Sdi Group (LSE:SDI) — Interim Results

0:00 Good afternoon, ladies and gentlemen, welcome to the SDI GROUP PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. Given the attendance on today's call, the company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today, we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give

0:30 that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to Mike Creedon, CEO. Good afternoon. Good afternoon. This is the, interim presentation for our results to, October 2023. So I'll start with the agenda. You're gonna see the group summary, board of directors. I'll go through a bit more detail this time and, followed by the group overview, UK world and presence, acquisition process, acquisition timeline. Then I'll hand over to Amy who will go through the h one FY twenty four results, and then we'll come to conclusion with the training training and output. It's interesting, to the back. We've showed this on a few occasions, the appendices, whereby it gives in more detail our our subsidiaries or business units, where we've got 15 of them now, our financial track record, and also our capital structure.

1:22 So if we move on then, Harry.

1:27 Oh, it's okay. That's alright. Alright. Laptop. Okay. So I just wanted to go a bit more detail here. So let's start at the top with Ken. Ken Ford is the chairman. He joined in 2010. He recruited me as the CFO in 2010. He got Ken's CV and my CV. He's seen it many, many times. It was a turnaround by myself as being the only executive director for about six years. And during this period, I was supported, you know, heavily by Ken. So Ken and I, for the first five or six years, we spoke nearly every day, including weekends. But as we as we grew, became a lot more profitable and cash generative,

2:03 we strengthened the board. So what it introduced was some high level NEDs going in recruitment order with David, David Tilson, Andrew Hosde, and then very recently with Louise Early. Their CVs are included within the pack, but what I'd like to do is spend a few moments handing over to Amy and then to Steven, the new boy on the block, with their, sort of CVs. So over to Amy. Yeah. Hi. I'm Amy Chavez. I think

2:29 many of you would have seen me before at previous meetings. My background is I was formerly c group CFO at FTSE two fifty listed Ultra Electronics Holdings. I was also their group financial controller during the early two thousands when they embarked on a buy and build, not too dissimilar to SDI. I'm also a nonexecutive on the board of PLC, which also follows a similar business model to SDI. Steve? I'm I'm Steven Brown. I joined the board at the end of September twenty twenty three. So I I have a technical product and commercial background and bring a small track a strong track record of business growth to the exec team. Previously, I I held a number of senior positions with with significant tech focused businesses, most recently including KB Dynamics PLC and BP Launchpad, the business scaling function of BP PLC.

3:23 My initial focus will be on the organic growth portfolio of businesses, in particular, profit growth. In parallel, I'll also be working with Mike and Amy to pursue high quality acquisitions as well as building a strong deep flow to support this. Thanks, Steven and Amy. Let's move on to through the pack now. When we look at the group overview, I don't think this has been shown before, but it it would be good to repeat it. We've got a further acquisition on slide. But the strength of our business model remains unchanged in operating as autonomous business units, but we're seeing synergies within the group as we acquire additional complementary businesses. All acquired businesses, they've got to be profitable and cost generative, and we do not look at acquiring blue sky businesses.

4:09 We don't rely on a single sector or reason for trading, which has proven its worth during the sort of two year COVID period where we went by. We had a number of businesses who were trading not in line with budget, but still generating profits in cash, and then we had some real sort of powerful businesses who took us through the COVID years. We acquired businesses and invested organic growth. As we will actually go through the presentation, we'll probably give some examples of that. You can see on the chart, as we started buying the businesses, there's a greater weight weighting towards sensors and controls due to the, acquisitions within this sector. We've added further business unit, you can see on the end, which is peak sensors. We've got a separate slide on that. We'll discuss at length within the plan.

4:56 So over the years, I think since 2019, John Abel introduced this these sectors. What actually happened was that, the city wanted more and more of financial data, about what we actually do. So instead of one group of companies, we split it into two into two sectors. We didn't wanna show all the gross margins of the, businesses. It's ranked from 55 up to 80% on material costs only. So therefore, we set these sectors in place. But as you can actually see from the sectors, many in 2019, we only turned over 17,000,000,000, and we didn't have as many businesses. And now the segment structure hasn't worked as well. It's too in balance. You can actually see from that diagram. So at the year end, Andy Andy's looking at this at the moment. We intend to reorganize the business sectors still in two segments,

5:49 but, these segments will be reclassified. So what we're looking at is lab products businesses and the other containing scientific and industrial products businesses. And, hopefully, this will provide better information to, to the likes of you yourselves. And what we'll actually try and we'll try to do as well is to show the before and after, so what will show their their revenues as is now and as is in the future. So it's still work in progress for us. We've got an idea of what's gonna is gonna go into the lab group at the moment, and I'll discuss that as we go through the pack.

6:24 So if we go on to the next page, which is the world presence, and so we've got an additional business on there, as you well know. So what we've actually got is a heavy UK presence in The UK with a growing presence in the rest of the world as we acquire additional businesses. So what we've got is currently 17 sites in The UK and four overseas. So we've got Lisbon, so that's attached to asset cameras. That's their manufacturing site. We've had that ever since I've been with the the business. And then one we acquired FAST, which is Fraser Anti Static Techniques based in Devon. They've got two, subsidiaries, one in Dresden and one in Shanghai. So, again, I think we'll just discuss about China later on. And then the last one, again, it's been there many years, and that is Synoptics Inc, which is based in Frederick, which is just outside Washington DC.

7:19 Latest addition is Peak Sensors, and that's based in Chesterfield. What is the acquisition? Oh, sorry. Let's go through the acquisition process. Okay. So we discussed this acquisition process at the presentation, recently, and it's also been included within this within the appendices. But it's nice to actually see this within the pack. So we'll just go through this. We've seen it on, number of occasions.

