Sdi Group (LSE:SDI) — Interim results for the period ending 31st October

0:00 Good afternoon, ladies and gentlemen, and welcome to the SDI GROUP PLC Interim Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Please simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your investor meet company dashboard,

0:31 and we will notify you by email when these are ready for your review. I would also like to remind you that this that this presentation is being recorded. Before we begin, I'd like to submit the following poll. And if you'd give that your kind attention, be most grateful. I would now like to hand over to Mike CEO. Good afternoon to you, sir. Good afternoon. So what what we're gonna cover today is the interim period to the end of October. Actually, I think you know me by now. I'm Mike Creedon, the CEO of SDI GROUP. Just wanna give you a two minute brief introduction on SDI GROUP. SDI is an aims quality group of companies specializing in design and manufacture of imaging and sensing and control products and applications used in many markets, including life science, health care, precision optics, measurement, instrumentation, and our conservation.

1:23 Corporate expansion is via organic growth within its subsidiary companies and also through niche technology acquisitions. It was floated in December 2008 as a vehicle to buy and build, but but it had its problems for a few years, and we've turned the business around. And from February 2014, we started to acquire businesses. Today, we've acquired 13 businesses using equity, internally generated cash and debt. The game changer for us was in October 2015 when we acquired Centec for £2,000,000, which is four times profit before tax. We raised 2,000,000 at 8 per share, attracting EIS and VCT funds. Now trading at think it's about $1.95.

2:08 I'm not really too sure. So somewhere in that sort of figure. And this is a pleasing result for me as I see an important function of my job as an executive director is to create shareholder value, which I think we have done over the past year. I think it's about 90% return if you look at it compared to last year. So I think it's it's good for the shareholders. I hope, anyway. I hope you find it very good. In the agenda on page two, what we'll cover, it will be the board of directors, group overview, six year track record, and the h one twenty twenty two financials, which is of interest. And then we'll close with myself on the operational highlights and outlook. I don't think it's really on page three, which is the board of directors, I don't think it's really necessary to go into any data on this slide.

2:57 We've provided detailed bios of any of the executive directors and nonexecutive directors so you can read it at your leisure. But if anybody has got any questions on this slide, please raise it at the end and just make a a note of it, and then John or I will answer that. On page four, I like this diagram. We've used it for many years. And so you can see, we're running out of space. So, hopefully, in the next sort of number of months, we'll acquire some further businesses. So it's down to the graphic designers to redesign this schedule. All the details on the subsidiaries within this are at the appendix at the end of the presentation. Again, any questions on these from when you've been doing your background research, please write a question at the end. And, again, I'll answer it with John.

3:48 Now the questions I want to sort of raise on this is what does what does the strength lie in our business model? Why are we so strong? Number one is operating a flat structure within our business units, and they all operate autonomously. What we give to the subsidiary directors is exactly the same as we give to the main board. There's a a very very flat structure, and nothing's hidden. All businesses are profitable and cash generative. The third point is a diverse portfolio of companies not relying on the single sector or region, and can we can actually see this as we come as we come out of COVID. We've had a a good six months, and the last year was a a fantastic year

4:28 as well. And the last point I wanted to make was we give the units business units investment investment for for organic growth and also for acquiring other growth opportunities. At this point, I'll expand on further in the presentation. So if we can hand over to you then, John. Thank you, Mike. So we like to show this this chart so far because it's always going in the right direction. So revenue's up very sharply over the last six years, but also in this half year against the previous year. Same thing with operating profit. And finally, cash generated from operations also sharply up last year over the year before, and that's the one area this half year that is slightly down on a year ago, and we'll talk to that in a few minutes.

5:23 So very strong financial growth over the last six years and also this this this last period over a year ago. As Mike said, we've done 13 acquisitions since 2014. Six of them have been combined with existing units, and seven have become new stand alone operating units to add to the two that we have originally back in 2014. Share prices on the right has gone up generally over these six the six year period. It's been a bit wobbly over the last few months, but, generally, the direction has been up in response to the improving financials. Move over to more in detail on the the interim financial results.

6:14 Again, very strong upward movement in sales and and all all operating profit or profit indicators. And, again, slight reduction in cash generated from operations. It's all about working capital, and we'll talk about that in a while.

6:34 Zeroing in on the p and l, our financial highlights. What I really want to discuss, I think, the two or three things to do with revenues in particular. So revenues increased in the period from 14,100,000 to 24,700,000 in the latest half year. It's a 75% increase. Now organic increase was 42%, and the remaining 33% was from the acquisition of Monmouth Scientific and of Uniform Engineering, which we completed in December and January of last year. Going into the organic growth of 42, the the biggest part of that was from the contracts we've been having for cameras going into PCR machines used for testing for COVID.

7:33 We've had a a major customer who's been providing us with an order and then a new order and then a a third order and then a fourth order culminating in a big order for cameras in February, I think, of last year, which we've been shipping really from about April onwards. So for the whole of this last half year, and we're still shipping in in November and December, but it's more or less coming to an end now. So that provided us with a big boost in our attic cameras unit. And then and we thought it was good a year ago, but but continued to get better. It's So a 159% up this half year on a year ago when the pandemic was more or less starting.

