial results in the year to September 2022.

25:00 So if you kind of net those off and say they're already earmarked for the acquisitions already done, we would really have a net bank debt with the contingent consideration included of £2,200,000. That still leaves us with £16,000,000 of additional

25:19 additional funds to be drawn from the the facility we have and £5,000,000 of cash. So we still got plenty of firepower for for new acquisitions. And, of course, we're generating cash every month as well.

25:36 Here's a bridge of cash from the beginning of last year to to the end of last year. We made £13,200,000 of operating cash inflow. That's before taxes, before interest, and before movement in working capital. Working capital was again favorable in the year, so that's the second year of of of strong growth, but but reduction in working capital, and I'll mention that in the next slide. And, of course, we have capital in expenditure and r and d, which are further investments into our businesses, leases, taxes, interest, and and other small amount of cash received for on options. And then acquisitions was, of course, the big deployment of our cash in the year. We spent 11,000,000 of cash,

26:30 and that includes the a final payment on the Monmouth acquisition that does not include the 3,300,000 still to be paid on the this year's acquisitions. So ending ending the year then with net cash of 1,100,000 as we saw on the previous slide. So that's a a kind of very visual picture of our model, which is make a lot of cash, spend a lot of cash on new acquisitions, which will improve profit for the following years.

27:04 This is cash flow more in numbers. What I just want to to to go in a little more detail about is is in that box where we show the movements in working capital last year and this year. So a favorable movement last year of £2,800,000 and a favorable movement this year of £1,500,000. So last year 2021, we received £3,200,000 of advanced payments on COVID nineteen related orders for 2022

27:36 shipment. That was a source of funds last year, 3,200,000, and formed a big part of that £2,800,000 favorable movement in working capital. This year, that 3,200,000 became 1,700,000 of advanced payments for 2023 shipment. So, really, that's been a use of funds of 1,500,000 in this last year, but still we have on our balance sheet 1,500,000 of customer money that will be used to pay for for shipments in this year, 2023.

28:15 The other part of this has been the the contingent consideration, deferred consideration for acquisitions made, which started the year so ended 2021 at £2,350,000, which was paid then in 2022,

28:31 and this and ended the year at 3,300,000 we've seen on the previous two slides. So that's that has also helped our favorable movement in working capital as well. Other movements have included an increase in stocks over the year as we slightly build up stocks for both for shipments, you know, of our own products that that's ready to go out of the door and for to to take care of some of the shortages that are well known.

29:02 But, also, we've we the the down payments, the advanced payments from customers help us very much because, again, we we don't have debtors for those for those shipments because everything is paid upfront. So so we get not only the customer's cash in hand, but when the the sale has been made, we we don't have debtors, so we don't have to wait for their customers' money. We've already had it.

29:31 And that's the case certainly for these active camera shipments for PCRs, but we have other businesses where that's a that's a typical part of this of the of the business is to take to make custom equipment for our customers. And where that's the case, we typically would get a down payment from the customer for at least part of the the sale. Not just us. That's that's a fairly common way of doing business, of course.

29:58 Gonna move on to operational highlights, and I'm gonna ask Mike to to pick up here. But it's still page seven. I'll keep telling John that. It's a fantastic buy and build strategy execution sort of diagram, and I I do like it. Anyway, let's move on. It's attic cameras update.

30:22 John's got a lot of content on this slide, so I'll just pick out a few areas to discuss in detail. First of all, attic, just go back backtrack a bit. It started out developing and manufacturing astronomy cameras many years ago. Cameras were then adapted to the life science market and were taken on by Synoptix or their Syngene brand. And this is an area where the sales and profits have grown exponentially over the years. There's a significant impact, as John's rightly said, two customers within PCR and also within the gel gel documentation markets. And the next point I'd to say is it's been a fantastic number of years for for attic cameras, and it generated a a lot lot of of cash. Well, we're gonna use that cash wisely.

31:11 I'm going to actually use that internally with the increased resources and footprint of the business and equipment. But more importantly, is to develop cameras for the specialized life science applications. One such move is away from the CCD sensors to CMOS sensors for gel documentation systems. The reason for that is that the development within the CCD market is becoming restricted. The CCD centers are unavailable becoming unavailable at the right price.

