SDI Group plc Annual Report
2021
Strategic Report
SDI Group plc Annual Report 2021
01
Chairman and Chief Executive’s Report
SDl Group plc (SDI) is an AIM-listed company specialising in the
design and manufacture of products for use within a number of
imaging and sensing and control applications including life sciences,
healthcare, astronomy, precision optics, measurement instrumentation
and art conservation markets. Corporate expansion is via organic
growth within its subsidiary companies and through the acquisition
of complementary, niche technology businesses with established
reputations in global markets.
Contents
Strategic Report
01 Highlights
02 Group Overview
04 Our Specialist Company Portfolio
– Digital Imaging
– Sensors & Control
08 Chairman’s Statement
10 Chief Executive Officer’s Report
16 Chief Financial Officer’s Report
18 Strategy & Key Performance Indicators
20 Section 172 (1) Report
22 Environmental, Social & Governance
23 Principal Risks & Uncertainties
Governance Report
25 Our Directors
26 Corporate Governance Statement
31 Report of the Audit Committee
32 Report of the Remuneration Committee
34 Directors’ Remuneration Report
36 Directors’ Report
Financial Statements
41 Report of the Independent Auditor
52 Consolidated Income Statement &
Statement of Comprehensive Income
53 Consolidated Balance Sheet
54 Consolidated Statement of Cash Flows
55 Consolidated Statement of Changes in Equity
56 Notes to the Consolidated Financial Statements
88 Company Balance Sheet
89 Company Statement of Changes in Equity
90 Notes to the Company Financial Statements
96 Six Year Summary
IBC Shareholder Information
Why invest in SDI?
l Buy and build model within life science and technology markets
l Spread of technologies and associated supply chains in diverse global sectors
l Portfolio of products for use in COVID-19 detection and treatment systems
l Thirteen earnings enhancing acquisitions since 2014
l Assembling a portfolio of businesses with niche expertise and sustainable markets
l Independent and agile operating businesses have freedom to innovate and invest for growth
Highlights
Revenue
Adjusted operating profit*
Adjusted profit before tax*
43.2%
67.3% 70.5%
to £35.1m (2020: £24.5m)
including 19% organic growth
to £7.7m (2020: £4.6m)
to £7.4m (2020: £4.3m)
Basic earnings per share
Adjusted diluted EPS*
Cash generated
from operations
4.81p 74.0% 125.0%
(2020: 2.66p)
& diluted earnings per share
4.58p (2020: 2.56p)
to 5.97p (2020: 3.43p)
to £11.7m (2020: £5.2m)
benefitting from one-off
customer downpayments
£0.8m
£2.35m
net cash
(cash less bank finance)
(2020: net debt of £4.0m)
earnout
for Monmouth Scientific
agreed & settled post year end
* before reorganisation costs, share based
payments, acquisition costs and amortisation
of acquired intangible assets.
Two new acquisitions
added to the Group
Monmouth Scientific and
Uniform Engineering
Companies across the Group
adapted quickly to
challenging market conditions
of Covid and Brexit
02
Strategic Report
SDI Group plc Annual Report 2021
03
Group Overview
Digital Imaging
Sensors & Control
monmoUTH
SCiEnTifiC
Uniform
EnginEEring
The strength of our business model:
l Federated structure allows for rapid but nuanced response
l Profitable and cash-generative businesses able to withstand external shocks
l Diverse portfolio of companies not relying on a single sector or region
l Exposure to future-proofed sectors
l Resources to invest for organic and acquired growth as opportunities arise
SDI Group Acquisition Process
Why sell to SDI ?
l The business will retain its
independence, brands
and culture
Main acquisition
criteria
Post acquisition
l Scientific / technical instruments
l Implement strong financial
/ manufacturing sector
controls
l Strong exporters within their
l The business is run autonomously
l Focus on growth
niche sector
l Focus on the medium- to long-
l Strong financial support
and access to specialist
resources within the Group
l Knowledge sharing within
the Group
l Profitable and cash generative
term strategy
l Create an environment for the
businesses to grow and develop
with investment if required
l Strong track record
l Strong local management team
l Available at a fair price – recent
acquisitions have been priced at
4-6 times EBIT
l SDI have a reputation of being
honourable and never changing
the deal terms
04
Strategic Report
SDI Group plc Annual Report 2021
05
Our Specialist Company Portfolio
Digital Imaging
l
ATIK CAMERAS
GRATICulES OPTICS
l Synbiosis
The cameras are designed and
developed in Norwich, UK with
manufacturing based in Lisbon,
Portugal. The company has
developed and sells a range of
cameras under three brands Atik,
Quantum Scientific Imaging and
Opus Instruments
l Atik
Atik Cameras designs and
manufactures highly sensitive
cameras for life science and
industrial applications, as well as
deep-sky astronomy imaging. Its life
science cameras are in demand for
use in real-time PCR DNA amplifiers
for detecting COVID-19.
Graticules Optics is a proven world-
class designer and manufacturer of
precision micropattern products.
The firm, based in Tonbridge, Kent is
unique in offering photolithographic
products on glass, film and in metal
foil, with a bonus of coatings,
cementing, mounting and small
optical assembly.
SynOPTICS
Synoptics based in Cambridge is the
headquarters and manufacturing
site for Syngene, Synbiosis,
Synoptics Health and Fistreem
International products. It also has a
US sale and marketing office based
in Frederick USA.
l Quantum Scientific Imaging
l Syngene
Synbiosis provides automated
and manual systems for
microbiological testing in food,
water, pharmaceutical and clinical
applications. Its ProtoCOl 3
system is used in all the major
pharmaceutical companies for
vaccine and antibiotic development
and its high-end system, AutoCOl
is the world’s first fully automated
colony counter.
l Fistreem International
Fistreem designs and manufactures
water purification products and
vacuum ovens. The firm’s Cyclon
Water Still and Gallenkamp vacuum
ovens are recognised as world
leading brands and are popular in
many life science laboratories.
Syngene develops and manufactures
systems and software for automated
gel-based DNA and protein
fluorescence/chemiluminescence
imaging and includes the popular
global G:BOX and nuGenius
brands. These systems can be used
for detection of COVID-19 cDNA
generated by PCR.
Quantum Scientific Imaging (QSI)
designs and manufactures a range
of high-performance cameras that
have applications in astronomy, life
sciences and flat panel inspection.
l Opus Instruments
Opus Instruments is a world
leader in the field of Infrared
Reflectography cameras for use in
the art conservation. It developed
its OSIRIS camera as a collaboration
with the UK’s National Gallery and
all its cameras including a higher
specification version of OSIRIS,
named Apollo are manufactured by
Atik Cameras.
revenues
across our seven
Digital imaging brands
grew from £11.1m
to £15.8m in fY2021
an increase of
42.3%
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Strategic Report
SDI Group plc Annual Report 2021
07
Sensors & Control
APPlIED ThERMAl COnTROl
& ThERMAl EXChAnGE
Applied Thermal Control (ATC) is
based in Coalville and was acquired
in August 2017. Thermal Exchange
(TE) is based in Leicester and was
acquired in February 2019. We took
the decision to merge the two
businesses in December 2019 in
Barrow Upon Soar, UK. Both design,
manufacture, and supply a range of
chillers, coolers and heat
exchangers used within scientific
and medical instruments.
ASTlES COnTROl SySTEMS
Astles Control Systems (Astles)
is a supplier of chemical dosing
and control systems to different
industries including manufacturers
of beverage cans, engineering and
motor components, white goods,
architectural aluminium, and steel.
The company located in Princes
Risborough, UK supplies equipment
as well as repeat revenue from
service, repairs and consumables.
ChEll InSTRuMEnTS
Chell Instruments (Chell) specialises
in the design, manufacture and
calibration of pressure, vacuum,
and gas flow measurement
instruments. Based in Norfolk, UK
the company supplies products for
sectors including aerospace, vehicle
aerodynamics, gas and steam
turbine testing, and power
generation industries
MOnMOuTh SCIEnTIFIC
SEnTEK
Monmouth Scientific Limited
(Monmouth) is one of the UK’s
leading designers, manufacturers,
and suppliers of Clean Air Solutions.
The company specialises in Filtration
Fume Cupboard and Ducted Fume
Cupboard installations alongside
Laminar Flow and Class I/Class II
Biological Safety Cabinets. Biological
Safety Cabinets are in high demand
for use in COVID-19 testing
laboratories. Located in Bridgwater,
Somerset. Monmouth was acquired
by SDI in December 2020.
MPB InDuSTRIES
MPB Industries (MPB) 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 ventilators,
medical anaesthesia, and scientific
analysis. It has been a major
contributor to the manufacture of
ventilators for the UK at the
outbreak of COVID-19.
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
principally in Braintree, Essex serves
global markets and has long-term
contracts to supply sensors for use in
vaccine and biologics production to
two major life science companies.
unIFORM EnGInEERInG
Uniform Engineering (Uniform) is a
manufacturer of high-quality bespoke
metal enclosures and housings used
in a variety of applications including
pharmaceutical, laboratory and
safety equipment. Uniform, based
in Highbridge, Somerset is a major
supplier of components to Monmouth
Scientific, a fellow-subsidiary of SDI.
Uniform was acquired in January 2021.
revenues
across our eight
Sensors & Control brands
grew from £13.4m
to £19.3m in fY2021
an increase of
44.0%
08
Strategic Report
SDI Group plc Annual Report 2021
09
Chairman’s Statement
Consistent Revenue Growth (£m)
8.5
10.7
25%
17.4
20%
14.5
35%
35.1
43.2%
24.5
41%
FY2016
FY2017
FY2018
FY2019
FY2020
Fy2021
Performance
In the financial year ended
30 April 2021, despite the
global economy being
affected by the COVID-19
pandemic, SDI achieved
another record year of
revenues and profits together
with the completion of two
acquisitions.
Whilst protecting the health and
safety of all our staff remained a
priority, the Group was able to
take proactive, practical measures
to maintain our manufacturing
capabilities. This resulted in
protecting our profitability and
cash flow which arose due to an
increase in orders from some life
science sectors which the Group
serves. SDI finished the year with
profits above market expectations
and strong trading cash flows,
enabling the Group to continue
to take advantage of new market
opportunities and acquire two
companies, one of which offers
sought-after clean air technologies
which has been required in greater
quantities during this pandemic.
The strength of SDI’s business model
has allowed us to complete the
acquisition of Monmouth Scientific
(Monmouth) in December 2020
for £6.1m and Uniform Engineering
(Uniform) for £0.5m in January 2021.
Monmouth offers clean air systems
and during the COVID-19 pandemic
the company’s biological safety
cabinets have been in high demand.
SDI acquired Uniform to secure
Monmouth’s supply chain for metal
cabinet housings and Uniform also
offers a potential supply of cabinets
to other SDI Group divisions. Both
companies have become part of our
Sensors and Control segment of the
SDI Group.
To part fund these new acquisitions,
SDI issued 230,680 new Ordinary
Shares in December 2020. SDI’s
record profits and cash generation
in the period, alongside the Group’s
banking facilities, ensure the Group
has a good level of funding available
for acquiring new companies, as
well as investing in our existing
companies and technologies.
Full-year Revenues of £35.1m
have increased by 43.2% from
2020 and Adjusted Profit before
Tax* at £7.4m is up 70.5% from
the previous year. Reported Profit
before Tax has increased by
73.3% to £5.6m. This performance
has been achieved through an
exceptional 19% organic sales
growth, demonstrating continued
commercial demand for the niche
technologies SDI provides. The
newly acquired Monmouth and
Uniform have delivered an earnings
enhancing contribution in line with
the Board’s expectations for this
financial year.
Strategy
The Group’s successful buy and
build strategy is unchanged as this
is still creating shareholder value.
We will continue to seek targeted
acquisitions, funded by earnings
and cash flows from our existing
businesses where possible. The
Group’s policy is to acquire small/
medium-sized companies with
technologies in the digital imaging
and sensing and control sectors.
However, we are open to acquiring
companies with broader scientific
applications or associated supply
chain businesses like Uniform
Engineering if they provide significant
benefits to the Group. To obtain
immediate, continuing earnings
enhancements, we seek to acquire
businesses with high-quality, niche
technologies that have sustainable
profits and cash flows. The pandemic
and current economic climate in the
UK is providing greater opportunities
for purchasing companies and we
expect to acquire one or two new
businesses for the Group in the
coming financial year. To ensure we
maintain the right level of operating
capital and funding for acquisitions,
without the need to take on additional
debt, the Board has decided not to
pay a dividend this financial year but
will review again in 2022.
The need for SDI products,
particularly in the life science and
medical industries remains robust
and there has been strong demand
for technologies from several
companies in our Group for use
in the fight against the COVID-19
pandemic. The volatility in many
global markets caused by the
pandemic has impacted companies
in our Group both positively and
negatively this financial year, and
we expect this to continue into
2022. However, underlying market
drivers such as automation and in-
line and off-line analysis for use in
continuous processes, as well as the
production of affordable vaccines
and biologics globally means many
of our technologies will continue to
be in demand especially with original
equipment manufacturers (OEMs)
with which SDI companies have long
standing trading relationships.
Our willingness to invest in our
existing businesses to achieve
organic sales and profit growth and
fulfil their potential is a key element
of our strategy, and this has paid off
in 2021 as we were able to rapidly
increase production to respond to
increased demand in some areas,
most notably for Atik’s cameras
produced in its new Lisbon facility.
Corporate Governance
Outlook
It is the Board’s responsibility to
ensure that the Group has a
corporate governance framework
that is effective whilst dynamic, as a
foundation for a sustainable growth
strategy, and identifying, evaluating
and managing risks and opportunities
that will be the foundation for
long-term value creation.
In 2019 the Group adopted 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. Further
detail on Corporate Governance
is available on the Group’s website
https://thesdigroup.net/investors/
governance/
Team
SDI now employs over 300 staff
across its companies, who have
worked tirelessly throughout this
financial year, delivering to and ahead
of budget and quality targets, often
in challenging working conditions.
It is thanks to them that all our
manufacturing facilities have been
able to operate safely to keep our
day-to-day production running,
with many delivering components
for systems that are vital to treat or
detect COVID-19. The outstanding
results achieved during the 2020-
2021 financial year are due to their
hard work and flexible approach to
new working practices and the Board
is grateful for their contribution. The
increase in performance in a difficult
year underlines the strength of SDI’s
operating model and is a testament
to the dedication of our team.
During the last six years, turnover
has grown from £8.4m to £35.1m
and profit before tax from £0.5m
to £5.6m. The policy of delegated
responsibility to subsidiaries has
allowed this growth to work well
with strong central financial control.
We have invested in our subsidiaries
where required and look for strong
organic growth as well as through
acquisitions.
Our strong balance sheet, increased
debt capacity but most importantly
cash generation should allow for
further acquisitions. We continue
to be shown acquisitions; previous
choices and the quality of the
subsidiary management has given
credibility to our model. We are a
buyer of integrity with a strong sense
of purpose and attitude.
The past year has been extraordinary
with possible permanent changes
to the way we work. The resistance,
adaptability, dedication and hard
work of our team has led to further
growth this past year. The outlook,
thanks to our agile business model,
is positive and we are planning for
further organic growth, including
from one-off COVID-19 related
orders, and appropriate acquisitions
during 2021-22. Trading in our
2021-22 financial year remains in line
with market expectations and we
look to the future with confidence.
Ken Ford
Chairman
19 July 2021
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SDI Group plc Annual Report 2021
11
Chief Executive Officer’s Report
“The COVID-19 pandemic has had a significant impact on
the global business community. Our Group is somewhat
protected from that because we operate in a space where we
can provide products and services as solutions to help combat
the problem. This has resulted in SDI Group revenues for the
financial year ended 30 April 2021 progressing from £24.5m
to £35.1m, an increase of 43.2%. During this financial year,
we acquired two new businesses, Monmouth Scientific and
Uniform Engineering.” Mike Creedon Chief Executive Officer
Vital roles
Changing lives
Revenues and Profit
SDI’s digital imaging segment
delivered £15.8m revenue and a
32.7% adjusted operating profit
margin during the 2020-2021
financial year. Revenues have been
enhanced by organic growth from
Atik and Synoptics both of which
had an outstanding year.
Atik Cameras is now the largest
business in the SDI Group and
grew well above management’s
expectations for the year. Demand
for products from Atik underwent a
dip across all global markets during
the first quarter of the financial
year due to the global shutdown of
many academic facilities. However,
there was a significant increase in
orders from an OEM manufacturer
to supply cameras for real-time PCR
DNA amplifiers used in COVID-19
testing. Atik has secured a significant
follow-on camera order with this
OEM which will run for the duration
of the 2021-2022 financial year and
is an endorsement of the company’s
design and production capability in
life science imaging.