7:45 What are the acquisition criteria for the SDI GROUP? It's has to be a scientific technical with a manufacturing arm to it. That's very good for us because then we control the cost of materials. And so it's it's it's a has to really for us. They have to be, and I I insist on this, properly guaranteed. And we said this earlier on, we don't want cash burn businesses. It's good to have a strong track record within the businesses. It's a lot easier to do financial due diligence when you've got the historical data behind you. I have to have a strong management team because head office is us. You've seen us. We can't manage these businesses. So when we acquire businesses, we have to make sure when there's a certain level of trust between us and the, subsidiaries we're looking to buy that, we'd like the founders to stay on. If not, then we have to make sure there is succession planning in in place for these businesses. We have actually sort of turned down a few businesses whereby people didn't want to stay with the business, and they were saying it's up to us to find succession. Well, we can't handle that at all. We offer businesses at a fair price, but we've been buying businesses at a three year historical, price at, between 3.5 and 5.8 times, profit before tax, net including net net taxes.

9:07 So what I'd like to do, I think we could this has been in motion for ever since we've been acquiring businesses since 2014, is splitting the goodwill price from the net assets. That's what and that is fully open of what we're buying the goodwill at. And the last point in that section is we like strong exporters within the niche sector. So currently, our our exports well, it's about fifty fifty, I mean. So they're about you know, the biggest problem we've actually got is we do sell to OEMs. So we don't know in a number of circumstances where that's where that product's going out to. Before we started, we were heavily involved then in OEMs. It was sixty forty, 60 overseas, and then 40 in The UK, but it's it's difficult to get that data now.

9:58 Why do people want to join SDI? For the size of the businesses we're acquiring, it's difficult to find owners to find an for the sorry. For the owners to find a suitable buyer. We're looking at businesses between making between 500,000 and £1,000,000. The next point is what we want from the businesses, and that is what the buyers want from the businesses. It's still maintain independence from the businesses. You know? We we try to leave them as autonomous business units, and that's imperative because what we want to do is to retain the culture and the brands going forward under the ownership of SDI. What we're trying to do now, which is new to us, is sharing knowledge within the group. So we're actually bringing these teams of people together, and this includes the strategy meetings.

10:46 We have the marketing meetings as well. And also recently, with this, lab group, we've been bringing together the directors and senior managers to try to share data. Marketing was one of the first ones we actually well, sorry. Strategy was the first one we introduced, and then we've recently brought marketing together. And marketing is a is a younger kids' game today. It's driving people through to the website. There are lot of tools in driving people through to the website and sharing that data. And one of the main areas they're looking at today is instead of using Google AdWords, there are the pieces of software to drive you through to the website as well as chat new p t they're using as well. What we offer is widely strong financial support, within head office. Also, what we try to do is to share special resources, for example, technical support. And this is another thing going back to sharing knowledge within the group.

11:36 On for acquisition, what do we do? Well, we implement strong financial controls. The majority of the businesses are using SAGE systems. These days, I think the, modern system is SAGE 200. SAGE 50 is, is falling away. So we're introducing a couple of, the the companies onto Sage 200 at the moment, and, that seems to be the vehicle going forward with the subsidiaries. But what Amy and Jonathan, the financial control, are introducing now is a consolidated

12:06 piece of software. Right. Sophie, Yeah. We're we're introducing a new financial consolidation system at the center, which will enable us to extract data from the subsidiaries more efficiently and also provide scalability as we grow. Thank you. But, also, what we we we look at as well, as as I've already mentioned about strategy, it should change times for the businesses. Businesses, when we acquire them, they're they're concerned about generating profits in cash, which is good for us. Also, they probably only go out for a year in the way of the budgeting process. So what we're trying to do is to, ask them to think about what the next three, four, five year plans are. So within the strategy meetings, we held sort of four to six, you know, yeah, four to six weeks ago, probably a bit longer, is, that the individual business units will actually do very similar to what we're doing in in a way of an investor presentation, not just to the main board, but also the subsidiary directors and senior managers.

13:07 Twenty minutes q and a, which is really sort of organized by Amy. Presentation, sorry, twenty minutes. With a q and a for twenty minutes, and that spread over sort of a couple of days. And it worked very well. What people like is, as well as the, investor presentations, is sitting around the table for dinner, having a drink afterwards, and talking about business, and it worked very well over the last sort of couple of years. So if we move on to the next bit, Amit, acquisition timeline. Again, this is something which we've had in the pack. It's been in the the, annual report. So to date, we've bought 18 businesses. The first one being Opus Instruments. That was in 2014, February 2014, and this was funded with bank debt. Very friendly bank manager, and he lent us, Ken and I sold all the companies to £700,000 with $300 300,000 on an earn out. That was quickly repaid.

14:02 That business is incorporated into attic cameras. And then following that, was a game changer for SDI. It really put us on the map, and that was, first of all, acquiring Centech of four times PBIT, including that asset, followed by, Peter Russell's company, which is Asshole's Control Systems. These were funded through share placings. The first one, Centech, 8 per share that was using EIS VCT, so it is very good for the shareholders. Then, yeah, after tax, we're looking at sort of a sort of six and a half p, followed that by, Astell's control systems at thirteen p. Sadly, the AI's VCT structure changed so, that we couldn't the shareholders couldn't latch on to that. Then for a number of years, we acquired businesses using our own internally generated cash and bank debt, which works very well.

