Building
on our
Success
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc (“SDI”) designs
and manufactures analytical technology
products for use in applications including:
Highlights
Strategic Report
01
Astronomy
and Art
Conservation
Consumer
Manufacturing
Life Sciences
Precision
Optics
Thermal
Control
Healthcare
Scientific &
Industrial
Analysis
Contents
Strategic Report
01 Highlights
02 Our Specialist Company Portfolio
– Digital Imaging
– Sensors & Control
06 Group Overview and Vision Statement
08 Chairman’s Statement
10 Chief Executive’s Operating Report
14 Strategy and Key Performance Indicators
16 Principal Risks and Uncertainties
18 Chief Financial Officer’s Report
Governance Report
20 Board of Directors
21 Corporate Governance Statement
26 Report of the Audit Committee
27 Report of the Remuneration Committee
28 Directors’ Remuneration Report
29 Directors’ Report
Financial Statements
31 Report of the Independent Auditor
40 Consolidated Income Statement
40 Consolidated Statement of Comprehensive Income
41 Consolidated Balance Sheet
42 Consolidated Statement of Cash Flows
43 Consolidated Statement of Changes in Equity
44 Notes to the Consolidated Financial Statements
74 Company Balance Sheet
75 Company Statement of Changes in Equity
76 Notes to the Company Financial Statements
80 Five-Year Summary
IBC Shareholder Information
Revenue
+20%
2018
£14.5m
2019
£17.4m
including 5%
organic growth
Adjusted profit before tax*
+32.5%
2018
£2.3m
2019
£3.0m
* before reorganisation
costs, acquisition and
fundraising costs,
share-based payments
and amortisation of
acquired intangible assets
Reported profit before tax
Cash generated from
operations
+23.8% +28%
2018
£1.7m
2019
£2.1m
2018
£2.8m
2019
£3.6m
Record 5 new acquisitions
added to the Group for
consideration of
£6.7m
Gross margin consistent
66%
2018
66%
2019
66%
Companies across the Group continuing to contribute
good organic sales growth, profitability and cash generation
Why invest in SDI?
Buy & build model within the science, technology and medical markets
Good growth drivers
Potential acquisitions of companies with niche expertise
Ten successful acquisitions since 2014
Reputation building as acquisition partner of choice
Track record of selecting sustainable profitable businesses
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Our Specialist Company Portfolio
SDI Group is an AIM-quoted group specialising in the acquisition and
development of a portfolio of companies that design and manufacture
digital imaging and sensing and control products for use in science,
technology and medical applications. Corporate expansion is being
pursued, both through organic growth within its subsidiary companies
and through the acquisition of high-quality businesses with established
reputations in global markets.
Digital Imaging…
The Digital Imaging segment incorporates
the Synoptics brands Syngene, Synbiosis and
Synoptics Health, the Atik brands Atik Cameras,
Opus and Quantum Scientific Imaging, and
the Fistreem, Ionscope and Graticules Optics
businesses acquired during the year.
Atik
Based in Norwich, UK, Atik Cameras designs
specialised cameras under the Atik, Quantum
Scientific Imaging and Opus Instruments
brands and for OEM customers. The cameras
from all three brands are manufactured in a
dedicated factory in Lisbon, Portugal.
l Atik Cameras
Atik Cameras designs and manufactures
highly sensitive cameras for life science and
industrial applications, as well as deep-sky
astronomy imaging.
l Quantum Scientific Imaging
Quantum Scientific Imaging (QSI) designs and
manufactures a range of high-performance
cameras that have applications in astronomy,
life sciences and flat panel inspection.
Originally based in the USA, SDI acquired the
assets of QSI in February 2018 and transferred
production to Atik’s manufacturing facility in
Lisbon, Portugal.
l Opus Instruments
Opus Instruments is a world leader in the
field of Infrared Reflectography cameras
for use in art conservation. It developed its
original Osiris camera in collaboration with
the National Gallery in London. Recently it
has developed a higher specification version
called Apollo which has been well received
by the art conservation market.
Synoptics
Synoptics based in Cambridge UK, is the
headquarters and manufacturing site for
Syngene, Synbiosis, Synoptics Health, Fistreem
International and Ionscope products.
l Syngene
Syngene develops and manufactures systems
and software specifically for automated
gel-based DNA and protein fluorescence/
chemiluminescence imaging and includes the
popular global systems, G:BOX and NuGenius.
l Synbiosis
Synbiosis provides automated and manual
systems for microbiological testing in
food, water, pharmaceutical and clinical
applications, with its ProtoCOL 3 system used
in all the major pharmaceutical companies for
vaccine and antibiotic development.
l
l
l Synoptics Health
Synoptics Health manufactures and supplies
ProReveal, a highly sensitive fluorescence-
based patented protein detection test for
checking the presence of residual protein on
surgical instruments after going through a
washer disinfector process.
l Fistreem International
Fistreem International designs and
manufactures water purification products and
vacuum ovens. The firm’s Cyclon Water Still
is recognised as a world-leading brand. The
Company was acquired by SDI in September
2018. Its technology portfolio is being
relocated for manufacture at Synoptics’
facility in Cambridge, UK.
l Ionscope
Ionscope produces Scanning Ion
Conductance Microscopes, a niche
microscopy technique which allows
nanoscale topographical mapping of soft
and delicate surfaces. The business, based
in Cambridge, UK, was acquired by SDI in
January 2019 for a nominal amount and
was relocated to the Synoptics site also in
Cambridge, UK.
SDI’s nine Digital
Imaging brands
increased sales
revenues by
23%
in the past
financial year.
2018
£7.6m
2019
£9.4m
l
Graticules Optics
Graticules Optics is a world-class designer
and manufacturer of precision micropattern
products. The firm, based in Kent, UK was
acquired by SDI in February 2019 and is
unique in offering photolithographic products
on glass, film and on metal foil, with additional
capability in coatings, cementing, mounting
and small optical assembly.
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Our Specialist Company Portfolio continued
Sensors & Controls
Our 5 Sensing &
Control brands
increased sales
revenues by
17%
£6.8m £8m
The Sensors & Control segment combines
our Sentek, Astles Control Systems and
Applied Thermal Control entities, and the
Thermal Exchange and MPB Industries
businesses acquired during the year.
Sentek
Sentek manufactures and markets off-the-shelf
and custom-made, reusable and single-use
electrochemical sensors for use in laboratory
analysis, food, beverage, pharmaceutical
and personal care manufacturing, as well as
the leisure industry. The company, based in
Braintree UK and Auchtermuchty, UK serves
global markets and has long-term contracts
to supply sensors to two major life science
companies.
Astles Control Systems
Astles Control Systems is a supplier of
chemical dosing and control systems
principally to manufacturers of beverage
cans. The company is based in Princes
Risborough, UK and supplies capital
equipment together with service contracts
and repeat business consumables.
Applied Thermal Control
Applied Thermal Control based in
Loughborough, UK manufactures and
supplies a range of chillers, coolers
and heat exchangers used within the
scientific instrument support market where
cooling systems are required to protect
instrumentation, improve analytical
repeatability and stability or remove heat
from chemical reactions.
Thermal Exchange
Thermal Exchange manufactures and maintains
heat exchangers, coolers and chillers to the
Industrial, Medical and Scientific markets. The
company based in Leicester, UK designs and
provides cooling solutions for its customers.
MPB Industries
MPB Industries designs and manufactures
flowmeters, flow alarms, flow indicators,
flow switches, calibration cylinders and sight
glasses for the measurement of liquids and
gases by well-known industrial and scientific
users. Based in East Peckham, UK, MPB
operates across a broad range of applications
including water treatment, oil and gas
production, medical anaesthesia,
and scientific analysis.
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Heading
Group Overview
Digital Imaging
Our Vision…
To develop our existing
technologies and to grow
through strategic acquisitions.
…and how we achieve it.
Sensors and Controls
Together, we are helping
to advance medical and
scientific knowledge,
increasing the technical
capabilities of industry and
ultimately, improving the
standard of living.
With science and industry
sourcing globally for best-
in-class niche products and
with strong UK scientific and
engineering capabilities, SDI
is well placed to continue its
current trajectory of growth
and profitability.
Purpose
Horizons
Acquiring companies
that complement the
capabilities within the
Group promotes organic
growth. It provides the
opportunity to explore
new challenges and
markets within the fast
evolving science and
technology sectors.
Synergy
Identify
Invest
Create
Build
Unlock the potential
of the companies we
invest in, enabling them
to consolidate their
technical capabilities
and helping them grow
in adjacent markets and
geographical areas.
Seek out potential
investment opportunities
that will add value to our
business and fall within
our current business
development strategy.
We’re investing in people,
not just companies, the
brightest minds who like
to make things better,
faster, smaller, more
efficient and reliable.
The companies within the
Group are at the forefront of
scientific and technological
innovation, addressing key
challenges within their own
niche markets.
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Chairman’s Statement
for the year ended 30 April 2019
Performance
I am pleased to report that in the financial
year ended 30 April 2019, Scientific
Digital Imaging plc (SDI) (the Group)
made considerable progress. The Group
achieved record revenues, pre-tax profit
and earnings per share whilst completing
five acquisitions. SDI acquired Fistreem
International (September 2018), Ionscope
(January 2019), Thermal Exchange
(February 2019), Graticules Optics (February
2019) and MPB Industries (April 2019).
These businesses have complementary
technologies for the sectors that the
SDI Group serves and offer potential for
continued sales and profitable growth.
SDI Group Share Price Performance
£0.60
£0.50
£0.40
£0.30
£0.20
£0.10
2000
1500
1000
500
£0
14
15
16
17
18
0
19
■ SDI share price
■ FTSI AIM all share index
Ken Ford
Chairman
17 July 2019
Full year Revenues of £17.4 million are up 20%
and Adjusted Profit before Tax* at £3.0 million
is up 32.5% against the prior year. Reported
Profit before Tax is up by 23.8% to £2.1m. This
performance has been achieved through 5%
organic growth from the businesses already in
the Group’s portfolio at the start of the financial
year, demonstrating continued commercial
demand for the niche technologies produced
within SDI. The newly acquired businesses
have also delivered a contribution in line with
the Board’s expectations.
On 12th February 2019 SDI announced a
placing of 7.6 million shares at 34p to help with
the funding of the Graticules Optics acquisition
(for £3.4 million), and raised gross proceeds
of £2.5 million. The placing included an issue
with Primary Bid to permit private clients to
participate. SDI also made use of its increased
bank facilities to fund the acquisitions.
* Before reorganisation costs, acquisition costs, share-based
payments and amortisation of acquired intangible assets.
Strategy
The Group continues to implement a buy and build strategy adding
carefully selected acquisitions, where possible funded by earnings
and cash flows from the Group’s existing businesses, but also using
debt or share issues if required. The Group’s policy is to acquire
profitable, often niche, small/ medium-sized companies with relevant
medical and scientific technologies. In order to obtain immediate,
continuing earnings enhancements, SDI only acquires businesses with
complementary technologies that have sustainable profits and cash
generating capability.
The requirement for SDI’s products, particularly in the science and
technology industries, remains robust. Since many of the Group’s
businesses trade globally this reduces the potential for volatility in
European markets as a result of Brexit uncertainty and currency
fluctuations. Long-term market drivers, including the global expansion
of automation and in-process measurements to support optimisation
across science and industrial applications, should result in continued
demand for the Group’s technologies. All the major companies where
SDI provides original equipment manufacturer (OEM) products and
components in their automated systems have signed long-term
agreements to ensure continuity of their supply-chain.
Delivering returns to SDI’s shareholders is a key objective of the Group
and this year the Board has put in place a Long-Term Incentive Plan to
incentivise management to increase shareholder value. The Board has
decided not to pay a dividend for the year ended April 2019 but will
keep this under review in the current year.
Governance and Organisation
The Board remains committed to high standards of corporate
governance and has adopted the 2018 QCA Corporate
Governance Code after deciding it was best suited to SDI’s
business aims and ambition.
During the year, SDI’s Board has benefitted from the appointment of
a new Chief Financial Officer, Jon Abell. His expertise and
contribution has already proved valuable and the Board is confident
that he will continue to have a very positive impact on the Group’s
operations. As I have been actively involved in the acquisition process
I am now not deemed to be non-executive. The appointment of two
strong non-executive directors in the last two years gives the Board
confidence that strong corporate governance remains a key point of
principle for the Group.
The pleasing results achieved this financial year are due to the hard
work of all SDI’s staff delivering to budget and quality targets and the
Board would like to thank all of them for their contribution to this
year’s positive performance.
Current Trading and Outlook
Since 2014 SDI has seen turnover rise from
£7 million to £17.4 million and a Loss Before
Tax of £38,000 become a Profit Before Tax
of £2.1 million. The market capitalisation has
been below £2 million and is now around
£50 million and a share price once at 8p is
currently over 50p (at date of this report).
The Board believes that the scientific,
technology and medical sectors in which SDI
operates are ripe for further acquisitions and
consolidation. SDI’s attraction to a company
looking to sell are multiple, including providing
the support and investment required whilst, in
most cases, leaving the management team in
place. In the coming year SDI will continue to
integrate the five newly acquired businesses
into the Group according to their needs. The
Group is focusing on organic growth but also
expects to add at least one new business that
complements SDI’s capabilities in the financial
year ending in April 2020.
The year has started well and a further
announcement will be made at the Annual
General Meeting on our progress. The Board
is confident that SDI will continue to deliver
profitable growth in 2019-20.
Group Revenue
5-year Summary
(£m)
14.5
17.4
10.7
8.5
7.0
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Chief Executive’s Operating Report
for the year ended 30 April 2019
Buy & Build …We’re on track
Thermal Exchange
Purchased Feb 2019
MPB Industries
Purchased April 2019
Ionscope
Purchased Jan 2019
Graticules Optics
Purchased Feb 2019
Mike Creedon
Chief Executive Officer
17 July 2019
Group revenues for the financial year ended
30 April 2019 grew from £14.5 million
to £17.4 million, an increase of 20%. This
reflects organic growth and the full year
contributions of Applied Thermal Control
and Quantum Scientific Imaging, acquired
in 2017/2018, as well as acquisitions in the
year. During this financial year, a record
number of five companies were acquired
at a cost of £6.8 million. Acquisition costs
were part-funded by an oversubscribed
share issue in February 2019, which raised
proceeds of approximately £2.4 million, from
the Company’s existing bank facilities and
from the cash flows of the Group’s existing
businesses. The Group now has a market
capitalisation of approximately £50 million.
Fistreem International
Purchased Sept 2018
New acqisitions
have contributed
£1.3m
of revenue to the
Group in this
financial year. This is
expected to increase
in the year ahead.
Revenues and Profit
SDI’s nine digital imaging brands delivered
£9.4 million revenue and a 20% operating
profit during the past financial year. Revenues
have been enhanced by organic growth of 5%
and the acquisition of Fistreem International,
Ionscope and Graticules Optics into the
digital imaging division in 2018/19. Demand for
products from the Atik brands remains robust
across all global markets. Atik is now the
largest division in the SDI Group. This year’s
highlights for Atik include £0.5 million
revenue from Quantum Scientific Imaging
which was acquired in 2018 for £0.25 million
and £0.4 million revenue from sales of the
new Opus Apollo camera. QSI is now fully
integrated into Atik’s manufacturing, design
and commercial facilities. Additionally, Atik’s
largest OEM customer, a major US-based
life science company rated Atik very highly
for customer support and increased their
purchases by 90% during the financial year.
SDI’s five sensors and control companies
progressed from £6.8 million to £8.0 million
in revenue, an increase of 17% in this financial
year. Revenues have been enhanced by the
acquisition of MPB Industries and Thermal
Exchange and organic growth of 5%. Sentek
had another strong year with demand for
its single-use or limited life sensors, from
two major life science companies with
whom Sentek has five-year supply contracts,
continuing to increase. Sentek is the largest
company in the sensors and control division.
Adjusted operating profit, our preferred
internal measure of profit for our businesses
(which excludes reorganisation costs,
share-based payments, acquisition costs and
amortisation of acquired intangible assets)
increased 32.2% to £3.1m (2018: £2.3m).
Reported operating profit increased by
23.8% to £2.2m.
Basic earnings per share increased by 16.0%
from 1.81p to 2.10p; fully diluted earnings per
share improved 14.5% to 2.05p (2018: 1.79p).
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Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Chief Executive’s Operating Report continued
for the year ended 30 April 2019
Operations
SDI has continued to invest in the
improvement of its existing products, as well
as the development of new technologies
and additional manufacturing capacity
where required. To keep pace with market
requirements, Atik Cameras is expanding its
production facility in Lisbon, Portugal. The new
site, which is 2.5 times larger than Atik’s existing
one, will be operational by the end of 2019 and
will house additional production staff to ensure
demand for the Opus, QSI and Atik cameras is
met in the coming year.
The Synoptics site in Cambridge, UK is now
the headquarters of two of the newly acquired
brands, Fistreem International and Ionscope.
Production of Fistreem’s technology is
being relocated from Loughborough to
take advantage of Synoptics’ underutilised
manufacturing capacity and to provide an
additional steady revenue stream to Synoptics
from sales of Fistreem consumables.
Sentek’s new larger production facility at
Braintree with three newly refurbished buildings
became operational in 2019. Housing additional
clean room space and manufacturing staff, this
new site is allowing Sentek to meet targets for
quality and production of sterile sensors for
two major clients.
Thermal Exchange (acquired in February 2019)
and Applied Thermal Control manufacture
complementary chiller technologies and are
geographically closely located. SDI has
identified a suitable site to house both
companies in the UK and the relocation will
be completed during this financial year.
Co-locating both companies on the same
site will ensure synergies in development and
manufacturing expertise, economies of scale
in terms of costs, as well as the opportunity to
select and establish a solid global distributor
network going forward.
The Group has made these investments to
facilitate future growth of revenues and profits
while also growing in the current year.
Acquisitions
The UK is a centre of excellence for product innovation and
manufacturing with world-leading businesses in many niches of
science and technology. As a buy and build group, the acquisition of
businesses with complementary technologies is key to the success
of SDI. The Group is known to be a supportive buyer that trusts
subsidiary management teams with the day-to-day running of their
firms, and this reputation underpinned the successes seen in 2018/19
where the Group made a record number of five business acquisitions.
After consolidation currently being worked on, these acquisitions
will ultimately add two additional manufacturing sites to SDI’s estate,
both of them near Tonbridge, UK. The acquisitions have also allowed
better utilisation of manufacturing capacity at the Synoptics site
in Cambridge by Ionscope and Fistreem International, acquired
in 2018/19, and the opportunity to find a single new site to house
Thermal Exchange, acquired in February 2019, with Applied Thermal
Control. The new acquisitions have contributed £1.3 million of
revenue to the Group in this financial year and SDI expects all of the
businesses added to the Group in 2018/19 to continue to be earnings
enhancing in the coming year.
The Group has sufficient cash and bank facilities that can be
used, with its steady cash flow, to acquire new businesses with
complementary technologies and SDI would expect to announce
further expansion of the Group with the addition of at least one new
business in 2020.
