SDI Group Regulatory News (SDI)

14 Sep 2009 07:00



14 September 2009

SCIENTIFIC DIGITAL IMAGING PLC

("SDI" or "the Group")

Final Results For The Year Ended 30 April 2009

The Board of Scientific Digital Imaging, the digital imaging group, is pleased to announce its final results for the year ended 30 April 2009.

Highlights:

The Group was admitted to the Alternative Investment Market of the London Stock Exchange (AIM) in December 2008

Two acquisitions made a positive contribution to Group results

Revenue increased 17.9% to £6.8 million (2008: £5.7 million) 

Operating profit, pre AIM admission expenses and currency gains, increased 21% to £268k (2008: £222k) 

Strong cash balance: net cash £339k (2008: £311k)

Normalised EPS, excluding AIM admission expenses and currency gains, increased 10% to 1.07p (2008: 0.97p)

Commenting on the results Harry Tee CBE, Chairman, said;

"This is SDI's first set of annual results since our admission to AIM and we are delighted with the Group's performance.  SDI has had a successful year with the Group continuing to grow despite challenging market conditions.

We are particularly pleased with the acquisitions of Artemis and Perseu which have been successfully bedded in and have made positive contributions to Group results. We brought the Group to the AIM market to assist with our 'buy and build' strategy and we continue to look for acquisition targets that are complementary to the existing business.

We remain cautiously optimistic that the positive trends experienced so far will continue into the future, although the significant investments we are making in the Group may affect short-term profits."

--END-

Enquiries 

Scientific Digital Imaging plc 01223 727144

Harry Tee CBE, Chairman

Phil Atkin, CEO

www.scientificdigitalimaging.com 

Grant Thornton Corporate Finance 020 7383 5100

UK LLP

Philip Secrett

Colin Aaronson

Dowgate Capital Stockbrokers 01293 517744

Neil Badger

Bishopsgate Communications 020 7562 3350

Maxine Barnes/Will Tindall/Gemma O'Hara

sdi@bishopsgatecommunications.com 

NOTES TO EDITORS

About SDI

Scientific Digital Imaging is focused on the application of digital imaging technology to the needs of the scientific community. SDI, through its subsidiaries, offers a range of digital imaging solutions and intends to acquire other companies that are capable of contributing one or more key elements to the solutions required. SDI has an in-depth understanding of the applications in the marketplace and has the ability to engineer complete systems to address such applications and to provide key, high-performance components such as cameras.

Chairman's Statement

On behalf of the Board I am pleased to report on a successful twelve months in which the Group has continued to grow organically as well as through targeted acquisitions. This is despite the distractions of a particularly busy period, challenging market conditions and the effort undertaken in being admitted to AIM as a public company.

In October 2008 the Group completed the acquisition of two important suppliers: Artemis CCD Ltd (in Norfolk, UK) and Perseu - Comércio de Equipamento Para Informática e Astronomica, SA (Lisbon, Portugal). These companies design and manufacture high-sensitivity cameras for both astronomical and life science applications and their products are used in instruments manufactured by our main subsidiary, Synoptics. The acquisitions have bedded in well and made positive contributions to Group results during the second half of the period.  We now identify these companies as Atik, which is the brand name under which they market their products.

The Group sought admission to the AIM market in order to provide greater flexibility in funding further growth, to enable the Group to access a wider range of investors, to assist in recruiting, retaining and incentivising key employees and to raise SDI's general profile within its sector and status with its customers and suppliers. The admission of the Group to AIM was successfully achieved on 8 December 2008.

Financial Results

Turnover for the period rose to £6.8m (2008: £5.7m), an increase of 17.9%, despite weakening economic conditions.

Operating profit for the year before AIM admission expenses and currency gains was £268k (2008: £222k).  After these, net trading profit was £106k. Basic earnings per share were 0.049p and fully diluted 0.042p, from 0.97p and 0.88p respectively at the end of the previous period. Normalised earnings per share for the Group, excluding the admission costs and currency gains, were 1.07p (2008: 0.97p).

Margins improved during the second half of the year, and for the year as a whole margins were similar to those of 2008. Due to the international nature of the business, the dramatic changes in currency exchange rates during the year had a complex, but overall positive, effect on the Group's performance.

Cash flow was strong, with cash of £341k (2008: £447k) generated by operating activities, despite the AIM admission costs. During the period a total of £379k was raised in the form of a convertible loan stock to fund the Group's admission to AIM, and borrowings stood at £417k at the end of the year (2008: £62k). Cash and cash equivalents stood at £756k at the end of the period (2008: £373k). The Group's net cash position grew to £339k (2008: £311k).

