SDI Sdi Group Plc

SDI Group plc

 

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

 

Interim results for the six months ended 31 October 2024

 

Refined strategy progressing, improved cash generation and order intake

 

5 December 2024 - SDI Group plc, the buy and build group, focused on companies which design and manufacture specialist lab equipment, industrial & scientific sensors and industrial & scientific products, announces its interim results for the six months to 31 October 2024.

 

Operational and Strategic highlights

·      Progress against the refined strategy articulated at the full year results

·      Value-enhancing acquisition of InspecVision Limited

·      Continued focus on collaboration between the portfolio businesses and driving synergies across the Group

·      Strengthened senior management team in place to support delivery of sustainable long-term growth

·      Increased activity towards the end of the half, following the previously reported slower start to the financial year. Positive momentum continuing into H2 FY25

 

Financial summary

·      Revenues of £30.9m (H1 FY24: £32.2m) reflecting reduced activity in the life sciences and biomedical markets

·      Gross margins (on materials only) improved to 65.4% (H1 FY24: 63.0%)

·      Adjusted operating profit* of £3.9m (H1 FY24: £4.4m) and reported operating profit of £2.4m (H1 FY24: £3.4m)

·      Adjusted profit before tax* of £3.2m (H1 FY24: £3.7m) and reported profit before tax of £1.7m (H1 FY24: £2.7m)

·      Adjusted diluted EPS* of 2.37p (H1 FY24: 2.68p) and reported diluted EPS of 1.18p (H1 FY24: 1.89p)

·      Cash generated from operations increased to £4.7m (H1 FY24: £3.3m)

 

Outlook

·      Order intake significantly up on a like for like basis compared to the second half of FY24

·      Full year profits are expected to be in line with market expectations** with increased second half weighting versus prior year supported by an improved orderbook. Challenging conditions in the life sciences and biomedical markets have impacted sales in the lab equipment segment over the first half, leading to lower expected Group revenues for FY25, which has been offset by improved gross margins and cost efficiencies

·      Acquisition pipeline provides potential for further acquisitions in FY25

·      The Group is well placed for the future growth

 

Stephen Brown, Chief Executive Officer of SDI Group, said:

 

"Whilst conditions in the life sciences and biomedical markets were challenging in early H1, we have seen improvements from September onwards. Our diverse portfolio has delivered stronger performances in some other sectors. The technological prowess and capabilities of the businesses within our portfolio cannot be understated, and there remains a huge market opportunity to further expand our community of entrepreneurial businesses.

 

To that end, we were pleased to complete the acquisition of InspecVision Limited during the period and we continue to drive our active M&A pipeline to expand our portfolio across key markets. We continue to target established businesses in growth sector niches, whilst also delivering our strategy to drive organic growth across our portfolio businesses."

 

A presentation for investors and shareholders via the Investor Meet Company platform will be held today on Thursday, 5 December 2024 at 2.00 p.m. GMT.  Investors can register for the presentation via the following link:https://www.investormeetcompany.com/sdi-group-plc/register-investor

A copy of the shareholder presentation will also be made available on the Company's website www.sdigroup.com/investors/reports-presentations/ later today.

 

* Before share based payments, acquisition costs, reorganisation costs, divestment of subsidiary undertaking (in FY24) and amortisation of acquired intangible assets.

 

** Analysts from SDI's broker Cavendish Capital Markets Limited and from Progressive Equity Research regularly provide research on the Company, accessible from our website, and the Group considers the average of their forecasts to represent market expectations. Prior to this announcement, FY25 expectations were Revenue of £70.45m, Adjusted Operating Profit of £10.0m and Adjusted Profit Before Tax of £8.4m.

 

Enquiries

 

SDI Group plc                                                                                     +44 (0)1223 727144

Stephen Brown, CEO

Ami Sharma, CFO

www.sdigroup.com

 

Cavendish Capital Markets Limited                                                    +44 (0)20 7220 0500

Ed Frisby/Seamus Fricker - Corporate Finance

Andrew Burdis/Sunila de Silva - ECM

Vigo Consulting (Financial Communications)  Tim McCall/Rozi Morris/Fiona Hetherington

+44 (0)20 7390 0230 SDIGroup@vigoconsulting.com

 

About SDI Group plc

 

SDI Group plc is a group of small to medium size companies with specialist industrial and scientific products in growth sector niches which help solve customers' key challenges.

