SDI Group plc (SD0.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the SDI Group plc Full Year Results Investor Presentation. [Operator Instructions]. The company may not be in a position to ask every question you received during the meeting itself; however, it will review all questions submitted today and publish responses where appropriate to do so. I would now like to hand over to Michael Creedon, CEO; and Jon Abell, CFO. Good afternoon.

Good afternoon. Quick intro. Just before we do a quick intro, I'll actually did this at the last meeting. I'll just show you our head office. That's Jonathan there. So that's how we keep our costs under control by just having 3 people in a very small surfaced office. And let's start the presentation, which is to give you some idea of where we were. So on the first page will be the Board of Directors, Jon. Just a couple of points on that. And this is the last performance of this famous double act of Jon and Mike. Jon is leaving us in September, and he will be replaced by Ami Sharma, who joins on the 8th of August. The second point is Isabel is leaving on the 8th of August and we are in advanced stages of recruiting a replacement for that. The next page, group overview. As you can see, the hexagons have got smaller because we've added another 2 further hexagons at the bottom of the slide. We acquired 2 businesses during the financial year, Scientific and Vacuum systems in January 2022. They're based Finchampstead, which is very close to the [indiscernible]. And then in March 2022, we acquired Safelab Systems and they're based in Weston-Super-Mare. Jon will go through this in more detail in the slides. Our business model still remains strong, having now acquired 15 profitable cash-generative businesses in 8 years. I'll just hand you over to Jon now who can go through the nitty-gritty of the numbers.