31:47 One of our major suppliers is Sony, and they're they're discontinuing the CCD sensors in favor of the CMOS sensors. We hope to be one of the front runners with this new CMOS technology into our cameras, and we're having trials of the new camera in the field. So if you go onto Attic's website, you'll actually see one of these new cameras as soon as you actually open up the page. The the third and sort of final point is just to expand a bit on what I was just saying about where the investment's gone. All day to day activities now run out of Lisbon, and this includes production, q and a, logistics, finance, and a certain amount of sales and marketing. So the head count in Lisbon now is 34 staff.

32:34 And then if we look at Norwich, its operations there are research, sales, and also marketing. The headcount there is 12. So if you sort of backtrack a few years, it was the reverse of that.

32:47 Small Lisbon office just purely for manufacturing and then an increased headcount in Norwich. It's very good for us. It's a fantastic facility we've actually got in Lisbon, and you can actually see some pictures at the bottom of of the first of all, on the left hand side is the nice accommodation for Norwich or building for Norwich, and the other two are of for Lisbon. And then we move on to the next page, which is operations. Just three points there, just worth highlighting. First of all, one of the questions being raised across the last sort of couple of days is supply chain issues. Have you got any? Of course, we have just like every everybody else in the world. This has been causing us problems on a daily basis across all our business units, but the management teams and the including the buyers have been able to secure supplies and provide their customers with their products and services within the agreed delivery times.

33:49 In a number of service in in a number of service centers, it's been quicker to actually reengineer the products. For example, Shell, they redesigned a wind pressure device for a Formula one in three months, which was actually quicker than the delivery time given by our supplier. And this has enabled us to meet the agreed delivery times of our customers. Everybody sees the news, and they they know the problem. So, you know, if we are if our customer deliveries are delayed, is everybody else's. So we're all in the same boat. It's a very difficult situation, but our individual management teams are doing very well to cope through this for these problems. The second point is, as we've actually said, we're all the way through over the many years. We buy these businesses, they're lean and mean businesses, ran very well by the founders.

34:43 But what we want to do is to actually increase the fixed step, and we wanna invest in these businesses. So what we do is continue to invest in the business units. And some examples of this are Gratikules, which we mention, I think, last year, and that is we're refurbishing the business. We're purchasing new equipment. Some of that is internal from Monmouth by way of a clean room, and I think there's five laminate flow cabinets actually in that building now. And that's phase one, and we'd like to see what return on our capital we're going to get from that refurbishment. Then we're gonna hopefully move on to phase two, which is expanding that building in Tunbridge. The second example is Monmouth. As you can actually see in the slide in the bottom right hand corner, that's their new facility.

35:31 They when we first took it on, there were six industrial units scattered around Bridgewater. And we took on the the building, which David Pomeroy started before we acquired the business, And we've got two factory units there. We've got one which is the engineering side, and then we've got the production, the administration, sales, marketing, and service in the other in the other building. The third one is Astell's. That's doubled in size mainly because of the increased, capital expenditure people are signing up for these days. So we need to increase our manufacturing and engineering floor space. An interesting point, which is actually quite minor, but I do like this point, and that is across the group, we've invested in a number of laser engraving machines. And this has given us the opportunity to include serial numbers on our products, which we did manually. It's time consuming and it lacked professionalism.

36:28 But also, it's given us an opportunity to include a QR code on our products, for repeat products that actually give you the custom a more efficient method to reorder our products, and it's gone down very well. The final point on this slide right at the bottom, just sort of one line or one one line and two words is travel. Travel is nearly back to normal. Just two points here. We're attending overseas trade shows, and recently I attended with a number of our business units, Analytica in Munich, which went down very well. And the other one will be in August, which is the Kemer in Frankfurt. Another area for to discuss is on the travel side is Astells. Astells are good. Part of their revenue stream is from service and spares. And we're back to seeing the engineers on long haul flights going over to service and commission equipment.

37:27 And as we move on to page 21, that is our priority for, excuse me, FY 2023. So to build the group's existing business unit, what we've actually done is travel restrictions have been eased. Therefore, it reopened the doors for overseas demos and servicing. What we've actually found through the sort of two years of COVID that we can actually demonstrate on webinars, but still people want to sit, feel, touch the equipment we're selling, especially the general documentation systems. And we have actually servicing commissioned products via the web, but it's good to actually see people face to face. The second point is we're continuing to manage component shortages. We've already discussed this, but also labor shortages and also inflation.