Strategy

The Group is focused on the application of digital imaging technology to the needs of the scientific community. The Board continues to pursue a focused strategy of acquiring digital imaging companies in the life sciences sector and in other scientific markets, as well as seeking to generate organic growth. The Board believes there are many businesses operating within the market, a number of which have not achieved critical mass, and that this presents an ideal opportunity for consolidation. This 'buy and build' strategy will be primarily focused within Europe but, where opportunities exist, acquisitions in the United States and elsewhere will also be considered. The acquisitions completed during the period represent the first steps in the implementation of this strategy.

Board

Ron Howard retired from the Board on 28 November 2008 after many years of service. Ron joined the Board of Synoptics Ltd as Chairman in November 1988. He was instrumental in the growth of Synoptics and in the development of the strategy which led to the formation and subsequent listing of SDI as an acquisitive Group. We thank him for his significant contribution to the Group over the years, and wish him well in his retirement.

Alf Vaisey joined the Board on 22 August 2008. He brings a wealth of experience gained over many years as Finance Director of a number of public companies including Lloyds Chemists and The Roxboro Group.

Current Trading and Outlook

The economic climate continues to create uncertainty, but we are optimistic that we will remain relatively resilient. The Group's principal subsidiary, Synoptics, operates in markets where the end customers are generally engaged in research or quality control. Funding for these activities is generally allocated on a long-term basis with a significant element coming from governments. Our Atik group of camera-producing companies is fully integrated and we are confident of its ability to increase market share in the astronomy market through the investments we are now making in this business. We continue to increase our investments across the Group in both R&D and sales channels in order to drive future growth.

The global nature of the Group's business makes currency exchange rates significant to our performance. Prices to our distributors are in general denominated in Pounds Sterling (with the exception of sales in the US), but local exchange rates have a large impact on the competitiveness of our products. Recent currency fluctuations have in general been favourable and we take steps to mitigate the effects of any adverse movement.

Sales in the US may well be affected by the various Federal stimulus packages, although the extent to which these turn out to be effective in our sector is difficult to determine at present.

The Board remains cautiously optimistic that the market will remain stable and that the Group strategy and investments will result in good medium-term growth although short-term profitability may be moderated as a result of the investments made in the Group.

Staff

The Group depends ultimately on the continued commitment, enthusiasm and skill of its employees. They have performed extremely well in a year of many distractions, and on behalf of the Board I would like to pay tribute to their dedication and commitment.

Harry Tee CBE

  Chief Executive's Operating Report 

Synoptics

Synoptics designs and builds scientific instruments based on digital imaging technology, mainly for the life sciences. During the period, Synoptics revenues accounted for 95% of the Group revenues.

Synoptics trades under three brands, each targeted at a different scientific application area:

Syncroscopy

The Syncroscopy division provides accessories that bring the benefits of digital imaging technology to microscope users.  Unlike the other divisions, it concentrates largely on selling its technology through an OEM (Original Equipment Manufacturer) customer: Leica Microsystems. Syncroscopy's principal product, a software package that allows customers to overcome the severely limited depth of field in an optical microscope, is sold as an optional module for Leica's LAS software suite and has been well received in this form.

Synbiosis

The Synbiosis division of Synoptics provides instruments and systems for microbiologists. In particular, it makes a range of instruments for counting and measuring the results of microbiological tests for the food, water and pharmaceutical markets. These instruments bring benefits to the customer in the form of reduced labour costs, more repeatable interpretations of the results, and by facilitating the automatic recording of samples for audit purposes - the latter becoming increasingly important as microbiological testing becomes more regulated.

The division has experienced a mixed year in terms of success, with good sales in Europe and the Far East balanced by poor results in the US.  Consequently, we have made changes to our distribution model in the US, aligning it more closely with the highly successful approach adopted by the Syngene division.

Considerable effort was expended during the period in the engineering of a new range of products for this division, which has now been launched. ProtoCOL 2, with versions initially for counting microbial colonies and measuring antibiotic resistance zones, will be the division's flagship product range.

Syngene

Syngene provides instruments, software and systems for documenting and analysing 'gels' used by molecular biologists in genomic and proteomic studies and is the largest of the three Synoptics businesses.  Almost all research in the biological sciences involves an understanding of the underlying molecular processes involving DNA, RNA and proteins, and gel electrophoresis is a fundamental process in many laboratories working in this area.

Syngene continued to grow well across the world through its established network of distributors and (in the United States) manufacturers' representatives.