Outlook
Market demand for digital imaging and sensors and control
technologies remains strong and is being driven primarily by
increased worldwide investment in higher education and a growing
trend towards automation and in-process measurement. These
are areas across which the SDI Group successfully operates, and
are well known in their niches. Although these markets can be
subject to short-term variability, influenced by government spending
and currency fluctuations, because the Group’s geographic and
technology markets are spread globally, SDI feels it is well-positioned
to remain competitive.
SDI has started 2019 in a strong financial position with good
forward orders within the operating businesses. The Group’s business
will continue to be influenced by world-wide public spending and
trade issues (including Brexit) which could impact performance;
however, SDI is well diversified and has shown its resilience in the
past three years and the outlook in the next financial year continues
to be positive.
Complementary
technologies are the
key to our Success
Fistreem’s ‘vapour trap’ glass condenser for their
Calypso and Cyclon Ultrapure water stills, is
typical of the innovative new technologies that
address a specialist market need and drives our
business model.
This unique, patented water distillation system is
widely used in the scientific, pharmaceutical and
healthcare industries.
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Strategy and Key Performance Indicators
Strategy
SDI Group is an AIM-quoted group specialising
in the acquisition and development of a portfolio
of companies that design and manufacture
products for use in digital imaging and sensing
and control applications in science, technology
and medical markets. Corporate expansion is
being pursued, both through organic growth
within its subsidiary companies and through
the acquisition of high-quality businesses with
established reputations in global markets.
The Board believes there are many businesses
operating within the market, a number of which
have not achieved critical mass, that presents an
ideal opportunity for consolidation. This strategy
will be primarily focused within the UK but,
where opportunities exist, acquisitions in Europe
and the United States and elsewhere will also
be considered, particularly if these also enable
geographic expansion of our existing businesses.
We intend to buy stand-alone businesses as well
as smaller entities and technology acquisitions
which bolt onto our existing ones.
In previous years we have acquired Atik
Cameras, Opus Instruments, Sentek and Astles
Control Systems. In the financial year ended
30 April 2018 we acquired Applied Thermal
Control and Quantum Scientific Imaging. In the
latest financial year ending 30 April 2019, we
completed four significant acquisitions: Fistreem
International, Thermal Exchange, Graticules
Optics and Thermal Exchange. We also acquired
Ionscope, which was integrated directly into our
Synoptics entity. All of these acquisitions fit our
acquisition criteria, which are listed opposite.
An important element of our strategy is that we
are known to be a good acquirer, able to help
sellers to achieve a sale quickly and easily, and
without surprises.
We keep a lean headquarters, and our
businesses are run by seasoned local
management with broad discretion within
defined limits. Our aim is to grow them,
profitably, and we seek to provide them with
the resources necessary to grow. Acquired
businesses often find that they can grow faster
within the SDI Group than they were prepared
to do under private ownership, and they are able
to learn from and share experience with other
companies in the group.
Our current businesses fall broadly into two
segments, which we call Digital Imaging and
Sensors & Control, and within these groupings
there are significant commonalities of
applications, industries served and technologies
employed. This provides additional opportunity
for knowledge sharing, and we have initiated a
programme of mentoring within the Sensors &
Control businesses.
Growth in revenues and profit within our
businesses depends on both technology
advancement and seeking new customers,
often by expanding geographical reach, and the
Board sees geographical expansion as a driver of
organic growth for the future.
By lowering the cost of capital of businesses we
acquire and by facilitating their profitable growth,
our business model has demonstrated that it can
provide good returns to shareholders and can be
scaled into the future.
Key Performance Indicators
A range of financial key performance indicators
are monitored on a monthly basis against
budget by the Board and by management,
including order pipeline, revenue, gross profit,
costs, adjusted operating profit, and cash.
In support of our acquisition strategy as outlined
above, we monitor our acquisition pipeline,
including any prospects that fail to progress.
Post-acquisition, the Board discusses integration
progress, and monitors financial performance
against our initial plans. Over a longer period,
we monitor the return on total invested capital
of all of our businesses.
The Board regularly discusses progress in all
major research and development and other
projects with project and business leaders,
including with respect to cost, timelines and
adherence to the projects’ initial objectives.
Additionally, the Board reserves a specific
agenda item for discussion of health and safety
and other employee welfare-related issues.
What the SDI Group offers as an acquirer
Experience in completing acquisitions in a co-operative atmosphere
understanding the needs of the seller. It can be a stressful
experience, and we aim to make it as easy and certain as possible.
Continuity of the business as a stand-alone entity and brand, and
continuing employment for staff, if appropriate.
Continuity of management. We would not typically buy a business
without management in place, and we especially welcome owner-
managers who want to remain active in the business.
Support and investment to allow the business to grow and thrive as
part of a solid and well-financed group of similar businesses.
There can be no promises, as we will always act in the interests of
our shareholders in the future. However, if we have bought the right
businesses, we expect them to thrive.
High quality
businesses, with
established
reputations and
customer loyalty in
global markets
Available at a
reasonable price
Typically niche,
small / medium
sized companies with
relevant scientific,
technology or
medical products
SDI
Acquisition
criteria
Profitable
Motivated
management teams
in place
Either stand-alone
or bolt-on to our
existing businesses
Growth potential,
particularly
internationally
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Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Principal Risks and Uncertainties
The following represent, in the opinion of
the Board, the principal risks of the business.
It is not a complete list of all the risks and the
priority, impact and likelihood of the risks
may change over time.
Competition and technological
obsolescence
Competition from direct competitors or
third party technologies could impact upon
our market share and pricing.
In order to mitigate this risk the Group
continues to invest in researching its markets
and continues to offer new products in
response to changing customer preferences.
In addition the Group invests in research
and development to maintain its ``
competitive advantage.
Dependence on key distributors and
OEM customers
Failure to effectively manage our distributors of
products could damage customer confidence
and adversely affect our revenues and profits.
In order to mitigate this risk the Group
dedicates significant resource to maintaining
close relationships with our distributors and
OEM customers, including at Group level.
Acquisitions
Acquisitions are a key element of our
strategy, and the failure to identify and
prosecute acquisition opportunities would
impact future growth in profit and share price.
The Group spends significant time and energy
in identifying acquisition opportunities, and
receives suggestions from various sources as
well as directly or through our own businesses
and management. These are carefully filtered,
and the most attractive ones are managed to
a possible successful conclusion.
An additional important risk is that an
acquisition does not provide the financial
return expected. The Group’s disciplined
due diligence process helps to avoid this, but
the Group is also able to marshal resources
in support of an acquired entity’s
management team to help them improve
performance as necessary.
Currency translation
The results for the Group’s overseas
businesses are translated into Pounds
Sterling at the average exchange rates for the
relevant year. The balance sheets of overseas
businesses are translated into Pounds Sterling
at the relevant exchange rate at the year end.
Exchange gains or losses from translating
these items from one year to the next are
recorded in other comprehensive income.
As with the majority of international
companies, the Group’s UK and overseas
businesses purchase goods and services, and
sell some of their products, in non-functional
currencies. Where possible, the Group nets
such exposures or keeps this exposure to a
minimum. The Group’s principal exposure is
to US Dollar and Euro currency fluctuations
against Pound Sterling, and in both currencies
we sell more than we purchase and we have
a higher level of debtors than creditors. This
typically means that a relative devaluation of
the Pound results in exchange gains and an
improvement in competitiveness, whereas a
revaluation has the opposite effect.
We do not hedge our exposure financially,
but we do have some activity in both Europe
and USA which acts a partial natural hedge.
We keep cash balances in Euros and Dollars
to a minimum. If the Pound revalues, we will
review all opportunities to realign our costs to
the changed circumstances.
Recruitment and staffing
If the Group fails to recruit and retain
individuals with the appropriate skills and
experience its performance may suffer.
To ensure the Group retains the highest
calibre staff it has implemented a number of
schemes designed to retain key individuals,
both financial and non-financial, including
bonuses and share option schemes.
Brexit
The Group manufactures its products in the
UK and in Portugal, and sells worldwide.
The likely exit of the UK from the European
Union may cause some initial disruption to
goods movements, may increase barriers
to trade between the UK and the EU, and
may impact the investment plans of some
of our customers. There are likely also to be
macroeconomic developments impacting
exchange rates, interest rates, GDP growth
and government spending levels. The Group
has operating flexibility to mitigate some
of the potential effects, but is exposed to
economic downturns within the markets
in which it operates. The Group has taken
appropriate steps to minimise disruption,
and has cooperated with customers to
ensure continuity of their supply chain.
The Group continues to monitor the
progress of the British Government’s
negotiations with the EU.
A review of the Group’s exposure to credit
risk, liquidity and currency risk is provided
in Note 27.
Going Concern
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out within this Strategic report. The
financial position of the Group, its cash flows,
and liquidity position are provided in the
financial statements on pages 40-43.
In addition, notes to the financial statements
include the Group’s objectives, policies
and processes for managing its capital; its
financial risk management objectives; details
of its financial instruments and hedging
activities; and its exposures to credit risk
and liquidity risk. The Board has prepared
forecasts for the period to 30 April 2021.
These reflect the sales projections for new
products coming on stream as a result of the
Group’s research and development activity
and continued cost management. The
Group meets its cash flow and borrowing
requirements through a bank loan as detailed
in Note 20. The Board’s forecasts indicate
that the Group will continue to trade within
its existing facilities with scope to further
manage its cost base if necessary. The Board
is confident that continued focus on research
and development, new product development
and sales & marketing will deliver growth.
The Board considers that the Group will
have adequate cash resources within its
existing facilities to continue to trade for the
foreseeable future and therefore continues to
adopt the going concern basis of accounting
in preparing the annual financial statements.
18
19
Scientific Digital Imaging plc Annual Report 2019
Strategic Report
Chief Financial Officer’s Report
Revenue and Profits
Group revenue for the year was £17.4 million, an increase of 20% over
2018, achieved through approximately 5% organic growth and from
contributions of £1.3 million from businesses acquired in the year.
Gross profit increased to £11.5m (2018: £9.5m) with increased gross
margin at 66.1% (2018: 65.8%).
Operating profit for the year was £2,198,000 (2018: £1,776,000), and
Adjusted Operating Profit (AOP) was £3,102,000 (2018: £2,346,000)
before reorganisation costs, acquisition costs, share-based payments
and amortisation of acquired intangibles, an increase of 32%. Organic
sales growth was the main driver of profit growth, although all of our
newly-acquired businesses contributed positively to AOP in the period.
We have selectively invested in head office and in our fastest growing
businesses, and we expect further investment over time to underpin
future growth.
Financing expense was £77,000 (2018: £63,000), reflecting
increased usage of our loan facility to fund the acquisitions, further
described below.
Investment in R&D
Under IFRS we are required to capitalise certain development
expenditure and in the year ended 30 April 2019 £585,000 (2018:
£606,000) of cost was capitalised and added to the balance sheet.
This expenditure represents the Group’s investment in new product
development. Amortisation and write-offs for 2019 were £591,000
(2018: £528,000). The carrying value of the capitalised development
at 30 April 2019 was £1,180,000 (2018: £1,186,000) to be amortised
between 3-5 years.
Reorganisation Costs
The Board carries out a thorough review of the operations and cost
structure of the Group and this gave rise to £124,000 (2018: £63,000)
of reorganisation costs in the year, which should bring benefits in the
current year.
Acquisition and Fundraising Costs
£288,000 of costs relate to stamp duty, legal fees, and other advisor
remuneration for the acquisitions completed in the year (2018:
£165,000). In addition, £190,000 of brokers fees and legal expenses
relating to the share placing were booked directly to the share
premium account within equity.
Jon Abell
Chief Financial Officer
17 July 2019
Earnings per Share
Basic earnings per share for Group was 2.10p
(2018: 1.81p) and diluted earnings per share
for the Group was 2.05p (2018: 1.79p).
Taxation
Taxation for the year was £209,000
(2017: £98,000) arising through improved
profitability, but impacted favourably by a
reduction in deferred tax liabilities in view of
the enacted future tax rate of 17% in England
and Wales and by the recognition of the tax
benefit (current and deferred) on exercise of
share options.
Accounting Standards
In the year beginning 1 May 2019, we will
implement IFRS 16, which requires us to
capitalise assets held under operating
leases, such as the Group’s building leases.
The effects on the consolidated income
statement are minor, but the change will
have the effect of increasing both fixed
assets and debt by about £2.2 million from
1 May 2019. The change will not impact our
banking covenants.
Cash Flow and Working Capital
During the year the Group generated cash from operations of
£3,620,000 (2018: £2,830,000). Despite the organic growth, our
businesses slightly reduced their investment in working capital
compared with last year (or compared with the date of acquisition
for new entities). Taxes paid increased from £198,000 to £319,000.
Our investment in fixed assets increased to £419,000 (2018:
£184,000) with notable investment in our Sentek business to fit
out an additional industrial unit and in our newly-acquired
Graticules Optics business to separate it from its former parent.
Capitalised Research and Development at £585,000 (2018:
£606,000) was broadly equal to amortisation.
However, our biggest investments were in the acquisition of new
businesses, and we deployed £6,668,000 of funds to that end in
the year (2018: £1,341,000). All of these investments will lead to
further growth in the coming years.
Funding
Our acquisitions were financed by a combination of our own
cash flow, an increase in our use of our borrowing facility, and by
a placing of new shares.
Our HSBC loan facility was opened in April 2018, and was initially
committed for 3 years and for £3 million. In January 2019, we
extended both the term (to 5 years) and the amount committed
(to £5 million). During the year, our actual borrowing under the
facility increased from £1,370,000 at April 2018 to a maximum of
£4,970,000, and we closed the year with £4,000,000 borrowed.
In conjunction with the acquisition of the assets of Graticules Optics
in February 2019, we conducted a fundraising with the issue of
7.6 million shares, or about 8.1% of the prior share capital. The
shares were placed at a discount of 7.5% to the prevailing share
price. We were pleased to see a solid participation by our existing
larger shareholders, and we also reserved a quota of £100,000 of
the new shares for retail shareholders on the Primary Bid platform.
The placing was substantially oversubscribed, and we extend
a warm welcome to new shareholders on the register. Gross
proceeds from the placing were £2,574,000.
We closed the year with a cash balance of £2,494,000 (2018:
£2,007,000), and net debt (debt, including £100,000 of finance
lease debt, less cash) of £1,606,000 (2018: net cash of £435,000).
There is no deferred or contingent consideration outstanding for
any of our acquisitions.
Cash generated from
operating activities
(£’000)
2,593
3,224
1,263
1,326
409
15
16
17
18
19
Cash generated from
financing activities
(£’000)
5,049
3,456
2,582
403
15
16
17
–799
19
18
Cash deployed in
investing activities
(£’000)
7,785
4,135
3,015
2,124
489
15
16
17
18
19
20
21
Scientific Digital Imaging plc Annual Report 2019
Governance Report
Board of Directors
Heading
Corporate Governance Statement
Ken Ford Chairman
Ken joined the Board in 2010, and became Chairman in 2012. He was previously Chief
Executive of Teather & Greenwood, the investment bank, and brings over 36 years
of City experience to the Company, including a strong understanding of shareholder
value, strategic planning and corporate transactions. His previous roles include
Aberdeen Asset Management, Morgan Grenfell and Wedd Durlacher. Ken is currently
Chairman of AIM-listed Gear4music. He is a Fellow of the Chartered Securities Institute.
Mike Creedon Chief Executive Officer
Mike joined the Board in 2010 as Finance Director, and was appointed CEO in 2012,
maintaining also the Finance Director role until July 2018. A Chartered Certified
Accountant with an MBA from Henley Management College, Mike brings to SDI
considerable experience of working within quoted companies and technology
businesses, and fundraising, mergers and acquisitions. In particular, he has recent
experience of AIM-listed technology companies.
Previous Finance Director posts include Ninth Floor plc and Ideal Shopping Direct plc.
Jon Abell Chief Financial Officer
Jon joined the Board in July 2018 and has over 35 years of business experience.
Prior to joining SDI he was Divisional VP of Finance, Electronic Instruments Group
at Ametek, Inc. where his principal duties include performance management,
M&A, business controls and accounting for several scientific and industrial
instrument businesses.
Jon started his career with industrial companies in the UK and in Italy, before
obtaining his MBA at Columbia Business School in New York. He subsequently
went on to senior financial management roles in Germany, the Netherlands, USA
and UK including at Philips Electronics and Broadcom Inc.
Isabel Napper Non-Executive Chair of the Remuneration Committee
Isabel joined the Board in February 2017 and has more than 25 years’ experience in
advising clients in the technology and healthcare/life science areas, both public and
private sector, leading on business development and managing regulatory issues,
governance risk and strategic change. Isabel was previously a Partner at the law firm
Mills & Reeve where she acted as legal adviser and company secretary to a number
of boards. Her extensive business development and marketing skills are invaluable
to the Board.
David Tilston Non-Executive Chair of the Audit Committee
David joined the Board in July 2017. He has over 30 years’ experience in finance
functions within public companies, and is a Fellow of the Institute of Chartered
Accountants in England and Wales. Most recently, David held the role of Interim
Group CFO of Northgate plc, and before that Interim Group CFO at Consort
Medical plc. Previously, David held senior finance roles at Innovia Group, Mouchel
Group plc, Findel plc, SABMiller plc and SThree plc. He has 8 years experience as
Audit Committee chairman at two companies.
Chairman’s Introduction
As Chairman I am responsible for the leadership of the board and for ensuring the board’s effectiveness. I also have the
responsibility for conducting board meetings and making sure that there is effective and timely communication to our
shareholders. In my role as chair I also provide advice, counsel and support to the executive.
The 2018 QCA Corporate Governance Code
The new AIM Rule 26 introduced during the year requires the Group to follow a recognised corporate code of
governance. The Board, after due consideration, has agreed to follow the 2018 QCA Corporate Governance Code after
concluding that it was the one best suited to SDI’s business, aims and ambitions. The Board believes that the Group
complies with the Code, but is committed to continuously improving its governance over time.
Here we explain how we implement the 10 principles of the QCA Corporate Governance Code in practice.
Further Information
The Strategy section of
this Annual Report and
our website.
Details of all shareholder
communications
are provided on
our website.
Principle
Commentary
1 A strategy and
business model which
promotes long-term
value for shareholders.
2 Understanding and
meeting shareholder
needs and expectations.
3 Taking account of
wider stakeholder and
social responsibilities and
their implications for
long-term success.
The Board has a shared view of SDI’s purpose, business model and
strategy. Our vision is to develop our existing technologies and
to grow through strategic acquisitions. We believe that acquiring
companies which complement the capabilities within SDI will
promote organic growth and give us the opportunity to explore
challenges and new markets within the fast-evolving science and
technology sectors.
Responsibility for shareholder liaison rests principally with our
CEO supported by our CFO. However, all our Board members
attach a high degree of importance to providing shareholders
with clear and transparent information on the Group’s activities,
strategy and financial position.