The sensors and control segment
grew from £13.4m to £19.3m in
revenue, an increase of 44.0% in this
financial year. Adjusted operating
margin remained steady at 22.6%.
While many of the companies
in the division were adversely
affected by the pandemic during
the first half of 2020, revenues
have been enhanced by organic
growth of MPB Industries and part
year revenues from Monmouth
Scientific and Uniform Engineering
during the period. The COVID-19
pandemic generated a surge in
demand for Monmouth’s biological
safety cabinets in COVID-19 testing
facilities but in this current year we
are seeing the product mix returning
to a pre-pandemic mix. We expect
those companies in the segment
that have been affected negatively
by COVID-19 to experience a period
of growth as the impact of
COVID-19 decreases.
Basic earnings per share increased
by 80.8% from 2.66p to 4.81p; fully
diluted earnings per share before
adjusting items also improved by
78.9% to 4.58p (2020: 2.56p).
Acquisitions
The UK is a centre of excellence
for product innovation and
manufacturing with many world-
leading businesses operating in life
science and technology niches. As
a buy and build group, finding those
businesses with niche capabilities is
key to our success. The SDI Group
has a reputation as a supportive
owner that invests to improve staff
expertise and facilities, as well as
trusts subsidiary management teams
with their day-to-day operations.
This approach has allowed
companies in our group to upgrade
capacity, efficiency and safety in
their manufacturing facilities and
their businesses to thrive.
On 2 December 2020, the Group
acquired 100% of the share capital
of Monmouth Scientific for a total
consideration of £6.1m, including
an earnout cash payment of £2.35m
paid after the year end, funded from
existing cash resources and our
revolving credit facility with HSBC
UK Bank. For the year ended
31 March 2020, Monmouth
generated revenues of £6.2m,
and profit before tax of £0.4m.
Monmouth manufactures biological
safety cabinets, fume cupboards,
laminar flow cabinets and
cleanrooms. Its biological safety
cabinets sales have increased six-
fold in 2020 and 80% of production
is now dedicated to these product
lines as they are in high demand
globally for ensuring operator safety
at COVID-19 testing sites.
Camera-based systems for gel analytics
are great alternatives to scanners. They
dramatically reduce the imaging time,
especially in large gel formats (2D gels).
The ORCA Analyzer from German
company nh DyeAGnOSTICS is a novel
system for stain-free, fully automated
gel imaging and rapid, user-independent
gel-based protein analytics.
Since the system has been launched,
more than 30,000 patient samples have
been successfully analysed, adding
further support to the use of ATIK’s
cameras in thousands of procedures
across the world that help to maintain
the health and wellbeing of
countless indivduals.
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SDI Group plc Annual Report 2021
13
Investing
in experts &
innovators
The Synbiosis AutoCOl is a unique
fully-automated colony counting
system. It allows microbiologists to
load plates and count colonies on up
to 100 plates in 30 minutes and is ideal
for improving throughput and accuracy
in highly regulated laboratories.
This time-saving and innovative
‘walk-away‘ technology is used
for microbial applications such as
environmental monitoring, QC labs,
bioburden testing and water analysis.
Chief Executive Officer’s Report
Continued
On 29 January 2021, SDI acquired
the business and net assets of
Uniform Engineering, a component
supplier to Monmouth Scientific and
other companies with a requirement
for metal fabrication, for a cash
consideration of £0.5m. For the
year ended 31 May 2020 Uniform
generated £1m in revenue and profit
before tax of £0.1m. The company,
a manufacturer of bespoke metal
enclosures and housings is being
managed by Monmouth but is
currently maintaining its separate
premises in Highbridge, Somerset.
Our acquisition of Monmouth
Scientific and Uniform Engineering
this year has added two new
manufacturing sites with clean
air expertise. It has also ensured
Monmouth, as well as other
companies in the Group access to
a key supplier of fabricated metal
enclosures and is vital to the security
of the Monmouth business. Our
new acquisitions have contributed
£3.6m of third-party revenues to SDI
in this financial year, and have been
immediately earnings enhancing.
Operations
The pandemic has meant we
have had to reassess our working
practices to accommodate social
distancing in our manufacturing
areas and provide the IT capabilities
to our workforce to where possible
work from home efficiently. This has
meant that all our manufacturing
sites have remained fully operational
and due to safety measures put
in place we have fortunately had
few cases of COVID-19 amongst
our staff, and none have become
seriously ill.
SDI is continually investing in
improving its facilities and staff
expertise, as well as developing new
technologies and manufacturing
capacity where required. To this end,
we are investing in larger purpose-
built premises for Monmouth
Scientific. The new site which will
provide 25% more space for the
company and will consolidate
operations on one site, is expected
to be ready for use by the first half
of calendar 2022. Our R&D effort,
aimed at increasing the breadth
and competitiveness of our product
range, has continued during the
year, although with some resources
distracted on supply chain issues
and with product launches more
muted than usual. We continue to
see R&D as a source of growth for
our businesses.
While many of our businesses have
seen revenues negatively impacted
by the COVID-19 pandemic, two
(Atik and MPB) secured significant
one-time contracts for equipment
relating respectively to testing and
treatment of COVID-19. Atik has a
follow-on contract with a global
OEM until April 2022 to supply
customised CCD cameras for use in
real-time PCR DNA amplifiers that
can be used for COVID-19 testing.
Atik has the capacity and expertise
to fulfil this large contract safely
because SDI has invested in a larger
production site in Lisbon, Portugal
which is now fully operational
and has recruited extra R&D and
manufacturing staff. There is no
certainty of further orders once this
contract has been fulfilled.
In this financial year, MPB also
completed a major contract
from a medical devices company
Penlon, to supply over 30,000
human anaesthetic variable area
flowmeters for ventilator systems
to help treat patients suffering with
COVID-19. Again, fulfilling this
contract was made possible due to
the additional investment SDI made
in state-of the art tube washing
plant, laser engraving equipment
and IT infrastructure. MPB is
now in a stronger manufacturing
position and has a solid order
book, including for veterinary gas
anaesthesia flowmeters, making
their business secure going into the
new financial year.
Synoptics had a good year for
orders of its Syngene DNA imaging
systems in Asia-Pacific and Europe
and has also sold five Synbiosis
AutoCOL fully automated systems
for colony counting. The AutoCOL
is the highest priced equipment
the company has ever produced,
and Synoptics staff have become
highly proficient at on-line demos
and training which is helping with
orders. To date, systems have been
delivered to a top ten pharma
company and to major contract
research organisations, where they
are being used for environmental
monitoring.
OEM production of Fistreem water
purification systems by Synoptics
for a major US life science supplier
continues to provide a steady flow
of orders. Synoptics forecasts
that its product mix of low-end
consumable type products and
high-end automation will continue
to be in demand and will ensure
Synoptics sales and profitability are
robust in the new financial year.
Graticules Optics has been working
hard with key customers and
suppliers to perfect definition and
production of grids made from
molybdenum, gold, and other rare
metals to satisfy demand from
leading customers in applications
such as semiconductors, life
sciences and material analysis,
and is investing in production
equipment for both process and
capacity improvement.
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SDI Group plc Annual Report 2021
15
Chief Executive Officer’s Report
Continued
Cash and liquidity
SDI has a strong balance sheet with
current year-end cash at more than
£3.8m, and £5.0m of undrawn bank
facility, which ends in April 2023. The
Group therefore has sufficient funds
that can be used, with its steady cash
flow, to acquire new companies with
niche technologies. SDI expects to
announce further expansion of the
Group with the acquisition of one to
two new companies by the end of
the 2021-2022 financial year.
Trading Outlook
Many of the academic and pharma/
biotech laboratories are now
operating at normal capacity
and have budget to spend. The
pandemic is still affecting global
travel and scientific conventions,
but we have been able to resume
UK-based service contracts and
have become highly efficient with
our on-line demos and training and
are now able to sell and install even
our high-cost systems outside the
UK this way.
Due to the increase in the price
of raw materials, labour and
logistical costs, our costs of goods
sold are increasing. However, our
operating expenses are not yet at
pre-pandemic levels. We intend to
continue reviewing all costs and
will where appropriate pass on
cost increases to our customers to
maintain profitability.
We are in a strong position
financially with good operational
cash flows and robust orders
from our companies involved in
supplying products and services
in the fight against COVID-19. To
date the effects of the pandemic on
our trading performance has been
limited because we are a diversified
group of companies. Our Group has
shown its resilience and we expect
to trade profitably this year.
Mike Creedon
Chief Executive Officer
19 July 2021
Unlocking
our global
potential
MPB supply process control
equipment throughout the world.
Dutch company Geveke WTB
collaborated with MPB to a produce
this Floating Production Storage and
Offloading (FPSO) vessel, for use offshore
by the petro-chemical industry.
Image: courtesy of Geveke WTB
16
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SDI Group plc Annual Report 2021
17
Chief Financial Officer’s Report
Revenue Bridge (£m)
4.5
35.1
24.5
6.1
Impact from
acquisitions
Organic growth
19%
Sales 2020
Sales 2021
Revenue and Profits
SDi group revenues for the year were £35.1m, compared with £24.5m in 2020, an increase
of 43.2% over 2020. Sales growth from acquired businesses, including sales of Chell Instruments
in the period to the acquisition anniversary at end November 2020 and post-acquisition sales of
Monmouth Scientific and Uniform Engineering, contributed £6.1m, while organic sales growth
was £4.5m or 19%. Sales arising from two specific one-off COVID-19-related contracts, at Atik
for cameras into PCR instruments and at MPB for flowmeters into ventilators, totalled £6.1m in
the year. The contract at Atik is continuing in 2022.
gross profit increased to £22.9m (2020: £16.6m), with margin reduced to 65.2% (2020: 67.8%)
due to significant product mix changes including lower than average gross margins at
Monmouth Scientific and on the Atik PCR camera sales.
operating profit for the year was £5.9m (2020: £3.5m), and Adjusted operating Profit (AoP)
was £7.7m (2020: £4.6m) before reorganisation costs, share based payments, acquisition costs
and amortisation of acquired intangible assets, an increase of 67.3%. Significant drivers of the
increase were the organic sales increase, plus the added contributions of the acquired businesses.
Under the major disruption
to activities of the COVID-19
pandemic, all of our businesses
responded by reducing costs, while
also taking advantage of the UK
government’s Coronavirus Job
Retention Scheme to maintain
employment and skills in the
early phase. As economic activity
recovered and customers’ buying
resumed, our businesses each
returned to full active employment.
Two businesses, Atik Cameras
and MPB Industries, have repaid
the government furlough subsidy
received for the years 2020 and
2021 in the light of their COVID-19
-related sales. The total subsidy
received across the Group in the
year was £273k. The Group did not
receive business rates relief.
Investment in R&D
Under IFRS we are required to
capitalise certain development
expenditure and in the year ended
30 April 2021 £367k (2019: £536k)
of cost was capitalised. Much of the
work of our growing R&D teams
does not qualify for capitalisation,
and is charged directly to expense.
Amortisation and write-offs for
2021 were £425k (2020: £528k).
The carrying value of the capitalised
development at 30 April 2021
was £1.0m (2020: £1.2m) to be
amortised between 3-5 years.
Reorganisation
The Board carried out a thorough
review of the operations and cost
structure of the Group and this
gave rise to £132k (2020: £110k)
of reorganisation costs in the year
impacting several businesses,
which should bring benefits in the
current year.
Acquisition Costs
There were costs of £179k (2020:
£58k) in relation to stamp duty,
legal fees, and other advisor
remuneration for the acquisitions
completed in the year.
Financing
Financing costs totalled £287k
(2020: 254k), reflecting the
drawdown on loans effected early
in the year as the outcome of the
pandemic was uncertain.
Taxation
Taxation accrued for the year was
£936k (2020: £666k) with the
increase arising mainly through
improved profitability. The net
tax rate was 16.6% (2020: 20.4%).
2020 was impacted adversely by
the reversion to a 19% enacted UK
statutory tax rate (previously 17%) on
deferred tax liabilities which resulted
in additional expense of £158k. The
group continues to benefit from
R&D tax credits.
Earnings per Share
Diluted earnings per share for the
Group was 4.58p (2020: 2.56p).
Adjusted diluted EPS, an alternative
performance measure which
excludes certain non-cash and non-
recurring expenses was 5.97p (2020:
3.43p), an increase of 74.0%.
Cash Flow & Working Capital
During the year the Group
generated cash from operations of
£11.7m (2020: £5.2m). Most notable
was the £3.5m increase in customer
advanced payments received, which
is largely attributable to COVID-19
related contracts in Atik. Taxes paid
increased from £786k to £1.2m.
Our investment in fixed assets
increased to £667k (2020: £506k)
with significant investments in Atik
and Monmouth.
Capitalised Research and
Development expense at £367k
(2020: £536k) was lower than
amortisation of £425k (2020: £528k).
As in prior years, our biggest
investment was in the acquisition
of new businesses, with £6.6m
deployed on a cash-free basis
(including contingent consideration)
for Monmouth Scientific and
Uniform Engineering (2020: £5.2m
for Chell Instruments). At the end of
the year contingent consideration
of £2.35m was outstanding for
Monmouth and this has since been
paid to the sellers.
national Insurance &
Deferred Tax
During the year to 30 April 2021,
the share price of SDI Group plc
increased from 52.5p to 179p. This
will, of course, be welcomed by
shareholders. However, this increase,
outside of the immediate control of
the Group, has had two contrasting
effects on the profitability and future
cash flows of the company, related
to share options issued to directors
and management.
Firstly, we have accrued £578k for
future employer’s National Insurance
charges on option exercises outside
of HMRC approved schemes (2020:
£nil). As the Group is no longer
eligible to issue share options
under the EMI approved scheme,
shareholders should expect such
accruals and cash expense going
forward, although the actual cost
is directly related to share price
movements and to the amount of
options outstanding.
Secondly, the exercise of share
options by directors and employees
generates a tax deduction for the
Group, leading to lower cash taxes
to be paid. To the extent that the
expected tax deduction is higher
than the share-based payment
expense originally recorded for
the same options, part of the tax
expense saved is credited directly
to equity. In 2021, we have
credited £1,438k (2020: £nil) of
deferred tax benefit directly to
equity, based on the closing share
price at 30 April 2021. Subject to
future share price movements,
option vesting and exercises, and
tax rates, this represents future cash
tax savings available to the Group.
Further details are provided in
Deferred Tax, note 13.
Funding
Our investments were financed out
of our own cash flow, except for the
issue of 230,680 shares valued at
£200,000 as part payment for our
Monmouth Scientific acquisition.
Having started the year with our
bank loan facility almost completely
drawn down during the initial phase
of the COVID-19 pandemic, with
gross bank debt of £9.3m and cash
of £5.3m, we closed 2021 with loans
of £3.1m and cash of £3.8m. Our
committed but undrawn loan facility
was £5.0m. Our lender has signalled
that it is willing to increase our
facility further, and our increasing
cash flow and resilience during the
pandemic gives directors confidence
that the Group can support a higher
level of borrowing if needed.
Jon Abell
Chief Financial Officer
19 July 2021
18
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SDI Group plc Annual Report 2021
19
Strategy & Key Performance Indicators
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, and 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 continue to buy stand-
alone businesses as well as smaller
entities and technology acquisitions
which bolt onto our existing ones.
Our track record over the last seven
years has been good, with thirteen
businesses acquired across our
digital imaging and sensors and
controls segments.
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, which we
encourage.
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.
4.6
7.7
69.6%
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.
11.7
5.2
125.0%
16.6
22.9
37.9%
FY2020
Fy2021
FY2020
Fy2021
FY2020
Fy2021
Adjusted Operating Profit
(£m)
Cash Generated from
Operations (£m)
Gross Profit
(£m)
Revenue by Destination of External Customer (£’000)
SDI Group 6-year Share Price Performance
2020
1,338
910
3,582
3,290
2021
1,289
3,088
10,249
6,854
15,343
5,129
3,365
5,137
Revenue Total
24,498
Revenue Total
35,076
United Kingdom
Europe
America
China
Asia (excluding China)
Rest of World
)
e
c
n
e
P
(
e
c
i
r
P
200
180
160
140
120
100
80
60
40
20
0
179p
7.5p
30/04/15
30/04/16
30/04/17
30/04/18
30/04/19
30/04/20
30/04/21
20
Strategic Report
SDI Group plc Annual Report 2021
21
Section 172(1) Report
Statement by the directors in
performance of their statutory
duties in accordance with s172(1)
of the Companies Act 2006
When making decisions, the
directors of SDI Group plc must
act in the way they consider, in
good faith, would be most likely
to promote the success of the
Company for the benefit of its
members as a whole (having regard
to the stakeholders and matters set
out in s172(1)(a-f) of the Companies
Act 2006).
