REG - Solid State PLC - Final Results, Analyst Briefing & Investor Pres
08/07/2024 07:00
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RNS Number : 4014V Solid State PLC 08 July 2024
08 July 2024
Solid State plc
("Solid State", the "Group" or the "Company")
Final Results
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 Final Results for the 12 months ended 31 March 2024.
Highlights in the period include:
2024 2023 Change
Revenue £163.3m £126.5m +29.0%
Reported operating profit margin 8.4% 7.4% +13.5%
Adjusted operating profit margin* 10.4% 9.2% 120 bps
Profit before tax £12.2m £8.4m +45.2%
Adjusted profit before tax* £15.6m £10.8m +44.4%
Diluted earnings per share 76.0p 63.1p +20.4%
Adjusted diluted earnings per share 99.8p 80.7p +23.7%
Full year dividend 21.5p 20.0p +7.5%
Net cash flow from operating activities £14.3m £9.4m +52.1%
* Adjusted performance metrics are reconciled in note 30, the adjustments
relate to IFRS 3 acquisition amortisation, share based payments charges and
non-recurring charges in respect of acquisition costs and fair value
adjustments.
2024 2023 Change
Net cash / (net debt)** (£4.7m) (£8.1m) -58.0%
ROE 13.6% 11.5% 210 bps
ROCE 26.4% 20.1% 630 bps
Open order book @ 31 May £89.2m £116.2m -24.0%
** Net cash / debt includes cash of £8.4m (2023: £12.2m), bank borrowings of
£13.1m (2023: £14.7m) the fair value of deferred contingent consideration of
£nil (2023: £5.7m) and excludes the right of use lease liabilities of £3.6m
(2023: £2.0m).
Financial highlights:
· Record year of revenue and profit
· Upgraded expectations twice in period
· Like-for-like organic revenue growth in excess of 25%
· Strong cash generation resulting in net debt falling 58% year on
year
· Significant progress in period in achieving growth strategy to
2030
Commercial and operational highlights:
· Relationships strengthened with Tier 1 security & defence
customers
· Particularly strong year for communications equipment orders -
driving like for like revenue growth of more than 60% in Systems division
· Normalising order book post Pandemic with reducing lead times
· Despite softer demand in transport and industrial markets,
resilience demonstrated through diversified market exposure
· Saab selected Steatite for naval antenna assembly
· Establishment of 'Integrated Systems' business unit to drive
innovative engineering capabilities for Tier 1 customers
Post period end:
· International $5.1m IOT contract award from new US franchise line
Current trading:
During Q1, order intake has stabilised with the open orderbook levels returned
to historically normal levels. The Group has maintained a strong orderbook
with open orders being £89.2m at 31 May 2024, reflecting a small increase
from year end.
The de-stocking has continued with Industrial demand in Q1 remaining slow;
however, the design-in activity across our target markets remains strong and
we have a number of exciting opportunities that will underpin our mid-term
growth.
Trading in FY24/25 is not expected to be first-half weighted as it was in
FY23/24. However, pleasingly, year-to-date trading has been broadly in line
with management expectations, which supports management confidence over the
full year expectations.
Commenting on the results and prospects, Nigel Rogers, Chairman of Solid
State, said:
"I am delighted to announce that Solid State has delivered another record year
of growth, continued strong cash generation and reduction in debt.
Innovation and the Group's resilient business model, sector knowledge and
customer diversity has also helped drive significant organic revenue growth.
"The orderbook continues to return to normal levels as component lead times
start to shorten. The Group has a strong orderbook and is confident that the
shorter lead times will enable more efficient conversion of new orders into
billings.
"Solid State is ambitious and sees this record year as an important step in
ultimately delivering on its 2030 goals."
( )
(1) The Company considers the average of the most recently published research
forecasts prior to this announcement by all providers - Cavendish Capital
Markets Ltd and WH Ireland Limited to represent market expectations for Solid
State.
Market Expectations FY23/24 FY24/25
Revenue £164.3m £142.6m
Adjusted profit before tax* £15.0m £10.1m
Net (debt) / cash £5.4m £3.3m
Analyst Briefing: 9.30am today, Monday 8 July 2024
An online briefing for Analysts will be hosted by Gary Marsh, Chief Executive,
and Peter James, Group Finance Director, at 9.30am today, Monday 8 July 2024
to review the results and prospects. Analysts wishing to attend should contact
Walbrook PR on solidstate@walbrookpr.com or on 020 7933 8780.
Investor Presentation: 3.00pm today, Monday 8 July 2024
Gary Marsh, Chief Executive; Peter James, Group Finance Director; and, John
Macmichael, Managing Director of Solsta, the Group's components division, will
hold a presentation to cover the results and prospects at 3pm today, Monday 8
July 2024. 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, or in
real time during the presentation via the "Ask a Question" function.
Investor Site Visits to Head Office in Redditch
Solid State holds site visits to its head office in Redditch where operations
from both the Systems and Components divisions can be seen. Interested
investors should contact solidstate@walbrookpr.com
(mailto:solidstate@walbrookpr.com) .
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.
For further information please contact:
Solid State plc Via Walbrook
Gary Marsh - Chief Executive
Peter James - Group Finance Director
Cavendish Capital Markets Limited (Nominated Adviser & Broker) 020 7397 8900
Adrian Hadden / Callum Davidson (Corporate Finance)
Jasper Berry / Tim Redfern (Sales)
Walbrook PR (Financial PR) 020 7933 8780
Tom Cooper / Nick Rome / Joe Walker 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 defence markets with durable components,
assemblies, manufactured units and power solutions 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 &
Custom Power) and Components (Solsta, Pacer LLC), 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 425 staff
across the UK and US, serving specialist markets with high barriers to entry
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 three
acquisitions in the last three years.
