Good afternoon, and welcome to this SDI Group plc full year results investor presentation. Throughout this recorded presentation, investors are in listen-only mode. Questions are encouraged. They can be submitted any time via the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question, press send. The company may not be in a position to answer every question it receives during the meeting itself. However, we review all questions submitted today and publish responses where appropriate to do so. I would now like to hand you over to Michael Creedon, CEO, and Jon Abell, CFO. Good afternoon.
Good afternoon.
Good afternoon.
A quick intro. Just before we do a quick intro, I actually did this at the last meeting. I'll just show you our head office. How big it is. That's Jon's desk, and that's Jonathan's desk. That's how we keep our costs under control by just having three people in a very small serviced office. Anyway, let's start the presentation, but just to give you some idea of where we work. On the first page will be the board of directors, Jon. Just a couple of points on that. This is the last performance of this famous double act of Jon and Mike. Jon is leaving us in September, and he'll be replaced by Ami Sharma, who joins on the eighth of August.
The second point is Isabel is leaving on the eighth of August, and we are advanced stages of recruiting a replacement for her. The next page, group overview. As you can see, the hexagons have got smaller because we've added another two further hexagons at the bottom of the slide. We acquired two businesses during the financial year, Scientific Vacuum Systems in January 2022. They're based in Finchampstead, which is very close to the Winnersh Triangle near Reading. Then in March 2022, we acquired Safelab Systems, and they're based in Weston-Super-Mare. Jon will go through this in more detail in the slides. Our business model still remains strong, having now acquired 15 profitable cash generative businesses in eight years. I'll just hand you over to Jon now, who can go through the nitty-gritty of the numbers.
Thank you, Mike. Well, not so nitty-gritty, actually. Our track record over the last seven or eight years has been pretty good, and 2022 was no exception. As you can see with the graphs, revenue continued to increase quite strongly. Operating profit also, and cash generated from operations, also very strong. Over the last seven years, some of these metrics have grown quite strongly with a compound average growth rate, annual growth rate of revenues of 34%, adjusted operating profit of 57% per year for seven years, and operating profit 63%, cash generated from operations 50% and adjusted diluted earnings per share up 32%. This year, most of those same metrics, we've grown even faster. It's been a good year. Now I've lost it.
Gonna move on. I put in a new slide this year, which is about capital employed and return on capital employed. The red bars are showing how much capital is employed in the business over the last seven years. Starting from about GBP 5 million, GBP 6 million, and this year we've reached GBP 35 million of capital employed. That is total equity, added bank borrowings and deducted cash. This is almost entirely due to acquisitions and is the buy part of our buy and build strategy. It's due to acquisitions because our net tangible assets are in fact negative. All of this is really intangible assets and due to the goodwill of acquisitions we've bought.
Moving to the orange line, this is the return on capital employed, and here I'm using EBIT, so re-reported EBIT, divided by the average capital employed in a year, so beginning and end. It started off in 2016 at about 12%, so a reasonable but not brilliant level. Over these last seven years, it's grown until this year we hit 34% return on capital employed, beginning and ending average. When you think about it, we're buying businesses which typically yield at that same kind of metric at about 14%-20%. We're buying businesses on a multiple of roughly 6.5x-6.7x EBIT.
That we're adding those at 14%-20%, but nevertheless, doing that over time, we've managed to increase return on capital employed to 35%, 34% this year. That reflects our investing in the businesses, which generates the, and allows the organic growth and operating margin improvement. That's the build part of our business model. We've made 15 acquisitions since 2014, six of them combined with existing units and nine becoming new standalone operating units to add to the two that existed before 2014, so making a total of 11. I'm gonna move on to how we fund that, important to investors. On this slide, the orange line is the cumulative amount of acquisition cash paid. This is what we've paid for the businesses over the years, cumulative.
Over the years, we've spent GBP 36 million investing in new businesses for the group. You can see that the red line, which is the equity raised after the initial placement, we started raising further funds for acquisitions in around 2013, 2014. For the first two or three years of the acquisition buy and build model, we were raising money in order to buy new businesses and adding them on. Since around 2018, our cash flow, which is the blue line, the cumulative free cash flow that the business has generated, start to become much more important. Now, you know, since our last equity raise of 2019, the company's own free cash flow has been the major source of acquisition funding.
Since in 2019, we purchased, I think four businesses, and for one of those, we raised GBP 2.4 million of fresh equity. Since then, we haven't raised any more. We have in a couple of cases and even before 2019, some of the sellers opted to take a portion of their consideration in SDI equity. Generally, that's been a small element, and that's the reason why you see the red line only slightly increasing towards the last three or four years. Otherwise, free cash flow is the major source of acquisition funding. Now as profit has increased as well, our borrowing capacity is growing in line with that growth in free cash flow. We've also got another source of funding, which is our borrowing capacity.