Thank you, Mike. So well, not so nitty-gritty actually. Our track record over the last 7 or 8 years has been pretty good, and 2022 was no exception. So as you can see with the graph, revenue continued to increase quite strongly. Operating profit also and cash generation from -- generated from operations also very strong. So over the last 7 years, some of these metrics have grown quite strongly with a compound average growth rate -- annual growth rate of revenues of 34% and adjusted operating profit of 57% per year for 7 years and operating profit 63%. Cash generated from operations, 50% and adjusted diluted earnings per share up 32%. And this year, most of those same metrics, we've grown even faster. So it's been a good year. Now I've lost it, got to move on. Put in a new slide this year, which is about capital employed and return on capital employed. So the red bars are showing how much capital is employed in the business over the last 7 years. So starting from about GBP 5 million, GBP 6 million, and this year, we've reached GBP 35 million of capital employed. That is total equity, added bank borrowings and deducted cash. So this is almost entirely due to acquisitions, and it's the buy part of our buy-and-build strategy. So it's due to acquisitions because our net tangible assets are, in fact, negative. So all of this is really intangible assets and due to the goodwill of acquisitions we bought. Then moving to the orange line, this is the return on capital employed. And here, I'm using EBIT, so reported divided by the average capital employed in a year, so beginning and end. And it started off in 2016 at about 12%. So a reasonable but not brilliant level. And over these last 7 years, it's grown until this year, we hit 34% return on capital employed beginning and ending average. And when you think about it, we're buying businesses which typically yield at the same kind of metric at about 14% to 20%, so we're buying businesses on a multiple of roughly 6% -- 5%, 6%, 7% -- 7x EBIT. So we're adding those at 14% to 20%. But nevertheless, doing that over time, we've managed to increase return on capital employed to 35%, 34% this year. And that reflects our investing in the businesses, which generates the -- and allows the organic growth and operating margin improvement. And that's the build part of our business model. We've made 15 acquisitions since 2014, 6 of them combined with existing units and 9 becoming new stand-alone operating units to add to the 2 that existed before 2014, also making a total of 11. I'm going to move on to how we fund that important to investors. So on this slide, the orange line is the cumulative amount of acquisition cash paid. So this is what we paid for the businesses over the years cumulative. So over the years, we've spent GBP 36 million investing in new businesses for the group. You can see that the red line, which is the equity raised after the initial placement, we started raising further funds for acquisitions in around 2013, 2014. And for the first 2 or 3 years of the acquisition buy-and-build model, we were raising money in order to buy new building, new businesses and adding them on. But since around 2018, our cash flow, which is the blue line, a cumulative free cash flow that the business has generated, start to become much more important. And now since our last equity raise of 2019, the free -- company's own free cash flow, it's been the major source of acquisition funding. So in 2019, we purchased, I think, 4 businesses. And for one of those, we raised GBP 2.4 million of fresh equity. Since then, we haven't raised anymore. We have, in a couple of cases, the -- and even before 2019, some of the sellers opted to take a portion of their consideration in SDI equity, but generally, that's been a small element, and that's the reason why you see the red line only slightly increasing towards the last 3 or 4 years. Otherwise, free cash flow is the major source of acquisition funding. But now as profit has increased as well, our borrowing capacity is growing in line with that growth in free cash flow. So we've also got another source of funding, which is our borrowing capacity. And going forward, I think it's the case that we want to -- if we have acquisitions to fund, which we will have, the first port of call is our own cash and our own cash flow, after which it's going to be debt funding and then if necessary, if we have in the good case that we have more acquisitions than we can fund internally, we will then go back to the market. That's -- the prospect of that is lower than it's ever been, I think. We're going to move on to the -- more in detail on the 2022 financial numbers. We've really seen these numbers before. So all kind of levels of profitability are up quite dramatically again this year, revenue up 42%, adjusted diluted EPS up 44%. That's what shareholders see. And cash generated from operations up 25%, slightly lower, and we'll explain that in a minute. What are the growth drivers? What's causing this growth? This year, our organic sales growth has been 22%, and that builds on 19% of last year. So that's, if you like, the last year 2021 coincided more or less with the first year of the COVID pandemic. So now we are, on average, our existing businesses are 45% bigger than before the COVID pandemic. So that's quite a number, I think. Of course, Atik. It is well known that Atik Cameras contributed a lot of that growth. So Atik Cameras of the 22% organic sales growth in 2022, most of that, 16% of that came from Atik cameras. The other businesses grew by 9% organically. Now Atik Cameras, as is well known, we are selling cameras, which specifically for this, we're selling cameras that are being built into PCR equipment. The PCR is used for testing for COVID-19 amongst other uses. And the sales in Atik are expected to be slightly lower in 2023 than in 2022. That's based on our confirmed PCR orders only plus other sales from Atik Cameras. A history of that particular contract is we received a -- what we thought was a onetime contract for cameras for the PCR machines back in 2020. And then another one and then another one. And each time we're thinking, well, these are onetime orders. And so far, that hasn't turned out really to be the case because we still got orders on hand for 2023 shipment. Atik Cameras as well has grown a lot over the years, and we have a slide on that later on but it's got good prospects of leveraging what it's done, it's growth and it's now range of products