Chairman's Statement
I am delighted to announce that the Group has delivered another record year of
growth, continued cash generation and reduction in debt. The Group's resilient
business model, sector knowledge and customer diversity has helped drive
significant organic revenue growth in FY24. Compound annualised growth in
Total shareholder return ("TSR")* over the five years to March 2024 has been
circa 30%. The Board has set out its ambition to maintain TSR growth of circa
20% going forward.
Performance
Government spending in security and defence continues to increase as a result
of the geo-political environment, with the Group seeing direct revenue from
this sector of 44% (24% Defence & Security excluding Nato). Following a
review of strategy by the Board the Executive Board are implementing a
programme to develop counterweight markets in Industrial, and especially
Medical. The Group's resilient business model and strong relationships with
Tier 1 customers puts us in a strong position to provide added-value
engineered products to address our customers' demanding requirements. The key
growth driver in the year has been the communications contracts initially
announced in November 2022, where we have delivered in excess of £33m of
communications equipment. The continued adoption of this technology this year
provides a foundation for long-term recurring revenue in this market.
Our open orderbook continues to return to normal levels as component lead
times start to shorten. The Group has a strong orderbook and is confident that
the shorter lead times will enable more efficient conversion of new orders
into billings.
Environmental, Social and Governance (ESG)
Creating a long-term sustainable business is a core element of Solid State's
strategy. Our business model, strategy and adoption of our technology is
inherently aligned with our environmental objective to "reduce consumption and
reduce waste" to minimise the adverse impact on the environment and maximise
value for our stakeholders. Our products and systems are engineered to be
often upgradable and have a long product life. Our ESG Committee continues to
evaluate and provide recommendations on how we can progress and deliver
against our goals. Throughout FY23/24, the Group has made significant progress
on all aspects of the ESG strategy, the major progress being the
decommissioning of an energy-intensive production line within the US
Components operation, which will, consequently, greatly reduce its CO(2)
emissions and improve financial performance in the year ahead. The Group
continues to strive to achieve our ESG goals and deliver on our strategy,
including achieving net zero in Scope 1 and 2 emissions by 2050.
Our employees
Our Solid State culture drives the whole company and continues to play an
integral part in our progress. As our business looks to grow, I'm pleased to
say that we continue to invest, attract and retain talent and now have 433
employees across our sites. The investment in our people is essential to
successfully delivering on our strategy and underpinning our long-term
performance. On behalf of the Board, I would like to thank all our employees
for their commitment to the business.
The Board and Governance
During this year, the Board is pleased to have welcomed Sam Smith as an
Independent Non-Executive Director. Sam sits on the Audit, Remuneration and
Nominations Committees. Since joining, Sam has added significant value and her
experience and contribution in this year has been very insightful and
challenging. I am confident that she will continue to make strong
contributions to the growth of the Group as we look forward.
The Board has reviewed its make-up, skills, and compliance with the recently
updated QCA code. As a result of this review, the Board concluded that the
three independent NEDs provide a good skills balance and there is appropriate
independent oversight and challenge.
The Board has established a Leadership Team during FY24, who are responsible
for informing and delivering the strategy as well as executing of the
day-to-day operations of the business. The Executive Board with the senior
leadership teams bring a breadth of skills, experience and industry knowledge,
which will further contribute to the success of the Group's strategy.
Dividend
The Directors are proposing a final dividend of 14.5p (2022/23: 13.5p)
resulting in a full year dividend of 21.5p (2022/23: 20p) per share, which is
covered 4.6 times by adjusted earnings (2022/23: 4 times).
The increase in dividend cover is as a result of the recognition of Systems
revenue and profits on deliveries made in FY24 on specific contracts
previously expected to be recognised in FY25. This ensures our dividend is
sustainable and we are able to maintain our commitment to a progressive
dividend policy in the year ahead.
Our progressive dividend policy is an important part of the strategy of
delivering shareholder return, albeit with the ambitious growth plans of the
Group, dividends are expected to continue to be a smaller component of total
shareholder returns, supporting a suitable balance between investment for
growth and cash returns for investors.
The final dividend is subject to approval by shareholders at the AGM on 4
September 2024. The final dividend will be paid on 27 September 2024 to
shareholders on the register at the close of business on 6 September 2024, and
the shares will be marked ex-dividend on 5 September 2024.
Outlook
The Board is pleased with the performance of the Group over the last 12
months, and we are confident that we can continue to replicate sustainable
growth for our shareholders. Our 2030 ambition and strategy highlights our
achievements for the past 12 months and the Board is excited for the next
phase of the Group's organic investment and mid-term growth plans as we look
to deliver on the 2030 strategy.
We are confident that we are in a strong position as the business benefits
from our diversity and speed in adapting to market trends driven by customer
requirements. We will continue to use this platform to make strategic
investments, both organic and M&A, to drive sustainable growth for all our
stakeholders.
Nigel Rogers
Non-Executive Chairman
* "Total Shareholder Return %" is calculated as follows: "((current price less
purchase price) plus dividends)/purchase price". "CAGR in TSR" is calculated
as follows: (((current price plus dividends)/purchase price)^(1/time
period)-1).