Going forward, I think it's the case that we want to, you know, if we have acquisitions to fund, which we will have, the first port of call is our own cash and our own cash flow. After which it's going to be debt funding, and then if necessary, you know, in the good case that we have more acquisitions than we can fund internally, we will then go back to the market. But that's the prospect of that is lower than it's ever been, I think. Gonna move on to the more in detail on the 2022 financial numbers. We've really seen these numbers before, so all kind of levels of profitability are up quite dramatically again this year.
Revenue up 42%, EPS up 44%. Or adjusted diluted EPS up 44%. That's what shareholders see. Cash generated from operations up 25%, slightly lower, and we'll explain that in a minute. What are the growth drivers? What's causing this growth? This year, our organic sales growth has been 22%, and that builds on 19% of last year. That's if you like, the last year, 2021 coincided more or less with the first year of the COVID-19 pandemic. Now we are on average, our existing businesses are 45% bigger than before the COVID-19 pandemic. That's quite a number, I think. Of course, Atik is well known that Atik Cameras contributed a lot of that growth.
Atik Cameras of the 22% organic sales growth in 2022, most of that, 16% of that came from Atik Cameras. The other businesses grew by 9% organically. Now, Atik Cameras, as is well known, we're selling cameras, which specifically for this, we're selling cameras that are being built into PCR equipment. The PCR is used for testing for COVID-19, among other uses. The sales in Atik are expected to be slightly lower in 2023 than in 2022, but that's based on our confirmed PCR orders only, plus other sales of from Atik Cameras. Our history of that particular contract is we received a what we thought was a one-time contract for cameras for PCR machines back in 2020, and then another one, and then another one.
Each time we're thinking, "Well, these are one-time orders." So far, that hasn't turned out really to be the case, because we've still got orders on hand for 23 shipment. Atik Cameras as well has grown a lot over the years and we have a slide on that later on. It's got good prospects of leveraging what it's done, its growth and its now range of products into other life science applications, and that's really the focus for the future is certainly PCR applications and certainly Gel Doc applications. There are plenty of other life science applications that we're aiming to be supplying into in the future. The other driver for SDI of growth is mergers and acquisitions.
We've historically done between 1 and 4 acquisitions every year since 2014. We've grown to 11 operating businesses. 11 or 12, depending on definition. Really our key constraints there are not so much the fact that we're in competition with others to do that, though there's some competition. It's not really price expectations, although some buyers, you know, are not willing to accept the kind of price that we would pay, and therefore don't sell their business. It's not funding, and it's not really our own management time, because we will bring in any resources necessary. It's really just the availability of appropriate targets.
There are plenty around, but they're not, you know, we don't have a list of 100 to execute this year, but we have a good portfolio now of, let's say, a good funnel of acquisition targets now that some of which are in different stages, but some we would certainly expect to execute this year. Our favorite, if you like, acquisition, our most successful way of finding an acquisition is those of founders who want financial security, but also want to remain involved in the business and see it grow further. Maybe they want to reduce the risk, or maybe they simply think that being part of a group like SDI will help their business to grow.
We like that kind of business, but we've also got good examples where the founders have already sold out, good non-owner management is in place and we're happy to look at those as well. What we don't do is buy businesses where we would have to provide new management, and we just can't do that, because we don't have spare management going around. The current status is no change in our criteria. There's been somewhat of a shift, I think, over COVID that sellers are requiring an earn-out, a short one, so within the year, in order to reconcile their price expectations of what the business is really worth with what we're prepared to pay based on recent history.
Maybe we've seen one or two other trends, like, in the past, until our latest acquisition, Safelab, we hadn't bought businesses with buildings. Now, we're very happy to do that, and we're seeing more of that, I think, in our current funnel. We can fund larger acquisitions than we've done so far, if we can find them with reasonable prices. You know, I think Atik Cameras demonstrates that we can manage larger businesses than we've acquired to date. Really our track record is the key asset, or a very key asset when we go to speak with potential sellers. As I said, the pipeline is strong. I'm gonna go into our reporting segments. As you probably know, we report our numbers under two segments.
They are groups of businesses, and the first is digital imaging, which comprises the two original businesses, Synoptics and Atik Cameras, and also Graticules Optics. Sensors and Controls groups more or less all the, well, it groups all of the other ones that aren't really digital imaging businesses, but are largely in a kind of sensors and controls space. In digital imaging, turnover increased by 36%, and that's all organic, so no acquisitions there. It's a lot of that has been to do with the continued growth of Atik Camera sales for PCR amplifiers. That's continuing at a high rate currently in the first half of 2023, and we've got confirmed orders going to round about September, after which we'll have to see when they get renewed or further orders may or may not come in.
We've had good growth also in sales at Graticules Optics and in Synoptics. It's been a good year for digital imaging and a good year, too, for Sensors and Controls, where turnover increased by 46% year-on-year. Of that, our two acquisitions in the year came into the Sensors and Controls segment, SVS, Scientific Vacuum Systems and Safelab Systems, and our organic growth of businesses already in the Sensors and Controls segment grew by 9.7% in the year. Adjusted operating profit up to GBP 5.2 million. Strong sales at Astles Control Systems and at Applied Thermal Control.
