Sdi Group (LSE:SDI) — Preliminary Results

0:02 Good afternoon, ladies and gentlemen, and welcome to the SDI GROUP PLC Preliminary Results Investor Presentation. Company may not be in a position to answer every question it receives during the meeting itself. However, company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investment company, and we will notify you by email when they're ready for your review. I'd

0:33 also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you'd be so kind to give that your kind attention, we would be most grateful. And I'd now like to hand over to Mike Creedon, CEO and Jon Bell, CFO from SDI GROUP. Good afternoon to you both. Good afternoon. As you know, from your research and and also from a number of these meetings, I'm Mike Creedon, the CEO of SDI GROUP. John and I will go through the investor presentation with a q and a at the end. If after this meeting you still have any questions, do not hesitate to contact me. I'm sure a few of you have got my email address, it's mike@thesdigroup.net. And hopefully, I'll be able to provide you with some answers.

1:18 As you can see, this is not a recorded message, so I'd like to turn off the camera as it will make your slides a little bit bigger. There we go. Okay. Yeah. So we'll go through onto page two, and John and I will cover the following, the board of directors, group overview, six year track record, financial year twenty twenty twenty one, which is just gone, followed by some operational highlights and outlook. And now at the end of the of this presentation is an appendix, which includes details of the nine business units and the latest capital structure. And if we just go on to now the board. Thank you. The board structure has been discussed many times over the years and buyers are are within the investor presentation.

2:06 And also, our bios are on the website, therefore, I'm supposed to move off this slide, but there's just one sort of short comment I wanted to make, which has come out of a number of investor meetings this week.

2:19 The question was right about succession planning and whether additional executive and nonexecutive directors are required within the SDI group. In my opinion, we have the right mix for now, but this is an agenda item for a nominations committee meeting which all listed companies have, and I'm sure we'll be discussing it over over the next few months. So go to the next slide, John. Thank you. And now we're looking at the group overview. We've used this diagram over the years to give a quick overview of the sectors and and the business unit within these sectors. We've added another piece of spaghetti due to acquiring Monmouth Scientific and Uniform Engineering during twenty twenty twenty one.

3:04 These will be discussed later in the presentation, I think on page 17. I've got my numbering right. At the back of the presentation, as I've already mentioned, there's an appendix which gives you additional information on each business unit, But further information can be found on these nine business units on their own websites, but also on their social media links. In the bottom right hand corner of the presentation, I just want to make a few comments on that. And it's a very important question. Where are the strengths within our business model? The first point to say is a decentralized structure for a rapid and detailed response. What's that mean? That we hand over the day to day running of all the autonomous units to our local management teams. This gives them a quick but a managed decision making process, thus eliminating head office delays from myself, John, or Jonathan.

4:00 Jonathan being the new group financial controller. All businesses were profitable and cash generative throughout the financial year twenty twenty twenty one. John will expand on that when he goes through his financials. We have a diverse portfolio of business units. Therefore, we're not reliant on a single sector or region for revenues and profits. We have a level of future proofing within our sectors because we supply a range of products that have been a standard product for very many years through the sorry, lost my point. For those sectors over a number of years. Examples of this would include gel documentation systems, chillers, water purification units, and finally, chemical dosing and control systems.

4:46 These are all found in our our subsidiary companies. I'd also like to add that a good part of our revenue is also from a range of OEM products, a game with a long life. What do head office provide? They provide a cash source for investment in organic growth and acquisitions for our business units. I'd like now to hand over to John who will run through the six year track record and the financials. Thanks, Mike. So moving on to a very nice and colorful slide here. You see that in the last year, the the right hand bar of each of these graphs, revenues increased, operating profit increased, cash generated from operations increased, all all of them throughout, so not notwithstanding the epidemic.

5:37 And in fact, our growth was faster this year than it has been over the past six years, which which was already pretty good. So revenue is up 43%.

5:49 Adjusted operating profit, in fact, all profit lines up between somewhere between 6080%, and cash generated from operations up 74 up 127%. So a very strong financial performance. See, the share price responded to some extent, so it's been a good year. We'll we'll go into a bit more detail in in the following slides. So full year 2020, 2021 financials. Some highlights here where I've already said them, in fact. Revenues up 43%. Now that includes 19% organic growth, and we'll go into some detail on that.

6:34 And the rest was growth from acquisitions, both last year's acquisitions and and this year's acquisitions. Profit line is up, as I've said, very strongly, and cash generated from operations also sharp sharply up. Delving in a little bit into our two reportable segments. These are digital imaging where we have two of our original businesses, Synoptics and Attic Cameras, and an acquisition from 2019, Graphicals Optics. Their turnover was up 43%, so fully in line with the total company up to 15,800,000.

7:20 Digital Imaging segment accounts for 45% of group revenues. Operating profit was up to $55,200,000 from 2,400,000. And in particular, this segment benefited from orders of cameras from a global OEM, actually based in China, for use in PCR machines. So these are the polymerase chain reaction machines that are used for testing for COVID in particular, but but more generally for proteins and DNA. So we've had a series of contracts throughout last year, and these these we consider to be onetime contracts. They're clearly related to the the COVID pandemic.

8:11 They go into the current current year, twenty twenty one, twenty two. But last year, we had significant sales in attic cameras from those. We also had growth in Synoptics and the modest decline in the Graphics' optics business. In sensors and control, which includes mostly newer businesses for us, including SendTech, Astal's, ATC, Shell, and the new acquisition of Monmouth, Turnover again was up 43%. That was largely due to the acquisition of last year or in 2020 of Chell Instruments and the 2021 acquisitions of Monmouth Scientific and Uniform Engineering.