14:57 But sorry. I lost my friend. And, what's and then in 2019, we acquired five businesses, which requires funding over and above the board's comfort zone for gearing. So then we did another share placing, and that was a 34 b a share. You can actually see on the map, you know, the five businesses in a row. And thereafter, we've been using bank debt at our own cash resources. What I was actually going to say, when I lost my trading authorities, we, we set up, bank debt with HSBC. All the banks were actually interested in us, and that was initially with a 7,000,000 debt with a 2,000,000 accordion. So today, that's been extended. So we've got a 25,000,000 debt with a a 5,000,000 accordion. I think that's correct. Isn't it, honey? And I'll hand over to him. He's got a a cold, so just bear with him, I'm afraid.

15:52 That's a little bit frightening, so bear with me. Okay. Looking at the key financial highlights for the half year, we saw revenues grow over the period by 1.6%. The comparatives include the significant attic cameras contracts for equipment that go into DCR machines. This came to an end last year as we have previously communicated. Excluding this, there was organic revenue growth of 2.2%. Scientific Vacuum Services shipped a sputtering machine over the first half, and Attic's significant OEM customer for CelloDock cameras destocked over the period, and we will talk about both of these a bit later on. It's also worth noting that the tax rate has increased from 19% to 25%, and this impacts upon all the EPS measures.

16:45 This is an extract from the income statement. Acquisitions provide GBP 6,300,000 for growth or 20%. At a headline level, there was an 18.4% organic decline, and the net of the two gives the 1.6% absolute growth. Gross margin turned at 63%, which was encouraging. We've controlled our cost base. When looking at costs on an organic basis and excluding nonoperating items or below the line items, costs have increased by 1,500,000. Profits have reduced as we always expected for this financial year. The biggest component of this loss was the loss of the 60% gross margin on the GBP 6,400,000 of COVID revenues.

17:33 And to save you using your calculator, this represents GBP 3,800,000 in lower profits. This was partially, but not completely offset by acquisitions, and the percentage declines on this slide reflect this reduction. The first half of the year was also impacted profit wise by the aforementioned destocking by Attic's main OEM customer, and this increased sales in the first half by £1,000,000 Monmouth also had a slow first half, which we will talk about later. This shows how revenues have moved compared to the equivalent period last year. As I've mentioned, last year's acquisitions contributed GBP 6,300,000 in revenues, and you can see the impact of the reduction in the one off Attic PCR camera business.

18:28 It is worth noting that over the last two financial years, we have reinvested the Attic camera PCR cash flows into growth for the company, acquiring SafeLab Systems, SVS and LTE Scientific.

18:48 Looking at our segment performances. Sensors and Control revenues increased by 40% to GBP 26,800,000. This includes the GBP 36,300,000 of acquisition growth from FAST and LTE Scientific. Excluding this, organic growth was 6.7%. Astell's Control Systems and Applied Thermal Controls both had good trading periods. Applied Thermal for its chillers and our stores had weaker comparatives, were influenced by component shortages.

19:22 Scientific vacuum services is a lumpy revenue and order business. They shipped a significant piece of equipment to its major OEM customer in the first half, and this supported the organic growth of this segment. This particular OEM customer has rescheduled its future order profile as a result of geopolitical events, and this has changed SDI's revenue profile for the current financial year.

19:48 Digital Imaging revenues reduced by 12% excluding the COVID comparatives, and the segment's profits reduced to 645. As I said earlier, there was a £3,800,000 profit reduction due to the COVID contract ending, and this falls within this segment. However, our six major OEM customer destocked over the first half, reducing sales by £1,000,000. Deliveries to this customer are continuing, and we have order cover for the next eighteen months. But the number of cameras are not currently expected to be at the same volume. The destocking impact will not be recovered in the current financial year.

20:31 Turning to cash. Working capital increased by GBP 2,300,000 over the period. It's mainly due to a GBP 2,700,000 reduction in customer advances since the year end. SBS shipped equipment in the first half, and this is responsible for 1,400,000 pounds of this. LTE scientific and astral control systems saw customer advances decline by 1,100,000 pounds between them. We now have 2,100,000 pounds of customer advances on the balance sheet compared to 5,300,000 a year ago. This is a difficult balance sheet line to forecast as new customer advances are often dependent on contract milestones and order intake and more specifically, order intake with the customer advance tied to it.

21:19 As the cost of money is no longer low, customers are less willing to give up front payments. Currently, we expect this to reduce further over half two by around 500 k. Cash generated by operation decreased by £3,000,000 this first half, an improvement on the equivalent period last year. Interest charges have gone up due to our higher debt level and increased interest rates.

21:47 Focusing on working capital will be a priority over the second half of the year for us.

21:57 This slide shows the working capital movements I've spoken about. The tax payments are higher since SDI is paying 25% tax now under the group payment arrangement. So at the end of the period, net debt was largely unchanged from year end at £30,200,000

22:19 Some comments on our financing position. 1,250,000 of the revolving credit banking facility was paid down over the first half as we look to reduce excess cash balances. GBP 10,250,000 of the facility was unused at the period end, and the £5,000,000 accordion option is still available to us at HSBC's discretion. At the end of the period, the net debt to EBITDA ratio was 1.1 times comfortably inside the ceiling provided by our bank facility. And at the end of the half year, we had a GBP 1,000,000 in deferred consideration payable. This relates to the acquisition of SVS. This has been paid in full in the last week or so, and so will be paid obviously in the second half.