Very happy with progress in both of those businesses, some of it coming kind of off a COVID year where sales were down, but also good progress, I think, for going forward as well. Monmouth Scientific, we purchased in December of 2020. Their sales remain very strong, so they are a bigger business than they were a couple of years ago before we bought them. When we bought them, they were at a peak of sales in cabinets which were related somehow to COVID-19, the pandemic, so biological safety cabinets. At that time, they were selling lots of them and in batches, so to the same customer. So kitting out a whole series of cabinets for customers. So we might sell 10 or 20 at a time to the same customer, the same specification.
This year, their sales remain very strong, but there's a more usual, kind of more historical mix of fume cupboard and clean rooms and laminar flow cabinets as well. We acquired into the sensor control segment, Scientific Vacuum Systems in January 2022. SVS manufactures physical vapor deposition systems. So these are highly engineered vacuum instruments in which metals or other material is deposited in thin coatings onto substrates, which could be metal or semiconductors or others. Very pleased with that acquisition. In March 2023, we acquired Safelab Systems. Safelab makes fume cupboards. They are high specification and fully featured cabinets.
Their main customer base is eventually for schools, universities and other institutions where they require a flexible fume cupboard, so very high specification. We sell to individual schools and colleges, universities, and institutes, as well as to building contractors that are kitting out especially in the state school sector, for example, they're kitting out lots of new, newly built schools and laboratories. Sorry, I just got a phone going there. That's the movement in sensor controls and in digital imaging. I'm gonna move on to the income statement, actually only briefly, because we've seen already the growth in revenues, the growth in profits of various lines, so I'm not gonna dwell here. I'm of course happy to come back in questions to the income statement.
I'm showing a revenue bridge that's from 2020 sales to 2021 and to 2022. 2020 was very largely pre-COVID. Our year closes in April 2020. The pandemic started really in earnest in about March 2020. Most of 2020 was pre-COVID. The bridge to 2021 is that we have the contribution of 2020 acquisitions. That added GBP 2.5 million to revenues. That's the Chell acquisition of 2020, the full year effect of that. We add on the 2021 acquisitions. That's Monmouth Scientific and Uniform Engineering. That added GBP 6 million in the year, and they were acquired in December 2020 and in, I think, January 2021.
On top of that, we had the positive effect of products being sold due to the COVID pandemic. That added GBP 6.1 million of sales in 2021, and they were some flow meters going into ventilators and cameras going into PCR testing equipment. The negative impact of the pandemic on our other businesses was a drop of GBP 4 million in revenues. That took us from GBP 24.5 million in 2020 to GBP 35.1 million in 2021. This past year, the year we're talking about, those 2021 acquisitions of Monmouth and Uniform added a further GBP 5.2 million, so adding to the GBP 6 million in their first part year of ownership.
Our acquisitions towards the back end of this last year, Scientific Vacuum Systems and Safelab Systems added this year GBP 1.7 million and will add further growth to next year. The organic one-time sales, this time only really cameras for PCR machines, added a further GBP 1.9 million, adding to the GBP 6.1 million of last year. Adding to a total of GBP 8 million of what we call one-time sales for COVID, but you know, the definition of that is kind of in the eyes of the beholder. Finally, organic growth in all of our other sales was GBP 5.8 million. Reversing theGBP 4 million drop of last year and adding again an extra GBP 1.8 million.
Total sales in 2022 are GBP 49.7 million. Moving on to the balance sheet, that's there to be seen and you can get it from a handout. I'm just focusing on the cash situation, top right, which is important to us. We closed the year at GBP 5.1 million of gross cash and GBP 4 million of debt, bank debt. That's from our GBP 20 million facility, so leaving GBP 6 million undrawn gives us net cash at the end of the year of GBP 1.1 million. Not paid at that point, so the balance sheet at the end of 2022, the year just closed, we still owed GBP 3.3 million on the two acquisitions, for M&A made in 2022.
That is GBP 2.3 million to final payment for Safelab Systems which we paid in June 2022, and a further GBP 1 million for SVS, which is contingent on SVS financial results in the year to September 2022. If you kind of net those off and say they're already earmarked for the acquisitions already done, we would really have a net bank debt with the contingent consideration included of GBP 2.2 million. That still leaves us with GBP 16 million of additional funds to be drawn from the facility we have and the GBP 5 million of cash. We've still got plenty of firepower for new acquisitions. Of course, we're generating cash every month as well.
Here's a bridge of cash from the beginning of last year to the end of last year. We made GBP 13.2 million of operating cash inflow. That's before taxes, before interest, and before movement in working capital. Working capital was again favorable in the year, so that's the second year of strong growth, but reduction in working capital, and I'll mention that in the next slide. Of course, we have capital and expenditure and R&D, which are further investments into our businesses, leases, taxes, interest and other, and small amount of cash received on options. Acquisitions was, of course, the big deployment of our cash in the year.
