REG - Solid State PLC - Final Results, Analyst Briefing & Investor Pres
27/07/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220727:nRSa8318Ta&default-theme=true
RNS Number : 8318T Solid State PLC 27 July 2022
27 July 2022
Solid State plc
("Solid State", the "Group" or the "Company")
Final Results for the 12 months ended 31 March 2022
Analyst Briefing & Investor Presentation
Solid State plc (AIM: SOLI), the specialist value added component supplier and
design-in manufacturer of computing, power, and communications products, is
pleased to announce its audited final results for the 12 months ended 31 March
2022.
Financial overview:
Set out below are the financial key performance indicators which reflect the
record year and a very pleasing result:
KPI 2022 2021 Change
Reported revenue £85.0m £66.3m +28.2%
Reported operating profit margin 4.4% 6.5% -210bps
Adjusted operating profit margin* 8.7% 8.3% +40bps
Reported profit before taxation £3.5m £4.2m -16.7%
Adjusted profit before taxation* £7.2m £5.4m +33.3%
Reported EPS 29.5p 46.4p -36.4%
Adjusted fully diluted EPS 70.6p 54.7p +29.1%
Adjusted cash flow from operations £6.0m £6.9m -13.0%
Net cash/(net debt)** £(5.2)m (£4.4m) -18.2%
Dividend 19.5p 16.0p +21.9%
Open order book @ 31 May £89.7m £51.0m +75.9%
* Adjusted performance metrics are reconciled in note 31, the adjustments
relate to IFRS 3 acquisition amortisation, share based payments charges, and
non-recurring charges in respect of redundancies and acquisition costs and
fair value adjustments.
** Net cash / debt includes net cash with banks £1.4m (2021: £3.1m) less the
fair value of deferred contingent consideration of £6.6m (2021: £7.5m) and
excludes the right of use lease liabilities of £2.1m (2021: £2.5m).
The Group has delivered:
· Revenue growth of 28.2%, including the first full year of
acquisitions, with record revenue of £85.0m (2021: £66.3m) reflecting the
Group's pro-active approach to working in partnership with customers to manage
supply and demand.
· Record profitability with adjusted operating margins increasing
40bps to 8.7%, based on solid margins in both divisions.
· Adjusted fully diluted EPS up 29.1% to 70.6p (2021: 54.7p).
· Strong operating cash generation of £6.0m (2021: £6.9m)
supported investment in inventory of £6.9m in with reported cash conversion
of 161% (2021: 162%).
· A dividend increase of 21.9% on the prior year, reflecting record
adjusted performance in the year.
· An open order book on 31 May 2022 of £89.7m (31 May 2021:
£51.0m) highlighting 75.9% organic growth.
Strategic Achievements in 2021/22:
Notable achievements to advance the Group's strategy included:
· Integration of the acquisitions of Willow Technologies Group
("Willow") and Active Silicon Group ("Active Silicon"):
o Enhanced technology adding a portfolio of own brand image processing
products and electro-mechanical components (including component manufacturing
capabilities in USA).
o Broadened the international sales capabilities and resources in the USA
and Europe.
· Continued investment in technical capabilities through the
Group's capital investment programme:
o Semi automated battery pack wire bonding - providing improved quality and
efficiency for volume battery pack production runs.
o In-house electromagnetic compatibility ("EMC") testing capabilities.
Post period events:
Proposed acquisition of Custom Power LLC ("Custom Power"), a strategically
aligned, profitable, cash generative battery pack manufacturer for a total
consideration of up to $45.0m. The acquisition is expected to complete in
early August following the general meeting on 29 July 2022.
Commenting on the results and prospects, Gary Marsh, Chief Executive said:
"I am very pleased to report 29.1% growth in adjusted diluted earnings per
share over the prior year's record result and a significant step change in
revenue year on year at £85.0m (2021: £66.3m).
"The Group benefitted from the first full year of the two acquisitions and a
few pull ins of demand at the end of the year where our team's supplier
relationships secured product pre year end, meaning we were able to fulfil
some of the strong customer demand.
"The Group has a record open order book which, combined with our inventory
management plan, positions Solid State to proactively manage the
well-publicised electronics supply chain issues with our customers. Despite
these ongoing challenges, the Group has been able to make considerable strides
in delivering its growth strategy in the current year.
"The opportunities for significant growth across both Divisions are very
exciting and the acquisition of Custom Power is expected to be an important
catalyst enabling Solid State to deliver on its five year ambition of matching
or exceeding the performance achieved over the preceding five years."
This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No 596/2014 which is part of UK law by
virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon
the publication of this announcement via a Regulatory Information Service,
this inside information is now considered to be in the public domain.
Analyst Briefing: 1.00 p.m. on Wednesday 27 July 2022
An online briefing for Analysts will be hosted by Gary Marsh, Chief Executive,
and Peter James, Group Finance Director, at 1.00 p.m. today, Wednesday 27 July
2022 to review the results and the proposed acquisition of Custom Power.
Analysts wishing to attend should contact Walbrook PR on
solidstate@walbrookpr.com or on 020 7933 8780.
Investor Presentation: 12 p.m. on Friday 29 July 2022
Gary Marsh, Chief Executive, Peter James, Group Finance Director, and Matthew
Richards, Managing Director Systems Division will hold a presentation to cover
the results and the proposed acquisition of Custom Power at 12 p.m. on Friday
29 July 2022, following the General Meeting being held at 11 a.m. The
presentation will be hosted through the digital platform Investor Meet
Company. Investors can sign up to Investor Meet Company for free and add to
meet Solid State plc via the following
link https://www.investormeetcompany.com/solid-state-plc/register-investor
(https://urldefense.proofpoint.com/v2/url?u=https-3A__www.investormeetcompany.com_solid-2Dstate-2Dplc_register-2Dinvestor&d=DwMGaQ&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=05PHl3GHdShYuaCii2fBRpoqaNr9B1d97X09daeosu0&m=J_w1tceU9zzYJ7XKVb7cI6vB50Ub0EkseNW3jQMJXh0&s=3vECInbFqFci5nlddgAz6BmJ10o04LjoiJjqEFyNUW0&e=)
. Investors who have already registered and added to meet the Company will
automatically be invited.
Questions can be submitted pre-event to solidstate@walbrookpr.com
(mailto:solidstate@walbrookpr.com) , or in real time during the presentation
via the "Ask a Question" function.
For further information please contact:
Solid State plc Via Walbrook
Gary Marsh - Chief Executive
Peter James - Group Finance Director
WH Ireland (Nominated Adviser & Joint Broker) 020 7220 1666
Mike Coe / Sarah Mather (Corporate Finance)
Fraser Marshall (Corporate Broking / Sales)
finnCap (Joint Broker) 020 7220 0500
Ed Frisby / Kate Bannatyne (Corporate Finance)
Rhys Williams / Tim Redfern (Sales / ECM)
Walbrook PR (Financial PR) 020 7933 8780
Tom Cooper / Nick Rome 0797 122 1972
solidstate@walbrookpr.com (mailto:solidstate@walbrookpr.com)
Analyst Research Reports: For further analyst information and research see the
Solid State plc website: https://solidstateplc.com/research/
(https://urldefense.proofpoint.com/v2/url?u=https-3A__solidstateplc.com_research_&d=DwMFAg&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=05PHl3GHdShYuaCii2fBRpoqaNr9B1d97X09daeosu0&m=JmX-gQVke87P3UDBxQzNglNm9FfzH5yZtIa_SmElSS4&s=ib8r3ul2tCaEvJ39SnR1LT7nCa7gAcRQzgO-kNoyZoM&e=)
Notes to Editors:
Solid State plc (SOLI) is a value added electronics group supplying
commercial, industrial and military markets with durable components,
assemblies and manufactured units for use in specialist and harsh
environments. The Group's mantra is - 'Trusted technology for demanding
applications'. To see an introductory video on the Group
- https://bit.ly/3kzddx7 (https://bit.ly/3kzddx7)
Operating through two main divisions: Systems (Steatite & Active Silicon)
and Components (Solid State Supplies, Pacer, Willow Technologies & AEC);
the Group specialises in complex engineering challenges often requiring
design-in support and component sourcing for computing, power, communications,
electronic, electro-mechanical and opto-electronic products.
Headquartered in Redditch, UK, Solid State employs approximately 300 staff
across UK and US, serving specialist markets in industrial, defence and
security, transportation, medical and energy.
Solid State was established in 1971 and admitted to AIM in June 1996. The
Group has grown organically and by acquisition - having made 12 acquisitions
since 2002.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that the Group has delivered another year of record
adjusted profits despite the supply chain challenges and volatile global
markets. We have delivered growth in both revenue and adjusted profits;
however, the macro-economic environment has somewhat curtailed the increase in
the period.
Group management continues to make good progress in the implementation of its
strategy by investing in people and technology, and through the integration of
the two bolt-on acquisitions completed in March 2021. The acquisitions'
performance and positive attitude to being part of the Group has surpassed
management's expectations and have enhanced the value we can offer in both our
Components and Systems Divisions.
The Group's sector diversity continues to provide a resilient business model.
Order intake has been strong across all sectors including in those markets
which had previously shown some weakness during the pandemic, specifically
energy and aerospace. This has resulted in a record open order book on 31 May
2022 of £89.7m, (comparatives: 31 March 2022: £85.5m; 31 March 2021:
£41.3m; 31 May 2021: £51.0m).
The record open order book and strong balance sheet, where we have invested in
inventories, provide confidence in our ability to continue to deliver growth.
Whilst the most volatile period of the supply chain challenge is starting to
stabilise, component lead times remain extended, logistical delays are common
and inflationary pressures are rising. These challenges are expected to
continue through the year ahead into 2023. These are complex issues that can
be difficult to navigate and call upon the full range of skills and experience
of our highly competent team.
Having delivered on the five year goal of doubling adjusted diluted EPS to
> 60p, the Board is refining its five-year strategic plan to 2027. The
ambition for the next five years is to replicate or beat historic performance
which saw the Group deliver >20% CAGR (Compound Annual Growth Rate) in
total shareholder return over the five years to 2022.
Strategy
The Group provides customers broad-based access to trusted electronic
technology for demanding applications and extreme environments and has a
commercial focus on high growth markets including security & defence,
medical, green energy, transport, communications and industrial.
Our medium-term financial objective is to double fully diluted adjusted
earnings ("aeps") over each five year period. This was exceeded in the five
years to 31 March 2022, when aeps increased from 30 pence to 71 pence per
share. The accelerated growth rate achieved in recent years reflects the
benefit of the foundations which have been laid and the resulting new and
exciting businesses. The Directors are fully committed to continuous
development of our capabilities to build on this success, further
strengthening our partnership approach with major customers, and continuing to
share rewards equitably amongst all our stakeholders.
Notwithstanding the acknowledged short term supply challenges, the demand
outlook for customised electronic solutions offers exciting opportunities.
Many ground breaking technologies are embedded within our current activities,
and there is scope for further investment in specialist skills and knowledge
to expand and differentiate our offering to existing and prospective
customers, both through internal development and acquisition as we target
international expansion.
We are building ever closer relationships with our customers, adding
substantial value through early stage integration into their design and
development road maps, and interlocking with their operational and logistics
processes. This will be achieved by further strengthening channels of
co-operation between Group entities and building cross-selling specialist
teams to facilitate ease of customer access to our full range of products and
services.
Governance and Accountability
The Board structure continues to evolve as we strive towards full
implementation of all the principles of the Quoted Companies Alliance code on
Corporate Governance. The Board currently comprises four executive directors
and three non-executive directors, including an independent non-executive
Chair and a senior independent non-executive Director. It is the intention of
the Board to recruit an additional independent non-executive Director in the
coming year, ensuring appropriate access to an open and transparent process
for all candidates, being cognisant of the breadth of diversity. Following
this appointment, the Board will have an equal balance of executive and
non-executive directors with a casting vote for the chair.
An annual formal Board effectiveness review is undertaken, and any updates to
Board structure, processes and documentation are actioned without delay.
There is a continuous improvement approach to addressing the Environmental,
Social and Governance ("ESG") agenda, which is set out in this report, and
this will continue to evolve in future reports as additional metrics are
identified and progressed.
In communication with our shareholders and others, our primary aim is to
provide timely, well balanced, and succinct information about our business and
its prospects to a wide audience on a regular basis. In addition to our
Annual General Meeting and scheduled meetings with key institutional
shareholders, we participate in periodic on-line presentations which are open
to all by prior arrangement on the "Investor Meet Company" platform
(www.investormeetcompany.com (http://www.investormeetcompany.com) ).
Acquisitions
The trading contribution from the two acquisitions made at the end of
financial year 2020/21, Willow and Active Silicon, have each exceeded
management's expectations. The Willow acquisition provided the Components
Division with a wider customer base and product offering, significantly
increasing the portfolio of own brand components, enabling record revenues.
The combined skillsets of the Systems Division and the Active Silicon
acquisition enabled the award of the Transport for London Piccadilly line
upgrade contract and will provide further opportunities. Active Silicon bring
expertise in the design and manufacture of imaging products and embedded
vision systems.
Post year end, the intended acquisition of US battery manufacturer Custom
Power was announced on 12 July 2022, subject to shareholder approval at the
general meeting on the 29 July 2022. Custom Power is a strategically
significant US based power specialist operating at scale in target growth
markets for Solid State. This transaction aligns with the Group's four key
strategic goals and is a good fit with the existing power business unit.
Custom Power is a profitable, cash generative business in high growth market
sectors that will provide broader technical competencies and opportunities for
stronger relationships with key suppliers. This will enable the enlarged Group
to cross sell to both businesses' international blue-chip customers. The size
of this acquisition will be transformational to the Power business unit
providing a step change, with Custom Power delivering revenues of
approximately $29.8m in their financial year ended 31 December 2021.
People
There has been further investment in the Group HR function in the current year
supporting the welfare of our people. Although the impact of the COVID-19
pandemic is receding, there has been ongoing attention to keep workplaces safe
and a focus on broader social welfare. This includes access to a wellbeing at
work support programme for employees and their families, cash back
opportunities, pay reviews, bonuses and a commitment to a one-off energy bonus
payment for all employees in the next financial year.
Dividend
The Group has paid dividends every year since joining AIM in 1996. The Board
is committed to maintaining a progressive dividend policy, however the Board's
focus when deploying capital is to continue to drive strong total shareholder
returns comparable to historic periods.
Accordingly, the Board is proposing a final dividend of 13.25 pence (2021:
10.75 pence) resulting in full year dividends of 19.5 pence (16.0 pence) which
is covered 3.6 times by adjusted earnings (2021: 3.4 times).
Subject to approval of the final dividend by shareholders at the AGM on 7
September 2022, the final dividend will be paid on 5 October 2022 to
shareholders on the register at the close of business on 2 September 2022, and
the shares will be marked ex-dividend on 1 September 2022.
Opportunities and prospects for 2022/2023
The Group's business model now serves a wide customer base of over 2,000
clients, operating across multiple sectors, offering a broad product range
with specialist production facilities. This diversification provides the Group
with resilience when markets are challenging. Whilst the forthcoming period
will no doubt continue to be adversely affected by component shortages, having
invested in inventories, in partnership with our customers, the Group is well
placed to take advantage of the market conditions and emerge in a stronger
position than many competitors.
The acquisition of Custom Power, which is expected to complete following the
general meeting on 29 July 2022, will be transformational for our Power
business unit providing a production facility in the USA. This clearly
presents a very exciting opportunity for the Group in the power sector which
is the area of the business which has the highest growth potential.
The Group has achieved high order intake in Q1 2022/23 across its diverse
sector exposure. The strong open order book provides opportunities for
significant growth in the current year, albeit this is expected to be
influenced by component lead times. Presently the timing of supplies and
programmes remains somewhat difficult to predict.
The Group has seen a strong start to the year with Q1 billings up 31% on a
like for like basis with margins comparable with FY22. This excellent start,
combined with the Group's strong financial footing, technology, capabilities,
engineering specialisms, and its sector penetration in areas which are
political priorities, for example in defence, transportation and medical, mean
the Board is confident that the Group is well placed to deliver continued
growth.
N Rogers
Chairman
Chief Executive's Review
Given the macro-economic backdrop, with the component supply shortages, Brexit
and latterly inflationary pressures and volatile exchange rates, this
reporting period again served up some of the most challenging business
conditions in our history. As a result, I am very pleased to report 29.1%
growth in adjusted diluted earnings per share over the prior year's record
result and a significant step change in revenue year on year at £85.0m (2021:
£66.3m).
