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

Good afternoon, ladies and gentlemen, and welcome to the SDI Group plc Interim Results Investor Presentation. [Operator Instructions] Given the attendance on today's call, the company may not be in a position to answer every question received during the meeting itself. However, the company can review questions submitted today and we publish those responses where as appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give that your kind attention. I'm sure the company would be most grateful. I'd now like to hand over to Mike Creedon, CEO. Good afternoon.

Good afternoon. This is the interim presentation for our results [ for ] October 2023. So I'm starting with the agenda. You're going to see the group summary, Board of Director. I'll go through a bit more detail this time. And followed by the group overview, U.K. world and presence, acquisition process, acquisition time line, then I'll hand over to Ami, who will go through the H1 FY '24 results and then we'll come to conclusion with the trading and outlook. It's interesting since we are back, we've showed some few cases the appendices, whereby you can see more detail, our subsidiaries business units while we've got 15 of them now our financial track record and also our capital structure. So if we move on then, are we? Okay. Sorry. Okay. So I just want to go a bit more detail here. So let's start at the talk with Ken, Ken Ford Chairman, he joined to [indiscernible] here, he recruits me as the CFO in 2010, you got Ken's CV, my CV, you've seen it many times. It was a turnaround by myself as being the only Executive Director for about 6 years. And during this period, I was supported heavily by Ken. So Ken and I are the first 5 or 6 years, we spoke early every day, including weekends. But as we grew, we gave a lot more positive cash generative, we strengthened the Board. So it was some high level [indiscernible] going in recruitment order with David Tilston, Andrew Hosty, Brown recently with Louise Early. These series are included within the pack, but what I'd like to do is spend a few moments handing over to Ami and then Stephen, the new boy in the block, with their [indiscernible]. Over to Ami.

I'm Ami Sharma, I think many of you would have seen me before at previous IMC meeting. My background is I was formerly Group CFO at C250, listed ultra-electronics Holdings. I was also the group financial control during the early 2000 when they embarked on buy-and-build, not dissimilar to SDI. Also, I'm not executive on the Board of Porvair, which also follows a similar business model to SDI.

I'm Stephen Brown, I joined the Board at the end of September 2023. So I have a technical, product and commercial backline. I bring a strong track record of business growth in the executive. Previously, I had a number of senior positions with significant tech focus businesses, most recently AB dynamics plc and BP launched at the business scaling function of BP plc. My initial focus being on the organic growth for 4 businesses, in particular profit growth. In parallel, I will also be working with Mike and Ami to pursue high-quality acquisitions as well as building strong inflow to support this.