23:09 That's all for me. Thank you. So we'll on to the next page. I see it. Training. So when we've been going around on Citi presentations, this is the sort of slide we start with because they know the history. It's interesting because this is slide, sort of, in English to say why did the downgrade occur. So now we've got 15 business units. Three of those businesses have found trading difficult and responsible for the downgrade during this period. So I'd like to discuss this in more

23:40 depth on these three business units. So the first one really is Attic, Attic Cameras. So the effect to our annualized profits was a reduction of £1,000,000. It hasn't gone away. It's just gone to the right. So Atic suffered from destocking from its largest customer that impacted the h one performance. However, we have now received the strong order coverage from this customer, so it will take us through h two and beyond.

24:06 So, what actually happened with the the customer is they moved procurement from Singapore to a centralized, place in, The Netherlands. They decided to to stop moving from three months out to one month, and it was dragging out. But pleased to say that we've actually got the order now, and that will take us over eighteen months, I think.

24:26 Eighteen months, but, you know, it's too late to, to affect. It's sort of h one. So we started to ship that product in December. Yeah. Last time, it was in October. Now it's moved to December because of the, the movement or the reduction in stock from three months to to one month. We have got the sensors in place, and we're ready to actually start shipping the products. There is another sort of a positive as well. It is a high expectation of another large order from a newly developed product within one of our core sectors, which is the professional astronomy market. So, that's, what I hope to get in a significant order from America for that, that product. The next one we move on to, these are sort of lower level, reductions in profits, is vacuum serve systems. Sorry.

25:16 And the effect on annualized profits is 200,000 pounds. They shipped a special machine to a razor blade manufacturer in October. I'm afraid it was a bit late. It was delayed by twelve months due to to a couple of reasons, really. First of all, component delays, which we're seeing across the world. And secondly, due to the component delays, the customer decided to change the the requirements of the machine, so there was further delays. That now is complete. They've inspected the machine in The UK. There was further delays because then they decided their r and d department in Boston in The US wants to come and see the machine as they really like the machine. Now it's been shipped out to Mexico waiting for the next order because they've actually said there's gonna be four or five orders for these machines.

26:00 The next order, we're actually looking at, but that won't be until it's commissioned, the same machine in Mexico, which is due to be commissioned January, February time. So we're expecting the next order probably to come from Poland. We are expecting a an order. This was a number of, over a year ago from Russia, but, of course, with the war in Ukraine, that's impacted that shipment.

26:25 Since we've actually shipped that product, we had another sizable order. Again, it's all a bit late for the h one period, and that's the 2,300,000 from another customer, and that's due to start next month. As we pointed out when we were acquiring SDS or Scientific Vacuum Systems, their orders and revenues will be lumpy. And, possible, is trying to recognize the revenues at set periods within the contract under IFRS 15. So it all depends on what's written in the contract. So, it's a difficult call for

26:56 us on that, but, at least we've got a substantial order from another customer. The next one we wanted to discuss really was Fraser anti static technologies, FAST. That, again, has had a reduction in profits of 200,000. Faster has seen an economic slowdown, from two dominant markets, China, but more importantly, Germany. And this slowdown is expected to continue for several months as we move into h '2. So they're trading in line with budget at the moment. It's gonna slow down somewhat in h two. The business has responded rapidly to the market slowdown by implementing internal control, to maintain the profits currently, and I'm sure it will do so in the second half of the year.

27:42 So in summary, really, what we've actually got is shortfall in profits from two areas. One is customer related, that's ASIC and SVS, and the other one is fast, and that's due to short term economic slowdown. At this stage, I'd just like to give you a quick update on Monmouth, and you'll be pleased to know it's not within that category. But we've had a significant impairment at the year end, as you well know. It's not trading in line with budget at the moment. It's got a very, very strong order book, and this is and this is reflected across all their product portfolio. But more importantly, towards the clean room sector, we're we're increased we're seeing increased demands. That's an easy win for us because it doesn't need a lot of, of labor to, produce these, this product.

28:32 They're experiencing operational challenges at the moment, and this is being handled by my good new friend, Steven, as the group chief operating officer. But it's not all the team and growing, within the, within the SDI group. The group's enjoyed some strong performances from many of our portfolio businesses, in in particular, Applied Thermal Control, Control Systems,

28:59 but also like to add Sentek and also Synoptics. They've proved consistent and strong in their order intake and operational delivery, all reporting profits exceeding budget. Alright. It's something I know. I've got lots of expand in. A good example we've discussed throughout the days is is Synoptix. They haven't hit the revenue in line with budget, but their budgets, but their budgets to profits have exceed, their profits. We actually see exceeded budgeted profits due to the control of the cost, and that's what we find across the group. These business these managing directors and directors of of the businesses are very good at controlling their costs, so we don't see a lot of costs going outside budgeting levels. So if you'd like to move on to the next one, this is we've already mentioned this earlier on. This was the latest acquisition.

29:48 This has been a target for us for many months. It's not a big acquisition, but it's very important to us.

29:54 But it has some complications in the acquisition process, and that's been delayed by four to five months. We hoped this would actually cross the line when the results went out. But, we're at the s p the final stages, but there were just some issues on the seller's front that they needed resolving. But now we're pleased that the acquisition process is complete, and we acquired that business in November 2023. As with most businesses, the founders will stay on board and run the business. What does peak sensors do? As you can actually see from there, it, manufactures and develops temperature sensors, which are used in various industries, but mainly within glass, ceramics, and incinerators. So what we're actually doing is using temperature sensors in the incinerator, which is generating energy from waste.

30:44 We've actually said it initially, and in the last presentation about synergies, and it's nice to see what one of our subsidiaries, ATC, is now sourcing product from peak sensors. And there there are a number of other of our SDI business units that are actually interested in this product range. It's based in, in the middle of England in Chesterfield. It employs 14 staff. The property you can see from the diagram below is a nice clean building within a nice industrial park. That is owned by the founder, Peter Smith, and he's leased the premises onto, Peak Sensors. So if you move on to the growth drivers, that hasn't really changed to be the truth even that with this difficult year we're having. Organic growth 2023 organic growth has been impacted by destocking.