The Board holds meetings with institutional investors and other
large shareholders following the release of the interim and
financial results.
We regard our Annual General Meeting as a good opportunity
to engage directly with shareholders through a question and
answer session. We provide the market and shareholders
with the results of AGM and GM voting via RNS and other
communication channels including this website.
SDI also participates from time to time in investor shows offering
smaller and private investors insight into our business and also
access to our management team.
SDI’s vision involves encouraging our subsidiary businesses to
work together to help advance medical and scientific knowledge,
increase the technical capabilities of industry and ultimately
improve the standard of living of the population as a whole.
As well as that overarching purpose, the Board recognises that
long-term business success relies on good relations with a range
of different stakeholder groups both internal and external such as
staff, suppliers and customers.
We also seek to understand the impact our business activities
have on the communities in which we operate and consider
our corporate social responsibilities and how these issues are
integrated in to our long-term strategy.
We encourage feedback from all our stakeholders and where
appropriate use that feedback to shape our future direction e.g
new methods or product offerings.
22
23
Scientific Digital Imaging plc Annual Report 2019
Governance Report
Corporate Governance Statement continued
Principle
Commentary
4 Embed effective risk
management, considering
both opportunities and
threats, throughout
the organisation.
5 Maintaining the board
as a well-functioning,
balanced team led by
the chair.
We have addressed the principal risks we face by the appointment
of an experienced executive board supported by experienced
non-executive directors and a team of appropriately qualified
professional advisers.
Our executive directors are closely involved in the day to day
operations of the Group and of our operating subsidiaries and
report to the board in detail at regular intervals. Relevant papers
are distributed to members of the board in advance of board and
committee meetings. Detailed financial reports of the Group’s
financial performance are also provided on a regular basis.
Our directors’ knowledge and understanding of the Group is
further enhanced by on-site visits to operational units; directors
also receive presentations from senior management on the
performance and strategies of their business units.
Directors also have the contractual right to take independent
professional advice on any matter – at SDI’s expense – if they
deem it necessary in order to carry out their responsibilities.
Our board consists of three executive directors (Chairman, CEO
and CFO) together with two non-executive directors. We believe
this to be a good balance for a business of our size. Due to their
working backgrounds and professional experience the non-
executive directors provide a solid foundation for good
corporate governance for the Group. They are also independent
of management and ensure that no individual or group
dominates the board’s decision-making process.
To ensure the board functions well, our non-executive directors
are requested to attend eleven board and board committee
meetings per year. They are also required to be available at other
times between meetings when necessary for face-to-face and
phone/web meetings. We also hold an annual strategy meeting
at which directors’ attendance is mandatory. Each non-executive
director continues to demonstrate that they have sufficient time
to devote to our business.
To support the board we have put in place Audit, Remuneration
and Nomination Committees all of which have agreed formal
terms of reference.
Further Information
The Principal Risks and
Uncertainties section of
this Annual Report sets
out some of the principal
risks and uncertainties
faced by the Group.
Biographies of the
Directors are presented
on page 20 in this
Annual Report and on
our website.
Reports of the Board
committees are also
presented on pages
26-27 in this Report.
6 Ensuring the
directors have the
necessary up-to-date
experience skills and
capabilities.
Our directors have been chosen because of the skills and
experience they offer. Of our five directors one is female and four
are male. All have listed company experience and one was the
CEO of an investment bank, three are accountants, one a lawyer.
Our directors attend industry and regulatory learning and
networking events in order to keep up to date with relevant
developments.
Biographies of the
Directors are presented
on page 20 in this
Annual Report and on
our website.
7 Evaluate board
performance based
on clear and relevant
objectives, seeking
continuous improvement.
We undertake annual monitoring of personal and corporate
performance. The responsibility for assessing and monitoring
the performance of the executive directors lies with the
independent non-executive directors.
Agreed personal objectives and targets are set each year for
the executive directors and performance measured against
these metrics.
Principle
Commentary
Further Information
7 …continued.
8 Promote a corporate
culture that is based
on ethical values and
behaviours.
9 Maintain governance
structures and processes
that are fit for purpose and
support good decision
making by the board.
10 Communicate how
the company is governed
and is performing by
maintaining a dialogue with
shareholders and other
relevant stakeholders.
Going forward we intend to institute a more formal board
evaluation process which will be carried out in the current
financial year (to April 2020). The process will be led by our Chair
and will require directors to answer a set of questions setting out
their views on the effectiveness of the Board and on the value of
their board contributions. The results of that assessment process
will be used by the Chair to facilitate discussions with each
individual director and with the Board as a whole. It is intended
that the questions will be based around issues arising from the ten
principles of the QCA Code.
We believe it is the responsibility of the Board and senior leaders
to ensure that the culture of our organisation is based on ethical
values and behaviours. As well as leading by example, our ethics-
based culture is promoted through our business behaviours,
decisions, processes and operations, as well as the management
of the risk of ethical misconduct.
In addition, we have mechanisms to support high ethical
standards – e.g for raising concerns and reporting misconduct.
We also aim to include ethical criteria in recruitment and in
performance appraisals, and have detailed policies relating to
important issues such as discrimination, harassment, bribery and
corruption, and conflicts of interest. We expect all our staff to
adhere to these high standards.
We are keen to invest in our people not just our companies.
With that in mind we seek to make our workplaces a better
environment and to encourage all our staff to undergo relevant
training and development.
Our non-executive directors scrutinise the performance of
management against the Group’s objectives and also monitor
the reporting of performance.
The Board has considered mechanisms by which the business
and the financial risks facing the Group are managed and
reported to the board. The principal business and financial risks
have been identified and control procedures implemented.
The Board acknowledges its responsibility for reviewing the
effectiveness of the systems that are in place to manage risk.
To achieve this aim the Board has a formal schedule of
matters specifically reserved to it for decisions including the
approval of annual and interim results and recommendation of
dividends, approval of annual budgets, approval of larger capital
expenditure and investment proposals, review of the overall
system of internal control and risk management and review of
corporate governance arrangements.
Other responsibilities are delegated to the Board Committees,
being the Audit, Remuneration and Nomination committees,
which as explained in section 5 above operate within clearly
defined terms of reference, and which report back to the Board.
We have set out in section 2 above how we maintain a regular
dialogue with our shareholders including welcoming all
shareholders to our AGMs.
Reports of the Board
committees are also
presented on pages
26-27 in this Report.
Further information and
the resolutions put to a
vote at annual general
meetings can be found
on our website.
24
25
Scientific Digital Imaging plc Annual Report 2019
Governance Report
Corporate Governance Statement continued
The Board
The Board comprises the Chairman, two Executive Directors (one until
2 July 2018) and two Non-Executive Directors. The Non-Executive
Directors are considered to be independent, provide a solid foundation
for good corporate governance for the Group, and ensure that no
individual or group dominates the Board’s decision making process.
The Non-Executive Directors are independent of management. Each
Non-Executive Director continues to demonstrate that they have
sufficient time to devote to the Company’s business and attendance
at Board and Committee meetings is summarised later in this report.
The Non-Executive Directors constructively challenge and assist
in developing the strategy of the Group using their experience and
knowledge of acquisition targets and fundraising. They scrutinise the
performance of management against the Group’s objectives and also
monitor the reporting of performance. The Board is provided with
regular and timely information on the financial performance of the
Group as a whole, together with reports on trading matters, markets
and other relevant matters.
There are clearly defined roles for the Chairman and Chief Executive.
The Chairman is responsible for leadership of the Board, ensuring
effectiveness of the Board in all aspects, conducting Board meetings
and the effective and timely communication of information to
shareholders. The Chairman is able to provide advice, counsel and
support to the Chief Executive. The Chief Executive has direct charge
of the Group’s day-to-day activities and sets the operating plans and
budgets required to deliver the agreed strategy. The Chief Executive is
also responsible for ensuring that the Group has in place appropriate
risk management and control mechanisms.
The Board is collectively responsible for the performance of the Group
and is responsible to shareholders for proper management of the
Group. A statement of Directors’ responsibilities is given on page 29
and a statement on going concern is given on page 17.
The Board has a formal schedule of matters specifically reserved to it
for decisions including the approval of annual and interim results and
recommendation of dividends, approval of annual budgets, approval
of larger capital expenditure and investment proposals, review of the
overall system of internal control and risk management and review
of corporate governance arrangements. Other responsibilities are
delegated to the Board Committees, being the Audit, Remuneration
and Nomination committees, which operate within clearly defined
terms of reference, and which report back to the Board.
Relevant papers are distributed to members in
advance of Board and Committee meetings.
Directors’ knowledge and understanding
of the Group is enhanced by visits to the
operations and by receiving presentations
by senior management on the results and
strategies of the business units. Directors
may take independent professional advice on
any matter at the Company’s expense if they
deem it necessary in order to carry out their
responsibilities. The Company has secured
appropriate insurance cover for Directors
and Officers.
Board Committees
The following committees deal with specific
aspects of the Group’s affairs.
Audit Committee
The Audit Committee, which is chaired by
D Tilston and has I Napper as the other
member, meets not less than twice annually
and more frequently if required.
The Board considers that both members of
the Audit Committee have recent and relevant
financial experience and an understanding
of accounting and financial issues relevant
to the industries in which Scientific Digital
Imaging operates. The Committee provides
a forum for reporting by the Group’s external
auditors. Where appropriate meetings are also
attended by the Chairman and executives at
the invitation of the Committee.
A report of the Audit Committee is provided
on page 26.
Remuneration Committee
A report of the Remuneration Committee and the Directors’
remuneration report can be found on pages 27- 28.
Nomination Committee
This Committee is chaired by I Napper and has D Tilston as its other
member and meets at least once per annum. Where appropriate
meetings are also attended by the Chairman and the CEO at the
invitation of the Committee.
The Nomination Committee focusses on evaluating the board of
directors, examining the skills and characteristics which are needed in
board candidates, and on succession issues. Its principle focus during
the last financial year was on the identification and recruitment of
Jon Abell as Group CFO following a thorough search facilitated by
an external recruitment company.
Attendance at Board and Committee Meetings
The Directors’ attendance at Board and Committee meetings during
the year is disclosed in the table below.
Board
Audit
Remuneration Nomination
K Ford
M Creedon
I Napper
D Tilston
J Abell
11/11
11/11
11/11
11/11
9/9
3/3
-
4/4
4/4
-
-
-
3/3
3/3
-
-/-
-
-/-
-/-
-
Jon Abell was appointed to the Board on 2 July 2018. Ken Ford stepped
down from the Audit and Nomination Committees in December 2018.
26
27
Scientific Digital Imaging plc Annual Report 2019
Governance Report
Report of the Audit Committee
Report of the Remuneration Committee
I am pleased to present the Audit Committee report for the year
ended 30 April 2019.
Composition of the Committee
The Committee consists of myself (as Chairman) and Isabel Napper.
The Chairman and Executive Directors may be invited to attend
Committee meetings if required. During the year, the Committee met
four times, to approve the audit plan, review the audit conclusions
and interim findings and to consider other matters delegated to the
Committee. The Board is satisfied that I, as Chairman of the Committee,
have recent and relevant financial experience. I am a Chartered
Accountant, I have served as Group Finance Director in several quoted
companies and have prior experience as an Audit Committee Chairman.
I report the Committee’s activities at Board meetings and the minutes of
each meeting are made available to all members of the Board. The Audit
Committee has satisfactorily completed a self-assessment exercise on
its effectiveness using externally sourced material.
Responsibilities
The main duties of the Audit Committee are set out in its Terms of
Reference, which are available on the Company’s website.
The Committee’s main duties are to:
l ensure the integrity of the financial statements (including annual and
interim accounts and results announcements);
l review significant financial reporting judgements and the application
of accounting policies thereon;
l ensure the Annual Report and Accounts are fair, balanced and
understandable and recommend their approval to the Board;
l manage the relationship with the Group’s external Auditor and review
their suitability and independence;
l negotiate and approve the external Auditor’s fee, the scope of their
audit and terms of engagement;
l advise on the appointment of external Auditors and to review and
monitor the extent of the non-audit services undertaken by the
Group’s external Auditor;
l review of the risk management and internal control systems;
l review the assessment of going concern; and
l assess the need for an internal audit function.
Role of the External Auditor
The Audit Committee monitors the relationship with the external
Auditor, Grant Thornton UK LLP, to ensure that auditor independence
and objectivity are maintained. As part of its review the Committee
has established a policy in respect of the provision of non-audit
services by the external Auditor which it monitors. No issues
impacting upon the Auditor’s independence were observed or
brought to the Committee’s attention.
Audit Process
The external Auditor prepares an audit plan for
its audit of the full year financial statements.
The audit plan sets out the scope of the
audit, specific areas of risk to target and the
audit timetable. This plan is reviewed and
agreed in advance by the Audit Committee.
Following completion of audit fieldwork
the Auditor presented their findings to the
Audit Committee for discussion, including
accounting judgements undertaken in
respect of various matters including
acquisition accounting and research and
development capitalisation.
Internal Audit
At present the Group does not have a formal
internal audit function and the Committee will
keep this matter under review as the Group’s
activities expand.
Risk Management and Internal
Controls
The Corporate Governance Statement on
pages 21-25 explains the measures taken to
embed effective risk management throughout
the Group which is dependent upon the close
involvement of the executive directors in
the day-to-day operations of the Group, the
strength of subsidiary management teams and
reporting from the operating subsidiaries. The
Audit Committee is responsible for reviewing
the risk management and internal control
framework and ensuring that it operates
effectively. During the year the Committee
has reviewed the framework and determined
that it is appropriate for the Group’s current
scale of operations. The Audit Committee also
completed a review to ensure it could confirm
its compliance with the QCA Corporate
Governance Code.
David Tilston
Audit Committee Chairman
17 July 2019
Remuneration Committee
I am pleased to present the report of the Remuneration Committee
for the year ended 30 April 2019.
The Committee is chaired by myself and has Ken Ford and David
Tilston as its other members. Other regular attendees include the
CEO and the CFO.
The Committee meets at least two times per year and determines
the Group’s policy for executive remuneration and the individual
remuneration packages for executive directors. In setting the Group’s
remuneration policy, the Committee considers a number of factors
including the following:
l Salaries and benefits available to executive directors of comparable
companies;
l The need to both attract and retain executives of appropriate
calibre; and
l The continued commitment of executives to the Group’s
development through appropriate incentive schemes (including
the award of shares and share options).
Remuneration of Executive Directors
Consistent with this policy, benefit packages awarded to executive
directors comprise a mix of basic salary and performance-related
remuneration that is designed as an incentive. The remuneration
packages cover the following elements:
l Base salary: the Remuneration Committee sets base salaries to
reflect responsibilities and the skills, knowledge and experience of
the individual;
l Bonus Scheme: the executive directors are eligible to receive a
bonus dependent on both individual and Group performance as
determined by the Remuneration Committee;
l Retention bonus: the executive directors are eligible to receive
a retention bonus awarded during the year under the terms of
a long-term incentive scheme as determined by the
Remuneration Committee;
l Equity: share options; and
l Company contribution into a personal pension scheme, life
assurance, and private medical insurance.
The executive directors are engaged under separate contracts which
require a notice period of six months given at any time by the Company
or the individual.
During 2018 the Committee looked at how
the provision of long-term performance
incentives to executive directors could support
the realisation of the Group’s growth strategy
going forward and the policy factors referred
to above. Detailed consideration was given to
various alternatives and independent advice
was taken from BDO LLP on LTIP performance
issues and design of the incentive scheme.
Soundings were also taken from a number of
major shareholders of the Group.
The Committee believe that the LTIP scheme
plan recommended to and subsequently
adopted by the Board in December 2018 is a
fair reward for, and a reflection of, the Group’s
executive directors’ significant responsibility for
growth whilst at the same time encouraging
appropriate corporate behaviour.
The LTIP awards granted in 2018 have a
three-year vesting period and are made in
respect of the CEO, M Creedon and Group
CFO, J Abell. The Group Chairman, K Ford,
was also included in the award as a reflection
of the significant amount of time and
experience he provides to the Group in
relation to acquisitions and other important
strategy issues.
The details of the LTIP are set out in the
Remuneration Report.
Remuneration of Non-Executive
Directors
The fees and equity paid to the Chairman and
to non-executive directors are determined by
the Board. The Chairman and non-executive
directors do not receive any other forms of
benefits such as health cover or pension.
The notice periods of the Chairman and the
non-executive directors are three months.
Isabel Napper
Chairman, Remuneration Committee
17 July 2019
28
29
Scientific Digital Imaging plc Annual Report 2019
Governance Report
Directors’ Remuneration Report
Directors’ Report
Directors’ Report
Directors’ Report
Statement About Basis of Preparation
SDI has produced this report, read in conjunction with the Report of
the Remuneration Committee, to comply with AIM rule 19.
Directors’ remuneration and pension entitlements
The remuneration of the Directors is set out below:
Salary
/Fees
£’000
Bonus
£’000
Taxable
Benefits
£’000
Pension
£’000
2019
Total
£’000
2018
Total
£’000
48
146
27
27
100
-
348
-
50
-
-
-
-
50
-
1
-
-
1
-
2
-
7
-
-
4
-
11
48
204
27
27
105
-
411
43
175
24
19
-
10
271
K Ford
M Creedon
I Napper
D Tilston
J Abell
A Simon
Directors’ beneficial interests
Directors’ beneficial interests in shares in the Company are set out below:
K Ford
M Creedon
I Napper
D Tilston
J Abell
2019
Number
2018
Number
1,450,000
1,350,000
311,924
146,924
35,472
90,000
59,608
-
70,000
-
None of the Directors had or has an interest in any material contract
relating to the business of the Company or any of its subsidiary
undertakings.
Directors’ beneficial interests in share options in the Company are set
out below:
2019
Number
715,217
1,872,173
250,000
250,000
1,021,739
2018
Number
500,000
1,385,000
250,000
250,000
-
K Ford
M Creedon
I Napper
D Tilston
J Abell
28
Scientific Digital Imaging plc
Service contracts
The service contracts with M Creedon dated
25 April 2010 and with J Abell dated 4 April
2018 include a notice period of six months if
given by either party.
The non-executive Directors’ service contracts
and the service contract of the Chairman
include a notice period of three months if
given by either party.
Long-Term Incentive Plan (“LTIP”)
This LTIP was introduced in December 2018
to provide an effective mechanism for senior
executives to participate in the company’s
equity, aligning their interests with those of
the shareholders. The LTIP scheme overall
has a duration of ten years and provides for
a maximum of 10% of the company’s equity
to be granted to executives in that period,
subject to performance conditions which are
set for each award.
An award was made on 21 December 2018
with performance conditions based for 50%
on the growth in fully-diluted Earnings Per
Share in the three years starting 1 May 2018
and for 50% on the total shareholder return
for SDI shareholders compared with a basket
of twenty comparable companies. Subject
to the rules of the LTIP, vesting is on the third
anniversary of the date of grant, to the extent
that the performance conditions are met. The
directors participating in the scheme at the date
of this report and their maximum respective
entitlement under the scheme to equity in
Scientific Digital Imaging plc are as follows:
M Creedon
J Abell
K Ford
0.67%
0.54%
0.22%
BDO LLP was employed to draft the LTIP
under the supervision of the Remuneration
Committee.