Syngene prides itself on its ability to apply its technology to the specific needs of its customers whilst continuously making this technology easier to use and more transparent. It has achieved a major step forward in this regard, by providing automation of one of the most difficult processes in this type of application, namely the capture of a useful image of the extremely faint patterns of light emitted by the increasingly popular chemiluminescent markers. Similar to the 'full auto' setting of a modern consumer camera, the iChemi technology is able to provide one-button capture and processing, delivering the full performance of the imaging system and with little or no training. This development is useful not only to the customer but also to the distributors, for whom a demonstration involving a complex series of steps was a significant barrier to this marketplace.

Whilst sales were strong throughout the world, they were particularly robust in the United States thanks to the continued and successful development of our network of manufacturers' representatives across the USA. The margins earned by such sales were also high thanks to the increase in the value of the Dollar with respect to the Pound Sterling, although of course the costs of our US operation also increased for the same reason.

Atik (formerly identified as Artemis and Perseu)

Atik designs and manufactures high-sensitivity cameras for deep-sky astronomical and life science imaging. The Artemis and Perseu companies were acquired in October 2008 because of their strategic fit with the goals of SDI, the chance to achieve supply-chain integration of a key component of the Synoptics business, and because of their potential for growth in their astronomy market thanks to the quality of the principals. The companies made a positive contribution to Group results during the second half of the Year.

Initially the cameras were designed with the needs of the amateur astronomer in mind: high sensitivity and low noise for imaging faint objects in the night sky. However, these criteria also make the cameras suitable for low-light applications in other scientific applications and they were chosen by Synoptics in 2007 to provide cameras for the high-end Syngene systems.

The integration of the businesses into the Group has been completed successfully.  The design and development activities are centred in Norwich and Cambridge, and all manufacturing operations based in Lisbon. New accounting and administration systems, remotely accessible from Cambridge, have been set up in Lisbon. The technological and market synergies identified at the time of the acquisitions have been achieved and Atik is performing well. 

Development of a new software product for the post-processing of astronomical images has been accelerated through the use of a toolkit developed by Synoptics. Similarly, Synoptics is now in a position to take advantage of specific knowledge and experience in the Atik team. We anticipate further opportunities for Synoptics to influence the development priorities of Atik, some of which have already led to a number of initiatives that have proven to be successful - both for Synoptics and in the astronomy field.

The depth of marketing expertise in Synoptics has assisted in the establishment and clarification of the Atik brand and further Synoptics resources will be shared in the future to assist Atik to break into new and exciting markets.

New recruitment has strengthened both the software development and marketing capabilities of the Atik team.

Atik continues to grow its sales, despite the current economic climate and its exposure to discretionary expenditure within the consumer market. Its cameras have received very favourable reviews in respected publications and on-line forums and it has established a good reputation for reliability and value for money. Its product range covers most of the appealing price/performance points and our emphasis now needs to turn to marketing the products effectively and across a wider geographical range.

Summary

Each of the businesses performed well during the period. The structure and organisation of the Group is sound and we continue to seek growth in all areas in the coming period despite the economic uncertainties in which we operate.

We seek further acquisitions in pursuit of our 'buy and build' strategy to develop a Group based upon the exploitation of digital imaging technologies in scientific and research markets.

  Financial Review 

Group Summary

Group revenue for the year increased by 17.9% to £6.8m (2008: £5.7m).  Revenue from the acquisitions made during the year amounted to £313k.

Gross profit increased by 16% to £3.8m (2008: £3.3m).  Gross profit from acquisitions made during the year amounted to £236k. 

Overall the Group's gross profit margin for the year was 56% (2008: 57%). During the first half of the year the Group's gross profit margin reduced to 54% as a result of product mix but in the second half of the year margins improved to 58%. The first half reduction was due to the mix of sales with an increased proportion of Syngene revenue which generally has a lower gross margin than that of other Group products. 

In the second half of the year, movements in exchange rates and component cost savings led to an improvement in gross margin percentage. The acquisitions increased the gross profit margin for the year by 0.9 percentage points.

Operating profit for the year was £106k (2008: £221k); this figure benefitted from a re-valuation of debtors denominated in dollars of £183k, but was reduced by AIM admission costs of £345k.

Investment in R&D

Expenditure on research and development in the current year was £626k, representing 9% of Group sales. Under IFRS we are required to capitalise certain development expenditure and in the year ending 30 April 2009 £148k of cost was capitalised and added to the balance sheet. This expenditure represents the Group's investment in new product development. The amortisation charge for 2009 was £40k (2008: £80k). The carrying value of capitalised development at 30 April 2009 was £335k (2008: £226k) to be amortised over three years.

Earnings per Share

Basic earnings per share for Group were 0.049p (2008: 0.97p), diluted earnings per share for the Group were 0.042p (2008: 0.88p). Normalised earnings per share for the Group, excluding AIM admission costs and currency gains, were 1.07p (2008: 0.97p). 