We spent GBP 11 million of cash, and that includes a final payment on the Monmouth acquisition that does not include the GBP 3.3 million still to be paid on this year's acquisitions. Ending the year then with net cash of GBP 1.1 million, as we saw on the previous slide. That's a kind of very visual picture of our model, which is make a lot of cash, spend a lot of cash on new acquisitions, which will improve profit for the following years. This is cash flow more in numbers. What I just want to go in a little more detail about is in that box where we show the movements in working capital last year and this year.
A favorable movement last year of GBP 2.8 million and a favorable movement this year of GBP 1.5 million. Last year, 2021, we received GBP 3.2 million of advanced payments on COVID-19 related orders for 2022 shipment. That was a source of funds last year, GBP 3.2 million, and formed a big part of that GBP 2.8 million favorable movement in working capital. This year, that GBP 3.2 million became GBP 1.7 million of advanced payments for 2023 shipment. Really that's been a use of funds of GBP 1.5 million in this last year. Still we have on our balance sheet GBP 1.5 million of customer money that will be used to pay for shipments in this year, 2023.
The other part of this has been the contingent consideration, deferred consideration for acquisitions made, which started the year, ended 2021 at GBP 2.35 million, which was paid then in 2022. This ended the year at GBP 3.3 million we've seen on the previous two slides. That has also helped our favorable movement in working capital as well. Other movements have included an increase in stocks over the year as we slightly build up stocks for both the shipments, you know, of our own products that's ready to go out of the door, and to take care of some of the shortages that are well-known.
Also the down payments, the advanced payments from customers help us very much because again, we don't have debtors for those shipments because everything is paid up front. We get not only the customer's cash in hand, but when the sale has been made, we don't have debtors, so we don't have to wait for the customer's money. We've already had it. That's the case certainly for these Atik Camera shipments for PCRs. We have other businesses where that's a typical part of the business is to make custom equipment for our customers. Where that's the case, we typically would get a down payment from the customer for at least part of the sale.
Not just us, that's a fairly common way of doing business, of course. Gonna move on to operational highlights, and I'm gonna ask Mike to pick up here.
It's still page seven. I'll keep telling Jon that. It's a fantastic buy and build strategy execution, sort of diagram. I do like it. Anyway, let's move on. Atik Cameras update, Jon's got a lot of content on this slide. I'll just pick out a few areas to discuss in detail. First of all, Atik, just go backtrack a bit. It started out developing and manufacturing astronomy cameras many years ago. These cameras were then adapted to the life science market and were taken on by Synoptics or their Syngene brand. This is an area where the sales and profits have grown exponentially over the years. There's a significant impact, as Jon's rightly said, from two customers within PCR and also within the gel documentation markets.
The next point I'd like to say is it's been a fantastic number of years for Atik Cameras, and they've generated a lot of cash. Well, we're gonna use that cash wisely. I'm going to actually use that internally with the increased resources and footprint of the business and equipment. More importantly is to develop cameras for the specialized life science applications. One such move is away from the CCD sensors to CMOS sensors for gel documentation systems. The reason for that is that the development within the CCD market is becoming restricted. The CCD sensors are becoming unavailable at the right price. One of our major suppliers is Sony, and they're discontinuing the CCD sensors in favor of the CMOS sensors.
We hope to be one of the front runners with this new CMOS technology into our cameras and where we're currently having trials of the new camera in the field. If you go onto Atik's website, you'll actually see one of these new cameras as soon as you actually open up the page. The third and sort of final point is just to expand a bit on what I was just saying about where the investment's gone. All the day-to-day activities now run out of Lisbon, and this includes production, Q&A, logistics, finance, and a certain amount of sales and marketing. The headcount in Lisbon now is 34 staff. Then if we look at Norwich, its operations there are research, sales, and also marketing. The headcount there is 12.
If you sort of backtrack a few years, it was the reverse of that. Small Lisbon office just purely for manufacturing, and then an increased headcount in Norwich. It's very good for us. It's a fantastic facility, we've actually got in Lisbon, and you can actually see some pictures at the bottom of the. First of all, on the left-hand side is the nice accommodation for Norwich or building for Norwich, and the other two are for Lisbon. Then we move on to the next page, which is operations. Just three points there, just worth highlighting. First of all, one of the questions being raised across the last sort of couple of days is supply chain issues. Have you got any? Of course, we have, just like everybody else in the world.
This has been causing us problems on a daily basis across all our business units. The management teams including the buyers have been able to secure supplies and provide our customers with their products and services within the agreed delivery times. In a number of circumstances, it's been quicker to actually re-engineer the products. For example, Chell, they redesigned a wind pressure device for a Formula One in three man-months, which was actually quicker than the delivery time given by our supplier. This has enabled us to meet the agreed delivery times with our customers. Everybody sees and hears, and they know the problem. You know, if our customer deliveries are delayed, so is everybody else's.
We're all in the same boat, and it's a very difficult situation. Our individual management teams are doing very well to cope through this for these problems. The second point is, as we've actually said right the way through over the many years, we buy these businesses, they're lean and mean businesses, run very well by the founders. What we want to do is to actually increase the fixed cost base, and we wanna invest in these businesses. What we do is continue to invest in the business units. Some examples of this are Graticules, which we did mention, I think, last year. That is we're refurbishing the business. We're purchasing new equipment. Some of that is internal from Monmouth by way of a clean room.