9:04 Organic growth in this pandemic year was negative 1.4%. So there, GROUP was very strong. They sell flow meters, some of which went into ventilators that at the start of this pandemic were were in high demand. And we had modest declines in SENTECH, in ATC, in Shell, and a slightly larger one at our ASKOL's business where they their revenues are about 50% in service, and there wasn't much service activity available to us for a lot of the year last year. Now the highlight of sensor controls was the acquisition of Monmouth Scientific in December and followed very quickly by Uniform Engineering in January, and and Mike will talk about that in a while.

10:00 On the income statement, I'm not gonna go into too much detail. It's it's available to you in our r and s. I've said already, revenue is up 43%, and most of our profit lines is all between somewhere between sixty and and eighty percent. So including my favorite, which would be the adjusted diluted earnings per share line, which was up 74% to 5.97p. The quick revenue bridge. So last year, 24,500,000 of sales. This year, up to 35,000,000 of sales. Now part of this was due to acquisitions, so 2,500,000 of additional sales from Celle Instruments purchased in 2020, 3,700,000 from our two acquisitions of this year.

10:55 On top of that, we had 19% organic growth, but that was focused on especially the £6,100,000 of specific one off COVID nineteen related contracts that we've talked about. So for attic cameras into PCR machines and at MPV MPV for flow meters going into Ventevate. So you can see that if we hadn't had those contracts, then organic growth would have been slightly negative for the group. Gonna move on to the balance sheet and specifically our cash situation. On the top right, there's a box explaining that we started the year with a net debt position of about £4,000,000.

11:48 The end of the year, we finished with £751,000 net cash. That's that that is cashless bank debt. So we're ignoring leases in this in this box. So quite a swing from negative 4,000,000 to positive 800,000. What we should note, though, is that we haven't paid at the end of the year for an earn out on the Monmouth Scientific acquisition of 2,350,000. So if we brought that into the equation, our our net bank debt, including that item, would have been negative £1,600,000, but having purchased two good two good acquisitions during the year.

12:40 So a strong cash flow situation. At the end of the year, we had £5,000,000 of unused facility bank facility and £3,800,000 of cash, and that's before, though, we paid for the £2,350,000 earn out payment.

13:00 We paid during the year £6,600,000 in cash and shares, including the the earn out payment after the year end for the two acquisitions. In at the June 30, that's the month just finished, we'd already paid that the earn out, and net debt was down to 300,000. And in fact, as we speak, we're in a, again, a positive net caps cash position.

13:36 And this is in more or less in in graphical form, same thing. We started the year with 4,000,000 of net debt on the left. Cash from operations took us very positive, including a very positive movement in working capital, so which released £2,800,000 of funds. Now that, I have to say, is is almost exactly the amount of customer down payment we received for twenty twenty two shipments or this year's shipments for cameras going into the the customer making PCR machines. So that's a onetime favorable cash flow that we had last year, which sometime this year will probably reverse out and become negative.

14:27 See also on the chart the 4,100,000 of cash we paid for the two acquisitions. So finishing there for the year at 0.8 positive. Again, there's a a cash flow table here. It doesn't add very much. Just to confirm the benefit of the increase in customer down payments that we had during the year of 3,500,000 in total, of which about 3,000,000 was for for the one particular customer.

14:59 I'm gonna pass back now to Mike for some operational highlights. Okay. You've got me right to the end of the slides now. So operational highlights now, Doug. So before we move through the slides, what I want to do with this presentation, I'd like to give you a bit of an explanation of what head office did throughout the COVID year. As you all know from my bio, for many years, I've been involved in finance and involved in the front end of small businesses, both listed and unlisted, having cash flow issues. Therefore, I understood the steps required at the start of the pandemic. So John and I, in March 2020, which John really took the stance of drawing down our bank facility, and then we introduced a thirteen week rolling cash flow forecast supported by short weekly reports from the business units.

15:49 This information was sent out every Friday afternoon

15:52 to the main board and the subsidiary directors. And very quickly, it became apparent that the group was throwing up high levels of cash, therefore, this detailed level of reporting was no longer required. So my role throughout this period was to support the directors and senior managers of the businesses. They're very good at managing their businesses and solving problems, but they do require some comfort from head office.

16:19 To explain this sort of statement, really, we did have a number of businesses who found it tough during this year. Staff within those businesses, they're not silly. What they saw, closes of companies on the news every day. And then, of course, they become concerned about their job security. So I was there sort of stood in my car driving around the search to inform them that the group overall was highly profitable and we had sufficient cash to support their businesses for the foreseeable future. And that takes away the worry and stress from the staff. But now, as a real good positive, excuse me, we've seen that these units are very strong, and they've come out of the pandemic very, very well. In the final slides, I'm going to do talk to some operational highlights, which include COVID related contracts and acquisitions made within the final financial year. And then what I'll actually do then is have two concluding slides on our priorities for 2022 and outlook.

17:20 So if we move on to the next slide, that short interlude,

17:25 and we have attic cameras now. And page 15. This is a one time OEM contract, as John has stressed, and it's to supply a customized CCD camera using real time PCR DNA amplification for COVID

17:42 testing. This has given SDI a massive boost boost in profits and cash over this year and will continue throughout this current year, and we're assuming that this will not continue in 2023. The contract did give us some issues regarding capacity and output, which we're we're able to resolve quite quickly. We relocated Attic Lisbon to a larger facility on the 1st Floor of the building in December 2019. I think we did mention that and and showed a few diagrams in the annual report of last year. A short while ago, we agreed terms with the landlord on the Ground Floor of that premises. And what we're going to do was just shelve it for future expansion. But what we've done is taken the decision to use this additional space to accommodate finished goods and shipping.