Finance Costs and Income

Net financing income was £5k (2008: £11k). The reduction in financing income was a result of the fall in interest rates during the year.

Net financing expense was £54k (2008: £48k). Loan stock interest charges for the year were £25k (2008: £7k). Loan stock of £379k was issued in July 2008.

Finance charges incurred during the year by the acquisitions were £6k.

Taxation

The tax charge in the income statement is distorted by the AIM listing expenses, elements of which are disallowable, and unrecognised tax losses in the Company, increasing the effective tax rate for 2009 to 86% (2008: 18%). The current tax charge for the period relates to overseas tax of £7k (2008 UK current tax charge £1k).

Cash Flow

Group operating cash inflow was 208% of Group operating profit (excluding, in both cases, admission costs and currency exchange gains) (2008: 190%).

During the year £74k of cash was used to acquire Perseu - Comercio de Equipamento Para Informatica e Astronomica ("Perseu SA") and Artemis CCD Ltd.  In addition, £277k of cash was expended on assets and capitalised development. 

The Group raised cash of £379k following the issue of loan stock and generated £89k of cash from working capital.

At the year end the Group had a cash balance of £756k (2008: £373k).

Currency Translation

The results of the Group's overseas businesses are translated into Pounds Sterling at the average exchange rates for the relevant year. The balance sheets of overseas businesses are translated into Pounds Sterling at the relevant closing exchange rate. Any gains or losses from translating these items from one year to the next are recorded in reserves.

Foreign exchange gains on the re-valuation of debtors held in foreign currencies are £183k (2008: £1k loss). These gains were recorded in the Income Statement.

As with a majority of international companies, the Group's UK and overseas businesses purchase goods and services, and sell some of their products, in non-functional currencies. Where possible, the Group nets such exposures. The Group's principal exposure is to US Dollar and Euro currency fluctuations.

Funding and Deposits

The Group utilises short-term facilities to finance its operations. The Group has one principal banker with an invoice discounting facility of up to £500k. At the year end the Group had cash on the balance sheet. Surplus funds are placed on short-term deposit.

Summary

Growing demand for our digital imaging solutions has increased our revenue for the third consecutive year. Operating profit, adjusted for admission costs and currency exchange gains, has increased by 21% from the level achieved in 2008. We retain a strong balance sheet with a positive cash flow and net cash position of £339k (2008: £311k). 

All activities of the Group are classed as continuing.

1 SEGMENT ANALYSIS

The geographical analysis of revenue by destination is set out below:

2 TaxATION

Reconciliation of effective tax rate

3 Earnings per share

The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Scientific Digital Imaging Plc divided by the weighted average number of shares in issue during the year and after removing shares held by the Synoptics Employee Benefit Trust. All earnings per share calculations relate to continuing operations of the Group.

The calculation of the diluted earnings per share is based on the profits attributable to the shareholders of Scientific Digital Imaging Plc divided by the weighted average number of shares in issue during the year, as adjusted for dilutive share options, dilutive deferred consideration and share held by Synoptics Employee Benefit Trust.

The reconciliation of average number of ordinary shares used for basic and diluted earnings is as below:

4 Borrowings

Borrowings are repayable as follows:

The proceeds of £379,000 from the issue of the loan stock are stated after adjustment in accordance with the accounting treatment required under IAS 32. Certain rights that are attached to the Company's loan stock result in it having characteristics of both equity and liabilities. Therefore the loan stock is considered to be a compound instrument.

The value of the liability component has been calculated based on the present value of the future cash flows in respect of payments the Company is obliged to make to holders of its loan stock. The value of £40,986 included within equity under the heading 'Other reserve' is the residual amount. 

The loan stock is unsecured, bears interest at 9% per annum and can be converted at any time prior to 30 April 2013 at a rate of one ordinary share for every £0.70 nominal amount of loan stock. Any unconverted loan stock is due for repayment on 13 July 2013.

Subscribers to the loan stock also received warrants to subscribe for one ordinary share at a price of £0.70 for each £4.00 of loan stock subscribed for. The warrants are valid until 31 July 2013, except that this period may be extended by the Company at its sole option. The total number of warrants issued by the Company was 94,750.

5 FINANCIAL INFORMATION

The financial information set out above, which has been extracted from the annual report and accounts for the year ended 30 April 2009, does not constitute statutory accounts within the meaning of s.240 of the Companies Act 1985. 

The annual report and accounts will shortly be sent to shareholders and will be available on the Company's website, http://www.scientificdigitalimaging.com.