Chief Executive Officer's Review
I am delighted to report that the business has delivered another year of
record financial performance in FY24 with significant progress in advancing
our growth strategy to 2030. Our revenue growth highlights the resilience the
business has in adapting to market trends and supporting our customers during
the challenges in the macro-economic environment.
We have ended the year with a strong orderbook of £88.4m and I am pleased to
report that as lead times have started to reduce that our open order book has
continued to return to more normal levels and was 62% of FY25 consensus
revenue.
The Group's reputation with its long-standing customer relationships, puts us
in a strong position to adapt to market challenges. This now gives us a strong
foundation to focus on the next phase of the Group's investment in organic and
acquisitive growth plans to deliver the 2030 strategy.
Strong business performance
The Group has delivered another record year of financial, strategic and
operational performance driven by the exceptional result in our systems
division. The business has delivered strong organic revenue growth of 27%.
Second-half revenue of £75.2m benefitted from deliveries that were originally
anticipated to be shipped in FY24/25 and, as a result, was 12% ahead of the
second half of FY22/23.
This translates into good progress in our financial KPIs; a significant step
change in revenue year on year at £163.3m (2023: £126.5m), 120 Basis Points
("bps") improvement in adjusted operating margins to 10.4% (2023: 9.2%) and
24% growth in adjusted diluted earnings per share over the prior year's record
result to 99.8p (2023: 80.7p).
Sector and divisional review
Systems
The division has benefited from its first full year of Custom Power combined
with very strong demand in the Defence & Security market which has
contributed to the exceptional year that the systems division has had in FY24
with revenue increasing 80% to £103.5m (2023: £57.5m).
The increase in revenue reflects over five years of work and investment to get
our customers to adopt our communications technology. The revenue delivered
earlier than expected has been driven by customer requirements for
communications products to be shipped as soon as they are available,
reflecting their operational requirements.
Our long-standing relationships with Tier 1 customers and the notable NATO
contract win in FY23 is now providing a foundation for long-term recurring
revenue in this sector as the Group targets "through-life" support
opportunities. We are investing in a new production facility during Q1 of
FY25, including engineering capabilities and a project management team to
establish our "Integrated Systems" business unit within our systems division
to meet the demand for more complex systems from our Tier 1 Security &
Defence customers.
Components
In FY24, we have seen the Components revenue start to normalise after
experiencing an exceptional prior year. Component lead times have largely
normalised, leading to customers now looking to reduce the levels of
stockholding and orders. In common with our peer group, we continue to see a
slowdown in the industrial and rail sectors, with some customers pushing out
schedules through 2024. This resulted in revenue decreasing 13% to £59.8m
(2023: £69.0m). However, we are seeing strong levels of design work with some
particularly exciting opportunities in the medical sector.
The orderbook remains strong for FY25 and the business is expected to benefit
from the commercial focus and operational efficiency gains of the recent US
restructuring, which is expected to improve US operating margins in the year
ahead and deliver stronger design wins and bookings going forward.
Key leadership
We continue to invest in recruiting new talent in addition to long-term
succession and talent development pathways for existing talent. We are pleased
to share that we have established a Group Executive Board and continue to
strengthen and develop our Senior Leadership Teams that report into the Board.
The Senior Leadership Team brings a breadth of experience and skills that will
support the Board in executing on strategy delivery.
We continue to progress our gender diversity with the promotion and
recruitment of four senior females within the last 18 months, including a
Non-Executive Director on the Board.
We have rebranded our Power business unit in the UK as Custom Power and
restructured our Systems Division leadership team to enable a more focused
approach. We have made significant progress in the recruitment of key sales
and technical talent in Custom Power and have focused on building a strong
leadership team led by Matthew Richards. Strengthening the team at Custom
Power will enable us to take advantage of the significant market opportunities
in electrification, autonomy and medical.
Our Engineering teams are critical to the success of the Group and we are
proud of attracting and retaining a skilled team that has allowed us to
establish a strong foundation in supporting our growth. In FY24, we have 55
engineers across the group with a variety of disciplines and specialisms. We
have given more focus on the recruitment of graduate engineers to support the
succession planning and talent management processes.
Acquisitions
To achieve our strategic goals, the Board recognises that acquisitions are an
integral part, and we continue to actively explore attractive acquisition
opportunities across our target markets both overseas and in the UK. We have a
strong pipeline aligned to our strategic goals with a mix of larger potential
targets and smaller specialist businesses to develop our complementary product
offering to our customers. We have invested in talent to support the Board in
ensuring that the acquisitions we make are the right strategic fit for our
Group.
On 31 January 2024 the Group bought out the 25% non-controlling interest
giving the Group 100% ownership of eTech Developments, which has been
integrated and rebranded as part of our Custom Power business unit. This
acquisition significantly enhances the Group's high-power battery capabilities
with appropriate safety and power management solutions.
Strategy
The Group's 2030 financial aspirations are to replicate our success seen over
the last five years. We are aspiring to maintain circa 20% compound annual
growth in Total Shareholder Return ("TSR").
Our strategy to achieve this growth in TSR remains unchanged. We will look to
continue to invest in driving organic growth initiatives complemented by
strategic acquisitions where it is a lower risk approach to deliver growth in
revenues and enhanced operating margins.
We continue to target strategic markets and customers in growth sectors that
have high barriers to entry and require accreditation or long-standing
credibility where our engineering expertise and specialist skills are valued.
By focusing on these value-added opportunities, we are aiming to continue to
enhance operating margins by 2030 to 12%.