18:31 Additional staff have been recruited on short term contracts to enable our attic in Lisbon, while I think in total, to deliver the output levels required by the customers. Now for the second year running, I'm presenting this we've been presenting on our Investor Meets company. I'd like to offer my thanks to Steve Chambers, the CEO of Attic Cameras again, and his team for a transformational year for Attic Cameras and also SDI GROUP.

19:00 And then we move on to the next slide, MPB. As you're aware, in last year's annual report ended April 2020, a substantial COVID related contract was placed on NPV. And it's a 40,000 flow meter. So it's all got lot of very nice glass tubes to be built into 20,000 ventilators. The head contractor was an existing customer of ours, which was a company called Pendlin, But it was a consortium, which included McCarran, Formula One, and Ford.

19:31 Ford were heavily sort of involved in us and actually camped in our place for about six months. And I I must say thanks to Ford Logistics because there is no way in a cat in a house chance we would actually achieve this level of output by ourselves. And we've learned a good lesson from, these guys coming into, our plant.

19:51 During this period, we are also also took an opportunity to to invest in NPV for the future. So what we've actually done is put in a more sophisticated IT infrastructure. Nothing that big, but it it it does include MRP and an integrated stock system, which is what we we needed. Most of our businesses have got that. Also, added some additional investment in a glass tube washing plant, which really is just a more expensive dishwasher like you've got at home, but it just it set the purpose on the glass. And also,

20:22 we invested in a laser engraver because people wanted serial numbers, bar codes, and QR codes on the glass. And it just creates a lot better sort of quality and image for MPB. And then the business has returned now to its normal output levels, which we always knew it was going to. This won a won a contract, but it's in a strong position for growth going forward.

20:46 So it was a it's it was a very good exercise and very profitable for us. Also, it was a good learning curve for Monmouth and its team. Can you flick the next page then, John?

20:59 And we're on to Monmouth. Okay? So SDI announced on the December 2, the acquisition of Monmouth Scientific, paying, I think John's already mentioned, 6,600,000 for the business, and that includes 2,350,000 as a no no. The acquisition was funded from cash and SDI's existing debt facility.

21:21 Monmouth Scientific is a manufacturer of biological safety cabinets, human cabinets, laminate flow cabinets, and clean rooms. There are many end markets for this equipment as laboratories, pharma companies, electronics, medical, and it's based in Bridgewater in Somerset. Moment this year, a strong demand for its biosafety cabinets during this financial year, but the product mix is returning back to its pre pandemic mix. The acquisition is in line with our group strategy of acquiring businesses with complementary technical products. David Pomeroy is a great guy. He's still around, and he's a c f CEO, and he's been running this business for seventeen years.

22:07 It's a great business. It's very similar to the culture of all the other businesses.

22:11 And like all the other businesses, we are going to invest for growth. Firstly, one of the reasons that David and Lisa sort of sold the businesses, they'd already they've got about 33,000 square feet in six, sorry, seven units scattered around Bridgewater. The reason why it's that big, because they do big build big products, clean rooms, steam cabinets, family floor plans, etcetera, as we've already mentioned. So it already signed up to have a purpose built building on the outskirts of Bridgewater. If anybody knows the M 5, there's a

22:45 Morrison's. It's a mall on Morrison's along the M 5 on the left hand side going to Cornwall. It's it's just near there. It's due to complete on in June 2022. 48,000 square feet. Of course, it's a hell of a commitment for her husband and wife because when you've actually got purpose built building, it's a fifteen year lease with no break clauses. So it's not like your standard three to five year leases. So it's a big commitment, but that's what we like doing. We like investing for growth. Another area which is of interesting for them and for us is they would like to enter The US market. We have got a subsidiary, Synoptics Inc, based in Frederick, just outside Washington. Only five star sales, marketing, and service, but what we use is manufacturers' reps, which are commission only reps. So we're currently undertaking a market research with the assistance of our US staff to say, could this be a lucrative business for Monmouth Scientific?

23:42 Well, hopefully, will be, and the sales manager, Lewis, within Monmouth is very proactive in trying to get go forward with this with this new market for us. As with all acquisitions, we ask the sellers if they know of any other businesses to sell. In this instance, we were led to Uniform Engineering, which is about seven miles outside Bridgewater in a basement hybrid,

24:08 not within the sizing technology sectors we've actually been buying businesses over the years. It's a fabrication business. It's a it's a good addition as we would have in house fabrication facility to be used by a number of other businesses. We use third party fabricators in Synoptics for the gel lock systems, and also we use it for applied thermal thermal control for their chillers. But it was interesting, suppose, which

24:36 why I made the decision is when we bought Shell Instruments, they are an engineering firm, 30 engineers at 34 staff, and they do everything from start to finish. They've got in house metal fabrication, CNC machines, and they have a limited contact with third party suppliers of engineering services. So, you know, that's actually pushed it over thinking it'll be a very good facility for us going forward. Currently, it's there's about 25% of Monba's sales, and the other balance is third party sales. It turns out for about 1,000,000, 1,100,000, with profits of about a £100,000.

25:13 We acquired the business on a three and a half multiple together with net assets. I'm positive that this business got, is a good investment, and, we've got potential to grow it through intercompany and also third party sales. Let's move on to the next slide. It is our priorities in FY '22. You can actually read this section, but I just don't wanna pick out a a couple of points, a number of points on here. Can give some sort of flesh behind it. All our businesses have had a good start to the financial year in the months of May and June. Cracking start. Some of the ones that really suffered through COVID are coming in quite strong. So I'm I'm really pleased that we actually supported and backed these guys through this period of uncertainty.