into other life science applications. And that's really the focus for the future is certainly PCR applications and certainly Gel doc applications, but there are plenty of other life science applications that we are aiming to be supplying into in the future. The other driver for SDI of growth is mergers and acquisitions. We've historically done between 1 and 4 acquisitions every year since 2014. We've grown to 11 operating businesses, 11 or 12, depending on definition. Really, our key constraints there, not so much -- the fact that we're in competition with others to do that, though there's some competition. It's not really price expectations, although some buyers are not willing to accept the kind of price that we would pay and therefore, don't sell that business. It's not funding, and it's not really our own management time because we will bring in any resources necessary, but it's really just the availability of appropriate targets. And there are plenty around, but they're not -- we don't have a list of 100 to execute this year, but we have a good portfolio now and that's a good funnel of acquisition targets now, that some of which are in different stages, but some will -- we would certainly expect to execute this year. Our favorite, if you like, acquisition, our most successful way of finding an acquisition is those have founders who want financial security, but also want to remain involved in the business and see it grow further. Maybe they want to reduce the risk or maybe they simply think that being part of a group like SDI will help their business to grow. So we like that kind of business, but we've also got good examples where the founders have already sold out, good nonowner management is in place and we're happy to look at those as well. What we don't do is buy businesses where we don't -- where we would have to provide new management, and we just can't do that because we don't have spare management going around. The current status is no change in our criteria. There's been somewhat of a shift, I think, over COVID that sellers require an earn-out, a short one. So within the year, in order to reconcile their price expectations of what the business is really worth with what we're prepared to pay based on recent history. But -- and maybe we've seen 1 or 2 other trends like in the past, until our latest acquisition, Safelab, we haven't bought businesses with buildings. Now we're very happy to do that, and we're seeing more of that, I think, in our current funnel. We can fund larger acquisitions than we've done so far if we can find them with reasonable prices. I think Atik Cameras demonstrates that we can manage larger businesses than we've acquired to date. And really our track record is the key asset, a very key asset when we go to speak with potential sellers. So as I said, the pipeline is strong. I'm going to go into our reporting segments. As you probably know, we report our numbers under 2 segments. They are groups of businesses, and the first is Digital Imaging, which comprises the 2 original businesses Synoptics and Atik Cameras and also Graticules Optics and Sensors & Control group is more or less -- well, groups all of the other ones that aren't really Digital Imaging businesses that are largely in kind of Sensors & Control space. In Digital Imaging, turnover increased by 36%, and that's all organic, so no acquisitions there. A lot of that has been to do with the continued growth of Atik Cameras sales for PCR amplifiers. That's continuing at a high rate currently in the first half of 2023, and we've got confirmed orders going to round about September after which we'll have to see when they get renewed or further orders may or may not come in. We've had good growth also in sales of Graticules Optics and in Synoptics. So it's been a good year for Digital Imaging and a good year, too, for Sensors & Control, where turnover increased by 46% year-on-year of that. So our 2 acquisitions in the year came in into the Sensors & Control segment. SVS, scientific vacuum systems and Safe Lab systems. And our organic growth of businesses already in the Sensors & Control segment grew by 9.7% in the year. Adjusted operating profit up to GBP 5.2 million. Strong sales at Astles Control Systems and at Applied Thermal Controls. Very happy with progress in both of those businesses, some of it coming kind off at a COVID year where sales were down, but also good progress, I think, for going forward as well. Monmouth Scientific, we purchased in December of 2020. Their sales remain very strong. So they are a bigger business than they were a couple of years ago before we bought them. When we bought them, they were at a peak of sales in cabinets, which were related somehow to COVID-19, the pandemic, so biological safety cabinets. And at that time, they were selling lots of them and in batches to the same customers. So [ kitting ] out a whole series of cabinets for customers. So we might sell 10 or 20 at a time to the same customer at the same specification. This year, their sales remain very strong, but there's a more usual kind of more historical mix of fume cupboards and clean rooms and laminar flow cabinets as well. We acquired into the sensor control segment, scientific vacuum systems in January 2022. SVS manufacturers Physical Vapour Deposition systems. So these are vacuum engineered, highly engineered vacuum instruments in which metals or other material is deposited in thin coatings onto substrates, which could be metal or semiconductors or others. Very pleased with that acquisition. And in March 2023, we acquired Safelab Systems, Safelab makes fume cupboards. They are high specification and fully featured cabinets. Their main customer base is eventually for schools, universities and other institutions where they require a flexible fume cupboard, so very high specification. We sell to individual schools and colleges, universities and institutes as well as to building contractors that are [ kitting ] out, especially in the state school sector, for example, they're [ kitting ] out lots of newly built schools and laboratories. So that's the movement in the Sensors & Control and in Digital Imaging. I'm going to move on to the income statement actually only briefly because we've seen already the growth in revenues, the growth in profits of various lines. So I'm not going to dwell here. I'm, of course, happy to come back in questions to the income statement. I'm showing a revenue bridge, that's from 2020 sales to 