8:22 The other business in the group, so that's excluding attic cameras, increased 22% over a year ago. And perhaps more interesting than that, because, obviously, there's a recovery there from the from the pandemic a year ago, is that they are 16% higher than two years ago, which was pre pandemic. So and that's been very broadly across the group, some some higher than others, but all of them

8:54 all of the businesses that we owned two years ago have increased since since then. So I think we can say that that we're in full recovery mode and have recovered. There's still perhaps a little more to go in one or two of the lines of business, but equally, there may be some elements of bounce back or stocking of customers in in some of them as well. But, anyway, we're pleased with the 16% increase across the board excluding attic cameras, which was exceptional over two years ago. The acquisitions of Monmouth Scientific and Uniform Engineering contributed 4,600,000 to our sales in this last six months, and that's slightly higher than we were budgeting for.

9:44 So we're we're pleased with their performance as well. And the the combination of all that sales growth in particular has has caused really the increase in operating profits and and net profit across the group.

10:04 I'm gonna move on now to growth drivers. This is not not only about the half year. Let's move on. But and Mike will talk to this slide, I think, if you unmute. Sorry. Apologies. You're good to go, Mike. Thank you. I am. Yeah. I'll just switch it on. Someone's switching that one and off for me. Anyways, it matter. We're looking at this page. What I'm gonna do here is just pick out a few bullet points of interest that haven't been discussed in the earlier slides. First of all, on the organic side, we continue to invest in our businesses to generate organic growth. An example of this that comes to mind is attic cameras, which does stand out. It is the golden egg of the business. We've got over the years, we've increased the facilities both in Lisbon and in Norwich. I think we actually did give a little case study on Lisbon in Danganport. I don't know whether it's this year or the year before just to show that I think we're on our fourth move in that premises.

11:11 We have the the 1st Floor. We've just taken the Ground Floor of that building now, so we've got the full capacity for growth in future. To enable us to increase our capacity, what we've actually done is in both these units, we've been increased the staffing to support Steve Chambers and Rory Tripper, the founders of the businesses. These include an r and d director and a business development director to support Steve in The UK.

11:40 And in Lisbon, we've actually employed a stronger management team, which includes a finance director, and she's actually going to look after the books of both The UK and Lisbon and also some general management to support Rui. So that's on the organic side. We'll expand on this as we go through the slide. And then I think everybody we can see the questions coming through. I think m and a is of interest to everybody. So I'll just sort of discuss it here, and then we I'm sure we'll discuss it in the q and a. I just wanted to make one point, which is is not not included yet on the slides, and that sometimes the financial community try to put pressure on us to complete a larger number of acquisitions and larger size acquisitions. I just wanted to run through our process.

12:25 We have a very strict due diligence process, and we do not take any shortcuts to satisfy a shortcut term game of shareholders, which eventually will come to light when returns from investment are not being are not as expected as we've seen in the past with other companies. I think the classic one is HP or autonomy. You will also have to realize the businesses we are buying have, in most cases, are being managed by the original few few shareholders. And what they want them to do is make sure that the sale is going to a good home for its staff and continues to grow under SDI. And finally, when we do a reach agreement with the seller, we hand it over to the heads of of terms to the lawyers, and that causes further delays.

13:11 So you'd and I hope this will sort of explains our position regarding m and a for for SDI GROUP. It is quite a lengthy process. We've completed 13 acquisitions, and what we don't want to do is to upset the the apple cart because you know what happens. You know, we have to do profits, warnings, etcetera, and that's what we don't want to do. So we want to make a time take our time and make sure the acquisition is the right one for the SDI group. Where are we with the currently at with the current acquisitions? This will probably answer quite a few of the q and a questions. We have a strong pipeline, probably the strongest for a number of years. Pricing is still the same, and currently, we're not seeing any signs of high multiples. Currently, the deals we're looking at between sort of five it's four I think four's gone.

14:00 I think we're looking at sort of five to six times profit before tax. In the last financial year, we acquired two businesses, Monmouth Scientific and Uniform Engineering. And we are hopeful that we can announce acquisitions in the current financial year. But, again, it's dependent on the factors I've discussed earlier. I think that covers that page in some sort of depth. We can expand on it at q and a. So you want to go through the financials now, John? Yeah. So I'm just going into the we, you know, we we have nine operating businesses, but we've grouped them into two segments for financial reporting purposes. That's digital imaging and sensors and controls. Just gonna go into a bit of detail mostly on sales on by division.

14:48 So in digital imaging, turnover increased by by 65% to 11,400,000. Now the biggest part of that has been the effect of the cameras going into PCR machines at our attic cameras business. But we've had good growth at the other two businesses in that segment, so Synoptics and Graphicals Optics, and they both average 22% sales higher than a year ago and 14% higher than in two years ago. So good growth in both of those businesses over two years ago. In sensitive control, turnover was up 85%. Now a big part of that was the 4.7 4,600,000 at Monmouth Scientific and Uniform Engineering.

15:41 But the other businesses, and here we're talking about SendTech, Astalks Controls, ATC, and MPB, they were 17% higher than two years ago as well. So you can see there's been a fairly broad based recovery and, in fact, growth from the prepandemic period. So we've been very pleased with that both because it's it's good. It's in line with our usual expectation of of probably around high single digit percentage growth per year and also because it's very broad based across all of our businesses.

16:21 Moving on to the income statement slide. Here, I won't, I think, go into detail over this one. My favorite of the profit indicators is adjusted diluted earnings per share. It's up 59% over to over a year ago, so we're pleased with that one. One more slide is a sales bridge from two years ago to one year ago to this year, this half year. So we started two years ago. That's the the period from April 2019 to October 2019, we had sales of $11,400,000 We added $1,800,000 of revenues in twenty twenty one half year through the acquisition of Celle Instruments.

