SDI Group plc

("SDI", "SDI Group", the "Company", or the "Group")

Interim results for the six months ended 31 October 2021

SDI Group plc, the AIM quoted Group focused on the design and manufacture of scientific and technology products for use in digital imaging and sensing and control applications, is pleased to announce another strong set of results and solid operational progress for the six months to 31 October 2021.

Financial Highlights

* before reorganisation costs, acquisition costs, amortisation of acquired intangibles and share based payment costs 

** cash and cash equivalents less bank finance

Operational Highlights

Ken Ford, Chairman of SDI Group, said:

"We are pleased to report yet another strong set of financial results. SDI Group continues to execute on its business model, investing in quality businesses that are able to grow while generating cash. We look forward to delivering a full year performance in line with market expectations1."

¹ Analysts from our Broker finnCap Limited and from Progressive Equity Research regularly provide research on the Company, and the Group considers the average of their forecasts to represent market expectations for FY 2022 being Revenue of £45.05m and Adjusted² Profit Before Tax of £9.2m

Enquiries

SDI Group plc                                                                                                   01223 320480

Ken Ford, Chairman

Mike Creedon, CEO

Jon Abell, CFO

www.thesdigroup.net

finnCap Ltd                                                                                                        020 7220 0500

Ed Frisby/Kate Bannatyne/Milesh Hindocha - Corporate Finance

Andrew Burdis/Sunila de Silva - ECM

JW Communications                                                                                     07818 430877

Julia Wilson - Investor & Public Relations

About SDI Group plc:

SDI designs and manufactures scientific and technology products for use in digital imaging and sensing and control applications including life sciences, healthcare, astronomy, manufacturing, precision optics and art conservation. SDI operates through its company divisions: Atik Cameras, Synoptics, Graticules Optics, Sentek, Astles Control Systems, Applied Thermal Control, MPB Industries, Chell Instruments, Monmouth Scientific and Uniform Engineering.

SDI continues to grow by developing its own technology advancements and by improving its global sales channels, as well as through pursuing strategic, complementary acquisitions. www.thesdigroup.net

Chairman's statement

With the world having only partially adapted to the coronavirus pandemic, it is pleasing to be able to report a broad-based return to levels of activity that are higher than those we saw before it started.  All, however, is not yet calm. The businesses are cogs in a machine that is trying to cope with changes in demand patterns caused by the pandemic, but also by longer term upheavals including a focus on healthcare, technological advancement, climate change and Brexit. 

I am more convinced than ever that SDI's business model, involving smaller niche businesses operating with a high degree of autonomy in technical, scientific and medical and life science market segments, offers a route to sustained value creation, and allows us to respond rapidly to events.

Trading

Our larger OEM customers have been ordering at good levels for some time now, with strong demand in healthcare, beverage can production and automotive racing in particular. Interest from customers for new products to be designed in and for capital equipment purchases for general laboratory use has remained subdued, although the restarting of trade fairs and exhibitions suggests that this too will bounce back now. Service activity is still hampered by travel restrictions but has lately been improving.

Supply chain issues have become a drain on management time, and our businesses are having to work hard to source components, modify designs for missing ones, and also to adapt to customer demand changes.  However, they are managing well.

The subsidiaries all worked hard to adapt to the changes in the half year, which was appreciated by the Board, and, I am sure, by shareholders.

Revenues 

Group revenues increased by 75% to £24.7m (FY21 H1: £14.1m).  The increase was driven by 3 major factors: 

-     Our Atik Cameras business continued to deliver, at a higher rate than in previous periods, cameras for use by a global OEM in RT PCR machines, which are (amongst other uses) the gold standard instrument for COVID-19 testing. We expect current orders, paid for in advance of shipment, to be fulfilled by January 2022, and we have no visibility of further orders.

-     The businesses we acquired in FY21 H2, Monmouth Scientific and Uniform Engineering, delivered £4.6m of sales, which was ahead of our expectations.

-     Our other businesses performed very well, recording collectively 22% sales growth compared with FY21 H1, which was of course affected by pandemic-related reductions in customer purchases.  All of these businesses have rebounded substantially, with the exception of the ventilator-related sales at MPB industries.

Organic revenue growth across the business was 42%. Compared with the same period of two years ago, FY20 H1, sales of those businesses in the Group at the time have increased by 59%. Excluding the exceptional 218% growth at Atik Cameras, all of those businesses have grown, at an average two-year growth of 16%.

Sales in our Digital Imaging segment grew by 64% to £11.4m (FY21 H1: £6.9m) and sales in Sensors & Control were 85% higher at £13.3m (FY21 H1: £7.2m).

Profits

Gross margin was lower than in FY21 H1, due essentially to the evolution of product mix, including the effect of below-average margins at Monmouth Scientific (acquired in FY21 H2) and on the Atik Camera orders. We have had to increase prices to offset the impacts of both labour cost increases and component and raw material price increases across the Group, and generally we have seen customer acceptance of this.