2021 and to 2022. So 2020 was very largely pre-COVID. So our year closes in April 2020, the pandemic started really in earnest in about March of 2020. So most of 2020 was pre-COVID. The bridge to 2021 is that we have the contribution of 2020 acquisitions that added GBP 2.5 million to revenues. That's the Chell acquisition of 2020, the full year effect of that. And then we add on the 2021 acquisitions. That's Monmouth Scientific and Uniform Engineering added GBP 6 million in the year, and they were acquired in December 2020 and in, I think, January of 2021. Then on top of that, we had the positive effect of products being sold due to the COVID pandemic that added GBP 6.1 million of sales in 2021 and there were some flow meters going into ventilators and cameras going into PCR testing equipment. And then finally, the impact of the -- negative impact of the pandemic on our other businesses was a drop of GBP 4 million in revenues. So that took us from GBP 24.5 million in 2020 to GBP 35.1 million in 2021. Then this past year, the year we're talking about, those 2021 acquisitions of Monmouth and Uniform added a further GBP 5.2 million. So adding to the GBP 6 million in their first [ odd ] year of ownership. And then acquisitions towards the back end of this last year, Scientific Vacuum Systems and Safelab Systems added this year, GBP 1.7 million and will add further growth to next year. Again, the organic longtime sales, this time only really cameras for PCR machines added a further GBP 1.9 million, adding to the GBP 6.1 million of last year. So adding to a total of GBP 8 million of what we call onetime sales for COVID that the definition of that is kind of in the eyes of the beholder. And then finally, organic growth in all of our other sales was GBP 5.8 million. So reversing the GBP 4 million drop of last year and adding again an extra GBP 1.8 million. So total sales in 2022 are GBP 49.7 million. Moving on to the balance sheet. That's there to be seen, and you can get it from a handout. Just focusing on the cash situation, top right, which is important to us. We closed the year at GBP 5.1 million of gross cash and GBP 4 million of debt, bank debt, that's from our GBP 20 million facility, so leaving GBP 6 million undrawn gives us net cash at the end of the year of GBP 1.1 million. Not paid at that point. So the balance sheet at the end of 2022, the year just closed, we still owed GBP 3.3 million on the 2 acquisitions made in 2022. So that is GBP 2.3 million, it's a final payment for Safelab Systems, which we paid in June of -- June '22 and a further GBP 1 million for SVS, which is contingent on SVS financial results in the year to September 2022. So if you kind of net those off and say they are already earmarked for the acquisitions already done, we would really have a net bank debt with the contingent consideration included of GBP 2.2 million. That still leaves us with GBP 16 million of additional funds to be drawn from the facility we have and GBP 5 million of cash, so we've still got plenty of firepower for new acquisitions. And of course, we're generating cash every month as well. Here's a bridge of cash from the beginning of last year to the end of last year, we made GBP 13.2 million of operating cash inflow, that's before tax, before interest and before movement in working capital. Working capital was again favorable in the year. So that's the second year of strong growth, but reduction in working capital, and I'll mention that in the next slide. Then of course, we have capital expenditure and R&D, which are further investments into our businesses. Leases, taxes, interest and other and small amount of cash received for -- on options. And then acquisitions was, of course, the big deployment of our cash in the year. We spent GBP 11 million of cash and that includes a final payment on the Monmouth acquisition that does not include the GBP 3.3 million still to be paid on this year's acquisitions. So ending the year then with net cash of GBP 1.1 million as we saw on the previous slide. So that's a kind of very visual picture of our model, which is make a lot of cash, spend a lot of cash on new acquisitions, which will improve profit for the following years. This is cash flow more in numbers. I just want to go in a little more detail about is in that box, where we show the movements in working capital last year and this year. So a favorable movement last year of GBP 2.8 million and a favorable movement this year of GBP 1.5 million. So last year, 2021, we received GBP 3.2 million of advanced payments on COVID-19-related orders for 2022 shipments. So that was a source of funds last year at GBP 3.2 million and formed a big part of that GBP 2.8 million favorable movement in working capital. This year, that GBP 3.2 million became GBP 1.7 million of advanced payments for net 2023 shipment, so really, that's being the use of funds of GBP 1.5 million in this last year. But still, we have on our balance sheet, GBP 1.5 million of customer money that will be used to pay for shipments in this year 2023. The other part of this has been the contingent consideration -- deferred consideration for acquisitions made, which started the year, so ended 2021 at GBP 2.35 million, which was paid then in 2022. And this -- and ended the year at GBP 3.3 million we've seen on the previous 2 slides. So that's -- that has also helped a favorable movement in working capital as well. Other movements have included an increase in stocks over the year as we slightly build up stocks for both for shipments of our own products that's ready to go out of the door and for -- to take care of some of the shortages that are well known, but also we -- the down payments, the advanced payments from customers help us very much because again, we don't have debtors for those shipments because everything is paid up front. So we get not only the customers' cash in hand but when the sale has been made, we don't have debtors, so we don't have to wait for the customers' money. We've already have it. And that's the case certainly for these Atik Cameras shipments for PCRs, but we have other businesses where that's a typical part of the business is to take -- to make customer equipment for our customers. And where that's the case, we typically would get a down payment from the customer for at least part of the sale, not just us, that's a fairly common way of doing business, of course. Going to move on to operational highlights, and I'm going to ask Mike to pick up here.