Thanks, Stephen and Ami. Let's move on through the pack now when we look at the group overview. I don't think this has been shown before, but it would be good to repeat it. We've got a further acquisition on the side. But the strength of our business model remains unchanged in operating with autonomous business units, but we're seeing synergies within the group as we acquire additional complementary businesses. All acquired businesses, they've got to be profitable and cash generative we do not sell look at acquiring businesses. We don't realize a single sector reason for trading, which has proven its worth during the sort of 2-year COVID period where we will find, we had a number of businesses who were trading not in line with budget, but still generating property in cash and, then we have some real sort of capital businesses to talk through the COVID years. We acquired businesses and invest in organic growth as well as we go through the presentation, we'll probably give some examples of that. You can see on the chart as we started buying the businesses, there's a greater weighting towards sensors to control due to the acquisitions within this sector. We've added further business unit on them, which is presenters. We've got a separate slide on that, we'll discuss at length within the plan. So over the years, I think since 2019, John able to introduce these sectors, what actually happened was that the [indiscernible] wanted more and more abundant data about what we're actually doing. So instead of 1 group of companies, we split it into 2 sectors. We don't want to show all the gross margins of the businesses is going from [indiscernible] to 18% on material cost only. So therefore, we set the sectors in place. But you can actually see from the sectors main 2019, we only turned out of GBP 17 million, and we didn't have as many businesses. Now the segment structure hasn't worked as well as in bonds, you can now see from that diagram. So at the year-end, Ami is looking up at the main, we intend to reorganize the business sectors still in 2 segments. But these segments we reclassified. So what we're looking at is lab products, businesses and the other containing scientific and industrial products businesses. And hopefully, this will provide better information to [indiscernible] of yourselves. And what we'll actually try and we'll try to do is to show that before and after at will show the revenues as is now, I think, in the future. So it's still a work in progress for us. We've got an idea of what is going to go into the lab group at the moment, and I'll discuss that as we go through the pack. So if we go on to the next phase, which is the world presence. And so we've got an additional business on there, as you well know. So what we've actually got is a heavy U.K. presence in the U.K., with the growing presence in the rest of the world as we acquire additional businesses. So what we've got is currently 17 sites in the U.K. and 4 overseas. So we've got Lisbon, so that's a Atik cameras that's our manufacturing sites, and we've had that evidence of it with the business. And then one we acquired fast, which is Fraser Anti-Static techniques based in Devon, they've got 2 subsidiaries, one in Dresden 1, 1 in Shanghai. So again, I think we'll just discuss about China to later on. And then the last one, again, is business there for many years, and it's Synoptics, which is based in project, which is just outside Washington, DC. The latest addition is Peak sensors, and that's back on Chesterfield. One of the acquisition -- Sorry, let's go through the acquisition process. Okay. So we discuss this acquisition process at the presentation recently. I [indiscernible] but it's nice that you see this within the pack. I want to go through this. We've seen it on a number of occasions. What are the acquisition criteria the SDI Group. It has to be a scientific technical with the manufacture arm to it. That's very good for us. We can then control the cost of materials. And so it has to really for us. That has to be -- I insist on this profitably at guaranteed. And I said this earlier, we don't have cash flow businesses. It's good to have a strong track record within the businesses. It's a lot easier to do financial due diligence when you got the historical behind you. They have to have a strong management team because head office is Australia you've seen us. We can't match these businesses. So when we acquire businesses, we have to make sure and there's a certain level of trust between us and the subsidiaries we're looking to buy that we'd like to found stay on -- if not, then we have to make sure there is succession planning invite for these businesses. We have actually sort of turned down a few businesses whereby people didn't want to stay with the business. And I would say it's up to us to find a succession. Well, we can't handle that at all. We offer businesses at a fair price, but we've been buying businesses at a 3-year historical price that's between 3.5% and 1.8x profit before tax, net included net assets. So what I'd like to do, I think we've got [indiscernible] that motion for ever since we've been acquiring businesses since 2014, is splitting the good well price from the net assets [indiscernible] and that is fully open on what we're buying the goodwill at. And the last point in that section is we like strong exports within the new sector. So currently, our exports was it's about 50-50, Amit? So they're about -- the biggest on we've actually got is we do sell to OEMs. So we don't know in a number of circumstances where that product is going out to. Before we started, we were heavily involved in every OEM. It was 60-40, 60 obviously 40 in the U.K., but it's difficult to get that data now. Why do people want to join SDI? The some of the businesses were acquired, it's difficult to find owners to find -- sorry, for the owners to find suitable buyer. We're looking at businesses between GBP 0.5 million and GBP 1 million. The next point is what we want for the businesses. And last is what the buyer for the business is still maintained independent the businesses. We try to lead them as autonomous business units. And that's encouraged because what we want to do is to retain the culture and the brands going forward under the ownership of SDI. What we're trying to now, which is new to us, is sharing knowledge within the group. So we're actually bringing these teams of people together. This includes the strategy meetings, we have the marketing begins as well. And also recently, with this lab group, we were bringing together the directors and senior manage just trying to share data. Marketing was one of the first ones we actually -- sorry, starting with the first 1 we introduced now we've recently rolled market together. And marketing is a younger kids going today. It's driving people through to the website. There are a lot of defaults in driving people through to the website sharing that data. One of the main areas they're looking up today is everything in Google, Apple through the piece of software that drive through to the website as well as ChatGPT, they're using as well. What we offer is widely strong financial support within head office. And also, what we try to do is to share especially resources, for example, technical support. And this is another thing going back to sharing knowledge within the group. After acquisition what we do, while we implement strong financial controls. The majority of the businesses are using same systems. These days, I think the one of the Sage systems Sage 200. Sage 50 is falling away. So we introduced a couple of the companies on to Sage 200 at the moment. and that seems to be going forward to the subsidiaries. But what Ami and John on the financial control is using now is a consolidated business software. Ami do you...

Yes, we're at a new financial consolidation system at Sentek, which will enable us to extract data when subsidiaries more efficiently and also provide scalability as we grow.

Thank you. But also what we look at as well as a mentioned about strategy, it's a 2 things for the businesses, businesses when we acquire them. They're concerned about generating profit and cash which is good for us. Also, they probably only go out for a year in the way the budgeting process. So what we're trying to do is to ask them to think about what the next 3-, 4- or 5-year plans are. So within the strategic meetings we house sort of probably a bit longer is that the individual business units were actually doing very similar to what we're doing in a way of an investor presentation not just to the main board, but also the subsidiary directors and senior managers, 20-minute Q&A, which is really also organized by [indiscernible] presentation sorry, 20 minutes within Q&A for 20 minutes. And that's spread over sort of a couple of days and it worked very well. What people like as well as the investor presentation, is it around the table, but then have to drink afterwards and talking about this and work very well over the last sort of couple of years. So if we move on to the next bit, Ami, acquisition time line. And again, this is something which we've had in the pack. It's been in the annual report. So to date, we've bought 18 businesses. The first 1 being Opus Instruments up since 2014, February 2014. And this was stolen with bank debt by [indiscernible] bank manager and [indiscernible]. Ken and I sort of sold the company at a dozen of pounds with 300,000, that's quickly repaid. That business is incorporating into attic cameras. And then following that, it was a game changer for SDI, put us on the map, and that was, first of all, acquiring Sentek 4x EBIT, including that asset, followed by [indiscernible] Astles Company, which is our source control systems. This will fund it through share pricing, the first on Sentek 8p per share that was using EIS BC2. So it is very good for the shareholders, after tax, we're looking at sort of 6.5p, followed that by Aster control systems at 13p, starting their ICT structure change, so that we could at the shareholders couldn't catch on to that. Then for a number of years, we acquired businesses using our own internally generated cash and bank debt. which works very well -- sorry, I'll pause [indiscernible]. And what -- and then in 2019, we acquired 5 businesses which requires funding over and but the board's comfort 1 for gearing. So then we did another share pricing and that was at 34p a share, see on the businesses are right. And thereafter, we've been using bank debt and our own cash resources. What I was actually going to say when a lot of trying to build is. We set up bank debt with HSBC all the backlog you interested in us, and that was initially the 50 million debt with the 2 bond according. So today, that's been extended. So we've got a GBP 25 million debt with a 5 million [indiscernible]. And I'll hand over to Ami. [indiscernible] cold, so I just bear with it. I'm afraid.