17:15 And then we had organic growth for onetime COVID related shipments, and that's both at Attic Cameras and MPB, of 2,900,000. And then the rest of our businesses declined by 2,000,000. And you have to remember then we were in the depths of the the period April through to October of last year in in the depths of the pandemic, and everyone was down. Almost everyone was down. So that brings us to 14,000,000, which was our sales of last year. This year, since then then, we've added the sales of Monmouth and Uniform, an extra 4,600,000. And then the organic growth from COVID related contracts has added a further 2,800,000.

18:02 Now that's all in attic cameras, less the growth that we had the previous time in in MPB. So attic cameras has 5,700,000 then of COVID related contracts in this last half year.

18:16 On top of that, our other businesses, and I've mentioned that they're they've all grown over the last two years and over the last year, increased by 3,200,000. So that brings us to the 24,700,000 of revenues of the last half year. Hope that that's clear, but we can answer questions on that too. Moving on to the balance sheet. I won't really go into detail of the balance sheet at all, but highlight on the right hand side the cash situation. So in terms of cash, we had October of this year, 1,100,000 of net cash. That's cash less bank borrowing, and we had bank borrowing of 2.4 and and actual gross cash of 3,500,000.

19:04 Then on November 1, we signed an agreement with our bank HSBC to increase the size of our debt facility with them. So now we have a completely revolving facility of £20,000,000 on on top of our 1,100,000 of net cash. So that gives us plenty of firepower for acquisitions. And and in fact, we the debt facility is is entirely there for that purpose. So we all of our businesses are cash generating. We generate cash every month without fail. So we don't need it for ongoing business. We need it to to complete acquisitions, and it's there so that we don't have to dilute shareholders when we make acquisitions in the near future.

19:50 So it's £20,000,000. On top of that, we generate cash every month as well. So we've got an ongoing cash flow to use as well. So I'm hoping that this will give us plenty of firepower for for upcoming acquisitions if we can do them. Just a a word about the facility. So it's a revolving facility. It's for three years term. We can extend it for another 10,000,000 and another two years with the agreement of our bank. And the difference between the facility we had, apart from size, the the difference between the facility we had up to now and this one is that the bank has been very good in recognizing that our acquisitions are are very much part of our business plan and that we complete them successfully, and they've been willing, therefore, to relax some of the conditions that were were around acquisitions until now. So that that makes it a really good vehicle for us to to help with acquisitions and complete them quickly.

20:58 Move on a slide. This is a net cash debt bridge for the half year. I won't go into very much detail on this. I want to highlight two items on towards the left hand side regarding working capital. So we had strong operating cash flow before movement in operating in working capital. And two other items, attic cameras customer down payments for the the PCR machines, COVID related contracts. We used 1,100,000 of those down payments. So that's customers paying cash before the period end before the period started, which we've been using or we've been invoicing and shipping, but without receiving further cash because we'd already received the cash prior to the period beginning.

21:52 That was worth 1,100,000 and is a reduction in our cash flow this year. But, of course, it was very favorable to us because we brought the cash in in prior periods. Now at the end of October thirty one, we still had 1,800,000 of customers cash in hand, and that will presumably be used during this half year. So this in the half year we're in now, we're gonna see further decline in customer down payments on our balance sheet. The other the next item is the rest of working capital was also negative for us in the in the period. Now it usually would be negative in a in a period of growth.

22:39 In this case, we have allowed our businesses and, in fact, encouraged our businesses to to bring in more stock than they would normally have on hand to cope with the supply chain challenges that that I think everyone knows about. So so there's there's the 1,200,000 of other movements in working capital in the period are mostly stock related, and they are partly for Attic Cameras who was gearing up to to ship further cameras in in November and December, but also due to a general increase in stocks around the group to cope with supply chain difficulties. Finally, near towards the right hand side of this chart, you can see 2,500,000 of cash outflow for acquisitions, and this is the £2,350,000 payment final payment for the acquisition of Monmouth Monmouth Scientific that we made in June. So that was fully paid out in June, 2,350,000.

23:43 1 point yes. 2,350,000. And finally, we made a small acquisition of a £150,000 for an activity called Clean Tent, and we'll we'll discuss that in a slide or two. And move on to there is a cash flow statement here or summarized at least. I'm not gonna go into the details of the numbers. They're there for you if you take the pack later on. And we're gonna move on to operational highlights and outlook, and Mike's gonna take this slide.

24:17 Well, thanks, John. So now we get on to the last remaining pages. What we're do here is just look at a little case study. So Monmouth was acquired in December 2020 from David and Lisa Pomeroy. David then advised me the following day that one of his fabricators was for sale, Uniform Engineering, and we acquired them on January sometime in January, end of January, I think, 2021. If we look at these recent acquisitions, case study of life after being acquired by the SDI GROUP one year on, let's go through both of them individually. First of all, Monmouth Scientific. The year of acquisition, it well, the product mix has now been normalized from that. As expected with the COVID related bio safety cabinets, they've reduced with the exceptional levels of the previous year.