 

It specialises in the acquisition and development of companies that design and manufacture specialist products for use in lab equipment, industrial & scientific sensors and industrial & scientific products.

 

Its portfolio of businesses supplies the life sciences, healthcare, plastics and packaging, manufacturing, precision optics and measurement instrumentation markets.

 

SDI aims to continue its growth through driving the organic growth of its portfolio companies and by the acquisition of complementary technology businesses with established reputations in global markets.

 

For more information, please see: www.SDIGroup.com

 

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

 

Chief Executive Officer's statement

 

A year into my tenure at SDI, the Group's future prospects are as strong as ever. SDI has a range of high-quality businesses, many of which are in high growth niche segments, and we are building towards a return to organic growth alongside greater collaboration between the portfolio companies. Simultaneously, as detailed in our refined strategy announced at the full year results, we are seeking to drive inorganic growth through targeted acquisitions.

 

Whilst the macroeconomic backdrop has remained challenging for a number of businesses, particularly early in the financial year, the breadth of our portfolio has ensured that whilst some businesses have experienced a temporary slowdown in trading environments, that has been partially offset with stronger performances in some other sectors.

 

As outlined at the year-end, we completed our strategic review in May and prioritised two key areas to support our long-term growth objectives - growth initiatives for the portfolio businesses (organic growth) and value-enhancing acquisitions (inorganic growth).

 

Our organic growth strategy is underpinned by three pillars: continuous product innovation; operational capability and capacity; and expansion into new geographic markets. As our customer and product base grows, we aim to increase repeat and recurring revenue streams through service, support, upgrades and replacements.

 

The acquisition strategy leverages our management expertise, financial discipline and stringent criteria to identify targets that accelerate overall growth and diversification. This approach strengthens our presence in existing markets and positions us for strategic entry into new ones.

 

From an organic growth perspective, we have made progress in actively fostering synergies between portfolio companies operating in overlapping markets and/or offering similar products. The senior management at Safelab Systems ('Safelab') and Monmouth Scientific ('Monmouth') have been combined, and the two individual businesses are now working closely together. Furthermore, businesses within the laboratory equipment segment are increasingly engaging in white-label partnerships to secure larger contracts.

 

In October, six SDI businesses presented from a single stand at UK Lab Innovations, the UK's leading laboratory industry trade show, with excellent feedback from staff and visitors alike. We look forward to further leveraging the strength of the entire portfolio and identifying further opportunities to drive synergies and raise the profile of the Group.

 

During the period, regular events have been introduced to bring together the leadership teams of all our portfolio businesses to foster greater collaboration and share best practice, with the most recent leadership meeting taking place at the end of November to reinforce strategy and ensure all businesses remain on track.

 

In the first half of the year, we resized two businesses within the portfolio, restructuring Atik Cameras ('Atik') to normalise its cost base and, following a decision to refocus its US sales strategy and route to market, closing Synoptics' US office.  

 

SDI continues to invest in research and development ('R&D') across the Group to meet customer demand.  R&D expenditure amounted to £0.9m in H1 FY25, with investments made at Chell Instruments (to produce new pressure scanner products including the DAQ range expansion) and Applied Thermal Controls (to produce a new range of chillers). Atik, Synoptics and LTE Scientific have also launched new products as we continue to invest in product development.

 

Acquisition

 

At the end of October, the Group announced the acquisition of 100% of the share capital of InspecVision Limited, ("InspecVision"), a designer and manufacturer of high-accuracy vision-based measurement systems for industrial applications, for a net consideration of £6.1m. InspecVision is a high-quality, profitable business, which fulfils our key investment criteria of trading in a growth sector, with international exposure (particularly in the US), a strong management team and broadening the Group's overall presence into new applied markets.