Again, looking at the key financial highlights for the half year. This all revenues grew over the period by 1.6%. The comparatives include a significant Atik Cameras contracts for equipment there going into ETR machines, is came to an end last year as we have previously communicated. Excluding this, there was organic revenue growth of 2.2%. Scientific vacuum services shipped as gel-doc over the first half, and a significant OEM customer destocked over the period, and we will talk about both of these [indiscernible]. It's also worth noting that the tax rate has increased from 19% to 25%, and this impact on all the EPS measures. This is an extract from the income segment. Acquisitions provided GBP 6.3 million for growth or 20%. At a headline level, there was an 18.4% organic decline, and the [indiscernible] the 1.6% absolute growth. Gross margins had at 63%, which was encouraging. We've controlled our costs when we're looking at costs on an organic basis and excluding nonoperating [indiscernible] global items, have increased by 1.5%. Profits have reduced, as we always expected for this actual year. The biggest component of this loss was the loss of the 60% gross margin on the GBP 6.4 million of core revenues. And to see you using your calculator, this represents GBP 3.8 million in lower profits. [indiscernible] in partially but not completely offset by acquisitions and the percentage declines on this slide reflect this reduction. The first half of the year was also impacted profit rise by the aforementioned destock biotics main OEM customer and this reduced sales in the first half by GBP 1 million. [indiscernible] had a slow first half, which we will talk about later. This shows how revenues have moved compared to the equivalent period last year. As I mentioned, last year's acquisitions contributed GBP 6.3 million in revenues. And you can see the impact on the reduction in the one-off at PCR [indiscernible] business. It is worth noting that over the last 2 financial years, we have reinvested the Atik Camera [indiscernible] cash flows and the growth of the company, acquiring Safelab systems, and SVS also scientific. Looking at our segment performance, yes. [indiscernible] revenues increased by 40% to GBP 26.8 million. This includes the GBP 36.3 million of acquisition growth from fast an LTE Scientific. Excluding this, organic growth was 6.7%. Astles control systems and upline with thermal controls but a good trading periods. Applied thermal for Chell and assets had weaker comparatives, which were influenced by component shortages. Scientific vacuum services is a lumpy revenue and order business. They shipped a significant piece of equipment to its major OEM customer in the first half, and this supported the organic growth of this segment. This particular OEM customer has rescheduled its future order profile as a result of geopolitical events and this has changed SVS revenue profile for the current financial year. Digital Imaging revenues reduced by 12%, excluding the comparatives the segment's profits reduced to 645,000. As I said earlier, there was a GBP 3.8 million profit reduction due to the coverage contract ended, and this falls within this segment. However, Atik's major OEM customers destocked over the first half, reducing GBP 1 million. Delivery -- deliveries to this customer are continuing, and we have an cover for the next 18 months. but the number of cameras are not currently expected to be at the same volume. The destocking impact will not be recovered in the current financial year. Turning to cash. Working capital increased by GBP 2.3 million over the period. It's mainly due to a GBP 2.7 million reduction in customer advances since the year-end. [indiscernible] shift to equipment in the first half and this is responsible for GBP 1.4 million of this LTE science [indiscernible] control systems, so customer advances declined by GBP 1.1 million between them. We now have GBP 2.1 million of customer advances on the balance sheet compared to GBP 5.3 million a year ago. This is a difficult balance sheet line to forecast new customer advances are often dependent on contract milestones and order intake and more specifically, order intake where the customer advance tied to it. And the cost of money is no longer low, customers are less willing to give upfront payments. Currently, we expect this to reduce further over half 2 by around 500,000. Cash generated by operations was GBP 3.3 million this first half, an improvement on the incident period last year. Interest charges have gone up due to our higher debt levels and increased interest rates. Focusing on working capital will be a priority for the second half of the year for us. This slide shows the working capital movements I've spoken about. The tax payments are higher since SDI is paying 25% tax now under the group payment arrangement. So at the end of the period, net debt was largely unchanged from year-end at GBP 13.2 million. Some comments on our financing position. GBP 1.5 million of the revolving credit banking facility was paid down over the first half as we look to the excess cash balances, GBP 10.3 million. GBP 10.5 million of the facility is unused at the period end and the GBP 5 million accordion option is still available to us at us. At the end of the period, the net debt-to-EBITDA ratio was 1.1x, comfortably up inside the seeing provided by our bank facility. And at the end of the half year, we had a GBP 1 million deferred consideration payable. This relates to the acquisition of SVS. And this has been paid in full in the last week or so, and so we'll keep we see in the second half. That's all for me.