The Group benefitted from the first full year of the two acquisitions and a
few pull ins of demand at the end of the year where our team's supplier
relationships secured product pre year end, meaning we were able to fulfil
some of the strong customer demand.
The Group has a record open order book which, combined with our inventory
management plan, positions Solid State to proactively manage the
well-publicised electronics supply chain issues with our customers. Despite
these ongoing challenges, the Group has been able to make significant strides
in delivering its growth strategy in the current year.
Solid State reports a strong year-end balance sheet with net assets of £27.1m
and net cash at the bank of £1.4m. The balance sheet strength has meant we
have been able to proactively invest in inventories, which has been a critical
factor in enabling the Group to provide the differentiated customer service
which is core to our success. Furthermore, this strength means the Group is
well placed to continue to gain a competitive advantage when managing the
challenging market conditions which are expected to continue through 2022 and
into 2023.
On 12 July 2022, the Group announced its intention to acquire Custom Power, a
battery pack manufacturing business based in California USA, for a total
consideration of up to $45.0m subject to achieving an earn out hurdle. The
acquisition is expected to complete in early August following the general
meeting on 29 July 2022 to approve the transaction. Full details of the
transaction have been provided to shareholders within the circular which was
posted on the 13 July 2022.
This acquisition will be transformational for our Power business unit,
enabling the Group to meet the increasing demand from its blue-chip tier one
customers to provide power solutions on a transatlantic basis.
Custom Power is a profitable and cash generative battery pack manufacturer.
Like our business, they are engineering led and target markets with high
barriers to entry where the engineering expertise is valued, and the
production horizons are longer. As reported previously in the circular issued
to shareholders, Custom Power delivered record proforma results in the year
ended 31 December 2021 with revenue of approximately $29.8m, EBITDA of $3.5m
and proforma net profit of $2.5m (reported net profit $1.9m). Building on last
year's record performance, we look forward to delivering further strategic
progress and this acquisition is a critical building block for the Group in
the execution of its strategy.
The scale and broader portfolio of products now offered by the Group's
Components Division, has enabled like for like Components' revenues to grow
11% year on year to £52.5m. Furthermore, the Systems Division also saw like
for like revenue growth at 4% at £32.5m but most pleasing was the significant
improvement in adjusted systems gross margins to 42.0% from 38.7%.
Key stakeholder engagement
Solid State's pro-active approach to managing both customer and supplier
stakeholders during the year has been recognised positively with many
providing positive feedback about how the Group has supported their businesses
in these very difficult times. This is evidenced by the Group being awarded
the British Aerospace Supply to Win Gold award and several supplier awards
recognising the Group's value to their businesses.
Throughout the pandemic and component supply challenges the business worked
hard to ensure that it maintained timely and relevant communication and
engagement with all stakeholders. The teamwork, support, and commitment from
and by the staff has been a real success factor. The workforce has recognised
and valued the investment in enhancing the Group's staff welfare programmes to
provide both physical and mental health support, resources and benefits which
are available to all employees.
The Group continues to recognise the value of, and invest in, its staff with
various ongoing professional development initiatives. This is critical to the
Group continuing to both retain and attract exceptionally high calibre staff
which is necessary to maintain its market position and retain its trusted
business partner relationships.
We have continued to develop the Group's staff and communities' engagement
activities; highlights in the year being a new initiative to support local
food banks near each of our UK facilities; sponsoring a room at a local YMCA
to provide safe accommodation for young people in our community and repeating
the Solid State charity walk. In support of all our employees, at the year end
the Group committed to paying an energy grant in the autumn of 2022 to help
our colleagues with managing the very significant increase in the cost of
living and energy costs ahead of the winter.
Delivery of the strategy
In FY21/22 Solid State has continued to execute on its strategy, delivering
improved financial performance with important strategic steps being taken
across both operating divisions.
Internationalise the business
In developing our international sales channels, the acquisitions of both
Active Silicon and Willow have accelerated our overseas sales.
During the year within our Components Division we have added resources into
our USA and UK sales force which, in conjunction with adding several
third-party representative companies in the USA, provides a foundation for
growth in sales which is starting to be translated into orders reflected in
our record order book.
Post year end, the expected acquisition of Custom Power as part of our Systems
Division, provides a step change for this division to penetrate the US power
market.
Investment in and enhancement of our talent
During the year we have made significant strides in developing the senior
management team, which has benefitted from the acquisitions of Willow and
Active Silicon, both of which had a strong and talented work force which have
been additive to the Group. The integration of our new colleagues from the
acquisitions has been very positive, providing additional depth in talent and
resource across our business.
We have strengthened the USA component manufacturing facility ("AEC")
leadership team by appointing a general manager, and bolstering the local
engineering and sales resource, to accelerate the development of our own brand
electromechanical product range. Furthermore, we have invested in our sourcing
team where, because of the semiconductor shortages, we have seen very
significant demand for the expertise this team offers. This has translated
into significant new revenue opportunities for our design-in Components
Division.
Within our Systems Division, the divisional MD has established an integrated
functional leadership team to drive this division forward which has benefitted
from the additional HR resource and talent who joined the Group as part of the
Active Silicon acquisition. Post year end, the acquisition of Custom Power
will add battery industry expertise and talent. Custom Power has a
particularly strong complimentary engineering capability which will help to
differentiate the Group's power offering.
Develop our portfolio of own brand products and complementary 3rd Party
products
Our Components Division has continued to develop its portfolio of franchise
manufacturers in the period, taking on the ASUS industrial computing component
line which provides IoT platforms, enhancing our portfolio of industrial
computing components.
During this period of shortages in the electronics sector, our breadth of
components has enabled us to support customers in designing-in and supplying
second sources for many components, providing customers with some resilience.
This work adds value and provides new opportunities for the Group.
The Group continues to invest in R&D projects to develop our portfolio of
own brand products and components.
The Computing business unit has extended our own brand fanless computing
offering to include a low magnetic signature computing product which is
increasingly important for defence applications, including those with
demanding EMC requirements. In addition, we have seen our TEMPEST accredited
security product portfolio become market ready, which includes the Group's
keyboard video mouse ("KVM") product and high-attenuation-smart-enclosure HASE
units.
In the Communications business unit, the development of the standard and
semi-custom antenna portfolio (horns, spirals and sinuous antennas) has
delivered a stable platform of run rate business which is enabling longer term
and larger programmes to be targeted to provide sustainable organic growth.
Within our Power business unit, we are keeping pace with the emerging battery
chemistries and technology being driven by the automotive sector. We remain
a subject matter expert, offering our customers the most appropriate chemistry
for their given application. The development of our scalable and flexible
modular pack solutions continues to progress positively, albeit COVID-19 and
supply chain challenges have meant the progress has been hindered somewhat.
These products are applicable to multiple high growth, un-commoditised
industrial markets that are adopting either a low carbon power source,
cordless solutions and next generation autonomous technologies.
Broaden our technical manufacturing expertise / technology portfolio /
designed in product base
The Group has made significant investments to further enhance its
manufacturing and assembly capabilities with new automated die bonding
capabilities, state of the art spectrum analysis equipment, and an in-house
electromagnetic compatibility ("EMC") chamber which was commissioned during
first quarter of FY21/22.
The EMC chamber now gives us the ability to complete pre-compliance EMC
testing in-house. These facilities, combined with technical and engineering
expertise, mean the Group has a differentiated offering, providing class
leading manufacture, test and measurement capabilities that are utilised
across the Group. Further investments are planned to encompass pre compliance
TEMPEST test capabilities. The Group also upgraded its environmental chamber
to enable Solid State to conduct pre-compliance testing of its products to
aerospace standards.
Post year end, the Power business unit commissioned its first wire bonder to
enable semi automation of battery pack manufacturing, which is proving to be a
point of differentiation with our customers, and we have already seen
significant interest arising from new and existing prestigious customers
looking to benefit from this technology on their new projects. Furthermore,
this is a capability we will look to roll out to Custom Power once the
transaction is complete.
In addition to the investment in manufacturing equipment, we continue to
enhance our capabilities and accreditations such as ATEX and our certification
to build battery packs that are used in explosive atmospheres. Pleasingly, we
are seeing growth in this particular specialist capability.
The strength of the Group
Cross-Group collaboration has been a key strategic focus to ensure the
business maximises the commercial value of its extensive customer
relationships. The Group wide "Senior Leadership team" which was formalised
last year in conjunction with the implementation of a Company Share Option
Plan ("CSOP") aligns the incentives of those individuals with Group
performance. This approach has changed the level of engagement and aligned
behaviours and the benefits are continuing to be seen with a further step
change in cross-Group engagement and collaboration.
The acquisitions of Active Silicon and Willow provided additional breadth and
depth to the Group's product and technology offering. In addition, the
enlarged Group's active customer base now exceeds 2,000, presenting
significant opportunities to sell more of the broadened product range to the
enlarged customer base.
Managing and mitigating risk
The business risks have been considered and, where practical, mitigated.
However, the macro-economic and geopolitical risks including conflict in
Ukraine, the aftereffects of COVID-19, electronic component shortages,
uncertainty in international trading relationships and the associated impact
on foreign exchange, means that it continues to be difficult to predict supply
and demand and therefore mitigate fully.
Component lead-times remain at unprecedented lengths of over 40 weeks for many
critical components, such as semiconductors, computer processors, PCBs, some
embedded processing modules, and battery cells. The Group has continued to
deliberately increase the working capital investment in inventory to attempt
to secure future supply. The lengthening order book coverage means that
scheduled orders as at 30 June 2022 go beyond the end of FY25; FY23 (69%),
FY24 (21%) and FY25 and beyond (10%).
The Group's diversity in suppliers, technology, markets, and territory is a
key strength. It provides resilience and some mitigation against global
headwinds and has enabled Solid State to deliver record results. Looking
forward to the current year, we continue to believe that this diversity
positions the Group well to weather the impact of any ongoing supply chain
issues and take advantage of new opportunities.
Chief Financial Officer's Review
To provide a fuller understanding of the Group's ongoing adjusted performance,
several adjusted profit measures as supplementary information are included on
a consistent basis with that reported by the financial analysts that review
our business. As detailed in note 31, the adjusted measures eliminate the
impact of certain non-cash charges and non-recurring items together with the
associated tax impact.
Revenues
Group revenues of £85.0m (2021: £66.3m) reflect the inclusion of a full 12
months of revenue from the two acquisitions made at the end of financial year
2020/21, both of which outperformed management expectations. Like-for-like
revenue (based on proforma 2021: £81.3m) was £3.7m (4.6%) ahead of prior
year. This is an excellent result in the ongoing context of well-publicised
supply challenges as well as circa 5% foreign exchange headwinds with the
average US dollar rate moving from circa 1.30 in FY21 to 1.37 during FY22,
which suppressed the revenue growth.
The UK electronics distribution and semiconductor components industry expected
growth of around 2.7% in the period while noting the absence of clear guidance
from customers (source ECSN). The Components Division achieved revenues of
£52.5m (2021: £39.0m) including the Willow acquisition, with like-for-like
revenues exceeding expectations up 11.5% on the prior year at £52.5m (2021
proforma: £47.1m).
The Systems Division reported revenue of £32.5m (2021: £27.3m), with
like-for-like revenue up £1.1m (3.5%) to £32.5m (2021 proforma: £31.4m)
against a very challenging macro-economic backdrop. Supply chain pressures,
including component availability, and the requirement for board and system
redesigns as a result, have caused project delays.
The two acquisitions considerably outperformed initial expectations
contributing significantly to the overall Group result. The acquired
businesses saw significant benefit from being part of the enlarged Group,
driving considerable organic growth. Willow had an excellent year with like
for like revenues increasing by 26% to £11.5m (2021: £9.1m). Similarly,
Active Silicon saw like for like revenues increase 45% to £6.4m (2021:
£4.4m), reflecting a strong recovery from the adverse impact of COVID-19 in
the comparative period.
Gross profit
Reported gross margins of £27.5m (2021: £19.9m) are up £7.6m. There was an
adverse impact of acquisition accounting charges in both years which have been
excluded in the adjusted gross margins (see note 31).
Adjusted gross profit for the year is up £7.7m to £27.7m (2021: £20.0m).
The Group's adjusted gross margin has increased to 32.6% (2021: 30.2%)
reflecting increased margins in both Divisions, Components seeing a 2.5%
increase and Systems a 3.5% increase.
In managing forex we look to mitigate the profit impact by quoting in currency
of main supply when possible. The improvement in the reported margin
percentage is in part driven by the dollar exchange rate movements as result
of the Group benefitting from being largely naturally hedged against foreign
exchange movements at a gross margin level.
The acquisitions of Active Silicon and Willow have improved the margins of
their respective Divisions as they have a higher proportion of own brand
manufactured products and components, which command stronger margins.
Components contributed adjusted gross margin of £14.0m (2021: £9.4m) and the
Systems Division contributed £13.7m (2021: £10.6m).
Sales, general and administration expenses
Sales, general and administration ("SG&A") expenses increased to £23.8m
(2021: £15.6m), with the acquisitions adding approximately £4.1m to base
overheads. The increase is partially driven by a resumption of business
activities such as travel, marketing, and events with the easing COVID-19
restrictions. In addition, in recognition of this record performance there was
further investment in our team to attract new, and retain our existing, talent
as we look to enhance our technical expertise and drive continued growth. Post
COVID-19 there was no significant grant income in 2022 (2021: £0.3m).
Furthermore, there were non-recurring expenses within SG&A, being a £1.7m
increase in the Active Silicon earn-out provision and £0.5m in relation to
acquisition costs. Other exclusions from adjusted profit measures, consistent
with previous years, include acquisition intangibles amortisation of £1.0m
(2021: £0.7m) and the share-based payments charge of £0.3m (2021: £0.2m).
Adjusted SG&A expenses increased by £5.8m to £20.3m (2021: £14.5m)
reflecting the addition of the acquisitions to base costs and the decision to
resume spending on controllable costs which were restricted in the COVID-19
period.
Operating profit
Adjusted operating margins increased to 8.7% (2021: 8.3%) with adjusted
operating profit up to £7.4m (2021: £5.5m) reflecting stronger margins and
contribution from acquisitions. Reported operating profit was down 14% to
£3.7m (2021: £4.3m) primarily because of the increase in acquisition related
accounting charges. The adjustments to operating profit are set out in further
detail in note 31.
We have recognised £0.01m (2021: £0.01m) within operating profit in respect
of research and development expenditure credit ("RDEC") in addition to the tax
credits recognised within the tax line, where we are eligible for the SME
R&D tax scheme. These development programmes are a cornerstone of the
Group's future high value add revenue streams.
Profit before tax
Adjusted profit before tax was up 33.2% to £7.2m (2021: £5.4m). Reported
profit before tax was down 16.7% to £3.5m (2021: £4.2m). This is reported
after a share-based payments charge of £0.3m (2021: £0.2m), amortisation of
acquisition intangibles of £1.0m (2021: £0.7m) and non-recurring charges of
£2.4m (2021: £0.3m). The £2.4m non recurring charges include a £1.7m
increase in the deferred contingent consideration, £0.5m of transaction costs
in relation to the planned acquisition of Custom Power and £0.2m of fair
value acquisition accounting charges in relation to Willow.
Profit after tax
The Group benefits from the R&D tax credit scheme which reduces the
underlying effective tax rate for the year to 14% (2021: 12%) from the
standard rate of 19%. As the Group grows and profitability increases the
benefit of R&D tax credits will diminish, furthermore once the Group
exceeds the SME thresholds and is no longer eligible for the SME scheme, there
will be a step up in effective tax rate as the SME scheme is much more
generous that the large company scheme.
Adjusted profit after tax was up 30.1% to £6.2m (2021: £4.7m). Reported
profit after tax was down 37.5% to £2.5m (2021: £4.0m), as we recognised the
impact of the expected future tax rate change from 19% to 25%, and did not
have the benefit of the non-recurring R&D tax credits recognised in 2021,
in addition to the non-recurring charges as noted above.
EPS
Adjusted fully diluted earnings per share for the year ended 31 March 2022 is
up 29.1% to 70.6p (2021: 54.7p). Reported fully diluted earnings per share is
down 36.8% to 28.9p (2021: 45.7p).