I think there's five laminar flow cabinets actually in that building now. That's phase one. We'd like to see what return on our capital we're going to get from that refurbishment. We're gonna hopefully move on to phase two, which is expanding that building in Tonbridge. The second example is Monmouth. As you can actually see in the slide in the bottom right-hand corner, that's their new facility. When we first took it on, there were 6 industrial units scattered around Bridgwater. We took on the building which David Pomeroy started before we acquired the business. We've got two factory units there. We've got one which is the engineering side, and then we've got the production and administration, sales, marketing, and service in the other building.
The third one is Astles. That's doubled in size, mainly because of the increased capital expenditure people are signing up for these days. So we needed to increase our manufacturing and engineering floor space. An interesting point, which is actually quite minor, but I do like this point, and that is across the group, we've invested in a number of laser engraving machines, and this has given us the opportunity to include serial numbers on our products, which we did manually. It's time-consuming, and it lacked professionalism. But also it's given us an opportunity to include a QR code on our products, especially for repeat products. It's actually giving the customer a more efficient method to reorder our products, and it's gone down very well.
The final point on this slide, right at the bottom, just a sort of one line and two words is travel. Travel is nearly back to normal. Just two points here. We're attending overseas trade shows, and recently I attended with sort of a number of our business units, analytica in Munich, which went down very well, and the other one will be in August, which is the ACHEMA in Frankfurt. Another area to discuss is on the travel side, Astles. Astles, a good part of their revenue stream is from service and spares, and we're back to seeing the engineers on long-haul flights going over to service and commission equipment. As we move on to page 21, that is our priority for FY 2023.
To build the group's existing business unit, what we've actually done is travel restrictions have been eased, therefore it reopens the doors for overseas demos and servicing. What we've actually found through the sort of two years of COVID, we can actually demonstrate on webinars, but still people want to sit, feel, touch the equipment we're selling, especially gel documentation systems. We have actually serviced and commissioned products via the web, but it's good to see people face to face. The second point is we're continuing to manage component shortages, we've already discussed this, but also labor shortages and also inflation. Sort of, for salary rises within the group, it's between sort of 5%-9%.
We've actually said to the staff, we will address that again in a number of months' time because we do want to hold on to our labor, onto our staff. It's very difficult to recruit staff, especially as we're finding service engineers at the moment. Another point, which is a new point for us, is trying to leverage our resources within the group. A good example of that is the collaboration we're finding between Monmouth and Safelab. They're currently in a joint tender situation that is discussions between the two sales directors on a tender for one customer. The other area is what we've actually got. When we service equipment, especially for fume cabinets, they need to have their carbon filters replaced. We make the filters, but we still need to buy the carbon.
It's actually looking at, can we actually buy carbon as a bulk buy for these two companies? There seems to be savings within that. Early stages on both of these points, but it's nice to see that we are getting. Synergy is a wonderful word, but it seems to come across in these two companies. Now we're on to sort of buying businesses. We've got a very strong pipeline, and I'm optimistic that a number of these will crystallize in the current financial year. What we're pleased to see, Jon and I are pleased to see, is we've got 15 acquisitions, 15 happy vendors, and we have proof that we are the go-to acquirer for the owners of profitable, cash generative, small and medium-sized businesses.
If we go on to the summary and outlook, from a couple of points there, you can read it at your leisure. It's been another record financial year. We're having a good start to the new financial year within the SDI Group. Supply issues still come across the group, but all our businesses are coping well. We continue to invest in the business units to drive organic growth. We continue with a buy and build model and have a strong number of prospects, and hopefully, we'll close a number of these in the financial year. Also finally, the last point is on the changes within the board. Jon Abell and Isabel are leaving in the next few months, and we're replacing Jon Abell with Amit , and then there'll be announcement shortly with a new non-exec director.
That's fantastic. Thank you very much indeed for your presentation to both Jon and Michael. Just to remind attendees, please do continue to submit your questions just by clicking on that Q&A tab and scrolling to the bottom of the screen and typing them. Just to give the team a few moments before we move on to those Q&A. Just a reminder that all the questions, where appropriate to do so, are published on the investment company platform, along with a copy of the presentation. Jon, Michael, we've had a number of questions as you can see. If you wouldn't mind just clicking on that Q&A tab, and where appropriate to do so, just read out the question and give your response. That'd be fantastic. Thank you.
Okay.
Yeah. I think so like previous times, I'll probably read out the question and hand it over to Mike to answer.
There's lots of them in here, Jon.
First question is, apart from congratulations, thank you very much. "I would like to ask, where would you like to see SDI in ten years' time?" Paul asks.
Okay. Yeah. You showed me this one yesterday. I had to give it. I've got plenty of thoughts on this. This is a difficult call, to tell you the truth. We've actually been running this business now on a buy and build for eight years. I think we've been pretty successful. We don't really want to cock it up. I think we want to continue with what we're doing. I'm sure we'll buy bigger businesses, that's as a group level. What is missing below that is the strategy meetings we used to have.