Okay, take me onto the next page. So when we've been going around on [indiscernible] presentations, this is the sort of slide we start with say they know the history. It's interesting because this is a slide to analysts say why did downgrade curve. So now we've got 15 business units, 3 of those businesses have found trading difficult, responsible for the downgrade during this period. So I'd like to discuss in more depth on these 3 business units. So the first 1 really is at Atik, Atik Cameras due to effect to our annualized profits was a reduction of GBP 1 million. I think away, it's just gone to right. So Atik suffered from destocking from its largest customer that impacted the H1 performance. However, we have now received the strong order coverage from this customer. So it will take us through 2 and beyond. So I'm not actually happen with the customer as they move procurement from Singapore to a centralized base in the Netherlands. They decided to start moving from [indiscernible], and it's dragging out but pleased to say that we've actually got the order now, and that will take us over 18 months, I don't 18 months, but it's 2 lights to affect until H1. So we started to ship that product in December. Last time it was October now it's December because of the movement of [indiscernible] in stock in 3 months to 1 month. We have got the center in place and are ready to actually start shipping the product. There is another sort of a positive as well there's a high expectation of another large order from a new development product within 1 of our core sectors, which is the professional trader market. So that's where high hopes have been a significant order for America for that product. The next one, we move on to fees sort of lower level reductions in profits is in [indiscernible] system, sorry. And the impact on annualized profits is GBP 200,000. They ship a pushing machine to a raise by manufacturer in October. I'm afraid it was a bit late. It was delayed by 12 months due to a couple of reasons, a, first of all, component delays, which were seen across the world. And secondly, due to the component delays, the customer decided to change the requirements of the machine. So there was further delays. That now is complete. I've inspected the machine in the U.K. There was further delays because then decide if they're R&D department in Boston in the U.S. want to come and see the machine as I really like the machine. Now it's been shipped out to Mexico, waiting for the next order because they've actually said there's going to 4 or 5 orders for these machines. In the next order, we're actually looking at. But that won't be until it's commissioned [indiscernible] Mexico, which is due to be commissioned January, February time. So we expect the next order profit coming from Poland. We are expecting an order. So this was a number of over a year ago from Russia. But of course, with the war in Ukraine, that's impacted that shipment. Since we've actually shipped that product, we add another sub order. Again, it's all a bit late to the H1 period and that's the GBP 2.3 million from another customer that's due to start next month. As we pointed out when we were quarry SBS or scientific backing systems, their orders and revenues will be lumpy. And Ami, if possible is trying to recognize our revenues at set periods within the contract under IFRS 15. So it all depends on what's written in the contract. So it's a difficult call for us on that. But at least we've got a substantial order from the customer. The next one, we wanted to discuss really was Fraser Anti-Static technologies fast. That, again, has had a reduction in profits of 200,000 as I've seen an economic slowdown from 2 dominant markets, China, but more importantly, Germany. And this slide down is expected to continue for several months as we move into H2. So they're trading in line with budget at the moment. It's going to slow down somewhat in H2. The business responded rapidly to market slowdown by implementing internal control to maintain the profit basket currently, and I'm sure it will do so in the second half of the year. So in summary, really, what we've actually got is shortfall in profits from 2 areas. One is customer related, that's an and SVS and the other 1 is fast, and that's due to short-term economic slowdown. At this stage, I would just like to give you a quick update on Monmouth and you're pleased to know it's not within that category. But we've added a significant impairment at the year-end, if you won't know. It's not driving in line with budget. But at the moment, it's got a very, very strong order book. and this is reflected across all their product portfolio, but more importantly, towards the clean room sector, we're increasing seeing increased demand. And that's an easy thing for us because it doesn't need a lot of labor to produce this product. Their experience in operational challenges at the moment. And this is [indiscernible] my good new friend, Stephen as the Group Chief Operating Officer. And it's not also time growing within the SDI Group. We enjoyed some strong performances from many of our portfolio businesses, in particular, applied thermal control, asserts control systems, ratios, but also like to add Sentek and also Synoptics, they prove consistent and strong their order intake in operational delivery or reporting profits exceeding budget. So not a lot of expand it. A good example we [indiscernible] is Synoptics. So they haven't hit the revenue in line with budget, but their budgets but there which to profits have exceeded their profits. We actually see exceeded budgeted profits due to the control of costs. And that's what we find across the group is us managing directors and directors are of the business is a very good controlling that cost. So we don't see a lot of costs going outside but [indiscernible]. So I'd like to move on to the next one. And this is -- we've already mentioned this earlier on. This was the latest acquisition. This has been a target for us for many months. It's not a big acquisition, but it's very important to us. But it has some complications in the acquisition process. And that's been delayed by 4 to 5 months. We hope this has actually crossed the line when results went out. But we're at the final stages, but there were just some issues on the sellers front that they needed resolving. But now I'm pleased that the acquisition prices is complete, and we acquired that business in November 2023. As with most businesses, the founders will stay on board and run the business. What does Peak Sensors do, you actually see from there, it manufactures and develops temperature sensors, which are used in various industries, but mainly within glass, ceramics and incinerators from what you need to operate centers in the incinerator, which is generating energy from waste. We've actually said it initially and in the last presentation about synergies, and it's nice to see 1 of our subsidiaries, ATC is now sourcing product from Peak Sensors. And there are a number of other of our SDI business units are actually interested in this product range. It's based in the middle of England, in Chesterfield, it employs 14 staff. The property super in the diagram on, it's a nice clean building within a nice Industrial Park that is owned by the founder [indiscernible] and he's leased the premises on to Peak Sensors. So if you move on to the growth drivers. That hasn't really changed to you the truth in -- with this difficult year, we're having organic growth. 2023 organic growth has been impacted by destocking, which will foresee. It's only a short-term issue and also with the worldwide economic uncertainty, as you actually see from renewed, that's impacted a number of our businesses. In the longer term, we still expect organic growth between 5% and 10%. And also, SDI continues to look percentages within the businesses, and we've started collaboration within the lab products group. As I mentioned before about the [indiscernible]. So currently, within the product group, there may be changes, but what we're looking at it initially is the LTE Scientific vacuum systems, Chell applied film coating, a Synoptics are joining that group. Why, is because we've seen market overlap of customers, and that should provide strong opportunities to grow and the meeting this week, I think about 2 or 3 meetings now and try to get additional orders going in as a team at a quota instead of a individual side. A good example of that, as we mentioned in the annual report is a building site park on Canara and we're in the early stages of putting together a portfolio of products for that business. M&A since February -- since February 2014, we acquired 18 businesses. A number of these have merged into the existing business units. So we've actually got is Atik, we have acquired 2 businesses, Opus instruments and Quantum Scientific Imaging and that's incorporated into Atik. All the manufacturing there was in this on for all those brands and products. And the other 1 is supply thermal control in terms of this change. Both Chell, both in the middle of England, [indiscernible] and the other 1 in Chester. We've combined the units in a place called [indiscernible] services outside [indiscernible] nor the rest of operators or tons business units. There's no change in our criteria, although we are more willing to use short-term earnouts to reconcile price expectations from sellers as you can actually see very recently, with scientific vacuum services where opiates this work was how we pay now or last week the remaining parts of the price consideration. The key constraints for us is the [indiscernible] of companies. But currently, we've actually got quite a strong pipeline of acquisitions, which all 3 of us are looking into. So as we come to the conclusion of this presentation, a summary and outlook. It's been a challenging year, as you can see from the numbers in comparison to previous years. We've had a few businesses that have not achieved budget, as I discussed it in the presentation. But really, this is just a bump in the road for us. And I don't think it's going to affect our long-term plan. I feel confident this is only a short-term issue. And it's 1 because when we actually came out of the strategy meeting a few weeks ago, we got a it's a large pipeline of prospective orders with a high property of landing across the group. So we're still quite optimistic going forward. We used to continue as a team to evaluate high-point businesses as they become available. That's on the M&A side. Internally, we're still generating synergies within our business. You can actually see this through the presentation. And we continue to invest in our existing companies to drive organic growth. I think a good example at over the years is Sentek. We bought that making a profit of about GBP 0.5 million. Further period, we've paid GBP 2 million, let's say, net assets and for investments in that business, all got taken on board as they mentioned direct, we're looking at making nearly sort of a million profit. So it's a good business, the site business, and this has happened within a few of our businesses. So really despite the short-term headwinds, we look forward to the future with very confidence on this business. I've been here sort of 10, 11, 12 years. Ken and I have discussed this many years. This business hasn't -- the business mark hasn't changed. We say year-on-year, we still continue to drive drug organically or M&A even with this short-term headwinds, we still have to operate driving this organic -- the growth organically and through M&A. So hopefully, that concludes the meeting, and let's what Q&A is [indiscernible].