26:02 We've used the government slogan. I must say John uses government slogan, build, bag better. That was introduced by Biden and Boris used it. For us, it's invested in our infrastructure, skill base, and r and d growth. So in a way, it is it is for us. And that's what we do right the way through this presentation that we've said all along is we invest in our businesses. We buy businesses which are lean, mean. The founders generate

26:33 very good profits and cash, and we continue to work to grow those businesses for our behalf, but a lot of the business founders are still involved in this. Our subsidiary directors have always had a good handle on the cost control within the businesses, and this has proven to be the pay case during the pandemic.

26:52 But now we're looking to invest in our businesses going forward. And just two areas to highlight on that, what is marketing and the other one is on travel. We need to start attending shows such as Dan Aliska, which is a very big life science exhibition in Germany. I think three or four of our companies actually do attend that show. So we're looking at whether we can consolidate it, maybe not, because it's just like the NEC, six or seven rooms. So we could we might not be able to live in the same rooms. This has been canceled for two years, but we have to get back to show our face in the sector.

27:25 And the other area is travel. That was a big saving for us last year. But this year, we're gonna have to put that cost back into the budget game. A good example of that is, that 50% of Apple's revenue stream is from servicing equipment around the world, and that's been restricted during the pandemic.

27:45 And additionally, we have found it difficult to demonstrate a number of our products due to their complexity, Especially, a good example is also called which is a site sold by Synoptics. And what we've been using is communication platforms such as Zoom, Teams, Webex, but we do require face to face meetings. On that point, John and I have had two face to face meetings this week with institutional investors. It's just a sidetrack, really, which is actually pleasing, but also worrying for the city as we were the first meeting since lockdown for for a number of these institutional investors.

28:28 During the pandemic, this is a question came out of the on quite a few occasions. It's during the pandemic, we've seen a strain on our supply chains, which is which our subsidiary management have actually managed very effectively. I just wanted to give a couple of examples where we're we're actually seeing this sort of strain. First, firstly, it's on the shortage of electrical components, the mouthful, which is sort of semiconductors, but also, you know, just to highlight fans, cooling fans, and it's very difficult to get those. So we've actually increased our stock price there. And the other one, as you know, has actually seen on the news is increase in sheet metal going up by 15% because of the restrictions on China, but some more of concern is copper going up by 30%.

29:15 In a number of these cases, we have managed to pass these costs onto our customers. So that's just to give us a highlight, a couple of sort of details around that sort of slide, and then the rest of the points are sort of you you'll understand. We can move on to the next slide. Acquisition process. We've seen this on a number of occasions, last year's investment company, and also within the annual report. But I still like to go through this because this is what we actually do. It's we're an m and a company. And, why join? Well, owners sometimes just want to crystallize their shareholding for a number of reasons, and in many cases, it's just not for retirement. It's not a reason. So they would still like to continue their business, to run their business, making profits in cash, but under the ownership of SDI.

30:07 Why they're like us? It's because we run all our units as autonomous units, standalone units run by the same management team before he sold before he or she sold the business. And what we do is focus on growth and investment, as you've seen throughout this presentation. The acquisition criteria hasn't changed. We're still looking at scientific and technical with the manufacturing bias. I must say that the fabrication is a is a bit of a sideline, but it it I think it'll be very good for us going forward in a vertical market for us. We're looking at niche sectors with strong export revenues. Monmouth is not so strong in export, but we know we can get there with the assistance of of the subsidiary directors of the others sorry, of the other subsidiary directors.

30:56 All businesses are profitable and cash generative. They have a strong track record, which makes my life doing due diligence a lot easier. Good solid management team. We offer a fair price, which is between four and six times EBIT, and we have a very, very good reputation as a good acquirer. After the acquisition, we group all the banking into HSBC centralized banking, which is run by John. All the businesses still, as I mentioned right at the start, retain all all non autonomous units. We operate a very flat structure, I e, the subsidiary management team, teams will receive the same board report as the main board directors. So we don't hide anything from our subsidiary board director subsidiary directors.

31:44 And also, when we have consolidated budgets, they receive the same back. So it's a very flat structure. What we try to do with these businesses in the short term, right way through to the long term, is to give these businesses financial financial support if and when required. John, can you explain about financing for future acquisitions, which you've you've been actually mentioning throughout the week. Yeah. Certainly. So, you know, in the past, SDI, going back now four, five, six years, we used to have to go to the city every time we wanted to make an acquisition because we didn't have the cash flow and the cash ourselves. But more recently, we've as as we've started generating lots of cash ourselves, we haven't had to do that quite so frequently. And in fact, the last time we went to the city was in February 2019 when we took £2,500,000 at the time of our practicals acquisition, and that really funded the the acquisition that came immediately afterwards.

32:51 Since then, our cash flow has increased, and we're now in a situation where we have roughly a a net cash, net net debt zero at the moment, and we're generating lots of cash. We have available facilities with our bank, and the bank is willing to to offer us a bigger facility. So in fact, we we're now at the position and and in fact, have been since, you know, for the last two and a half years, in fact, of probably being able to finance most acquisitions that that we want to do. I I expect that we'll sign up for a bigger facility. And and, generally, the the model is we buy something, we increase our leverage at that time, and then pay it off gradually or pay it off as quickly as we can and then take out a new one for the more loans for a new acquisition.

33:52 So I think we've got plenty of firepower now available to us, and and we're in a happy situation that that we can use our own cash and debt capacity to to finance acquisitions, which makes it easier, frankly. And and, of course, debt financing is is less expensive than going to the the stock market every time we want to to pay out some money. Right. Cheers, John. Can you flick on to the next one? This will be a very quick one. Aggression. I'll take the last couple of gel. So what we've actually got there is 13 acquisitions since 2014. As John's actually said about funding going forward, we had three businesses we acquired using Citi Funding.

