27 July 2011

SCIENTIFIC DIGITAL IMAGING PLC

("SDI" or "the Group")

Final Results for the year ended 30 April 2011

The Board of Scientific Digital Imaging is pleased to announce its final results for the year ended 30 April 2011.  SDI designs, builds and sells scientific instruments based on digital imaging technology, predominantly for applications in the life sciences industry.

Financial Highlights

·      Revenue increased by 1.4% to £7.3m (2010: £7.2m)

·      Operating loss for the year was £66k (2010: profit £342k) before currency losses of £28k (2010: £23k)

·      Basic loss per share was 1.14p pence per share (2010: earnings 1.67p)

·      Expenditure on research and development in the current year was £368k, representing 5.1% of Group sales (2010: £452k representing 6.3% of Group sales)

Operational Highlights

·      Development of a new software product, GeneSys for the Syngene range of products

·      Atik making several Original Equiptment Manufacturer ("OEM") relationships

·      Seeing growth from Emerging Markets of India and China

Board Changes

·      Mike Creedon, who joined SDI as Chief Financial Officer in May 2010, has been appointed as Acting Managing Director of SDI, following the resignation of Dr Phil Atkin as CEO

·      This will be effective as of 31^st August but Phil Atkin will continue to advise the Company as a consultant

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

 "The Board is cautious in the near term but confident that our products are "best in class" and that customers will return to more normal spending patterns when budgets are restored. The company's new products, particularly in the gel documentation field, show commitment to innovation and we believe they will capture a larger share of that market."

-ENDS-

FOR FURTHER INFORMATION

Scientific Digital Imaging plc                                01223 727144

Harry Tee CBE, Chairman

Mike Creedon, Acting Managing Director

www.scientificdigitalimaging.com

Bishopsgate Communications                                020 7562 3350

Deepali Schneider/ Natalie Quinn

sdi@bishopsgatecommunications.com

finnCap Ltd.                                                         020 7600 1658

Sarah Wharry

Note to Editors

Scientific Digital Imaging Plc

Scientific Digital Imaging Plc (SDI) is focused on the application of digital imaging technology to the needs of the scientific community. Its principal subsidiary is Synoptics Limited, which designs and manufactures special-purpose instruments for use mainly in the life sciences, supplying customers in the academic and research sectors.  In October 2008 SDI acquired the entire share capital of Artemis CCD Limited and Perseu Comercio De Equipamento Para Informatica E Astronomia SA (Perseu) (now marketed under the brand Atik), companies that design and manufacture high-sensitivity cameras for both astronomical and life sciences applications and whose products are used in instruments manufactured by Synoptics Limited.

Chairman's statement

Despite very difficult trading conditions in which our customers have tended to reduce their spending on higher-value products, Group revenues were relatively flat but margins came under severe pressure as a result of the change in mix.  This resulted in the company returning a disappointing operating loss for the year.

Financial results

Turnover for the period rose marginally to £7.3m (2010: £7.2m), an increase of 1.4%. In particular sales into the emerging markets of India and China showed good growth albeit at lower margins, resulting in a material change in product mix.

The operating loss for the year was £94k (2010: profit £319k) inclusive of currency losses. Basic loss per share and diluted loss per share was 1.14p compared with 2010 which reported basic earnings per share of 1.67p and diluted earnings per share of 1.46p.

Operating activities resulted in a cash outflow (which included a payment of deferred commissions to an overseas agent) of £187k (2010: cash inflow £331k).  The liability component of the convertible loan stock, issued to fund the Group's admission to AIM, stood at £360k at the end of the period, and total borrowings stood at £529k (2010: £422k).  Cash and cash equivalents were £158k at the end of the period (2010: £762k).  The Group's net cash position was reduced to a negative position of £371k during the year. (2010: positive cash position £340k).

Despite the trading difficulties, SDI has continued to invest in the future with research and development spending £368k (2010: £452k).  Research and development spend was 5.1% of sales revenue compared to 6.3% in 2010. These investments will bring benefits in future years.