That's great, Mike, Ami, Stephen, thank you very much indeed for at investors. I will bring your cameras back up for Q&A. [Operator Instructions] I'd like to remind you that a recording of this presentation along with the copy of the slide and the published Q&A can be accessed by your investor meet company dashboard. Ami, I may just return to you to moderate through the Q&A. But firstly, thank you to everybody for your engagement for those who pre-submitted questions and for all your questions throughout presentation today. Ami, if I could just ask you to read out the questions and then hand them out to the team for response, and I'll pick up from you at the end.

Okay. So first question, pre submitted. Does Stephen have any observations you would like to share after his first few months at SDI?

Absolutely. But currently, I have the luxury to see the group with fresh eyes and given my experience [indiscernible] opportunity. Back on the strategy has clearly been the bedrock of the group's current structure of success, but this is clearly only in start of the group's growth curve. I've observed that portfolio businesses reasonably different the potential driven by the technologies, products and markets. I would expect that we will see different growth profiles of Monmouth. That's that clearly makes sense. I would be understanding more as I deep dive -- as I dive deeper into the potential of each individual businesses, so we understand the CAGR and supporting long-term strategy. There are clearly many opportunities to reach the businesses to and product development, market share diversification and, of course, global expansion, the U.S. being, of course, one of those going forward. SDI's ability to continue our acquisition growth clearly remains strong and hold no stronger. I would like to see more consistency in days combined with robust group integration plans going forward. These plans be not only ensuring a robust autonomous business, as Mike has already said, but both acquisition built potentially strengthen the existing group, synergistic opportunities.