The directors are committed to
developing the Group to create
value for shareholders over the
long term, and believe that attention
to the interests of all stakeholders
will provide the best platform for
sustained value creation.
Here we provide some detail
regarding our engagement with
key stakeholders, our understanding
of their interests, and our actions
and decisions taken which may
affect them.
Shareholders and Their
Representatives
SDI Group plc is quoted on the
AIM market, and has shareholders
ranging from investment funds
to retail investors, directors and
employees and former employees.
All shareholders are entitled to share
equally in the Group’s success,
and we aim to provide all with the
information they need to understand
the progress of their investment. We
believe that a mixed shareholder
base provides benefits to all in
maintaining liquidity in the shares.
In addition to public announcements
made, directors meet from time
to time with some of the Group’s
larger shareholders and potential
shareholders to discuss the state of
the Group, usually following annual
or interim results announcements
and with the presence of our
Nominated Advisor. These meetings
are important in providing large
investors with comfort for their
investment decisions, and are
for many a requirement prior to
investing. In the past year, under
COVID-19 restrictions, these
meetings have been held by
videoconference.
We also present occasionally at
events aimed at retail investors,
to provide them with a similar
opportunity to hear directly
from directors. In the past year,
we provided retail investors
with presentations over a
videoconferencing platform,
and held our AGM live on the
same platform given COVID-19
restrictions on physical meetings.
These meetings do not give
attendees any insider information
and presentations made are
excerpts from publicly available
documents such as this Annual
Report. We welcome requests
from all shareholders to speak with
directors, and we will usually be able
to accommodate that.
The Group is acquisitive, and has
occasionally funded acquisitions
via the placing of new shares (for
example, most recently in February
2019). In assessing the mechanism
for offering new shares, the
directors have to balance the desire
of all shareholders to be able to
participate in an offering with the
need to execute a simple and timely
process, in order not to compromise
the acquisition which is dependent
on the funding. We have typically
used an accelerated book-building
process, in which larger shareholders
and non-shareholders are canvassed
by our brokers to subscribe to the
new shares. In the 2019 placing, we
reserved a portion of the new shares
for subscription (on equal terms to
the larger buyers) by retail investors
via an electronic platform.
Directors occasionally consult with
some of our larger shareholders on
matters of executive benefits, to
ensure that these are aligned with
the expectations of the market.
The directors keep the payment of a
dividend under review. We are aware
that different shareholders (and
current non-shareholders)
may have different dividend
appetites, and we cannot please
everyone. Our judgement to date
has been that funds were better
reserved for acquisitions, and this
year we continued to take into
account the potential impacts of the
COVID-19 pandemic.
in production, some staff at all of
our UK business locations were
placed on the UK government
furlough scheme, and this had the
desired effect for the Group, for
employees and for the UK Treasury
of preserving employment during
the crisis, maintaining skills and
incomes. Subsequently, given
unexpected incremental sales from
COVID-19-related products at our
Atik Cameras and MPB Industries
businesses, directors at those
businesses took the decision to
repay the government furlough
subsidies received in both the 2020
and 2021 financial years.
Acquisition Partners
For SDI Group, acquisitions are not
one-time events, but a repeatable
process. We seek to make the
process as easy as possible for
sellers and for their advisors to
realise their goals. Our management
of the businesses post-acquisition
is also a key factor in enhancing our
reputation as a good acquirer. By
treating sellers openly and fairly, and
by executing on our commitments,
we seek to remain the acquirer of
choice for businesses that will fit
well into the Group.
Customers and Suppliers
SDI Group is organised as a
constellation of individual operating
businesses, each with its own
general management, and customer
and supplier bases. Our engagement
with customers and suppliers
generally takes place within those
businesses. Some customers and
suppliers are common to several
of our businesses, although we
may deal with different divisions
of the same group. The directors
encourage our businesses to deal
correctly with their customers and
suppliers, and to look for long-term
relationships that can add value to
all parties. Our businesses report on
key relationships to our executive
directors and in their reports to
the wider Board, and we look
for opportunities to expand our
relationships with good customers
and suppliers across the Group.
In the past year, the Group took
specific care to pay its suppliers to
agreed terms in order to provide
certainty during the pandemic.
We aim to develop new products
and technologies that satisfy future
customer needs, and provide the
highest quality and most reliable
products for the markets we serve.
Employees
Our business is built on the hard
work, knowledge, skills and
experience of staff across the
Group. We expect them to go the
extra mile in looking after our other
stakeholders, and they do so. Our
commitment is to look after them
fairly, both in economic terms and
in providing a stimulating working
environment where they can use and
develop their capabilities to the full.
Executive directors of SDI Group
engage with employees across the
Group during regular visits to all
locations, and the Board’s policy is
to rotate its meetings around the
locations so that all directors can
meet with staff. The Board receives
monthly reports from the Group’s
operating businesses which include
sections on staffing matters, and
reserves specific agenda slots for
staff and health and safety matters at
each regular meeting.
Key staff remuneration, and
remuneration policy for the wider
Group, is decided by directors,
and our aim is to pay people
competitively and provide additional
reward for exceptional performance.
The culture at SDI Group, as
experienced by our staff, is
generally that of a successful
small business, which is the recent
history of each of our operating
businesses. As part of the SDI Group,
however, opportunities for career
development and learning from
other businesses can be enhanced,
and we look for ways to develop our
staff across the Group.
The ongoing COVID-19 pandemic
has disrupted normal life for
our staff, and the directors have
emphasised staff safety and well-
being across the Group, but
have also been pleased by the
commitment of employees to
keep the business operating in
challenging times. The Group has
operated according to relevant
government guidelines, with some
employees working throughout the
crisis from our business locations
with enhanced regimes of safety
and social distancing and, others
working from home. In the early
months of the pandemic, depending
on the availability of work especially
22
Strategic Report
SDI Group plc Annual Report 2021
23
Environmental, Social & Governance
Principal Risks & uncertainties
Sustainability is at the
core of all that we do
SDI Group is here for the long term.
Our directors expect it will long
outlast them, and our owners should
know that most of its value lies
beyond the forecastable horizon.
We believe that our business
model can progress and develop
indefinitely, subject to our nurturing
the stakeholders that help make
us successful. We would like those
stakeholders to remain with us for a
long time on our journey.
Consequently, sustainability is not just
on our agenda, it is our agenda.
The Environment
SDI Group recognises that the
significant environmental challenges
facing the world, including man-
made climate change, deforestation
and habitat loss, and water quality and
availability, must be addressed by all
businesses worldwide. We understand
that our trading activities have an
environmental impact and that we
must make real changes to reduce
any negative impact.
SDI’s current businesses are not big
polluters, and we do not expect
to acquire businesses that have a
significant carbon footprint, in keeping
with our sustainability agenda. At
the same time, we believe that our
businesses can and do contribute
to reducing society’s environmental
impact by providing technological
products that are more accurate,
consume less energy and other
inputs, and enable better science than
those available in the past. We can be
proud of the portfolio, but we must
continue to innovate.
In keeping with our devolved
operating model, our actions to
mitigate, improve and innovate our
environmental impact take place
within our businesses, which respond
to the demands of the markets
they operate in, to their customers,
their employees and their local
communities, all of whom have a
stake in a more sustainable future.
Initiatives implemented in the last year
have included the installation of solar
panels at Atik’s Lisbon factory and
the shift to sustainable packaging at
Monmouth Scientific.
SDI operates a flat structure, and we
do not currently attempt to track
and consolidate environmental KPIs
across the group as this would be
a significant escalation of reporting
requirements for little, if any,
environmental impact. Our HQ role
is one of encouragement and idea-
sharing, and of approving investments
whose sustainability impact may not
be fully quantified financially.
Social Matters
SDI Group seeks to provide, in its
businesses, a challenging, enjoyable,
safe and caring environment for
its employees, so that they can
contribute, develop and remain with
the Group for the long term.
We comply with all relevant
legislation, obviously including:
l health and safety, where the
Board reviews monthly reports
from all of its businesses to
ensure root causes of any issues
are addressed.
all employees equally and fairly
and encourage them to apply
these principles themselves. We
support staff training, appraisals
and personal development and
we seek to maintain a good
working environment. We use
professional advisors to ensure
our personnel practices are up
to date with legal requirements.
l Disabilities. 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.
l Modern slavery and human
trafficking. The Group does not
tolerate any kind of coercive labour
practices and strictly adheres
to standards required under all
relevant employment legislation.
We are mindful that the way we
operate our existing businesses and
treat our employees influences our
attractiveness as an acquirer of new
businesses, and provides a strong
advantage when our competitors
might be seen as only financial.
l Anti-bribery and corruption.
Governance
The Group operates on an ethical
basis in all of its activities and
takes all reasonable steps to
ensure bribery and corruption are
prevented by those working for
the Company or associated with it,
including third parties and agents.
l Equal opportunities. SDI Group
is a committed equal opportunity
employer. We endeavour to treat
Governance matters are discussed
as required in the relevant section
of this report. The Group’s aim is to
always act responsibly, ethically and
in the protection of shareholders’
and other stakeholders’ interests, and
to continue to review and evolve its
governance processes as it grows
in advance of expectations without
simply ticking the box.
The following represent, in the
opinion of the Board, the principal
risks and uncertainties of the
business. It is not a complete list of
all the risks and uncertainties and the
priority, impact and likelihood may
change over time.
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.
Dependence on key distributors
and OEM customers
Failure to effectively manage
our distribution channels could
damage customer confidence and
adversely affect our revenues and
profits. Additionally, in several of our
businesses, significant amounts of our
sales are to a small number of OEM
customers, and any reduction in their
end product sales or in our share of
their purchases would impact 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,
and we aim to provide them with
products and service that match
their needs.
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.
Supply chain failures
While the exit of the UK from the
European Union is now largely
complete, there may be further
logistical disruptions resulting from
the reconfiguration of borders,
possibly combined with other
supply chain disturbances due to
the COVID-19 pandemic, shipping
issues, ransomware and
geopolitical events.
The Group has taken appropriate
steps to minimise disruption,
including some expansion of
stocks, and has cooperated with
customers to ensure continuity of
their supply chain.
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.
In the COVID-19 pandemic, the
Group sought to maintain all
staff on the payroll, using the UK
government furlough scheme
where appropriate.
COVID-19
The COVID-19 pandemic continues
to provide challenges across the
Group’s operations, although
to date the Group continues to
operate successfully and has seen
a substantial resumption of normal
customer ordering activity. There is
a risk that future developments do
not follow the same course as those
seen in earlier phases, and that sales
orders are reduced, production
operations are disrupted, or supplies
of key components are interrupted.
Over the course of the last year,
each of SDI’s businesses has been
profitable and cash-generative, and
has proven that the business model
of SDI Group is resilient to similar
risks. The Group remains alert to
continuing risks.
24
Strategic Report
SDI Group plc Annual Report 2021
25
Principal Risks & uncertainties
Continued
Our Directors
Currency and foreign exchange
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 have never hedged our exposure
using financial derivative products,
but we do have some activity in
both Europe and USA, including
a factory in Portugal, which acts
a partial natural hedge. However,
we have established a procedure
for the approval of simple hedging
transactions if conditions require
them. We keep cash balances in
Euros and Dollars to a minimum,
and may take out loans under our
revolving credit facility in Euros
and Dollars, to reduce our net
exposure to those currencies. If the
Pound revalues, we will review all
opportunities to realign our costs to
the changed circumstances.
liquidity
A review of the Group’s exposure to
liquidity risk is provided in note 25.
3 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.
2
1
3
4
5
1 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 non-executive Chairman of
Gear4music and CMO Group plc both
of which are AIM-listed. He is a Fellow
of the Chartered Securities Institute.
2 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 Limited.
4 Isabel napper
Non Executive Chair of the
Remuneration and Nomination
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. Isabel
is also a non-executive director at
Tristel plc and Keystone Law group plc.
5 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 9
years’ experience as Audit Committee
chairman at two companies. David
is also Treasurer and Trustee at
British Exploring Society, a youth
development charity.
26
Governance Report
SDI Group plc Annual Report 2021
27
Corporate Governance Statement
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 AIM Rule 26 introduced during our 2019 year requires the Group to follow a recognised corporate code of
governance. The Board, after due consideration, 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.
Principle
Commentary
1 A strategy and
business model
which promotes
long-term value for
shareholders
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.
Further Information
The Strategy section of
this Annual Report and
our website
5 Maintaining the
board as a well-
functioning, balanced
team led by the Chair
2 understanding
and meeting
shareholder needs and
expectations
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.
Details of all
shareholder
communications
are provided on
our website
3 Taking account
of wider
stakeholder and social
responsibilities and
their implications for
long-term success
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 the
Group’s 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.
The “Section 172”
report in this Annual
Report provides further
information
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.
Principle
Commentary
4 Embed effective
risk management,
considering both
opportunities and
threats, throughout
the organisation
We have addressed the principal risks we face by the appointment of an
experienced executive team 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.
We have included in our strategy meetings with our operating subsidiaries
a specific agenda item on risk management, to understand individual
business risks and to confirm appropriate mitigating actions.
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 25 in this
Annual Report and on
our website.
Reports of the Board
committees are also
presented on pages
31-33 in this Report.
6 Ensuring the
directors have the
necessary up-to-date
experience skills and
capabilities
7 Evaluate board
performance
based on clear and
relevant objectives,
seeking continuous
improvement
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 25 in this
Annual Report and on
our website.
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.
28
Governance Report
SDI Group plc Annual Report 2021
29
Corporate Governance Statement
Continued
Principle
Commentary
Further Information
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
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
31-33 in this Report.
Further information and
the resolutions put to a
vote at annual general
meetings can be found
on our website.
The Board
The Board comprises the Chairman, two Executive Directors 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 current Non-Executive Director received a grant of 250,000 stock options
following appointment, which the Board considers to be not material and does not compromise independence. 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 CEO. 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 36 and a statement on Going
Concern is given on page 37.
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 SDI Group 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 31.
Remuneration Committee
A report of the Remuneration Committee and the Directors’ remuneration report can be found on pages 32-35.
nomination Committee
This Committee is chaired by Isabel Napper and has David Tilston as its other member and meets at least once per
annum. Where appropriate meetings are also attended by the Chairman, the CEO and the CFO 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 principal focus during the last financial year
was continuing to assist the Chairman with the board evaluation process as set out in Principle 7 of our Governance
Statement above.
30
Governance Report
SDI Group plc Annual Report 2021
31
Corporate Governance Statement
Continued
Report of the Audit Committee
Attendance at Board and Committee Meetings
The members’ attendance at Board and Committee meetings during the year is disclosed in the table below.
K Ford
M Creedon
I Napper
D Tilston
J Abell
Board
11/11
11/11
10/11
11/11
11/11
Audit
–
–
4/4
4/4
–
Remuneration
2/2
–
2/2
2/2
–
nomination
–
–
1/1
1/1
–
Conformance with Best Practice
The Board has reviewed its composition against certain non-statutory “best practice” guidelines and makes the
following observations:
That remuneration of non-executive directors should be with basic fees only (excluding historical, one-off options
grants if the quantum is not considered material)
– The Board considers the one-time share option awards made on appointment to its non-executive directors in
2017 and 2018 to be not material and that they do not impair their independence. The Board therefore considers
its non-executive directors to be independent of management and expects them to exercise their independence
to the fullest extent.
That the remuneration committee should not include non-independent or executive members
– The Board considers Ken Ford’s membership of the Remuneration Committee to be an asset in its determination
of the remuneration of executive directors and other key personnel, and the Committee as a whole is aware of
any potential conflict.
That the Company Secretary should not be an executive director
– The Board members have significant external board of directors’ experience and are aware that they may seek
independent professional advice at the company’s expense to discharge their duties. The Board believes that the
company is currently best served by combining the roles of CFO and Company Secretary, in the interests
of efficiency and cost.
The Board expects to keep such matters under at least annual review.
I am pleased to present the Audit
Committee report for the year
ended 30 April 2021.
l negotiate and approve the external
Auditor’s fee, the scope of their
audit and terms of engagement;
Composition of the
Committee
The Committee consists of myself
(as Chairman) and Isabel Napper.
The Chairman, Executive Directors
and Group Financial Controller 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 Committee has satisfactorily
completed a self-assessment
exercise on its effectiveness using
externally sourced material.
Responsibilities
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 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 Committee monitors the
relationship with its 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 review 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
Committee. Following completion of
audit fieldwork the Auditor presented
their findings to the 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 26-30 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. This
oversight was strengthened during
the 2020 year with the appointment
of a Group Financial Controller.