 

InspecVision provides precision measurement machinery for smart manufacturing, automated inspection and reverse engineering and offers the Group an entrance into the high value metrology market and a global, blue chip customer base. The acquisition also introduces new technological capabilities to the Group, including AI and machine learning, alongside strong IP, which can be leveraged.

 

Its strong US market presence also provides a platform to deliver additional value to other Group portfolio companies, particularly through cross-selling synergies and opening up new routes to market.

 

The gross consideration for the acquisition was £8.67m and consisted of consideration payable immediately following completion of £8.17m with a further £0.5m due post period end. The total consideration includes £0.2m of acquired cash and £2.4m of loans to the acquired company by the sellers. £0.75m of these loans were settled through the receipt of a cash payment. The acquisition was funded from the Group's revolving credit facility with HSBC UK Bank ('HSBC').

 

InspecVision products are sold in over 30 countries worldwide. It employs 14 people and is based in a 20,400 sq ft. site in Newtonabbey, Northern Ireland. InspecVision joins our Industrial & Scientific Products segment and will be operated separately from our existing businesses. We are excited by the prospects for this acquisition and continue to pursue our acquisitive growth strategy alongside our organic growth programme.

 

Financials and segment breakdown

 

Group revenues reduced by 4.0% to £30.9m (H1 FY24: £32.2m). The decrease was largely attributable to a £2.2m reduction in sales in the Lab Equipment segment. Organic revenue decline across the Group was 5.7%. The Group's like for like order intake over the first half improved significantly over the second half of the last financial year.

 

Revenues in Industrial & Scientific Products were 0.3% higher at £11.7m (H1 FY24: £11.6m).  Atik Cameras had a strong first half with excellent order intake and profit growth, after a full period of trading with its largest OEM customer. Scientific Vacuum Systems ('SVS') saw a lower first half than last year due to the comparative period including the delivery of a sputtering system. SVS continues to execute on two large projects, so its revenues will be more evenly split this financial year. Fraser Anti-Static Techniques saw strong year on year revenue growth as its geographic markets started to recover. Graticules Optics delivered a strong first half with increased demand for its reticles and TEM grid products.

 

Sales in Industrial & Scientific Sensors increased by 10.7% to £8.4m (H1 FY24: £7.6m). On an organic basis, revenues declined by 4.5% because of lower product sales at Astles Control Systems. This was due to an expected post COVID reduction in demand for its chemical dosing systems.

 

Laboratory Equipment revenues reduced by 16.5% to £10.9m (H1 FY24: £13.0m) due to challenging trading conditions earlier in the year, which impacted all the businesses in this segment. The closure of Synoptics' US office, Synoptics Inc., resulted in some restructuring charges. The organic reduction was 12.0% after excluding the FY24 divestment of Uniform Engineering and closure of Synoptics Inc. Safelab encountered customer driven delays on executing a large fume cupboard order which has pushed revenues into the second half. Safelab's order book remains robust. Monmouth's order intake has started to improve over recent months, and its performance is expected to improve further over the second half of the year.

 

Profits

 

Gross margins (on materials only) improved to 65.4% (H1 FY24: 63.0%), which was encouraging, as the Group sought to pass on cost increases and maintain margin discipline. Overheads and wages growth was in line with inflation when excluding acquisitions and disposals/closures.

 

In addition to the performance measures defined under IFRS, 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. These adjustments totalled £1.5m (H1 FY24: £1.0m).

 

Adjusted Group profit before tax decreased to £3.2m (H1 FY24: £3.7m). Statutory Group profit before tax decreased to £1.7m (H1 FY24: £2.7m).

 

Our effective tax rate has increased to 26.8% (on statutory PBT) (H1 FY24: 24.9%) following the changes to the R&D credit regime this financial year.

 

Basic earnings per share reduced to 1.19p (H1 FY24: 1.92p); diluted earnings per share decreased to 1.18p (H1 FY24: 1.89p). Adjusted diluted earnings per share reduced to 2.37p (H1 FY24: 2.68p).