The market price of the company’s shares at
the end of the financial year was 54.5p and
ranged from 28.6p to 54.5p during the year.
Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report
comprising Strategic Report, Governance Report and the Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have to prepare
consolidated financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and have elected to prepare separate parent company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and
applicable laws, including FRS101 Reduced Disclosure Framework).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company and the profit or
loss of the company and the Group for that period. In preparing these
financial statements, the Directors are required to:
l select suitable accounting policies and then apply them consistently
l make judgements and accounting estimates that are reasonable
and prudent
l state whether applicable IFRSs and UK Accounting Standards
have been followed, subject to any material departures disclosed
and explained in the Group and parent company financial
statements respectively
l prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors confirm that:
l so far as each Director is aware there is no relevant audit
information of which the Company’s auditor is unaware; and
l the Directors have taken all steps that they ought to have taken as
Directors in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of
that information.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Group’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
Group Results
The Group profit for the year after taxation
amounted to £1,912k (2018: £1,615k) and has
been transferred to reserves.
The Board does not recommend the payment
of a dividend.
Directors
The Directors who served during the period
are set out below.
K Ford
M Creedon
I Napper
D Tilston
J Abell (appointed to the Board on 2 July 2018)
The interests of the Directors and their families
in the share capital of the Company are shown
in the Remuneration Report on page 28.
The appointment and replacement of Directors
of the Company is governed by its Articles of
Association and the Companies Act 2006.
The Articles of Association may be amended
by special resolution of the shareholders.
The Company must have a minimum of two
Directors holding office at all times. There is no
maximum number of Directors. The Company
may by ordinary resolution, appoint any person
to be a Director. The Board may appoint a
person who is willing to act as Director, either
to fill a vacancy or as an addition to the Board.
A Director appointed in this way may hold
office only until the dissolution of the next
Annual General Meeting unless he or she is
reappointed during the meeting.
30
31
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Directors’ Report continued
Report of the Independent Auditor
Power of Directors
The Directors are responsible for the
management of the business of the Company
and may exercise all powers of the Company
subject to applicable legislation and
regulation and the Memorandum and Articles
of Association.
At the Annual General Meeting held on
25 September 2018, the Directors were given
the power to:
l Arrange for the Company to purchase its
own shares in the market up to a limit of
15% of its issued share capital;
l Allot ordinary shares up to an aggregate
nominal value of £299,000;
l Issue equity securities for cash, otherwise
than to existing shareholders in proportion
to their existing shareholdings, up to an
aggregate nominal value of £44,800.
Similar powers will form part of the
resolutions to be put to the forthcoming
AGM to be held on 25 September 2019.
Structure of Share Capital
As at 30 April 2019 the Company’s authorised
share capital was £10,000,000 comprising
1,000,000,000 ordinary shares of 1p each.
As at 30 April 2019 the Company had
97,203,951 (2018: 89,633,424) ordinary shares
in issue with a nominal value of 1p each.
Financial Risk Management
Objectives and Policies
Financial risk management objectives and
policies are discussed in Note 27 ‘Financial risk
management objectives and policies’.
30
Scientific Digital Imaging plc
Employee Involvement
During the year, the policy of providing employees with information
about the Group has been continued through regular meetings which
are held between local management and employees to allow a free
flow of information and ideas.
The Group gives full and fair consideration to applications for
employment from disabled persons where the requirements of the
job can be adequately fulfilled by a handicapped or disabled person.
Employees who become disabled are provided, where practicable, with
continuing employment under normal terms and conditions and are
provided with training and career development where appropriate.
Health and Safety Policies
The Group is committed to conducting its business in a manner
which ensures high standards of health and safety for its employees,
visitors and general public. It complies with all applicable and
regulatory requirements.
Substantial Shareholdings
As at 17 July 2019 the Company is aware of the following
shareholders who hold an interest of 3% or more in the Company’s
ordinary share capital.
Number of
ordinary shares
Percentage of
share capital
Business Growth Fund
9,765,731
10.05%
Berenberg Wealth and Asset Management
9,651,726
Herald Investment Management
Octopus Investments
Hargreaves Lansdown
Dana Investments BV
Killik stockbrokers
Charles Stanley
8,178,149
3,719,640
3,629,335
3,496,494
3,463,534
3,123,307
9.93%
8.41%
3.83%
3.73%
3.60%
3.56%
3.21%
Auditor
A resolution to re-appoint Grant Thornton UK LLP as auditors for
the ensuing year will be proposed at the Annual General Meeting in
accordance with section 489 of the Companies Act 2006.
On behalf of the Board
Ken Ford
Chairman
17 July 2019
Mike Creedon
Chief Executive Officer
17 July 2019
Independent Auditor’s Report
to the Members of Scientific
Digital Imaging Plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Scientific Digital
Imaging plc (the ‘parent company’) and its subsidiaries (the
‘Group’) for the year ended 30 April 2019, which comprise
the consolidated income statement and statement of
comprehensive income, consolidated balance sheet,
consolidated statement of cash flows, consolidated statement
of changes in equity, company balance sheet, company
statement of changes in equity and notes to the financial
statements, including a summary of significant accounting
policies. The financial reporting framework that has been
applied in the preparation of the Group financial statements is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law
and United Kingdom Accounting Standards, including Financial
Reporting Standard 101 ‘Reduced Disclosures Framework’
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
l the financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at
30 April 2019 and of the Group’s profit for the year then ended;
l the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
l the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
l the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described
in the ‘Auditor’s responsibilities for the audit
of the financial statements’ section of our
report. We are independent of the Group and
the parent company in accordance with the
ethical requirements that are relevant to our
audit of the financial statements in the UK,
including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled
our other ethical responsibilities in
accordance with these requirements. We
believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the
following matters in relation to which the ISAs
(UK) require us to report to you where:
l the directors’ use of the going concern
basis of accounting in the preparation of
the financial statements is not
appropriate; or
l the directors have not disclosed in the
financial statements any identified material
uncertainties that may cast significant
doubt about the Group’s or the parent
company’s ability to continue to adopt the
going concern basis of accounting for a
period of at least twelve months from the
date when the financial statements are
authorised for issue.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Report of the Independent Auditor continued
Overview of our Audit Approach
l Overall materiality: £174,000, which represents 1% of the Group’s revenue;
l Key audit matters were identified as:
- the risk that revenue includes fraudulent transactions;
- carrying value of capitalised development costs and goodwill;
- valuation of intangible assets on recognition of the acquired businesses.
l We performed full scope procedures at Scientific Digital Imaging Plc, Synoptics
Limited, Atik Cameras Limited, Sentek Limited, Astles Control Systems Limited,
Applied Thermal Control Limited, Fistreem International Limited, Thermal
Exchange Limited and Graticules Optics Limited.
l We performed targeted procedures on Synoptics Inc, Perseu Comercio De
Equipamento Para Informatica E Astronomica SA, and MPB Industries Limited;
and analytical procedures were performed on Opus Instruments Limited.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
The risk that revenue includes
fraudulent transactions
Under International Standard on Auditing (UK) 240 ‘The
Auditor’s Responsibilities Relating to Fraud in an Audit of
Financial Statements’, there is a rebuttable presumed
risk that revenue may be misstated due to the improper
recognition of revenue due to fraud.
The Group has recognised revenues of £14.5m (2017:
£10.7m) in the year, which is comprised of revenues
from sales of goods, contract income and services. The
nature of the Group’s revenue involves the processing
of numerous transactions, with each stream possessing
different revenue recognition criteria.
As the Group’s revenue is material to the financial
statements, comprises various streams and is subject to
different recognition policies, the presumed risk of
improper recognition of revenue due to fraud has been
identified as a significant risk, which was one of the
most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
l assessing whether revenue recognition policies were
compliant with relevant accounting standards;
l analytical procedures over revenue to identify and
analyse key movements and significant transactions
which have occurred in the year;
l performing a test of operating effectiveness of key
controls at entities in the Group where this was
possible achieved through observation of the three-
way match performed between purchase order,
delivery document and sales invoice;
l substantively testing a sample of revenue
transactions in respect of sale of goods and
agreeing them to a cash receipt or proof of delivery
to vouch that the sale did occur;
l testing a sample of revenue transactions in respect
of contract income for services by obtaining
purchase orders and supporting documentation,
recalculating the revenue recognised, and verifying
the appropriateness of any deferred or accrued
income at year end;
l agreeing a sample of transactions around the year
end to supporting documentation to ensure cut off
has been correctly applied;
l identifying revenue journals that were posted in
the year, and verifying that these have commercial
rationale as most of the Group would not be
expected to include revenue journals; and
l assessing management’s paper on the implications
of IFRS 15 and also considering whether the
recognition of revenue tested was compliant with
IFRS 15.
The Group’s accounting policy on revenue is shown
in note 3 to the financial statements and related
disclosures are included in note 6.
Key observations
Our testing did not identify any material misstatements
in the revenue recognised during the year or any
instances of revenue not being recognised in
accordance with stated accounting policies and IFRSs.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Report of the Independent Auditor continued
Key audit matter – Group
How the matter was addressed in the audit – Group
Key audit matter – Group
How the matter was addressed in the audit – Group
Carrying value of capitalised
development costs and goodwill
The carrying value of goodwill at the year end
amounted to £8.4m (2018: £5.4m).
The net book value of capitalised development costs
at the year end amounted to £1.2m (2018: £1.2m),
including amortisation charged in the year on
capitalised development costs of £0.59m (2018:
£0.57m). These costs are amortised by the Group to
ensure the capitalised cost reflects the anticipated
benefit of the development project to the Group
over time.
In accordance with IAS 36, ‘Impairment of Assets’, an
annual review is required to assess whether goodwill or
capitalised development costs may be impaired.
The impairment reviews of development costs are
based on identifiable assets for which future revenues
and gross margins can be assigned to calculate a value
in use based on a discounted cash flow model.
The impairment reviews of goodwill are based on
forecasting cash flows relating to cash generating units
using a discounted cash flow model.
Due to the inherent uncertainty and key assumptions
involved in forecasting and discounting future cash
flows, we identified the carrying value of capitalised
development costs and goodwill as a significant risk,
which was one of the most significant assessed risks of
material misstatement.
Our audit work included, but was not restricted to:
l ensuring the amortisation policy relating to
capitalised development costs was consistent with
prior year and assessing the adequacy of the useful
economic life;
l comparing the carrying value of selected
development projects against the net present value
calculations, produced by management, based on
future cash flows;
l checking the mathematical accuracy of a
selection of impairment models for capitalised
development costs;
l testing the accuracy of management’s forecasting
by comparing the 2019 budgeted sales and gross
profit to the results achieved for the year;
l challenging management on the basis of key
assumptions used within the forecasts, such as
revenue growth and the discount rate;
l performing sensitivity analysis of cash flow inputs,
including the discount rate applied;
l discussing and corroborating the ongoing viability
and recoverability of development projects with
relevant Group personnel by getting an update
from management about project progress and
looking at sales generated for new products when
possible; and
l comparing the carrying value of goodwill against
the net present value calculations, produced by
management, based on future cash flows.
The Group’s accounting policy on the carrying value
of capitalised developments and goodwill is shown
in note 3 to the financial statements and related
disclosures are included in note 11.
Key observations
Our testing did not identify any material misstatements
in the carrying value of the capitalised development
costs or goodwill. We are satisfied that the
judgements involved in using discounted future cash
flows are balanced.
Valuation of intangible assets on
recognition of the acquired businesses
In the year the Group acquired:
l the trade and assets of Graticules Optics Limited
for £3,400k;
l 100% of the share capital in Fistreem International
Limited for £756k;
l 100% of the share capital in MPB Industries Limited
for £1,586k;
l 100% of the share capital in Thermal Exchange
Limited for £997k; and
l the trade and assets of Ionscope for £49k.
The judgements involved used in determining the
value of goodwill (£3.0m) and acquired intangible
assets (£3.9m) and the allocation between these
assets could, if performed inaccurately, lead to a
material misstatement.
There is significant judgement and complexity involved
in the allocation of excess consideration over net
assets acquired between separable intangible assets
and remaining goodwill. The client used a
management expert for the valuation of the largest
acquisition (Graticules Optics Limited) and then
prepared a valuation model based on the valuation
model used by the expert in Graticules Optics Limited
for the remaining acquisitions. For the fair value of the
intangible assets, this includes assumptions for growth
rates, margins, discount rates and attrition rates.
Due to the inherent uncertainty and key assumptions
involved in determining the accurate allocation
between acquired intangible assets and goodwill, we
therefore identified the valuation of intangible assets
on recognition of the acquired businesses as a
significant risk, which was one of the most significant
assessed risks of material misstatement.
Our audit work included, but was not restricted to:
l obtaining and assessing the acquisition accounting
workpapers for all material acquisitions in the year,
which calculated the split between net assets
acquired, fair value of acquired intangibles and
goodwill to be recognised on consolidation;
l obtaining the valuations report prepared by
management’s expert. Where assumptions were
sufficiently complex we received assistance from
an auditor’s expert who checked the mathematical
accuracy of the model prepared by management;
l obtaining the workings prepared by the client for
the acquired entities where a management expert
was not used, and verified the split of intangibles
was correctly calculated and in line with the
standard model for measurement provided by the
management experts;
l assessing that the models used for valuation were
appropriate to use for the entities acquired;
l challenging the assumptions used in the valuation
models, to ensure they were reasonable and
consistent with the knowledge of the acquired
entity; and
l obtaining and inspecting the purchase agreements
to verify that the treatment of the acquisitions was in
line with IFRS 3 Business Combinations.
The Group’s accounting policy on the valuation
of intangible assets on recognition of the acquired
businesses is shown in note 3 to the financial
statements and related disclosures are included in
note 11.
Key observations
Our testing did not identify any material misstatements
in the carrying valuation of intangible assets on
recognition of the acquired businesses. We are
satisfied that the judgements involved in determining
the split between acquired intangibles and goodwill
are reasonable.
We did not identify any Key Audit Matters relating to the audit of the financial statements of the parent company.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Report of the Independent Auditor continued
Our Application of Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in
determining the nature, timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a whole
£174,000 which is 1% of the Group’s
revenue. This benchmark is
considered the most appropriate
because the Group are strategically
looking to increase Group
revenues, and the net profit
margins in the Group are
inconsistent between entities.
Materiality for the current year is
higher than the level that we
determined for the year ended
30 April 2018 to reflect increased
trading following both organic and
inorganic growth in the Group.
£122,000 which is 70% of the
Group materiality measure. This
benchmark is considered the most
appropriate because basing the
parent materiality on assets would
exceed Group materiality, so it has
been restricted.
Materiality for the current year is
higher than the level that we
determined for the year ended
30 April 2018 to reflect the
increased size of the business
this year.
Performance materiality used to
drive the extent of our testing
70% of financial statement
materiality.
70% of financial statement
materiality.
Specific materiality
We determined a lower level of
specific materiality for certain areas
such as directors’ remuneration and
related party transactions due to the
inherent sensitivity of these
transactions and related disclosures.
We determined a lower level of
specific materiality for certain areas
such as directors’ remuneration and
related party transactions due to
inherent sensitivity of these
transactions and related disclosures.
Communication of misstatements
to the audit committee
£8,700 and misstatements
below that threshold that, in our
view, warrant reporting on
qualitative grounds.
£6,100 and misstatements
below that threshold that, in our
view, warrant reporting on
qualitative grounds.
An Overview of the Scope of our Audit
Our audit approach was a risk-based approach founded on a thorough understanding of the Group’s business,
its environment and risk profile and included:
l an evaluation by the Group audit team of identified components to assess the significance of that
component and to determine the planned audit response based on a measure of materiality. Significance
of each component was determined as a percentage of the Group’s total assets, revenues and profit/(loss)
before taxation;
l full scope procedures at Scientific Digital Imaging Plc, Synoptics Limited, Atik Cameras Limited, Sentek
Limited, Astles Control Systems Limited, Applied Thermal Control Limited, Fistreem International Limited,
Thermal Exchange Limited and Graticules Optics Limited;
l targeted procedures on Synoptics Inc, Perseu Comercio De Equipamento Para Informatica E Astronomica
SA, and MPB Industries Limited;
l analytical procedures on Opus Instruments Limited;
l site visits at a majority of entities to gain an understanding of the processes and controls around the revenue
cycle and the implications of the IT environment that might have an impact on the audit approach; and
l work around the acquisition accounting of the four material acquisitions in the year, which introduced a
significant risk and key audit matter on the valuation of intangible assets on recognition of the acquired
businesses;
The total percentage coverage of full scope and targeted procedures over the Group’s revenue was 100%.
The total percentage coverage of full scope and targeted procedures over the Group’s total assets was 99%.
Our audit approach in the current year for all financial statement line items, aside from revenue, were
consistent in the prior year in that it was substantive in nature. For revenue we were able to place reliance on
operating effectiveness of controls at Applied Thermal Controls Limited, Sentek Limited, Synoptics Limited and
Astles Control Systems Limited, with the remaining revenue at the other subsidiaries being tested substantively.
Other Information
The directors are responsible for the other information. The other information comprises the information included in
the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
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Scientific Digital Imaging plc Annual Report 2019
Contents
40 Consolidated Income Statement
40 Consolidated Statement of Comprehensive Income
41 Consolidated Balance Sheet
42 Consolidated Statement of Cash Flows
43 Consolidated Statement of Changes in Equity
44 Notes to the Consolidated Financial Statements
74 Company Balance Sheet
75 Company Statement of Changes in Equity
76 Notes to the Company Financial Statements
80 Five-Year Summary
IBC Shareholder Information
Financial Statements
Report of the Independent Auditor continued
Our opinion on other matters prescribed by the
Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of
the audit:
l the information given in the strategic report and the
directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
l the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report under
the Companies Act 2006
In the light of the knowledge and understanding of the Group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
l adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
l the parent company financial statements are not in agreement
with the accounting records and returns; or
l certain disclosures of directors’ remuneration specified by law are
not made; or
l we have not received all the information and explanations we
require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set
out on page 29, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the Group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group
or the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or
error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance
is a high level of assurance, but is not
a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect
a material misstatement when it exists.
Misstatements can arise from fraud or error
and are considered material if, individually
or in the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities
for the audit of the financial statements
is located on the Financial Reporting
Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required
to state to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
Adrian Bennett
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Cambridge
17 July 2019
40
41
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Consolidated Income Statement
For the year ended 30 April 2019
Consolidated Balance Sheet
For the year ended 30 April 2019
Revenue
Cost of sales
Gross profit
Operating expenses
Analysed as:
Reorganisation costs
Share-based payments
Acquisition and fundraising costs
Amortisation of acquired intangible assets
Other operating costs
Operating expenses
Operating profit
Net financing expenses
Profit before tax
Income tax
Profit for the year
Earnings per share
Basic earnings per share
Diluted earnings per share
(124)
(136)
(288)
(356)
(8,423)
(9,327)
Note
6
9
7
10
23
23
2019
Total
£’000
17,427
(5,902)
11,525
(9,327)
2,198
(77)
2,121
(209)
1,912
2.10p
2.05p
(63)
(65)
(165)
(277)
(7,196)
(7,766)
2018
Total
£’000
14,496
(4,954)
9,542
(7,766)
1,776
(63)
1,713
(98)
1,615
1.81p
1.79p
All activities of the Group are classed as continuing.