The Committee is responsible for
reviewing the risk management
and internal control framework and
ensuring that it operates effectively.
During the year the Group was
impacted by the economic and
logistical challenges related to the
COVID-19 pandemic which resulted
in a proportion of its administrative
workforce operating remotely.
The Committee has reviewed the
framework by (a) receiving papers
and discussing oversight practices
with the Group CEO, Group CFO and
Group Financial Controller and (b)
receiving a report from the external
auditors on observations made during
their audits of operating subsidiaries,
and determined that it remains
appropriate for the Group’s current
scale of operations.
David Tilston
Audit Committee Chairman
19 July 2021
32
Governance Report
SDI Group plc Annual Report 2021
33
Report of the Remuneration Committee
The CEO and CFO are engaged
under separate contracts which
require a notice period of six
months given at any time by the
Group or the individual.
During 2020-2021 the Committee
looked at the operation of
the LTIP scheme which had
been adopted by the Board in
December 2018. The Committee
took the view that, given the many
uncertainties around the global
pandemic situation, it would be
difficult to set meaningful targets
for a further award under the LTIP
scheme in the year ending 2021.
No awards were therefore made
in this financial year. However,
the Committee recognises the
need to ensure that the executive
directors are properly incentivised
and will review the situation with
regards to further awards in the
financial year ending 2022.
The details of the those awards
already made under the LTIP
scheme are set out in the
Remuneration Report on
pages 34-35.
On behalf of the Board, I am
pleased to present the report of
the Remuneration Committee for
the year ended 30 April 2021.
The Committee is chaired by
myself and has Ken Ford and David
Tilston as its other members. Other
regular attendees, at the invitation
of the Committee, include the
CEO and the CFO.
We meet as a Committee at least
two times every year and our role
is to determine the Group’s policy
for executive remuneration and the
individual remuneration packages
for executive directors together
with other designated senior
management. The Committee’s
terms of reference are available on
the Group’s website.
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
profitable growth and
sustainable development
through appropriate incentive
schemes (including the award of
shares and share options).
Remuneration of
Executive Directors
Consistent with this policy, the
benefit packages awarded to our
executive directors comprise a mix
of basic salary and performance-
related remuneration aimed at
incentivising executive behaviour
to achieve the Group’s goals.
We are keen to ensure that
the package is simple and
straightforward so that there
is a clear link between Group
performance and executive
remuneration.
The remuneration packages cover
the following elements:
l Base salary: the Remuneration
Committee sets base salaries
to reflect the responsibilities
and the skills, knowledge and
experience of the individual and
the complexity of the role;
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.
This is capped at 50% of the
individual’s salary;
l Long-Term Incentive Plan
shares: the executive directors
are eligible to receive share
options, related to Group
performance under the terms
of a long-term incentive
scheme determined by the
Remuneration Committee;
l Equity: share options awarded
as appropriate; and
l Group contribution into a
personal pension scheme,
life assurance, and private
medical insurance.
Remuneration of
Chairman and
non-Executive Directors
The fees paid to the non-executive
directors are determined by the
Board. The Chairman and non-
executive directors do not receive
any other forms of benefits such
as medical insurance or pension.
Although both non-executive
directors were recipients of non-
tax advantaged share options in
2017 that was part of a one-off
event on joining the Board and is
not intended to be repeated in the
future. The individual amount of
those awards was not significant
and the Board takes the view that
this does not compromise the
independence of the directors.
The Chairman and the non-
executive directors are engaged
under service contracts each of
which provide that notice of three
months can be given at any time
by the Group or the individual.
Executive and
non-Executive Board
Remuneration under
Covid-19
The continuing uncertainty
around the global pandemic has
meant that the Group remains
keen to ensure that its overall
costs continue to be kept in tight
rein. With that in mind, directors
unanimously volunteered not to
accept any increase in salary for
the financial year ending 2021
and to take a temporary pay
reduction from April to June 2020.
However, the Committee wished
to recognised the performance
of the Executive Directors in the
financial year ending 2020 and
therefore considered it appropriate
and in line with the remuneration
policy to award a cash bonus
to both executive directors,
details of which are set out on
in the Directors’ Remuneration
Report on pages 34-35. Given
that Directors have not received
a salary increase in this financial
year, the Committee intends to
conduct a benchmarking exercise
in the financial year ending
2022 to ensure that directors’
remuneration and incentive
packages do not fall out of line
with market rates.
Isabel napper
Chairman, Remuneration
Committee
19 July 2021
34
Governance Report
SDI Group plc Annual Report 2021
35
Directors’ Remuneration Report
Statement about Basis of Preparation
While note a statutory requirement, SDI has produced this report, to be read in conjunction with the Report of the
Remuneration Committee, to comply with AIM rule 19 and also meet the requirements of the QCA code.
Directors’ remuneration and pension entitlements
The remuneration of the Directors is set out below:
K Ford
M Creedon
I Napper
D Tilston
J Abell
Salary
/ Fees
£’000
48
146
28
28
117
367
Bonus
£’000
Taxable
Benefits
£’000
Pension
£’000
–
50
–
–
31
81
–
2
–
–
2
4
–
8
–
–
6
14
2021
Total
£’000
48
206
28
28
156
466
2020
Total
£’000
49
236
29
29
147
490
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
2021
number
2020
number
1,250,000
1,250,000
442,452
442,452
65,000
65,472
90,000
90,000
100,000
100,000
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:
K Ford
M Creedon
I Napper
D Tilston
J Abell
2021
number
2020
number
850,672
850,672
1,952,327
1,952,327
250,000
250,000
250,000
250,000
1,134,103
1,134,103
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 (under all schemes) to
executives in that period, subject to performance conditions which are set for each award.
An award was made on 19 March 2020 with performance conditions based for 50% on the growth in fully-diluted
Earnings Per Share in the three years starting 1 May 2019 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.
No award was made in the year to 30 April 2021.
The directors participating in the scheme at the date of this report and their maximum respective entitlement under
the scheme to shares in SDI Group plc are as follows:
M Creedon
J Abell
K Ford
Total
Awards
862,855
634,103
350,672
The above table is a subset of the share option table on page 34.
The market price of the company’s shares at the end of the financial year was 179p and ranged from 43.25p to 197p
during the year. The exercise price of the ordinary options ranges from
£0.172 to £1.040, and of LTIP options is £0.010.
36
Governance Report
SDI Group plc Annual Report 2021
37
Directors’ Report
Directors’ Responsibilities Statement
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 applicable law and international
accounting standards in conformity with the requirements of the Companies Act 2006 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 international accounting standards 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 or the Group will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group 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 Group 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 Group’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 Group’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’s profit for the year after taxation amounted to £4.7m (2020: £2.6m) and has been transferred to reserves.
All KPIs and risks are disclosed in the Strategic Report on pages 18-19.
The Board does not recommend the payment of a dividend.
Directors
The directors who served during the year are set out below.
K Ford
M Creedon
I Napper
D Tilston
J Abell
The interests of the directors and their families in the share capital of the Company are shown in the directors’
remuneration report on pages 34-35.
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.
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 23 September 2020, 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 £325,000;
l Issue equity securities for cash, otherwise than to existing shareholders in proportion to their existing shareholdings,
up to an aggregate nominal value of £48,700.
Similar powers will form part of the resolutions to be put to the forthcoming AGM expected to be held on
22 September 2021.
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 52-55. 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 liquidity risk. The Board has reviewed forecasts for
the period to 31 October 2022, including severe downside scenarios which the Board considers extremely unlikely. The
Group meets its cash flow and borrowing requirements through bank loans as detailed in note 19. 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.
Post Balance Sheet Events
There are no events to note.
38
Governance Report
SDI Group plc Annual Report 2021
39
Directors’ Report
Continued
Research and Development
Each of the Group’s businesses devotes appropriate resources to maintaining and expanding its competitive position
by researching and developing new products and processes as well as updating existing products. 42 employees
were employed for development activities in the year (2020: 30).
Future Development
The directors expect that the Group will continue to execute its strategy of acquiring and managing niche
technology businesses.
Structure of Share Capital
As at 30 April 2021 the Company’s authorised share capital was £10,000,000 comprising 1,000,000,000 ordinary
shares of 1p each. As at 30 April 2021 the Company had 98,408,164 (2020: 97,503,951) ordinary shares in issue with a
nominal value of 1p each.
Corporate Governance
Corporate Governance is discussed on pages 26-30.
Financial Risk Management Objectives and Policies
Financial risk management objectives and policies are discussed in note 25 ‘Financial risk management objectives
and policies’.
Employee Engagement with other Stakeholders
The company engages with its employees and other stakeholders as disclosed in the Section 172(1) statement on
pages 20-21.
health and Safety Policies
Substantial Shareholdings
As at 19 July 2021 the Company is aware of the following shareholders who hold an interest of 3% or more in the
Company’s ordinary share capital.
Berenberg Wealth and Asset Management
Herald Investment Management
Business Growth Fund
JPMorgan Asset Management
Tellworth Capital
Octopus Investments
Hargreaves Lansdown
Killik stockbrokers
Charles Stanley
Danske Bank A/S
number
of ordinary
shares
Percentage
of ordinary
shares
9,651,726
8,178,149
6,336,526
5,010,000
4,740,329
3,719,640
3,629,335
3,463,534
3,123,307
3,083,033
9.74%
8.26%
6.40%
5.06%
4.79%
3.76%
3.66%
3.50%
3.15%
3.11%
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.
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.
On behalf of the Board
Streamlined Energy and Carbon Reporting (“SECR”)
The Group does not report under SECR as none of its subsidiary undertakings are large companies. The parent
company is exempt from reporting as it is a low energy user consuming less than 40MWh per annum.
Ken Ford
Chairman
19 July 2021
Mike Creedon
Chief Executive Officer
19 July 2021
40
SDI Group plc Annual Report 2021
41
Financial Statements
Contents
41 Report of the Independent Auditor
52 Consolidated Income Statement &
Statement of Comprehensive Income
53 Consolidated Balance Sheet
54 Consolidated Statement of Cash Flows
55 Consolidated Statement of Changes in Equity
56 Notes to the Consolidated Financial Statements
88 Company Balance Sheet
89 Company Statement of Changes in Equity
90 Notes to the Company Financial Statements
96 Six Year Summary
IBC Shareholder Information
Report of the Independent Auditor
to the members of the SDI Group plc
Independent Auditor’s Report to the Members of SDI Group plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of SDI Group plc (the ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 30 April 2021, which comprise the Consolidated Income Statement and Statement
of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows,
the Consolidated Statement of Changes in Equity, the notes to the Consolidated Financial Statements, the
Company Balance Sheet, the Company Statement of Changes in Equity, and the notes to the Company
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
accounting standards in conformity with the requirements of the Companies Act 2006. 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 Disclosure
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 2021 and of the group’s profit for the year then ended;
l the group financial statements have been properly prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006;
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 are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit
evidence obtained up to the date of our report. However, future events or conditions may cause the group or the parent
company to cease to continue as a going concern.
A description of our evaluation of management’s assessment of the ability to continue to adopt the going concern basis of
accounting, and our results arising with respect to that evaluation is included in the Key Audit Matters section of our report.
42
Financial Statements
Report of the Independent Auditor
Continued
High
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as
a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Revenue
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for
the financial statements’ section of this report.
Receivables
Inventory
Potential
Financial
Statement
Impact
Management
Override of
Controls
Capitalisation
Development
Our Approach to the Audit
Low
Overview of our Audit Approach
Low
Extent of Management Judgement
High
Potential
Financial
Statement
Impact
Low
Low
Acquired
Intangibles
Impairment
of Intangibles
Going Concern
Revenue
Management
Override of
Controls
Capitalisation
Development
Inventory
Receivables
SDI Group plc Annual Report 2021
43
Extent of Management Judgement
High
● Key Audit Matter ● Significant Risk ● Other Risk
Materiality
Acquired
Intangibles
Key Audit Matters
Impairment
of Intangibles
Going Concern
High
Key Au
a
t
t
M
lity
dit
a
i
r
e
t
a
M
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
Sco p i
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
r
s
e
n
g
Description
Audit
Response
KAM
Disclosures
Our Results
Materiality
Overall materiality:
● Key Audit Matter ● Significant Risk ● Other Risk
Group: £278k, which represents 5% of the group’s
draft profit before taxation.
Parent company: £146k which represents 10% of the
parent company’s draft profit before taxation.
lity
a
i
r
e
t
a
M
Key Au
dit
M
a
t
t
e
r
s
g
n
Sco p i
Key audit matters were identified as:
l Improper revenue recognition (same as
previous year)
l Valuation of intangible assets on recognition of the
Description
business acquired (same as previous year)
Audit
Response
l Going concern (same as previous year)
KAM
Our auditor’s report for the year ended 30 April 2020
included one key audit matter that has not been
reported as key audit matters in our current year’s
report. This relates to valuation of goodwill and
Disclosures
capitalised development costs. This matter is not a
significant risk area in the current year due to the
group’s strong performance in the year.
Our Results
We performed an audit of the financial information
using component materiality (full-scope audit) for
the parent entity, SDI Group plc, and on the financial
information of the nine significant UK components.
We performed an audit of one or more account
balances, classes of transactions or disclosures of
the component (specific-scope audit) for the non-
significant group components.
Materiality
Analytical procedures were performed for all
other components of the group that were neither
significant nor material.
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Potential
Financial
Statement
Impact
Low
Low
Acquired
Intangibles
Impairment
of Intangibles
Going Concern
Revenue
Management
Override of
Controls
Capitalisation
Development
Inventory
Receivables
Extent of Management Judgement
High
● Key Audit Matter ● Significant Risk ● Other Risk
lity
a
i
r
e
t
a
M
Key Au
dit
M
a
t
t
e
r
s
g
n
Sco p i
Description
Audit
Response
KAM
Disclosures
Our Results
44
Financial Statements
SDI Group plc Annual Report 2021
45
Report of the Independent Auditor
Continued
Key Audit Matter – Group
how our scope addressed the matter – Group
Key Audit Matter – Group
how our scope addressed the matter – Group
Improper Revenue Recognition
We identified improper revenue recognition as one
of the most significant assessed risks of material
misstatement due to fraud.
The group has recognised revenue of £35,076,000
(2020: £24,498,000) in its consolidated income
statement during the year, which is comprised
of revenue from sales of goods and income
from service contracts. The nature of the group’s
revenue involves the processing of a high volume
of transactions, with each stream following different
revenue recognition criteria under IFRS 15 ‘Revenue
from Contracts with Customers’.
As the group’s revenue comprises various
individually material streams which are each subject
to different recognition policies, the risk that revenue
may be improperly recognised has been identified as
a significant risk.
In responding to the key audit matter, we performed
the following audit procedures:
l assessing whether the revenue recognition
accounting policy for each type of revenue was
consistent with IFRS 15 and testing that these
policies were followed;
l undertaking analytical procedures to identify and
assess key movements in revenue streams and
significant transactions which have occurred in
the year;
l performing data analytic procedures designed
to highlight any unusual transactions or postings
recorded in revenue;
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 check 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 assessing
the appropriateness of any deferred or accrued
income at year end; and
l agreeing a sample of transactions before and after
the year end to supporting documentation to
determine whether transactions had been recorded
in the correct period.
Relevant Disclosures in the Annual
Report 2021
l The group’s accounting policy on revenue
recognition is shown in note 3 to the financial
statements and related disclosures are included
in note 5.
Our Results
Our audit 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 the group’s accounting policies.
Valuation of Intangible Assets on
Recognition of Acquired Businesses
We identified the valuation of intangible assets
on recognition of the acquired business as one
of the most significant assessed risks of material
misstatement due to error.
The group has an acquisitive business model. It
made two acquisitions in the year, purchasing 100%
of the share capital of Monmouth Scientific Limited
and the trade and assets of Uniform Engineering.
There is a risk that the intangible assets, including
goodwill, are not recognised in accordance with
IFRS 3 ‘Business Combinations’.
There is significant judgement and complexity
associated with the allocation of excess
consideration over net assets acquired between
separable intangible assets and remaining
goodwill. Management have prepared workings
that incorporate, for the fair value of the intangible
assets, assumptions of growth rates, margins,
discount rates and attrition rates.
Due to the inherent uncertainty and key
assumptions involved in determining the accurate
valuation of acquired intangible assets and goodwill,
we therefore identified the valuation of intangible
assets on recognition of the acquired business as a
significant risk.