25:09 And so now we're getting our standard mix of biosafety cabinets, laminate flow cabinets, clean rooms, fume cabinets. We have a a wide range of products within the Monmouth Scientific portfolio of products. The building at Monmouth, a new building that's progressing at a rapid speed, and now we're expecting to move into that building at the end of the financial year, which is exciting news for us. And you can actually see, I think within the presentation, we've a nice little diagram in it of the building there. So it's two units. One is an engineering workshop of about 10,000 square feet, and 38,000 square feet is is the main building. And then what we did recently as well is we introduced a Sage ERP system.

25:57 This is their sort of top level Sage 200 system, and that will serve both Monmouth and Uniform Engineering. As with all systems, it does have its teething problems, but it was necessary to upgrade the system as we needed to get better information on margins within the products. In August, as John has actually mentioned, we acquired a trade name and assets of Clean Tents, and that serves the portable and temporary market clean room market. And the final point within Monmouth, David suddenly has made the decision to step down as MD from the December 1. He will continue to run-in parallel with the new managing director until the end of this month, and then he's handing over the raise to Alan Holcomb, was who was the managing director of uniform

26:48 engineering. He had only had a short spell there, but he came through the interprogress for us very well. And I'm sure he's going to continue to drive the business forward just like David has done over the last seventeen, eighteen years. David is not gonna run away into the sunset. He's going to work alongside me on a part time basis, and we've got sort of a couple of interesting acquisitions we're both looking at together at the moment.

27:15 Uniform engineering. We acquired that for £350,000, which is three and a half times PBIT plus the net assets. When we entered the building, one of the directors of modern engineering, David Cool, He had a look at it and realized very quickly we've got some health and severe health and safety issues, which we which we had to address.

27:38 So then we had to spend a fair bit of money on capital equipment to put put that that right as we're a public company, and we couldn't take any shortcuts. That's been a positive step for the employees. They're very motivated in what we're trying to do with this business. And what we've actually got with the business there is it's very good for four of our current subsidiaries who use third party fabricators. But the problem is we've got with Uniform Engineering. It's it's got capacity problems. It's only in six and a half thousand square feet. I think it's got about fifteen, seventeen thousand

28:11 17 employees, not a 17 employees. We really need to have a look at the business case of whether we should invest in a larger facility. There's a very nice large facility, probably a mile, mile and a half down the road, and that takes us up to 11,000 square feet. And And then then what we'd like to do is to upgrade the plant planted equipment so we accommodate all our internal subsidiaries. But, also, Alan Holcomb has done a a very good job since he's been there in that short period of time in gaining new customers and also bringing back old, customers.

28:45 Another area that's sort of close to my heart is training schemes within the group. We've introduced a training scheme for glassblowing in SendTech because there aren't any, training schemes or apprenticeship schemes around The UK, so we decided to do it ourselves. I think we could actually introduce a similar type of training scheme in uniform engineering whereby we could trade train fabricators and welders. All of these skills are dying with the aging workforce. Therefore, I think it'd be very good to introduce these types of schemes, and it'll be very, very beneficial for the the company and SDI GROUP and its subsidiaries. John, you'd to click the next page, that'd be cool. Operations. Within here, I just wanted to highlight some of the operational challenges we've had within the group. John and I have been down the road all all week. This is our last meeting.

29:37 And the number one question or one of the main questions is supply issues. Yes. We do have supply issues just like everybody else in the world, but we've got a very good management team within the group at the subsidiary level, and they are able to secure supplies of key components. Ones that come to mind are the semiconductors, fans, and other electrical components. Also, what we've actually done it as well is if it we've invested in stock in the short term. You'll have to see that on the balance sheet to assist in the delivery of product in a timely manner.

30:09 The next point, is staff turnover. It it always has been low within the group. The biggest problem we've got or challenges we've got is, like everybody else, is trying to find staff at all levels. Currently, we've got a few gate vacancies within the group, but we're nearly fully staffed.

30:29 As I already mentioned within the slide pack, we try to invest in the businesses for growth. And, I've got a a reasonable list of, examples. I think what we discussed we might actually do is, put some case studies of these in the annual report and also the year end presentation because all I'm doing is gonna go through a few bullet points. So if we look at asset cameras, we've invested in premises and people as we noted right at the start. The second one is Mumba Scientific. We invested in premises, which we're going to move into in the next three or four months. IT, we've already mentioned, and also plant and equipment. We invested in a new CNC machine within the facility. Uniform engineering, plant and equipment for health and safety, and then we recently ordered a new press brake machine, which is a metal bending machine, which is required, and we should be able to get additional capacity at that facility without a new unit.

31:26 The one close to my heart at the moment is Grashkills Optics. It's having a great year trading wise, but what we've actually done is completely gutted a nineteen sixties building, and we were replacing the equipment as we roll out the program. Some of the equipment will be supplied by Monmouth, which I think is a couple of clean two clean rooms and some langry flow cabinets. The cost of this is about $303.03 £630,000, and this is phase one.

31:56 If the return comes through on phase one, which I'm sure it will be, but what we're looking at for for trading at the moment, And they're doing a great job trading through this sort of mess of reefer. Then we have an opportunity to grow to expand the building on the side by another I think it's a third of the size. The landowner in agreement with that, and then we'll put that up in probably eighteen months to two years. And the last one is is Synoptics. Synoptics has a great couple of years. They really have managed by Claire Hoff and Kate George. We've reduced the headcount in there. We've got a very lean and mean r and d team in there. We outsourced our an r and d project with AltaCol. It's an automated colony counter focused on the pharmaceutical sector at a cost of about £200,000.