38:20 So sort of for salary rises within the group, it's between sort of 59%. We've actually said to the staff we will address that again in a number of months' time because we do want to hold on to our labor, on to our staff. It's very difficult to recruit staff, especially as we're finding service engineers at the moment. Another point, which is a a new point for us, is that is trying to leverage our resources within the group. A good example of that is the collaboration we're finding between Monmouth and SAFE Labs. They're currently in a joint tender situation. That's discussions between the two sales directors on a tender for one customer. And the other area is what we've actually got when we service equipment, especially sort of a few cabinets, they need to have their carbon filters replaced.

39:07 We make the filters, but we still need to buy the carbon. So it's actually looking at we actually buy carbon as a bulk buy for these two companies? And there seems to be savings within that. Early stages on both of these points, but it's nice to see that we are getting synergy is a wonderful word, but it seems to come across in in these two companies. Now we're on to sort of buying businesses. We've got a very strong pipeline, and I'm optimistic that a number of these will crystallize in the current financial year. What we're pleased to see, John and I are pleased to see, is we've got 15 acquisitions, 15 happy vendors, and we have proof that we are the go to acquirer for the owners of profitable cash generative, small and medium sized businesses.

39:55 If we go on to the summary and outlook, a couple of points there. You can read it at your leisure. It's been another record financial year. We're having a good start to the new financial year within the SDI Group. Supply issues still come across the group, but all our businesses are coping well. We continue to invest in the business units to drive organic growth. We continue with the buy and build model and have a strong number of prospects. And hopefully, we'll close a number of these in the financial year. And also finally, the last point is on the changes within the board. John and Isabelle are leaving in the next few months, and we're replacing John with Amy. And then there'll be announcement shortly with a new nonexec director.

40:46 That's fantastic. Thank you very much indeed for your presentation to both John and Michael. Just to remind attendees, please do continue to submit your questions just by clicking on that Q and A tab and scrolling to the bottom of screen and typing them. Just to give the team a few moments before we move on to those Q and A, just a reminder that all the questions were appropriate to do so published on the investment platform along with a copy of the presentation. John, Michael, we've had a number of questions as you can see. So if you wouldn't mind just clicking on that q and a tab, and where appropriate to do so, just read out the question and give you a response, that'd be fantastic. Thank you. Okay. Yeah. I think so like previous times, I'll probably read out the question and hand it over to Mike to answer. There's lots of numbers in here, John. So so first question is, apart from some congratulations, thank you very much, I would like to ask, where would you like to see SDI in ten years' time, Paul asks?

41:42 Okay. Yeah. Oh, you showed me this one yesterday, so I had to give it so I've got plenty of thoughts on this. On this, this is a difficult call to tell you the truth. We've actually been running this business now on a buy and bill for eight years. I think we've been pretty successful. We don't really want to cock it cock it up. So I think we wanna continue with what we're doing. I'm sure we'll buy bigger businesses. That's as a group level, but what is missing below that is the strategy meetings we used to have. We've missed out on, I think, three years now of strategy meetings because of COVID, but they're coming back in October, and it'd be good to see what is coming through the subsidiaries in the way of strategy, and how we can actually invest and grow these businesses going forward. But for John and I, M and A, that will continue as is, really.

42:32 Have you got anything to add on that, John? Well, I would say, look, SDI's got a great business model. It's it's and and there's no reason why it can't continue. So I won't be here. Mike won't be here forever ever, I suppose, but but the model is still there, and we've got a great niche for buying the right kind of businesses, and there's no reason why that can't go on. Another question from the same same from Paul again is how are you seeing the opportunities in the market for to make acquisitions? I think I did touch on that, Mike. But do you want to Yeah. That's true. Answer that. Usually have a pipeline of between fifteen and twenty acquisitions. There some of them actually take years. We've got a number on there who've been we're in discussion with years. It's the right time.

43:23 And we've actually got quite a few sort of live acquisitions, sort of three, four, you know, we're in serious discussions with, but we can't really discuss a lot a lot about it until, you know, the SBA signed, but we haven't missed out on a year when we haven't acquired something. I did see a number of months ago on a blog to say we hadn't acquired anything in the calendar year, but then what actually happened is in the financial year, this was last year just gone that we acquired two businesses, SVS and SAFE Labs. So we're still acquiring businesses. It was late in the day, but we acquired two very good, very cash generative and very profitable businesses. Yeah. Thanks, Mike. Yep. Next question is from, and he asks, is so with the increase in the medium and long term with increased interest rates, is that going to affect or slow our acquisition rhythm?