31:33 We foresee it's only a short term issue but also with the worldwide economic uncertainty. As you actually see from the news, that's impacted a number of our businesses. In the longer term, we still expect organic growth between 510%. And also SDI continues to look for synergies within the businesses, and we've started collaborations within the lab products group. As I mentioned before, about the sector side, so currently, within the product group, there may be changes, but what we're looking at it, initially is the LTE Scientific, SafeLab Systems, Monmouth, Applied Thermal Control, and Synoptics are joining that group. Why? It's because we've seen market overlap with customers, and that should provide strong opportunities for growth. I had a meeting this week. I think about two or three meetings now, and he's tried to get, additional, orders going in as a team, at at a quote stage instead of instead of the individual stage.

32:31 A good example of that, as we mentioned, in the annual report, is that we're building a Science Park on the Canary Wharf, and we're, in the early stages of, of putting together a portfolio of products for that business. M and A, since two thousand of February since February 2014, we've acquired 18 businesses. A number of these have merged into the existing business units. So we've actually got Artis Attic. We've acquired two businesses, Opus Instruments and Quantum Scientific Imaging that's incorporated into Attic. All the manufacturing now is in this one for all those, brands and products. And the other one is applied thermal control and thermal exchange, both chillers, both in the middle of England, one in Colville, and the other one in Leicester, we've combined the units in a place called Barrow Pond Services just outside Loughborough.

33:20 And all the rest are operations autonomous business units. There's no change in our criteria, although, we are more willing to use short term earn outs to reconcile price expectations from sellers as you can actually see very recently with Scientific Vacuum Services where I think it was this week. Was it I mean, we paid out or last week? The the remaining part of, the, price consideration. The key constraints for us is the availability of target companies. But currently, we will we've actually got quite a strong pipeline of acquisitions, which all three of us are are looking into. So as we come to the conclusion of of this presentation, summary and outlook.

34:05 It's been a challenging year as you can actually see from the numbers in comparison to previous years. We've had a few businesses that have not achieved budget as discussed within the presentation. But, really, this is just a bump in the road for us, and I don't think it's going to affect our long term plan. And I feel confident this is only a short term issue, and it's, why? Because when we actually came out of the strategy meeting a few weeks ago, we found that it's a large pipeline of prospective orders with a high probability of landing across the group. So we're sort of quite, optimistic going forward. We still continue as a a team to evaluate high quality businesses as they become available as on the m and a side. Internally, we're still generating synergies within our business.

34:51 You can actually see this through the presentation. And we continue to invest in our existing companies to drive organic growth. I think a good example of that over the years is Centech. Centech, we bought that making a profit of about £500,000. Four times PV, we paid 2,000,000 per set net assets. And so for investments, in that business, Paul got taken on board as the managing director. We're looking at making nearly sort of a million pound profit. So it's a good business, good solid business, and this has happened within a few of our businesses. So really, the short term headwinds, we look forward to, to the future with great confidence on, within this business. I've been here sort of ten, eleven, twelve years. Ken and I have discussed this many years.

35:37 This business hasn't the business model hasn't changed. We say year on year, we still continue to drive growth organically and through M and A. Even with the short term headwinds, we still have to operate driving this organic this growth organically and through M and A. So hopefully, that concludes the meeting. And, let's see, what Q and A is coming across. That's great, Mike, Amy, Steven, thank you very much indeed for updating investors. I will bring your cameras back up for But Q and ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the team take a few moments to review your questions submitted already, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

36:24 Ami, I may just return to you to moderate through the Q and A. But firstly, thank you to everybody for your engagement, for those that pre submitted questions and for all your questions throughout the presentation today. Amy, if I could just ask you to read out the questions and then hand them out to the team for a response, and I'll pick up from you at the end. Okay. So first question was pre submitted. Does Steven have any observations he would like to share after his first few months of SDI? Absolutely. We currently have the luxury to see the group with fresh eyes, and given my experience, I've used the opportunity. The buy and build strategy has clearly been the bedrock of the group's current structure and success, but this is clearly only in the start of the group's growth curve. I've observed that the portfolio of businesses reasonably differ in the potentials driven by the technologies, products, and markets.

37:16 I would expect that we will see different growth profiles of Mo as as that clearly makes sense. I will be understanding more as a deep dive as I dive deeper into the potential of each individual businesses, so we understand that they're CAGRs and supporting long term strategies. There are clearly many opportunities for each of the businesses to end product development, market share, diversification, and, of course, global expansion, The US being, of course, one of those going forward. SDI's ability to continue acquisition growth clearly remains strong and and the hope now stronger. I would like to see more consistency in deals combined with robust group integration plans going forward. These plans need need to be not only ensuring a robust autonomous business, as Mike's already said, but post acquisition builds and potentially strengthen the the existing group through synergistic opportunities.

38:16 Thank you. Why did management take so long to buy stock after the share price fall earlier this year? Let me answer that one. Okay. So we we're all willing to buy stock, but we're in a closed period. The closed period lasted four to five months. So first of all, we had a closed period with the annual report, but this deal with PeakSense has just dragged on. So, the advice of ThinkApp is to say you can't buy any stock, and that was the main reason why. Otherwise, we would have bought stock earlier. So and we did actually buy stock, you know, a few weeks ago. Okay. What confidence can you give us that monomer fanatic are through the worst now? Yeah. I I can take that. I I think optimistically, we we really see the light in the tunnel. As Mike talked to, with attic, it's very much a short term issue where order coverage from as big as customer was was delayed due to due to destocking, and that's that's commonly across the public domain.