In responding to the key audit matter, we performed
the following audit procedures:
l obtaining and assessing management’s acquisition
accounting workpaper which calculated the split
between net assets acquired, fair value of acquired
intangible assets and goodwill to be recognised
on consolidation;
l assessing the group’s accounting for acquisitions
to check whether it was in accordance with the
group’s financial reporting framework,
including IFRS 3;
l using our internal valuations team to assess the
appropriateness of the valuation methodology
used by management, including the methodology
adopted for identifying separate intangible
assets distinct from goodwill and assessing the
appropriateness of discount rates and growth
rates applied;
l evaluating the acquisition workings prepared
by management and checking its mathematical
accuracy; and
l challenging the assumptions used in the valuation
models, to assess whether they are reasonable
and consistent with our knowledge of the
acquired business.
Relevant Disclosures in the Annual
Report 2021
The group’s accounting policy on the recognition of
intangible assets and goodwill is shown in note 3 to
the financial statements and related disclosures are
included in note 28.
Our Results
Our audit testing did not identify any material
misstatements in the valuation of intangible assets
on recognition of the acquired business. We are
satisfied that the judgements made in determining
the split between acquired intangible assets and
goodwill are reasonable.
46
Financial Statements
SDI Group plc Annual Report 2021
47
Report of the Independent Auditor
Continued
Key Audit Matter – Group
how our scope addressed the matter – Group
Going Concern
We identified going concern as one of the most
significant assessed risks of material misstatement
due to error.
Covid-19 is one of the most significant economic
events currently faced by the UK, and its effects
are subject to unprecedented levels of uncertainty.
This event could adversely impact the future trading
performance of the group and as such increases
the extent of judgement and estimation uncertainty
associated with management’s decision to adopt
the going concern basis of accounting in the
preparation of the financial statements.
Relevant Disclosures in the Annual
Report 2021
The group’s going concern accounting policy and
related disclosures are shown in the going concern
note within note 3 to the financial statements.
In responding to the key audit matter, we performed
the following audit procedures:
l obtaining management’s base case forecasts
covering the period to 31 October 2022,
assessing how these forecasts were compiled
and assessing their appropriateness by applying
sensitivities to the underlying assumptions, which
we also challenged;
l assessing the accuracy of management’s
forecasting by comparing the reliability of past
forecasts to past actuals;
l obtaining management’s more downside scenarios
prepared to assess the potential continuing
impact of Covid-19, evaluating the assumptions
and considering whether the assumptions are
consistent with our understanding of the business
derived from other detailed work undertaken;
l assessing the adequacy of related disclosures
within the annual report and financial statements.
In our evaluation of the directors’ conclusions, we
considered the inherent risks associated with the
group’s and the parent company’s business model
including effects arising from macro-economic
uncertainties such as Brexit and Covid-19, we
assessed and challenged the reasonableness of
estimates made by the directors and the related
disclosures and analysed how those risks might
affect the group’s and the parent company’s financial
resources or ability to continue operations over the
going concern period
Our Results
We have nothing to report in addition to that stated
in the ‘Conclusions relating to going concern’ section
of our report.
There were no key audit matters for the parent company.
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the
opinion in the auditor’s report.
Materiality was determined as follows:
Materiality Measure Group
Parent Company
Financial
statements
as a whole
We define materiality as the magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of these financial statements. We use materiality in determining the
nature, timing and extent of our audit work.
Materiality
threshold
£278k which represents 5% of the group’s
draft profit before taxation
£146k which represents 10% of the parent
company’s draft profit before taxation
capped at its component materiality.
Significant
judgements made
by auditor in
determining the
materiality
In determining materiality, we made the
following significant judgements: Profit
before taxation is considered the most
appropriate benchmark because the Group
is a commercially focused organisation and
profit before taxation is a key financial measure
for the Directors and the shareholders.
In determining materiality, we made the
following significant judgements: Profit
before taxation is considered the most
appropriate benchmark because the Group
is a commercially focused organisation and
profit before taxation is a key financial measure
for the Directors and the shareholders.
We used 5% as the group is relatively
stable and not complex because it sells
scientific equipment and the transactions are
relatively straightforward.
Materiality for the current year is higher than the
level that we determined for the year ended 30
April 2020 to reflect the acquisition in the year
as well as organic growth in certain subsidiaries.
We used 5% as the parent is simply a holding
company with no significant
activity or complex transactions.
Materiality for the current year is higher than
the level that we determined for the year
ended 30 April 2020 to reflect the increase in
profit before tax.
Performance
materiality used to
drive the extent of
our testing
We set performance materiality at an amount less than materiality for the financial
statements as a whole to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality for the
financial statements as a whole.
Performance
materiality
threshold
£195k which is 70% of financial statement
materiality.
£102k which is 70% of financial statement
materiality.
Significant
judgements
made by auditor
in determining
the performance
materiality
In determining performance materiality, we
made the significant judgement of setting
it at 70% based on the fact that there were
some adjustments identified in the 2020 audit.
Overall impact of misstatements identified in
previous years is not material.
In determining performance materiality, we
made the significant judgement of setting
it at 70% based on the fact that there were
some adjustments identified in the 2020 audit.
Overall impact of misstatements identified in
previous years is not material.
48
Financial Statements
SDI Group plc Annual Report 2021
49
Report of the Independent Auditor
Continued
Materiality Measure Group
Parent Company
Specific
materiality
Specific
materiality
Communication
of misstatements
to the audit
committee
Threshold for
communication
We determine specific materiality for one or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser amounts than
materiality for the financial statements as a whole could reasonably be expected to influence
the economic decisions of users taken on the basis of the financial statements.
We determined a lower level of specific
materiality for directors’ remuneration and
related party transactions.
We determined a lower level of specific
materiality for directors’ remuneration and
related party transactions.
We determine a threshold for reporting unadjusted differences to the Audit Committee.
£14k was the threshold used for reporting
misstatements, and any items below that
threshold that, in our view, warrant reporting
on qualitative grounds.
£7k was the threshold used for reporting
misstatements, and any items below that
threshold that, in our view, warrant reporting
on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance
for potential uncorrected misstatements.
Overall Materiality – Group
Overall Materiality – Parent Company
Draft profit
before tax
£5,562,000
PM
£194,600
70%
FSM
£278,000
5%
Loss
before tax
£1,532,000
TFPUM
£81,400
30%
PM
£102,000
70%
FSM
£146,000
10%
TFPUM
£44,000
30%
An Overview of the Scope of Our Audit
We performed a risk-based audit that requires an understanding of the group’s and the parent company’s business and
in particular matters related to:
understanding the group, its components, and their environments, including group-wide controls
l the engagement team obtained an understanding of the group and its environment, including group-wide controls,
and assessed the risks of material misstatement at the group level;
l the engagement team obtained an understanding of the effect of the group organisational structure on the scope of
the audit, identifying that the group financial reporting system is centralised;
Identifying significant components and type of work performed
l all UK components within the group where an audit opinion will be issued require a full-scope audit and were
therefore identified as being significant. For all other components within the group, we considered the size and
risk profile of the entity, any changes in the business and other factors when determining the level of work to be
performed on the financial information of each entity. The significance of these components was determined as a
percentage of the group’s total assets, revenues and profit before taxation.
Type of work to be performed on financial information of parent and other components (including how it addressed
the key audit matters)
l most of the UK components of the group required an individual full-scope audit as they were identified as being
significant. The two overseas components of the group in the USA and Portugal, and Uniform Engineering Limited
that was acquired during the financial year, were non-significant and therefore we performed an audit of one or more
account balances, classes of transactions or disclosures of the component (specific-scope audit). The dormant or
insignificant UK components were tested through analytical procedures as they were neither significant nor material.
Audit
Approach
Full-scope audit
Specific-scope audit
Analytical procedures
no. of
Components
% Coverage of
Total Assets
% Coverage of
Revenue
% Coverage
of PBT
10
3
3
96%
4%
0%
96%
4%
0%
98%
2%
0%
Changes in Approach from Previous Period
l Thermal Exchange Limited and Fistreem International Limited have been hived into other group entities, and
therefore removed from the full-scope audit owing to their financial insignificance in the context of the group as
a whole.
l There are two new subsidiaries in the current year, a full-scope audit was performed on Monmouth Scientific Limited
and a specific-scope audit was performed on Uniform Engineering Limited.
FSM: Financial statements materiality, PM: Performance materiality, TFPuM: Tolerance for potential uncorrected misstatements
All work was done by the group audit team.
50
Financial Report
SDI Group plc Annual Report 2021
51
Report of the Independent Auditor
Continued
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.
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.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in
line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including
fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the
financial statements may not be detected, even though the audit is properly planned and performed in accordance
with the ISAs (UK).
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
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.
Matter 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, 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.
l We understood how SDI Group plc is complying with legal and regulatory frameworks by making enquiries of
management, those responsible for legal and compliance procedures and the company secretary. We corroborated
our enquiries through our review of board minutes and papers provided to the Audit Committee.
l We enquired of management and the Audit Committee about the group’s policies and procedures relating to the
identification, evaluation and compliance with laws and regulations and the detection and response to the risks of
fraud and the establishment of internal controls to mitigate risks related to fraud or non-compliance with laws and
regulations including the Companies Act.
l We enquired of management and the Audit Committee, whether they were aware of any instances of non-
compliance with laws and regulations or whether they had any knowledge of actual, suspected or alleged fraud.
l The engagement partner assessed that the engagement team collectively had the appropriate competence and
capabilities to identify or recognise non-compliance with laws and regulations.
l We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud
might occur, by evaluating management’s incentives and opportunities for manipulation of the financial statements.
This included the evaluation of the risk of management override of controls. We determined that the principal
risks were in relation to areas of increased management judgement, specifically share based payments, acquisition
accounting and the impairment of intangible assets, all of which could be impacted by management bias, as well as
the risk of fraud through the use of journal entries that increase revenues.
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.
David White
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants, Cambridge
19 July 2021
52
Financial Statements
SDI Group plc Annual Report 2021
53
Consolidated Income Statement &
Statement of Comprehensive Income
for the year ended 30 April 2021
Consolidated Balance Sheet
as at 30 April 2021
Revenue
Cost of sales
Gross profit
Other income
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
Note
5
8
6
9
2021
£’000
2020
£’000
35,076
(12,206)
22,870
21
(16,960)
5,931
24,498
(7,899)
16,599
19
(13,107)
3,511
(287)
(254)
5,644
3,257
(936)
(666)
4,708
2,591
22
22
4.81p
4.58p
2.66p
2.56p
All activities of the Group are classed as continuing.
The results attributable to business combinations in the year are disclosed in note 28.
The accompanying accounting policies and notes form an integral part of these financial statements.
Profit for the year
Other comprehensive income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translating foreign operations
Total comprehensive income for the year
2021
£’000
2020
£’000
4,708
2,591
(96)
4,612
41
2,632
Company registration number: 6385396
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
Merger relief reserve
Share premium account
Share-based payment reserve
Foreign exchange reserve
Retained earnings
Total equity
2021
£’000
Restated*
2020
£’000
Note
10
11
13
14
15
16
19
13
17
18
19
21
26,237
4,131
1,697
32,065
6,059
6,743
3,836
16,638
48,703
21,650
3,901
246
25,797
3,728
3,617
5,290
12,635
38,432
(3,764)
(2,479)
(6,243)
(10,376)
(2,134)
(12,510)
(12,826)
(230)
(1,880)
(750)
(15,686)
(21,929)
26,774
(3,350)
(85)
(1,910)
(513)
(5,858)
(18,368)
20,064
984
2,606
424
9,092
714
85
12,869
26,774
975
2,606
424
8,746
467
181
6,665
20,064
The financial statements were approved and authorised for issue by the Board of Directors on 19 July 2021.
Mike Creedon
Director
Jon Abell
Director
*See note 29.
The accompanying accounting policies and notes form an integral part of these financial statements.
54
Financial Statements
SDI Group plc Annual Report 2021
55
Consolidated Statement of Cash Flows
as at 30 April 2021
Consolidated Statement of Changes in Equity
as at 30 April 2021
Operating activities
Net profit for the year
Depreciation
Amortisation
Finance costs and income
Impairment of intangible assets
(Decrease)/increase in provisions
Taxation in the income statement
Employee share-based payments
Operating cash flows before movement in working capital
Decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
Interest paid
Income taxes 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
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
Note
2021
£’000
2020
£’000
11
10
8
18
10
11
28
19
19
19
4,708
973
1,589
287
130
(15)
936
305
8,913
(977)
(2,363)
6,137
11,710
(287)
(1,166)
10,257
(667)
67
(367)
(4,057)
(5,024)
(489)
5,404
(11,652)
155
(6,582)
2,591
831
1,189
254
22
74
666
276
5,903
(539)
726
(921)
5,169
(253)
(786)
4,130
(506)
–
(582)
(5,182)
(6,270)
(511)
6,496
(1,143)
80
4,922
(1,349)
2,782
5,290
(105)
3,836
2,494
14
5,290
The accompanying accounting policies and notes form an integral part of these financial statements.
Share
capital
£’000
Merger
reserve
£’000
Merger
relief
reserve
£’000
Foreign
exchange
£’000
Share
premium
£’000
Own
shares
held by
EBT
£’000
Share-
based
payment
reserve
£’000
Balance at 30 April 2019
Restatement (note 29)
Restated balance 30 April 2019
972
–
972
3,030
(424)
2,606
–
424
424
140
–
140
8,696
–
8,696
Shares issued
Share-based payment transfer
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 2020
3
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
975
–
2,606
424
–
–
–
–
–
41
41
181
50
–
–
50
–
–
–
8,746
(17)
–
(17)
17
–
–
17
–
–
–
–
Retained
earnings
£’000
3,981
–
3,981
–
93
–
93
Total
£’000
17,086
–
17,086
70
–
276
346
2,591
2,591
–
41
284
–
284
–
(93)
276
183
–
–
–
467
2,591
2,632
6,665 20,064
Share
capital
£’000
Merger
reserve
£’000
Merger
relief
reserve
£’000
Foreign
exchange
£’000
Share
premium
£’000
Own
shares
held by
EBT
£’000
Share-
based
payment
reserve
£’000
Retained
earnings
£’000
Total
£’000
Balance at 30 April 2020
(previously stated)
Restatement
Restated balance at 30 April 2020
975
–
975
3,030
(424)
2,606
–
424
424
181
–
181
8,746
–
8,746
Shares issued
Tax in respect of share options
Share-based payment transfer
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 2021
9
–
–
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
984
–
2,606
–
424
–
–
–
–
–
–
(96)
(96)
85
346
–
–
–
346
–
–
–
9,092
–
–
–
–
–
–
–
–
–
–
–
–
467
–
467
–
–
(58)
305
247
–
–
6,665
–
20,064
–
6,665 20,064
–
1,438
58
–
1,496
355
1,438
–
305
2,098
4,708
4,708
–
(96)
–
714
4,708
12,869
4,612
26,774
56
Financial Statements
SDI Group plc Annual Report 2021
57
Notes to the Consolidated Financial Statements
for the year ended 30 April 2021
1
2
Reporting Entity
SDI Group 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 2021 comprise the Company and its subsidiaries (together referred to as the “Group”).
The details of subsidiary undertakings are listed in note 5 to the Company Financial Statements.
Basis of Preparation
The consolidated financial statements have been prepared and approved by the directors in
accordance with International accounting standards in conformity with the requirements 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 this Strategic report. The financial position of the Group,
its cash flows, and liquidity position are provided in the financial statements on pages 52-55.
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 liquidity risk. The Board has reviewed forecasts for the
period to 30 April 2023, including severe downside scenarios which the Board considers extremely
unlikely. The Group meets its cash flow and borrowing requirements through bank loans as detailed
in note 19. 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.
Going concern
The Board has prepared trading and cash flow forecasts for the period to 31 October 2022, based
on its approved budget for the period to 30 April 2023. These reflect the sales projections for new
products and services coming on stream as a result of the Group’s research and development
activity and continued cost management.
The Board’s forecasts indicate that the Group will continue to trade within its existing facilities which
are detailed in note 19. The Board has prepared various downside scenarios from its base case,
involving further reductions to sales. Under these scenarios, the Group continues to generate cash
and remain within banking covenants, and has scope to further manage its cost base if necessary.
The directors believe that it remains appropriate to continue to adopt the going concern in
preparing the financial statements. 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.
The Board is confident that continued focus on research and development, new product
development and sales & marketing will deliver growth.
Changes in accounting policies
At the date of approval of these financial statements, certain new standards, amendments to and
interpretations of existing standards have been published but are not yet effective. None of these
pronouncements have been adopted early by the Group, and they have not been disclosed as they are
not expected to have a material impact on the Group’s financial statements. Management anticipates
that all pronouncements will be adopted for the first period beginning on or after their effective date.