44:25 I think the answer to that is is no. Not really. So we're we are certainly not gonna slow down what we do if we get the right acquisitions in front of us, And and it's not really, frankly, going to change very much the the amount we're prepared to pay. So interest rates are still pretty low on his historical scale. And, you know, if they would increase a bit, I you know, it doesn't really make much difference to us, actually, because the profitability of or the return we're getting on businesses we acquire is is is far higher than the interest rate we would pay on. So I don't think that's gonna change much. Next question.

45:11 Same asker. What kind of measures and actions are you taking to perpetuate the successful culture and approach that's that we've had since 2016, Mike? Yep. That's a good question. That's we have got an idea. As soon as we acquire a business, it's usually myself, John, and Ken. We'll actually go and see that business, and they have to have a similar sort of culture and fit to the rest of the businesses. So we've actually, with 15 acquisitions, have a good idea of whether those businesses actually fit into the rest of the group. Yeah. We don't change the culture at all. We don't want to. We don't wanna change the staff or anything about that business. We wanna invest in it. But we know we've got a good inkling of whether it's a good business or is it a good fit for us. I don't know what how you actually measure it, but we just do. As soon as we have a meeting, we come out and say, yeah, that's a really good business, and it fits well with us, really.

46:11 So it's difficult. What about you, John? What's your thoughts from when you've been involved? Yeah. I think so. That's right. So the culture we've got in our businesses is the same culture that they had when we bought them, actually. And and what we do is we kind of reflect that culture in head office as well. So head office, as Mike's already shown you, isn't huge, but we like you know, we buy businesses which are pretty frugal, and we like to keep head office similarly so that so that we are, you know, we're seen as part of of the businesses that we buy. And, you know, they look to us for advice and and help, and they don't look to us as being the bosses or anything like that or or being the ones driving the big cars.

46:57 So it's that it's it's that, I think, frugal culture of participating and rolling up your your sleeves that that they like and we like too. Next question. So between Scientific Vacuum and SafeLab, we're gonna add some profit into this year and next year. Can you address the growth potential for each and how that might not be achieved? So what what's the growth potential of SAFe Labs and and of scientific vacuum systems? Do you want me to answer that, Mike? Yeah. Sure. Scientific vacuum systems, One thing we we can't do do is sort of disturb the current year. They're on an earn out.

47:42 There's a big shipment of one unit going to Gillette. So that's that's this year sort of we have to draw a line underneath it. But But there there are are many areas where we can actually use this sort of technology. They've actually spoke to us about it. There's only eight people in that business, and we can actually invest in that business and grow it. And so that's that's what we've got to do. Going back to our strategy days, that's what we've got to discuss in October. There's a lot of potential out there. They don't usually use marketing. It's all word-of-mouth. So we can use the marketing expertise across the group, across all the 11 or 12 subsidiaries to actually grow this business. What we don't want to do is to, as John rightly said, with head office and with these businesses, is to put a heavy burden of additional staff on there. We wanna keep these business lean and be, but use the resources across the group to try to grow that business.

48:35 SAFE Labs, to tell you the truth, there isn't a lot we need to do with that. It's had a wonderful year when we bought it. It's very, very strong this year, and it's going it's going great, Guns. It really is. It's having a fantastic sort of two or three months since we acquired this business, and there isn't any reason why under the supervision of Roger, who's doing a great job. Thanks, Thanks, Mike. Question from Gilbert. Which has been your best acquisition? Do you want to answer that, Mike? I will do. You don't have favorites, of course. Do you want? I was just you beat me to it. Yeah. Do you have a favorite child? No. I I don't. I don't think it's very fair. Say that also, I know some of our businesses that listen to this. So the answer is, let's move on.

49:22 All our businesses are very successful. They're very profitable. We have great fun with these guys. There there's no favorites, really. I don't really wanna put my neck on the block, really. Thank you. Right. I've got another question here. So questions keep disappearing as I as I scroll down. John h is asking, right of use assets have tripled in the year. What are the main drivers of this? So, yeah, I'll I'll answer that. So right of use assets, this is related to the IFRS 16 accounting standard that came in a couple of years ago. And and, basically, we have to put now all leases onto our balance sheet. So that's leases for for cars and buildings essentially in in our world and and mostly buildings because we don't have many cars.

50:14 So why have right of use assets tripled? The biggest single item of that is the new building that Mike's already showed you for Monmouth Scientific. So that's added a big building with a very long lease. So we purpose built that building for Monmouth. It has a long lease of fifteen years, and the longer the lease, the more the the bigger the asset, right of use asset you have to put on your balance sheet. So the simple answer there is that the biggest single item is has been the Monmouth building that's adding two other buildings that we've we lease and we have on the balance sheet now. Added to that, we've we've acquired two other businesses, and each one of those has at least a small amount of right of use assets, so they go there too. But, again, it's the Monmouth Building. It's the big asset.