Turning to Page 7. It's a fantastic buy-and-build strategy execution sort of diagram and I do like it. Anyway, let's move on. Atik Cameras update, Jon has got a lot of content on this slide, so I'll just pick out a few areas to discuss in detail. First of all, Atik, if you go back track a bit, it started out developing and manufacturing [indiscernible] cameras many years ago. These cameras were then adapted to the life science market, and we're taking on by Synoptics or the Syngene brand. And this is an area where the sales and profits have grown exponentially over the years. There is a significant impact, as Jon has rightly said, from 2 customers within PCR and also within the Jon's documentation markets. And the next point I'd like to say is, it's been a fantastic number of years for Atik Cameras and has generated a lot of cash. We're going to use that cash wisely. I'm going to actually use that internally with the increased resources and footprint of the business and equipment. But more importantly, is to develop cameras to the specialized life science applications. One such move is away from the CCD sensors to CMOS sensors, the gel documentation systems. The reason for that is that the development within the CCD market is becoming restricted. The CCD sensors are becoming unavailable at the right price. One of our major suppliers is Sony and they are discontinuing the CCD sensors in favor of the CMOS sensors. We hope to be one of the front runners with this new CMOS technology into our cameras and where we're currently having trials with a new camera in the field. So if you go on to Atik's website, you'll actually see one of these new cameras as soon as you actually opening up the page. The third and sort of final point is just to expand about what I'm just saying about where the investment has gone. All the day-to-day activities now [run out of ] Lisbon, and this includes production, [ Q&A ], logistics, finance and a certain amount of sales and marketing. So the headcount in Lisbon now is 34 staff. And then if we look at Norwich, it's operations there are research, sales and also marketing, the headcount there is 12%. So if you sort of backtrack a few years, it was a reverse of that. Small Lisbon office just purely for manufacturing and then an increased head count in Norwich. It's very good for us. It's a fantastic facility we've actually got in Lisbon, and you can actually see some pictures at the bottom of the -- first of all, on the left-hand side is the nice accommodation for Norwich, building for Norwich and the other 2 are of Lisbon. And then we move on to the next page, which is operations. Just 3 points there, just worth highlighting. First of all, while the questions are being raised across the last sort of couple of days, it's supply chain issues. Have you got it? Of course, we're, out just like everybody else in the world. This has been causing us problems on a daily basis across all our business units, but the management teams including the buyers have been able to secure supplies and provide our customers for their products and services within the agreed delivery times. And with a number of certified scientists, it has been quicker to actually reengineer the products, for example, Chell, they have redesigned a wind pressure device for a formula 1 in 3 months which was actually quicker than the delivery time given by our supplier, and this has enabled us to meet the agreed delivery times to our customers. But everybody sees in years, and they know the problem. So if our customer deliveries are delayed, so as everybody else's. So we're all in the same boat. It's a very difficult situation, but our individual management teams are doing very well to cope through this for these problems. The second point is, as we've actually said we're at the way through over the many years, we bought these businesses, the lean and mean businesses run very well by the founders. And what we want to do is to actually increase the fixed debt, and we want to invest in these businesses. So what we do is continue to invest in the business units. And there is some examples of this. At Graticules, which we did mention, I think, last year, and that is we're refurbishing the business. We're purchasing new equipment. Some of that is internal from Monmouth way of a clean room. And I think it's 5 laminar flow cabinets actually in that building now. And that's phase 1, and we'd like to see what return on our capital we're going to get from that refurbishment. Then we're going to hopefully move on to Phase 2, which is expanding that building in Tonbridge. The second example is Monmouth, as you can actually see in the slide in the bottom right-hand corner, that's their new facility. When we first took it on, there were 6 industrial units scattered around Bridgwater. And we took on the building, which David Pomeroy started before we acquired the business. And we've got 2 factory units there. We've got one which is the engineering site, and then we've got the production and administration, sales, marketing and service in the other building. The third one is Astles that's double in size, mainly because of the increased capital expenditure people are signing up for these days. So we needed to increase our manufacturing and engineering floorspace. An interesting point, which is actually quite in mind [indiscernible]. And that is across the group, we've invested in a number of laser engraving machines. And this has given us the opportunity to include serial numbers on our products which we did manually, it's time consuming and lacks professionalism, but also it's given us an opportunity to include a QR code on our products, especially for repeat products. It is actually giving the customer a more efficient method to rate order in our products and it's going down very well. The final point on this slide right at the bottom, just sort of 1 line and 2 words, is travel. Travel is nearly back to normal. There is 2 points here. We're attending overseas trade shows and recently are attended with sort of a number of our business units, Analytica in Munich, which went down very well. And the other one will be in August, which is the [indiscernible] Frankfurt. Another area of effort to discuss is on the travel side is Astles. Astles, a good part of their revenue stream is from service and spares, and we're back to seeing the engineers are on long-haul flights going over to service on their commissioned equipment. And as we can move on to Page 21, that is our priority for FY 2023. So build the group's existing business unit what we have actually done is travel restrictions have been eased, therefore, it reopens the doors for overseas demos and servicing. What we've actually found through these sort of 2 years of COVID that we can actually demonstrate on webinars, but still people want to sit, feel, touch the equipment we are selling, especially the gel documentation systems. And we have actually serviced and commissioned products by the web, but it's good to actually see people face-to-face. The second point is continuing to manage component shortages. We've already discussed this, but also labor shortages and also inflation. So it sort of for salary rises within the group, it's between sort of 5% and 9%, we've actually said through the start, we will address that again in a number of months' time because we do want to hold on to our labor -- on to our staff. It's very difficult to recruit staff, especially as we're finding service engineers at the moment. Another point, which is a new point for us is that is trying to leverage our resources within the group. A good example of that is the collaboration we're finding between Monmouth and Safelab. They're currently in a joint tender situation. That's discussion is between the 2 sales directors on a tender for 1 customer. And the other area is what we've actually got -- when we service the equipment, especially when it's on fume cabinets, they need to have their carbon filters replaced. We made the filters, but we still need to buy the carbon. So it's actually looking at -- can we actually buy carbon as a bulk buy for these 2 companies. And there seems to be savings within that. Early stages on both of these points, but it's nice to see that we are getting synergies of wonderful work, which seems to come across in these two companies. Now we're on to sort of buying businesses. We've got a very strong pipeline, and I'm optimistic on the number of days we are crystallized in the current financial year. What we're pleased to see, Jon and I, are pleased to see is we've got 15 acquisitions, 15 happy vendors, and we have proved we are the go-to acquirer for the owners of profitable cash-generative, small- and medium-sized businesses. If we go into the summary and outlook, a couple of points that you can read it at your leisure. It's been another record financial year, and we're making a good start to the new financial year within the SDI Group. Supply issues still come across the group that all our businesses are coping well. We continue to invest in the business units to drive organic growth. We continue with a buy-and-build model and have a strong number of prospects. And hopefully, we'll close a number of these in the financial year. And also finally, the last point is on the changes within the Board. Jon and Isabel are leaving in the next few months and we're replacing Jon with Ami and [indiscernible] we will be announcing shortly with a new Nonexecutive Director.