The results attributable to business combinations in the year are disclosed in Note 30.
The accompanying accounting policies and notes form an integral part of these financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 30 April 2019
Profit for the period
Other comprehensive income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translating foreign operations
Total comprehensive income for the period
The accompanying accounting policies and notes form an integral part of these financial statements.
2019
£’000
1,912
31
1,943
2018
£’000
1,615
(30)
1,585
Assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Borrowings
Deferred tax liability
Current liabilities
Trade and other payables
Provisions for warranties
Borrowings
Current tax payable
Total liabilities
Net assets
Equity
Share capital
Merger reserve
Share premium account
Own shares held by Employee Benefit Trust
Other reserves
Foreign exchange reserve
Retained earnings
Total equity
Note
2019
£’000
2018
£’000
11
12
13
14
15
16
20
13
17
19
20
22
24
17,194
767
180
18,141
2,576
3,340
2,494
8,410
26,551
4,016
1,448
5,464
3,280
11
84
626
4,001
9,465
17,086
972
3,030
8,696
(17)
284
140
3,981
17,086
10,727
431
37
11,195
2,090
2,221
2,007
6,318
17,513
1,391
969
2,360
2,309
11
29
244
2,593
4,953
12,560
896
3,030
6,390
(82)
148
109
2,069
12,560
The financial statements were approved and authorised for issue by the Board of Directors on 17 July 2019.
Mike Creedon
Director
Jon Abell
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
Company registration number: 6385396
42
42
43
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Consolidated Statement of Cash Flows
For the year ended 30 April 2019
Consolidated Statement of Changes in Equity
For the year ended 30 April 2019
Note
2019
£’000
2018
£’000
Share
capital
£’000
Merger
reserve
£’000
Foreign
exchange
£’000
Share
premium
£’000
Own shares
held by EBT
£’000
Other
Reserves
£’000
Retained
earnings
£’000
Total
£’000
Balance at 30 April 2017
889
3,030
139
6,200
(85)
Shares issued
Share-based payments
Transactions with owners
Profit for the year
Foreign exchange on
consolidation of subsidiaries
Total comprehensive income
for the period
Balance at 30 April 2018
Shares issued
Share-based payments
Transactions with owners
Profit for the year
Foreign exchange on
consolidation of subsidiaries
Total comprehensive income
for the period
Balance at 30 April 2019
7
–
7
–
–
–
–
–
–
–
–
896
–
3,030
76
–
76
–
–
–
–
–
–
–
–
–
–
–
(30)
(30)
109
–
–
–
–
31
190
–
190
–
–
–
6,390
2,306
–
2,306
–
–
–
972
–
3,030
31
140
–
8,696
3
–
3
–
–
–
(82)
65
–
65
–
–
–
(17)
83
–
65
65
–
–
–
148
–
136
136
–
–
–
284
454
10,710
–
–
–
200
65
265
1,615
1,615
–
(30)
1,615
2,069
–
–
–
1,912
1,585
12,560
2,447
136
2,583
1,912
–
31
1,912
3,981
1,943
17,086
The accompanying accounting policies and notes form an integral part of these financial statements.
Operating activities
Net Profit for the year
Depreciation
Amortisation
Finance costs and income
(Decrease) increase in warranty provision
Release of deferred consideration
Taxation in the income statement
Employee share-based payments
Operating cash flows before movement in working capital
Changes in inventories
Changes in trade and other receivables
Changes in trade and other payables
Cash generated from operations
Interest paid
Income taxes received/(paid)
Cash generated from operating activities
Investing activities
Capital expenditure on fixed assets
Sale of property, plant and equipment
Expenditure on development and other intangibles
Acquisition of subsidiaries, net of cash
Deferred consideration paid
Net cash used in investing activities
Financing activities
Finance leases net repayments
Proceeds from bank borrowing
Repayment of borrowings
Issues of shares and proceeds from option exercise
Net cash from financing
Net changes in cash and cash equivalents
Cash and cash equivalents, beginning of year
Foreign currency movements on cash balances
Cash and cash equivalents, end of year
1,912
231
971
77
(12)
–
209
136
3,524
65
(415)
446
3,620
(77)
(319)
3,224
(419)
45
(591)
(6,668)
(152)
(7,785)
(30)
3,600
(970)
2,449
5,049
488
2,007
(1)
2,494
1,615
240
836
63
(8)
–
98
65
2,909
(134)
(106)
161
2,830
(63)
(198)
2,569
(184)
3
(620)
(1,341)
(1,201)
(3,343)
(33)
1,370
(1,111)
200
426
(348)
2,355
–
2,007
30
The accompanying accounting policies and notes form an integral part of these financial statements.
44
44
45
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements
For the year ended 30 April 2019
1 Reporting Entity
Scientific Digital Imaging plc, a public limited company, is the Group’s
ultimate parent. It is registered and domiciled in England and Wales.
The consolidated financial statements of the Group for the year ended
30 April 2019 comprise the Company and its subsidiaries (together
referred to as the “Group”). The details of subsidiary undertakings are
listed in Note 4 to the Company Financial Statements.
2 Basis of Preparation
The consolidated financial statements have been prepared and
approved by the Directors in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU and as applied with
the provisions of the Companies Act 2006. The consolidated financial
statements have been prepared under the historical cost convention as
modified by the recognition of certain financial instruments at fair value.
The principal accounting policies of the Group are set out below.
The consolidated financial statements are presented in British pounds
(£), which is also the functional currency of the ultimate parent
company. All values are rounded to the nearest thousand (£’000)
except where otherwise indicated.
The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out within
the Strategic report. The financial position of the Group, its cash flows,
and liquidity position are provided in the financial statements on pages
40-43. In addition, notes to the financial statements include the
Group’s objectives, policies and processes for managing its capital;
its financial risk management objectives; details of its financial
instruments and hedging activities; and its exposures to credit risk
and liquidity risk. The Board has prepared forecasts for the period to
30 April 2021. These reflect the sales projections for new products
coming on stream as a result of the Group’s research and development
activity and continued cost management. The Group meets its cash
flow and borrowing requirements through a bank loan as detailed in
note 20. The Board’s forecasts indicate that the Group will continue
to trade within its existing facilities with scope to further manage its
cost base if necessary. The Board is confident that continued focus
on research and development, new product development and sales
& marketing will deliver growth. The Board considers that the Group
will have adequate cash resources within its existing facilities to
continue to trade for the foreseeable future and therefore continue
to adopt the going concern basis of accounting in preparing the
annual financial statements.
Accounting judgements and estimates
The preparation of financial statements
requires management to make judgements,
estimates and assumptions that affect the
application of policies and reported amounts
of assets, liabilities, income and expenses.
These judgements and estimates are based
on management’s best knowledge of the
relevant facts and circumstances, having
regard to prior experience, but actual results
may differ from the amounts included in
the consolidated financial statements.
Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the
period in which the estimate is revised and
in any future periods affected.
Information about significant areas of
estimation uncertainty and critical judgements
in applying accounting policies that have
the most significant effect on the amount
recognised in the financial statements are
described in the following notes:
Judgements in applying accounting policies
Intangibles – development costs
The Group is required to capitalise any
development costs that meet the criteria as
per IAS 38. (See Research and Development
accounting policy, page 46). Significant
judgements are made in categorising
development costs and in establishing
whether grounds for capitalisation exist.
Sources of estimation uncertainty
Fair value assessments of business
combinations
Following an acquisition, management makes
an assessment of the fair value of all assets
and liabilities acquired, including intangible
assets and goodwill. The valuation process
requires a number of estimates to be made.
For details of assumptions see note 31.
Carrying value of goodwill and other intangible assets
The impairment analysis of intangible assets is based upon future
discounted cash flows and a number of assumptions are made
to estimate the future cash flows expected to arise from the cash
generating unit as well as a suitable discount rate in order to calculate
present value. Factors like lower than anticipated sales and resulting
decreases of net cash flows and changes in discount rates could
lead to impairment. For details of assumptions see note 11.
3 Principal Accounting Policies
The principal accounting policies adopted are consistent with those
of the annual financial statements for the year ended 30 April 2018.
The adoption of new accounting standards and interpretations
which came into effect, including IFRS 9 and IFRS 15, has not had
a material impact on the Group’s financial statements in this period
of initial application.
Basis of consolidation
Subsidiaries are entities controlled by the Group where control is
the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities. The financial statements
of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases. The subsidiaries transitioned to FRS 101 from previously extant
UK Generally Accepted Accounting Practice for all periods presented.
Intra group balances and any unrealised income and expenses
arising from intra group transactions are eliminated in preparing the
consolidated financial statements.
Business combinations
Business combinations are accounted for using the acquisition method
under the revised IFRS 3 Business combinations. The consideration
transferred by the Group to obtain control of a subsidiary is calculated
as the sum of the acquisition-date fair value of assets transferred,
liabilities incurred and the equity interests issued by the Group, which
includes the fair value of any asset or liability arising from a contingent
consideration agreement. Acquisition costs are expensed within
administration expenses as incurred. The Group recognises identifiable
assets acquired and liabilities assumed including contingent liabilities
in a business combination regardless of whether they have been
previously recognised in the acquiree’s financial statements prior to
the acquisition. Assets acquired and liabilities assumed are generally
measured at their acquisition-date fair values.
Foreign currency
Transactions entered into by Group entities in a
currency other than the functional currency of
the company which incurred them are
recorded at the rate of exchange at the time of
the transaction. Monetary assets and liabilities
denominated in foreign currencies
at the balance sheet date are reported at
the rates of exchange prevailing at that
date. Exchange differences arising on the
retranslation of unsettled monetary assets
and liabilities are recognised immediately in
profit or loss.
For the purpose of presenting the consolidated
financial statements the assets and liabilities of
the Group’s overseas operations are translated
using exchange rates prevailing on the balance
sheet date. Exchange differences on net assets
arising from this policy are recognised in other
comprehensive income and accumulated in
the foreign exchange reserve; such translation
differences are reclassified from equity to
profit or loss as a reclassification adjustment
in the period in which the foreign operation
is disposed of.
Income and expense items of overseas
operations are translated at exchange rates
approximating to those ruling when the
transactions took place.
Property, plant and equipment
Property, plant and equipment is stated
at cost, less accumulated depreciation.
Depreciation is charged to profit or loss on
a straight line basis over the estimated useful
lives of each part of property, plant and
equipment to write down the cost of the
asset to its residual value. Residual values
are reviewed annually.
The estimated useful lives are as follows:
Motor vehicles
Computer equipment
Tools and other equipment
Furniture, fixtures and fittings
Building and leasehold
improvements
3 years
3 years
3 years
5 years
5 years
46
46
47
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
Goodwill
Goodwill represents the excess of the fair value of the consideration
transferred over the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities of the acquiree.
When the excess is negative, it is recognised immediately in profit
or loss as a gain from a bargain purchase. Goodwill is reviewed
for impairment annually or more frequently if events or changes
in circumstances indicate that the carrying value may be impaired.
Goodwill is also reviewed for impairment immediately following
an acquisition. The impairment of goodwill is based upon value in
use, determined using estimated future discounted cash flows.
Research and development
Expenditure on research activities undertaken with the prospect
of gaining new scientific or technical knowledge and understanding
is recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are
applied to a plan or design for the production of new or substantially
improved products and processes, is capitalised if the following
conditions are met:
● Completion of the intangible asset is technically feasible so that it
will be available for use or sale;
● The Group intends to complete the intangible assets and use or sell it;
● The Group has the ability to use or sell the intangible asset;
● The intangible asset will generate probable future economic benefits.
Among other things, this requires that there is a market for the
output from the intangible asset or the intangible asset itself, or, if it
is to be used internally, the asset will be used for generating
such benefits;
● The expenditure attributable to the intangible asset during its
development can be measured reliably.
The expenditure capitalised includes direct cost of material, direct
labour and an appropriate proportion of overheads. Other development
expenditure is recognised in the income statement as an expense as
incurred. Capitalised development is stated at cost less accumulated
amortisation and impairment losses.
Amortisation is charged to profit and loss on a straight-line basis over
the estimated useful lives of intangible assets. Amortisation is shown
within administrative expenses in the income statement. The estimated
useful lives of current development projects are three years. Until
completion of the project the assets are subject to impairment testing.
Other intangible assets
Intangible assets acquired as part of an
acquisition of a business are capitalised
separately from goodwill providing the assets
are separable or they arise from contractual
or other legal rights and their fair value can be
measured reliably. The fair value of intangible
assets in a business combination includes the
value of any tax benefit.
Intangible assets with a finite life are amortised
over their useful economic lives. Amortisation
is recognised in the income statement within
administrative expenses on a straight-line basis
over the estimated useful lives of intangible
assets, other than goodwill, from the date that
they are available for use.
Capitalised development costs
Other intangible assets
Customer relationships
and trade marks
3 years
3–15 years
15 years
Impairment
The carrying amounts of the Group’s non-
financial assets, other than inventories and
deferred tax assets, are reviewed at each
reporting date to determine whether there
is any indication of impairment. If any such
indication exists then the asset’s recoverable
amount is estimated. For intangible assets
that have indefinite lives or that are not yet
available for use, the recoverable amount
is estimated at each reporting date.
The recoverable amount of an asset is the
greater of its value in use and its fair value
less costs to sell. In assessing value in use,
the estimated future cash flows are
discounted to their present value using
a pre-tax discount rate that reflects current
market assessments of the time value of
money and the risks specific to the asset.
Equity
Equity comprises the following:
● “Share capital” represents the nominal value
of equity shares
● “Merger reserve” represents the difference
between the parent company’s cost of
investment and the subsidiary’s share capital
and share premium where a group
reorganisation qualifies as a common
control transaction.
● “Share premium account” represents the
excess over nominal value of the fair value
of consideration received for equity shares,
net of expenses of the share issue.
● “Foreign exchange reserve” represents the
differences arising from translation of
investments in overseas subsidiaries.
● “Own shares held by Employee Benefit Trust”
represents shares held in trust for the
benefit of employees
● “Other reserves” represents equity-settled
share-based employee remuneration
until such share options are exercised.
The equity component of convertible
loan stock, if any, is also included.
On conversion of the loan stock the
equity component is transferred into the
retained earnings reserve.
● “Retained earnings” represents retained profits.
Contributions to pension schemes
Defined Contribution Scheme
Obligations for contributions for defined
contribution plans are recognised as an
expense in the income statement when they
are due.
For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are largely independent cash flows
(cash-generating units). As a result, some assets are tested individually for
impairment and some are tested at cash-generating unit level. Goodwill
is allocated to those cash-generating units that are expected to benefit
from synergies of the related business combination and represent the
lowest level within the Group at which management monitors goodwill.
An impairment loss is recognised if the carrying amount of an asset
exceeds its recoverable amount. Impairment losses are recognised
in profit or loss. Impairment losses for cash-generating units reduce
first the carrying value of any goodwill allocated to that cash generating
unit. Any remaining impairment loss is charged pro rata to the other
assets in the cash-generating unit. With the exception of goodwill,
all assets are subsequently reassessed for indicators that an impairment
loss previously recognised may no longer exist.
Any impairment in respect of goodwill is not reversed. Impairment
losses on other assets recognised in prior periods are assessed at
each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no
impairment had been recognised.
Inventories
Inventories are measured at the lower of cost and net realisable value.
The cost of inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to
their location and condition at the balance sheet date. Items are
valued using the first in, first out method. When inventories are used,
the carrying amount of these inventories is recognised as an expense
in the period in which the related revenue is recognised. Provisions
for write-down to net realisable value and losses of inventories are
recognised as an expense in the period in which the write-down or
loss occurs.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and deposits.
Borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised cost.
Any difference between the proceeds and the redemption value is
recognised in the income statement over the period of the borrowings
using the effective interest method.
Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liabilities for at least
12 months after the balance sheet date.
48
48
49
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
Financial assets
The Group’s financial assets comprise trade receivables, other
receivables, cash and cash equivalents. Trade and other receivables are
recognised and carried at the original invoice amount less a provision
for the expected credit loss, where collection of the amount is no longer
probable. Management uses historical experience of losses applied to
the specific circumstances of the receivable, including trading history
with the debtor and period overdue to determine the need for and
amount of any provision to cover expected future losses. Uncollectable
amounts are written off to the Income Statement when identified.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial
assets and are recognised when the Group becomes a party to the
contractual provisions of the instrument. The Group’s financial liabilities
comprise trade payables, other payables, other loans and bank
borrowings. All financial liabilities are measured at fair value plus
transaction costs on initial recognition and subsequently are measured
at amortised cost. Contingent consideration is measured at fair value
through profit and loss in the income statement.
Revenue recognition
In accordance with IFRS 15 ‘Revenues from Contracts with Customers’,
revenue is measured by reference to the fair value of consideration
received or receivable by the Group, excluding value added tax (or
similar local sales tax), in exchange for transferring the promised goods
or services to the customer. The consideration is allocated to each
separate performance obligation that is identified in a sales contract,
based on stand-alone selling prices. Sales of instruments and spare
parts, and sales of services, such as non-specialised installation,
support, training or consultancy, are assessed to be separate
performance obligations.
Revenue is recognised when (or as) the Group satisfies the identified
performance obligation. For sales of instruments and spare parts,
the performance obligation is satisfied at a point in time; for revenue
from services, the performance obligation is satisfied over time. As the
period of time between payment and performance is less than one
year, the Group does not adjust revenue for the effects of financing.
Revenue from sales of instruments and spare parts is recognised at the
point at which the customer obtains control of the asset. This is usually
on despatch of the instrument but in some cases (depending on the
contract with the customer) it is when the customer receives the goods.
Revenue from services is a separate performance obligation and is
recognised when the service is performed.
Interest income is recognised using the effective interest method
which calculates the amortised cost of a financial asset and allocates
the interest income over the relevant period. Dividend income, if any,
is recognised when the shareholder’s right to receive payment
is established.
Leased assets
Leases are classified as finance leases when
they transfer substantially all the risks and
rewards of ownership; otherwise leases are
classified as operating leases.
Assets held under finance leases and hire
purchase contracts are capitalised in the
balance sheet and depreciated over their
expected useful economic lives. Depreciation
is over the shorter of the lease term and the
useful life of the asset. The interest element
of leasing payments represents a constant
proportion of the capital balance outstanding
and is charged to profit or loss over the period
of the lease.
All other leases are regarded as operating
leases and the payments made under them
are recognised in profit or loss on a straight-
line basis over the term of the lease.