We are pleased with the progress we have made over the last 12 months in
delivering on our 2030 strategy. Our 2030 strategy continues to build on the
following four pillars to drive growth:
1. Talent development embedding our ESG values
2. Broadening our complementary product and technology portfolio
3. Development of our "own brand" components, systems and power offering
securing recurring revenue
4. Internationalisation of the Group
The following key milestones represent important steps in the delivery of our
strategy and are cornerstones that our 2030 plans and ambitions will continue
to build on:
• Investment in a new production facility in Tewkesbury to support
our recently formed Integrated Systems business unit
• The Weymouth electro-optical component manufacturing facility has
been certified to ISO13485 for the design and manufacture of medical devices
• Rebranding of the Group including the roll out of the new "Solsta"
Brand for our components division
Our markets and business development
The Security & Defence market has been a key driver of growth for the
Group this year, owing to the continued increase in Government spending driven
by the geo-political environment. Group revenue in this sector contributed to
44% of FY24 (2023: circa 19%). The business has successfully positioned itself
in the market as a leading provider with Tier 1 and Tier 2 customers having
been established in this sector now for over five decades. The Executive Board
are focusing on developing counterweight markets to Defence & Security
over our strategy horizon to 2030, especially in Medical Technology. This
sector exhibits many of the characteristics the Group is familiar navigating,
such as high barriers to entry, accreditations and development of know how.
Planned further growth in the Medical market will be achieved through a
combination of organic initiatives and assuming suitable targets can be found
through acquisition.
The Group will use this platform to focus on securing higher-value,
longer-term projects that benefit from our increasing engineering value-added
capabilities.
The medical industry has continued to be strong for the Group this year, with
10% of the revenue for FY24 contributed by this market. Our relationship with
Tier 1 customers, such as Siemens Healthcare, and the Group achieving ISO13485
certification at our Weymouth component manufacturing facility, is
contributing to the success of the Group in this market.
The Group, in common with our peer group, has seen a softening in the
industrial sector. Our diversity of product range however (components,
systems, power), with a focus on structural growth markets and our wide
customer base in over 50 countries serves to validate the resilience of the
group.
The exciting progress and opportunities for mid-term strategic partnerships
with our Tier 1 customers provide solid commercial foundations for the next
phase of the Group's organic investment and growth plans as the Board looks to
deliver on Solid State's 2030 strategy.
Outlook
The Group has secured exciting mid-term opportunities with multiple Tier 1
Security & Defence customers, anchored by a key customer, for which Solid
State is investing in expanding its "Integrated Systems" production
capabilities. In addition to this, in FY25, we expect to invest in developing
the sales channel for the Group's own brand (Durakool, Antenna and Optical)
products. The combination of these investments will be a cornerstone of
driving mid-term operating margin enhancement and organic growth for the
Group.
The Board is pleased with the ongoing delivery of Solid State's growth
strategy where the business benefits from the diversity of markets that are
adopting its technology, which continues to give the Group resilience. The
exciting progress and opportunities for mid-term strategic partnerships with
our Tier 1 customers provides solid commercial foundations for the next phase
of the Group's organic investment and growth plans as the Board looks to
deliver on Solid State's 2030 strategy.
During Q1, order intake has stabilised with the open orderbook levels returned
to historically normal levels. The Group has maintained a strong orderbook
with our open orders being £89.2m at 31 May 2024, reflecting a small increase
from year end.
The de-stocking has continued with Industrial demand in Q1 continuing to be
slow; however, the design-in activity across our target markets remain strong
and we have a number of exciting opportunities that will underpin our mid-term
growth.
Trading in FY24/25 is not expected to be first-half weighted as it was in
FY23/24. However, pleasingly, year-to-date trading has been broadly in line
with management expectations, which supports management confidence over the
full year expectations.
Gary Marsh
Chief Executive Officer
Chief Financial Officer's Review
Revenues
Group revenues of £163.3m (2023: £126.5m) are up 29%. The impact of currency
has been a revenue headwind of circa £5.3m with the average USD rate for the
year being $1.26:£1 (FY23: $1.20:£1), offset by a full year of Custom Power,
which means like-for-like organic revenue growth is in excess of 25%. This
reflects the benefit of the Systems revenue initially expected to be delivered
in FY25 as noted below.
The Systems division reported revenue of £103.5m (2023: £57.5m), meaning
constant currency like-for-like revenue growth is more than 65%. This
exceptional growth has primarily been driven by customer demand for our
communications products, where we saw strong deliveries in both the first half
and late in the year where we delivered circa £10m of product in March FY24
as reported in our trading update.
The Components division achieved revenues of £59.8m (2023: £69.0m)
reflecting the impact of the currency headwinds combined with the unwind of
the industrial stocking which benefitted FY23. The ongoing work securing new
design-ins, combined with the open orderbook, provides confidence that the
underlying growth drivers remain and mid-term prospects are robust, although,
as previously reported, the impact of destocking is continuing as we enter
FY25.
Gross profit
Reported gross profits of £51.8m (2023: £39.7m) are up 30.5%, £12.1m year
on year. The gross margin percentage is broadly stable at 31.7% (2023: 31.4%).
Adjusted gross profit for the year is up £12.0m to £51.8m (2023: £39.7m).
In managing foreign exchange risk, we look to mitigate exposure by quoting in
the currency of main supply when possible. The Group benefits from being
largely naturally hedged against foreign exchange movements at a gross margin
level. In the current year, the revenue headwind results in a margin
percentage tailwind of circa 1%. This, combined with the higher margin Systems
revenue increase from 45% in FY23 to 63% in FY24 as a proportion of the Group
revenue, offsets the dilution of underlying margins within both divisions.