Dividend
The Board is proposing a final dividend of 13.25p (2021: 10.75p), giving a
full year dividend of 19.50p (2021: 16.0p) as set out in the Chairman's
statement.
Cash flow from operations
Cash inflow from operations for the year of £6.0m is down from £6.9m in
2021, primarily due to our investment in inventories, resulting in a working
capital outflow of £2.5m (2021: £0.4m inflow). This delivers an adjusted
operating cash conversion percentage of 81% (2021: 127%) and a reported
operating cash conversion percentage of 161% (2021: 162%).
The working capital cash outflow in the period of £2.5m is driven by an
increase in receivables of £3.7m and inventories of £6.9m offset in part by
an increase in payables of £8.1m. The increase in inventories reflects our
strategic investment in product to support our significant increase in
customer orders. The strength of customer and supplier relationships has
helped us to manage the cash challenges of the working capital investment
effectively. This investment to secure product has provided us with a
competitive advantage and is critical in these times of shortages to ensure
product is available to fulfil customer demand.
Investing activities
During the year, the Group invested £1.1m (2021: £0.4m) in property plant
and equipment, and £0.6m (2021: £0.3m) in software and research &
development intangibles. The Group's capital expenditure programme saw the
installation of the new EMC test and measurement capability completed. In
addition, investment in a wire bonder and improved battery test equipment will
deliver a step change in technology for the Power business unit in Systems.
In the Components Division, there was investment into the Willow sites and
further replacement of older vehicles with hybrid and electric models.
There are capital commitments of £0.3m (2021: £0.4m) at the balance sheet
date, primarily relating to planned upgrades to existing IT systems.
During the year payments in respect of the acquisitions of Active Silicon and
Willow totalled £2.6m (2021: £4.1m). Furthermore, at year end we have
reassessed and increased the Active Silicon deferred contingent consideration
by £1.7m to take the total to £6.6m (2021: £7.5m). A reconciliation of
deferred contingent considerations is included in Note 21.
Financing activities
The Group has entered or extended leases during the year which has resulted in
the recognition of £0.3m of additional right of use assets with a
corresponding right of use liability, in accordance with IFRS16. Cash payments
were made in the period in respect of lease liabilities of £0.9m (2021:
£0.6m). Two properties were exited in the period, with Willow inventory moved
to the Redditch location to rationalise activities.
The financing activities reflect a part repayment of the revolving credit
facility (RCF) of £2.25m where the £3.75m drawdown in 2021 was used to fund
the acquisition of Willow and Active Silicon at the end of the last year.
Solid State continues to have a strong relationship with Lloyds Bank and
Lloyds has extended the term of the £7.5m (2021: £7.5m) revolving credit
facility which is now committed until 30 November 2023. At 31 March 2022
£1.5m of the facility was drawn.
The Group has deferred contingent consideration liabilities where, at 31 March
2022, the fair value has been estimated to be £6.6m, of which £4.6m was paid
in Q1 2022/23. The Group utilised the RCF facility to fund the final £3.5m
deferred consideration payment for Willow and initial £1.1m payment for
Active Silicon. Subject to Active Silicon meeting the year two earn out
performance target, it is expected that a final payment of approximately
£2.0m will be payable in Q1 2023/24.
The Group paid out £1.5m (2021: £1.2m) in respect of dividends and purchase
of own shares.
Statement of financial position
During the year, the Group has continued to strengthen its balance sheet
position. The Group's net assets have increased to £27.1m (2021: £25.5m)
reflecting the retained profits in the year. Excluding deferred contingent
considerations and IFRS16 lease obligations, the Group had a net cash position
of £1.4m at the year-end (2021: £3.2m) having paid a further £2.6m
consideration for the acquisitions of Active Silicon and Willow.
As a result of the unprecedented supply chain challenges, the Group has
increased the working capital investment in inventory by £6.9m. Securing the
supply of critical components is essential to enable the delivery of customer
demand in the next financial year. The Group has also paid suppliers on a
proforma basis where required to secure inventory in short supply (now often
on lead times of six months or more). We have worked in partnership with
customers who have, in many cases, made payments in advance to secure supply,
and this has been a critical part of managing working capital.
KPIs
In addition to the KPI information provided in the Chairman's Report and this
Strategic Report, the Directors use several key performance indicators to
manage the business, disclosed in the financial review. Non-financial KPIs are
not disclosed other than in the environmental CO2e reporting.
Outlook
The recovery of sectors which were adversely impacted by COVID-19, such as oil
& gas and commercial aviation, has progressed. Engineering work
undertaken during the pandemic particularly in the Power business unit of the
Systems Division is now converting to production orders. The Group continues
to see demand in these core areas, whilst also developing its presence in new
and emerging growth markets.
Two of the key technology areas where the Company expects to see significant
growth in demand; are first in image capture, processing, and transmission,
driven by increased adoption of industrial AI and the roll out of 5G; and
secondly power control and switching driven by the need to reduce carbon
emissions and development of the EV (Electric Vehicle) market. The Group's
acquisitions of Willow and Active Silicon have enabled Solid State to
strengthen its position in these sectors, with the opportunities to further
penetrate these markets and so gain market share.
The Group has a strong and long established position in the security and
defence sector. As a result of geo-political uncertainties this market is
seeing significant investment in technology where the Group is well placed to
deliver. Furthermore, the shift by prime contractors following the pandemic
away from globalised supply chains to buying more of their vital electronics
and services closer to home continues to be positive for Solid State.
On the 12 July 2022, Solid State PLC announced the planned acquisition of
Custom Power, which is expected to be transformational for the Power business
unit, providing a step change in the Group's power capabilities giving this
business unit scale.
The Group is actively developing its pipeline of future acquisition
opportunities albeit these are at an early stage. These opportunities are
primarily focused on broadening the Group's product offering and further
strengthening its international sales channels. The Company will remain agile,
continuing to look to be opportunistic should a strategically aligned
acquisition target arise.
Margin improvement, in conjunction with technology developments both from
internal R&D and acquisitions across both Divisions has placed the Group
in a strong position. The Group will remain focused on cross Group
collaboration initiatives to drive organic growth. The technologies added
through recent acquisitions further add scale and capability which the Group
can provide to the enlarged customer base.
During the financial year Solid State has seen record order intake, increasing
the open order book 107% to £85.5m at 31 March 2022 from £41.3m at 31 March
2021. Positively, post year-end the Group has continued to drive order intake
increasing the open order book at 30 June 2022 to £92.0m up 7.6% from 31
March 2022. This provides confidence over customer demand for the coming year.
As Solid State looks forward to FY22/23, the continuing well-publicised supply
chain issues within the electronics and particularly semiconductor sector mean
the inconsistencies in the traditional supply and order fulfilment balance
remain. The strength of the Group's balance sheet means it is better placed
to manage the working capital demands than some of its smaller competitors,
which is presenting new customer opportunities. Pleasingly, the
collaboration with customers and suppliers to secure product which began in
the late summer of 2020 is now delivering a strong start to sales this
financial year.
The opportunities for significant growth across both Divisions are very
exciting and the acquisition of Custom Power is expected to be an important
catalyst enabling Solid State to deliver on its five year ambition of matching
or exceeding the performance achieved over the preceding five years.
G S
Marsh
P O James
Chief Executive
Officer
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2022
2022 2021
Notes £'000 £'000
Revenue 3, 30 84,997 66,281
Cost of sales (57,470) (46,362)
_______ _______
Gross profit 27,527 19,919
Sales, general and administration expenses (23,801) (15,634)
_______ _______
Operating profit 4 3,726 4,285
Finance expense 6 (226) (85)
_______ _______
Profit before taxation 3,500 4,200
Tax expense 7 (977) (247)
_______ _______
Adjusted profit after taxation 6,158 4,733
Adjustments to profit 31 (3,635) (780)
Profit after taxation 2,523 3,953
_______ _______
Profit attributable to equity holders of the parent 2,523 3,953
_______ _______
Other comprehensive income 7 261 -
_______ _______
Adjusted total comprehensive income 6,158 4,733
Adjustments to total comprehensive income 31 (3,374) (780)
Total comprehensive income for the year 2,784 3,953
_______ _______
Earnings per share 2022 2021
Basic EPS from profit for the year 8 29.5p 46.4p
Diluted EPS from profit for the year 8 28.9p 45.7p
Adjusted EPS measures are reported in note 8 to the accounts.
All results presented for the current and comparative period are generated
from continuing operations.
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2022
Share Foreign Exchange Reserve £'000 Capital Shares held in Treasury
Share Premium Redemption Retained £'000 Total
Capital Reserve Reserve Earnings Equity
£'000 £'000 £'000 £'000 £'000
Balance at 31 March 2021 428 3,625 6 5 21,508 (70) 25,502
Total comprehensive income for the year ended 31 March 2022 - - - - 2,784 - 2,784
Foreign exchange - - 27 - - - 27
Share based payment credit - - - - 295 - 295
Transactions with owners in their capacity as owners - - - - - - -
Purchase of treasury shares - - - - - (80) (80)
Transfer of treasury shares to AESP - - - - (93) 93 -
Dividends - - - - (1,453) - (1,453)
Rounding - - - - 1 - 1
______ _______ _______ _______ _______ ______ ______
Balance at 31 March 2022 428 3,625 33 5 23,042 (57) 27,076
______ _______ _______ _______ _______ ______ ______
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2022
Share Foreign Exchange Reserve £'000 Capital Shares held in Treasury
Share Premium Redemption Retained £'000 Total
Capital Reserve Reserve Earnings Equity
£'000 £'000 £'000 £'000 £'000
Balance at 31 March 2020 427 3,626 (7) 5 18,521 (43) 22,529
Total comprehensive income for the year ended 31 March 2021 - - - - 3,953 - 3,953
Foreign exchange - - 13 - - - 13
Share based payment credit - - - - 171 - 171
Transactions with owners in their capacity as owners - - - - - - -
Purchase of treasury shares - - - - - (95) (95)
Transfer of treasury shares to AESP - - - - (68) 68 -
Dividends - - - - (1,069) - (1,069)
Shares issued 1 (1) - - - - -
______ _______ _______ _______ _______ ______ ______
Balance at 31 March 2021 428 3,625 6 5 21,508 (70) 25,502
______ _______ _______ _______ _______ ______ ______
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2022
2022 2021
Notes £'000 £'000 £'000 £'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 10 3,414 2,981
Right of use lease assets 11 1,983 2,476
Intangible assets 12 15,831 16,557
Deferred tax asset 23 539 -
__________ __________
TOTAL NON-CURRENT ASSETS 21,767 22,014
CURRENT ASSETS
Inventories 15 17,598 10,629
Trade and other receivables 16 17,978 14,222
Deferred tax asset 23 - 188
Cash and cash equivalents 22 4,983 6,914
____________, ____________
TOTAL CURRENT ASSETS 40,559 31,953
___________ ___________
TOTAL ASSETS 62,326 53,967
___________ ___________
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 21,113 11,890
Contract liabilities 18 3,461 2,299
Current borrowings 19,21,22 2,059 -
Corporation tax liabilities 531 801
Right of use lease liabilities 20 758 741
___________ ___________
TOTAL CURRENT LIABILITIES 27,922 15,731
NON CURRENT LIABILITIES
Non current borrowings 19,21,22 1,500 3,750
Right of use lease liabilities 20 1,326 1,802
Provisions 24 694 741
Deferred tax liability 23 1,832 1,491
Deferred consideration on acquisitions 22 1,976 4,950
___________ ___________
TOTAL NON-CURRENT LIABILITIES 7,328 12,734
____________ ____________
TOTAL LIABILITIES 35,250 28,465
____________ ____________
NET ASSETS 27,076 25,502
____________ ____________
CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Share capital 25 428 428
Share premium reserve 26 3,625 3,625
Capital redemption reserve 26 5 5
Foreign exchange reserve 26 33 6
Retained earnings 26 23,042 21,508
Shares held in treasury 26, 27 (57) (70)
____________ ____________
TOTAL EQUITY 27,076 25,502
____________ ____________
The financial statements were approved by the Board of Directors and
authorised for issue on 27 July 2022 and were signed on its behalf by:
G S Marsh, Director
P O James, Director
.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2022
2022 2021
Notes £'000 £'000 £'000 £'000
OPERATING ACTIVITIES
Profit before taxation 3,500 4,200
Adjustments for:
Property Plant and equipment depreciation 729 614
Right of use asset depreciation 763 497
Amortisation 1,327 978
Loss/(profit) on disposal of property, plant and equipment 3 (22)
Share based payment expense 295 171
Finance costs 226 85
Recognition of increase in deferred contingent consideration 1,651 -
_______ _______
Profit from operations before changes in working capital and provisions 8,494 6,523
(Increase)/decrease in inventories (6,922) 1,852
(Increase)/decrease in trade and other receivables (3,679) 1,925
Increase/(decrease) in trade and other payables 8,140 (3,363)
Decrease in provisions (47) (7)
_______ _______
(2,508) 407
_______ _______
Cash generated from operations 5,986 6,930
Income taxes paid (941) (432)
_______ _______
(941) (432)
_______ _______
Net cash inflow from operating activities 5,045 6,498
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,178) (356)
Capitalised own costs and purchase of intangible assets (601) (302)
Proceeds of sales from property, plant and equipment 81 77
Payments for acquisition of subsidiaries net of cash acquired 22 (2,572) (4,119)
_______ _______
Net cash outflow from investing activities (4,270) (4,700)
FINANCING ACTIVITIES
Repurchase of ordinary shares into treasury (80) (95)
Borrowings drawn 22 - 3,750
Borrowings repaid 22 (2,250) (333)
Principal payment obligations for right of use assets (871) (575)
Interest paid 6 (127) (37)
Dividend paid to equity shareholders (1,453) (1,069)
_______ _______
Net cash (outflow)/inflow from financing activities (4,781) 1,641
_______ _______
(Decrease)/increase in cash and cash equivalents 22 (4,006) 3,439
_______ _______
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2022 (continued)
2022 2021
£'000 £'000
Translational foreign exchange on opening cash 16 (42)
Net (decrease)/increase in cash and cash equivalents (4,006) 3,439
Cash and cash equivalents at beginning of year 6,914 3,517
_______ _______
Cash and cash equivalents at end of year 2,924 6,914
_______ _______
There were no significant non-cash transactions. Cash and cash equivalents
comprise:
2022 2021
£'000 £'000
Cash available on demand 5,045 6,914
Overdraft facility (2,121) -
_______ _______
Net cash and cash equivalents 2,924 6,914
_______ _______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1. ACCOUNTING POLICIES
Solid State PLC ("the Company") is a public company incorporated, domiciled
and registered in England and Wales in the United Kingdom. The registered
number is 00771335 and the registered address is: 2 Ravensbank Business Park,
Hedera Road, Redditch, B98 9EY.
Basis of preparation
The principal accounting policies adopted in the preparation of the financial
statements are set out below. These policies have been consistently applied
to all the years presented.
Whilst the financial information included in this preliminary announcement has
been prepared on the basis of the requirements of International Accounting
Standards in conformity with the requirements of the Companies Act 2006 and
effective at 31 March 2021, this announcement does not itself contain
sufficient information to comply with International Accounting Standards. The
financial information set out in this preliminary announcement does not
constitute the company's statutory financial statements for the years ended 31
March 2022 or 31 March 2021 but is derived from those financial statements.
The Group financial statements are presented in pounds sterling which is the
functional and presentational currency of the Group and all values are rounded
to the nearest thousand (£'000) except when otherwise indicated.
Going concern
In assessing the going concern position of the Group for the Consolidated
Financial Statements for the year ended 31 March 2022, the Directors have
considered the Group's cash flows, liquidity and business activities.
At 31 March 2022, the Group had net cash at banks of £2.9m, an undrawn
revolving credit facility (RCF) of £6.0m and a drawn RFF of £1.5m.
Based on the Group's forecasts, the Directors have adopted the going concern
basis in preparing the Financial Statements. The Directors have made this
assessment after consideration of the Group's cash flows and related
assumptions and in accordance with the Guidance published by the UK Financial
Reporting Council (Risk Management, Internal Control and Related Financial and
Business Reporting 2014, the April 2016 guidance on Going concern basis of
accounting and reporting on solvency and liquidity risks and the various
guidance issued in 2020). This guidance provides support to Directors and
Board in making the assessment of going concern.