32:44 So you can actually see from these five examples that we've invested in staff, premises, plant and equipment, r and d over the years to to assist the company in driving organic growth, and you can actually see it through the numbers. Another point here is it's good to see that trade fairs and exhibitions are back in place again after two years. We recently had a number of subsidiaries attending and exhibiting at Lab Innovations and Advanced Engineering at the NEC, and it was was very well received. We've got two big exhibitions for the for the group next year, both based in Germany. One is at Kemer, which is in March based in Frankfurt,

33:26 and that follows in June with Analytica in Munich whereby there'll be most of our subsidiaries attending for exhibition that those exhibitions. The last point we had there, which is, I suppose, a bit out of date now with Boris'

33:44 speech the other day, we did include a point about travel improving. But based on the new variant, this is most likely will not hold true, and travel restrictions may be imposed in the the short term. And then if we sort of just close-up with a summary and the outlook, which really hasn't sort of changed. It still still continues. For the half year, you can actually see from the results John's been through, we had had a a strong half year, record interim revenues and profits. And sadly, there there weren't any acquisitions in that period of time, but you can actually see the the high levels of organic growth coming through.

34:21 All our businesses have been profitable and cash generative throughout this period and as we've already said and I'll keep repeating it, we continue to invest in our businesses which in turn has delivered strong growth over the previous financial years. Outlook, this is a bit amusing because it's no change, to the annual report, and that is the board remain confident that it will meet its increased market expectations. We continue to invest in our companies to drive growth, and we continue to seek further acquisitions. And I'm hoping we'd be able to close at least one within this financial year. Mike, John, that's perfect. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A can be accessed via your investor dashboard on the Investor Meet company platform.

35:22 I would also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, you'll be automatically redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations.

35:36 Mike, John, I haven't given you much time at all. There were a number of questions pre submitted ahead of today's event and along with the questions submitted during the live event. And I just want to hand back to you to read out the questions and give a response where it's appropriate to do so. Thank you so much. Yeah. Thanks to you. So we did receive eight questions upfront, and we're gonna go through those first, and then we're gonna try and get through all of the the questions that have been popping up in the course of this presentation. So I've taken the the questions that were submitted beforehand and and kind of grouped them a little bit. Some of them are answered by the presentation already, we think, but we'll we'll answer all of them now. So the first question that I'm reading out is is on overall strategy, and it's where does management see SDI in five years' time? Do we have five years financial targets, and are there plans for personnel changes or

36:31 additions to management or directors in the next three years? So I'm gonna ask Mike Mike to answer that one. Okay. Well, we don't have five year plannings. I don't believe in it. I think it's difficult to actually forecast the next twelve to twenty four months, which we have to do anyway. But I think for the business model we've actually got, I've been here till ten years works. So the last six years, we've actually gone from 8 p a share, 7.5 p a share up to nearly £2 a share. So I don't see why we should actually change that m and a or organic structure.

37:05 What we do need to point out is, yes, I'm sure we'll need to change the structure as we grow because I there's only so much time I can spend in the day driving around the businesses and looking at acquisitions. I'm sure we'll have to strengthen either the main board or a team below the main board

37:26 going forward on that. I think I'll Thanks, Mike. This is kind of related. So is management sticking to the long term 28% annual growth target being eight eight to 9% organic and 20% M and A growth?

37:41 Is this target achievable with the current structures?

37:44 Now I don't really recognize that as being a hard and fast target, but do you want to answer that, Mike? Yeah. I do. We've always actually said that we we'd like organic growth at a high single digit digit figure. You know, we'd be choosing it in the first six months. I I don't know. I don't see why that still can't be achieved. What do think, John? Do you think that's a fair comment? I think we've you said that, haven't we? Yeah. I think we, you know, we are we we are exposed to to sectors that have that do offer higher than average growth. So we should certainly be targeting that kind of range. Yeah. Yeah. And the acquisition side of that and where the 20% comes from. But like I said, we we've actually got a strong pipeline. You know, a few years ago, we did four acquisitions. We did two last year. I'm sure we're gonna do one or two before the close of this year. So if we can still continue that with high good growth acquisitions, then we should we might achieve the 20%, but I've never thought about that sort of figure when we acquire businesses, really. I just wanna make sure that the acquisitions tick our acquisition criteria, which is, is, again, in the pen in in the appendices here, and then we can actually invest in those businesses and grow them.

39:02 Yep. Thanks. So then more on acquisitions. Have you looked outside of The UK for examples of companies having having been been consistently successful at pursuing large amounts of small but extremely value accretive m and a deals? And and then a couple of examples were given. Yeah. I I have. I've never looked at the Swedish one. I've looked at Constellation Software. I'm sure we're getting all the questions about that. That was founded in 1995 by a private equity individual. It IPO ed in 2,006. It was roughly in 2004, it was roughly the same size as us before it floated. And it's in about 500 acquisitions in twenty six years, which is about two an average of two, which is roughly about the same as us. But it's a bigger, bigger business.

39:48 You know, it's got a market cap of 3,000,000,000. It turns over 4,000,000,000. It's got 16,000 employees. The biggest difference for that is a software company. So what they can actually do is buy software and even integrate it. We are we are by manufacturing businesses. We've integrated a number of these businesses through the years, Q quantum scientific imaging and OPUS instruments into active cameras, FiStream into Synoptics, and then we merged thermal exchange and apply thermal control together. So we're gonna do that, but a lot of our businesses are stand alone businesses. So I think there is some differences in that that in that profile, but we've got some catching up to do, really. We've only I was just gonna say that Go on then, John. Sorry. I was gonna say with the we're not ready yet to decentralize m and a. I think we've still got you know, we see still consider that as being a key headquarters function.