We've missed out on, I think, three years now, strategy meetings because of COVID, but they're coming back in October, and it'd be good to see what is coming through the subsidiaries in the way of strategy, and how we can actually invest and grow these businesses going forward. But for Jon and I, M&A, that will continue as is, really. Have you got anything to add on that, Jon?
Well, I would say, look, SDI has got a great business model.
Mm-hmm.
There's no reason why it can't continue.
Yeah.
I won't be here, and Mike won't be here forever and ever, I suppose, but the model is still there, and we've got a great niche for buying the right kind of businesses, and there's no reason why that can't go on. Another question from the same, from Paul again is: How are you seeing the opportunities in the market for to make acquisitions? I think I did touch on that, Mike, but do you want to.
Yeah, that's true.
Add to that.
We usually have a pipeline of between 15-20 acquisitions. Some of them actually take years. We've got a number on there we're in discussions for years, and it's the right time. We've actually got quite a few sort of live acquisitions, sort of 3, 4, you know, we're in serious discussions with. We can't really discuss a lot about it until, you know, the SPA's signed. We haven't missed out on a year where we haven't acquired something. I did see a number of months ago on a blog that said we hadn't acquired anything in the calendar year. What actually happened is in the financial year, this was last, the year just gone, that we acquired 2 businesses, SVS and Safelab Systems.
You know, we're still acquiring businesses. It was late in the day, but, we acquired two very good, very cash generative and very profitable businesses.
Yeah. Thanks, Mike.
Yep.
Next question is from Ryogan, and he asks, "So with the increase in the medium and long term, with increased interest rates, is that going to affect or slow our acquisition rhythm?" I think the answer to that is no, not really. We're certainly not gonna slow down what we do if we get the right acquisitions in front of us. It's not really, frankly, going to change very much the amount we're prepared to pay. Interest rates are still pretty low on historical scale.
Yeah
Scale. You know, if they would increase a bit, you know, it doesn't really make much difference to us, actually, because the profitability or the return we're getting on businesses we acquire is far higher than the interest rate we would pay on. I don't think that's gonna change much. Next question. Same asker. What kind of measures and actions are you taking to perpetuate the successful culture and approach that we've had since 2016, Mike?
Yeah, that's a good question. That we have got an idea as soon as we acquire a business, it's usually myself, Jon, and Ken will actually go and see that business, and they have to have a similar sort of culture and fit to the rest of the businesses. We've actually, with 15 acquisitions, have a good idea of whether those businesses actually fit into the rest of the group. You know, we don't change the culture at all. We don't want to. We don't want to change the style for anything about that business. We wanna invest in it. We know, we've got a good inkling of whether it's a good business, this is a good fit for us. I don't know what how you actually measure it, but we just do.
You know, as soon as we have a meeting, we come out and say, "Yeah, that's a really good business, and it fits well with us," really. It's difficult. What about you, Jon? What's your thoughts from when you've been involved?
Yeah, I think so. That's right. The culture we've got in our businesses is the same culture that they had when we bought them, actually. What we do is we kind of reflect that culture in head office as well.
Mm-hmm.
Head office, as Mike's already shown you, isn't huge. We like, you know, we buy businesses which are pretty frugal, and we like to keep head office similarly, so that we are, you know, we're seen as part of the businesses that we buy. That, you know, they look to us for advice and help, and they don't look to us as being the bosses or anything like that or being the ones driving the big cars. It's that, I think, frugal culture of participating and rolling up your sleeves that they like and we like too.
Mm-hmm.
Next question. Between Scientific Vacuum and Safelab, we're gonna add some profit into this year, next year. Can you address the growth potential for each and how that might not be achieved? What's the growth potential of Safelab and of Scientific Vacuum Systems?
Do you want me to answer that, Mike?
Yeah, sure.
Scientific Vacuum Systems, one thing we can't do is sort of disturb the current year. There are no earn-outs. There's a big shipment of one unit going to Gillette. That's this year, sort of, we have to draw a line underneath it. There are many areas where we can actually use this sort of technology, they've actually spoke to us about it. There's only eight people in that business, and we can actually invest in that business and grow it. That's what we've got to do. Going back to our strategy days, that's what we've got to discuss in October. There's a lot of potential out there. They don't usually use marketing. It's all word of mouth.
We can use the marketing expertise across the group, across all the 11 or 12 subsidiaries to actually grow this business. What we don't want to do is to, as Jon rightly said with head office and with these businesses, is to put a heavy burden of additional staff on there. We wanna keep these businesses lean and mean, but use the resources across the group to try to grow that business. Safelab. To tell you the truth, there isn't a lot we need to do with that. It's had a wonderful year when we bought it. It's very, very strong this year, and it's going great guns. It really is. It's having a fantastic sort of two or three months since we acquired this business, and there isn't any reason why under the supervision of Roger, who's doing a great job.