In preparing the going concern assessment the Directors considered the
principal risks and uncertainties that the business faced which have been
disclosed. Four areas have been identified as potentially more significant:
direct supply chain disruption limiting our ability to supply; indirect supply
chain disruption delaying customer programmes and demand; rising inflation and
a further COVID-19 outbreak causing operational disruption. The Board
concluded that the three areas of risk which remained the most uncertain were
the direct and indirect supply chain disruption risks in addition to
inflation. The Directors have given careful consideration to the potential
impact of on-going global electronic component shortages and rising inflation
on the cashflows and liquidity of the Group over the next 12 month period.
Customer demand has remained solid and in the last financial year we have seen
customers significantly extending order cover to help to manage the Global
electronics supply chain issues. The most significant impact on the Group's
future performance is the continued and worsening uncertainty arising from the
extending electronic component lead times.
Management have taken all possible actions to minimise and mitigate the
potential impact of this shortage, however the impact is expected to continue
throughout 2022/23 and potentially into 2023/24. While the actions do not
mitigate the risk fully it still positions the Group to manage the impact as
effectively as possible as demonstrated historically over the last two trading
years.
Given the post year end announcement of the intention to acquire Custom Power
is subject to shareholder approval on the 29 July 2022, albeit the directors
expect to receive shareholder support for the transaction, they have
considered the going concern position of the Group under both scenarios, being
the deal is rejected or approved.
The Directors have prepared revised "stressed" forecasts taking account of the
results to date, current expected demand, and mitigating actions which could
be taken, together with an assessment of the liquidity headroom against the
cash and bank facilities. This includes the additional £13m term loan
facilities provided by Lloyds bank to facilitate the acquisition of Custom
Power and the equity fund raise (subject to shareholder approval).
The Board's evaluation of going concern was based on a minimum equity raise of
£15m, therefore the additional shareholder support which has been announced
post year end, with the equity fund raise expected to be in the region of
£28.4m (subject to the take up of the open offer) significantly increases the
funding headroom.
The bank facilities are subject to financial covenants requiring the business
to be EBITDA positive therefore this facility is available to fund investment
in working capital, capital investment or acquisition activities.
Should the business face such a significant downturn that it was loss making
the facility would not be available to be drawn to fund additional losses
without a covenant waiver or amendment. Therefore, in evaluating a stressed
forecast model the Board only included the RCF in the headroom to the extent
it is available within the covenants.
This financial modelling is based on applying various sensitivity scenarios to
a base case to 30 September 2023 which has been prepared based on an extension
of the budget for FY22/23.
In the period since the year end the rolling 12 month order intake remains
strong, maintaining a book to bill ratio of 1.38, and reflects a continued
improvement in order cover which does help to manage extending component lead
times.
In preparing a severe downside scenario with no overhead mitigation, it
assumes a shortfall in Group revenue of ~13% over 12 months period and a 2%
margin erosion with limited cost mitigation. This results in EBITDA reducing
by ~48% compared to the Board's base case expectations. Even with this level
of Group EBITDA reductions, when combined with the mitigating actions that are
within the Group's control, the Directors currently believe the Group would
retain a reasonable cash surplus, comply with covenants and thus maintaining
sufficient liquidity to meet its liabilities as they fall due.
In considering the assessment of the Group's going concern position the
Directors have also identified that the Group could look to both the Group's
bankers and or the equity markets if additional liquidity were required.
Albeit none of the sensitivities indicate that the Group would require
additional sources of liquidity.
In the post balance sheet period, the Group has continued to build up the
inventory level to ensure customer demand can be met. In addition, the £4.6m
short term deferred consideration on acquisitions was settled in Q1, partially
utilising the RCF. The Group continues to focus on obtaining advanced customer
deposits to manage the working capital investment required to secure long lead
time / short supply components.
The Directors have concluded that the potential impact of the electronic
component shortages and rising inflation as described above does not represent
a material uncertainty over the Group and Company's ability to continue as a
going concern. Nevertheless, it is acknowledged that there are potentially
material variations in the forecasted level of financial performance for the
coming year.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the next 12 months,
therefore it is appropriate to adopt a going concern basis for the preparation
of the Financial Statements. Accordingly, these financial statements do not
include any adjustments to the carrying amount or classification of assets and
liabilities that would result if the Group and Company were unable to continue
as a going concern.
Changes in accounting policy and disclosures
New standards, amendments and interpretations adopted in the year.
The following new standards, amendments and interpretations have been adopted
by the Group for the first time for the financial year beginning on the 1
April 2021:
· Amendments to references to the Conceptual framework in IFRS
Standards.
· Amendments to IFRS 9, IAS 39, IFRS 7: - Interest rate benchmark
reform.
The adoption of these standards and amendments has not had a material impact
on the financial statements.
New standards, amendments and interpretations to published standards issued
but not yet effective and not early adopted
A number of new standards, amendments and interpretations to existing
standards have been published that will be mandatory for the Group's
accounting periods beginning on or after 1 April 2022 or later periods and
which the Group has decided not to adopt early are listed below. The Group
intends to adopt these standards when they become effective.
· Amendments to IAS 1 and IFRS Practice Statement 2, regarding the
classification of liabilities and disclosure of accounting policies, effective
for annual reporting periods beginning on or after 1 January 2023.
· Amendments to IAS 8 regarding the definition of accounting
estimates, effective for annual reporting periods beginning on or after 1
January 2023.
· Amendments to IAS 12 regarding deferred tax on leases and
decommissioning obligations, effective for annual reporting periods beginning
on or after 1 January 2023.
· Amendments to IAS 16 regarding deductions from the cost of
property, plant and equipment amounts received from selling items produced
while the company is preparing the asset for its intended use, effective for
annual reporting periods beginning on or after 1 January 2022.
· Amendments to IAS 37 regarding the costs to include when
assessing whether a contract is onerous, effective for annual reporting
periods beginning on or after 1 January 2022.
· Amendments to references to the Conceptual framework in IFRS
Standards.
The Directors anticipate that none of the new standards, amendments to
standards and interpretations will have a significant effect on the financial
statements of the Group.
Principle of consolidation
The consolidated financial statements incorporate the financial results and
position of the Parent and its subsidiaries.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases. The acquisition method of accounting is used to account for business
combinations by the Group.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the transferred
asset. Accounting policies of subsidiaries have been changed where necessary
to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown
separately in the consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of financial
position respectively.
Business combinations
The purchase method of accounting is used to account for all business
combinations, regardless of whether equity instruments or other assets are
acquired. Acquisition-related costs are expensed as incurred.
The consideration transferred for the acquisition of a subsidiary comprises
the: fair values of the assets transferred; liabilities incurred to the former
owners of the acquired business; equity interests issued by the Group; fair
value of any asset or liability resulting from a contingent consideration
arrangement; and fair value of any pre-existing equity interest in the
subsidiary.
Identifiable assets acquired, and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions, measured
initially at their fair values at the acquisition date. The Group recognises
any non-controlling interest in the acquired entity on an
acquisition-by-acquisition basis either at fair value or at the
non-controlling interest's proportionate share of the acquired entity's net
identifiable assets.
The excess of the: consideration transferred; amount of any non-controlling
interest in the acquired entity; and acquisition-date fair value of any
previous equity interest in the acquired entity, over the fair value of the
net identifiable assets acquired, is recorded as goodwill.
If those amounts are less than the fair value of the net identifiable assets
of the business acquired, the difference is recognised directly in profit or
loss as a bargain purchase. Where settlement of any part of cash consideration
is deferred, the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the entity's
incremental borrowing rate, being the rate at which a similar borrowing could
be obtained from an independent financier under comparable terms and
conditions.
Contingent consideration is classified either as equity or a financial
liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in profit or
loss.
If the business combination is achieved in stages, the acquisition date
carrying value of the acquirer's previously held equity interest in the
acquiree is remeasured to fair value at the acquisition date. Any gains or
losses arising from such remeasurement are recognised in profit or loss.
Impairment of non-financial assets
Non financial assets that have an indefinite useful life (e.g. Goodwill) or
other intangible assets which are not ready to use and therefore not subject
to amortisation (e.g. ongoing incomplete R&D programmes) are reviewed at
least annually for impairment.
Impairment tests on goodwill are undertaken annually on 31 March, and on other
non-financial assets whenever events or changes in circumstances indicate that
their carrying value may not be reasonable. Where the carrying value of an
asset exceeds its recoverable amount (i.e. the higher of value in use and fair
value less costs to sell), the asset is written down accordingly.
Impairment charges are included in sales, general and administration expenses
in the consolidated statement of comprehensive income, except to the extent
that they reverse gains previously recognised in the consolidated statement of
recognised income and expense. An impairment loss recognised for goodwill is
not reversed.
Intangible Assets
a) Goodwill
Goodwill arising on an acquisition is recognised as an asset and initially
measured at cost, being the excess of the fair value of the consideration over
the fair value of the identifiable assets, liabilities and contingent
liabilities acquired. Goodwill is not amortised. However, it is reviewed for
potential impairment at least annually or more frequently if events or
circumstances indicate a potential impairment. For the purpose of impairment
testing, goodwill is allocated to each of the Cash Generating Units to which
is relates. Any impairment identified is charged directly to consolidated
statement of comprehensive income. Subsequent reversals of impairment losses
for goodwill are not recognised.
b) Development costs
Expenditure incurred that is directly attributable to the development of new
or substantially improved products or processes is recognised as an intangible
asset when the following criteria are met:
· the product or process is intended for use or sale;
· the development is technically feasible to complete;
· there is an ability to use or sell the product or process;
· it can be demonstrated how the product or process will generate
probable future economic benefits;
· there are adequate technical, financial and other resources to
complete the development; and
· the development expenditure can be reliably measured.
Directly attributable costs refers to the materials consumed; the directly
attributable labour; and the incremental overheads incurred in the development
activity. General operating costs, administration costs and selling costs do
not form part of directly attributable costs.
All research and other development costs are expensed as incurred.
Capitalised development costs are amortised on a straight line basis over the
period, during which the economic benefits are expected to be received, which
typically range between 1 and 5 years. Amortisation expense is included within
sales, general and administration expenses in the statement of comprehensive
income.
The estimated remaining useful lives of development costs are reviewed at
least on an annual basis. Amortisation commences once the project is completed
and revenues are being generated.
The carrying value of capitalised development costs is reviewed for potential
impairment at least annually, or more frequently if events or circumstances
indicate a potential impairment. Any impairment identified is immediately
charged to the consolidated statement of comprehensive income.
c) Software
Externally acquired software assets are initially recognised at cost and
subsequently amortised on a straight-line basis over their useful economic
lives. Cost includes all directly attributable costs of acquisition. In
addition, directly attributable costs incurred in the development of bespoke
software for the Group's own use are capitalised.
The useful economic life over which the software is being amortised has been
assessed to be 3 to 5 years.
The carrying value of capitalised software costs is reviewed for potential
impairment at least annually, or more frequently if events or circumstances
indicate a potential impairment. Any impairment identified is immediately
charged to the consolidated statement of comprehensive income.
The costs of maintaining internally developed software, and annual licence
fees to utilise third party software, are expensed as incurred.
d) Other intangibles
Other intangible assets are those which arise on business combinations in
accordance with IFRS 3 revised. These intangible assets form part of the
identifiable net assets of an acquired business and are recognised at their
fair value and amortised on a systematic basis over their useful economic life
which is typically 5 to 10 years. This includes customer relationships, the
fair value of which has been evaluated using the multi period excess earnings
method "MEEM".
The MEEM model valuation was cross checked to the cost of product development
and customer qualification to which the relationships relate.
Capitalised acquisition intangibles are amortised on a straight line basis
over the period, during which the economic benefits are expected to be
received, which typically range between 5 and 10 years. Amortisation expense
is included within sales, general and administration expenses in the statement
of comprehensive income.
The carrying value of other intangible assets is reviewed for potential
impairment at least annually, or more frequently if events or circumstances
indicate a potential impairment. Any impairment identified is immediately
charged to the consolidated statement of comprehensive income.
Property, plant and equipment
Property, plant and equipment is stated at historical cost or deemed cost
where IFRS 1 exemptions have been applied, less accumulated depreciation and
any recognised impairment losses.
Costs include the original purchase price of the asset and the costs
attributable to bringing the asset to its working condition for its intended
use including any qualifying finance expenses.
Depreciation is provided on all items of property, plant and equipment to
write off the carrying value of items over their expected useful economic
lives. It is applied at the following rates:
· Short leasehold property improvements- straight line over minimum life of
lease
· Fittings and equipment- 25% per annum on a reducing balance basis or a
straight line basis over 3 to 5 years with an appropriate residual value as
considered most appropriate
· Computers- between 20% and 33.3% per annum on a straight-line basis
· Motor vehicles- 25% per annum on a reducing balance basis
The residual values and useful lives of the assets are reviewed, and adjusted
if appropriate, at each balance sheet date. An asset's carrying amount is
written down immediately to its recoverable amount if its carrying amount is
greater than its estimated net realisable value. Gains and losses on disposal
are determined by comparing proceeds with carrying amounts. These are included
in the consolidated statement of comprehensive income.
Leases
IFRS 16 "Leases" addresses the definition of a lease, the recognition and
measurement of leases and establishes the principles for the reporting useful
information to users of the financial statements about the leasing activities
of both lessees and lessors.
The Group has applied judgement to determine the lease term for some lease
contracts in which as lessee there includes a renewal option. The assessment
of whether the Group is reasonably certain to exercise such options impacts
the lease term, which affects the amount of lease liabilities and right-of-use
assets recognised.
The lease liability reflects the present value of the future rental payments
and interest, discounted using either the effective interest rate or the
incremental borrowing rate of the entity.
Payments associated with short-term leases and leases of low value assets are
recognised on a straight-line basis over the lease term as an expense within
the income statement.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment
losses and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use assets are
related to the property leases, plant and machinery and motor vehicles and are
depreciated on a straight-line basis over the lease term.
Right of use lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include lease payments less any lease incentives
receivable. In calculating the present value of lease payments, the Group uses
its incremental borrowing rate at the lease commencement date because the
interest rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is increased to
reflect the accretion of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term or a change in the lease payments
(e.g., changes to future payments resulting from a change in an index or rate
used to determine such lease payments).
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
based on either average purchase cost or the cost of purchase on a first in,
first out basis which is the most appropriate for the category of inventory.
Work in progress and finished goods include labour and attributable
overheads. Net realisable value is based on estimated selling price less any
additional costs to completion and disposal.
Financial Instruments
Classification and measurement of financial instruments under IFRS9 classifies
financial assets as either held at amortised cost, fair value through other
comprehensive income (FVOCI) or fair value through profit or loss, dependent
on the business model and cash flow characteristics of the financial
instrument.
Financial assets and financial liabilities are recognised when the company
becomes party to the contractual provisions of the instrument.
Trade and other receivables
Trade receivables are initially measured at their transaction price. Other
receivables are initially recognised at fair value plus transaction costs.
Receivables are held to collect the contractual cash flows which are solely
payments of principal and interest. Therefore, these receivables are
subsequently measured at amortised cost using the effective interest rate
method.
The effect of discounting on these financial instruments is not considered to
be material.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and highly liquid
interest-bearing securities with maturities of three months or less. Bank
overdrafts are shown within borrowings in current liabilities on the balance
sheet.
Impairment of financial assets
IFRS 9 requires an expected credit loss ('ECL') model which broadens the
information that an entity is required to consider when determining its
expectations of impairment. Under this new model, expectations of future
events must be taken into account and this will result in the earlier
recognition of potential impairments.
An impairment loss is recognised for the expected credit losses on financial
assets when there is an increased probability that the counterparty will be
unable to settle an instrument's contractual cash flows on the contractual due
dates, a reduction in the amounts expected to be recovered, or both.
The probability of default and expected amounts recoverable are assessed using
reasonable and supportable past and forward-looking information that is
available without undue cost or effort. The expected credit loss is a
probability-weighted amount determined from a range of outcomes and takes into
account the time value of money.
Impairment of trade receivables
For trade receivables, expected credit losses are measured by applying an
expected loss rate to the gross carrying amount. The expected loss rate
comprises the risk of a default occurring and the expected cash flows on
default based on the aging of the receivable.
The risk of a default occurring always takes into consideration all possible
default events over the expected life of those receivables ("the lifetime
expected credit losses"). Different provision rates and periods are used based
on groupings of historic credit loss experience by product type, customer type
and location.