 

 

Cash flow

 

Cash generated from operations increased to £4.7m (H1 FY24: £3.3m) which was a pleasing performance. Working capital was flat over the period due to a £2.1m reduction in trade and other receivables offset by a £1.7m reduction in trade and other payables. Inventories increased by £0.4m over the half. Customer advances were £2.0m at the period end (H1 FY24: £2.2m).

 

The InspecVision acquisition costs were £6.4m total cash consideration, with £750k in loans repaid immediately following the close of the transaction. This represents a net cash outflow of £5.6m.

 

Net debt, or bank debt less cash, increased to £17.1m at 31 October 2024 compared to £13.2m at 30 April 2024 and 31 October 2023, following the acquisition of InspecVision just prior to the period end, which added £5.7m in additional borrowings.  This represents a net debt: EBITDA ratio of 1.43x (rolling last 12 months calculation basis). At 31 October 2024, the Group had £6.7m of headroom within its £25m committed loan facility with HSBC. A £5m accordion option remains available to the Group (at the discretion of HSBC) for future exercise.

 

The Group has sufficient access to funds, alongside its cash flow, to acquire new companies and invest in our current portfolio of businesses.

 

Outlook

 

Whilst conditions in the life sciences and biomedical markets (in particular) were challenging in the early part of the financial year, we have seen most markets improving as the year has progressed, with increased order intake during the first half and increased sales later in the half. We remain on track to meet market expectations* for profits, with an increased second half weighting supported by an improved orderbook. The impact on sales in the lab equipment segment over the first half has now led to lower expected Group revenues for FY25, which has been offset by improved gross margins and cost efficiencies.

 

There remains a huge market opportunity for the offering of our diverse but complementary portfolio of businesses, particularly around enabling efficiency and sustainability across science and industry. There is also a real opportunity to further expand our community of entrepreneurial leaders that sit within the businesses in our Group.

 

Alongside the focus on delivering our strategy to support organic growth across our portfolio businesses, we continue to drive our inorganic strategy, underpinned by a proven track record of delivering value-enhancing acquisitions. These efforts combine to strengthen the SDI proposition and deliver our long term growth objectives.

 

 

 

 

 

Stephen Brown, Chief Executive Officer

4 December 2024

 

 

* Analysts from SDI's broker Cavendish Capital Markets Limited, and from Progressive Equity Research regularly provide research on the Company, accessible from our website, and the Group considers the average of their forecasts to represent market expectations. Prior to this announcement, FY25 expectations were Revenue of £70.45m, Adjusted Operating Profit of £10.0m and Adjusted Profit Before Tax of £8.4m.

 

Consolidated income statement

Unaudited for the six months ended 31 October 2024

 

Note			6 months to 31 October 2024 Unaudited £'000		*Restated 6 months to 31 October 2023 Unaudited £'000		12 months to 30 April 2024 Audited £'000
Revenue			30,911		32,215		65,846
Other income			150		59		104
Operating costs	5		(28,627)		(28,865)		(58,660)
Operating profit			2,434		3,409		7,290
Net financing expense			(738)		(754)		(1,627)
Profit before taxation			1,696		2,655		5,663
Income tax charge	8		(454)		(662)		(1,409)
Profit for the period			1,242		1,993		4,254
Attributable to:
Equity holders of the parent company			1,214		1,978		4,231
Non-controlling interest			28		15		23
Profit for the period			1,242		1,993		4,254
Earnings per share	6
Basic earnings per share			1.19p		1.92p		4.09p
Diluted earnings per share			1.18p		1.89p		4.04p

*see note 5

 

Consolidated statement of comprehensive income

Unaudited at 31 October 2024

		6 months to 31 October 2024 Unaudited £'000		6 months to 31 October 2023 Unaudited £'000		12 months to 30 April 2024 Audited £'000
Profit for the period		1,242		1,993		4,254
Other comprehensive income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translating foreign operations		(81)		(4)		(38)
Total comprehensive profit for the period		1,161		1,989		4,216
Attributable to:
Equity holders of the parent company			1,133		1,974		4,193
Non-controlling interest			28		15		23
Total comprehensive profit for the period			1,161		1,989		4,216