40:40 And at at some stage, we will, I think, you know, when we're big enough, pass it down, but not for the moment. No. So so we've got some catching up to do. They've been acquiring business for twenty six years. We've been doing it for six. But so I think we've got we've got some very, very good acquisitions. We've acquired very good businesses in the last in the last sort of six years, and you can actually see it's reflected in the share price. So we we are still correcting creating shareholder value, which which is my goal. The next one is management has not been able to make relevant acquisitions in the last eleven months. What are the reasons for this, and what will management do to further develop the m and a structures in order to build a strong m and a pipeline in the medium and long term? I'd rather somebody I know somebody's picked it out at the worst case, eleven months. It could be twelve months, but if we I'd rather look at it on the annual results because that's where it's reported.

41:35 So we we did did two we did two acquisitions in the last financial year, and I'm sure we're going to, hopefully, depending on of timing, acquire one or two acquisitions this financial year. So So we have a strong pipeline, and it's just timing. You know, if you have a look at the acquisitions, you know, we we try to acquire a couple of companies this year. We were let down. You know, not everything falls over the line or comes into our basket. You other know, people come along and take it take it out of our hands. So I hope that answers your question. Another m and a question. When you buy a business, how do you make sure it has a sustainable competitive advantage over its rivals?

42:22 We we buy niche businesses. If you go have a good example, when we acquired Sentek Sensors, it's two it's got two big project projects, OEM projects. So as soon as they we get latched into a customer, it's very difficult for them to actually go elsewhere. And from that, we actually look at to see whether their businesses, I. E. The customers' businesses can grow, and it has been. It's proven it. Also, what we actually do find is when we acquire businesses, a lot of a lot of our businesses with Kai have got probably at least a fifteen year trading history. So we can look back in time and see the business growing. And, also, you have to have belief in the management as well. You talk to the management. You talk to the sales teams.

43:08 And if they're enthusiastic about sort of selling products and we can see it from history, then we have to believe them. John and I are the only people in the head office apart from a financial controller, and have to give them the authority to say, yes. Go that grow that business, and we will support you through the investment from head office. And I think that we've actually seen it proven in in all these businesses, especially this year as well. You You know, know, we've we've actually seen all a lot of our businesses trading above budget for the first six months of the year, so it's proven it. That's fine. And a couple of questions. No. Not really on m and a, so so maybe I'll take these. What what percentage of group revenue is repeat orders every year? So, I mean, it's a good question. It's it's kind of slightly different. We often get questions about about recurring revenue, and and there's no obvious, you know, precise definition of that.

44:03 But if I include our real recurring revenue of service and calibration and also our OEM businesses where we're we're selling to customers that are building out our products into their bigger machines, and and clearly, they're gonna come back, you know, every year, then it's about 35 to 40% of our revenues. You know, if I'm I'm here excluding a kind of bulge for attic cameras this year, about 35 or so percent. And the rest of our business, we have to kind of conquer sale by by sale. So so that's that's the majority of our business. We have to do that. But, of course, we have distributors who are bringing in customers all the time.

44:48 So it's not it's not you know, I'm not saying it's it's easy, but but we're managing it. The next question is how sensitive are you to the economy? In other words, if there was a recession, meaning UK GDP was down by by, say, 10%, how much would you expect your revenues to be down by? So that's that's very difficult. We've we've just coming out of a recession, and our sales went up. So it the answer is it it depends. I think we are clearly sensitive to the economy if our customers are. And, yeah, I don't know if the answer is more than 10% or less than 10% because it it does depend. But we we hopefully, we're in sectors of the economy that are growing substantially and sometimes can grow through recessions, and we we certainly demonstrated that over the last period.

45:50 Final question that was presubmitted relating to supply chain issues. We're seeing issues all around the globe. To what extent are SDI subsidiaries affected, and are some affected more than others? I'll give you the answer to that. And and then if it leads to sustained inflation, to what extent do you think our subsidiaries might transfer those costs to customers? Do you and so I think we we we've certainly talked about the supply chain issues, which, you know, our businesses are coping very well with. It's been challenging to some extent, but, you know, we have professionals there whose whose job is to is to source the components for their business. So it's not that we have a an overarching structure to to cope with this. This is right down in the business. They know their products. They know their cuss their their suppliers, and they've been get getting the job done.

46:49 So we're quite we're very proud of them. And as you've seen, our sales have gone up. So despite supply chain challenges, you know, we've been managing to get the the products we need and to supply our customers. Regarding inflation, I think up to now, we we've certainly increased our prices to to cover cost increases. Inflation to date has been kind of focused in in certain areas, but what we're seeing is that we will get cost inflation more or less across the board, especially in labor and in and in products that depend on labor from our suppliers. So we know we're gonna have to to to price for that, and we believe that in general, we can price for that because the whole world you know, our customers know that that not only we, but but any competing suppliers are subject to inflation. And and so, you know, we think we're in a strong position to to to transfer that to customers, and and we're gonna have to do that.