That's fantastic. Thank you very much, indeed, for your presentation, both Jon and Michael. [Operator Instructions]. Jon, Michael, we've had a number of questions, as you can see. So if you wouldn't mind clicking on the Q&A tab where appropriate to do so, just read out the question and give you a response that would be fantastic.

Yes. I think -- so like previous times, I'll probably read out the question and hand it over to Mike to answer.

There's a lot in here, Jon.

So first question is apart from some congratulations, I would like to ask where would you like to see SDI in 10 years' time? Paul asks.

Okay. Yes, you shared with us yesterday. So have to give ourselves up plenty of thoughts on this. On this, this is a difficult, of course, again it is very [ straight ]. We've virtually been running this business now on a buy-and-build for 8 years. I think we've been pretty successful. We don't really want to cock it up. So I think we want to continue with what we're doing. I'm sure we'll buy bigger businesses, that's at a group level, but what is missing out below that is a strategy meetings we used to have. We've missed out on, I think, 3 years now, strategy meetings because of COVID but they're coming back in October. And it would be good to see what is coming through the subsidiaries in a way of strategy and how we can actually invest and grow these businesses going forward. But for Jon and I, M&A, that will continue as it is really. You got anything to add on that, Jon.

Well, I would say that SDI has got a great business model. And there's no reason why it can't continue. So I won't be here. Mike won't be here forever, I suppose, but the model is still there, and we've got a great niche for buying the right kind of businesses, and there's no reason why that can't go on. Another question from the same from Paul again is how are you seeing the opportunities in the market to make acquisitions? I think I did touch on that, Mike, but do you want to do that?

We usually have a pipeline of between 15 and 20 acquisitions. Some of them actually take years. We've got a number on there, who have been -- we're in discussion with [ the agencies ] in the right time. And we've actually got quite a few sort of live acquisitions 3 and 4 that we're in serious discussions with, but we can't really discuss a lot about it until the [ indiscernible] is signed but we haven't missed out on a year where we haven't acquired something. I did see a number of months ago on a blog that said we hadn't acquired anything in the calendar year. But then what actually happened is in the financial year, this was left -- the year just gone, that we acquired 2 businesses, SVS and Safelab. so we're still acquiring businesses. It was later in the day, but we acquired two very good, very cash-generative and very profitable businesses.

Yes. Thanks, Mike. Next question is from Reogan, and he asks is -- so with the increase in the medium and long term with increased interest rates, is that going to affect or slow our acquisition rhythm? I think the answer to that is no, not really. So we are certainly not going to slow down what we do if we get the right acquisitions in front of us, and it's not really frankly going to change very much the amount we're prepared to pay. So interest rates are still pretty low on historical scale. And if they would increase a bit, it doesn't really make much difference to us actually because the profitability of -- or the return we're getting on businesses we acquire is far higher than the interest rate we would pay on, so I don't think that's going to change much. Next question. Same, asks, what kind of measures and actions are you taking to perpetuate the successful culture and approach that we've had since 2016, Mike?

Yes. That's a good question. We have got an idea as soon as we acquire a business, which usually, myself, Jon and [ Ken ] will actually go to see that business. And they have to have a similar sort of culture and fit to the rest of the businesses. So we, actually, with 15 acquisitions, have a good idea of whether those businesses actually fit into the rest of the group. Yes, we don't change the culture at all. We don't want to. We don't have to change the staff or anything about that business. We want to invest in it. But we know we've got a good [indiscernible] of whether it's a good business, is it a good fit for us. I don't know how we actually measure it, but we just do. As soon as we have a meeting, we come out and say, yes, that's a really good business and it fits well with us, really. So it's difficult. What about you, Jon? What's your thoughts from what you've been involved?

Yes. I think so that's right. So the culture we've got in our businesses is the same culture that they had when we bought them, actually. And what we do is we kind of reflect that culture in head office as well. So head office, as Mike has already shown you, isn't huge, but we like -- we buy businesses which are pretty frugal and we like to keep head office similarly. So we're seen as part of the businesses that we buy. And they look to us for advices and help and they don't look to us as being the bosses or anything like that or being the ones driving the big cars. So it's that, I think, frugal culture participating and rolling up your sleeves that they like and we like too. Next question. So between Scientific Vacuum and Safelab, we're going to add some profit into this year and next year. Can you address the growth potential for each and how that might that be achieved? So what's the growth potential of Safelab and Scientific Vacuum Systems. Do you want to answer that Mike?

Yes, sure. Scientific Vacuum Systems, one thing we can't do is sort of disturb the current year, there [indiscernible] out. There's a big shipment of 1 unit [ to go into July]. So that's this year, sort of we have to draw along underneath it. But there are many areas where we can actually use this sort of technology that actually spoke to us about it. There's only 8 people in that business and we can actually invest in that business to grow it. And so that's what we've got to do. Going back to our strategy days, that's what we've got to discuss in October. There's a lot of potential out there. They don't usually use marketing. It's all word of mouth. So we can use the marketing expertise across the group, across all the 11 or 12 subsidiaries to actually grow this business. What we don't want to do is to, as Jon rightly said, with head office and with these businesses is a heavy burden of additional staff on that. We want to keep the business lean and mean, but use the resources across the group to try to grow that business. Safelab, to tell you the truth, there isn't a lot we need to do with that. We had a wonderful year when we bought it. It's very, very strong this year, and it's going great guns. It really is having a fantastic sort of 2 or 3 months since we acquired this business and there isn't any reason why under the supervision of Roger who is doing a great job.