39:24 We've now received order coverage for that, so so that that that risk is now gone, but, really, we're seeing the the downturn in in in the down driven by purity timing. Going forward, we we're looking to make our business a lot more robust, so we're currently looking to to reduce the the dependence on a on a single customer, and we're looking within the same industry to to diversify it and take on other customers within that industry. Secondly, we're also looking at at a at a at a different industry as well. As also, as Mike alluded to earlier, we're we're looking at the professional astronomy industry as well. We're expect in the coming months, we're expecting a strong order from that, which is which is the first major one demonstrating our technology. Our technology is equally as applicable to those as as the as the life science market as well. So, really, the answer to that question is is is to ensure robustness across the business.

40:24 Now turning to to Monmouth. Monmouth is seeing a very strong order intake at the moment. This month, say it say it was a very strong month, and our visibility going forward remains extremely strong. And I think that this this is really important because the optimism within that business is is is growing. There there remains challenges from the operational side of the business, and we are working with the management of of of Monmouth to to to resolve that, to unlock that. But but really looking at the order coverage and the and the and because we really understand what the what the issue with the operation side of of the business really is, we we all we can see is very much is is a is an optimistic rest of the year three and into next year.

41:12 Okay. Thank you, Steve. Could could you provide Mike, can you provide insights into SDI's strategy for creating recurring revenue streams within either of the company's two segments, whether through M and A or by exploring new lines of business? Well, we do. So recurring revenue streams for the business is between 501520%. That is mainly through servicing. So we've got a a good service revenue stream at LTE, at ATC, at SafeLab, and also at Monmouth. With Monmouth, now we've actually got Stephen on board. We're actually looking at improving that service. It's not as high as, we would like there. Also, we've actually got some consumer side of the business as well, which is Sentex sensors.

41:58 Also, I forgot to actually mention about control systems. 50% of their revenue stream is service and support of their dosing machines. Is there anything else, we can think about? I think that's it, really. It's the it's the main ones. But we are it's good to have. It it's nice to have that recurring revenue stream. Many years ago, it wasn't. It was just CapEx, but now we can actually see that growing. And I'm sure it's going to improve as we grow the business. Okay. Has it been considered to hold off new acquisitions and pay off existing debts in the high interest environment? I think we've Mike's already other. Yeah. Yeah. So I think Mike's already stated that we will continue to look for acquisitions because that's part of the business model of this company, that strategy is unchanged.

42:45 We will continue to pay off existing debt in the high interest environment anyway. We are focusing on our working capital. I think that's kind of what that is telling you that we will be trying to generate more cash from our working capital in in the next six months. And, you know, we are continually trying to pay off our existing debt. That process is ongoing for us. This is another question here from Terence. Can you please inform us of the current gross net debt excluding leases? Well, the net debt excluding leases is $13,200,000 at the end of October, as I mentioned in my presentation. The value of leases is about 6,700,000 on balance sheet, so you can add 6,700,000 to that to get the gross figure. But this is including the leases on property, and then they've got the standard. That's right. The lease and on leases is is an accounting where they gross up the leases, and the other side of it is usually fixed assets.

43:37 So it's your assets and your balance sheet. So it's the the banks exclude this normally from a definition of net debt. That's why we put that particular metric rather than any other. Alright. It seems that acquisitions now come with lower margins and a more expensive multiple versus some years ago. What are the reasons for this deal size, more competition and deals, focus on growth versus return on invested caps? I don't think so. I'm not sure that's true, actually. No. I I think when, we, we do an acquisition, it goes out to say this is the total consideration. And in recent acquisition, we bought the property. If you just purely look at the goodwill element of it, we're we're we're still within that four to six parameter which we've always said. So it all depends on what the net assets are. Yeah. If your net assets is only 400,000, which is sort of working capital, it's it's a lot of multiple. But if you're adding on with fast 1,600,000 of property, yeah, it does increase the the multiple.

44:36 That's why I like to separate the goodwill out amount from the net asset element because it does skew it somewhat. But we all stick to this principle. Well, we have always stuck to the principle of four to six, but I think 3.5 is the lowest we pay for for an acquisition. Okay. So this one's asked twice. How is it possible on the September 29 that you gave a higher guidance for FY '24, and there was only one month left for H1 to close? And this is, you know, it's errandastic, isn't it? It's all errandastic. Yeah. Do you want me to talk about Yeah. I'll I'll talk about this. Yeah. It's it was quite frustrating because this has been dragging on for for a a period of time. We knew this order was going to come through. We've got the goods in stock, the finished goods in stock. We have all the components, the sensor components.

45:23 What actually happened with with the is they moved the procurement from the base in Singapore to a centralized base in in The Netherlands, and they decided to actually reduce their exposure from three months to one month, and it dragged on for months. We thought we could have a good shipment going out the door even if the if it's the last month of the year, it's all we can hold off. But, sadly, it didn't. So it it give us a big hole in the h one figures, and all he's done is it's moved it to the right. The other two of 200,000 of each with FAST and SDI respectively, you know, that's small compared to ASIC. ASIC was just too big a hole for us. So we had to hold our hands up saying, look. This is not coming through in half one, and it was just last minute, which is a shame, but it's sad for for me.