51:09 Question from Damien. Attic, is the potential to sell into other life science applications an aspiration, or is it something more concrete? Well, I would say Mike, you can add to this, but I would say it's it's more than just an aspiration. So we I think we've got the tools to to achieve that, and we've started to do that. So what what you should know about Attic, and Mike mentioned it earlier, is that over the years, they've seeded sample cameras to r and d teams across lots of different applications. So we have we have cameras that can fit to lots of applications, and what we try to do is to build for each customer the perfect camera for their application and their their specific use.

51:57 So some of those are gonna be successful, and some of those are going to remain r and d projects for a long time. It happened with the the PCR camera for that that it came at the right time and and sales exploded. But but we've already got plenty of cameras out there in similar applications. So I think it's more concrete than that. Recently, we've we've been expanding the sales and marketing team and adding to our expertise there, and they've gone out specifically with with a kind of list of potential applications in spectroscopy, in chemiluminescence, where we've recently launched a camera in in in other areas like Western blot and ophthalmology, veterinary, and and spatial omics. So there are there are plenty of areas where we think our camera can be a solution. It won't be the only solution in the market, but I think it'll it it there will be niches within those areas that are are our camera fits very nicely. So I think it's definitely attic camera has a lot of potential there.

53:09 All covered. Hope that's answered it. Yeah. It has. Next question, again, Damian. Are any of the businesses still suffering from the pandemic, or are they all trading at or above pre pandemic levels? No. I'll we'll have to be honest with this. Shell Instruments, which is a fantastic business, is still suffering with the aerospace side of the sector. Formula one's gone very well, but it's still difficult for these guys. I think it's gonna come round. It's a great business, very good competent engineers, but it's gonna take time. And the beauty about SDI is we've got eleven, twelve business units, and if one does take a bit of a downturn, then the rest could support it. And that's what we're here for. We have to support these guys because we know it can come through.

54:00 Thanks, Mike. Question from Bill H. Tricky tricky one. I think that's yours, John. Question for John Abel. Why are you leaving such a successful company? You look too young to retire. Well, thank you very much. You're never too young to retire. So I I frankly speaking, you know, it is a great company. It's a successful company. It's a great company, and it's been a real pleasure to work at at SDI. So I just took a look maybe a year ago now and and looked to the cost benefit analysis as as financial people tend to do and decided that there was plenty of of benefit out there in the wider world. So in retirement, I'm looking forward to to going out to Italy a lot more and enjoying myself rather than spending all the time in that little office with Michael. So, yeah, I think, you know, it's it's been a good ride for me. I've been you know, I've I I'm sure I've benefited more than SDI has, so so it's time for someone else. And we've recruited an excellent CFO to take my place, so I'm sure everything's gonna be great.

55:13 Next question. Alastair, thinking about your m and a methodology, can you talk about the circumstances in which you would sell one of your companies? We've talked about this, haven't we? Mike? Yeah. I'll say I'll start it, then you can sort of finish it. Yes. There's always a price. So if actually somebody came along and found a better home for one of our subsidiaries and the price is right, then we'll sell it. Because at the end of the day, we report to the shareholders. We have to give them value for money. And if we know that there's a a business which is offering a a better home for one of our subsidiaries at a price which we really can't turn down for our shareholders, then we have to accept that. You wanna expand on that, John? Yeah. I mean, that that that's true. It really would have to go to to someone that was probably already in that line of business, but we've no you know, we don't actually we don't seek those out, and we've and no one's really ever come to us. Maybe one exception in a specific Yes. That's right. Area where they wanted part of our business.

56:23 But it's unlikely because they would have to pay they you know, often sometimes they might come to us and say, well, you buy businesses at five times profit. So here's five times profit for one of your businesses, and and I don't think they they recognize the difference between buying and selling in that case. So it's the economics of it wouldn't work very often, but we are open to it if if if, you know, the right buyer would come along, but that hasn't happened so far. Okay. Question from j f. Since 2016, SDI has stopped filing full accounts for its subsidiaries with Companies House. Will you restart full account filings to improve transparency?