Consolidated balance sheet

Unaudited at 31 October 2024

 

	Note	31 October 2024 Unaudited £'000	*Restated 31 October 2023 Unaudited £'000	30 April 2024 Audited £'000
Assets
Non-current assets
Intangible assets		47,217	40,584	42,040
Property, plant and equipment		8,311	8,200	8,219
Right-of-use leased assets		6,342	6,430	6,488
Investments in associated undertakings		-	24	-
Deferred tax asset	10	142	147	144
		62,012	55,385	56,891
Current assets
Inventories		11,629	11,937	10,577
Trade and other receivables		11,205	10,086	12,677
Corporation tax asset		292	495	87
Cash and cash equivalents		1,195	1,546	1,430
		24,321	24,064	24,771
Total assets		86,333	79,449	81,662
Non-current liabilities
Borrowings	7	(24,173)	(20,739)	(20,636)
Provisions		(235)	-	(245)
Deferred tax liability	10	(5,595)	(4,604)	(4,841)
		(30,003)	(25,343)	(25,722)
Current liabilities
Trade and other payables		(8,584)	(9,768)	(9,647)
Provisions		(53)	(77)	(22)
Borrowings	7	(953)	(780)	(841)
		(9,590)	(10,625)	(10,510)
Total liabilities		(39,593)	(35,968)	(36,232)
Net assets		46,740	43,481	45,430
Equity
Share capital		1,046	1,041	1,046
Merger reserve		2,606	2,606	2,606
Merger relief reserve		424	424	424
Share premium account		10,858	10,778	10,858
Share-based payment reserve		914	757	764
Foreign exchange reserve		61	177	143
Retained earnings		30,789	27,651	29,575
Total equity due to shareholders		46,698	43,434	45,416
Non-controlling interest		42	47	14
Total equity		46,740	43,481	45,430

 

*see note 10

Consolidated statement of cash flows

Unaudited for the six months ended 31 October 2024

 

	Note	6 months to 31 October 2024 Unaudited £'000	6 months to 31 October 2023 Unaudited £'000	12 months to 30 April 2024 Audited £'000
Operating activities
Profit for the year		1,242	1,993	4,254
Depreciation		1,017	1,007	2,021
Amortisation		1,030	998	1,963
Finance costs and income		738	754	1,627
Increase/(decrease) in provisions		21	10	(15)
Taxation in the income statement		454	662	1,409
Employee share-based payments		150	200	128
Operating cash flows before movement in working capital		4,652	5,624	11,387
(Increase)/decrease in inventories		(414)	1,567	3,343
Decrease/(increase) in trade and other receivables		2,128	1,894	(92)
Decrease in trade and other payables		(1,685)	(5,770)	(5,252)
Cash generated from operations		4,681	3,315	9,386
Interest paid		(738)	(754)	(1,627)
Income taxes paid		(912)	(1,413)	(1,925)
Cash generated from operating activities		3,031	1,148	5,834
Investing activities
Capital expenditure on fixed assets		(589)	(556)	(966)
Sale of property, plant and equipment		50	20	144
Expenditure on development and other intangibles		(321)	(232)	(820)
Payment of deferred consideration		-	-	(961)
Proceeds from loan settlement		750	-	-
Acquisition of subsidiaries, net of cash		(6,393)	-	(2,386)
Net cash used in investing activities		(6,503)	(768)	(4,989)
Financing activities
Finance leases repayments		(357)	(384)	(796)
Dividends paid to non-controlling interests in subsidiaries		-	-	(41)
Proceeds from bank borrowing		6,925	-	3,700
Repayment of borrowings		(3,250)	(1,250)	(5,100)
Issues of shares and proceeds from option exercise		-	-	85
Net cash from/(used in) financing		3,318	(1,634)	(2,152)
Net changes in cash and cash equivalents		(154)	(1,254)	(1,307)
Cash and cash equivalents, beginning of period		1,430	2,711	2,711
Foreign currency movements on cash balances		(81)	89	26
Cash and cash equivalents, end of period		1,195	1,546	1,430