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 59 and in note 10). The point at which
development costs meet the criteria for capitalisation is critically dependent on management’s
judgement of the point at which technical feasibility is demonstrable. The carrying value of
development assets also depends on management’s ability to demonstrate the future economic
benefits they will deliver. This judgement requires assumptions about factors outside the business’s
control such as medium-term economic conditions, technological developments and market
changes. The Group tests annually whether the capitalised development costs have been impaired
by reference to expected future generation of cash from the technologies developed and the
timing of when these will be released.
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 28.
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 10.
Deferred tax asset
The Company or its subsidiaries obtain a tax deduction when employees exercise share options.
The amount of the tax deduction is determined by the increase in the share price above the exercise
price when the option is exercised, and by the rate of corporation tax at that time. In estimating the
deferred tax asset relating to this future tax deduction, the period end share price and the substantially
enacted tax rate are used. Share options are included in the estimate to the extent that they are
expected to vest and in proportion to the fraction of the vesting period elapsed at period end.
58
Financial Statements
SDI Group plc Annual Report 2021
59
Notes to the Consolidated Financial Statements
continued
3
Principal Accounting Policies
The principal accounting policies adopted are consistent with those of the annual financial
statements for the year ended 30 April 2020.
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 the income statement.
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 a The estimated useful lives are as follows:
ccumulated depreciation. Depreciation is
charged to the income statement 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
3 years
3 years
3 years
5 years
Building and leasehold improvements
5 years
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 the income statement 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:
l Completion of the intangible asset is technically feasible so that it will be available for use or sale;
l The Group intends to complete the intangible assets and use or sell it;
l The Group has the ability to use or sell the intangible asset;
l 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; and
l 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 the income statement 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
3 years
Other intangible assets
Customer relationships
and trade marks
Order book
3-15 years
15 years
Up to 1 year
60
Financial Statements
SDI Group plc Annual Report 2021
61
Notes to the Consolidated Financial Statements
continued
3
Principal Accounting Policies continued
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.
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 or groups of cash-generating units that are
expected to benefit from synergies of the related business combination, typically the Group’s
operating segments, which 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 the income statement. 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 which are subject to an
insignificant risk of changes in value.
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.
Equity
Equity comprises the following:
l “Share capital” represents the nominal value of equity shares
l “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.
l “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.
l “Foreign exchange reserve” represents the differences arising from translation of investments in
overseas subsidiaries.
l “Share-based payment reserve” 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.
l “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.
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. Management have adopted the simplified model to
determine the expected credit loss on trade receivables and 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 assumed in a business combination is
measured initially at fair value through profit and loss in the income statement at the acquisition
date and any contingent liability is classified as a liability within the balance sheet.
62
Financial Statements
SDI Group plc Annual Report 2021
63
Notes to the Consolidated Financial Statements
continued
3
Principal Accounting Policies continued
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 or maintenance work,, 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 when the customer receives the goods or when goods are
collected by the customer. Revenue from installations is recognised at the point which the installation
is completed. For large, complex instruments which require highly specialised installation, revenue
from both the instrument and installation is recognised at the point which installation is completed.
Revenue from maintenance work relates to service visits carried out on equipment provided to
customers whereby the performance obligation is to carry out service visits over a period of time. It is
a separate, distinct, individually identified performance obligation and is recognised straight-line over
the length of the service contract being provided as this reflects the inputs and efforts (service
employees) which are expended evenly throughout the performance period (length of the contract).
Leased assets
The Group makes the use of leasing arrangements principally for the provision of the main
warehouse and related facilities, office space, IT equipment and motor vehicles. The rental contracts
for offices are typically negotiated for terms of between 5 and 20 years and some of these have
extension terms. Lease terms for office fixtures and equipment and motor vehicles have lease terms
of between 6 months and 5 years without any extension terms. The Group does not enter into sale
and leaseback arrangements. All the leases are negotiated on an individual basis and contain a wide
variety of different terms and conditions such as purchase options and escalation clauses.
The Group assesses whether a contract is or contains a lease at inception of the contract. A lease
conveys the right to direct the use and obtain substantially all of the economic benefits of an
identified asset for a period of time in exchange for consideration.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a lease liability in its
consolidated statement of financial position. The right-of-use asset is measured at cost, which is
made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group,
an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease
payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use asset on a straight-line basis from the lease commencement
date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
The Group also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease
payments unpaid at that date, discounted using the Group’s incremental borrowing rate because as
the lease contracts are negotiated with third parties it is not possible to determine the interest rate that
is implicit in the lease.
The incremental borrowing rate is the estimated rate that the Group would have to pay to borrow the
same amount over a similar term, and with similar security to obtain an asset of equivalent value. This
rate is adjusted should the lessee entity have a different risk profile to that of the Group.
Lease payments included in the measurement of the lease liability are made up of fixed payments
(including in substance fixed), variable payments based on an index or rate, amounts expected to be
payable under a residual value guarantee and payments arising from options reasonably certain to
be exercised.
Subsequent to initial measurement, the liability will be reduced by lease payments that are allocated
between repayments of principal and finance costs. The finance cost is the amount that produces a
constant periodic rate of interest on the remaining balance of the lease liability.
The lease liability is reassessed when there is a change in the lease payments. Changes in lease
payments arising from a change in the lease term or a change in the assessment of an option to
purchase a leased asset. The revised lease payments are discounted using the Group’s incremental
borrowing rate at the date of reassessment when the rate implicit in the lease cannot be readily
determined. The amount of the remeasurement of the lease liability is reflected as an adjustment to
the carrying amount of the right-of-use asset. The exception being when the carrying amount of the
right-of-use asset has been reduced to zero then any excess is recognised in profit or loss.
To respond to business needs particularly in the demand for office space, the Group will enter into
negotiations with landlords to either increase or decrease available office space or to renegotiate
amounts payable under the respective leases. In some instances, the Group is able to increase office
capacity by taking additional floors available and therefore agrees with the landlord to pay an amount
that is commensurate with the stand-alone pricing adjusted to reflect the particular contract terms. In
these situations, the contractual agreement is treated as a new lease and accounted for accordingly.
In other instances, the Group is able to negotiate a change to a lease such as reducing the amount of
office space taken, reducing the lease term or by reducing the total amount payable under the lease.
Both of which were not part of the original terms and conditions of the lease. In these situations, the
Group does not account for the changes as though there is a new lease. Instead, the revised contractual
payments are discounted using a revised discount rate at the date the parties agree to the modification.
For the reasons explained above, the discount rate used is the Group’s incremental borrowing rate
determined at the modification date, as the rate implicit in the lease is not readily determinable.
The remeasurement of the lease liability is dealt with by a reduction in the carrying amount of the
right-of-use asset to reflect the full or partial termination of the lease for lease modifications that
reduce the scope of the lease. Any gain or loss relating to the partial or full termination of the lease is
recognised in profit or loss. The right-of-use asset is adjusted for all other lease modifications.
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.
64
Financial Statements
SDI Group plc Annual Report 2021
65
Notes to the Consolidated Financial Statements
continued
3
Principal Accounting Policies continued
Alternative Performance Measures
4
Taxation continued
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 operating segments based on internal management reporting that is regularly
reviewed by the chief operating decision maker. The chief operating decision maker is the
Executive 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.
Share-based payments
SDI Group 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.
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.
The Group uses Adjusted Operating Profit, Adjusted Profit Before Tax, Adjusted Diluted EPS 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 adjusting items for the alternative measures of
profit are either recurring but non-cash charges (share-based payments and amortisation of
acquired intangible assets) or exceptional items (reorganisation costs and acquisition costs).
The following table is included to define the term Adjusted Operating Profit:
Operating Profit (as reported)
Adjusting items (all costs):
Non-underlying items
Share-based payments
Amortisation of acquired intangible assets
Exceptional items
Reorganisation costs
Acquisition costs
Total adjusting items
Adjusted Operating Profit
Adjusted Profit Before Tax is defined as follows:
Profit before tax (as reported)
Adjusting items (all costs):
Non-underlying items
Share-based payments
Amortisation of acquired intangible assets
Exceptional items
Reorganisation costs
Acquisition costs
Total adjusting items
Adjusted Profit Before Tax
2021
£’000
2020
£’000
5,931
3,511
305
1,153
132
179
1,769
276
647
110
58
1,091
7,700
4,602
2021
£’000
2020
£’000
5,644
3,257
305
1,153
132
179
1,769
276
647
110
58
1,091
7,413
4,348
66
Financial Statements
SDI Group plc Annual Report 2021
67
Notes to the Consolidated Financial Statements
continued
4
Alternative Performance Measures continued
Adjusted EPS is defined as follows:
Profit for the year
Adjusting items (all costs):
Non-underlying items
Share-based payments
Amortisation of acquired intangible assets
Exceptional items
Reorganisation costs
Acquisition costs
Total adjusting items
Less taxation on adjusting items calculated at the UK statutory rate
Adjusted profit for the year
2021
£’000
4,708
305
1,153
132
179
1,769
(336)
6,141
2020
£’000
2,591
276
647
110
58
1,091
(207)
3,475
Divided by diluted weighted average number of shares in issue
(note 22)
102,799,084
101,206,148
Adjusted Diluted EPS
5.97p
3.43p
The following table is included to define the term Net Operating Assets:
Net assets
Deferred tax asset
Corporation tax asset
Cash and cash equivalents
Borrowings and lease liabilities (current and non-current)
Deferred consideration
Deferred tax liability
Current tax payable
Total adjusting items within Net assets
2021
£’000
2020
£’000
26,774
20,064
1,697
17
3,836
(5,644)
(2,350)
(2,479)
(750)
(5,673)
246
52
5,290
(12,286)
–
(2,134)
(513)
(9,345)
Net Operating Assets
32,447
29,409
Segment Analysis
5
The Digital Imaging segment incorporates the Synoptics brands Syngene, Synbiosis, Synoptics
Health and Fistreem, the Atik brands Atik Cameras, Opus and Quantum Scientific Imaging, and
Graticules Optics. These businesses share significant characteristics including customer application,
technology, and production location. Revenues derive from the sale of instruments, components for
OEM customers’ instruments, from accessories and service and from licence income.
The Sensors & Control segment combines our Sentek, Astles Control Systems, Applied Thermal
Control, Thermal Exchange, MPB Industries, Chell Instruments, Monmouth Scientific and Uniform
Engineering businesses. All of these businesses provide products that 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.
Revenues
Digital Imaging
Sensors & Control
Group
Adjusted Operating Profit
Digital Imaging
Sensors & Control
Other
Group
Amortisation of acquired intangible assets
Digital Imaging
Sensors & Control
Group
2021
Total
£’000
2020
Total
£’000
15,788
19,288
35,076
11,050
13,448
24,498
5,165
4,360
(1,825)
7,700
(175)
(978)
(1,153)
2,382
3,028
(808)
4,602
(182)
(465)
(647)
Adjusted Operating Profit has been defined in note 4.
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 head office costs.
68
Financial Statements
SDI Group plc Annual Report 2021
69
Notes to the Consolidated Financial Statements
continued
5
Segment Analysis continued
The geographical analysis of revenue by destination, analysis of revenue by product or service, and
non-current assets by location are set out below:
Operating assets excluding acquired intangible assets
Digital Imaging
Sensors & Control
Other
Group
Acquired intangible assets
Digital Imaging
Sensors & Control
Group
Operating Liabilities
Digital Imaging
Sensors & Control
Other
Group
Net operating assets
Digital Imaging
Sensors & Control
Other
Group
Depreciation
Digital Imaging
Sensors & Control
Other
Group
Net Operating Assets has been defined in note 4.
2021
Total
£’000
2020
Total
£’000
7,895
9,683
131
17,709
6,281
5,993
120
12,394
5,195
20,251
25,446
5,370
15,068
20,438
(5,439)
(4,204)
(1,064)
(10,707)
(1,190)
(2,087)
(158)
(3,435)
7,650
25,731
(934)
32,447
10,550
19,042
(183)
29,409
461
505
7
973
435
389
7
831
Revenue by destination of external customer
United Kingdom (country of domicile)
Europe
America
China
Asia (excluding China)
Rest of World
Revenue by product or service
Instruments and spare parts
Services
16% of Group revenue was from a single customer during the year.
Non-current assets by location
United Kingdom
Portugal
America
Profit Before Taxation
Profit for the year has been arrived at after charging:
Amortisation and write-down of intangible assets
Depreciation charge for the year – Right-of-use assets
Depreciation charge for the year – Other assets
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 compliance services
– Audit related assurance services
Currency exchange loss
Reorganisation costs
Acquisition costs
2021
£’000
15,343
5,137
3,365
6,854
3,088
1,289
35,076
2021
£’000
34,640
436
35,076
2021
£’000
29,824
396
148
30,368
2021
£’000
1,589
528
445
20
165
–
12
72
132
179
2020
£’000
10,249
5,129
3,290
910
3,582
1,338
24,498
2020
£’000
23,894
604
24,498
2020
£’000
24,872
412
227
25,511
2020
£’000
1,189
490
342
18
151
34
12
9
110
58
6
70
Financial Statements
SDI Group plc Annual Report 2021
71
Notes to the Consolidated Financial Statements
continued
7
Directors’ and Employees’ Remuneration
Staff costs during the year were as follows:
Wages and salaries (including reorganisation costs and other termination
benefits £36k (2020: £58k))
Furlough income
Social security costs
Share-based payments
Employer’s National Insurance costs on share-based remuneration
Other pension costs
2021
£’000
2020
£’000
9,324
(273)
989
305
578
365
11,288
7,221
(55)
731
276
–
345
8,518
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 pages 34-35.
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 £365k (2020: £345k).
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
2021
£’000
76
2020
£’000
60
2021
Number
2020
Number
68
142
39
23
272
50
129
30
23
232
Share-based employee remuneration
The company has two active EMI option schemes, “approved” and “unapproved”, which share
similar features, but may be treated differently regarding taxation of the option holder. Both
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, 390,000 of such options were granted
under these schemes, at exercise prices ranging from £0.649 to £1.040. The weighted average
remaining contractual life of all outstanding options under these schemes is 5.49 years.
In addition, in December 2018, a Long-Term Incentive Plan (LTIP) was approved by the Board of
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:
Options
outstanding
at 1 May
2020
3,883,872
1,260,600
1,847,630
6,992,102
Options
outstanding
at 30 April
2021
of which
exercisable
Granted
Exercised
30,000
360,000
–
390,000
(673,533) 3,240,339
– 1,620,600
1,847,630
–
(673,533) 6,708,569
1,085,339
1,260,600
–
2,345,939
Weighted
average
exercise
price
£0.410
£0.435
£0.010
£0.306
Scheme
EMI, Approved
EMI, Unapproved
LTIP
Total
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 is 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:
l interest rate 0%
l volatility 52%-54%
l expected life of option 3 years.
The charge for the year ended 30 April 2021 was £305k (2020: £276k).
72
Financial Statements
SDI Group plc Annual Report 2021
73
Notes to the Consolidated Financial Statements
continued
8
Finance Costs
Bank loans
Leases and hire purchase contracts
9
Taxation
Corporation tax:
Prior year corporation tax adjustment
Current tax charge
Deferred tax expense/(income)
Income tax charge
Reconciliation of effective tax rate
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by standard rate of
Corporation tax in the UK of 19% (2020: 19%)
Effects of:
Expenses not deductible for tax purposes
Additional deduction for R&D expenditure
Prior year tax adjustments
Update deferred tax liabilities and assets to enacted future tax rate of 19%
(2020: 19%)
Other
2021
£’000
204
83
287
2020
£’000
172
82
254
2021
£’000
2020
£’000
–
1,220
1,220
(284)
936
17
544
561
105
666
2021
£’000
2020
£’000
5,644
3,257
1,072
619
30
(162)
(18)
–
14
936
22
(135)
17
158
(15)
666
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.