Contingent consideration
Contingent consideration on acquisitions is
measured at fair value. Future payments are
dependent on revenue targets.
Taxation
Income tax expense comprises current and
deferred tax.
The tax currently payable is based on the
taxable profit for the year. Current tax is
recognised in profit or loss, except that
current tax relating to items recognised in
other comprehensive income is recognised
in other comprehensive income and current
tax relating to items recognised directly in
equity is recognised in equity. Taxable profit
differs from profit as reported in the income
statement because it excludes items of
income or expense that are taxable or
deductible in other years and it further
excludes items that are never taxable
or deductible.
Employee benefit trust
The employee benefit trust (EBT) is a
separately administered discretionary trust
for the benefit of employees, the assets of
which comprise shares in the Company.
The material assets, liabilities, income and
costs of the EBT are consolidated within
these financial statements. Until such time
as the Company’s own shares held by the
trust vest unconditionally in employees,
the consideration paid for the shares is
deducted in arriving at shareholders’ funds.
Share-based payments
Scientific Digital Imaging plc regularly issues
share options to employees. The fair value
of the award granted is recognised as an
employee expense within the Income
Statement with a corresponding increase in
equity. The fair value is measured at the grant
date and allocated over the vesting period
based on the best available estimate of the
number of share options expected to vest.
Estimates are subsequently revised if there
is any indication that the number of share
options expected to vest differs from
previous estimates.
When shares are issued for the purchase of
intangibles, the fair value is measured at the
issue date.
The fair value of the grants is measured using
the Black-Scholes model or a Monte Carlo
simulation as appropriate, taking into account
the terms and conditions upon which the
grants were made.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit,
and are accounted for using the balance sheet liability method.
However, deferred tax is not provided on the initial recognition of
goodwill, or on the initial recognition of an asset or liability unless
the related transaction is a business combination or affects tax or
accounting profit. Deferred tax on temporary differences associated
with investments in subsidiaries is not provided if reversal of these
temporary differences can be controlled by the Group or it is
probable that reversal will not occur in the foreseeable future.
Deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that
it is probable that taxable profits will be available against which the
temporary difference can be utilised.
The carrying value of deferred tax asset is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow part or all of
the assets to be recovered.
Deferred tax is calculated using tax rates that are enacted or
substantively enacted at the balance sheet date. Deferred tax is
charged or credited to the income statement, except when it relates
to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax relating to items
recognised in other comprehensive income is recognised in other
comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
Segment reporting
The Group identifies reportable operating segments based on internal
management reporting that is regularly reviewed by the chief
operating decision maker. The chief operating decision maker is the
Board of Directors.
Provisions
Provisions are recognised when present obligations as a result of a
past event will probably lead to an outflow of economic resources
from the Group and the amounts can be estimated reliably.
A provision for warranties is recognised when the underlying products
are sold. The provision is based on historical warranty data and a
weighting of possible outcomes against their associated probabilities.
50
50
51
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
reduction in rental charge offset by
depreciation on the right-of-use asset would
have been a decrease of £28k, increasing
operating profit by £28k. After taking into
account the additional interest charge on the
lease liability, the cumulative impact on the
Consolidated Income Statement for the year
ended 30 April 2019 would have been a
reduction of £41k. Therefore in the year of
adoption shareholders will see operating profit
increase, but profit after tax will decrease, and
earnings per share will also be impacted.
Assuming no further changes to the Group’s
leases, the increase in operating profit will
endure, however in future years the interest
charge will reduce as the discount unwinds.
It is likely that the Group will renew or replace
leases as they expire.
Management expects to implement the new
standard with effect from 1 May 2019.
Change to segment reporting
Until 30 April 2018, management considered
that the Group constituted a single
operating segment.
During the year ended 30 April 2019, the
Group has started to analyse its operating
performance for management reporting
purposes into two distinct segments, under
the names Digital Imaging and Sensors
& Control, and has concluded that it is
appropriate to report these as operating
segments under IFRS8. These are shown
in Note 6.
4 Changes in Accounting Policies
Standards adopted for the first time
IFRS 9 ‘Financial Instruments’ (2014) (effective date 1 January 2018) –
the new standard introduces extensive changes to IAS 39’s guidance
on the classification and measurement of financial assets and
introduces a new “expected credit loss” model for the impairment of
financial assets. IFRS 9 also provides new guidance on the application
of hedge accounting. The Group has adopted the new standard from
1 May 2018; It has not, as permitted by IFRS 9, restated prior period and
has not made a prior year adjustment in respect of the carry value of
financial assets at 1 May 2018 since the impact of the implementation
of IFRS 9 was not significant.
IFRS 15 ‘Revenues from Contracts with Customers’ (effective date
1 January 2018) – this new standard presents new requirements for the
recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction
Contracts’ and several revenue-related Interpretations. The new
standard establishes a control-based revenue recognition model and
provides additional guidance in many areas not covered in detail under
previous IFRSs, including how to account for arrangements with
multiple performance obligations, variable pricing, customer refund
rights, supplier repurchase options and other common complexities.
The Group has adopted the new standard from 1 May 2018; the
application of this new standard has not caused a material change
to the Group’s results.
Standards, amendments and interpretations to existing standards
that are not yet effective
The following new Standards and Interpretations, which are yet to
become mandatory, have not been applied in the consolidated
financial statements.
IFRS 16 ‘Leases’ (effective date 1 January 2019) – this new standard
will require the capitalisation of operating leases, such as the Group’s
building leases, as right of use assets with an offsetting financial liability.
The current rental charge will be replaced with a combination of
depreciation from the asset and an interest charge from the liability.
This is expected to cause a material change to the Consolidated
Balance Sheet and a material change to the presentation of amounts
within the Consolidated Income Statement. The Group has reviewed
the transition options in relation to adopting IFRS 16, and intends to
adopt the modified retrospective approach, and will recognise an initial
right of use asset amount equal to the lease liability. The Group has
performed a detailed review of its leases and concluded that, at 30 April
2019, the right of use asset and offsetting lease liability that would have
been recognised in the Consolidated Balance Sheet is £2,172k. In the
Consolidated Income Statement for the year ended 30 April 2019,
under the new standard the net impact on operating costs of the
5 Alternative Performance Measures
The Group uses Adjusted Operating Profit, Adjusted Profit Before Tax and Net Operating Assets as supplemental
measures of the Group’s profitability and investment in business-related assets, in addition to measures defined under
IFRS. The Group considers these useful due to the exclusion of specific items that are considered to hinder comparison
of underlying profitability and investments of the Group’s segments and businesses, and is aware that shareholders
use these measures to evaluate performance over time.
The following table is included to define the term Adjusted Operating Profit:
Operating Profit (as reported)
Adjusting items (all costs):
Reorganisation costs
Share-based payments
Acquisition and fundraising costs
Amortisation of acquired intangible assets
Total adjusting items
Adjusted Operating Profit
Adjusted Profit Before Tax is defined as follows:
Profit before tax (as reported)
Adjusting items (all costs):
Reorganisation costs
Share-based payments
Acquisition and fundraising costs
Amortisation of acquired intangible assets
Total adjusting items
Adjusted Profit Before Tax
The following table is included to define the term Net Operating Assets.
Net assets
Deferred tax asset
Cash and cash equivalents
Borrowings (current and non-current)
Deferred tax liability
Current tax payable
Total adjusting items within Net assets
Net Operating Assets
2019
£’000
2,198
124
136
288
356
904
3,102
2019
£’000
2,121
124
136
288
356
904
3,025
2019
£’000
17,086
180
2,494
(4,100)
(1,449)
(626)
(3,501)
20,586
2018
£’000
1,776
63
65
165
277
570
2,346
2018
£’000
1,713
63
65
165
277
570
2,283
2018
£’000
12,560
37
2,007
(1,420)
(969)
(244)
(589)
13,149
52
52
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
6 Segment Analysis
The Digital Imaging segment incorporates the Synoptics brands Syngene, Synbiosis and Synoptics Health, the Atik brands
Atik Cameras, Opus and Quantum Scientific Imaging, and the Fistreem, Ionscope and Graticules Optics businesses
acquired during the year. These businesses share significant characteristics including customer application, technology,
and production location. Revenues derive from the sale of instruments, components for OEM customers’ instruments,
and from accessories and service.
The Sensors & Control segment combines our Sentek, Astles Control Systems and Applied Thermal Control entities,
and the Thermal Exchange and MPB Industries businesses acquired during the year. All of these businesses enable
accurate control of scientific and industrial equipment. Their revenues also derive from the sale of instruments, major
components for OEM customers’ instruments, and from accessories and service.
The Board of Directors reviews operational results of these segments on a monthly basis, and decides on resource
allocations to the segments and is considered the Group’s chief operational decision maker. Financial information
for these segments is available for the year ending 30 April 2018, and is therefore presented below in addition to the
information for the current period.
Revenues
Digital Imaging
Sensors & Control
Group
Adjusted Operating Profit
Digital Imaging
Sensors & Control
Other
Group
Amortisation of acquired intangible assets
Digital Imaging
Sensors & Control
Other
Group
Adjusted Operating Profit has been defined in Note 5.
2019
Total
£’000
9,434
7,993
17,427
1,954
2,165
(1,017)
3,102
50
306
–
356
2018
Total
£’000
7,647
6,849
14,496
1,041
2,007
(702)
2,346
7
270
–
277
Analysis of amortisation of acquired intangible assets has been included separately as the Group considers it to be an
important component of profit which is directly attributable to the reported segments.
The Other category includes costs which cannot be allocated to the other segments, and consists principally of Group
HQ costs.
53
2018
Total
£’000
3,976
1,966
20
5,962
1,360
8,148
–
9,508
(1,148)
(845)
(328)
(2,321)
4,188
9,269
(308)
13,149
2019
Total
£’000
4,828
3,020
27
7,875
5,552
10,451
–
16,003
(1,281)
(1,361)
(649)
(3,291)
9,099
12,110
(623)
20,586
Operating assets excluding acquired intangible assets
Digital Imaging
Sensors & Control
Other
Group
Acquired intangible assets
Digital Imaging
Sensors & Control
Other
Group
Liabilities
Digital Imaging
Sensors & Control
Other
Group
Net operating assets
Digital Imaging
Sensors & Control
Other
Group
Net Operating Assets has been defined in Note 5.
The geographical analysis of revenue by destination, analysis of revenue by product or service, and non-current assets by
location are set out below:
Revenue by destination of external customer
United Kingdom (country of domicile)
Europe
Americas
Asia
Rest of World
Revenue by product or service
Instruments and spare parts
Service
Non-current assets by location
United Kingdom
Portugal
America
2019
£’000
6,624
3,216
2,805
4,539
243
17,427
2019
£’000
16,867
560
17,427
2019
£’000
17,943
106
92
18,141
2018
£’000
4,857
3,051
2,736
3,319
533
14,496
2018
£’000
13,964
532
14,496
2018
£’000
10,988
96
111
11,195
54
54
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
7 Profit Before Taxation
Profit for the year has been arrived at after charging/(crediting):
Amortisation and write-down of intangible assets
Depreciation of property plant and equipment
Auditor’s remuneration Group:
– Audit of Group accounts
Fees paid to the auditor and its associates in respect of other services:
– Audit of Company and of subsidiaries
– Tax advisory services
– Tax compliance services
– Audit related assurance services
Currency exchange loss (gains)
Rental of land and buildings
Reorganisation costs
Acquisition and fundraising costs
8 Directors’ and Employees’ Remuneration
Staff costs during the year were as follows:
Wages and salaries (including reorganisation costs and other termination benefits
£124k (2018: £63k))
Social security costs
Share-based payments
Other pension costs
2019
£’000
971
234
34
82
–
14
10
16
176
124
288
2019
£’000
4,905
441
136
281
5,763
2018
£’000
836
240
26
47
5
17
12
33
156
63
165
2018
£’000
4,106
409
65
123
4,703
The share-based payment charge and reorganisation costs are included in the income statement separately.
Key management for the Group is considered to be the Directors of the Group. Remuneration of Directors is set out
in the Directors’ remuneration report on page 28.
Pensions
The Group operates defined contributions pension schemes for the benefit of the employees. The assets of the schemes
are administered by trustees in funds independent from those of the Group. Total contributions for the Group were
£281k (2018: £123k).
55
2019
£’000
12
2018
£’000
7
2019
Number
2018
Number
24
95
13
16
148
15
80
11
15
121
Current pension obligations included in liabilities
The average number of employees of the Group during the year was:
Administration
Production
Product development
Sales and marketing
Share-based employee remuneration
The company has various active option schemes, all of which share similar features, but may be treated differently
regarding taxation of the option holder. All schemes have been approved by shareholders in general meetings.
The approved scheme has been approved by HM Revenue & Customs. The options can be exercised three years
after the share options are granted. Upon vesting, each option allows the holder to purchase one ordinary share.
The options lapse if share options remain unexercised after a period of 10 years after the date of grant or if the employee
leaves. During the year, 1,750,000 of such options were granted under these schemes, at exercise prices ranging from
£0.345 to £0.545. The weighted average remaining contractual life of all outstanding options under these schemes
is 8.48 years.
In addition, in December 2018, a Long-Term Incentive Plan (LTIP) was approved by the Board of Directors and 1,389,129
options were granted under this plan to certain Directors. Under the terms of the grant, a proportion of the options will
vest after three years, depending on a) the ranking of Total Shareholder Return (TSR) to Group shareholders compared
with a basket of twenty comparator companies, and b) the earnings per share growth for the Group over the three year
period. The exercise price for these options is 1p each, being the nominal value of SDI shares.
A summary of options outstanding currently is as follows:
Scheme
EMI, Approved
and Unapproved
LTIP
Total
Options
outstanding
at 1 May
2018
Granted
Lapsed
Exercised
Options
outstanding
at 30 April
2019
of which
exercisable
Weighted
average
exercise price
4,229,000
–
4,229,000
1,750,000
1,389,129
3,139,129
340,000
–
340,000
459,000
–
459,000
5,180,000
1,389,129
6,569,129
280,000
–
280,000
£0.299
£0.010
£0.238
In accordance with IFRS 2, share-based compensation expense is calculated on the issue of share options. For options
under the LTIP scheme vesting based on TSR, a Monte Carlo simulation performed by a third party was used to value the
compensation expense. For the other options issued during the year, the compensation expense was valued using the
Black Scholes model, with the following inputs:
● interest rate 0.75%–0.79%
● volatility 39%–46%
● expected life of option 3 years.
The charge for the year ended 30 April 2019 was £136k (2018: £65k).
56
56
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
9 Finance Costs
Bank loans
Finance leases and hire purchase contracts
10 Taxation
Corporation tax:
Prior year corporation tax adjustment
Current tax
Deferred tax (income)/expense
Income tax charge
Reconciliation of effective tax rate
Profit on ordinary activities before tax
2019
£’000
74
3
77
2018
£’000
59
4
63
2019
£’000
2018
£’000
37
469
506
(297)
209
2019
£’000
2,121
(51)
233
182
(84)
98
2018
£’000
1,713
Profit on ordinary activities multiplied by standard rate of Corporation tax in the UK
of 19% (2018: 19%)
403
325
Effects of:
Expenses not deductible for tax purposes
Capital allowances less than / (in excess of) depreciation and amortisation
Additional deduction for R&D expenditure
Share scheme deduction
Prior year tax adjustments
Update deferred tax liabilities and assets to enacted future tax rate of 17%
Establish deferred tax asset relating to share option exercises
Transferred to/(from) tax losses
156
7
(136)
(22)
37
(82)
(154)
–
209
651
(91)
(136)
–
(51)
–
–
(14)
98
11 Intangible Assets
The amounts recognised in the balance sheet relate to the following:
Cost
At 1 May 2018
Additions
Fair value adjustment
Disposals/Eliminations
At 30 April 2019
Amortisation
At 1 May 2018
Fair value adjustment
Amortisation for the year
Disposals/Eliminations
At 30 April 2019
Net book amount at 30 April 2019
Cost
At 1 May 2017
Additions
Fair value adjustments
Disposals/Eliminations
Amortisation
At 1 May 2017
Fair value adjustment
Amortisation for the year
Disposals/Eliminations
At 30 April 2018
Net book amount at 30 April 2018
Customer
relationships
£’000
Other
intangibles
£’000
Goodwill
£’000
Development
costs
£’000
4,241
3,658
–
–
7,899
389
–
330
–
719
7,180
650
223
–
(63)
810
380
–
50
(63)
367
443
5,419
2,972
–
–
8,391
–
–
–
–
–
8,391
2,458
585
–
(365)
2,678
1,272
–
591
(365)
1,498
1,180
Customer
relationships
£’000
Other
intangibles
£’000
Goodwill
£’000
Development
costs
£’000
3,680
561
–
–
4,241
129
–
260
–
389
3,852
580
114
–
(44)
650
376
–
48
(44)
380
270
4,907
512
–
–
5,419
–
–
–
–
–
5,419
2,505
606
–
(653)
2,458
1,397
–
528
(653)
1,272
1,186
57
Total
£’000
12,768
7,438
–
(428)
19,778
2,041
–
971
(428)
2,584
17,194
Total
£’000
11,672
1,793
–
(697)
12,768
1,902
–
836
(697)
2,041
10,727
The Group takes advantage of the enhanced tax deductions for Research and Development expenditure in the UK and
expects to continue to be able to do so.
Capitalised development costs include amounts totalling £674k (2018: 234k) relating to incomplete projects for which
amortisation has not yet begun.
58
58
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
Goodwill relates to various acquisitions, and impairment has been tested for the following cash-generating units:
12 Property, Plant and Equipment
● Atik, consisting of the acquisitions of Artemis CCD Ltd, Perseu Comercio De Equipamento Para Informatica E
Astronomica SA, Opus Instruments, and the assets of QSI.
● Sentek
● Astles Control Systems
● Applied Thermal Control
● Fistreem International
● Thermal Exchange
● Graticules Optics
● MPB Industries
It is expected that we will, in the future, consider Applied Thermal Control and Thermal Exchange as a single cash
generating unit as their merger proceeds, and that, similarly, Fistreem International will be combined into a single
cash generating unit with Synoptics.
The individual impairment assessments for the cash generating units were based on value-in-use calculations covering a
five year forecast followed by an extrapolation of expected cash flows to perpetuity using a long-term growth rate of 2%.
A risk-adjusted, pre-tax discount rate of 12% was used which was judged to be appropriate for each of the entities given
that they operate in similar markets and the risk profiles of each CGU are similar. Management’s key assumption for all
cash generating units and resulting cash flows is to maintain market share in their markets. Management has considered
the sensitivity of the key assumptions and concluded that it is unlikely that other reasonable assumptions would result in
impairments, given the available headroom.
The average remaining amortisation period of intangible assets excluding Goodwill is 9.4 years (2018: 6.3 years).