Thank you. Why did management take so long to buy stock after the share price fall earlier this year?

Let me answer that one. Okay. So we're all willing to buy stock, but we're in a close period. The first period lasted 4 to 5 months. So first of all, we had a close period with the annual report. But this deal with Peak Sensors has just dragged on. So the advice or think is to say you can't buy any stock. And that's the main reason why otherwise, we would have bought stock earlier. So -- and we did like to buy stock a few weeks ago.

Okay. What confidence can you give us that Monmouth are actually but the worst?

Yes. I can take that. I think optimistically, we can really see it like the channel. As Mike talked to, but that is very much a short-term issue where order coverage from the biggest customer was delayed due to destocking and that's us commonly across the other demand. We've now received order coverage for that. So that risk is not gone, but really, we're seeing the downturn in the figures in driven by pure timing. Going forward, we're looking to make our business a lot more robust than we're currently looking to reduce the pending a single customer. We're looking within the [indiscernible] industry to diversify and take on other customers within the industry. Secondly, we're also looking at a different industry as well as also as Mike alluded to earlier, we're looking at the professional astronomy industry as well. We're in the coming months, we're expecting a strong order from that, which was the first main one demonstrating our technology. Our technology is deeply as applicable to those as the life science market as well. So really the answer to that question is to ensure robustness across our business. Now turning to Monmouth. Monmouth is seeing a very strong order intake at the moment. This month set up was a very strong month, and our visibility going forward remains extremely strong. And I think that this is really important because of the optimism within our business is growing. There remains challenges from the operational side of the business, and we are working with the management of Monmouth to resolve that to a lot that. But really looking at the order coverage and the because we really understand what the issue with the operations side and for the business really is, all we can see it very much is an optimistic rest of the year to end next year.

Okay. Thank you, Stephen. Could you provide -- Mike, can you provide insight into SDI's strategy for creating recurring revenue streams within year of the company's key segments, whether through M&A or new lines of business?

What we do is recurring revenue streams for the business is between 50% and 20%. That is mainly through servicing. So we've got a good service revenue stream at LTE, at ATC, at [indiscernible] and also at Monmouth. With Monmouth, we've actually got Stephen on board. We're actually looking at improving that service. It's not high as we would like. Also, we've actually got some consumer side of the business as well, which is Sentek Sensors. Also after a at mentioned about Astles Control systems, 50% of their revenue stream, the service and support of their dosing machines or anything else that we can think about? I think it really, it's a main one. But we are -- it's good to have. It's nice to have that recurring revenue stream. When years ago, it wasn't. It was just CapEx but now we can see that growing. And I'm sure it's going to improve as we grow the business.

Okay. Has there been considered to hold off new acquisitions and bring off existing debt in that high interest environment? I think we -- Mike's already answered. so I think Mike only state that we will continue to look for acquisitions to that business model of this company that the strategy is unchanged. We will continue to pay off existing debt in the high interest environment. Anyway, we are focusing on our working capital. I think that's kind of what that is telling you that we will be trying to generate more cash from our working capital in the next 6 months. I mean, we are continually trying to pay off our existing debt. That process is ongoing for us. There's another question here from Terence. Can you please format in the current gross and net debt excluding leases. While the net debt fees GBP 13.2 million at the end of October, as I mentioned in my presentation, the value of leases is about GBP 6.7 million on balance sheet, so you can add GBP 6.7 million to that to get the gross figure.

But this included the leases on properties and the standard.

That's right and lease is an accounting where they gross up in leases and the other side of it is usually fixed assets. So your assets and your balance sheet. So the banks exclude this normally from a definition of net debt. That's why we put that particular metric rather than any other. All right. It seems that acquisition now come with lower margins and a more expensive multiple versus some years ago. What are the reasons for this in size, more competition on deals focused on growth versus the channel investment cap?

I don't think so. No, I think when we do an acquisition, it goes out to say this is in the total consideration. And in recent acquisition, we bought the property. But if you just purely look at the goodwill element of it, we're still within that 4 to 6 parameters which we've always said. So it all depends on what the net assets are and that asset is only 400,000, which is to working capital, it's not our mouthful. But if you're adding on with fast GBP 1.6 million of property yes, it does increase the multiple. That's why I'd like to separate the goodwill that amount from the net asset element because it does skew it a lot. But we all stick to this principal. While we have always to principal of 4% to 6%, but I think 3.5% is a lot we paid for an acquisition.

Okay. So this 1 is asked to use, how is it possible on the 29th of September, and you gave a higher guidance for FY '24 when there was only 1 month left for once we close. And this is...

It's all [indiscernible].

Do you want to talk about...

Yes, I'll talk about it. It was quite constructive because this has been dragging on for a period of time. We knew this order was going to come through. We've got the goods in stock, finished good in stock. We have all the components, the sensor components, what actually happened we actually go with the customer is they move the procurement from the base in Singapore to a centralized base in the Netherlands, and they decided to actually reduce their exposure from 3 months to 1 month, and it dragged on for months. We thought we could have a good shipment going out the door, even if it's the last month of the year, it's all been hold off. But sadly, it didn't. So it gives us a big hole in the H1 figures and always that it's moving to the right. The other 2,000 of each with fast and SVS, respectively, that's small compared to Atik. I think it's too big. So we had to hold our hand sits not coming through in Q1, maybe just last minute, which is a shame, really sad for me.