Strategy

It is disappointing to report no successful acquisition completions during the year despite a great deal of effort and getting very close to completing two transactions in the period. Both these transactions were terminated after our due diligence was complete.   The Board continues to believe that there are many small businesses operating within the market that present an ideal opportunity for consolidation, and that the 'buy and build' strategy is in the best interests of shareholders in the long term.  However, market trends and trading results mean that our efforts must now be focused on returning the Group to solid profitability, and consequently we do not anticipate being able to complete any transactions in the near term.  We will nevertheless continue to establish and build the long-term relationships required, so that these can be capitalised upon when trading conditions recover. 

Reorganisation

In the light of the trading performance and current market conditions, the Board has carried out a thorough review of the operations and structures of the group. Among other changes, Dr Phil Atkin, who was a founder of the company, has stepped down and Mike Creedon has been appointed Acting Managing Director of the operating company.  The primary focus is to return the company to profitability and improve the cash position.

Current Trading and Outlook

The global economic climate remains uncertain. For some time the Group's markets have remained relatively stable but in recent periods the effects of reduced government spending and consequent reductions in grants and research budgets have begun to take effect - a possibility of which we warned last year. The exceptions seem to be the developing markets of India and China where our margins have been historically lower; a matter that is being addressed.  At Synoptics, customers are largely choosing to buy less expensive instruments, where competition is greater, with the consequential impact on margins.  Atik, the camera company, has continued to grow its share of the amateur astronomy market and this success has offset the downturn in consumer spending.

Currency exchange rates can have a significant impact on our performance due to the wide geographical distribution of our markets.  Prices to our distributors outside the US are generally denominated in Pounds Sterling, but local exchange rates can nevertheless affect the competitiveness of our products in those markets.

The Board is cautious in the near term but confident that our products are "best in class" and that customers will return to more normal spending patterns when budgets are restored.  The company's new products, particularly in the gel documentation field, show commitment to innovation and we believe they will capture a larger share of that market.

Staff

On behalf of the Board I would like to sincerely thank our staff all of whom have worked diligently and with great commitment during a very difficult period. In particular I would like to thank Phil Atkin for his service to SDI since the company's inception.

H L Tee CBE

Chairman

OPERATING REPORT

Synoptics

Synoptics designs and manufactures scientific instruments based on digital imaging technology, mainly for the life science markets.

Synoptics offers its products under three marketing brands, each targeting a different scientific discipline:

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.

Whilst the range of applications addressed by Syngene is an essential part of almost every life sciences facility, the market has noticeably shifted its emphasis towards the lower end of the cost spectrum.  Unfortunately, competition is more intense in this arena, with a consequent negative impact on the margins we can command.

The complexity of the instrumentation has increased steadily over the years, to the point where considerable expertise has been required to operate it.  Syngene's new GeneSys capture software, however, requires the scientist to specify only the application - the software configures and controls the instrument automatically to suit that application.  It contains a large database of dyes, lights and filters, and can optimise the configuration of all these elements according to the experiment being performed.  GeneSys, along with an enhanced range of G:Box darkroom and camera systems, was introduced to great acclaim at the Syngene international dealer meeting in September 2010.

Our new products are particularly strong in the area of imaging multiple fluorescent dyes, especially in the Infra-Red spectrum.  Our equipment has been found to perform as well as other laser-based technologies and is more flexible in application, and we anticipate growing sales in this market. 

Our performance in the Asia market has remained encouraging, and the Middle East region is also performing well.  Europe and the UK, however, showed no growth.  In the US we are pleased with the results of our continuing efforts to build the Syngene brand there, but recent cutbacks in government stimulus spending have had an impact on customer funding and consequently sales.  We have strengthened our representation in the California region, where a number of our competitors are based.

Syncroscopy

The Syncroscopy division provides digital imaging software to microscope users.  Its main product, a software package that allows customers to overcome the severely limited depth of field in an optical microscope, is principally sold by Leica Microsystems, a leading microscope manufacturer.  The software is offered as an option, as part of Leica's LAS software suite.  During the period the software was significantly enhanced and improved, and released as part of a major update of LAS.  Customers have been surprised and delighted by the improvement in the results and the reduced effort necessary to achieve them.

A long-term customer, the AntWeb project based at the California Academy of Sciences, has the ambition to collect images of every known species of ant.  Brian Fisher, project leader, provided us with some excellent publicity information that was featured by the BBC and in the national press.

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.

During the year the principal instrument, ProtoCOL 2, was enhanced through the addition of simpler, more 'intelligent' counting functions that make it even easier to set up and start counting, as well as introducing facilities supporting a wider range of sample types and the audit trails required for using the instrument in a regulated environment.  These enhancements have had a positive impact on the sales channels and consequently on sales.