Impairment of other receivables
The measurement of impairment losses depends on whether the financial asset is
'performing', 'underperforming' or 'non-performing' based on the company's
assessment of increases in the credit risk of the financial asset since its
initial recognition and any events that have occurred before the year-end
which have a detrimental impact on cash flows.
The financial asset moves from 'performing' to 'underperforming' when the
increase in credit risk since initial recognition becomes significant.
In assessing whether credit risk has increased significantly, the company
compares the risk of default at the year-end with the risk of a default when
the investment was originally recognised using reasonable and supportable past
and forward-looking information that is available without undue cost.
The risk of a default occurring takes into consideration default events that
are possible within 12 months of the year-end ("the 12-month expected credit
losses") for 'performing' financial assets, and all possible default events
over the expected life of those receivables ("the lifetime expected credit
losses") for 'underperforming' financial assets.
Impairment losses and any subsequent reversals of impairment losses are
adjusted against the carrying amount of the receivable and are recognised in
profit or loss.
Financial Liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the
assets of the company after deducting all of its liabilities.
Financial liabilities are classified as either:
· Financial liabilities at amortised cost; or
· Financial liabilities as at fair value through profit or loss
(FVTPL).
All financial liabilities are measured at amortised cost and include:
· Trade and other payables
· Contract liabilities
· Borrowings
· Lease liabilities
Trade payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is due
within one year or less (or in the normal operating cycle of the business if
longer). If not, they are presented as non-current liabilities.
They are initially recognised at fair value net of direct transaction costs
and subsequently held at amortised cost.
Contract liabilities
Contract liabilities comprise payments in advance of revenue recognition and
revenue deferred due to contract performance obligation not being completed.
They are classified as current liabilities if the contract performance
obligations payment are due to be completed within one year or less (or in the
normal operating cycle of the business if longer). If not, they are presented
as noncurrent liabilities.
Contract liabilities are recognised initially at fair value, and subsequently
stated at amortised cost.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred and subsequently stated at amortised cost. Borrowing costs are
expensed using the effective interest method.
Equity instruments and Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
Treasury Shares
Where any Group company purchases the Parent Company's equity share capital
(treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes), is deducted from equity attributable
to the Company's equity holders until the shares are cancelled, reissued or
disposed of.
These shares are held in a separate negative reserve in the capital section of
the consolidated statement of financial position. Any dividends payable in
relation to these shares are cancelled.
Where such shares are subsequently sold or reissued, any consideration
received, net of any directly attributable incremental transaction costs and
the related income tax effects, is included in equity attributable to the
Company's equity holders.
Dividends
Equity dividends are recognised when they become legally payable. Interim
dividends are recognised when paid. Final dividends are recognised when
approved by the shareholders at an annual general meeting.
Adjusted performance metrics and non-recurring charges / credits
Nonrecurring charges / credits are disclosed separately in the financial
statements where it is necessary to do so to provide further understanding of
the financial performance of the Group. Transactions are classified as
non-recurring where they relate to an event that falls outside of the ordinary
activities of the business and where individually or in aggregate, they have a
material impact on the financial statements.
In presenting our adjusted performance metrics we also exclude the non-cash
charges/credits that relates to acquisition accounting and share based
payments and the associated tax effect of these items.
Foreign currency
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which it operates are recorded
at the rates ruling when the transactions occur. Foreign currency monetary
assets and liabilities are retranslated at the rates ruling at the balance
sheet date. Exchange differences arising are recognised in the statement of
comprehensive income.
Revenue
The Group manufactures and distributes a range of electronic equipment.
Revenue comprises sales to external customers after discounts, excluding value
added taxes.
The Group's performance obligations with respect to physical goods is to
deliver a finished product to a customer.
Revenue is recognised when control of the products has transferred, being when
the products are delivered to the customer, the customer has full control over
the products supplied, and there is no unfulfilled obligation that could
affect the customer's acceptance of the products.
Delivery occurs when the products have been shipped to the specific location,
the risks of obsolescence and loss have been transferred to the customer, and
either the customer has accepted the products in accordance with the sales
contract, the acceptance provisions have lapsed, or the Group has objective
evidence that all criteria for acceptance have been satisfied.
Where performance obligations have not be satisfied at the reporting date any
advanced payments are recognised as contract liabilities.
For goods that are subject to bill and hold arrangements this means:
• the goods are complete and ready for collection;
• the goods are separately identified from the Group's other stock and
are not used to fulfil any other orders;
• and the customer has specifically requested that the goods be held
pending collection.
Normal payment terms apply to the bill and hold arrangements.
Revenue is only recognised to the extent that it is highly probable that a
significant reversal will not occur.
No element of financing is deemed present as the sales are made with a credit
term of 30 to 90 days, which is consistent with market practice. The Group
does not expect to have any contracts where the period between the transfer of
the promised goods or services to the customer and payment by the customer
exceeds one year. As a consequence, the Group does not adjust any of the
transaction prices for the time value of money.
The Group's obligation to provide a refund for faulty products under the
standard warranty terms is recognised as a returns provision. A receivable is
recognised when the goods are delivered as this is the point in time that the
consideration is unconditional because only the passage of time is required
before the payment is due.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the Executive Directors, who are responsible for
allocating resources and assessing performance of the operating segments.
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments.
A geographical segment is engaged in providing products or services within a
particular economic environment that are subject to risks and returns that are
different from those of segments operating in other economic environments.
The Executive Directors assess the performance of the operating segments based
on the measures of revenue, Profit Before Taxation (PBT) and Profit After
Taxation (PAT). Central overheads are not allocated to the business segments.
Government Grants
Income received from government grants is recognised as 'Other Income' within
operating profit in the Statement of Comprehensive Income in the same period
as the staff costs to which the income relates. Government grant income is
only recognised once there is reasonable assurance both that the Group will
comply with any conditions and that the grant will be received. The Group
utilised the UK Government's Coronavirus Job Retention Scheme, 'furlough
scheme', during the COVID-19 pandemic.
Pensions
The pension schemes operated by the Group are defined contribution schemes.
The pension cost charge represents the contributions payable by the Group.
Current and deferred taxation
Income tax on the profit or loss for the year comprises current and deferred
tax.
Taxable profit differs from accounting profit because it excludes certain
items of income and expense that are recognised in the financial statements
but are treated differently for tax purposes. Current tax is the amount of tax
expected to be payable or receivable on the taxable profit or loss for the
current period. This amount is then amended for any adjustments in respect of
prior periods.
Current tax is calculated using tax rates that have been written into law
('enacted') or irrevocably announced/committed by the respective Government
('substantively enacted') at the period-end date. Current tax receivable
(assets) and payable (liabilities) are offset only when there is a legal right
to settle them net and the entity intends to do so. This is generally true
when the taxes are levied by the same tax authority.
Because of the differences between accounting and taxable profits and losses
reported in each period, temporary differences arise on the amount certain
assets and liabilities are carried at for accounting purposes and their
respective tax values. Deferred tax is the amount of tax payable or
recoverable on these temporary differences.
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the balance sheet differs from its tax base,
except for differences arising on:
· the initial recognition of goodwill
· the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the transaction affects
neither accounting nor taxable profit: and
· investments in subsidiaries and jointly controlled entities where
the Group is able to control the timing of the reversal of the difference and
it is probable the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the
differences can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the balance sheet date and are
expected to apply when the deferred tax liabilities/(assets) are
settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities, and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority.
Share based payment
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the consolidated statement of comprehensive
income over the vesting period. Non-market vesting conditions are taken into
account by adjusting the number of equity instruments expected to vest at each
statement of financial position date so that, ultimately, the cumulative
amount recognised over the vesting period is based on the number of options
that eventually vest. Market vesting conditions are factored into the fair
value of options granted. As long as all other vesting conditions are
satisfied, a charge is made irrespective of whether the market vesting
conditions are satisfied. The cumulative expense is not adjusted for failure
to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the consolidated statement of
comprehensive income over the remaining vesting period.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of accounting
estimates which, by definition, will seldom equal the actual results.
Management also needs to exercise judgement in applying the Group's accounting
policies. This note provides an overview of the areas that involved a higher
degree of judgement or complexity, and of items which are more likely to be
materially adjusted due to estimates and assumptions turning out to be wrong.
Acquisition accounting
In accounting for the Active Silicon acquisition in accordance with IFRS 3 the
key judgement relates to the fair value of the deferred contingent
consideration at the balance sheet date. The 25 month deferred contingent
consideration was originally recognised in the comparative period at a total
of £1.45m based the budgeted and forecast profit after tax expectations.
The Active Silicon acquisition outperformed the current year budget
expectation by 220% after achieving all-time record company revenues and
resulting profits for the financial year. The shift from initial assumptions
was driven by customer demand and order placement not only recovering post
COVID-19 but achieving unprecedented levels, despite component shortages.
Subsequent to year end, a cash payment of £1.13m was settled in relation to
the first 13 month tranche of deferred consideration.
Based on the Active Silicon open orderbook, the performance to date in Q1 and
management expectations for the full 2023 financial year, the total carrying
value of the deferred contingent consideration has been increased by £1.65m
to £3.1m. The key assumption for 2023 is the expected revenue based on
existing and expected customer orders. Should the post-tax profit metric be
10% higher than assumed, the deferred contingent consideration will also
increase by 10%. The increase has been expensed to the income statement and
treated as a non-recurring adjustment to profit (as per Note 31).
The revised deferred consideration balance is considered prudent and
reasonable by the Directors based on forecasts calculated on the information
currently available. This is a judgemental estimate based on performance and
key market changes, including component shortages and macro-economic factors,
may result a difference between the estimation and final payment.
Expected credit losses
In accordance with IFRS 9 the Group is required to assess the expected credit
loss occurring over the life of its trade receivables. As a result of the
continued component shortages and rising inflation across the globe the
Directors expect that the risk of credit default continues to be higher than
historical norms. However, the COVID-19 business disruption risk has reduced.
As a result, the Directors have made a judgemental assessment of the potential
credit losses in the current business environment. In these financial
statements the Directors have provided full disclosures of the provisions for
credit default in note 21.
The calculation of the provision based on the Directors judgemental assessment
of expected credit loss reflects no change to the overall figure from 2021 of
£0.65m.
Recognition criteria for capitalisation of development expenditure
The Group capitalises R&D in accordance with IAS 38. There is judgement in
respect of when R&D projects meet the requirement for capitalisation,
which internal costs are directly attributable and therefore appropriate to
capitalise and when the development programme is complete, and capitalisation
should cease.
Amounts capitalised include the total cost of any external products or
services and labour costs directly attributable to the development programme.
Management judgement is involved in determining the appropriate internal costs
to capitalise and the amounts involved.
If there is any uncertainty in terms of the technical feasibility, ability to
sell the product or any other risk that means the programme does not meet the
requirements of the standard the R&D costs are expensed within the
consolidated statement of comprehensive income.
Estimated useful life of research and development and intangible assets
arising on acquisitions
The periods of amortisation adopted to write down capitalised product and
process development requires estimates to be made in respect of the useful
economic lives of the intangible assets to determine an appropriate
amortisation rate.
Capitalised development costs are amortised over the period during which
economic benefits are expected to be received which is typically 1 - 5 years.
Intangible assets arising on acquisitions are amortised straight line over the
period during which economic benefits are expected to be received which is
typically 5 - 10 years.
The amortisation charge for capitalised development costs in the current year
is £250k; if the lives were reduced by one year across all the projects which
are being amortised the charge would increase by circa £100k.
The amortisation charge for intangible assets arising on acquisitions in the
2021 comparative year is £772k; if the lives were reduced by one year the
charge would increase by £129k.
Estimation of level of R&D expenditure which is eligible for R&D tax
credits under the SME and large company scheme.
Uncertainties exist in relation to the interpretation of complex tax
legislation, changes in tax laws and the amount and timing of future taxable
income. This could necessitate future adjustments to taxable income and
expense already recorded.
At the year-end date, tax liabilities and assets reflect management's
judgements in respect of the application of the tax regulations, in particular
the R&D tax.
In assessing our year-end corporation tax liability, we have made a
provisional assessment as to the likely amount of development expenditure that
will be eligible under each of the HMRCs large company and SME R&D tax
credit schemes as the detailed tax computations have not been completed.
Our judgement at year end assumed that the level of eligible spend was
comparable with prior years. At 31 March 2022 there are net current and
deferred tax provisions totalling approximately £1.8m (2021: £2.1m).
Due to the uncertainties noted above, it is possible that the Group's initial
estimates are different to the final position adopted when the tax computation
is finalised, resulting in a different tax payable or recoverable from the
amounts provided.
Provisions for slow moving or obsolete inventories
Inventories are carried at the lower of cost and net realisable value (NRV).
NRV is reviewed in detail on an on-going basis and provision for obsolete
inventory is made based on several factors including age of inventories, the
risk of technical obsolescence, the risk that customers default on customised
product and the expected future usage.
This estimate is considered highly judgemental given the deliberate investment
in inventory during the financial year to mitigate the challenge presented by
market component shortages. An element of working capital risk can be
mitigated with receiving advance customer deposits, however there remains a
risk of default and order cancellation.
Differences between such estimates and actual market conditions may have a
material impact on the amount of the carrying value of inventories and may
result in adjustments to cost of sales. See note 15 for details of the
inventory provisions and the amounts written off to the consolidated statement
of comprehensive income in the year.
3. REVENUE
The Group derives revenue from the transfer of goods at a point in time in the
following major product lines and geographical regions:
2022 2021
£'000 £'000
United Kingdom 53,030 46,301
Rest of Europe 15,726 7,349
Asia 6,542 3,342
North America 9,175 9,148
Rest of World 524 141
_______ _______
Total revenue 84,997 66,281
_______ _______
2022 2021
£'000 £'000
Computing products 16,103 10,643
Communications products 7,745 5,678
Power products 8,681 10,978
Opto electronic and electronic components and modules 52,468 38,982
_______ _______
Total revenue 84,997 66,281
_______ _______
See further segmental disclosures in note 30.
4. PROFIT FROM OPERATIONS
This has been arrived at after charging/(crediting):
2022 2021
£'000 £'000
Staff costs excluding share based payments (see note 5) 16,562 11,656
Share based payment expenses 295 171
Depreciation of property, plant and equipment 729 614
Depreciation of right of use asset 763 497
Amortisation of intangible assets 1,327 978
Loss/(profit) on disposal of property, plant and equipment 3 (26)
Auditors' remuneration:
Audit fees 120 123
Other assurance fees - -
Non audit fees:
Corporate finance services - 48
Other advisory services 6 3
Research and development costs (includes relevant staff costs) 2,044 1,664
Foreign exchange (credit)/expense (33) 564
Stock write downs/(backs) 59 (5)
Acquisition of subsidiaries legal and due diligence * 533 194
Other Income from government grants ** (2) (297)
_______ _______
* 2022 relates to the post year end planned acquisition of Custom Power. 2021
includes the £48k corporate finance fees from the Group auditors as disclosed
and £155k from other professional services firms.
** Furlough scheme in 2021
The foreign exchange differences have been treated as an adjustment to cost of
sales rather than as an overhead as they arise from sales income and cost of
sales expenditures.
Details of transactions with businesses associated with the Directors are
included within the Remuneration Committee report.
5. STAFF COSTS
Staff costs for all employees during the year, including the Executive
Directors, were as follows:
2022 2021
£'000 £'000
Wages and salaries 13,985 9,751
Social security costs 1,377 1,012
Pension costs 1,200 893
Share based payment charges 295 171
_______ _______
Total staff costs 16,857 11,827
_______ _______
Wages and salaries include termination costs of £56k (2021: £69k).
The average monthly number of employees during the year, including the
Executive Directors, was as follows:
2022 2021
Number Number
Selling and distribution 134 112
Manufacturing and assembly 110 103
Management and administration 59 30
_______ _______
303 245
_______ _______
In the previous year a formalised senior management team was formed and
included with the Company Share Option Plan. As the Group continues to grow,
we continue to invest in and develop the senior leadership team which are
considered to be key management. This senior management team, which includes
executive Directors. The key management team and their total compensation,
including employers NI, totals £3,857k (2021: £2,981k).