Thanks, Mike. Question from Gilbert: Which has been your best acquisition? Do you wanna answer that, Mike?
I will do.
You don't have favorites, of course.
Do you know what? You beat me to it. Yeah. Do you have a favorite child? No, I don't. I don't think it's very fair. I'll say that also I know some of our businesses that listen to this, so the answer is, let's move on. All our businesses are very successful. They're very profitable. We have great fun with these guys. There's no favorites, really. I don't really wanna put my neck on the block, really.
Thank you. Right. I've got another question here. Questions keep disappearing as I scroll down. Jon H. is asking: Right of use assets have tripled in the year. What are the main drivers of this? Yeah, I'll answer that. Right of use assets, this is related to the IFRS 16 accounting standard that came in a couple of years ago. Basically we have to put now all leases onto our balance sheet, so that's leases for cars and buildings essentially in our world, and mostly buildings 'cause we don't have many cars. Why have right of use assets tripled? The biggest single item of that is the new building that Mike's already showed you for Monmouth Scientific. That's added a big building with a very long lease.
We purpose-built that building for Monmouth. It has a long lease of 15 years, and the longer the lease, the bigger the right of use asset you have to put on your own balance sheet. The simple answer there is that the biggest single item has been the Monmouth building that's adding two other buildings that we lease and we have on the balance sheet now. Added to that, we've acquired two other businesses and each one of those has at least a small amount of right of use assets, so they go there too. Again, it's the Monmouth building is the big asset. Question from Damian. Atik, is the potential to sell into other life science applications an aspiration, or is it something more concrete?
Well, I would say, Mike, you can add to this, but I would say it's more than just an aspiration. I think we've got the tools to achieve that, and we've started to do that. What you should know about Atik, and Mike mentioned it earlier, is that over the years they've seeded sample cameras to R&D teams across lots of different applications. We have cameras that can fit to lots of applications, and what we try to do is to build for each customer the perfect camera for their application and their specific use. Some of those are gonna be successful and some of those are going to remain R&D projects for a long time. It happened with the PCR camera for that it came at the right time and sales exploded.
We've already got plenty of cameras out there in similar applications, so I think it's more concrete than that. Recently, we've been expanding the sales and marketing team and adding to our expertise there, and they've gone out specifically with a kind of list of potential applications in spectroscopy, in chemiluminescence, where we've recently launched a camera in other areas like Western blot and ophthalmology, veterinary and spatial omics. There are plenty of areas where we think our camera can be a solution. It won't be the only solution in the market, but I think it'll there will be niches within those areas that our camera fits very nicely. I think it's definitely Atik Camera has a lot of potential there.
Well covered.
Hope that's answered it.
Yeah, thanks.
Next question, again from Damian: Are any of the businesses still suffering from the pandemic?
Yeah
Are they all trading at or above pre-pandemic levels?
No, I'll, we have to be honest with this. Chell Instruments, which is a fantastic business, is still suffering with the aerospace side of the sector. Formula One's going very well, but it's still difficult for these guys. I think it's gonna come round. It's a great business, very good competent engineers, but it's gonna take time. The beauty about SDI is we've got 11, 12 business units, and if one does take a bit of a downturn, then the rest could support it. That's what we're here for. We have to support these guys because we know it can come through.
Well. Thanks, Mike. Question from Bill H. Tricky, tricky one.
I think that's yours, Jon.
Question for Jon Abell: Why are you leaving such a successful company? You look too young to retire. Well, thank you very much. You're never too young to retire. Frankly speaking, you know, it is a great company. It's a successful company. It's a great company and it's been a real pleasure to work at SDI. I just took a look maybe a year ago now and looked at the cost-benefit analysis as financial people tend to do, and decided that there was plenty of benefit out there in the wider world. In retirement, I'm looking forward to going out to Italy a lot more and enjoying myself rather than spending all the time in that little office with Michael all the time.
Yeah, I think, you know, it's been a good ride for me. I've been, you know, I'm sure I've benefited more than SDI has. It's time for someone else. We've recruited an excellent CFO to take my place. I'm sure everything's gonna be great. Next question. Alistair: Thinking about your M&A methodology, can you talk about the circumstances in which you would sell one of your companies?
We've talked about this, haven't we?
I think. Yeah.
Okay. I'll start it, then you can sort of finish it. Yes. There's always a price. If actually somebody came along and found a better home for one of our subsidiaries, and the price is right, then we'll sell it. Because at the end of the day, we report to the shareholders. We have to give them value for money. If we know that there's a business which is offering a better home for one of our subsidiaries at a price which we really can't turn down for our shareholders, then we have to accept that. Do you wanna expand on that, Jon?
Yeah. I mean, that's true. It really would have to go to someone that was probably already in that line of business. We'd know, you know, we don't actually seek those out. No one's really ever come to us. Maybe one exception in a specific.
Yes.