We have experienced increased demand from the zone measurement applications supported by ProtoCOL 2.  In particular, sales to pharmaceutical laboratories in Asia for testing of antibiotic and vaccine efficacy have increased, and we are seeking to replicate this success elsewhere.

New developments

We have begun testing of new instruments that exploit our core technologies of fluorescence imaging and image analysis in a new area outside our traditional markets.  We are working in partnership with University-based researchers to combine their IP with our own to address a significant hospital-based testing market.  Preliminary results are encouraging.

Atik

Atik, formed by the combination of the Artemis and Perseu companies following their acquisition in October 2008, designs and manufactures high-sensitivity cameras for deep-sky astronomical and life science imaging. It was acquired because of its 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 its potential for growth in its astronomy market thanks to the quality of the principals. 

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.

Atik grew well again this year, although this was not achieved without difficulties.  In particular, the new high resolution, low cost camera introduced towards the end of last year proved difficult to manufacture and had to be withdrawn from sale for a period to minimise customer dissatisfaction.  The problem was resolved successfully and the solution tested thoroughly before shipments resumed.  The backlog of orders was cleared by the end of the period and the camera is now the best-selling unit of the range.

Significant work has been done in Quality Assurance by automating the process of testing cameras in production to reduce the time taken, remove subjectivity and increase the statistical and individual information retained.

Several new OEM relationships were established during the period.  These generally have a long gestation period but some regular shipments of modified cameras have begun.

Summary

At Synoptics, the Syngene has introduced new, innovative software for image capture and instrument automation.  However, difficult trading conditions are affecting profitability and we are taking steps to address this.

Atik has made an increasing contribution to the Group thanks to both intra-group revenues to Synoptics and to growth in its amateur astronomy market.

Mike Creedon

Acting Managing Director

Financial Review

Group Summary

Group revenue for the year increased by 1.4% to £7.3m (2010: £7.2m).

Gross profit reduced by 4.7% to £4.1m (2010: £4.3m) due to customers purchasing lower end product due to restricted budget spend. Additionally the Group sales mix changed towards the emerging markets of India and China markets producing strong sales growth but at a lower margin.

Operating loss for the year was £66k (2010: profit £342k) before currency losses of £28k (2010: £23k)

Investment in R&D

Expenditure on research and development in the current year was £368k, representing 5.1% of Group sales (2010: £452k representing 6.3% of Group sales). Under IFRS we are required to capitalise certain development expenditure and in the year ending 30 April 2011 £252k of cost capitalised and added to the balance sheet. This expenditure represents the Group's investment in new product development. The amortisation charge for 2011 was £198k (2010: £104k). The carrying value of the capitalised development at 30 April 2011 was £460k (2010: £406k) to be amortised over three years.  

Earnings per Share

Basic loss per share for Group were 1.14p (2010: earnings 1.67p), diluted loss per share for the Group were 1.14p (2010: earnings 1.46p).   

Finance Costs and Income

Net financing expense was £68k (2010: £62k).  Loan stock interest charges for the year were £34k (2010: £34k).  Loan stock of £379k was issued in July 2008.

Taxation

The tax expense of £40k is due to deferred tax expenses in the Group and the additional deduction for R & D expenditure.

Cash Flow

At the year end the Group had a cash balance of £158k (2010: £762k).

Currency Translation

The results for the Group's overseas businesses are translated into Pounds Sterling at the average exchange rates for the relevant year as rates had not fluctuated significantly. The balance sheets of overseas businesses are translated into Pounds Sterling at the relevant exchange rate at the year end. Any exchange gains or losses from translating these items from one year to the next are recorded in other comprehensive income.

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 or keeps this exposure to a minimum. 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

For the fifth consecutive year the Group has increased its revenues and continues to invest in the future with research and development spend continuing at 2010 levels at £368k (2010: £452k).

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 APRIL 2011

All activities of the Group are classed as continuing.

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 APRIL 2011

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED 30 APRIL 2011

H L Tee CBE                                                                                       M J Creedon
Chairman                                                                                           Acting Managing Director

CONSOLIDATED STATEMENT OF CASHFLOW

FOR THE YEAR ENDED 30 APRIL 2011