Intangible Assets
The amounts recognised in the balance sheet relate to the following:
10
Cost
At 1 May 2020
Additions
Additions on acquisition
Disposals/Eliminations
At 30 April 2021
Amortisation
At 1 May 2020
Amortisation for the year
Disposals/Eliminations
At 30 April 2021
Net book value
As at 30 April 2021
As at 30 April 2020
Cost
At 1 May 2019
Additions
Additions on acquisition
Disposals
At 30 April 2020
Amortisation
At 1 May 2019
Amortisation for the year
Disposals
At 30 April 2020
Net book value
As at 30 April 2020
As at 30 April 2019
Customer
relationships
£’000
Other
intangibles
£’000
Goodwill
£’000
Development
costs
£’000
Total
£’000
10,217
–
2,251
–
12,468
1,322
773
–
2,095
10,373
8,895
1,095
–
610
(11)
1,694
409
392
(11)
790
904
686
10,895
–
3,078
–
13,973
–
–
–
–
2,904
367
–
(411)
2,860
1,730
425
(282)
1,873
25,111
367
5,939
(422)
30,995
3,461
1,590
(293)
4,758
13,973
10,895
987
1,174
26,237
21,650
Customer
relationships
£’000
Other
intangibles
£’000
Goodwill
£’000
Development
costs
£’000
Total
£’000
19,778
582
5,078
(327)
25,111
2,584
1,189
(312)
3,461
8,391
5
2,499
–
10,895
–
–
–
–
2,678
536
–
(310)
2,904
1,498
528
(296)
1,730
10,895
8,391
1,174
1,180
21,650
17,194
7,899
–
2,318
–
10,217
719
603
–
1,322
8,895
7,180
810
41
261
(17)
1,095
367
58
(16)
409
686
443
Capitalised development costs include amounts totalling £429k (2020: £385k) relating to
incomplete projects for which amortisation has not yet begun.
74
Financial Statements
SDI Group plc Annual Report 2021
75
Notes to the Consolidated Financial Statements
continued
10
Intangible Assets continued
Property, Plant and Equipment
11
Goodwill relates to various acquisitions and has been allocated to each cash generating unit as
appropriate. The cash generating units used to test impairment are generally the individual
acquired businesses, or, where these have been operationally merged with others, the resulting
merged businesses. Goodwill is not amortised but tested for impairment annually with the
recoverable amount being determined, from value in use calculations. Goodwill has been allocated
for impairment testing to each Cash Generating Unit (CGU), as follows:
Synoptics
Atik
Graticules
Sentek
Astles Control Systems
Applied Thermal Control
MPB Industries
Chell Instruments
Monmouth Scientific
Uniform Engineering
2021
£’000
453
1,229
1,278
1,282
2,503
1,028
630
2,492
2,824
253
13,973
2020
£’000
453
1,229
1,278
1,282
2,503
1,028
630
2,492
–
–
10,895
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 13.7% (2020: 12%) which was judged to be appropriate for
each of the CGU’s given that they operate in similar markets and the risk profiles are similar.
Management’s key assumption for all cash generating units and resulting cash flows is to maintain
market share in their markets.
The Directors have concluded that Goodwill is not impaired for any of the cash generating units.
They have further considered the sensitivity of the key assumptions which were most sensitive to
changes, including reduced growth rates and increased discount rates. The Growth rates are based
on economic data for the wider economy and represent a prudent expectation of growth.
Management do not consider it probable that any reasonable change in the key assumptions
would result in an impairment, given the available headroom.
The average remaining amortisation period of intangible assets excluding Goodwill is 7.8 years
(2020: 9.1 years).
Motor
vehicles
£’000
Computer
equipment
£’000
Tools and
other
equipment
£’000
Furniture
fixtures
& fittings
£’000
Building and
leasehold
improvement
£’000
Right of
Use Assets
£’000
Total
£’000
16
95
303
–
(20)
394
10
41
(20)
31
363
6
295
30
–
4
(3)
326
128
20
(3)
145
181
167
1,130
325
178
5
(117)
1,521
618
290
(70)
838
683
512
182
27
114
3
–
326
37
67
–
104
222
145
344
60
10
2
–
416
105
27
–
132
3,322
130
5,289
667
72
7
(200)
3,331
677
21
(340)
6,314
490
528
(85)
933
1,388
973
(178)
2,183
284
239
2,398
2,832
4,131
3,901
Cost
At 1 May 2020
Additions
Additions on
acquisition
FX movement
Disposals
At 30 April 2021
Depreciation
At 1 May 2020
Charge for year
Disposals
At 30 April 2021
Net book value
At 30 April 2021
At 30 April 2020
Included in the net carrying amount of right of Use assets are building and leasehold improvements
£2,324k (2020: £2,821k) and of motor vehicles of £74k (2020: £11k).
76
Financial Statements
SDI Group plc Annual Report 2021
77
Notes to the Consolidated Financial Statements
continued
12
Leases
Lease liabilities are presented in the balance sheet as follows:
Current
Non-current
2021
£’000
509
2,050
2,559
2020
£’000
539
2,414
2,953
The Group has leases for the main factory buildings and offices, and for some vehicles and
equipment. With the exception of short-term leases and leases of low-value underlying assets,
each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. Variable
lease payments which do not depend on an index or a rate are excluded from the initial
measurement of the lease liability and asset. The Group classifies its right-of-use assets in a
consistent manner to its property, plant and equipment (see note 11).
Each lease generally imposes a restriction that, unless there is a contractual right for the Group to
sublet the asset to another party, the right-of-use asset can only be used by the Group. Leases are
either non-cancellable or may only be cancelled by incurring a substantial termination fee. For
leases over office buildings and factory premises the Group must keep those properties in a good
state of repair and return the properties in their original condition at the end of the lease.
Furthermore, the Group must insure items of plant and machinery and incur maintenance fees on
such items in accordance with the lease contracts.
The lease liabilities are secured by the related underlying assets. Total contractual undiscounted
lease liabilities at 30 April 2021 were as follows:
Within one year
Within two to five years
After five years
Total undiscounted lease liabilities
2021
£’000
492
1,182
1,109
2,783
2020
£’000
583
1,668
1,255
3,506
At 30 April 2021 the Group was committed to a long-term lease of the new custom built factory
building at Monmouth Scientific and the total commitment at that date was £4.2m.
Lease payments not recognised as a liability
The Group has elected not to recognise a lease liability for short term leases (leases with an
expected term of 12 months or less) or for leases of low value assets. Payments made under such
leases are expensed on a straight-line basis. In addition, certain variable lease payments are not
permitted to be recognised as lease liabilities and are expensed as incurred.
Deferred Tax
13
Opening
Capitalised R & D
Deferred tax on share options
Acquired deferred tax assets/liabilities
Intangibles recognised on business combinations
Amortisation acquired intangible assets
Adjustment to enacted tax rate
Trading losses recognised/used
Adjustment to prior year
Other temporary differences
At 30 April 2021
Deferred tax on capitalised R&D
Other temporary differences
Deferred tax on acquired intangible assets
Deferred tax on share option exercises
Trading losses recognised
At 30 April 2021
2021
Deferred
tax asset
£’000
Deferred
tax liability
£’000
2020
Deferred
tax asset
£’000
Deferred
tax liability
£’000
246
–
1,249
–
–
–
–
–
54
148
1,697
(2,134)
41
–
(90)
(544)
217
–
–
37
(6)
(2,479)
180
–
47
–
–
–
23
(26)
40
(18)
246
(1,448)
–
–
(25)
(490)
122
(181)
–
(8)
(104)
(2,134)
2021
Deferred
tax asset
£’000
Deferred
tax liability
£’000
2020
Deferred
tax asset
£’000
Deferred
tax liability
£’000
–
200
–
1,468
29
1,697
(138)
(203)
(2,138)
–
–
(2,479)
–
22
–
224
–
246
(189)
(145)
(1,800)
–
–
(2,134)
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 £255k (2020: £355k) in respect of losses. Total losses (provided
and unprovided) totalled £1.5m (2020: £1.8m).
The Group benefits from tax deductions related to actual gains made by employees on exercise
of share options, which are different, in both magnitude and timing, from the share-based
payments expense recorded in the Group’s Income Statement (for which no tax deduction is
received). A deferred tax asset is recorded for the tax deductions expected to result from future
share option exercises, based on the calculated earned gains inherent in share options outstanding
at period end, at the current enacted tax rate. To the extent that the deductible employee gains
exceed the recorded share-based payments, the excess of the associated current or deferred tax
is recognised directly in equity. For 2021, tax deductions totalling £1,438k (2020: nil) have been
recognised directly in equity.
78
Financial Statements
SDI Group plc Annual Report 2021
79
Notes to the Consolidated Financial Statements
continued
14
Inventories
Trade and Other Payables
Raw materials and consumables
Work in progress
Finished goods
2021
£’000
4,086
750
1,223
6,059
2020
£’000
1,948
289
1,491
3,728
Trade payables
Social security and other taxes
Contingent consideration
Other payables
Accruals and deferred income
There is no material difference between the replacement cost of inventory and the amounts
stated above.
In the year ended 30 April 2021 a total of £12,206k (2020: £7,975k) of inventories were consumed
and charged to the Income Statement as an expense.
15
Trade and Other Receivables
Trade receivables
Corporation tax
Other receivables
Prepayments
2021
£’000
6,182
17
171
373
6,743
2020
£’000
3,009
52
171
385
3,617
All amounts are short-term. All of the receivables have been reviewed for potential credit losses,
and expected credit loss has been estimated.
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 2020
Increase in provision
Provision as at 30 April 2021
2021
£’000
2020
£’000
165
30
195
–
165
165
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
2021
£’000
2020
£’000
3,836
5,290
2021
£’000
3,347
751
2,350
705
5,673
12,826
2020
£’000
1,427
379
–
90
1,454
3,350
17
18
Accruals and deferred income includes an amount of £3,875k (2020: £398k) in respect of contract
liabilities for revenues relating to performance obligations expected to be satisfied within the next
12 months. The contract liabilities balance has increased significantly during the year as a result of
the significant contract for equipment relating to testing of COVID-19 in Atik. All of the prior year
contract liabilities of £398k were recognised as revenue during the current year.
At the end of the year, contingent consideration of £2.35m was outstanding for Monmouth and
this has since been paid to the sellers.
All amounts are short-term. The carrying values are considered to be a reasonable approximation
of fair value.
Provisions
Dilapidations
Warranties
2021
£’000
2020
£’000
2021
£’000
2020
£’000
As at 1 May 2020
Charged/(provided) for in year
Total as at 30 April 2021
–
110
110
–
–
–
85
35
120
As at 1 May 2020
Charged for in year (net)
Total provisions as at 30 April 2021
Total
2021
£’000
85
145
230
11
74
85
2020
£’000
11
74
85
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 of which the level of costs is uncertain. The warranty provision is based
on the historical cost of warranty repairs over the last three years and it is expected that the
majority of this expenditure will be incurred in the next financial year. During the year the Group
acquired Monmouth Scientific Limited and as part of the acquisition, dilapidations of £110k have
been provided for.
80
Financial Statements
SDI Group plc Annual Report 2021
81
Notes to the Consolidated Financial Statements
continued
19
Borrowings
Borrowings are repayable as follows:
Share Capital
Within one year
Bank finance
Leases
After one and within five years
Bank finance
Leases
Total borrowings
2021
£’000
2020
£’000
1,371
509
1,880
1,714
2,050
3,764
5,644
1,371
539
1,910
7,962
2,414
10,376
12,286
Bank finance relates to amounts drawn down under the Group’s bank facility with HSBC Bank plc,
which is secured against all assets of the Group. The facility consists of a revolving facility of £5.0m
and an amortising facility which reduces in quarterly instalments from £4.8m when it was taken out
in November 2019 to zero by April 2023, when the current agreement expires. The revolving facility
is undrawn, and is available for general use. The facility has covenants relating to leverage (net debt
to EBITDA), interest coverage, and cash flow to debt service.
20
Reconciliation of Liabilities Arising From Financing Activities
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
At 30 April 2020
Movements:
New loans
Repayments
Assumed on acquisition
At 30 April 2021
Long term
borrowing
£’000
Short term
borrowing
£’000
Leases
£’000
Total
£’000
7,962
1,371
2,953
12,286
–
(6,248)
–
1,714
5,404
(5,404)
–
1,371
24
(489)
71
2,559
5,428
12,141
71
5,644
21
22
Authorised
1,000,000,000 (2020: 1,000,000,000) Ordinary shares of 1p each
Allotted, called up and fully paid 98,408,164
(2020: 97,503,951) Ordinary shares of 1p each
2021
£’000
2020
£’000
10,000
10,000
984
975
During the year 673,533 Ordinary shares of 1p were issued due to the exercise of options and
230,680 Ordinary shares of 1p were issued to part fund the acquisition made during the year. The
673,533 options had an exercise price ranging from £0.172 to £0.867. The Group received £155k
cash as well as offsetting £200k against the acquisition of Monmouth, which was allocated £9k to
share capital and £346k to share premium.
Earnings Per Share
The calculation of the basic earnings per share is based on the profits attributable to the
shareholders of SDI Group 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 2021
– Year ended 30 April 2020
Dilutive effect of share options:
– Year ended 30 April 2021
– Year ended 30 April 2020
Diluted earnings per share:
– Year ended 30 April 2021
– Year ended 30 April 2020
Profit
attributable to
shareholders
£’000
Weighted
average
number of
shares
Earnings
per share
amount in
pence
4,708
2,591
97,852,313
97,277,721
4.81
2.66
4,946,771
3,928,426
4,708 102,799,084
101,206,148
2,591
4.58
2.56
At the year end, there were no (2020: 425,000) share options which were anti-dilutive but may be
dilutive in the future.
Contingent Liabilities
23
Performance guarantees totalling £32k (2020: £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.
82
Financial Statements
SDI Group plc Annual Report 2021
83
Notes to the Consolidated Financial Statements
continued
24
Related Party Transactions and Controlling Related Party
Transactions with directors are disclosed within the Directors’ Remuneration Report and note 7.
The Company is not required to disclose transactions with its wholly owned subsidiaries.
Unless otherwise stated, none of the transactions incorporated in these financial statements
include any special terms or conditions. There is no ultimate controlling party.
25
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-term 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 £31k (2020: £94k) annually, based on
the loan outstanding at 30 April 2021.
Currency risk
A significant proportion of the Group’s monetary assets (principally bank balances and trade
receivables) and liabilities (principally borrowings) are denoted in Dollars and Euros but held in
entities with Sterling as the functional currency. An adverse movement in exchange rates could
lead to losses on these positions. As at 30 April 2021 an adverse movement in the dollar of 5%
would result in a reduction in the Group’s equity and profit or loss of £62k (2020: £3k). An adverse
movement in the Euro of 5% would result in a reduction in the Group’s equity and profit or loss of
£64k (2020: £7k).
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
Liabilities
2021
£’000
1,303
1,354
2020
£’000
2021
£’000
2020
£’000
413
841
–
–
(479)
(696)
In addition significant proportions of the Group’s revenue, purchases and overhead costs are
transacted in foreign currencies, mainly Dollars and Euros. 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 £10,757k (2020: £9,020k). 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 below. All of the receivables have been reviewed
for potential credit losses, and expected credit loss has been estimated, as set out in note 15. The
simplified approach has been adopted to calculate the level of expected credit loss provision in the
year with a 30% allowance applied to those debtors due between 90 days and 120 days and a 70%
allowance applied to those debtors greater than 120 days old.
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.
The Group’s financial liabilities have contractual maturities as summarised below:
As at 30 April 2021:
Trade and other payables
Borrowings
As at 30 April 2020:
Trade and other payables
Borrowings
Ageing of receivables:
Past due less than 1 month
Past due 1-3 months
Past due 3-6 months
Past due 6-12 months
Past due greater than 12 months
Current
Non-current
Within 6
months
£’000
12,826
1,192
Between
6 and 12
months
£’000
Between
1 and 5
years
£’000
Later than
5 years
£’000
–
988
–
4,364
–
–
Current
Non-current
Within 6
months
£’000
3,350
1,017
Between
6 and 12
months
£’000
Between
1 and 5
years
£’000
Later than
5 years
£’000
–
893
–
10,376
–
–
2021
2020
Gross
£’000
Provision
£’000
Gross
£’000
Provision
£’000
3,698
1,873
757
75
1
6,404
–
(2)
(186)
(33)
(1)
(222)
1,611
1,137
276
136
96
3,256
–
–
(43)
(124)
(81)
(247)
84
Financial Statements
SDI Group plc Annual Report 2021
85
Notes to the Consolidated Financial Statements
continued
26
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
2021
£’000
Non-
financial
assets
2021
£’000
Financial
liabilities at
amortised
cost
2021
£’000
Financial
liabilities
measured
at fair value
through
profit & loss
2021
£’000
Balance sheet headings
Cash and cash equivalents
Trade and other receivables
Borrowings – current
Borrowings – non-current
Trade and other payables –
current
Total
3,836
6,370
–
–
–
10,206
–
373
–
–
–
373
–
–
(1,880)
(3,764)
–
–
–
–
Non-
financial
liabilities
2021
£’000
–
–
–
–
Total
balance
sheet
heading
2021
£’000
3,836
6,743
(1,880)
(3,764)
(9,725)
(15,369)
(2,350)
(2,350)
(751)
(751)
(12,826)
7,891
Financial
assets at
amortised
cost
2020
£’000
Non-
financial
assets
2020
£’000
Financial
liabilities at
amortised
cost
2020
£’000
5,290
3,232
–
–
–
8,522
–
385
–
–
–
385
–
–
(1,910)
(10,376)
(2,971)
(15,257)
Financial
liabilities
measured
at fair value
through
profit & loss
2020
£’000
–
–
–
–
–
–
Non-
financial
liabilities
2020
£’000
–
–
–
–
Total
balance
sheet
heading
2020
£’000
5,290
3,617
(1,910)
(10,376)
(379)
(379)
(3,350)
(6,729)
Balance sheet headings
Cash and cash equivalents
Trade and other receivables
Borrowings – current
Borrowings – non-current
Trade and other payables –
current
Total
The fair values of the financial assets and liabilities at 30 April 2021 and 30 April 2020 are not
materially different from their book values.