Systems contributed gross margin of £38.9m (2023: £22.2m), reflecting the
impact of the strong radio communications products revenue. The high
proportion of this revenue diluted the overall margin % by circa 1.1% in the
Systems Division, albeit the margins remain strong.
Components contributed adjusted gross profit of £12.9m (2023: £17.5m). The
margin % is down circa 3.8% as a result of £1.0m of additional costs arising
from an increase in stock provisioning and stock write-offs following closure
of the legacy USA production line, combined with a weaker revenue mix in the
year.
Sales, general and administration expenses
Sales, general and administration ("SG&A") expenses increased to £38.1m
(2023: £30.3m). Within SG&A, there were reorganisation,
acquisition-related and share-based payments charges totalling £3.4m (2023:
£2.1m). These items have been added back in reporting our adjusted
performance (see Note 30) and are made up as follows:
• £0.0m (2023: £0.3m credit) from the Active Silicon earn-out
provision true up
• £0.7m (2023: £0.3m) in relation to acquisition fair value
adjustments, reorganisation and deal costs
• £1.8m (2023: £1.6m) amortisation of IFRS3 acquisition
intangibles
• £0.8m (2023: £0.6m) share-based payments charge
• £0.0m (2023: £0.1m) Imputed interest charges
Adjusted SG&A expenses on an underlying basis increased by £6.7m to
£34.8m (2023: £28.1m).
This reflects non-recurring costs of circa £1.0m in relation to the closure
of the AEC production lines where legacy end-of-life devices have been
migrated to modern technology solutions.
The full year impact of Custom Power (adding circa £2.0m) and the remaining
increase of circa £3.9m reflects the impact of inflation and our planned
investment to attract new, and retain our existing, talent as we look to
enhance our technical expertise and deliver growth.
Operating profit
Adjusted operating margins increased to 10.4% (2023: 9.2%) with adjusted
operating profit up to £17.0m (2023: £11.6m) reflecting the benefit of the
revenue growth in the period and the associated operational gearing as well as
the benefit of the increased RDEC tax credit within operating profit rather
than the tax line.
Reported operating profit was up 45.7% to £13.7m (2023: £9.4m). The
adjustments to operating profit are set out in further detail in Note 30.
Based on the simplified R&D regulations, the Group is now a large company
in terms of the classifications for UK R&D tax benefits. Under the updated
large company scheme, we have recognised £0.28m (2023: £0.29m) within
operating profit in respect of an R&D expenditure credit ("RDEC"). These
development programmes are a cornerstone of the Group's future
high-value-added revenue streams.
Profit before tax
Adjusted profit before tax was up 44.4% to £15.6m (2023: £10.8m). Profit
before tax was up 45.2% to £12.2m (2023: £8.4m). This is reported after
adjusting items totalling £3.4m (2023: £2.4m) of which £Nil (2023: £0.1m)
is charged to cost of sales and the balance is within SG&A and interest
set out above.
Profit after tax
The Group's underlying effective tax rate for the year is 25% (2023: 21%)
compared to the standard rate of 25% (2023: 19%) in the UK.
The effective tax rate has increased primarily because of two factors: the
RDEC tax credit recognised within other income and an increase in taxable
profit diluting the benefits of R&D tax credits.
Adjusted profit after tax was up 36.0% to £11.7m (2023: £8.6m). Profit after
tax was up 32.8% to £8.9m (2023: £6.7m).
The corporation tax rate in FY24/25 is currently expected to remain at 25%,
albeit post the election in the coming days this may well change for future
periods.
EPS
Adjusted fully diluted earnings per share for the year ended 31 March 2024 is
up 23.7% to 99.8p (2023: 80.7p). Reported fully diluted earnings per share is
up 20.4% to 76.0p (2023: 63.1p).
Dividend
The Board is proposing a final dividend of 14.5p (2023: 13.5p) for approval at
the Annual General Meeting, giving a full year dividend of 21.5p (2023:
20.00p) as set out in the Chairman's statement.
Cash flow from operations
The strong close to the year with the shipment of communications products has
resulted in a significant increase in trade receivables offset, in part, by
the reduction in inventory. When this is combined with the reduction in trade
payables it results in a working capital outflow for the year of £5.6m. This
results in a full year cash inflow from operations of £14.3m (2023: £9.4m).
The adjusted operating cash conversion percentage (cash generated from
operations/adjusted operating profit) for the full year is 84% (2023: 81%).
The increase in receivables and reduction in inventories and payables reflects
a relatively short-term investment due to the significant shipments at the end
of the year. Post year end, we have seen a working capital unwind of circa
£4.5m.
During the period, we paid taxes of £3.3m (2023: £0.4m) as a result of
settling last year's corporation tax liabilities combined with the additional
profitability moving some of our Group entities into the very large company
scheme, which requires us to make accelerated payments on account during the
year.
Investing activities
During the year, the Group invested £1.5m (2023: £1.1m) in property, plant
and equipment, and £1.3m (2023: £1.2m) in software and R&D intangibles.
The Group's capital expenditure programme saw an increase in the Systems
R&D investment, finalising the upgrade to our UK Power facility and
continuing to enhance our test and measurement capabilities.