Overheads are higher than the comparative period which benefited from furlough receipts and from a virtual stop to travel costs, but we are seeing the benefit of efficiency gains realised over the past year.

Group profit before tax increased by 115% to £5.1m (FY21 H1: 2.4m), driven by the organic revenue growth and the contribution of the FY21 H2 acquired businesses. 

Our tax charge has increased by 288% to £1.5m (FY21 H1: £0.4m), essentially due to a £0.6m charge to align certain deferred tax assets and liabilities (except for deferred tax assets related to share options) to the new UK corporate tax rate of 25% from April 2023.  A £0.3m favourable impact from aligning the deferred tax asset for future share option gains to current share prices and tax rates has been booked directly to equity.

In addition to the GAAP results, the Group also provides adjusted results in which certain one-time and non-cash charges are excluded, to help shareholders understand the underlying operating performance.  Adjusted profit before tax increased by 90% to £5.7m (FY21 H1: £3.0m).  Adjustments for the period were for the amortisation of acquired intangible assets and for share based payments totalling £0.6m (FY21 H1: £0.5m).  No acquisition-related costs or reorganisation costs were recorded in the period (FY21 H1: £0.1m of reorganisation expense).

Basic earnings per share increased by 78% from 2.03p to 3.61p; diluted earnings per share increased by 76% to 3.43p (FY21 H1: 1.95p). Adjusted diluted EPS increased by 59% to 3.92p (FY21 H1: 2.47p).

Cash flow

Cash generated from operations reduced by 6% to £4.4m (FY21 H1: £4.7m).  The very strong cash flow of the previous year was strongly influenced by the build-up of advanced payments for the COVID-19-related orders at Atik Cameras (as reported at the time).  In the current period, these have reduced by about £1.1m, with consequent reduction to cash flow.  The remaining £1.8m is expected to unwind in the remaining months of the year as the orders are shipped.

During this period, we paid the deferred consideration element of £2.35m on the acquisition of Monmouth Scientific.

Net cash, or cash less bank debt, increased to £1.1m at 31 October 2021 from £0.8m at 30 April 2021.

On 01 November 2021, directly following the period end, we renewed and expanded our committed loan facility with HSBC to £20m, with a further accordion option of an additional £10m (at the discretion of HSBC), which, with our current net cash position and strong cash flow, provides sufficient funding for acquisition opportunities. The new facility has been tailored to our business model with fewer restrictions on acquisitions and allows for higher leverage if necessary. 

Operations

This half year has been a challenging one for our operations teams, with relatively short-term changes in customer demand, usually upwards but also impacted by customers' ability to source other key components, and with upstream shortages of our own components and materials. Significant management time has been expended in negotiating additional supplies and finding alternative sources or designing in substitute components. We expect this situation to endure for some time, and we have also increased purchases in many cases to secure key inputs.

Labour availability has been less of a problem, with generally low turnover as usual, but some vacancies taking time to fill.

We are seeing cost increases in both material and labour, but we are generally able to pass these on to customers.

As part of a rolling programme of upgrading facilities, we have been investing in an upgrade and capacity expansion at Graticules Optics to create a modern factory that is able to expand into new areas  and have made further investments at Uniform Engineering for efficiency, capacity and quality.  We have been strengthening the Portugal-based team at Atik Cameras so that they can directly handle all day-to-day interaction with the global customer-base, leaving Norwich as the centre of excellence for product development, marketing and new business.

Our business units have only recently started to attend and exhibit at trade fairs and exhibitions after a difficult period of demonstrating and marketing products via videoconference. Design-in activity with OEM customers is also picking up again, whereas research and development has continued throughout the pandemic period within our business units.

Acquisitions

No major acquisition took place in the period, but in August 2021, we purchased the Clean Tent trade and assets from Moorfield Technology, for a cash consideration of £150,000, which was integrated into Monmouth Scientific. Clean Tents are portable and temporary cleanroom facilities, which are complementary to the Monmouth Scientific range and we are very pleased with this purchase.

The Group continues to look for complementary acquisitions fitting our criteria, and we would hope to close at least one in the financial year.

Outlook

As we have previously disclosed, we expect sales and therefore profit in the second half of the year to be lower than in the first half, as the COVID-19-related orders at Atik have been mostly completed.  Apart from this, we expect a continuation of favourable trading conditions seen in the first half and look forward to delivering a full year performance in line with market expectations.

Ken Ford, Chairman

6 December 2021

Consolidated income statement

Unaudited for the six months ended 31 October 2021

Consolidated statement of comprehensive income

Unaudited for the six months ended 31 October 2021

Consolidated balance sheet

Unaudited at 31 October 2021

Consolidated statement of cash flows

Unaudited for the six months ended 31 October 2021