Capital Management Policies and Procedures
The Group’s capital management objectives are:
l to ensure the Group’s ability to continue as a going concern; and
l to provide an adequate return to shareholders; and
l be in a position to make acquisitions (‘buy and build’ strategy)
The Group monitors capital by tracking and forecasting its Debt-to-EBITDA ratio as required by its
bank facility covenant. The Group has historically acquired companies using a combination of cash
on hand, increased borrowing, issue of shares to the sellers, and new equity share placings, taking
care to retain adequate liquidity reserves.
The Group will keep its dividend policy under review.
Business Combinations
On 03 December 2020, the Company acquired the entire share capital of Monmouth Scientific
Limited, a company incorporated in England and Wales, for a consideration payable in cash and shares.
The assets and liabilities acquired were as follows:
Book value
£’000
Fair Value
adjustment
£’000
Fair Value
£’000
27
28
Assets
Non-current assets
Intangible assets
Property, plant & equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Borrowings – lease commitments
Corporation tax
Deferred tax liability
Provisions for warranty and dilapidations
Net assets acquired
Goodwill
Consideration and cost of investment
Fair value of consideration transferred
Cash paid in year
SDI Group shares issued to sellers
Estimate of Earnout payment
–
473
473
1,308
623
572
(922)
–
(207)
(86)
(125)
1,636
2,741
74
2,815
–
–
–
–
(74)
–
(520)
(35)
2,186
–
2,825
2,741
547
3,288
1,308
623
572
(922)
(74)
(207)
(606)
(160)
3,822
2,825
6,647
4,097
200
2,350
6,647
86
Financial Statements
SDI Group plc Annual Report 2021
87
Notes to the Consolidated Financial Statements
continued
28
Business Combinations continued
The assets and liabilities acquired were as follows:
Monmouth Scientific Limited contributed £3,401k revenue and approximately £436k (after
management charges) to the Group’s profit before tax for the period between the date of acquisition
and the balance sheet date, not including £392k of acquired intangible asset amortisation.
If the acquisition of Monmouth Scientific Limited had been completed on the first day of the
financial year, the additional impact on group revenues for the period would have been £4,781k
and the additional impact on group profit would have been approximately £955k (after
management charges), before additional £94k of amortisation expense.
The goodwill of £2,825k arising from the acquisition relates to the assembled workforce and to
expected future profitability, synergy and growth expectations.
Management performed a detailed review of the acquired intangible assets, and recognised
acquired customer relationships, trademarks and domain names, and order book. The customer
relationships intangible asset was 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, net of orders on hand at the date of acquisition. Key assumptions are the discount rate
and attrition rate. Values of 16% and 16% were selected. The order book of Monmouth Scientific
Limited at the date of acquisition was substantial and included many orders for equipment
related to testing for COVID-19. The intangible order book asset has been fully amortised in the
period to April 2021.
The deferred tax liability has been calculated on the amortisable intangible assets using the
current statutory tax rate of 19%.
The last financial year for Monmouth Scientific Limited before the acquisition closed was to
31 March 2020. The current financial year has been extended by one month to April 2021 to
align with that of SDI Group plc.
On 29 January 2021, the Company acquired the trade and assets of Uniform Engineering, and
injected them into Uniform Engineering Limited, a company incorporated in England and Wales,
for a consideration payable in cash.
Assets
Non-current assets
Intangible assets
Property, plant & equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
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
–
26
26
46
177
–
(67)
–
182
–
120
–
–
–
–
–
–
(23)
97
253
1200
26
146
46
177
–
(67)
(23)
279
253
532
532
532
Uniform Engineering Limited contributed £171k revenue (excluding intercompany revenue) and a
loss of approximately £58k to the Group’s profit before tax for the period between the date of
acquisition and the balance sheet date, not including £3k of acquired intangible asset amortisation.
If the acquisition of Uniform Engineering Limited had been completed on the first day of the
financial year, the additional impact on group revenues for the period would have been £750k and
the additional impact on group profit would have been approximately £75k (after management
charges), before additional £10k of amortisation expense.
The goodwill of £253k arising from the acquisition relates to the assembled workforce and to
expected future profitability, synergy and growth expectations.
Management performed a detailed review of the acquired intangible assets, and recognised
acquired customer relationships. The customer relationships intangible asset was 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.
The deferred tax liability has been calculated on the amortisable intangible assets using the current
statutory tax rate of 19%.
Prior Year Restatement
29
A prior year restatement was made to split out the merger relief reserve of £424k from the merger
reserve. A third balance sheet is not required for this restatement as per IAS 1.40A given that the only
effect on the information in the statement of financial position at the beginning of the comparative
period was splitting out the reserve from where it was aggregated in the comparative period.
88
Financial Statements
SDI Group plc Annual Report 2021
89
Company Balance Sheet
as at 30 April 2021
Company Statement of Changes in Equity
as at 30 April 2021
At 1 May 2020
Shares issued
Tax in respect to share options
Share-based payment transfer
Share-based payments
Transactions with owners
Profit for the year
Total comprehensive income
At 30 April 2021
At 1 May 2019
Shares issued
Share-based payment transfer
Share-based payments
Transactions with owners
Profit for the year
Total comprehensive income
At 30 April 2020
Share
capital
£’000
Merger
reserve
relief
£’000
Share
premium
reserve
£’000
Share-
based
payment
reserve
£’000
975
9
–
–
–
9
–
–
984
424
–
–
–
–
–
–
–
424
8,748
344
–
–
–
344
–
–
9,092
467
–
–
(58)
305
247
–
–
714
Profit
and loss
account
£’000
6,109
–
1,022
58
–
1,080
3,597
3,597
10,786
Share
capital
£’000
Merger
reserve
relief
£’000
Share
premium
reserve
£’000
Other
reserves
£’000
Profit
and loss
account
£’000
972
3
–
–
3
–
–
975
424
–
–
–
–
–
–
424
8,698
50
–
–
50
–
–
8,748
284
–
(93)
276
183
–
–
467
4,973
–
93
–
93
1,043
1,043
6,109
Total
£’000
16,723
353
1,022
–
305
1,680
3,597
3,597
22,000
Total
£’000
15,351
53
–
276
329
1,043
1,043
16,723
Fixed assets
Property, plant & equipment
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
Note
2021
£’000
2020
£’000
4
5
6
7
8
7
27,476
–
1,241
28,724
2
21,298
–
164
21,464
4,315
3,184
7,499
3,374
2,091
5,465
(12,507)
(2,244)
(5,008)
3,221
23,716
24,685
Creditors: amounts falling due after more than one year
9 & 10
(1,716)
(7,962)
Net assets
Capital and reserves
Called up share capital
Share premium account
Share-based payment reserve
Merger relief reserve
Profit and loss account
Shareholders’ funds
11
22,000
16,723
984
9,092
714
424
10,786
22,000
975
8,748
467
424
6,109
16,723
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 £3,597k
(2020: £1,043k).
The financial statements were approved and authorised for issue by the Board of Directors on 19 July 2021.
Mike Creedon
Chief Executive Officer Chief Financial Officer
Jon Abell
Company registration number: 6385396
90
Financial Statements
SDI Group plc Annual Report 2021
91
Notes to the Company Financial Statements
for the year ended 30 April 2021
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:
l A statement of cash flows and related notes
l The 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.
l Disclosure of key management personnel compensation
l Capital management disclosures
l Presentation of comparative reconciliation of the number of shares outstanding at the beginning
and at the end of the period
l The effect of future accounting standards not adopted
l Certain share-based payment disclosures
l Disclosures in relation to impairment of assets
l Financial instrument disclosures under IFRS 9
Investments
SDI Group 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
SDI Group 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 income statement 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 income statement. 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 contribution’s payable to
the defined contribution scheme in respect of the accounting period.
Employee Remuneration
Remuneration in respect of directors paid by the Company was as follows:
Emoluments
Pension
2021
£’000
452
14
466
2020
£’000
476
14
490
During the year, no directors exercised share options (2020: one director exercised 430,528) held
over ordinary shares of SDI Group plc.
Details of directors’ interest in the shares and options of the Company are provided in the directors’
remuneration report on pages 34-35. The highest paid director aggregate entitlements were £198k
(2020: £236k) in addition to Company pension contributions of £8k (2020: £8k) made to a money
purchase scheme. As at 30 April 2021 the highest paid Director held a total of 1,952,327 share
options (2020: 1,952,327 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 £61k (2020: £62k).
Share-based employee remuneration
Further details of the Company’s share-based remuneration are set out in note 7 to the
consolidated financial statements.
The share-based payment expense for the Company totalled £202k (2020: £193k).
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
2021
£’000
2020
£’000
–
10
6
12
Investments
Investments in Group undertakings
Cost and net book amount as at 1 May 2020
Additions
Share-based payment expense recognised as capital contributions in subsidiaries
Cost and net book amount as at 30 April 2021
£’000
21,298
6,075
103
27,476
2
3
4
92
Financial Statements
SDI Group plc Annual Report 2021
93
Notes to the Company Financial Statements
continued
4
Investments continued
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
Chell Instruments Limited
Monmouth Scientific Limited
Ducthub Limited
Labhub Limited
Country of
Incorporation
England
& Wales
England
& Wales
Portugal
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
England
& Wales
Holdings
Ordinary
shares
Ordinary
shares
Share
quotas
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
Ordinary
Shares
% of voting
rights
Nature of
Business
100%
Design &
Manufacture
100%
Design
100%
Manufacture
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Dormant
Design &
Manufacture
Design &
Manufacture
Design &
Manufacture
Dormant
Design &
Manufacture
Design &
Manufacture
Design &
Manufacture
Design &
Manufacture
Design &
Manufacture
100%
Dormant
100%
Dormant
The following companies are all held by Synoptics Limited:
Scientific Digital Imaging Limited
England
& Wales
Ordinary
Shares
100%
Dormant
Synoptics Inc
USA
Ordinary
100%
Distributor
The following company is held by Monmouth Scientific Limited:
Uniform Engineering Limited
England
& Wales
Ordinary
Shares
100%
Design &
Manufacture
Each of the above investments has been included in the consolidated financial statements.
A parental guarantee has been granted to Uniform Engineering Limited, company number
13117156, which means it is exempt from the requirements of the Act relating to the audit of its
individual accounts.
Intangible Assets
Cost at 30 April 2021 & 2020
Amortisation at 30 April 2021 & 2020
Net book value as at 30 April 2020
Net book value as at 30 April 2021
Deferred Tax Asset
Deferred tax asset
2021
£’000
50
50
–
–
2020
£’000
164
164
2021
£’000
1,241
1,241
The deferred tax asset relates to tax deductions for share options as they are exercised.
Debtors
Inter-group debtors
Prepayments and accrued income
Other debtors
2021
£’000
4,210
97
8
4,315
2020
£’000
3,254
111
9
3,374
All debtors fall due within one year of the balance sheet date. No provisions are made for inter-
group debtors as the credit risk is not thought to be significant.
Creditors: Amounts Falling Due Within One Year
Bank loans
Amounts owed to other group companies
Trade creditors
Lease liabilities
Social security and other taxes
Other creditors
Accruals and deferred income
2021
£’000
1,371
7,746
31
7
16
2,928
408
12,507
2020
£’000
1,371
713
31
2
11
–
116
2,244
5
6
7
8
94
Financial Statements
SDI Group plc Annual Report 2021
95
Notes to the Company Financial Statements
continued
9
Creditors: Amounts Falling Due After One Year
Called Up Share Capital
Bank loans
Leases
10
Borrowings
Within one year
Bank finance
After one and within five years
Bank finance
Total borrowings
2021
£’000
1,714
2
1,716
2020
£’000
7,962
–
7,962
2021
£’000
2020
£’000
1,371
1,371
1,714
1,714
3,085
1,371
1,371
7,962
7,962
9,333
Bank finance relates to amounts drawn down under the Company’s bank facility with HSBC Bank
plc, which is secured against all assets of the Group. The facility consists of a revolving facility of
£5,000,000 and an amortising facility which reduces in quarterly instalments from £4,800,000
when it was taken out in November 2019 to zero by April 2013, when the current agreement
expires. The facility has covenants relating to leverage (net debt to EBITDA), interest coverage,
and cash flow to debt service.
Authorised
1,000,000,000 Ordinary shares (2020: 1,000,000,000) of 1p each
Allotted, called up and fully paid 98,408,164
(2020: 97,503,951) Ordinary shares of 1p each
2021
£’000
2020
£’000
10,000
10,000
984
975
During the year 673,533 Ordinary shares of 1p were issued due to the exercise of options and
230,680 Ordinary shares of 1p were issued to part fund the acquisition made during the year.
The 673,533 options had an exercise price ranging from £0.172 to £0.867. The Group received
£155k cash as well as offsetting £200k against the acquisition of Monmouth, which was allocated
£9k to share capital and £346k to share premium.
Share options
A summary of options outstanding currently is provided in note 7 to the consolidated
financial statements.
Related Party Transactions
Transactions with directors are disclosed within the Directors’ Remuneration Report and note 7
to the consolidated financial statements. The Company is not required to disclose transactions
with its wholly owned subsidiaries.
11
12
96
96
Financial Statements
Financial Statements
SDI Group plc Annual Report 2021
97
Six Year Summary
Shareholder Information
Revenue
Cost of sales
Gross profit
2021
£’000
2020
£’000
35,076
(12,206)
22,870
24,498
(7,899)
16,599
2019
£’000
17,427
(5,902)
11,525
2018
£’000
2017
£’000
14,496
(4,954)
9,542
10,748
(3,837)
6,911
2016
£’000
8,473
(3,298)
5,175
Gross margin %
65.2%
67.8%
66.1%
65.8%
64.3%
61.1%
Other income
All other operating costs
Adjusted operating profit
21
(15,191)
7,700
19
(12,016)
4,602
–
(8,423)
3,102
–
(7,196)
2,346
–
(5,575)
1,336
–
(4,346)
819
Reorganisation costs
Share-based payments
Acquisition costs
Amortisation of acquired intangible assets
Operating profit
Net financing expenses
Profit before tax
(132)
(305)
(179)
(1,153)
5,931
(287)
5,644
(110)
(276)
(58)
(647)
3,511
(254)
3,257
(124)
(136)
(288)
(356)
2,198
(77)
2,121
(63)
(65)
(165)
(277)
1,776
(63)
1,713
(87)
(2)
(165)
(118)
964
(61)
903
Income tax
(936)
(666)
(209)
(98)
(75)
Profit for the year
4,708
2,591
1,912
1,616
828
(17)
(7)
(178)
(81)
536
(40)
496
75
571
Cash generated from operations
11,710
5,169
3,620
2,854
1,406
1,298
Earnings per share
Basic earnings per share
Diluted earnings per share
Adjusted diluted earnings per share
4,81p
4.58p
5.97p
2.66p
2.56p
3.43p
2.10p
2.05p
2.83p
1.81p
1.79p
2.30p
1.17p
1.14p
1.55p
1.17p
1.15p
1.61p
IFRS 16 ‘Leases’ came into effect in the year ended 30 April 2020. No adjustment has been made to any periods prior to this.
SDI Group plc
Company registration number 6385396
Registered office
Beacon House, Nuffield Road, Cambridge CB4 1TF
Directors
E K Ford Chairman
M J Creedon Chief Executive Officer
I Napper Non-Executive Director
D F Tilston Non-Executive Director
J P Abell Chief Financial Officer
Company Secretary
J P Abell
Bankers
HSBC Bank Plc
50-60 Station Road, Cambridge CB1 2JH
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
One Bartholomew Close, London EC1A 7BL
Registrar
Share Registrars Limited
The Courtyard, 17 West Street, Farnham, Surrey GU9 7LL
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SDI Group plc
Beacon House
Nuffield Road
Cambridge CB4 1TF
T +44 (0)1223 727144
F +44 (0)1223 727101
E info@thesdigroup.net
www.thesdigroup.net