6. FINANCE EXPENSE
2022 2021
£'000 £'000
Bank borrowings 127 37
Interest on lease liabilities 99 48
______ ______
Total finance expense 226 85
______ ______
7. TAX EXPENSE
2022 2021
£'000 £'000
Analysis of total tax expense
Total tax charge 716 247
_______ _______
716 247
______ ______
Current tax expense
Group corporation tax on profits for the year 735 610
Adjustment in respect of prior periods (8) (182)
_______ _______
727 428
Deferred tax expense/(credit) charged to income statement 250 (181)
______ ______
Total tax charge to income statement 977 247
Deferred tax (credit)/expense charged to other comprehensive income (261) -
______ ______
Total tax charge to comprehensive income 716 247
______ ______
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the UK applied to profits for the year
are as follows:
2022 2021
£'000 £'000
Profit before tax 3,500 4,200
_______ _______
Expected tax charge based on the standard rate of corporation tax in the UK of 665 798
19% (2021: 19%)
Effect of:
Expenses not deductible for tax purposes 443 20
Difference between depreciation/amortisation for the year and capital (60) (3)
allowances
Tax relief on exercise of share options exercised - (11)
Enhanced relief on research and development expenditure (483) (366)
Overseas tax rate differences 8 3
Deferred tax asset recognised (226) (10)
Change in rate in respect of deferred tax recognition 343 -
Adjustments in respect of prior years (9) (182)
Foreign exchange 35 (2)
_______ _______
Total tax charge 716 247
_______ _______
The UK corporation tax rate is 19% (effective from 1 April 2017). Amendments
were substantively enacted on 24 May 2021, so the rate of UK corporation tax
will rise to 25% from 1 April 2023. The deferred tax liabilities on 31 March
2022 have been calculated based on this revised 25% rate. This change was not
substantively enacted at the March 2021 balance sheet date and the deferred
tax comparatives were calculated at the existing 19% rate.
R&D tax credits
The Group recognised a credit of £10k (2021: £10k) within operating profit
in relation to claims made under the Research and Development expenditure
credit scheme (RDEC). There were also claims made under the SME scheme which
are recognised within the tax expense.
8. EARNINGS PER SHARE
The earnings per share is based on the following:
2022 2021
£'000 £'000
Adjusted earnings post tax 6,158 4,733
Reported earnings post tax 2,523 3,953
Weighted average number of shares 8,551,455 8,524,883
Diluted number of shares 8,728,268 8,650,237
Reported EPS
Basic EPS from profit for the year 29.5p 46.4p
Diluted EPS from profit for the year 28.9p 45.7p
Adjusted EPS
Adjusted Basic EPS from profit for the year 72.0p 55.5p
Adjusted Diluted EPS from profit for the year 70.6p 54.7p
Earnings per ordinary share has been calculated using the weighted average
number of shares in issue during the year. The weighted average number of
equity shares in issue was 8,551,455 (2021: 8,524,883) net of the treasury
shares disclosed in note 27.
The diluted earnings per share is based on 8,728,268 (2021: 8,650,237)
ordinary shares which allow for the exercise of all dilutive potential
ordinary shares.
The adjustments to profit made in calculating the adjusted earnings are set
out in note 31.
9. DIVIDENDS
2022 2021
£'000 £'000
Prior year final dividend paid of 10.75p per share (2021: 7.25p) 920 620
Current year interim dividend paid of 6.25p per share (2021: 5.25p) 535 450
Cancelled dividends on shares held in treasury (2) (1)
_______ _______
1,453 1,069
_______ _______
Final dividend proposed for the year 13.25p per share (2021: 10.75p) 1,134 919
_______ _______
The proposed final dividend has not been accrued for as the dividend will be
approved by the shareholders at the annual general meeting.
10. PROPERTY, PLANT AND EQUIPMENT
Year ended 31 March 2022 Short leasehold Fittings,
property equipment and
Land and Buildings improvements Motor computers
£'000 £'000 vehicles £'000 Total
£'000 £'000
Cost
1 April 2021 446 1,951 678 3,570 6,645
Additions - 121 302 755 1,178
Disposals - (98) (207) (158) (463)
Foreign Exchange 20 2 - 2 24
_______ _______ _______ _______ _______
31 March 2022 466 1,976 773 4,169 7,384
_______ _______ _______ _______ _______
Depreciation and impairment
1 April 2021 - 896 371 2,397 3,664
Charge for the year - 189 103 437 729
On disposals - (98) (166) (160) (424)
Foreign Exchange - - - 1 1
_______ _______ _______ _______ _______
31 March 2022 - 987 308 2,675 3,970
_______ _______ _______ _______ _______
Net book value
31 March 2022 466 989 465 1,494 3,414
_______ _______ _______ _______ _______
Year ended 31 March 2021 Short leasehold Fittings,
property equipment and
Land and Buildings improvements Motor computers
£'000 £'000 vehicles £'000 Total
£'000 £'000
Cost
1 April 2020 - 1,518 847 3,142 5,507
Acquisitions 446 31 - 126 603
Additions - 402 51 303 756
Disposals - - (220) - (220)
Foreign Exchange - - - (1) (1)
_______ _______ _______ _______ _______
31 March 2021 446 1,951 678 3,570 6,645
_______ _______ _______ _______ _______
Depreciation and impairment
1 April 2020 - 727 440 2,054 3,221
Charge for the year - 169 100 345 614
On disposals - - (169) - (169)
Foreign Exchange - - - (2) (2)
_______ _______ _______ _______ _______
31 March 2021 - 896 371 2,397 3,664
_______ _______ _______ _______ _______
Net book value
31 March 2021 446 1,055 307 1,173 2,981
_______ _______ _______ _______ _______
There are capital commitments of £303k (2021: £371k) at the balance sheet
date.
11. RIGHT OF USE ASSETS
Year ended 31 March 2022 Land and Motor vehicles/
buildings other Total
£'000 £'000 £'000
Cost
1 April 2021 3,604 188 3,792
Additions 285 28 313
Disposals (69) (3) (72)
_______ _______ _______
31 March 2022 3,820 213 4,033
_______ _______ _______
Depreciation
1 April 2021 1,263 53 1,316
Charge for the year 701 62 763
Disposals (27) (2) (29)
_______ _______ _______
31 March 2022 1,937 113 2,050
_______ _______ _______
Net book value
31 March 2022 1,883 100 1,983
_______ _______ _______
Year ended 31 March 2021 Land and Motor vehicles/
buildings other Total
£'000 £'000 £'000
Cost
1 April 2020 1,894 120 2,014
Additions 1,124 72 1,196
Acquisition additions 726 - 726
Disposals (140) (4) (144)
_______ _______ _______
31 March 2021 3,604 188 3,792
_______ _______ _______
Depreciation
1 April 2020 944 15 959
Charge for the year 459 38 497
Disposals (140) - (140)
_______ _______ _______
31 March 2021 1,263 53 1,316
_______ _______ _______
Net book value
31 March 2021 2,341 135 2,476
_______ _______ _______
The total depreciation expense of £763k (2021: £497k) has been charged to
operating expenses.
12. INTANGIBLE ASSETS
Year ended 31 March 2022 Acquisition
Development Computer Goodwill on Intangible
Costs Software Consolidation Assets Total
£'000 £'000 £'000 £'000 £'000
Cost
1 April 2021 1,433 473 9,898 8,781 20,585
Additions 350 251 - - 601
Acquisitions (note 31) - - - - -
_______ _______ _______ _______ _______
31 March 2022 1,783 724 9,898 8,781 21,186
_______ _______ _______ _______ _______
Amortisation
1 April 2021 1,333 350 - 2,345 4,028
Charge for the year 250 49 - 1,028 1,327
_______ _______ _______ _______ _______
31 March 2022 1,583 399 - 3,373 5,355
_______ _______ _______ _______ _______
Net book value
31 March 2022 200 325 9,898 5,408 15,831
_______ _______ _______ _______ _______
The cost of acquisition intangible assets comprises the estimated net present
value of customer relationships identified on acquisitions. The development
costs relate to the cost of developing new products and technology to enable
the company to extend its operations into new growth areas. Any assets
developed that are no longer deemed to meet the recognition criteria of
development costs have been written down.
Year ended 31 March 2022 - Acquisition intangible assets Cost Net book value
£'000 £'000
Systems Division commercial relationships 2,075 1,205
Components Division commercial relationships 6,706 4,203
_______ _______
Total 8,781 5,408
_______ _______
A decision was taken to accelerate the amortisation of intangible assets
related to the 2013 acquisition of '2001' commercial relationships within the
Components division from 10 years to 7 years based on a reassessment of the
UEL of that asset in the year ended 31 March 2021. This was an additional
charge of £264k to comprehensive income in 2021 and took the net book value
to nil.
Year ended 31 March 2021 Acquisition
Development Computer Goodwill on Intangible
Costs Software Consolidation Assets Total
£'000 £'000 £'000 £'000 £'000
Cost
1 April 2020 1,183 402 6,300 3,378 11,263
Additions 250 52 - - 302
Acquisitions - 19 3,598 5,403 9,020
_______ _______ _______ _______ _______
31 March 2021 1,433 473 9,898 8,781 20,585
_______ _______ _______ _______ _______
Amortisation
1 April 2020 1,083 302 - 1,665 3,050
Charge for the year 250 48 - 680 978
_______ _______ _______ _______ _______
31 March 2021 1,333 350 - 2,345 4,028
_______ _______ _______ _______ _______
Net book value
31 March 2021 100 123 9,898 6,436 16,557
_______ _______ _______ _______ _______
The cost of acquisition intangible assets comprises the estimated net present
value of customer relationships identified on acquisitions. The development
costs relate to the cost of developing new products and technology to enable
the company to extend its operations into new growth areas. Any assets
developed that are no longer deemed to meet the recognition criteria of
development costs have been written down.
Year ended 31 March 2021 - Acquisition intangible assets Cost Net book value
£'000 £'000
Systems Division commercial relationships 2,075 1,426
Components division commercial relationships 6,706 5,010
_______ _______
Total 8,781 6,436
_______ _______
13. GOODWILL AND IMPAIRMENT
Details of the carrying amount of goodwill allocated to cash generating units
(CGUs) are as follows:
Goodwill carrying amount 2022 2021
£'000 £'000
Systems Division 3,946 3,946
Components division 5,952 5,952
_______ _______
Total 9,898 9,898
_______ _______
The recoverable amounts of all the above CGUs have been determined from a
review of the current and anticipated performance of these units. In preparing
the projection, a pre tax discount rate of 10% (2021: 10%) has been used based
on the Group's estimated weighted average cost of capital.
A future growth and terminal growth rate of 2.5% (2021: 2.5%) has been assumed
beyond the first year, for which the projection is based on the budget
approved by the Board of Directors. It has been assumed investment in capital
equipment will equate to depreciation over this period.
The recoverable amount exceeds the carrying amount for the Group by £94,447k
(2021: £64,382k).
The headroom within the Systems Division is significant at £53,765k (2021:
£43,250k), with the more sensitive CGU the Components division with headroom
of £47,318k (2021: £25,636k). If the following changes were made to the
above key assumptions in respect of each division, the carrying amount would
still exceed the recoverable amount for both divisions.
Discount rate: Increase from 10% to 20%
Growth rate: Reduction from 2.5% to nil%
14. SUBSIDIARIES
The subsidiaries of Solid State PLC included in these consolidated financial
statements are as follows:
Subsidiary undertakings Proportion of voting rights and Ordinary share capital held Nature of business
Solid State Supplies Limited UK 100% Supply of electronic components.
Steatite Limited UK 100% Supply of electronic components and manufacture of electronic equipment.
Pacer Technologies Limited UK 100% Non trading entity
Pacer Components Limited* UK 100% Supply of opto-electronic components.
Pacer LLC* USA 100% Supply of opto-electronic components.
Willow Technologies Limited UK 100% Supply of opto-electronic components.
American Electronic Components, Inc.* USA 100% Supply of opto-electronic components.
Active Silicon Limited UK 100% Digital image design and manufacturing.
Active Silicon, Inc.* USA 100% Manufacturing sales facility
Solid State Supplies Electronics Limited Ireland 100% Sales office
Custom Power Limited UK 100% Non trading entity
Creasefield Limited UK 100% Non trading entity
Q-Par Angus Limited UK 100% Non trading entity
Ginsbury Electronics Limited UK 100% Non trading entity
Wordsworth Technology Kent Limited UK 100% Non trading entity
Creasefield Crewkerne Limited UK 100% Non trading entity
*Indirect holdings. All other holdings are direct.
The non-trading entities are exempt from filing audited accounts with the
registrar under section 479a of the Companies Act 2006.
Aside from the operations in the USA and Ireland identified above, the country
of operation and of incorporation is England and Wales, with the same
registered office as Solid State PLC. The registered offices for operations in
the US and Ireland are listed below.
Subsidiary undertaking Registered Office
Pacer USA LLC 661 Maplewood Drive, Suite 10, Jupiter, FL 33458, USA
American Electronic Components, Inc. 1101 Lafayette Street, Elkhart, Indiana, 46516, USA
Active Silicon, Inc. 479 Jumpers Hole Road, Suite 301, Severna Park, MD 21146, USA
Solid State Supplies Electronics Limited 3rd Floor Ulysses House, 23/24 Foley Street, Dublin 1, Dublin D01 W2T2,
Ireland
As set out in the audit committee report, the UK trading subsidiaries are
exempt from the requirements to have an audit and file audited financial
statements by virtue of section 479A of the Companies Act 2006. In adopting
the exemption Solid State PLC has provided a statutory guarantee to these
subsidiaries in accordance with section 479C of the Companies Act 2006.
Subsequent to year end, eTech Developments Limited was incorporated in the UK
with Solid State Plc owning 75% of the ordinary shares and voting rights in
the Company.
15. INVENTORIES
2022 2021
£'000 £'000
Finished goods and goods for resale 15,333 9,056
Work in progress 2,265 1,573
_______ _______
Total inventories 17,598 10,629
_______ _______
The Directors are of the opinion that the replacement value of inventories is
not materially different to the carrying value stated above. These carrying
values are stated net of provisions of £3,694k (2021: £3,271k).
An impairment loss of £610k (2021: £418k loss) was recognised in cost of
sales during the year against inventory due to slow moving and obsolete items.
Inventory recognised in cost of sales during the year as an expense was
£57,812k (2021: £43,061k).
16. TRADE AND OTHER RECEIVABLES
2022 2021
£'000 £'000
Trade receivables 14,948 11,683
Other receivables 126 157
Prepayments 2,904 2,382
_______ _______
17,978 14,222
_______ _______
An impairment credit against trade receivables of £13k (2021: Loss of £608k)
was recognised within operating costs during the year.
17. TRADE AND OTHER PAYABLES (CURRENT)
2022 2021
£'000 £'000
Trade payables 8,083 4,192
Other taxes and social security taxes 2,607 1,301
Other payables 89 88
Accruals 5,709 3,737
Deferred consideration on acquisitions 4,625 2,572
_______ _______
21,113 11,890
_______ _______
18. CONTRACT LIABILITIES
2022 2021
£'000 £'000
Contract liabilities 3,461 2,299
_______ _______
The contract liabilities identified above relate to unsatisfied performance
obligations resulting from proforma and advanced customer payments where we
have not recognised the revenue and provisions for product returned for
rework. All these contract liabilities are expected to be recognised in the
subsequent financial year.
Revenue recognised within the year includes £1,980k (2021: £2,161k) which
was included within contract liabilities in the prior year.
19. BANK BORROWINGS AND FACILITIES
2022 2021
£'000 £'000
Current borrowings
Bank borrowings - overdraft facility 2,059 -
Non-current borrowings
Bank borrowings 1,500 3,750
_______ _______
Total borrowings 3,559 3,750
_______ _______
2022 2021
£'000 £'000
Within one year 2,059 -
Between one and two years 1,500 3,750
Between two and five years - -
_______ _______
Total borrowings 3,559 3,750
_______ _______
The bank facilities are secured by a fixed and floating charge over the assets
of the Company and the Group. At the balance sheet date, the Group had the
following facilities:
· Revolving credit facility of £7.5m (2021: £7.5m) of which
£1.50m (2021: £3.75m) was drawn at the balance sheet date. This facility was
committed until November 2022 and was renewed in March 2022 to a November 2023
commitment date.
· In addition, the Group has a multi-currency overdraft facility of
£3.0m (2021: £1.0m) which was utilised for USD of £2.1m at year end (2021:
Nil).
The multi-currency overdraft facility is in place to provide flexibility in
financing short-term multi-currency working capital requirements. This
facility is available to utilise as long as the overall balance netted across
all accounts in the bank nets to an overall position of £Nil or higher.