Motor
vehicles
£’000
Computer
equipment
£’000
Tools and
other
equipment
£’000
Furniture
fixtures
& fittings
£’000
Building and
leasehold
improvements
£’000
56
–
64
–
(56)
64
51
5
–
(52)
4
60
124
108
7
–
(8)
231
65
34
–
(8)
91
140
946
143
93
3
(235)
950
661
163
1
(191)
634
316
123
30
30
–
(1)
182
100
15
–
(1)
114
68
141
138
–
–
(6)
273
82
14
–
(6)
90
183
Motor
vehicles
£’000
Computer
equipment
£’000
Tools and
other
equipment
£’000
Furniture
fixtures
& fittings
£’000
Building and
leasehold
improvements
£’000
56
–
–
–
–
56
47
4
–
–
51
5
290
1
–
–
(167)
124
203
29
–
(167)
65
59
928
167
18
(18)
(149)
946
630
190
(12)
(147)
661
285
139
16
–
–
(32)
123
118
13
–
(31)
100
23
141
–
–
–
–
141
78
4
–
–
82
59
Cost
At 1 May 2018
Additions
Additions on acquisition
FX movement
Disposals
At 30 April 2019
Depreciation
At 1 May 2018
Charge for year
FX movement
Disposals
At 30 April 2019
Net book value
At 30 April 2019
Cost
At 1 May 2017
Additions
Additions on acquisition
FX movement
Disposals
At 30 April 2018
Depreciation
At 1 May 2017
Charge for year
FX movement
Disposals
At 30 April 2018
Net book value
At 30 April 2018
59
Total
£’000
1,390
419
194
3
(306)
1,700
959
231
1
(258)
933
767
Total
£’000
1,554
184
18
(18)
(348)
1,390
1,076
240
(12)
(345)
959
431
The net book value of property, plant and equipment includes an amount of £73k held under finance leases and hire
purchase contracts, of which £50k for tools and other equipment and £23k for computer equipment (2018: £47k for
computer equipment). Depreciation on these assets is £27k, of which £3k for tools and other equipment and £24k
for computer equipment (2018: £24k, all relating to computer equipment).
60
60
Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
13 Deferred Tax
15 Trade and Other Receivables
Deferred
tax asset
£’000
2019
Deferred
tax liability
£’000
Deferred
tax asset
£’000
2018
Deferred
tax liability
£’000
Opening
Capitalised R & D
Introduce deferred tax on share options
Trading losses recognised
Other temporary differences
Purchased intangible assets
Intangibles recognised on business combinations
Adjustment to enacted tax rate of 17%
At 30 April 2019
Deferred tax on capitalised R & D
Other temporary differences
Deferred tax on acquisition intangibles
Deferred tax on share option exercises
Trading losses recognised
37
–
154
(8)
–
–
–
(3)
180
Asset
£’000
–
–
–
154
26
180
(969)
(20)
–
–
59
61
(661)
82
(1,448)
2019
Liability
£’000
(204)
40
(1,284)
–
–
(1,448)
48
–
–
(11)
–
–
–
–
37
Asset
£’000
–
–
–
–
37
37
(950)
(115)
–
5
59
125
(93)
–
(969)
2018
Liability
£’000
(204)
4
(769)
–
–
(969)
Deferred tax assets are recognised for tax losses available for carrying forward to the extent that the realisation of
the related tax benefit through future taxable profits is probable. The Group did not recognise deferred tax assets
of £308k (2018: £308k) in respect of losses. Total losses (provided and unprovided) totalled £1.8m (2018: £1.8m).
14 Inventories
Raw materials and consumables
Work in progress
Finished goods
2019
£’000
1,943
229
404
2,576
2018
£’000
1,600
76
414
2,090
There is no material difference between the replacement cost of inventory and the amounts stated above.
In the year ended 30 April 2019 a total of £5,902k (2018: £4,954k) of inventories were consumed and charged to the
Income Statement as an expense.
61
2019
£’000
2,963
157
220
3,340
2018
£’000
1,946
80
195
2,221
Trade receivables
Other receivables
Prepayments
All amounts are short-term. All of the receivables have been reviewed for potential credit losses, and expected credit loss
has been estimated.
No significant difference in valuation has resulted from the implementation of IFRS 9 compared with the previously-
applied IAS 39 standard.
A reconciliation of the movement in the expected credit loss provision for trade receivables is as follows:
Expected credit loss provision as at 1 May 2018
Increase/(decrease) in provision
Provision as at 30 April 2019
2019
£’000
9
123
132
2018
£’000
53
(44)
9
In addition, some of the unimpaired trade receivables are past due at the reporting date. There are no indications that
financial assets past due but not impaired are irrecoverable.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
16 Cash and Cash Equivalents
Cash at bank and in hand
17 Trade and Other Payables
Trade payables
Social security and other taxes
Other payables
Accruals and deferred income
Deferred consideration
2019
£’000
2,494
2019
£’000
1,632
300
151
1,197
–
3,280
2018
£’000
2,007
2018
£’000
1,011
216
141
789
152
2,309
Accruals and deferred income includes an amount of £192k (2018: £139k) in respect of contract liabilities for service
revenues recognised over time but invoiced in advance, relating to performance obligations expected to be satisfied
within the next 12 months.
All amounts are short-term. The carrying values are considered to be a reasonable approximation of fair value.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
18 Lease Liabilities
The Group’s motor fleet, a number of computers, some production equipment and a leasehold property in Portugal are
held under finance lease arrangements. The net carrying amount of the assets held under leases is £115k (2018: £47k).
20 Borrowings
Borrowings are repayable as follows:
30 April 2019
Gross lease payments
Future interest
Net present values
30 April 2018
Gross lease payments
Future interest
Net present values
Within 1 year
£’000
1 to 5 years
£’000
Over 5 years
£’000
88
(4)
84
19
(3)
16
–
–
–
Within 1 year
£’000
1 to 5 years
£’000
Over 5 years
£’000
39
(4)
35
7
–
7
–
–
–
Total
£’000
107
(7)
100
Total
£’000
46
(4)
42
Obligations under finance leases and hire purchase contracts are secured on the assets to which they relate.
19 Provision for Warranties
As at 1 May 2018
Provided for (released) in year (net)
Warranty provision as at 30 April 2019
2019
£’000
2018
£’000
11
–
11
19
(8)
11
Warranties of between one and three years are given with the sales of products. There are potential costs associated
with the repair of goods under these warranties which could occur at any time over the next three years. The level of
costs is uncertain. The warranty provision is based on the historical cost of warranty repairs over the last three years.
It is expected that the majority of this expenditure will be incurred in the next financial year.
Within one year
Bank finance
Finance leases
After one and within five years
Bank finance
Finance leases
Total borrowings
2019
£’000
2018
£’000
–
84
84
4,000
16
4,016
4,100
–
29
29
1,370
21
1,391
1,420
Bank finance relates to amounts drawn down under the Group’s revolving bank facility with HSBC Bank plc. The facility
was extended from £3,000,000 to £5,000,000 and the termination date was extended from 3 April 2021 to 3 April 2023
in December 2018.
21 Reconciliation of Liabilities Arising from Financing Activities
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
1 May 2018
Cash-flows:
– Repayments
– New liabilities
Non-cash:
– Assumed on acquisition
– Fair value
– Reclassification
– Adoption IFRS 16
30 April 2018
Long-term
borrowing
£’000
Leases
£’000
1,370
(970)
3,600
–
–
–
–
4,000
50
(66)
36
80
–
–
–
100
Total
£’000
1,420
(1,036)
3,636
80
–
–
–
4,100
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
22 Share Capital
24 Own Shares Held by Employee Benefit Trust
Authorised
1,000,000,000 (2018: 1,000,000,000) Ordinary shares of 1p each
Allotted, called up and fully paid 97,203,951
(2018 : 89,633,424) Ordinary shares of 1p each
2019
£’000
2018
£’000
10,000
10,000
972
896
During the year 7,570,527 Ordinary shares of 1p were issued in a share placing associated with the acquisition
of Graticules Optics. Gross proceeds were £2,574k and net proceeds after broker and legal fees were £2,384k.
160,528 ordinary shares (2018: 619,528) are held by the Synoptics Employee Benefit Trust and are reserved for providing
employee benefits such as satisfying the exercise of share options.
23 Earnings Per Share
The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Scientific Digital
Imaging plc divided by the weighted average number of shares in issue during the period. All profit per share calculations
relate to continuing operations of the Group.
Basic earnings per share:
– Year ended 30 April 2019
– Year ended 30 April 2018
Dilutive effect of share options:
– Year ended 30 April 2019
– Year ended 30 April 2018
Diluted earnings per share:
– Year ended 30 April 2019
– Year ended 30 April 2018
Profit
attributable to
shareholders
£’000
Weighted
average
number of
shares
Earnings
per share
amount in
pence
1,912
1,616
91,209,753
89,391,064
2.10
1.81
2,120,747
723,173
1,912 93,330,500
90,114,237
1,616
2.05
1.79
The Group
Investment in own shares
2019
£’000
17
2018
£’000
82
As at 30 April 2019 the trust held 160,528 shares (30 April 2018 the trust held 619,528 shares) in Scientific Digital Imaging plc.
25 Operating Leases Commitments and Contingent Liabilities
Operating lease commitments
Future total minimum rental payments under non-cancellable operating leases are as follows;
Group
In one year or less
Between one and five years
Over five years
Land and
Buildings
£’000
379
1,059
1,216
2,654
2019
Other
£’000
20
32
–
52
Land and
Buildings
£’000
193
618
872
1,683
2018
Other
£’000
17
7
–
24
Lease payments recognised as an expense during the year amount to £288k (2018: £176k).
Contingent liabilities
Performance guarantees totalling £32k are held by the bank. These would become payable by the Group if, once the
customer has placed an order, the Group fails to deliver goods to the customer.
26 Related Party Transactions and Controlling Related Party
The Group’s related parties comprise its Board of Directors and shareholders. Transactions with Directors are disclosed
within the Directors’ Remuneration Report and in note 8.
Unless otherwise stated, none of the transactions incorporated in these financial statements include any special terms
or conditions. There is no ultimate controlling party.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
27 Financial Risk Management Objectives and Policies
Financial instruments
The Group uses various financial instruments, including loans and leasing arrangements, and has certain assets and
liabilities which are denominated in foreign currencies. The main purpose of the financial instruments is to raise finance
for the Group’s operations. The existence of these financial instruments and other financial assets and liabilities exposes
the Group to a number of financial risks, primarily interest rate risk and currency risk.
Interest rate risk
The Group finances its operations through a mixture of retained profits, short and long term bank borrowings, and
shareholders’ equity. The Group has an exposure to interest rate fluctuations on its borrowings which are generally
linked to LIBOR at 1 or 3 months. An increase in LIBOR of 1% would result in an increase in interest costs of approximately
£40k annually, based on the loan outstanding at 30 April 2019.
Currency risk
A significant proportion of the Group’s assets are denoted in Dollars and Euros but only a small amount are within an
entity with a differing functional currency. An adverse movement in exchange rates could lead to a devaluation of these
assets. As at 30 April 2019 an adverse movement in the dollar of 5% would result in a reduction in the Group’s equity
and profit or loss of £28k (2018: £8k). An adverse movement in the Euro of 5% would result in a reduction in the Group’s
equity and profit or loss of £36k (2018: £15k).
The carrying amount of the Group’s Dollar- and Euro-denominated monetary assets with a differing functional currency
at the reporting date is as follows:
US Dollars
Euros
Assets
2019
£’000
562
721
2018
£’000
429
436
In addition an element of the Group’s revenue and overhead transactions is completed in a foreign currency.
The Group does not attempt to hedge its exposure using derivative instruments.
Credit risk
The Group’s exposure to credit risk is limited to the carrying amount of cash deposits and trade and other receivables
recognised at the balance sheet date of £5,834k (2018: £4,512k). Risks associated with cash deposits are limited as the
banks used are reputable with quality external credit ratings.
The principal credit risks lies with trade receivables. In order to manage credit risk credit limits are set for customers
based on a combination of payment history and third party credit references. Details of overdue trade receivables are
provided in Note 15.
Liquidity risk
Liquidity risk is that the Group might be unable to meet its obligations and arises from trade and other payables.
The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoring
forecasts and actual cash flows.
As at 30 April 2019, the Group’s financial liabilities have contractual maturities as summarised below:
Trade and other payables
Borrowings
Deferred or contingent consideration
As at 30 April 2018
Trade and other payables
Borrowings
Deferred or contingent consideration
Current
Between
6 and 12
months
£’000
–
40
–
Current
Between
6 and 12
months
£’000
–
15
–
Within
6 months
£’000
3,280
44
–
Within
6 months
£’000
2,164
14
152
Non-current
Between
1 and 5 years
£’000
Later than
5 years
£’000
–
4,016
–
–
–
–
Non-current
Between
1 and 5 years
£’000
Later than
5 years
£’000
–
1,391
–
–
–
–
The undiscounted liabilities for non-current borrowings would be approximately £440k (2018: £126k) higher than the
discounted liabilities, if maintained to their maturity.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
29 Capital Management Policies and Procedures
The Group’s capital management objectives are:
● to ensure the Group’s ability to continue as a going concern; and
● to provide an adequate return to shareholders; and
● be in a position to make acquisitions (‘buy and build’ strategy)
The Group monitors capital by tracking its Debt-to-EBITDA ratio as required by its bank facility covenant.
The Group will keep its dividend policy under review.
30 Fair Value Measurement
Contingent consideration for acquisitions
Deferred consideration re ATC acquisition – current
Deferred consideration re ATC acquisition – non current
2019
£’000
–
–
–
2018
£’000
152
–
152
The deferred consideration payable with respect to the 2018 acquisition of Applied Thermal Controls of £152k was paid
in June 2018. No deferred consideration is payable with respect to acquisitions completed in 2019.
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
28 Summary of Financial Assets and Liabilities by IFRS 9 Category
The carrying amounts of the Group’s financial assets and liabilities as recognised at the balance sheet date of the years
under review may also be categorised as follows;
Financial
assets at
amortised
cost
2019
£’000
2,494
3,120
–
–
Non
financial
assets
2019
£’000
Financial
liabilities at
amortised
cost
2019
£’000
–
220
–
–
–
–
(84)
(4,016)
–
–
(2,980)
–
5,614
–
220
–
(7,080)
Financial
assets at
amortised
cost
2018
£’000
Non
financial
assets
2018
£’000
Financial
liabilities at
amortised
cost
2018
£’000
2,007
2,002
–
–
–
–
4,009
–
219
–
–
–
–
219
–
–
(29)
(1,391)
(1,941)
–
(3,361)
Financial
liabilities
measured at
fair value
through
profit
and loss
2019
£’000
–
–
–
–
–
–
–
Financial
liabilities
measured at
fair value
through
profit
and loss
2018
£’000
–
–
–
–
(152)
–
(152)
Non
financial
liabilities
2019
£’000
–
–
–
–
Total
balance
sheet
heading
2019
£’000
2,494
3,340
(84)
(4,016)
(300)
(3,280)
–
(300)
–
(1,546)
Non
financial
liabilities
2018
£’000
–
–
–
–
Total
balance
sheet
heading
2018
£’000
2,007
2,221
(29)
(1,391)
(216)
(2,309)
–
(216)
–
499
Balance sheet headings
Cash and cash equivalents
Trade and other receivables
Borrowings – current
Borrowings – non current
Trade and other payables
– current
Trade and other payables
– non current
Total
Balance sheet headings
Cash and cash equivalents
Trade and other receivables
Borrowings – current
Borrowings – non current
Trade and other payables
– current
Trade and other payables
– non current
Total
The fair values of the financial assets and liabilities at 30 April 2019 and 30 April 2018 are not materially different from
their book values.
With the adoption of IFRS 9 in the current period, the only change is in classification with financial assets at amortised
cost previously being classified as loans and receivables under IAS 39.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
(b) On 1 February 2019, the Company acquired the entire share capital of Thermal Exchange Limited, a company
incorporated in England and Wales, for a consideration payable in cash.
The assets and liabilities acquired were as follows:
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
31 Business Combinations
(a) On 24 September 2018, the Company acquired the entire share capital of Fistreem International Limited, a company
incorporated in England and Wales, for a consideration payable in cash.
The assets and liabilities acquired were as follows:
Assets
Non-current assets
Fixed assets
Intangible assets – trade names
Intangible assets – customer relationships
Total non-current assets
Current assets
Stock
Debtors
Cash at bank
Liabilities
Trade and other payables
Corporation tax
Deferred tax liability
Net assets acquired
Goodwill
Consideration and cost of investment
Fair value of consideration transferred
Cash paid in year
Book value
£’000
Fair Value
adjustment
£’000
Fair Value
£’000
1
–
–
1
107
35
12
(36)
(44)
–
75
–
–
33
309
342
(50)
(2)
–
(5)
–
(57)
228
453
1
33
309
343
57
33
12
(41)
(44)
(57)
303
453
756
756
756
Assets
Non-current assets
Fixed assets
Intangible assets – trade names
Intangible assets – customer relationships
Total non-current assets
Current assets
Stock
Debtors
Cash at bank
Liabilities
Trade and other payables
Lease commitments
Corporation tax
Deferred tax liability
Net assets acquired
Goodwill
Consideration and cost of investment
Fair value of consideration transferred
Cash paid in year
Book value
£’000
Fair value
adjustment
£’000
Fair value
£’000
86
–
–
86
252
107
55
(212)
(37)
(82)
–
169
–
(6)
56
338
388
(106)
–
–
–
–
–
(65)
217
611
80
56
338
474
146
107
55
(212)
(37)
(82)
(65)
386
611
997
997
997
Fistreem International Limited contributed £458k revenue and approximately £84k (after management charges) to the
Group’s profit for the period between the date of acquisition and the balance sheet date.
If the acquisition of Fistreem International Limited had been completed on the first day of the financial year, the impact
on group revenues for the period would have been £272k and the impact on group profit would have been approximately
£65k (after management charges).
Thermal Exchange Limited contributed £243k revenue and approximately £3k (after management charges) to the Group’s
profit for the period between the date of acquisition and the balance sheet date.
If the acquisition of Thermal Exchange Limited had been completed on the first day of the financial year, the impact on
group revenues for the period would have been £1,059k and the impact on group profit would have been approximately
£107k (after management charges).
The goodwill of £453k arising from the acquisition relates to the assembled workforce and to expected future profitability
and growth expectations.
The goodwill of £611k arising from the acquisition primarily relates to the assembled workforce and to expected future
profitability and growth expectations.
The customer relationships intangible asset has been valued using a multi-period excess earnings methodology.
The estimated fair value of the customer relationships therefore reflects the present value of the projected stream of
cash flows that are expected to be generated by existing customers going forwards. Key assumptions are the discount
rate and attrition rate. Values of 17.5% and 20% were selected. The fair value of stock has been adjusted downwards from
its previous book value to account for estimated excess and obsolescence. The deferred tax liability has been calculated
on the amortisable intangible assets using the enacted statutory tax rate of 17%.
The last financial year for Fistreem International Limited closed in August 2018. It is expected that the current financial
year will be shortened by four months to coincide with the financial year of the Group.
The last financial year for Thermal Exchange Limited closed in December 2017. The current financial year has been
extended by four months to coincide with the financial year of the Group, to 30 April 2019.