34:39 SendTech, we we generate we got raised £2,000,000 at 8 per share. That was AI's VCT funding. Then we raised 4,800,000 to acquire Astrol's Control Systems at 13 per share. And then the last one, which was in February 2019, which was the grass kills where we acquired quite sort of four businesses in that year. We raised 2,400,000 at 34 per share. And the other 10, as John's actually said, are through cash debt, and, that's probably the way forward, for us. So if we just go through to the remaining two slides, John, please. Thank you. Summary and outlook. So what we've actually got, strong financial results for last year and with a good start to the new financial year our new new new financial. Sorry.

35:33 We have an even stronger business model, which you can see is scalable and can can accommodate further acquisitions. We provide all our business units with investment to grow. I think a good example is with Grass Fuels Optics. It was a when we acquired it in 2019, it was owned by, think, a small private equity firm. It was a cash cow. It really needed investment in that business. So this year, we've actually signed up to to invest. So we we did stick to our guns on this. So what we're actually going to do, it's a business chemical action business that's based in Tunbridge in Kent. We did look for another bit purpose built built, another building to put it into. Couldn't find anything. So we went back to the landlords and said, can we get the building we're currently in, which is on the industrial site? And what we're going to do is put new chemical tanks, a clean room facility together with a a full fit out, bring it bringing it up to modern day from the nineteen sixties internal rabbit war we've currently got. So the cost of that is gonna be over 350,000, and that includes putting a clean room facility in via Monmouth Scientific. So you've got intercompany profits of about 45. So if you back that out, it's just over 300,000, which is a good investment. Phase two of that, I'll just tell you, if we can get a good return on that investment and the directors can actually increase the the sales and the returns, then what we wanted to try to

37:03 do was to to increase the footprint by expanding on the site. But that is probably two or three years away. So the inter the initial investment is to get it and put a new facility in place. So if we move on, we operate in a diversified group, which means we are resilient to any changes in the market conditions, such as COVID, and you've actually seen this throughout the presentation. With m and a, we're very disciplined in our approach, even in the case of uniform engineering, where required it at £350,000 plus the assets, we still have the same 18 approach, and and we will continue with that. Twenty twenty one, twenty two, we expect this to be another strong year with growth in sales, profits, and also important to me is cash generation.

37:57 That's brilliant. Mike, John, thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. I just want the company to take a few moments to review investor questions submitted already. I'd 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 Meet company dashboard. I'd also like to remind you that your feedback is important to the company. And after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Mike, John, obviously, investors have had the ability to submit questions throughout today's meeting. And perhaps, John, if I may, back to you just to read the questions where it's appropriate to do so and your response also, that'd be great.

38:44 Yeah. Sure. So thank thanks for the questions. We'll try and answer them all, or we'll try and then at least give you a a reason why we're not answering them. So we'll go through one by one. Got a question, Mike, from Gilbert who who says, with the benefit of hindsight, have any of your acquisitions not lived up to your original expectations? If so, which, and and any lessons learned? No. They they've all lived up to our expectations, I. E. That they are growing. I will actually say because we have had this on a number of occasions. What acquisitions did you have a problem with? Whether it's just one we've had over 13 acquisitions since about 2014. And that was thermal exchange whereby we bought a business. We thought it was a nice range of products, standard standardized products, but it's only when we got into the door, bought the business.

39:38 We found the sales director went out with the blank sheets of paper with the development director, and every product was bespoke. So what we had was a bit of a problem standardizing all the products. So we've got a very, very good r and d team that applies thermal control, standardized the products, and and there we go. So we're back to a business doing very well, selling both applied thermal control products and thermal exchange. It's just one of these problems you get, and and we got through it. Apart from that, yeah, everything's doing very well. Thanks, Mike. Next question from Andy, Andy m. Can you talk about the m and a pipeline? How is that evolving, and and do you see m and a as the driver of future growth? Yeah. I'll answer that then.

40:24 So currently, have a pipeline. We're looking at sort of three acquisitions at the moment. What I actually thought through the pandemic, I I thought people would just hold their hands up and say, no. I don't wanna ruin my business anymore and sell it. That's not coming through. Also, I did actually think that SUNAT's gonna pay for that bill, and they probably sort of align capital gains tax to income tax. He may not. So actually thought people might sell because of that reason, again, not. But we're still finding acquisitions coming through through from all sources, both from our subsidiary companies, third party m and a companies, corporate finance companies. So it and our independent m and a chat. So we're we're finding them. I'll tell I've got three on the go at the moment.

41:10 They may crystallize, may not, but I'm kept busy. Thanks. Another question from Jamie k. Roughly, what is the lifetime of an attic camera before it needs replacing? Can we expect that a good percentage of those consumers will return to the business after the COVID contracts? Can we do have a go at this? So we we're selling a lot of cameras currently that are going into PCR machines. The PCR machines, obviously, it's a it's a flexible instrument. I I think a lot of them are dedicated to COVID at the moment. And when the current pandemic is finished, we don't know whether we'll there'll be a kind of world surface of of of PCR machines around.

42:03 So we don't know really whether they'll get the lifetime and whether whether there will be replacement PCR machines after afterwards or replacement cameras going into those PCR machines. So it's it's very difficult for us to say that this is the start of a continuing stream of revenues directly from that. We the answer is we don't know. As I said, a lot of these are going into into China. And, again, there, it's very difficult for us to know. They're probably going into Chinese state type institutions. We don't know whether that will lead to anything else. We're obviously doing our best both to to get designed in into other PCR instrument makers and to other instruments that are not PCR instruments, but but nevertheless a part of the kind of life sciences industry. So we can't say today that these millions of pounds worth or million or thousands of units of cameras will will become a long term revenue stream.