An area where they wanted part of our business. It's unlikely because they would have to pay, you know, often, sometimes they might come to us and say, "Well, you buy businesses at 5x profit, so here's 5x profit for one of your businesses." I don't think they recognize the difference between buying and selling in that case. It's the economics of it wouldn't work very often, but we are open to it if you know the right buyer would come along. That hasn't happened so far. Okay. Question from JF: Since 2016, SDI has stopped filing full accounts for its subsidiaries with Companies House. Will you restart full account filings to improve transparency?
I'll start that.
Answer: No.
No.
We don't want.
I'll stop that.
the transparency of our individual businesses.
Correct.
Not planning to do that actually.
No.
you know, we do try to conform with the rules, and we, you know, we certainly want to do that. One of those rules is that we don't have to file full accounts for all of our subsidiaries, and it would be a big gift to some of our competitors in those niches if we did that.
Also as well, when we acquire business.
Another question from.
I was gonna say, Jon, expand on that. When we acquire businesses, the businesses usually file abbreviated accounts anyway. We're still continuing with that. Even, I think there was one year we did in 2016, the auditors did mess it up, and they were filed full accounts. Our subsidiary director said we shouldn't be filing those because we never have done before. We've gone back to where we were and actually filing abbreviated accounts. Go on then, Jon. Sorry.
Thank you, Mike. Damian asking: How can acquisition and reorganization costs be treated as exceptional items and adjusted out of profit before tax when they are integral to the buy and build strategy? I think that's a good question. I would say, I would argue that we spike them out in order that people know what they are, rather than hide them in the rest of the P&L. So we make them very transparent. We adjust them out in the adjusted numbers because they do go up and down. So one year we might spend, you know, we might have an agency fee to pay or something like that, and next year not. So I think it's important that element of transparency that we separate them out from the adjusted numbers.
They are there for everyone to see, so I don't think we're hiding them. You know, it gives you, if you like, a bit of extra transparency. Oh, this is a question from Jon A, but not from me, I think.
Yeah.
Could you tell us what you're seeing in the business environment right now? How challenging is it or do you think it'll be?
Okay. I'll answer that. Well, you can actually see year-on-year results for us. We're performing well. We're performing way above our initial forecast in the marketplace. We do trading updates. I can't see any sort of change in that from what we're looking at with the current financial year at the moment. We have got challenges, just like everybody else, you know, with shortage of components, inflation, labor issues. But everybody has these challenges, kind of, within the environment on a daily basis. I don't think we're any different from anybody else, really.
Yeah. Thanks, Mike.
Yeah.
Another question from someone who's not me, Jon A.
Oh, okay.
Could you talk to us about long-term succession plans? I appreciate this might be a way off, but it's a fair question for shareholders. I really like your business model but might have concern the company may sell out when the preferred thing is to continue growing the business with a new management team with the same ethos.
I don't think the sell-out is gonna happen. We talk about it. Recently we've talked about it as a board succession plan. Jon's going. We've got a new CFO starting. Ken will retire sometime, so will I. At the end of the day, we want the company to succeed. We're shareholders of the business and what we don't want it to do is to fall apart. We have to make sure that there's succession in place. As we acquire businesses, we've got 12 business units, 11 or 12 business units across the UK. There's only so many miles I can actually do in a car because part of my role is an operational role. We'll probably need an operations person to assist around the businesses.
I think when it comes to acquiring businesses, there's enough resources in head office to do that job. I think mainly it's the day-to-day operational side for me personally, that whereby we need somebody to do that and, sort of probably take over, in future years.
Jon, I was just gonna say, we've just gone through the hour, and every, for every question you ask, you seem to get another one replacing it. But, do please, Karen, if there are any particular questions you wanna pick up, before we wrap up.
Okay, thank you. Look, yeah, you're right. We've got a long list of questions there and probably we just won't be able to get through them, will we? I think the best thing to do is that we provide the written answers.
Yeah. Okay.
to these over the course of the next days.
Absolutely. Of course, thank you to all the attendees for submitting those questions. All questions will be available for the team to review and, as Jon said, where appropriate to do so, we'll publish responses on the Investor Meet Company platform. Michael, perhaps just for redirecting investors to give you their feedback, which I know is particularly important to you. If I could just ask you just for a few closing comments.
Yeah, sure. Yeah, for the last eight years, we've kept this same buy and build model, buying cash generative and profitable businesses, encourage them to grow with investment from SDI. This has proven with the return on capital employed increasing from 12% to 34%. This is referring to, I keep saying slide seven, which is my favorite slide. Also credit Jon for actually providing a very good sort of slide pack. Finally, on the Jon subject, I'd like to thank Jon for his work in the last four years. Note he's enjoyed our double acts. Jon has been a very lucky boy, and during his time as CFO of a PLC, he hasn't had the privilege of making a profits warning. Therefore, he's only seen the upside of PLC reporting. Therefore, have a great weekend, chaps.
Mike, thank you very much indeed.
No problem.
Jon, thank you very much indeed also for updating investors today. Can I please ask investors not to close this session? You should be automatically redirected to provide your feedback and all of the team can better understand your views and expectations. This will only take a few moments to complete, but it's greatly valued by the company. On behalf of the management team of SDI Group plc, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you and good weekend.