Have you changed your approach to M&A, you have a tough outlook, our valuations, expectations adjusting? And what is your view on the increase in debt at this point in the cycle? We come up that the last one, but you can...

Yes, it doesn't change. The model hasn't changed. We still look at the most part. At the moment got we [indiscernible] looking at it now, we talk heavily about the acquisitions. They're all ranging between GBP 0.5 million and GBP 1 million. [indiscernible] is actually lower than that in or generated point of that and the profit, but a good business. How we see them going forward. That's what we're discussing at the board at the moment because at the end of the day, I think our multiple on debt about something on that. Do we have to increase that shares. We don't know, but it's not going to stop us doing M&A. So that's what we need to discuss going forward as a board. Anything to add to that, Amit?

Nothing. Stephen, can you please provide detail on the plan to use organic growth?

Absolutely. The look at that really, we need to live at individual as a level because the drivers are quite unique to each business. A common denominator across the group seems to be very much looking at geographic expansion and taking a number of the businesses into new geographic markets. For example, the U.S. and that can be a very low hanging fruit across the board. So really, it's looking at first of all, characterizing the businesses across the group as a stable businesses and also the higher growth businesses. and really the higher growth businesses developing a strategy by they're going to grow. So as I say, it's not -- it's going to be geographic markets probably initially, but also looking at product development, living approvals and really looking to diversify into those markets. So there is a journey ahead, but it's really focused on the factorization of the business.

Okay, questions for me. Am I correct in here in the segments we will be rebalanced. If that control segment is 2 large ones simply break the segment into 2 or 3 segments and so why we classify we prevent reported segment organic growth numbers will be validated. So first of all, I think we explained that the -- we are resegmenting, we had a good close look at in the reason behind this is that the scale is too large. But do we keep digital imaging going as divisional deliver how -- what would the future look like. But first of all, we have a bunch of lab products businesses that we can see synergies with, and it's really helpful to have them all within the same division. There'll be 1 or 2 more within it, but that seems the most sensible approach, given our future strategy. So it's not really trying to obscure previous date because we will provide before and after data at the current year-end. But the idea really is more to support the business going forward. And it just seems more appropriate for us to [indiscernible].

It was just to say we're not too worn in these businesses into our products. They're actually talking and I think they can work together to make perfect sense to put that into the group. So I think I started the exercise that going forward, and then we actually looked at it and say, what should we do with the rest of them? It could be in time it could be right to say we should have sort of 3 segments. But currently, it's going to be 2. And we may move it out. I think initially, the lab group works, and that's what we've agreed. So that's how we're really at the moment. We've got meetings and center thought about it is the rest of the businesses and we bring those into the sector to meaningful segment. If you look at it historically, as I said before, we've businesses in the digital imaging, which is Atik cameras, Synoptics and Gallenkamp really is [indiscernible]. It's not digital. We just put it in there. So what we need to do is to have a look at our businesses and put them in the correct segments. And that's what we intend to do.

M&A pipeline, how many do you expect to execute in 2024. And will this take you on to a gross debt level and will you remain comfortably covenant [indiscernible]? Well, to answer that question, we'll always remain covenant compliant because you have to do whatever we use to do. And in terms of how many we expect to execute. We have a line number because it's just not a sensible thing to do simply because you don't really want to be forced into doing a number just for the second it should be the right deal with the right noise and often the process itself takes a while longer than we think it will be usually use example our sole business well. So there's any number of reasons we're comping a number on it really. In terms of M&A, what do you think your French from other competitors such as judges in Halma, you seeing a clear trend of higher prices paid it may seem strange in economic situation like but the prices should be lower. Now over the prices should be lower. So our economic contribution -- so we got, but they're not wasting any different. What differentiators we have tend to compete with the [indiscernible].

We get them in early stages. So if you have a look at, we've got one in the books, we've been around sort of 3 years. We're still talking to them when the time is right and then you go fast, we turn that around into the 3 months. So there's no sort of time in. It's just talking people built businesses and if they're interesting to come across, but also in Halma, et cetera, are looking to buy businesses within the profit range of sort of GBP 500 million to GBP 1 million, which just as our private equity as well. So they're good businesses for us.

What expectations should we have for the long-term gross margins? Where do you see the business in 10 years? Or what is the competitive environment like for the companies you own? Well, I'll answer the first 1 about long-term gross margins. I mean I still see to 6% progress margins. I mean, obviously, mix plays a part with the M&A that we buy. So you do find some of the acquisitions we make, the gross margins are below on materials. But that gives us opportunity as we see on moments actually, I don't think we mentioned that we're working to improve their growth part and we've had some success in that. We will look to do that elsewhere too. And so that's answer to that one. So where do you see the business in 5 to 10 years? But no much, much larger, I think, is the answer. It's our strategy and we continue our strategy as we've articulated it today, then it should be slightly bigger.

Well, what we do know is each of the businesses is done quite individual. And the growth of each business is going to be very different. There are some higher growth businesses within the group and that they're going to be considerably larger and look very different to what to do right now. But some of the businesses will look very similar to where they are right now. So it really depends. What we know is that all the businesses will be sell autonomous.