The Group's banking facilities are subject to three financial covenants,
being: leverage; debt service; and a tangible net worth covenant. These
covenants were met at all measurement points throughout the period.
20. RIGHT OF USE LEASE LIABILITIES
2022 2021
£'000 £'000
Current right of use lease liabilities 758 741
Non-current right of use lease liabilities 1,326 1,802
_______ _______
Total right of use lease liabilities 2,084 2,543
_______ _______
2022 2021
£'000 £'000
Within one year 758 741
Between one and two years 650 654
Between two and five years 676 1,148
_______ _______
Total right of use lease liabilities 2,084 2,543
_______ _______
21. FINANCIAL INSTRUMENTS
The Group's overall risk management programme seeks to minimise potential
adverse effects on the Group's financial performance.
The Group's financial instruments comprise cash and cash equivalents and
various items such as trade payables and receivables that arise directly from
its operations. The carrying value of all financial instruments equal their
fair values. The Group is exposed through its operations to the following
risks:
· Credit risk
· Foreign currency risk
· Liquidity risk
· Cash flow interest rate risk
In common with all other businesses, the Group is exposed to risks that arise
from its use of financial instruments. This note describes the Group's
objectives, policies and processes for managing those risks. Further
quantitative information in respect of these risks is presented throughout
these financial statements.
There have been no substantive changes in the Group's exposure to financial
instrument risks and consequently the objectives, policies and processes are
unchanged from the previous period.
The Board has overall responsibility for the determination of the Group's risk
management policies. The objective of the Board is to set policies that seek
to reduce the risk as far as possible without unduly affecting the Group's
competitiveness and effectiveness. Further details of these policies are set
out below.
Credit risk
The Group is exposed to credit risk primarily on its trade receivables, which
are spread over a range of customers and countries, a factor that helps to
dilute the concentration of the risk.
It is Group policy, implemented locally, to assess the credit risk of each new
customer before entering binding contracts. Each customer account is then
reviewed on an ongoing basis (at least once a year) based on available
information and payment history.
The maximum exposure to credit risk is represented by the carrying value of
receivables as shown in note 16 and in the statement of financial position.
The amount of the exposure shown in note 16 is stated net of provisions for
doubtful debts.
The credit risk on liquid funds is low as the funds are held at a bank with a
high credit rating assigned by international credit rating agencies.
Foreign currency risk
Foreign exchange transaction risk arises when individual Group operations
enter into transactions denominated in a currency other than their functional
currency. The general policy for the Group is to sell to customers in the
same currency that goods are purchased in, reducing the transactional risk.
Where transactions are not matched, excess foreign currency amounts generated
from trading are converted back to sterling and required foreign currency
amounts are converted from sterling. Forward currency contracts are not used
speculatively and are considered where the Group has a demand for foreign
currency that it can reliably forecast. The Group overdraft facility is
available on an individual currency basis as well as an overall basis.
Liquidity risk
The Group operates a Group overdraft facility common to all its trading
companies (with the exception of the 2021 acquisitions). This facility has a
right of offset, so individual accounts in an overdraft position can be netted
from cash held in other accounts in the same bank to a maximum position of
£Nil in total.
The Group has approximately a three month visibility in its trading and runs a
rolling 6 month cash flow forecast. If any part of the Group identifies a
shortfall in its future cash position the Group has sufficient facilities that
it can direct funds to the location where they are required. If this
situation is forecast to continue remedial action is taken.
Cash flow interest rate risk
External Group borrowings are approved centrally. The Board accepts that this
neither protects the Group entirely from the risk of paying rates in excess of
current market rates nor eliminates fully the cash flow risk associated with
interest payments. It considers, however, that by ensuring approval of
borrowings is made by the Board the risk of borrowing at excessive interest
rates is reduced. The Board considers that the rates being paid are in line
with the most competitive rates it is possible for the Group to achieve.
Credit risk
The carrying amount of financial assets represents the maximum credit
exposure. The Group maintains its cash reserves at a reputable bank. The
maximum exposure to credit risk at the reporting date was:
Loans and Receivables
2022 2021
£'000 £'000
Current financial assets
Trade and other receivables 15,074 11,840
Cash and cash equivalents 2,924 6,914
_______ _______
17,998 18,754
_______ _______
The maximum exposure to credit risk for trade receivables at the reporting
date by geographic region was:
Carrying value
2022 2021
£'000 £'000
UK 8,471 7,700
Non UK 6,477 3,983
_______ _______
14,948 11,683
_______ _______
The Group policy is to make a provision against those debts that are overdue,
unless there are grounds for believing that all or some of the debts will be
collected. During the year, the value of provisions made in respect of bad
and doubtful debts was a charge of £193k (2021: £618k) which represented
0.1% (2021: 1.0%) of revenue. This provision is included within the sales,
general and administration expenses in the Consolidated Statement of
Comprehensive Income.
Trade receivables ageing by geographical segment
30 days 60 days 90 days
Geographical area Total Current past due past due past due
£'000 £'000 £'000 £'000 £'000
2022
UK 8,860 8,273 418 128 41
Non UK 6,737 6,122 412 116 87
_______ _______ _______ _______ _______
Total 15,597 14,395 830 244 128
UK (389) (322) (21) (11) (35)
Non UK (260) (136) (24) (23) (77)
_______ _______ _______ _______ _______
Total provisions (649) (458) (45) (34) (112)
_______ _______ _______ _______ _______
Total 14,948 13,937 785 210 16
_______ _______ _______ _______ _______
IFRS 9
UK expected loss rate 4.4% 3.9% 5.0% 8.6% 85.4%
Non UK expected loss rate 3.9% 2.2% 5.8% 19.8% 88.5%
_______ _______ _______ _______ _______
30 days 60 days 90 days
Geographical area Total Current past due past due past due
£'000 £'000 £'000 £'000 £'000
2021
UK 8,175 8,008 112 15 40
Non UK 4,168 3,907 216 5 40
_______ _______ _______ _______ _______
Total 12,343 11,915 328 20 80
UK (496) (401) (50) (10) (35)
Non UK (164) (100) (22) (2) (40)
_______ _______ _______ _______ _______
Total provisions (660) (501) (72) (12) (75)
_______ _______ _______ _______ _______
Total 11,683 11,414 256 8 5
_______ _______ _______ _______ _______
IFRS 9
UK expected loss rate 6.1% 5.0% 44.6% 66.7% 87.5%
Non UK expected loss rate 3.9% 2.6% 10.2% 40.0% 100.0%
_______ _______ _______ _______ _______
The Group records provision for impairment losses on its trade receivables
separately from gross receivables. The movements on this allowance account
during the year are summarised below:
2022 2021
£'000 £'000
Opening balance 658 496
Acquisition of subsidiaries - 19
(Decrease)/ Increase in provisions (14) 618
Written off against provisions 4 (474)
Foreign exchange 1 (1)
_______ _______
Closing balance 649 658
_______ _______
The main factor used in assessing the expected impairment losses of trade
receivables is the age of the balances and the circumstances of the individual
customer.
As shown in the earlier table, at 31 March 2022 trade receivables of £1,011k
which were past their due date were not impaired (2021: £269k).
Liquidity risk
The following are maturities of financial liabilities, including estimated
contracted interest payments.
Carrying Contractual 12 months 1 - 2 2 - 5 5+
Amount cash flow or less Years Years Years
2022
Trade and other payables 16,488 16,488 16,488 - - -
Borrowings 3,559 3,559 2,059 1,500 - -
Right of use lease liabilities 2,084 2,215 781 690 744 -
Provisions 694 694 - 150 544 -
Deferred consideration on acquisition 6,601 6,601 4,625 1,976 - -
_______ _______ _______ _______ _______ _______
29,426 29,557 23,953 4,316 1,288 -
_______ _______ _______ _______ _______ _______
2021
Trade and other payables 9,318 9,318 9,318 - - -
Borrowings 3,750 3,750 - 3,750 - -
Right of use lease liabilities 2,543 2,736 763 694 1,279 -
Provisions 741 741 71 20 650 -
Deferred consideration on acquisition 7,522 7,522 2,572 4,250 700 -
_______ _______ _______ _______ _______ _______
23,874 24,067 12,724 8,714 2,629 -
_______ _______ _______ _______ _______ _______
Movement in deferred consideration on acquisitions 2022 2021 2022 2021 2022 2021
£'000 £'000 £'000 £'000 £'000 £'000
Willow Active Total
Opening balance 5,089 - 2,433 - 7,522 -
Increase/recognition - 5,089 1,651 2,433 1,651 7,522
Settlement (1,589) - (983) - (2,572) -
_______ _______ _______ _______ _______ _______
Closing balance 3,500 5,089 3,101 2,433 6,601 7,522
_______ _______ _______ _______ _______ _______
Foreign currency risk
The Group's main foreign currency risk is the short-term risk associated with
accounts receivable and payable denominated in currencies that are not the
subsidiaries' functional currency. The risk arises on the difference in the
exchange rate between the time invoices are raised/received and the time
invoices are settled/paid. For sales denominated in foreign currencies the
Group will try, as far as practical, to ensure that the purchases associated
with the sale will be in the same currency. As a result of advanced purchasing
of components, there is a timing difference on USD, where the Group overdraft
has been utilised as required.
All monetary assets and liabilities of the Group were denominated in sterling
except for the following items, which are included in the financial statements
at the sterling value based on the exchange rate ruling at the statement of
financial position date.
The following tables show the Group net assets/(liabilities) exposed to US
dollar and Euro exchange rate risk::
USD 2022 2021
£'000 £'000
Trade receivables 8,786 5,727
Cash and cash equivalents (1,308) 3,121
Trade payables (4,005) (930)
_______ _______
3,473 7,918
_______ _______
EUR 2022 2021
£'000 £'000
Trade receivables 287 337
Cash and cash equivalents 272 942
Trade payables (175) (115)
_______ _______
384 1,164
_______ _______
The Group is exposed to currency risk because it undertakes trading
transactions in US dollars and Euros (and immaterial transactions in other
currencies). The Directors do not generally consider it necessary to enter
into derivative financial instruments to manage the exchange risk arising from
its operations, but from time to time when the Directors consider foreign
currencies are weak and it is known that there will be a requirement to
purchase those currencies, forward arrangements are entered into. There were
no forward purchase agreements in place at 31 March 2022 (2021: £nil) with
£nil net exposure (2021: £nil).
The effect of a strengthening of 10% in the rate of exchange in the currencies
against sterling at the statement of financial position date would have
resulted in an estimated net increase in pre-tax profit for the year and an
increase in net assets of approximately £428k (2021: £1,009k) and the effect
of a weakening of 10% in the rate of exchange in the currencies against
sterling at the statement of financial position date would have resulted in an
estimated net decrease in pre-tax profit for the year and a decrease in net
assets of approximately £351k (2021: £826k).
Interest rate risk
The Group finances its business through a Revolving credit facility. During
the year the Group utilised this facility at a floating rate of interest.
The Group's banking facilities with Lloyds Bank Plc incurs interest at the
rate of 2.55% over LIBOR. The Group is affected by changes in the UK
interest rate. As the loans are all based on variable interest rates the fair
value of the Group's borrowings is not materially different to the book value.
In terms of sensitivity, if the ruling base rate had been 1% higher throughout
the year the level of interest payable would have been £82k (2021: £41k)
higher and if 1% lower throughout the year the level of interest payable would
have been lower by the same amount.
Capital risk management
The Group defines total capital as equity in the consolidated statement of
financial position plus net debt or less net funds plus deferred
consideration. Total capital at 31 March 2022 was £32,251k (2021: £29,860k).
The Group defines net (cash)/leverage as net (cash)/debt plus deferred
consideration which totals £5,177k (2021: £4,358k). In calculating net
(cash)/debt the Group has excluded the right of use lease liabilities of
£2,084k (2021: £2,543k) from its definition and calculation.
In managing its capital, the Group's main objectives when managing capital are
to safeguard the Group's ability to continue as a going concern to provide
returns for shareholders and benefits for other stakeholders and to maintain
an optimal capital structure to reduce the cost of capital.
Consistent with others in the industry, the Group monitors capital based on
the gearing ratio. This ratio is calculated as leverage divided by total
capital. At 31 March 2022 the gearing ratio was 16.0% (2021: 14.6%).
The Group seeks to maintain a gearing ratio that balances risks and returns at
an acceptable level and also to maintain sufficient funding to enable the
Group to meet its working capital and strategic investment need in the light
of changes in economic conditions and the characteristic of the underlying
assets.
In making decisions to adjust its capital structure to achieve these aims the
Group considers not only its short-term position but also its long term
operational and strategic objectives and sets the amount of capital in
proportion to risk.
The Group's gearing ratio at 31 March 2022 is shown below:
2022 2021
£'000 £'000
Cash and cash equivalents (4,983) (6,914)
Borrowings / bank overdrafts 3,559 3,750
Deferred Consideration 6,601 7,522
_______ _______
Net (cash)/leverage 5,177 4,358
_______ _______
Share capital 428 428
Share premium account 3,625 3,625
Retained earnings 23,042 21,508
Capital redemption reserve 5 5
Foreign exchange reserve 33 6
Shares held in treasury (57) (70)
_______ _______
Equity 27,076 25,502
_______ _______
Gearing ratio (net leverage / (equity + net leverage)/cash)) 16.0% 14.6%
_______ _______
22. NET DEBT
Year ended 31 March 2022 (£'000) Other non-cash movement
At 1 April 2021 At 31 March 2022
Cash flow
Bank borrowing due within one year - - - -
Bank borrowing due after one year (3,750) 2,250 - (1,500)
_______ _______ _______ _______
Total borrowings (3,750) 2,250 - (1,500)
Deferred consideration on acquisition of subsidiaries within one year (2,572) 2,572 (4,625) (4,625)
Deferred consideration on acquisition of subsidiaries after one year (4,950) - 2,974 (1,976)
Cash and cash equivalents 6,914 (4,006) 16 2,924
_______ _______ _______ _______
(Net debt) / net cash (4,358) 816 (1,635) (5,177)
_______ _______ _______ _______
2022 2021
£'000 £'000
(Decrease)/ increase in cash in the year (4,006) 3,439
Decrease/ (Increase) in borrowings in the year - (3,750)
Repayment of borrowings in the year 2,250 333
Payment of deferred consideration on acquisitions 2,572 -
_______ _______
Net movement resulting from cashflows 816 22
_______ _______
2022 2021
£'000 £'000
(Net debt) / Net cash at 1 April (4,358) 3,184
Net movement resulting from cashflows 816 22
Contingent consideration recognised in year - short term (note 17) - (2,572)
Contingent consideration recognised in year - long term (1,651) (4,950)
Other non-cash movements 16 (42)
_______ _______
Net debt at 31 March (5,177) (4,358)
_______ _______
Although the Group's banking facilities allow a right of offset between cash
balances held at the bank with overdraft balances at the same bank, the
overdraft balances have been presented as gross on the Statement of Financial
Position rather than net in accordance with the Interpretations Committee
March 2016 Agenda decision on IAS 32 interpretation of cash-pooling
arrangements.
23. DEFERRED TAX
The Group's deferred tax positions arise primarily on share-based payments,
accelerated capital allowances, capitalised development costs and intangible
assets arising on acquisition of subsidiaries:
2022 2021
£'000 £'000
At 1 April (1,303) (421)
Deferred tax arising on acquisition of subsidiaries - (1,061)
Credit for the year 348 181
Effect of changes to foreign exchange rates 5 (2)
Deferred tax adjustment in respect of prior periods - -
Effect of tax rate change (343) -
_______ _______
Net deferred tax at 31 March (1,293) (1,303)
_______ _______
Deferred tax (liabilities)/assets in relation to:
Accelerated capital allowances on property plant and equipment (504) (331)
Short term timing differences on intangible assets (1,437) (1,266)
Share based payments 415 96
Short term timing differences 98 95
Losses carried forward 135 103
_______ _______
Net deferred tax at 31 March (1,293) (1,303)
_______ _______
Deferred tax assets 539 188
Deferred tax liabilities (1,832) (1,491)
_______ _______
Net deferred tax at 31 March (1,293) (1,303)
_______ _______
The movements in respect of deferred tax in the year were as follows:
Accelerated capital allowances Short term timing differences on intangible assets Share based Payments Short term timing differences Losses carried forward Total
At 1 April (331) (1,266) 95 96 103 (1,303)
Change in tax rate (83) (344) 38 13 32 (344)
Recognised in statement of comprehensive income (90) 173 21 (11) - 93
Recognised in other comprehensive income - - 261 - - 261
_______ _______ _______ _______ _______ _______
At 31 March (504) (1,437) 415 98 135 (1,293)
_______ _______ _______ _______ _______ _______
The UK corporation tax rate is 19% (effective from 1 April 2017) which was
substantively enacted on 17 March 2020. The comparative deferred tax
liabilities at 31 March 2021 were calculated based on this rate. As
substantively enacted on 24 May 2021, the UK corporation tax rate will
increase to 25% with effect from 1 April 2023. The impact of re-calculating
the deferred tax at the 25% rate is recognised in comprehensive income.