Next, Mike, question from Gilbert, which has been your best acquisition? Do you want to answer that, Mike?

I will do but if you beat me to it. Yes. Do you have the favorite child? No. I don't. I don't think it's very fair. And I say that also, I know some of our businesses are listening into this. So the answer is let's move on. All our business, they're very successful. They're very profitable. We have great fun with these guys. There's no favorite, really. [indiscernible]on the block really.

I've got another question here. So the questions keep disappearing as I scroll down. John H is asking right-of-use assets have tripled in the year. What are the main drivers of this? So yes, I'll answer that. Right of use assets, this is related to the IFRS 16 accounting standard that came in a couple of years ago. And basically, we have to put now all leases onto our balance sheet. So that's leases for cars and buildings essentially in our world and mostly buildings because we don't have many cars. So why have right of use assets tripled? The biggest single item of that is the new building that Mike has already showed you for Monmouth Scientific. So that's added a big building with a very long lease. So we purposely build that building for Monmouth, it has a long lease of 15 years. And the longer the lease, the more -- the bigger the asset, the right to use asset, you have to put on your balance sheet. So the simple answer there is the biggest single item has been the Monmouth building that's adding to our buildings that we lease and we have on the balance sheet now. Added to that, we've acquired 2 other businesses and each one of those has at least a small amount of right-of-use assets, so they go there, too. But again, it's the Monmouth building. It's the big asset. Question from Damien, Atik, is the potential to sell into other life science applications and aspiration? Or is it something more concrete? Well, I would say -- Mike, you can add to this, but I would say it's more than just an aspiration. So I think we've got the tools to achieve that, and we've started to do that. So what you should know about Atik, and Mike mentioned it earlier, is that over the years, they've seeded sample cameras to R&D teams across lots of different applications. So we have cameras that can fit to lots of applications. And what we try to do is to build for each customer the perfect camera for their application and their specific use. So some of those are going to be successful, and some of those are going to remain R&D projects for a long time. It happened with the PCR cameras, that it came at the right time and sales exploded. But we've already got plenty of cameras out there in similar applications. So I think it's more concrete than that. Recently, we've been expanding the sales and marketing team and having too our expertise there. And they've gone out specifically with a kind of list of potential applications in spectroscopy in Chemiluminescence, where we've recently launched a camera in other areas like Western Blot and ophthalmology, veterinary and spatial omics, so there are plenty of areas where we think our camera can be a solution. It won't be the only solution in the market, but I think there will be niches within those areas that are our camera fits very nicely. So I think it's definitely Atik Cameras has a lot of potential there.

All covered.

Next question, again, from Damien. Are any of the businesses still suffering from the pandemic? Or are they all trading at or above pre-pandemic levels?

Now I'll -- we're honest with this. Chell instruments, which is a fantastic business, is still suffering with the aerospace side of the sector. Although it once gone very well, but it's still difficult for these guys. I think it's going to come around, it's a great business, very good competent engineers, but it's going to take time. The beauty about SDI is we've got 11, 12 business units. And if 1 does take a bit of a downturn, then the rest of it could support it. And that's what we're here for. We have to support these guys because we know it can come through.

Well, question from Bill H. Tricky one. Question to Jon Abell, why are you leaving such a successful company? You look too young to retire. Well, thank you very much. You're ever too young to retire. Frankly speaking, it's is a great company. It's a successful company, it's a great company. It's been a real pleasure to work at an SDI. So I just took a look maybe a year ago now and look to the cost-benefit analysis as financial people tend to do and decided that there was plenty of benefit out there in the wider world. So in retirement, I'm looking forward to going out to Italy a lot more and enjoy myself rather than spending all the time in that little office with Michael, infact. So yes, I think it's been a good ride for me. I'm sure I benefited more than SDI has. So it's time for someone else. And we've recruited an excellent CFO to take my place. So I'm sure everything is going to be great. Next question, Allister. Thinking about your M&A methodology, can you talk about the circumstances in which you would sell one of your companies?

I'll start it, then you can sort of finish it. Yes, there's always a price. So if actually somebody came along and found a better home for one of our subsidiaries and the price is right, then we'll sell it because at the end of the day, we have to report to the shareholders. We have to give them value for money and if we know that there's a business which is offering a better home for one of our subsidiaries at a price which we really can't turn down for our shareholders, then we have to accept that. You want expand, Jon?