In the Components division, there was continued investment to integrate the
Willow businesses and roll out consistent software systems. Furthermore,
across the Group, we have continued our programme to replace older vehicles
with hybrid and electric models.
There are capital commitments of £0.0m (2023: £0.2m) at the balance sheet
date; however, post year end we are in the process of investing circa £1.0m
to £1.5m in setting up a new site for our integrated systems team near
Tewkesbury.
In the first half of the year, we settled the outstanding deferred and
contingent consideration liabilities of £5.5m in relation to Active Silicon
and Custom Power in full. A reconciliation of deferred contingent
considerations of £Nil (2023: £5.7m) is included in Note 21.
Financing activities
The Group received proceeds for issuances of £0.1m (2023: £27.0m) and paid
out £Nil (2022: £0.1m) for purchase of own shares into treasury.
The financing activities reflect loans drawn down of £2.1m of our
multi-currency overdraft, offset by loan repayments of £3.7m, which includes
the four quarterly repayments on the term loan totalling £1.3m plus the
repayment in full of the RCF totalling £2.4m.
Solid State continues to have a strong relationship with Lloyds Bank. Lloyds
authorised a $6m additional working capital short-term overdraft subsequent to
year end, ensuring the Group has facility headroom should there be any working
capital delays arising from the NATO contracts previously announced, which was
not utilised. Furthermore, Lloyds have extended the term of the £10.0m (2023:
£7.5m) Revolving Credit Facility ("RCF"), which is now committed until 30
November 2025. At 31 March 2024, the RCF was not drawn (2023: £2.4m drawn).
Interest charges in the period totalled £1.3m (2023: £0.9m) reflecting the
higher interest rates during the year.
The Group has entered or extended leases during the period, which has resulted
in the recognition of £2.7m (2023: £0.1m) 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 £1.2m
(2023: £1.1m).
In the second half of the year, the Group bought out the non-controlling
interest in eTech Developments limited for £0.2m making this operation wholly
owned by the Group. Post year end, this has enabled the Power engineering team
to be brought together under the rebranded Custom Power UK Brand.
The Group continued to maintain its progressive dividend policy, which
resulted in payments of £2.3m (2023: £2.2m) in respect of dividends.
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 £64.6m (2023: £58.0m),
primarily reflecting the £8.9m income for the year, less £0.7m foreign
exchange less £2.3m dividends paid plus the share-based payments credit of
£0.8m.
As a result of the customer demand for our communications products, which we
were able to fulfil at the end of the year, the Group inventory has reduced to
£25.1m (2023: £33.2m); however, trade and other receivables increased to
£31.5m (2023: £19.7m).
As previously reported, the Group continues to pay suppliers on a proforma
basis where required to secure inventory in short supply; however, the
strength of customer and supplier relationships has helped us to manage the
cash challenges of the working capital investment effectively.
We have worked in partnership with customers who have, in many cases, made
payments in advance to secure supply. The investment to secure product
continues to be critical to manage the shortages ensuring product is available
to fulfil customer demand. This approach has given us a competitive advantage,
strengthened customer relationships and helped to secure growth.
Excluding deferred contingent considerations and IFRS16 lease obligations, the
Group had a net debt position with banks of £4.7m at the year end (2023:
£2.4m) having paid the final £5.5m of consideration for the acquisitions of
Custom Power and Active Silicon. At 31 March 2024, the discounted fair value
of the Group's deferred consideration liabilities were £Nil (2023: £5.7m).
Therefore, the total year-end net debt* reduced by £3.4m at £4.7m (2023:
£8.1m).
Following our prior year results, we have aligned our definitions of "Return
on Equity" (ROE***) and "Return on Capital Employed" (RoCE**) with industry
peers.
Pleasingly, both metrics have shown good progress in the year with the
improved profitability of the Group.
Peter James
Chief Financial Officer
* including deferred consideration excluding right-of-use lease
liabilities.
** defined as adjusted operating profit divided by average capital
employed which is calculated as average net assets less net debt for the last
two periods.
*** defined as reported profit after tax divided by total equity.
Consolidated statement of comprehensive income
For the year ended 31 March 2024
Note 2024 2023
£'000 £'000
Revenue 3, 31 163,303 126,503
Cost of sales (111,476) (86,829)
Gross profit 51,827 39,674
Sales, general and administration expenses (38,149) (30,266)
Operating profit 4 13,678 9,408
Finance costs 6 (1,491) (972)
Profit before taxation 12,187 8,436
Tax expense 7 (3,281) (1,746)
Adjusted profit after taxation 11,680 8,553
Adjustments to profit after taxation 30 (2,774) (1,863)
Profit after taxation 8,906 6,690
Profit attributable to equity holders of the Parent 8,872 6,693
Profit/ (loss) attributable to non-controlling interests 34 (3)
Items that may be reclassified to profit and loss
Other comprehensive loss - FX on overseas operations (679) (869)
Other comprehensive loss - taxation 7 - (94)
Adjusted total comprehensive income 11,001 7,684
Adjustments to total comprehensive income 30 (2,774) (1,957)
Total comprehensive income for the year 8,227 5,727
Comprehensive income attributable to equity holders of the Parent 8,193 5,730
Comprehensive income/(loss) attributable to non-controlling interests 34 (3)
Earnings per share 2024 2023
Basic EPS from profit for the year 8 78.0p 64.5p
Diluted EPS from profit for the year 8 76.0p 63.1p
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.