43:09 We hope so, and we're trying to to maneuver ourselves to be able to do that, but we can't promise that. Tricky question here. One for you, Mike, maybe from MGM. Do we have a succession plan in place for the chairman, Ken Ford? Would we be able to get someone as an exceptional I I think I already mentioned that. I knew this was gonna come up. So I like I said, we we like all listed companies to have a nominations committee. You and I and the three non execs build out the standard forms, which we have every year. And when the next nomination committee meeting is held, which is chaired by Isabelle, then then it's on the agenda. I can guarantee, because I'll actually put it, that we need to look at succession planning. So it's not just Ken. It's all of us of what we need to do. That there must come a time when me and my car can't go around all the subsidiaries, and then we need help there.

44:11 So it will be addressed, and it's been and that's why I raised it today because I thought that question would come up. Very good. And again, Mike, what sectors are you looking to acquire businesses in now? I think I'm just gonna answer what you've actually been saying to the city, and that is we split our business model into two sectors, digital imaging and sensors and controls. When we look at this business, let's say, when we have a board meeting on Monday, we look at each individual business. And so for me, I'm not overly concerned whether it's a digital imaging business or a sector's controls. As long as it's fixed our acquisition criteria, then then we will acquire that business. And if it does require another sector, we'll open another sector, but it shouldn't impede us acquiring businesses because it doesn't actually go into one of those two areas.

45:10 Thanks. Question, maybe for me, from Jonathan h, what is your return on total invested capital? Well, we we've looked at this. We've been looking at this for for several years now. What what we came to realize is there's no single definition of return on total invested capital. So I could give you a number, but it wouldn't be comparable necessarily with those of maybe some of our bigger peers. We do measure it. We measure it for each of our businesses and for SDI in total. Tell you it's know, I'm sitting at the end of June. I've got the the June results in front of me, and I can tell you it's never been as high as it is now. So that's we're we're we're in a very strong position.

45:57 The last time we looked at it and tried to compare with others, we found we were in a pretty favorable position. And in any case, if you like, compared it with our cost of capital, it's significantly in excess of that. So, you know, I'm looking at a a number which is in excess of 30% now, but unless you really know what's going into that, it's it's it's gonna be tricky to to to interpret it, I think. Another question now from Jamie Kay. Question about marketing. Which approaches will the company explore in marketing, its subsidiaries, and its products? For example, is digital marketing the main method such as social media ads? I'll answer that if you like.

46:43 Yes. It is. We've got young people who are tuned to social media these days. They're they're using that marketing method. I think going to catalogs and that sort of help for the marketing is out of date, but for us, as I said to earlier on, we still need to attend exhibitions and do face to face sales. You know, one of our big customers that does require face to face meetings to explain how our products work. So I think it's a mix of everything, but, of course, everything is going to digital these days. That's fine. Question maybe for me. Paul s asks Oh, yeah. The house broker is forecasting a 5% fall in revenues for 2223 and an 18% fall in EBITDA, does that reflect internal budgets?

47:36 Well, I'm happy to say we don't have a budget for 2223. If we did, I think it would be there'd be a lot of speculation involved. What we do know or what we've we've kind of guided the broker to is that we can't count on these one time contracts going beyond this year. So we're gonna do have a good year this year based in part on on a onetime contract at Attic for these PCR machines. That's great. It's it's providing us with cash and profits, but we really don't believe. We don't know, but we don't believe that it's gonna go beyond this year. If it does, that'd be very good. But but, you know, our our guidance has been that after this year, it's over, that particular one. So it's it shouldn't be surprising that anyone currently looking at our numbers will say we're gonna have a great year 2021, '22, and then a fall in revenues, which which then generates a fall in profits in the following year.

48:41 Now it's our job, if you like, to to manage those existing businesses and and to manage that decline, but also because we're an m and a company to try and fill it with you know, as we would anyway, even if it even if organic sales dropped with acquisitional with acquisitions and and new profits from new companies. So I think the the fall in 2223 does reflect our current thinking, but, of course, it's without acquisitions, and the game's not over yet. So we still got plenty to play for. Do you wanna add anything on that, Mike? I'm not sure if No. Not at all. I think you covered it. Happy with that.

49:26 Okay. The city everybody was expecting. The the, you know, that is our job is m and a, you know, at the end of the day. And I'm sure, you know, within this period of time, excuse me, we will find companies to cover that. Yeah. And and in fact, that that's right. We did we we put out an announcement in February that that we have these contracts going into this year and that that we have to consider them one time contracts, and and and we still do it. Yeah. We still get two two acquisitions through COVID when people were working from home. Yeah. We still managed to actually do do two deals, so I'm sure we'll be able to do the same. Yeah. A question from Vivek s.

50:13 Could you please speak to management's approach with respect to capital allocation? From the segment results, it appears to me that the digital imaging business has better margins and return on assets, notwithstanding one off factors. However, the CapEx acquisition activity seem directed towards the sensors and controls business? Do you expect I just went off the page. Do you do you expect returns on capital and assets to converge across the two businesses? Will this be a result of improving growth in the sensors and control business, or is the imaging business benefiting from one off factors? Thank you. So that's a complicated question. Are you gonna answer it or me?

50:59 Complicated, Mike, so you should answer that. So I well, let me have a go, and you can add something. How about that? It's they're not quite they're not quite comparable. For us, we're buying you know, we we buy a business, and then we'll slot it into those segments. You know, as as you probably know, the segments are there part of you know, to provide information to shareholders about our businesses without necessarily going to the detail of the nine businesses that we own. So it we're not actively buying either digital imaging businesses or sensors and controls business in particular, but they do seem to slot into those categories.