46:14 This one for you, Mike. Have you changed your approach to m and a in view of the tougher outlook? Are valuations expectations adjusting? And what is your view on the increasing debt at this point in the cycle? I think I'll probably do that last one, but you can No. I think all can do it all the time. Yeah. It doesn't change. The model hasn't changed. We're still looking at the multiples. At the moment, we've got three of us looking at it now. We we talk heavily about about the acquisitions. They're all ranging between 500,000 and 1,000,000. Yeah. PeakSense is actually lower than than that. It's, like, sort of generates sort of £400,000 worth of profit, but a a good business. How we fund them going forward, that's what we're discussing at the board at the moment. Because at the end of the day, I think our multiple on deck is about one 0.1.

47:00 Yep. So something like that. Yeah. You know, do we actually increase that? Shares. I I we don't know, but it's not going to stop us doing m and a. So that's what we need to discuss going forward as a board. You got anything to add to that, Amrita? Nothing. Stephen, one for you. Can you please provide detail on the plan to boost organic growth? Absolutely. The to look at that, really, we need to look at individual business level because the the drivers are are are quite unique to each business. A common denominator across the group seems to be very much looking at at at geographic expansion and taking a number of the businesses into new into new geographic markets. For example, The US, that seems to be a fairly low hanging fruit across the board. So, really, it's it's looking at at at, first of all, categorizing the businesses across the group as as the as the stable businesses and also the higher growth businesses. And, really, the higher growth businesses take a developing a strategy of how they're gonna grow. So as I say, it's it's not only it's gonna be geographic markets probably initially, but also looking at product development, looking at approvals, and really look how to diversify into those markets. So it's so there is a journey ahead, but it's really focused on the characteristic and factorization of business.

48:18 K. Question for me. Someone's asked, am I correct in hearing the segments would be rebalanced? If sensors and control segment is too large, why not simply break the segment into two or three segments in total? By reclassifying, we prevent the reported segment organic growth numbers from being validated. But first of all, I think we explained that the we are resegmenting. We had a good close look at this. It was clearly the the the the reason behind this is that the site scale is too large. But do we keep digital imaging going as a division, or do we And that or how what would the future look like? So first of all, we have a a bunch of lab products businesses that we can see synergies with, and it's really helpful to have them all within the same division.

49:04 There'll be one or two more within it, but that seems the most sensible approach given our future strategy. So it's not really trying to, you know, obscure previous data because we will provide, you know, before and after data at the current year end. But the idea really is more to support the business going forward, and it just seems more appropriate for us to look at the share of Yeah. It was just to say we're not shoehorning these businesses into lab products. They're actually talking, and they can think they can work together. So it makes perfect sense and to put that into the group. So I think that started the exercise Yes. Going forward, and then we actually looked at it and say, what should we do with the rest of them? It could be in time. You could be right to say we should have sort of three segments, but currently, it's gonna be two. And, you know, we may move it out. But I think, initially, the lab group works, and that's what we we we've agreed. So we'll that's how we're running at the moment.

50:00 We've got meetings, as I said before, about it, And it's the rest of the businesses, you know, how do we bring those into a say into a meaningful segment. If you look at it historically, as I said to you before, we've only got three, businesses in the, digital imaging, which is attic cameras, synoptics, and. So, really, is camera collection. It's not digital imaging. We just put it in there. So what we need to do is is to have a a better look at our businesses and to put them in the correct segments, and that's what we intend to do. Of your m and a pipeline, how many do you expect to execute in 2024? And will this take you on to a gross debt level, and that'd and will you remain comfortably covenant compliant? Well, to answer that question, we'll always remain covenant compliant because we have to. So whatever we choose to do, we will.

50:48 And in terms of how many we expect to exit We never put a number on it. We never put a number on it because it it's just not not a sensible thing to do simply because you don't really want to be forced into doing a number just for the sake of doing a number. It should be the right deal with the right price. And often, the the process itself takes a while longer than you think it will be usually. Well, Pete is a classic example for small business. It will. So is there any number of reasons why I can't put a number on it, really? In terms of m and a, what do you think differentiates you from other competitors such as judges or? Are you seeing a clear trend of higher prices paid? It may seem strange in economic situation like, the prices should be lower. No. I agree with you. Prices should be lower. So I can agree with you. So we make But They're not Are we seeing any different what differentiates us? We don't tend to compete with any of those, do we? We're getting them in early stages. So if you have a look at it, we've got one in the books, which has been around sort of three years. We're still talking to them when the time is right, and then you look at FAST.

51:49 We turn that round in sort of three months. So there's no sort of timing of it. It's just talking to people, talking to businesses, and if they're interested in coming across, but also very few people like judges, Halmer, etcetera, are looking to buy businesses within the profit range of sort of 500 to £1,000,000. It's just outside private equity as well. So they're they're good businesses for us. What expectations should we have for long term gross margins? And what do you see the business in ten years? And what is the competitive environment like for the companies you Well, I'll answer the first one about long term gross margins. I mean, I still see more than 60% for gross margins. I mean, obviously, mix plays a part with the m and a that we buy. So Yeah. You do find some of the acquisitions we we make that the gross margins are below our 60% on on on materials.

52:39 But that gives us opportunity as we've seen on. Actually, I don't think we've mentioned that, you know, we could we we we were working to improve their gross margins, we've had some success in that. And we will look to do that elsewhere too. And so that's I'll answer that one. So where do you see the business in five to ten years? But, no, much, much larger, I think, is the answer. We'll we'll with our strategy and we continue our strategy as we've articulated it today, then it should be slightly bigger. But what we do know is is each of the businesses is gonna be quite individual, and the the the growth of each business is gonna be very different. Though there are some higher growth businesses within the group, and that they're gonna be considerably larger and and and look very different to what what they do right now.