Yes, I mean, that's true. It really would have to go to someone that was probably already in that line of business. But we don't actually -- we don't seek those out. And we've -- and no one's really ever come to us, maybe one exception in a specific area where they wanted part of our business. But it's unlikely because they would have to pay, often sometimes they might come to us and say, well, will you buy businesses at 5x profit. So here's 5x profit for one of your businesses. And I don't think they recognize the difference between buying and selling in that context, so it's -- the economics of it wouldn't work very often, but we are open to it if the right buyer would come along, but that hasn't happened so far. Okay, question from JF. Since 2016, SDI has stopped filing full accounts for its subsidiaries with company's house, will you restart full account filings to improve transparency? Answer, no. We don't want the transparency of our individual businesses. So not planning to do that actually. But we do try to conform with the rules, and we certainly want to do that. But one of those rules is that we don't have to file full accounts for all of our subsidiaries, and it would be a big gift to some of our competitors in those niches if we did that.

Well, also as well, when we acquire business -- I guess, Jon, just to expand on that. When we acquire businesses, the businesses usually followed abbreviated accounts anyway. So we're still going to continue with that. And even -- I think there was 1 year we did in 2016, the [ old system messed it up and they were filed for accounts ] and our subsidiary directors said, we should be filing those if we never had them before. So we've gone back to where we were and actually followed abbreviated accounts.

Thanks, Mike. Damien asking how can acquisition and reorganization costs be treated as exceptional items and adjusted out of profit before tax when they are integral to the buy-and-build strategy? Well, I think that's a good question. I would say -- I would argue that we spike them out in order that people know what they are rather than hide them in the rest of the P&L. So we make them there transparent. We adjust them out in the adjusted numbers because they do go up and down. So 1 year, we might spend -- we might have an agency fee to pay or something like that and next year not, so I think it's important that the element of transparency that we separate them out from the adjusted numbers, but they are there for everyone to see, so, I don't think we're hiding them. And it gives you, if you like, a bit of extra transparency. It's a question from John A. but not from me, I think. Can you tell us what you're seeing in the business environment right now? How challenging is it or do you think it will be?

I'll answer that. Well, you can actually see year-on-year results for us. We're performing well. We're way above our initial forecast in the marketplace. We do trading updates. I don't see any sort of change in that from what we're looking at with the current financial year. We have got challenges just like everybody else with the shortage of components, inflation, labor issues. But everybody has these challenges within the environment on a daily basis. So I don't think we're any different for anybody else really.

Another question from someone who's not me, Jon A. Could you talk to us about long-term succession plans? I appreciate this might be a way off, but it's a fair question for shareholders. I really like your business model, but might have concern the company may sell out when the preferred thing is to continue growing the business with a new management team with the same ethos.

I don't think to sell out. We talked about it. And recently, we've talked about it as a Board succession plan. Jon to go. We've got a new CFO started, Ken will retire sometime, so will I. And of course, at the end of the day, we want the company to succeed. And we're shareholders of the business and what we don't want it to do is fall of parts. We have to make sure that the succession implies. As we acquire businesses, we've got 12 business units, 11 or 12 business units across the UK. There's only so many [indiscernible] because my role is an operational role, and we'll probably need an operations person to assist around the businesses. I think when it comes to acquiring businesses, there's enough resources in head office to do that job. I think mainly it's the day-to-day operational side to maybe personally, that whereby we need somebody to do that. And so probably take over in future years.

Jon, I just want to say we've just gone through the hour for every question you asked, you seem to get another one replacing it. But do please go if there is any particular questions you want to pick up before we wrap up.

Okay. Thank you. Yes, you're right. We've got a long list of questions there. And probably, we just won't be able to get through them and we -- I think the best thing to do is that we provide the written answers to these over the course of the next days.

Absolutely. And of course, all questions, thank you for all the attendees for submitting these questions. All questions would be available for the team to review. And as Jon said, where appropriate to do so, we will publish responses on the InvestorMeet Company platform. Michael, perhaps just for redirecting investors to give you their feedback, which I know is particularly important to you. If I could just ask you just for a few closing comments.

Yes, sure. Yes, for the last 8 years, we've kept this same buy-and-build model, buying cash-generative and profitable businesses, encourage them to grow with investment from SDI. This is proven with the return on capital employed increasing from 12% to 34%. This we refers, I'll keep saying Slide 7, which is my favorite slide. And also credit to Jon for providing a very good sort of slide pack. And finally, on the Jon subjects, I'd like to thank Jon for his work in the last 4 years. I know he's enjoyed our double acts. Jon has been a very lucky boy. And during his time as CFO of plc, he hasn't had the privilege of making a [ puppy's warning ]. Therefore, he's only seeing the outside of plc [ reporting ]. So therefore, have a great weekend chaps.

Michael, thank you very much indeed. Jonathan, thank you very much indeed also for updating investors today. So I please ask investors not to close the session, you should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few to complete, this is greatly valued by the company. On behalf of the management team, SDI Group Plc, we would like to thank you for attending today's presentation. That concludes today's session. Thank you, and a good weekend.