51:46 We they they generally are a little bit different, and and it's also the case that the digital imaging businesses were the original businesses that SDI owned before it it floated on the stock market. So they don't have the the intangible assets that the sense of control business have because we bought those much more recently. So I think you can't really compare them in that sense exactly. We when we make an acquisition and when we invest in in the businesses, we're not saying, okay. You're off sensitive control, so we're gonna invest less in that. I think every investment has, you know, has to has to be made on its own merits.

52:35 Mike, anything Yeah. Just want to sort of reinforce that. When we are I personally look at each of the nine sectors individually, not as as these groups. So every one of our subsidiary directors has to put forward a case why the why investment is required. I've just mentioned it today with Gratikills, and we look at every case like that, every business on a case by case basis. But if you have a look at the history and look at our balance sheet and additions, we're not capital intensified throughout the the business model, are we, John? We're not. Yeah. That's correct. So so therefore, it's just on a case by case basis for each business. So as long as we have these return figures in mind, as long as we can get return, which the board are happy with and of course, following on our shareholders, that's what we report to at the end of the day, you know, we're happy to make that investment. We don't look at it on a sector by sector basis. It's on an individual company. This year, the biggest one is gonna be Grashville's. Next year, it's gonna be probably Monmouth when they move into their new building. So and that's it, Andre. That's my answer.

53:42 Yeah. Thanks. Philip asked what percentage of Monmouth's sales are service contracts? That's actually a a fairly small percentage because they firstly, because they they provide five year guarantees on their products. There is there there are sales of of equipment like deactivated carbon filters. So there's there's some of that, but it's not a huge percentage. Mike, is that right? Yeah. That's correct. They do service equip service equipment, but the the bands, if you have a look at their website, all the bands have actually got, is a commission and they install all their equipment. But service is not big for these guys. Apart from what John rightly said is the is the filters. So all we're actually doing is selling out sending out replacement filters.

54:30 But a lot of this equipment doesn't need servicing. It it it just needs replacement of consumable side. Thanks. Question from Andrea m. What are the company's forecast for organic growth this year? So we are we are growing organically for for two, let's say. I can put it in two parts. One is our attic camera contract one off contract is gonna be bigger this year than last year, so significant growth from that. And then we're expecting significant bounce back from lows on most of the other businesses following the the kind of end of of the COVID pandemic.

55:15 So all of our businesses now are very busy. We're seeing significant growth excluding one off two factors. And and in fact, I was looking at growth from first six months of twenty nineteen to the first six months of twenty twenty one, so two years, and we're getting significant growth above that kind of 2019 benchmark now, and and we can we think that will only get better. Now this this some element maybe have bounced right at the moment because some companies are coming back from lockdown, some consumers are buying more. But overall, we're in sectors that tend to grow. They we, you know, we we're not sure what the overall level of organic growth is because we see nine businesses growing at different rates in different years, but we certainly expect organic growth across the board, and and we're seeing it right now. So we'll get organic growth over 2020, of course, and we're we're getting already good organic growth over 2019 except, you know, excluding those one off contracts.

56:32 So I think things are going pretty well at the moment. Gilbert is asking, what are the prospects for overseas m and a? Is that a way of entering new geographic markets? We had an opportunity about a year and a half ago to acquire a business in France. It looked very good. It was starting very nicely with GRASSCORES. But, of course, with the pandemic, it's in in in lockdown, and at the end of the day, they sold it to a French company. We have another couple we're looking at in The US, but we're restricted at the moment. The borders are not open. The planes are not in the sky, so there are plenty of opportunities in The UK. So let's stick to to our home. It's a lot easier and cheaper for me to do due diligence in The UK, but it's another opportunity opens up, I would say. So, yeah, we're willing to look at it.

57:27 Thanks. Next question from John h. Is ProReveal gaining traction? I'll answer that. No. So what we've done here is invested a lot of money in private real and every and it was a we thought it was a brilliant product. It still is a brilliant product, but the market are not accepting that product. So what we've done is handed it over to a a distributor who who's actually looking at after that now. The directors of Synoptics, Claire and Kate, are now focused on areas whereby we can actually generate a lot more profit. We were taking our eye off the ball with that product. This year, Synoptix has had its best year ever in over thirty years profitability, making a million pound.

58:12 And they're focused on Autocoll, which is a new automated calling encounter within this site, Symbiosis brand, and also within Fyestream, which is selling sort of boxes of water purification water purification units and vacuum ovens. And also, we've got the the Gallancam brand as you well know. We bought that, and we're trying to market products through that brand. So we've got a lot on the go at the moment, and pro Provo was too much of a distraction. It's still on the cards, but we can't see anything, especially through the pandemic. Thanks, Mike. Do you wanna say anything about the the director share? I'll do. Yeah. I saw that, and I definitely wanna say about that. Yeah. Ken Ford and I sold shares about three or four weeks ago.

58:58 I had no intention of selling shares. I sold 650,000 shares as I I haven't got an expensive lifestyle, so the money is still sitting in the bank account. The reason is is I got the advice of Ken and also of FinCap. They there was a a big institution that wanted to come in called Dance Bank. They wanted between 45% of the shareholding. They tried to get it into the marketplace, and then they had no other way of getting any shares that come in to me and to Ken. I'm still here. I've still got shares and share options. I think the only good thing is my two daughters, I can get them on the ladder. But apart from that, you know, I'm here. And also probably taking advantage of entrepreneurship relief, but I wanted to actually save for that because I caught a lot of emails from retailers saying why you sell it.