48:02 That kind of concludes the the questions that were presubmitted. So now we're just gonna go down the the questions that we haven't really had a had sight of. So I'm gonna throw most of them over to Mike. Fine. So I've got a question here from Gilbert. COVID clearly isn't going away, and and the recent news seems to be worsening. So do you think you may get further exceptional COVID orders for attic cameras in 2022? You've been answering that in the city. Yeah. So I've I've had that question before. I think I think the answer is the answer is we don't know. So we've got some indication. You know, our our communication with this customer isn't very easy. It's located in the Far East. Language is an issue, and and most of our conversations to date have been kind of technical ones rather than supply chain or or or sales ones.

48:59 So so we've got imperfect information there. I think we we have recently received some kind of indication that they are selling through the PCR machines to which our our cameras are fitted. So we're we're quite optimistic that they don't have a big overhang of of our product, you know, on their premises. Whether the Chinese market in particular has absorbed all the PCR machines that it needs be and and now it's a matter of just using those on on future waves of the pandemic, we really don't know. So so we're hopeful that this customer, which started out for us pre pandemic as being largely a kind of r and d customer that that was buying samples and and selling a a small number of machines, It's become a big customer, and in fact, it's become a big manufacturer.

49:51 And we we hope that it'll be a continuous source of sales into the future, maybe not at pandemic levels. But the fact is we don't know. So so we haven't built it to any great extent into our into our financial plans. But, you know, it's an upside if it comes. Next question, Sergio. Are your sales expanding relative to your industry and your rivals? Again, I've been answering that kind of question. So I think the answer is undoubtedly yes. Undoubtedly, yes. Having said that, I think there are the there's a kind of OEM part of our business in which nobody is really redesigning their products or or designing new new cameras or new modules into their products. So so over the last eighteen months, that's probably not been a big a big element of of kind of displacing rivals from existing products. I just don't think that's been happening significant significantly.

51:03 But where we're selling an instrument in which customers could buy ours or they could buy someone else's, so they're getting it off the shelf or through distribution, I think there's no doubt that we're gaining market share. And and that 16% growth over two years is is is demonstration of that, I would say. Next question from Michael. Outside the organic growth, m and a is key, and you certainly have an eye for it. What does the pipeline look like? I think, Mike, you've you've you've said that. What do you wanna add anything? Or No. We can just say it again. Like like I said, we've probably got a a dozen acquisitions. We we had two which fell away this financial year, and that's probably the reason why we didn't actually sort of close or crystallize the deal within the first half of the year. But it looks promising for the second half of the year and the following year as well. So we have got a number of opportunities we hope to close in the foreseeable future.

52:06 And then you've already mentioned about funding. John, do you wanna repeat that? Yeah. So so we think funding is is not a current issue for us. That's right. Next question, Sergio again. Do you have constant demand for your products other than cameras? Well, not really sure how to interpret that question. We have say, if we look at it, I'm I'm gonna interpret it to say it's OEM. So then you can have a look at, say, SendTech sensors. We've got two really big OEM contracts, sort of a million pound each contracts for them. And apply thermal control. We provide chillers that go into lot pieces of life science equipment, again, sort of an OEM.

52:52 Synoptics have got an OEM, but it's a branded water filtration business. So we've actually got a constant demand for these products coming through from people within the OEM side. I think that's all I can guess what is the question is, really. Yeah. Okay. Thank you. Another question from MGM. What is the likelihood of attic getting more orders for PCR related revenues? I think we've probably just answered that. Well, to to expand a little bit, we were talking about the one customer, but but it's the question is, okay. Can we can we find other customers that are making PCR machines and would like to use our cameras? Again, I don't know. We've got so attic cameras has its feelers out to try and find new OEM customers.

53:41 Sure. Not all PCR, machines by any means use cameras as their kind of sensor for for determining quantities of DNA, etcetera. So so we shouldn't look at the whole of the PCR machine market here, but we're certainly trying to find other customers. What is the likelihood? Very difficult to say. We're certainly working as hard as we can to try and find those potential customers. And as I I said right at the start, what we've actually done is invested in Attic. We've got a a very smart, knowledgeable r and d director who's taken onboard the sales because it's really technical sales. And then we've got a business development director as well trying to find these niche markets whereby they want an Attic camera.

54:29 Yep. Good. Moving on. Alright. Question from. What happened with negative cash move? Will we get back to growth in in free cash flow generation? So I did explain, I think, that that cash flow was was reduced compared to a year ago, and that's mainly because last year, we were getting cash ahead of sales from our customer, in particular, the the customer for for cameras. And this year, we've been using that cash, and that's so that's caused a kind of double whammy of in terms of growth in free free cash flow. Because last year, they were they were sending cash to us, and this year, we're sending cameras to them, which which caused a not a negative cash flow because cash flow is always positive, but negative growth in that case.

55:24 We may see it again in this half year. So as I said, we still got 1,800,000 on our balance sheet of customer prepayments for cameras. And assuming that that we run out this order and don't replace it, then then that will contribute again to to lower growth in free cash flow or negative growth even. So, yeah, I think after that, then we can expect to to grow again. And so just to repeat, we had a positive contribution of of down payments a year ago and a negative contribution this time around, plus some some additional increases to stock.

56:14 Next question again from MG. Forecast for 2023 are showing a significant decline in profits and earnings per share growth. How confident is the board of making acquisitions in the next six to twelve months that will increase growth in these forecasts? I think, Mike, you've you've explained that you're confident. Confident. Yes. That is my job is to fill that gap. I'm sure we're gonna get a certain amount of it from organic growth, but that's what I've actually said to the city when the forecast came out that we have to find acquisitions to fill that gap. So I'm reasonably confident that we're gonna do hit that. Good.