The amount of the net reversal of deferred tax expected to occur next year is
approximately £231k (2021: £191k) relating to the timing differences
identified above.
The deferred tax asset of £261k (2021: £84k) in respect of the future tax
deduction that would be available based on the share price at the balance
sheet date compared to the share price at the date of grant of the options and
share bonus, which is used to calculate the share based payments charge, was
recognised in the year. This deferred tax asset has been credited to other
comprehensive income ("OCI") and treated as an adjustment to profit. The share
price post year end when the shares are exercised may be lower than at the
balance sheet date, therefore this deferred tax asset is considered
judgemental as it may not be fully recoverable.
In addition, there is an unrecognised deferred tax asset in relation to
capital losses carried forward. The capital losses carried forward are
approximately £275k. The associated deferred tax asset of approximately £69k
has not been recognised due to the uncertainty over the recoverability
combined with the fact it is immaterial.
The deferred tax asset has been reclassified as long-term in the current year;
the comparative was retained in current as it was not material.
24. PROVISIONS
2022 2021
£'000 £'000
At 1 April 741 304
Dilapidations acquired on acquisitions at FV - 43
Provisions utilised during the year (18) (7)
Recognition of dilapidation asset - 400
(Released)/charged to statement of comprehensive income (29) -
_______ _______
Provisions at 31 March 694 741
_______ _______
The Group has provided for property related provisions which include
obligations in respect of exited legacy premises and dilapidations provisions
it expects to exit within the next 5 years. Based on using a risk-free
discount rate of 2.5% the Group has assessed the impact of discounting to be
immaterial and has not therefore discounted the provisions.
25. SHARE CAPITAL
2022 2021
£'000 £'000
Allotted issued and fully paid
8,564,878 (2021: 8,564,878) ordinary shares of 5p 428 428
_______ _______
The ordinary shares carry no right to fixed income, the holders are entitled
to receive dividends as declared and are entitled to one vote per share at
shareholder meetings.
Details of options granted are set out in the Remuneration Committee Report.
At 31 March 2022 the number of shares covered by option agreements amounted to
248,100 (2021: 79,550). At the balance sheet date there were 96,000 (2021:
96,000) share options which had vested and remained unexercised. No options
were exercised in the current year (2021: Nil).
26. RESERVES
Full details of movements in reserves are set out in the consolidated
statement of changes in equity.
The following describes the nature and purpose of each reserve within owners'
equity.
Reserve Description and Purpose
Share premium Amount subscribed for share capital in excess of nominal value.
Capital redemption Amounts transferred from share capital on redemption of issued shares.
Retained earnings Cumulative net gains and losses recognised in the consolidated statement of
comprehensive income.
Shares held in treasury Shares held by the Group for future staff share plan awards.
Foreign exchange Foreign exchange translation differences arising from the translation of the
financial statements of foreign operations .
27. TREASURY SHARES
At 31 March 2022 the Group held 6,946 (2021: 11,374) shares in treasury with a
cost of £57k (2021: £70k). No shares have been cancelled.
2022 2021
shares Shares
At 1 April 11,374 7,374
Purchase of shares into treasury 7,000 15,000
Transfer of shares to the All Employee Share Plan (AESP) (11,428) (11,000)
_______ _______
At 31 March 6,946 11,374
_______ _______
28. SHARE BASED PAYMENT
The total amount charged to the income statement in 2022 in respect of
share-based payments was £295,000 (2021: £171,000).
The company operates two long term share incentive schemes set out below:
Long term incentive plan (LTIP):
Normal LTIP awards of up to 125% of salary may be made to Executive Directors
and Senior management.
For all participants, awards will vest after three years in accordance with
the performance conditions applicable to each grant. Options are granted with
a contractual life of ten years and with a fixed exercise price of 5p equal to
the par value of the shares or as otherwise disclosed in the remuneration
report.
The performance conditions will be determined and set by the Remuneration
Committee in accordance with the remuneration policy. No award will vest below
Threshold performance, and vesting will increase on a straight-line basis
between threshold, target and stretch.
On the 29 October 2021 42,800 (2021: 42,800) share options were granted to the
Executive Directors under the LTIP.
Principal assumptions 2022 2021
Weighted average share price at grant date in pence 1,085 580
Weighted average exercise price in pence 5 5
Weighted average vesting period (years) 3 3
Option life (years) 10 10
Weighted average expected life (years) 3 3
Weighted average expected volatility factor 47% 50%
Weighted average risk free rate 1.50% 0.75%
Dividend yield 2.5% 2.5%
The expected volatility factor is based on historical share price volatility
over the three years immediately preceding the grant of the option. The
expected life is the average expected period to exercise. The risk-free rate
of return is the yield of zero-coupon UK government bonds of a term consistent
with the assumed option life.
Non-market performance conditions are incorporated into the calculation of
fair value by estimating the proportion of share options that will vest and be
exercised based on a combination of historical trends and future expected
trading performance. These are reassessed at the end of each period for each
tranche of unvested options.
Company Share Option Plan (CSOP):
CSOP awards of up to the HMRC tax approved levels of £30,000 may be made to
senior staff and Executive Directors. For all participants, awards will vest
after three years in accordance with the performance conditions applicable to
each grant.
Options are granted with a contractual life of ten years and with a fixed
exercise price equal to the market value of the shares under option at the
date of grant or as otherwise disclosed in the remuneration report
The performance conditions will be determined and set by the Remuneration
Committee in accordance with the remuneration policy. No award will vest below
Threshold performance, and vesting will increase on a straight-line basis
between threshold, target and stretch.
On the 06 October 2021 36,750 (2021: 36,750) share options were granted to the
senior management under CSOP.
Principal assumptions 2022 2021
Weighted average share price at grant date in pence 1,050 587
Weighted average exercise price in pence 1,050 592
Weighted average vesting period (years) 3 3
Option life (years) 10 10
Weighted average expected life (years) 3 3
Weighted average expected volatility factor 46% 50%
Weighted average risk free rate 1.50% 0.75%
Dividend yield 2.5% 2.5%
Movement in share options during the year
In addition to the current CSOP and LTIP there are bought forward executive
EMI options which have vested which remain unexercised at the balance sheet
date.
2022 Number of options 2022 average exercise price in pence 2021 Number of options 2021 average exercise price in pence
At 1 April 175,550 125 112,000 0.1
Granted 79,550 488 79,550 276
Exercised - - 16,000 0.1
Cancelled / lapsed (7,000) (707) - -
_______ _______ _______ _______
At 31 March 248,100 225 175,000 125
_______ _______ _______ _______
No options were exercised in the year and the weighted average share price at
the date share options were exercised in 2021 was 544p.
As at 31 March 2022, the total number of long-term incentive awards and share
options held by employees was 248,100 (2021: 175,550) as follows:
Option price pence/share Option period ending 2022 Number of options 2021 Number of options
0.1p 31 March 2027 96,000 96,000
5p - 592p 31 March 2030 74,300 79,550
5p - 1050p 31 March 2031 77,800 -
_______ _______
At 31 March 248,100 175,550
_______ _______
No share options have vested in the period (2021: Nil).
All Employee Share plan (AESP)
AESP awards of up to the HMRC tax approved levels to all UK employees. These
awards vest tax free from the AESP after at least three years but not more
than five years from the date of grant subject to continued employment.
On the 7 March 2022 12,250 (2021: 10,900) share options were awarded to the
employees under the AESP.
The share price at the date of award was 960p (2021: 680p). As the awards are
effectively £nil cost awards, the fair value is determined to equal to the
share price at the date of grant under the Black Scholes model. This resulted
in a share based payments charge of £118k (2021: £74k) as part of the total
share based payments charge.
29. CAPITAL COMMITMENTS
At 31 March 2022 there were capital commitments of £303k (2021: £371k).
30. SEGMENT INFORMATION
The Group's primary reporting format for segment information is business
segments which reflect the management reporting structure in the Group. The
Components Division comprises Solid State Supplies Ltd, Pacer LLC, Pacer
Components Ltd, Willow Technologies Limited and American Electronic
Components, Inc.. The Systems Division includes Steatite Ltd, Active Silicon
Limited and Active Silicon Inc..
Year ended 31 March 2022
Components Systems Head Total
division division office Group
£'000 £'000 £'000 £'000
External revenue 52,480 32,517 - 84,997
______ ______ ______ ______
Profit before tax 3,627 2,270 (2,397) 3,500
Taxation (903) (297) 223 (977)
______ ______ ______ ______
Profit after taxation 2,724 1,973 (2,174) 2,523
Consolidated statement of financial position
Assets 24,616 21,665 16,045 62,326
Liabilities (11,587) (14,253) (9,410) (35,250)
______ ______ ______ ______
Net assets
13,029 7,412 6,635 27,076
Other
Capital expenditure:
Tangible fixed assets 524 654 - 1,178
Tangible fixed assets - acquisitions - - - -
Intangible assets 268 333 601
Intangible assets - acquisitions - - - -
Right of use assets 216 97 - 313
Right of use assets - acquisitions - - - -
Depreciation - PPE 331 398 - 729
Depreciation - right of use assets 264 499 - 763
Amortisation 20 279 1,028 1,327
Share based payments - - 295 295
Interest 48 61 117 226
______ _____ ______ ______
No individual customer contributed more than 10% of the Group's revenue in the
financial year ended 31 March 2022 or the prior year.
Year ended 31 March 2021
Components
division Systems Head Total
£'000 division office Group
£'000 £'000 £'000
External revenue 38,982 27,299 - 66,281
______ ______ ______ ______
Profit before tax 2,011 4,353 (2,164) 4,200
Taxation (337) (310) 400 (247)
______ ______ ______ ______
Profit after taxation 1,674 4,043 (1,764) 3,953
Consolidated statement of financial position
Assets 22,631 14,852 16,484 53,967
Liabilities (8,804) (7,680) (11,981) (28,465)
______ ______ ______ ______
Net assets 13,827 7,172 4,503 25,502
Other
Capital expenditure:
Tangible fixed assets 413 343 - 756
Tangible fixed assets - acquisitions 504 99 - 603
Intangible assets 45 257 - 302
Intangible assets - acquisitions 3 19 8,998 9,020
Right of use assets 315 881 - 1,196
Right of use assets - acquisitions 27 699 - 726
Depreciation - PPE 379 235 - 614
Depreciation - right of use assets 207 290 - 497
Amortisation 19 279 680 978
Share based payments - - 171 171
Interest 35 14 36 85
______ _____ ______ ______
External revenue by Total assets by Net capital
location of customer location of assets expenditure by location
of assets
2022 2021 2022 2021 2022 2021
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 53,030 46,301 59,023 49,616 1,723 1,058
Rest of Europe 15,726 7,349 1 1 - -
Asia 6,542 3,342 - - - -
North America 9,175 9,148 3,302 4,151 56 -
Other 524 141 - - - -
_______ _______ _______ _______ _______ _______
84,997 66,281 62,326 53,768 1,779 1,058
_______ _______ _______ _______ _______ _______
Capital expenditure excludes acquisitions of assets as per note 10 and 12 in
2021.
31. ADJUSTMENTS TO PROFIT
The Group's results are reported after several imputed non-cash charges and
non-recurring items. We have provided additional adjusted performance metrics
to aid understanding and provide clarity over the Group's performance on an
on-going cash basis before imputed non-cash accounting charges. This is
consistent with how analysts and investors tell us they review our business
performance in presenting an adjusted profit metric adjusting for the
following items:
· Non-cash charges arising from share-based payments and the
amortisation of acquisition intangibles.
· Non-recurring cash costs relating to the re-organisation of the
Systems Division and acquisition costs (including fair value adjustments).
· Non-recurring tax credits arising primarily from prior year R&D
claims and tax deductions on share options.
· The impact of the change in deferred tax rate from 19% to 25% on
charges treated as adjustments.
· The recognition in OCI of a deferred tax asset relating to the future
tax deduction that would be available based on the share price at the balance
sheet date compared to the share price at the date of grant of the options and
share bonus.
2022 2021
£'000 £'000
Reported gross profit 27,527 19,919
Adjustments to gross profit 168 73
_______ _______
Adjusted gross profit 27,695 19,992
_______ _______
Reported operated profit 3,726 4,285
Adjustments to operating profit 3,674 1,187
_______ _______
Adjusted operating profit 7,400 5,472
_______ _______
Reported operating margin percentage 4.4% 6.5%
Operating margin percentage impact of adjustments 4.3% 1.8%
_______ _______
Adjusted operating margin percentage 8.7% 8.3%
_______ _______
Reported profit before tax 3,500 4,200
Adjustments to profit before tax 3,674 1,187
_______ _______
Adjusted profit before tax 7,174 5,387
_______ _______
Reported profit after tax 2,523 3,953
Adjustments to profit after tax 3,635 780
_______ _______
Adjusted profit after tax 6,158 4,733
_______ _______
Reported total other comprehensive income 2,784 3,953
Adjustments to total other comprehensive income 3,374 780
_______ _______
Adjusted total other comprehensive income 6,158 4,733
_______ _______
The split of the adjustments is as follows:
2022 2021
£'000 £'000
Acquisition fair value adjustments within cost of sales 168 73
Acquisition fair value adjustments, reorganisation and deal costs 533 263
Increase in deferred consideration on acquisition of Active Silicon 1,650 -
Amortisation of acquisition intangibles 1,028 680
Share based payments 295 171
_______ _______
Adjustment to profit before tax 3,674 1,187
Current and deferred taxation effect (327) (226)
Deferred tax rate change impact on acquisition intangibles and share based 288 -
payments
Non-recurring tax credits - (181)
_______ _______
Adjustments to profit after tax 3,635 780
Recognition of deferred tax asset in OCI re. share price impact on options (261) -
_______ _______
Adjustments to total other comprehensive income 3,374 780
Acquisition fair value adjustments within cost of sales relates to the unwind
of the IFRS 3 fair value uplift on stock to selling price less cost to sell in
both periods.
Acquisition fair value adjustments, reorganisation and deal costs in the
current year relate to transaction costs for the acquisition of Custom Power.
The costs in the comparative period relate to £195k transaction costs on
Willow and Active Silicon and £69k redundancy costs.
32. POST BALANCE SHEET EVENTS
Intended Acquisition of Custom Power LLC ("Custom Power")
Post year end the Group announced on 12 July 2022 its intention to raise up to
£28.4m of equity to fund the acquisition of Custom Power for up to $45m. New
additional term loan debt facilities of £13m and $10m of standby letters of
credit have been agreed by Lloyds Bank PLC in support of the transaction.
Full details of the acquisition are set out in the announcement on the 12 July
2022 and in the circular issued to shareholders on the 13 July 2022 ahead of
the general meeting on the 29 July 2022. The announcement, circular and
investor presentation are available on the Group's website
www.solidstateplc.com (http://www.solidstateplc.com) .
Formation of eTech Developments Limited
On the 8 June 2022 the Group formed a new entity, eTech Developments Limited,
registered Co. number 14159260. eTech Developments Limited is 75% owned by
Solid State PLC. This is a new business which is expected to provide
engineering consultancy by employing a small engineering team. Once the team
are recruited, the team are expected to provide Power engineering services to
the Group and external customers on an arm's length basis.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR BKABBOBKDDOBRecent news on Solid State
See all newsREG - Solid State PLC - Trading Update & Notice of Results
AnnouncementREG - Solid State PLC - $25m Communications Equipment Order
AnnouncementREG - Solid State PLC - Director/PDMR Shareholding
AnnouncementREG - Solid State PLC - Transaction in Own Shares
AnnouncementREG - Solid State PLC - Directors' Dealing
Announcement