Consolidated statement of changes in equity
For the year ended 31 March 2024
Share Share Foreign Other Retained Shares Total Non-controlling interests Total
Capital Premium Exchange Reserves Earnings held in £'000 £'000 Equity
£'000 Reserve Reserve £'000 £'000 Treasury £'000
£'000 £'000 £'000
Balance at 31 March 2023 567 30,474 (836) 5 27,805 (108) 57,907 47 57,954
Issue of new shares 2 107 - - - - 109 - 109
Share-based payment credit - - - - 803 - 803 - 803
Transfer of treasury shares to AESP - - - - (72) 72 - - -
Dividends - - - - (2,322) - (2,322) - (2,322)
Acquisition of non-controlling interests - - - (69) - - (69) - (69)
Transactions with non-controlling interests - - - - - - - (81) (81)
Transactions with owners in their capacity as owners 2 107 - (69) (1,591) 72 (1,479) (81) (1,560)
Result for the year ended 31 March 2024 - - - - 8,872 - 8,872 34 8,906
Foreign Exchange via OCI - - (679) - - - (679) - (679)
Total comprehensive income - - (679) - 8,872 - 8,193 34 8,227
Purchase of treasury shares - - - - - (1) (1) - (1)
Balance at 31 March 2024 569 30,581 (1,515) (64) 35,086 (37) 64,620 - 64,620
For the year ended 31 March 2023
Share Share Foreign Other Retained Shares Total Non-controlling interests Total
Capital Premium Exchange Reserves Earnings held in £'000 £'000 Equity
£'000 Reserve Reserve £'000 £'000 Treasury £'000
£'000 £'000 £'000
Balance at 31 March 2022 428 3,625 33 5 23,042 (57) 27,076 - 27,076
Issue of new shares 139 26,849 - - - - 26,988 - 26,988
Share-based payment credit - - - - 551 - 551 - 551
Transfer of treasury shares to AESP - - - - (152) 152 - - -
Dividends - - - - (2,235) - (2,235) - (2,235)
Transactions with non-controlling interests - - - - - - - 50 50
Transactions with owners in their capacity as owners 139 26,849 - - (1,836) 152 25,304 50 25,354
Result for the year ended 31 March 2023 - - - - 6,693 - 6,693 (3) 6,690
Other comprehensive income - - (869) - (94) - (963) - (963)
Total comprehensive income - - (869) - 6,599 - 5,730 (3) 5,727
Purchase of treasury shares - - - - - (203) (203) - (203)
Balance at 31 March 2023 567 30,474 (836) 5 27,805 (108) 57,907 47 57,954
Consolidated statement of financial position
As at 31 March 2024
Note 2024 2023
£'000 £'000
Assets
Non-current assets
Intangible assets 12 40,109 41,563
Property, plant and equipment 10 4,229 4,718
Right-of-use lease assets 11 3,586 1,981
Deferred tax asset 23 605 375
Total non-current assets 48,529 48,637
Current assets
Inventories 15 25,084 33,228
Trade and other receivables 16 31,524 19,699
Cash and cash equivalents - on deposit 22 - 4,032
Cash and cash equivalents - available on demand 22 8,445 8,192
Total current assets 65,055 65,151
Total Assets 113,584 113,788
Liabilities
Current liabilities
Trade and other payables 17 (21,644) (23,735)
Deferred and contingent consideration on acquisitions - current 17, 21, 22 - (5,679)
Current borrowings 19, 21, 22 (3,398) (1,279)
Contract liabilities 18 (6,460) (5,380)
Corporation tax liabilities (1,224) (1,110)
Right-of-use lease liabilities 20 (1,106) (1,057)
Provisions 24 (126) (323)
Total current liabilities (33,958) (38,563)
Non-current liabilities
Non-current borrowings 19, 21, 22 (9,718) (13,383)
Provisions 24 (843) (715)
Deferred tax liability 23 (1,979) (2,187)
Right-of-use lease liabilities 20 (2,466) (986)
Total non-current liabilities (15,006) (17,271)
Total liabilities (48,964) (55,834)
Total net assets 64,620 57,954
Share capital 25 569 567
Share premium reserve 26 30,581 30,474
Other Reserves 26 (64) 5
Foreign exchange reserve 26 (1,515) (836)
Retained earnings 26 35,086 27,805
Shares held in treasury 26, 27 (37) (108)
Capital and reserves attributable to equity holders of the Parent 64,620 57,907
Non-controlling interests 26 - 47
Total Equity 64,620 57,954
The financial statements were approved by the Board of Directors and
authorised for issue on 5 July 2024 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 2024
2024 2023
Note £'000 £'000 £'000 £'000
Operating activities
Profit before taxation 12,187 8,436
Adjustments for:
Property, plant and equipment depreciation and impairment 2,069 1,159
Right-of-use asset depreciation 1,040 965
Amortisation of intangible assets 2,281 2,035
Profit on disposal of property, plant and equipment (1) (45)
Share-based payment expense 803 551
Finance costs 1,491 972
Decrease in deferred contingent consideration (21) (326)
Profit from operations before changes in working capital and provisions 19,849 13,747
Decrease/ (increase) in inventories 8,078 (12,457)
(Increase)/ decrease in trade and other receivables (12,175) 1,767
(Decrease)/ increase in trade and other payables (1,231) 6,380
Decrease in provisions (248) -
(5,576) (4,310)
Cash generated from operations 14,273 9,437
Income taxes paid (3,331) (573)
Income taxes received 9 184
Total taxes paid 7 (3,322) (389)
Net cash inflow from operating activities 10,951 9,048
Investing activities
Purchase of property, plant and equipment (1,524) (1,145)
Capitalised own costs and purchase of intangible assets (1,312) (1,197)
Proceeds of sales from property, plant and equipment 161 153
Settlement of deferred consideration in respect of prior year acquisitions 22 (5,535) (4,625)
Payments for acquisition of subsidiaries net of cash acquired - (28,662)
Net cash outflow from investing activities (8,210) (35,476)
Financing activities
Proceeds from issue of ordinary shares 109 26,988
Repurchase of ordinary shares into treasury (1) (203)
Borrowings drawn 22 2,126 15,872
Borrowings repaid 22 (3,742) (2,772)
Principal payment obligations for right-of-use assets (1,230) (1,093)
Interest paid (1,282) (865)
Transactions with non-controlling interests (150) 50
Dividend paid to equity shareholders 9 (2,322) (2,235)
Net cash (outflow)/ inflow from financing activities (6,492) 35,742
(Decrease)/ increase in cash and cash equivalents 22 (3,751) 9,314
2024 2023
£'000 £'000
Translational foreign exchange on opening cash (28) (14)
Net (decrease)/ increase in cash (3,751) 9,314
Cash at beginning of year 12,224 2,924
Cash at end of year 8,445 12,224
There were no significant non-cash transactions. Cash and cash equivalents
comprise:
2024 2023
£'000 £'000
Cash available on demand 8,445 8,192
Overdraft facility (2,056) -
Cash on deposit - 4,032
Net cash and cash equivalents 6,389 12,224
Notes:
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.