57:00 Next question. How sorry. This is from Patrick. How How is Kjell performing considering some of its end markets? For example, aerospace are subdued. It's a good question. Do want me to answer it? Yeah. John. Ciao. This this business is is really finding it difficult this financial year. We've had some we've got some really good prospects within the gas center market, Jamie, the sales director, has actually informed us probably six weeks ago that they're going to the right. So we're not losing orders, but they're going to the right. Aerospace is is an issue with us, rightly so, but we've had a a big upsurge in Formula one.

57:47 Rolls Royce used to be our biggest customer, and it's Ferrari now. So what they're actually doing is budgets in Formula one going to be cut the foot for next year, so everybody's buying on the back end of that before the cut. So we're we're having a good year for that, but the rest of it is actually is is quite low in the way of sales. Calibration is still a great revenue stream for us. But as I must say, and be honest with you, yeah, they're finding itself not that bad, but but they're they're a great company, great team there, and I'm sure they'll come through. And, like, you know how the business model works. You know, if somebody finds it tough, like, apply thermal control bid through through the COVID period, there's always somebody within the group to stand up and and support them and take away that that trading or the shortfall in trading away from them and pick it up, like Attic, Synoptics, etcetera, etcetera. I hope that answers your question.

58:43 Yep. Good. Thanks, Mike. Final no. Not the final question. So Vivek is asking, notwithstanding exceptional orders from Attic, how do you see the businesses evolving in terms of organic growth? If you were here in two years' time with organic growth, excluding attic exceptionals of 15 to 20%, would you be very pleased or disappointed? So I think we should be pleased with with Right. Kind of that that level of growth over two years, 15 to 20%. I think I think we can do it. I think it's but but I think it's quite you know, it's it's it's challenging, but I think our businesses, you know, are capable of that, actually. Is that okay? Yep.

59:30 Sergio, will the expansion in the Chinese market continue? Don't don't really know. Hard to say. It's a difficult call. Yeah. PCR, we sell the cameras into the Chinese market, but a number of other other companies would sell into the Chinese market. So it will continue. It is a market for us for a number of our subsidiaries. But But we don't know what the expansion is like over there, but we're still selling there. Yeah. Another question from Sergio. What are your KPIs for SDI GROUP? So I would say here, I mean, we list one or two KPIs that that we don't publish generally in our annual report.

1:00:17 You know, we're a buy and build business. So the the key things for us really are what we're acquiring. So acquisitions, quantity, how much capital we're deploying. But but more than that, it's are they the right acquisitions that are gonna generate return on that capital? And secondly, on the the the build side of our business, really, driver is is sales growth. So we're looking at at at growth in sales and opportunities for sales and orders for sales. But but we're not doing that so much overall at group level as so much as down in the individual businesses, which is, you know, where where sales are generated. Do you wanna add to that, Mike?

1:01:03 No. Not at all. I think it's alright. Yeah. But for our KPIs, really, for me personally, we I don't look at the sectors. I just look at the individual companies, and we're just performing against budget. That's what we actually do. We look at return on capital as a board. Very simple KPIs, and it seems to work. And also cash generation, which is key to my heart. You. Yogi is asking, what role will David Palmeri have in the future for SDI in the head office? An occasional addition to the m and a team or a permanent fixture? David and I don't know. David and I have gotten really well. He's been around for about a year. Sadly, you know, he's not gonna be m bit MD, but he's still gonna work with me, which is great. Great.

1:01:50 And I think it's suck it and see really from David and myself. We don't really know what we're going to do. We've got a fair bit of work to do in the next few months, and the number of opportunities coming out are growing. So, hopefully, it'll work with me for the foreseeable future. Okay. And we're on literally the last question now, and we've done an hour. So so we'll finish with this one. Good afternoon. When this is from ARC. When talking about m and a, the companies you look for are only UK based, or are you also looking abroad? No. We we will look all over the place. So what we we found a company in France just before COVID.

1:02:37 We got locked down. We couldn't go into France, so they decided to sell it to a French company. It was easier for them to sell internally. They just wanted to move away. We're looking at a company in The US at the moment. So we'll look at most places. But currently, the list is all UK apart from one in The US, which we'll look look at at in in 2022. Mike, John, thank you for addressing all the questions from investors this afternoon. And, course, ladies and gentlemen, the company will review any further questions submitted by investors today, we'll and we'll publish those answers on the Investor Meet company platform. Mike perhaps I could ask you for a few closing comments after which I'll redirect investors to give you their feedback. Okay well thanks for attending the webinar there's over 200 people attending. How many were there Mark attending?

1:03:25 We had short 300 that had accepted, and I've just closed the admin panel, so I'll give you all those stats after tonight, but but very well rescinded, sir. Yeah. That's very good. As usual. Anyway, so thanks for attending this webinar. It's been a fantastic ride since 2014. Acquired our first company, Opus Instruments. I hope you have a happy Christmas, I hope we can continue this growth in the New Year. Any questions have been directed to me or John. My email address is Mike@theSDIGroup.net. And, And, again, have a happy Christmas. Mike, thank you very much for that. And, John, thank you for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.

1:04:12 This will only take a few moments, but it's greatly valued by the company. On behalf of the management team of SDI GROUP, I'd like to thank you for attending today's session. That now concludes today's presentation, and good afternoon to you all. Thank you.