59:45 And it was just to get people up just to get another institution on. We made and that's the reason why I did it. So I just wanted to say today to everybody that's why I did it. Thanks. David l asks, looking through noise of the pandemic and onetime orders, what kind of cash conversion do you think SDI should have on average? Well, there's no one single definition of cash conversion either. So I think the the the answer is slightly lower than a 100% because we're a growing company and and and that, you know, mostly involves some kind of investment in working capital. But it's we're not a high capital intensive business.

1:00:30 So so close to a 100%, but probably not quite a 100% depending on the particular definition you want you might want to take. Let's see if I've got the right one in front of me now. William d is asking, accepting the impact of COVID, do you have a high level organic growth rate that you're targeting? What is your budgeting process? To what extent do you push back on any budgets proposed by management of the individual businesses? Mike? Yeah. I can answer that. We I don't think we actually set ourselves an organic growth rate. Our own opinion as a finance director for many years is you can't actually push a budget onto onto a subsidiary because then it's demotivated and they say it's not my budget. But in in the ten years that we I've been here with the budgets coming through, we've had we've rarely had had to change or push back or argue with the subsidiaries coming through with the budget.

1:01:33 What do you think, John? Because you've been in the seat now for three years, the FD. Yeah. So I I think that's true. That that's that is what we do. I mean, we we can have a good discussion on them sometimes, but we don't want to force something through and then fail. If we fail on it on a budget, then it would be our fault, of course. So we're happy with that that open discussion with the subsidiaries. Talk about the high level. What what level of organic growth rate are we targeting? I think you said we we don't really target one because every business is is gonna be different in a different in a different time period. So, overall, I think we can we said in the past that high single digits sounds about right.

1:02:18 Yeah. But, you know, we're in exceptional times as well. So so even that, you know, you can't count on it right now. Another question from Jonathan m now. Since, as you mentioned, there are various ways of calculating return on invested capital, can you provide investors how you calculate it internally? Well, I can do that. So, typically, what we do is we take the adjusted operating profit of our individual businesses and the company itself and divide that by the ending invested capital in the businesses or in in SDI. It's a fairly simple way of doing it. It allows us to to at least have visibility across the businesses and over time, but it's not something we want to publish at the moment. And it you know, as some of our pair peers recognize, it goes up and down.

1:03:19 In our case, it's recently been going up. But if we would buy a big subsidiary at, you know, at a relatively high price, it might be diluted a bit. So, you know, we but but that doesn't mean to say that it's not a good acquisition. So we we treat it carefully, but we watch it we watch it every year, every month in fact. William d is asking, would it make sense to sell any businesses and recycle the proceeds? Now we've had this question before. Yes. Of course. At the end of the day, I report to the shareholders. So if somebody actually comes across and can do a better job and get a return from that business, we're happy with that return they're going to give us, then then we'd be happy to to sell that business.

1:04:12 We have to realize when we buy buy another business, we've got to get a revenue stream and a profit stream equal or better than the one we sold. So that's what we have to realize. We don't have an opportunity a number of years ago, but they didn't come up with the with the funds. So we're yeah. We have to world's open to negotiation. Next question, Jonathan h, is asking which business has the best growth prospects? I think we'd really like to to nominate a single one there. Yeah. We've, you know, we've got many businesses that have very good growth prospects and one or two, which are very steady businesses, but return high return on capital as well. So so we like we love them all.

1:05:01 Andrea M, what are the main risk factors to the company's performance beyond the current year? Mike? Yeah. Read them in the annual report. Yeah. I I don't sleep at night sometimes. I can't think of any at the moment. We I think we've had a cracking year last year, and I think it's really come through. We've come through pan the pandemic really well. We know this year is gonna be a good year, and I can't see anything really currently that so it's gonna make me not sleep at night currently. I'm sure it will do, but not to No. Maybe to add, I mean, we're we're we're obviously very wary of making wrong acquisitions, so that's that that is a constant concern.

1:05:51 People issues, you know, our risks, and and we we like to look after our people and because because they're they're what bring in the money in the end. So but you can see a full list of our risks in the annual report. Andrea m again, who do you see as your main competitors, and what differentiates SDI? Well, you can actually it's quite straightforward, really. Our main competitors are many people. We get they want to buy businesses and trade sale. I think nowadays, it's gonna be private equity because they have loads of money. I also saw that sort of benchmark where it's a profit above £1,000,000, but they're probably gonna drop that now. So I actually think anybody who's willing to buy business, but what interest people in selling to us is because we run the businesses as autonomous units.

1:06:46 They're stand alone businesses, and more importantly, we we don't never back down on the deal or we never change the deal, which people like. And if you look at private equity, you will not get your money in a suitcase, it'll be in convertible loan notes and some financial instruments. We don't. We actually give cash. And if they want to take stock, then we'll give that as well. So I think we're a very good acquirer of businesses. John, Mike, I might take this opportunity just to jump in because you've been very generous with your time. We are through the hour, but you have actually taken every single question submitted by investors today. So thank you so much to those that have taken the time to submit the questions. Feedback's important as usual, I know, and I'll shortly redirect investors to provide feedback. But perhaps ahead of doing so, I could just hand back for a few closing comments, and then I will close the session.

1:07:35 Okay. I I just wanted to say sort of say thank you. It's a very good vehicle to speak to to retail investors. I do like going, as some of you know, like to speak face to face at shares dot at a number of these institutional meet these meetings. But it's good fun to do this. You know, I hope you enjoyed our presentation, and hopefully, I look forward to seeing you face to face sometime in the next sort of twelve months. John, Mike, thank you very much indeed for updating investors today. I'd call now like to over I'd PLC, we'd like to thank turn you for attending over today's presentation. That now like concludes today's call session, and good afternoon to you all.