The competitive environment, I think that's [indiscernible]. So I look about what's the impressive environment. Is it tougher?

Not really. I think we've acquired 18 businesses, we've mainly been in competition for with 2 of the businesses. That's one is Chell, but that's why they use corporate people to sell the business but then it wasn't a bidding process at all because we stick to our valuations, but they like how we work, and that is autonomous business units. We're not a business we've seen on many occasions, we'll buy the business and now to 12 months, and we don't change it. But then they got hooks on [indiscernible] or JB was implied on filling boxes in and that's not what we do. So we'd like to renew on its on what's coming through now say is synergies, these businesses are talking to each other.

Okay. I'll answer this. How much do you anticipate the expenses revenue to contribute to an overall revenue of the group? Approximately for the first year, the year 1 million or so for an annualized basis probably between GBP 2 million to GBP 2.5 million. Mike, when you're acquiring a company to property assets, how do you think about return on investment in term selling these assets is so typical in this [indiscernible]?

I think we've talked about this before. I think the only return thing we mentioned is about the property. So we've got about GBP 5 million on worth of property on the books as you already get between, what, 6%, 7% yield on it or we in ante 15% on a business. So we are really talking as a Board to say, should we actually move those properties on to sale and leaseback. But then in this market, you have 7%, 7.5% interest is it worth doing it. So it's a discussion point to see through at this moment in time.

Okay. Can it can be that the company's acquired during COVID were inflated on revenues. So SDI Group is overpaid and the acquisition not for in the expected value? We will do an impairment test for the year anyway. So this one does come out really they're not creating value. So we had one longer. I was suggesting that was right. That was we've done the adjustment. I think we spoke about talent you anything.

Yes. So I can repeat it. I think 1 area we never going to avoid that stuff at IFRS 16, I think it's 16 on the leasing with that. That has nothing to do with Calgary, that was just interest rates and property valuations, but the rest of it is the GBP 2.5 million. We did a 3-year average of that business. And what actually happened is we didn't nobody realize that COVID just drop off the clip. So everybody shipped the doors and nothing came through. But the order book was still strong. But then we had an operational logistics issue, whereby the sort of people buying between 5 and 10, 15 of these logical safety cabin, if they're only buying 2 or 3. So we didn't have a service department to actually service support and don't deliver the product. So with Stephen on board. That's what we're trying to do now. The biggest problem is for us really since you actually him and like that impairment, then you can't actually reverse it. So Ami and I, we discuss about this. It looks really quite healthy going forward one looks a good business, but it just happened to be for that period of time. It didn't actually deliver in line with expectations. So therefore, we have to take that here.

Okay. We sort -- what are your plans to return digital what Imaging segment profitability count on the increase in volume to optimize cost structures as well, is really at in terms of scale? And first of all, it's still a profitable division. Both all the companies within that will be profitable for this strategy, just to be clear. The account on increasing volumes, well, I think we've talked about is [indiscernible].

Yes, we've already addressed it and tricky really the past focus premia and what we've done to improve the robustness of our business may ultimately address that.

Have there been or are there any plan to be further write-downs of intangibles? No, we have plan to do this. Usually, it is something that it's an annual calculation that we have to do. So I know I've explained to some investors when they're asking this question. It depends on the circumstances around the individual business at time that we did a couple of it, which is usually in the summer. And the interest rate environment and level influence is our weighted average cost of capital were selling currencies calculations. It's a really tough one to answer. There's lots of variables in the calculation of that minute that we've done a right out of Monmouth. The other one where we had a bit of less headroom on cost. But beyond that, we're recently good share, but we did depend very much on circumstances at the time we do the capital action to share. There's no certain planned ones, but we review the calculations annually. So I think we're coming close to...

I mean, as we said, we're coming up to the hour anyway. For every question that you do seem to ask, there seems to be another one coming, I guess, we could take another hour or so of your time. But if I may just say thank you to everybody for your engagement. All these questions, Ami, will make available to you post the meeting. So if there's anything we haven't covered off in the presentation or through the Q&A we can add an additional response and publish those if it's appropriate, of course, to do so. I know investor feedback will be particularly important to you all, and I'll shortly redirect those on the core thoughts and their expectations by feedback. But I wonder before doing so, Mike, if maybe I could just return to you, just for a couple of closing comments, brief comments and then I redirect investors to give you their feedback.

Yes, this has somewhat been a challenging year compared to previous years and said before. We've got a few businesses that not cheap budget. I think [indiscernible], it just shame it took so long to come in. This is just a bump in the road for us, but I don't think it's going to affect our long-term plan going forward. We're still going to create or drive organic growth within our existing businesses and also we're going to do M&A. So for us, I think, especially with the -- in the short term, we're looking at a large pipeline prospective orders for the high property of land across the group. I just think this is a short-term sort of blip for us.

That's great. Mike, Ami, Stephen, thank you very much indeed for updating investors please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This is only going to take a few moments to complete be greatly valued by the company. On behalf of the management team of SDI Group plc, I would like to thank you for attending today's presentation, and good afternoon to you all.