The customer relationships intangible asset has been valued using a multi-period excess earnings methodology.
The estimated fair value of the customer relationships therefore reflects the present value of the projected stream of
cash flows that are expected to be generated by existing customers going forwards. Key assumptions are the discount
rate and attrition rate. Values of 17.5% and 10% were selected. The fair value of stock has been adjusted downwards from
its previous book value to account for estimated excess and obsolescence. The deferred tax liability has been calculated
on the amortisable intangible assets using the enacted statutory tax rate of 17%.
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Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Consolidated Financial Statements continued
For the year ended 30 April 2019
31 Business Combinations continued
(c) On 12 February 2019, a dormant group subsidiary, subsequently renamed Graticules Optics Limited, acquired the trade
and assets of the Graticules division of Pyser Optics Limited for a consideration payable in cash, with funding provided by
the Company in the form of a loan.
The assets and liabilities acquired were as follows:
Book value
£’000
Fair Value
adjustment
£’000
Fair Value
£’000
Assets
Non-current assets
Fixed assets
Intangible assets – trade names
Intangible assets – customer relationships
Total non-current assets
Current assets
Stock
Debtors
Liabilities
Trade and other payables
Lease commitments
Deferred tax liability
Net assets acquired
Goodwill
Consideration and cost of investment
Fair value of consideration transferred
Cash paid in year
91
–
–
91
250
248
(174)
(34)
–
381
–
–
67
2,096
2,163
(20)
(31)
–
–
(371)
1,741
1,278
91
67
2,096
2,254
230
217
(174)
(34)
(371)
2,122
1,278
3,400
3,400
3,400
Graticules Optics Limited contributed £444k revenue and approximately £117k (after management charges) to the
Group’s profit for the period between the date of acquisition and the balance sheet date.
If the acquisition of Graticules Optics had been completed on the first day of the financial year, the impact on group
revenues for the period would have been £1,523k and the impact on group profit would have been approximately £340k
(after management charges).
The goodwill of £1,278k arising from the acquisition primarily relates to the assembled workforce and to expected future
profitability and growth expectations.
The customer relationships intangible asset has been valued using a multi-period excess earnings methodology.
The estimated fair value of the customer relationships therefore reflects the present value of the projected stream of
cash flows that are expected to be generated by existing customers going forwards. Key assumptions are the discount
rate and attrition rate. Values of 17.5% and 10% were selected. The deferred tax liability has been calculated on the
amortisable intangible assets using the enacted statutory tax rate of 17%.
(d) On 4 April 2019, the Company acquired the entire share capital of MPB Industries Limited, a company incorporated
in England and Wales, for a consideration payable in cash.
The assets and liabilities acquired were as follows:
Book value
£’000
Fair Value
adjustment
£’000
Fair Value
£’000
Assets
Non-current assets
Fixed assets
Intangible assets – trade names
Intangible assets – customer relationships
Total non-current assets
Current assets
Stock
Debtors
Cash at bank
Liabilities
Trade and other payables
Lease commitments
Corporation tax
Deferred tax liability
Net assets acquired
Goodwill
Consideration and cost of investment
Fair value of consideration transferred
Cash paid in year
19
–
–
19
119
259
55
(252)
(9)
(44)
–
147
–
–
59
915
974
–
–
–
–
–
–
(165)
809
630
19
59
915
993
119
259
55
(252)
(9)
(44)
(165)
956
630
1,586
1,586
1,586
MPB Industries Limited contributed £145k revenue and approximately £21k (after management charges) to the Group’s
profit for the period between the date of acquisition and the balance sheet date.
If the acquisition of MPB Industries Limited had been completed on the first day of the financial year, the impact on group
revenues for the period would have been £1,767k and the impact on group profit would have been approximately £214k
(after management charges).
The goodwill of £630k arising from the acquisition primarily relates to the assembled workforce and to expected future
profitability and growth expectations.
The customer relationships intangible asset has been valued using a multi-period excess earnings methodology.
The estimated fair value of the customer relationships therefore reflects the present value of the projected stream of
cash flows that are expected to be generated by existing customers going forwards. Key assumptions are the discount
rate and attrition rate. Values of 17.5% and 10% were selected. The deferred tax liability has been calculated on the
amortisable intangible assets using the enacted statutory tax rate of 17%.
The last financial year for MPB Industries Limited closed in December 2018. It is expected that the current financial year
will be extended by four months to coincide with the financial year of the Group.
In addition, on 15 January 2019, the Group subsidiary Synoptics Limited acquired the trade and assets of the Ionscope
division of DeepMatter plc for a consideration of £49k, which was equal to the fair value of tangible net assets acquired.
In the consolidated statement of cash flows for the year ended 30 April 2019, the item “Acquisition of subsidiaries, net of
cash” of £6,668k comprises the consideration and cost of investment for the investments as shown above, less the Cash
at Bank assumed with the acquisitions totalling £122k.
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Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Note
2019
£’000
2018
Restated
£’000
Share capital
£
Merger
reserve
£
Share
premium
reserve
£
Company Statement of Changes in Equity
For the year ended 30 April 2019
75
Total
£
11,088
(701)
10,387
2,385
173
2,558
2,406
15,351
Total
£
6,274
200
25
225
3,888
10,387
Profit
and loss
account
£
3,268
(701)
2,567
–
–
–
2,406
4,973
Profit
and loss
account
£
(1,321)
–
–
–
3,888
2,567
Other
reserves
£
111
–
111
–
173
173
–
284
At 1 May 2018 (as reported)
Restatement
At 1 May 2018 restated
Shares issued
Share-based payments
Transactions with owners
Profit for the year
At 30 April 2019
896
–
896
76
–
76
–
972
424
–
424
–
–
–
–
424
6,389
–
6,389
2,309
–
2,309
–
8,698
At 1 May 2017
Shares issued
Share-based payments
Transactions with owners
Profit for the year (restated)
At 30 April 2018 (restated)
Share capital
£
Merger
reserve
£
Share
premium
reserve
£
Other
reserves
£
889
7
–
7
–
896
424
–
–
–
–
424
6,199
190
–
190
–
6,389
83
3
25
28
–
111
Restatement: 2018 Profit has been reduced by £701,000 to correct a mis-statement in the Company accounts relating
to the payment of a dividend by an acquired company to former owners. This was correctly accounted for in the Group’s
consolidated financial statements.
Company Balance Sheet
For the year ended 30 April 2019
Fixed assets
Investments
Intangible assets
Deferred tax asset
Current assets
Debtors
Cash
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Merger relief reserve
Profit and loss account
Shareholders’ funds
4
5
6
7
8
9/10
11
15,739
–
120
15,859
3,674
437
4,111
(619)
3,492
19,351
(4,000)
15,351
972
8,698
284
424
4,973
15,351
12,036
8
–
12,044
59
173
232
(519)
(287)
11,757
(1,370)
10,387
896
6,389
111
424
2,567
10,387
Restatement: 2018 Investments and Profit and loss account have been reduced by £701,000 to correct a mis-statement
in the Company accounts relating to the payment of a dividend by an acquired company to former owners. This was
correctly accounted for in the Group’s consolidated financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 17 July 2019.
Mike Creedon
Chief Executive Officer Chief Financial Officer
Jon Abell
Company registration number: 6385396
The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit
and loss account in these financial statements. The parent company’s profit for the financial year was £2,406,000 (2018
restated: profit £3,888,000).
76
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Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Company Financial Statements
For the year ended 30 April 2019
1 Principal Accounting Policies
Basis of preparation
The separate financial statements were prepared in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework. The
financial statements are prepared under the historical cost convention.
Disclosure exemptions adopted
In preparing these financial statements the Company has taken
advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:
● A statement of cash flows and related notes
● T he requirements of IAS 24 related party disclosures to disclose
related party transactions entered between two or more members
of the group as they are wholly owned within the group.
● Disclosure of key management personnel compensation
● Capital management disclosures
● Presentation of comparative reconciliation of the number of
shares outstanding at the beginning and at the end of the period
● The effect of future accounting standards not adopted
● Certain share-based payment disclosures
● Disclosures in relation to impairment of assets
● Financial instrument disclosures under IFRS 9
Investments
Scientific Digital Imaging Plc qualifies for merger relief under
Companies Act 2006 s612, and has recorded the investment
in Synoptics Limited at the nominal value of the shares issued,
less provision for impairment. The shares issued on acquisition
of Opus Instruments Limited also qualified for merger relief under
Companies Act 2006 s612 and so the premium has been classified
as a merger relief reserve. All other investments are recorded at
cost, less any provision for impairment.
Share options
Scientific Digital Imaging Plc regularly issues share options to
employees, including to employees of subsidiary companies. The fair
value of the employee services received in exchange for the grant of
options is recognised as an expense which is written off to the Profit
and Loss account over the vesting period of the option. The amount
to be expensed is determined by reference to the fair value of the
options at the grant date adjusted for the number expected to vest.
The expense relating to these options is recognised in the relevant
subsidiary company profit and loss account. The carrying value of
the investment in those subsidiaries is increased by an amount equal
to the value of share-based payment charge attributable to the option
holders in the respective subsidiaries.
Financial instruments
Financial liabilities and equity instruments are
classified according to the substance of the
contractual arrangements entered into. An
equity instrument is any contract that results in
a residual interest in the assets of the Company
after deducting all of its financial liabilities.
Equity instruments do not include a
contractual obligation to deliver cash or other
financial asset to another entity.
Any instrument that does have the obligation
to deliver cash or another financial asset to
another entity is classified as a financial liability.
Financial liabilities are presented under
creditors on the balance sheet.
Pension
The pension costs charged against profits
represent the amount of the contributions
payable to the defined contribution scheme
in respect of the accounting period.
2 Employee Remuneration
Remuneration in respect of directors paid by
the Company was as follows:
Emoluments
Pension
2019
£’000
400
12
412
2018
£’000
264
6
270
During the period one director exercised
165,000 share options held over ordinary
shares of Scientific Digital Imaging Plc.
Details of directors’ interest in the shares
and options of the Company are provided
in the Directors’ remuneration report on
page 28. The highest paid director aggregate
entitlements were £204k (2018:£170k) in
addition to Company pension contributions
of £7k (2018:£6k) made to a money purchase
scheme As at 30 April 2019 the highest paid
Director held a total of 1,872,123 share
options (2018: 1,385,000 share options).
Key management for the Company is
considered to be the Directors of the Company.
Employer’s National Insurance in respect
of Directors was £46k in 2019 (2018: £25k).
Share-based employee remuneration
Further details of the Company’s share-based remuneration are set out in Note 8 to the consolidated financial statements.
The share-based payment expense for the Company totalled £105k (2018: £25k).
3 Auditors’ Remuneration
Auditors’ remuneration attributable to the Company is as follows:
Taxation compliance services/taxation advisory services
Fees payable to the company’s auditor for the audit of the financial statements
4 Investments
Investments in Group undertakings
Cost and net book amount as at 1 May 2018 (as reported)
Restatement
Cost and net book amount as at 1 May 2018 restated
Additions
Share-based payment expense recognised as capital contributions in subsidiaries
Capital increase at Perseu Comercio De Equipamento Para Informatica E Astronomica SA
Cost and net book amount as at 30 April 2019
2019
£’000
4
11
2018
£’000
3
11
£’000
12,737
(701)
12,036
3,283
70
350
15,739
Restatement: 2018 Investments have been reduced by £701,000 to correct a mis-statement in the Company accounts
relating to the payment of a dividend by an acquired company to former owners. This was correctly accounted for in the
Group’s consolidated financial statements.
Details of the investments are as follows:
Subsidiary undertakings
Synoptics Limited
Atik Cameras Limited
Perseu Comercio De Equipamento
Para Informatica E Astronomica SA
Opus Instruments Limited
Sentek Limited
Astles Control Systems Limited
Applied Thermal Control Limited
Fistreem International Limited
Thermal Exchange Limited
Graticules Optics Limited
MPB Industries Limited
Country of
incorporation
Holdings
Proportion of
voting rights
Nature of
business
England and Wales Ordinary shares
England and Wales Ordinary shares
100% Design & Manufacture
Design
100%
Portugal
Share quotas
England and Wales Ordinary Shares
England and Wales Ordinary Shares
England and Wales Ordinary Shares
England and Wales Ordinary Shares
England and Wales Ordinary Shares
England and Wales Ordinary Shares
England and Wales Ordinary Shares
England and Wales Ordinary Shares
Manufacture
100%
100%
Dormant
100% Design & Manufacture
100% Design & Manufacture
100% Design & Manufacture
100% Design & Manufacture
100% Design & Manufacture
100% Design & Manufacture
100% Design & Manufacture
The following companies are all held by Synoptics Limited:
Image Techniques of Cambridge Limited England and Wales Ordinary Shares
England and Wales Ordinary Shares
SDI Group Limited
Ordinary
Synoptics Inc
USA
100%
100%
100%
Dormant
Dormant
Distributor
Each of the above investments has been included in the consolidated financial statements
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Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Financial Statements
Notes to the Company Financial Statements continued
For the year ended 30 April 2019
5 Intangible Assets
Cost at 30 April 2019 & 2018
Amortisation as at 1 May 2018
Charge for the year
Amortisation as at 30 April 2019
Net book value as at 30 April 2018
Net book value as at 30 April 2019
6 Deferred Tax Asset
Deferred tax asset
The deferred tax asset relates to tax deductions for share options as they are exercised.
7 Debtors
Inter-group debtors – short term
Inter-group debtor – long term
Prepayments and accrued income
Other debtors
2019
£’000
50
42
8
50
8
0
2018
£’000
–
–
2018
£’000
47
–
7
5
59
2019
£’000
120
120
2019
£’000
225
3,400
40
9
3,674
All debtors, with the exception of the Inter-group debtor – long term shown above, fall due within one year of the balance
sheet date. No provisions are made for long-term inter-group debtors as the credit risk is not thought to be significant.
8 Creditors: Amounts Falling Due Within One Year
Amounts owed to other group companies
Trade creditors
Bank loans
Other creditors
Social security and other taxes
Accruals and deferred income
2019
£’000
2018
£’000
69
149
–
–
14
387
619
192
29
–
152
14
132
519
79
2018
£’000
–
1,370
–
1,370
2018
£’000
1,370
1,370
2019
£’000
–
4,000
–
4,000
2019
£’000
4,000
4,000
9 Creditors: Amounts Falling Due After One Year
Amounts owed to other group companies
Bank loans
Other loans
10 Borrowings
Amounts repayable In more than two years but not more than five years:
Bank loan
Loan
Bank finance relates to amounts drawn down under the Group’s revolving bank facility with HSBC Bank plc. The Group
has a £5,000,000 facility. The termination date of the facility is 3 April 2023.
11 Called Up Share Capital
Authorised
1,000,000,000 Ordinary shares of 1p each
Allotted, called up and fully paid 97,203,951
2019: (2018: 89,633,424) Ordinary shares of 1p each
2019
£’000
2018
£’000
10,000
10,000
972
896
During the year 7,570,527 Ordinary shares of 1p were issued in a share placing associated with the acquisition of
Graticules Optics. Gross proceeds were £2,574k and net proceeds after broker and legal fees were £2,384k.
Ordinary shares 160,528 (2018: 619,528) are held by the Synoptics Employee Benefit Trust and are reserved for providing
employee benefits such as satisfying the exercise of share options.
Share options
A summary of options outstanding currently is provided in Note 8 to the consolidated financial statements.
12 Related Party Transactions
Transactions with Directors are disclosed within the Directors’ Remuneration Report and note 8 to the consolidated
financial statements.
Additionally, Ken Ford is a non-executive director of Primary Bid, an electronic broker. The Company placed £100,000 of
shares with retail investors using Primary Bid’s platform in February 2019 alongside its institutional placing associated with
the Group’s acquisition of Graticules Optics. Fees for the placing were approximately £5,000.
The Company is not required to disclose transactions with its wholly owned subsidiaries.
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Scientific Digital Imaging plc Annual Report 2019
Scientific Digital Imaging plc Annual Report 2019
Five-Year Summary
Revenue
Cost of sales
Gross profit
Gross margin %
2019
Total
£’000
17,427
(5,902)
11,525
2018
Total
£’000
14,496
(4,954)
9,542
2017
Total
£’000
10,748
(3,837)
6,911
2016
Total
£’000
8,473
(3,298)
5,175
2015
Total
£’000
6,955
(2,837)
4,118
66.1%
65.8%
64.3%
61.1%
59.2%
Other operating costs
(8,423)
(7,196)
(5,575)
(4,346)
(3,665)
Adjusted Operating Profit
3,102
2,346
1,336
Reorganisation costs
Share-based payments
Acquisition and fundraising costs
Amortisation of acquired intangible assets
Operating profit
Net financing expenses
Profit before tax
Income tax
Profit for the year
Cash generated from operations
Earnings per share
Basic earnings per share
Diluted earnings per share
(124)
(136)
(288)
(356)
2,198
(77)
2,121
(209)
1,912
3,620
2.10p
2.05p
(63)
(65)
(165)
(277)
1,776
(63)
1,713
(98)
1,616
2,854
1.81p
1.79p
Group Revenue
(£m)
17.4
14.5
10.7
8.5
7.0
Gross Profit
(£m)
11.5
9.5
6.9
5.2
4.1
15
16
17
18
19
15
16
17
18
19
819
(17)
(7)
(178)
(81)
536
(40)
496
75
571
453
(200)
(8)
(126)
(60)
59
(36)
23
21
44
(87)
(2)
(165)
(118)
964
(61)
903
(75)
828
1,406
1,298
439
1.17p
1.14p
1.17p
1.15p
0.15p
0.15p
Operating Profit
(£’000)
2,198
1,776
964
536
59
15
16
17
18
19
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Shareholder Information
For the year ended 30 April 2019
Scientific Digital Imaging plc
Company registration number 6385396
Registered office
Beacon House, Nuffield Road, Cambridge CB4 1TF
Directors
E K Ford Chairman
M Creedon Chief Executive Officer
I Napper Non-Executive Director
D Tilston Non-Executive Director
J Abell Chief Financial Officer (appointed 2 July 2018)
Company Secretary
J Abell
Bankers
HSBC Bank Plc
St John’s Innovation Park, Cowley Road, Cambridge CB4 0DS
Solicitors
Mills & Reeve LLP
Botanic House, 100 Hills Road, Cambridge CB2 1PH
Auditor
Grant Thornton UK LLP
Registered Auditor Chartered Accountants
101 Cambridge Science Park, Milton Road, Cambridge CB4 0FY
Nominated Advisor and Broker
finnCap Limited
60 New Broad Street, London EC2M 1JJ
Registrar
Share Registrars Limited
The Courtyard, 17 West Street, Farnham, Surrey GU9 7LL
Scientific Digital Imaging plc
Beacon House, Nuffield Road, Cambridge CB4 1TF
T +44 (0)1223 727144
F +44 (0)1223 727101
E info@scientificdigitalimaging.com
www.scientificdigitalimaging.com