53:24 But some of the best businesses will look look very similar to where they are right now, so it really depends. What we do know is all the businesses will be still autonomous. The competitive environment, I don't know if that's really changed to. So what's the competitive environment? Is it tougher? Not really. I think that's we've acquired 18 businesses. We've only been in competition for with two of the businesses. That's one is Shell, and the other one is Barnes, but that's when they use corporate people to sell the business. But then it wasn't a bidding process at all because we stick to our our valuations. But they like how we work, and that is autonomous business units. You know, we're not the type of business that we've seen on many occasions who buy the business, and then after twelve months, we don't change it. But then they've got boots on and, put SAP JD Edwards in place. You're filling boxes in, and that's not what we do. So we like to run them as autonomous units, but what's coming through now, as I say, is synergies. You know, these these businesses are talking to each other.

54:28 Okay. I'll answer this. How much do you anticipate the sensors revenue to contribute towards the overall revenue of the group? Approximately, for for the first year, it could be around 1,000,000 or so For a a annualized basis, probably between 2 to 2.5. Mike, when you're acquiring companies with property assets, how do you think about return on investment? Do you intend to selling these assets? Is so typically how long does this take? I think we we've talked about this before. I think the only return on assets I think we've mentioned this about the property. So we've got about £5,000,000 worth of property on the books. Usually, you're only getting between, what, six, seven, 8% yield on it or within what are the term worth? 15% on on a business. So we we are actually talking as a board to say, should we actually move those biz those properties on, do a sale leaseback.

55:22 But then in this market, you know, you got seven, seven and a percent interest. Is it worth doing it? So it's a discussion point, to tell you the truth, at this moment in time. K. Can it can be that the companies acquired during COVID were inflated on revenues? So SDI GROUP is overpaid, and the acquisition is not creating the expected value. Well, there's only one we we do an impairment test for the year anyway. So, you know, this one does come out really if you're not creating value. We've had one moment probably. I was just and that was why in. That was. And so we've done the adjustment. I think we spoke about this at length, really, at year end. Obviously, I can repeat it. I think one one area we're never gonna avoid in Nasdaq, IFRS 16, I think, 16 on the leasing, you know, with that. That was nothing to do with COVID. That was just, interest rates and property valuations, but the rest of it is the 2,500,000.

56:16 We did a three year average of that business, and, what actually happened is we didn't nobody realized that COVID would just drop off a cliff. So everybody shut the doors and, nothing came through, but the order book was still strong. But then we had, an operational logistic issue whereby instead of people buying between five and ten, 15 of these, biological safety cabinets, they're only buying two or three. So we didn't have a service department, to actually service support and deliver the product. So with Stephen on board, that's what we're trying to do now. Yeah. What can the the biggest problem is, you know, for for us, really, as soon as you actually jump and make that impairment, then you can't actually reverse it. So, I mean, I'll be discussing about this. It looks really quite healthy going forward. You know, one month looks like a business, but it just happened to be for that period of time, it didn't actually deliver in line with expectations.

57:15 So, therefore, we had to take that hit. Okay. Running short on time, I think. What are your plans to return digital imaging segment to profitability? Do you count on the increase in volumes or optimize cost structure as well? Digital imaging really ask in terms of scale, and and, first of all, it's still a profitable division. Both all the companies within it, they will be profitable for this, just to be clear. Do you count on increasing volumes? Well, I think we've talked about it. First of has all the. Yeah. We've already addressed that, and and it's really really, that that that's focused purely on ethics and and the and what we've done to to improve the robustness of our business really ultimately address that. Have there been or are there any plan to be further write downs of intangibles? No. We don't plan to do this. Usually, it is something that it's an annual calculation that we have to do. And know I've explained to some investors when they ask me this question.

58:06 It depends on the circumstances around the the individual business at the time that we do the calculation, which is usually in the summer. The interest rate environment and and influences our weighted average cost of capital, which then influences the calculations. It's a really tough one to answer. There's of variables, isn't it? There's lots of variables in this calculation at the minute that we've done. We've done a right. The other one where we had a bit of less headroom was on fast. But beyond that, we've you know, we recently could show, but it does depend very much on circumstances at the time we do the calculations. So shortcut. There's no, you know, blank ones, but we we do the calculations annually. So I think we're coming close to Perfect.

58:54 I mean, we say, we're coming coming up to to the hour anyway. And for every question that you do seem to ask, there seems to be another one coming. So I guess that we could take another hour or so of your time. But if I may just say thank you to everybody for your engagement. All these questions, I mean, we'll make available to you post the meeting. So if there's anything we haven't covered off in the presentation or through the Q and A, we can add an additional response and publish those if it's appropriate, of course, to do so. I know investor feedback will be particularly important to you all, and I'll shortly redirect those on the call to give you their thoughts and their expectations via feedback. But I wonder before doing so, Mike, if maybe I could just return to you just for a couple of closing comments, brief comments, and then I'll redirect investors to give you their feedback. Yeah. It's this has so far been a challenging year compared to previous years. I've said before, we've got a few businesses that are not cheap budget. I think mainly the attic, really.

59:45 It's a shame that it took so long for this all to come in. This is just a bump in the road for us, but I don't think it's gonna affect our long term plan going forward. We're still gonna create or or drive organic growth with our existing businesses, and, also, we're gonna do m and a. So for us, you know, I I think, with the in the short term, we're looking at a large pipeline perspective orders for the high probability of landing across the group. You know, I I just think this is a short term sort of blip for us, really. That's great. Mike, Amy, Steven, thank you very much indeed for updating investors. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it be greatly valued by the company. On behalf of the management team of SDI GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.