57:09 I should No. No. We don't want full transparency of our individual business. Correct. So so not planning to do that, actually. No. But, you know, we do we do try to conform with the rules, and we, you know, we certainly want But one of those rules is that we don't have to to to file full accounts for all of our subsidiaries, and it would be a big gift to some of our competitors in those niches if we did that. But also as well, when we acquired businesses Another question from Let's say, John, let me expand on that. When we acquired businesses, the businesses usually file abbreviated accounts anyway, so we're still continuing with that. And even I think that was one year we did in 2016, the auditors did mess it up, and they were filed full accounts. And our subsidiary director said we should be filing those because we never have done before. So we've gone back to where we were and actually filed an abbreviated account.

58:07 Go on then, John. Sorry. Thank you, Mike. Damian asking, how can acquisition and reorganization costs be treated as exceptional items and adjusted out of profit before tax when they are integral to the buy and build strategy? Well, I think that's a good question. I I would say I would argue that we we spike them out in order that people know what they are rather than rather than hide them in the rest of the p and l. So we make them there transparent. We we adjust them out in the adjusted numbers because they do go up and down. So one year, we might spend you know, we might have an agency fee to pay or something like that and next year not.

58:54 So I think it's important that element of transparency that we we separate them out from the the adjusted numbers, but they are there for everyone to see. So I I don't think we're hiding them. And, you know, it gives you, if you like, a bit of extra transparency. Oh, it's a question from John a, but not not from me, I think. Could you tell us what you're seeing in the business environment right now? How challenging is it, or do you think it'll be? Okay. I'll answer that. Well, you can actually see year on year results for us. It's we're performing well. We're performing way above our initial forecast in the marketplace. We do trading updates. I can't I can see I can't see any sort of change in that from what we're looking at with the with the current financial year at the moment. We have got challenges just like everybody else, you know, with the shortage of components, inflation, labor issues, but everybody has these challenges, one of the within the environment on a daily basis.

1:00:04 So I don't think we're any different for anybody else, really. Yeah. Thanks, Mike. Yeah. Another question from from someone who's not me, John a. Oh, okay. Could you talk to us about long term succession plans? I appreciate this might be a way off, but it's a fair question for shareholders. I really like your business model but might have concern the company may sell out when the preferred thing is to continue growing the business with a new management team with the same ethos. Don't think the sellout's gonna happen. We we talk about it. I and recently, we've talked about it as a board succession plan. John's going. We've got a new CFO starting.

1:00:50 Ken will retire sometimes, so will I. And, of course, at the end of the day, we want the company to succeed. We're shareholders of the business, and what we don't want it to do is to fall apart. We have to make sure that there's succession in place. As we acquire businesses, we've got 12 business units, 11 or 12 business units across The UK. There's only so many miles I can actually do in a car because part of my role is an operational role, and we'll probably need an operations person to assist around the businesses. I think when it comes to acquiring businesses, there's enough resources in head office to do that job. I think mainly it's the day to day operational side for me personally that whereby we need somebody to do that and so probably take over in future years.

1:01:37 John, I was just gonna say we've just come through the hour. For every question you answer, you seem to get another one replacing it. But do please, Karen, if there are any particular questions you wanna pick up before we wrap up. Okay. Thank you. So I yeah. You you're right. We've got a a long list of questions there, and and probably probably we won't we just won't be able to get through them, will we? We I I think the best thing to do is that we provide the written answers Yeah. To these over the course of the next days. Absolutely. And, of course, all questions. Thank you to all the attendees for submitting those questions. All questions would be available for to team to review. And as John said, we're appropriate to do so. We'll publish responses on the Investor Me company platform.

1:02:25 Michael, perhaps just for redirecting investors to give you their feedback, which I know is particularly important to you, if I could just ask you just for a few closing comments. Yeah sure. For the last eight years we've kept this same buy and build model buy in cash generative and profitable businesses and encourage them to grow with investment from SDI this has proven with a return on capital employed increasing from 12% to 34%. This is referring to what keeps saying slide seven, which is my favorite slide. And also credit John for it, GROUP providing a very good sort of slide back. And finally, on the John subject, I'd like to thank John for his work in the last four years. You know, he's enjoyed our double acts. John has been a very lucky boy, and during his time as CFO of a PLC, he hasn't had the privilege of making a profit warning.

1:03:12 Therefore, he's only seen the upside of PLC reporting. So therefore, have a great weekend, chaps. Michael, thank you very much indeed, John. Thank you very much indeed also for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete, It's greatly valued by the company. On behalf of the management team, SDI GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good weekend.