These financial statements have been prepared in accordance with UK adopted
International Accounting Standards in conformity with the requirements of the
Companies Act 2006.
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 2024, the Directors have
considered the Group's cash flows, liquidity and business activities.
At 31 March 2024, the Group has net debt (excluding IFRS16) of £4.7m.
Furthermore, the Group has a £10.0m revolving credit facility, which was not
drawn at the year end.
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.
In preparing the going concern assessment, the Directors considered the
principal risks and uncertainties that the business faced.
The Directors have prepared a base case and a severe downside scenario, taking
account of the results to date, current expected demand, and mitigating
actions that could be taken, together with an assessment of the liquidity
headroom against the cash and bank facilities. The bank facilities are subject
to financial covenants; therefore, in evaluating a stressed forecast, the
Board only included the RCF in the headroom to the extent it is available
within the covenants.
This financial modelling is based a period to 30 September 2025, which has
been prepared based on an extension of the budget for FY24/25.
In preparing a severe downside scenario, it assumes a shortfall in Group
revenue of ~20% over a 12-month period and a 3% margin erosion with limited
cost mitigation, resulting in EBITDA reducing by ~60% compared to the Board's
base case expectations. Even with this level of reduction to Group EBITDA,
when combined with the mitigating actions that are within the Group's control,
the Group would fully comply with covenants and maintains sufficient liquidity
to meet its liabilities as they fall due.
The Directors have concluded that the likelihood of a scenario whereby the
covenant headroom is exhausted is remote and therefore there are no material
uncertainties 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 forecast level of future financial performance.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the next 15 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 1 April
2023:
· Amendments to IAS 1 and IFRS Practice Statement 2, 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, and Pillar Two model rules effective for annual reporting periods beginning on, or after, 1 January 2023
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
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for the 31 March
2024 reporting period and have not been early adopted by the Group, are listed
below. None of these are expected to have a material impact on the Group's
financial results in the current or future reporting periods. The Group
intends to adopt these standards considered relevant when they become
effective.
· Amendments to IAS 1 and IFRS Practice Statement 2, regarding the classification of liabilities and non-current liabilities with covenants effective for annual reporting periods beginning on, or after, 1 January 2024
· Amendments to IFRS 16 regarding lease liabilities in a Sale and Leaseback arrangement, effective for annual reporting periods beginning on, or after, 1 January 2024
· Amendments to IAS 7 and IFRS 7, regarding supplier finance arrangements, effective for annual reporting periods beginning on, or after, 1 January 2024
· IFRS 18 issued in April 2024 to replace IAS1, regarding presentation and disclosure in financial statements, effective for annual reporting periods beginning on, or after, 1 January 2027
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.
Business combinations
Non-controlling interests in the results and equity of subsidiaries are shown
separately in the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of
financial position respectively.
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, the 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 that 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 is,
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 it relates. Any impairment identified is charged directly to the
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.
• 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,
typically ranging between one and five 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 three to five 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 IFRS3 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, five to ten years. This includes the open orderbook,
brand and customer relationships, the fair value of which are evaluated using
the multi-period excess earnings method ("MEEM").
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 five and ten 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 IFRS1 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 three-to-five 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
IFRS16 "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 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 statement
of financial position.
Impairment of financial assets
IFRS9 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 ageing 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").
Any contingent consideration due in relation to acquisitions is measured at
FVTPL with all other financial liabilities measured at amortised cost and
include:
• Trade and other payables
• Contract liabilities
• Borrowings
• Lease liabilities
• Deferred consideration for acquisitions
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 non-current 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
Non-recurring 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.
Certain contracts contain distinct performance obligations, each of which
transfers control of goods or services to the customer. Where such distinct
performance obligations are present, revenue is recognised on each element in
accordance with the policy on the sale of goods. The service element of the
contract is usually insignificant in relation to the total contract value and
revenue is recognised when the service is complete.
Where this is not the case, revenue is recognised in proportion to the stage
of completion of the contract at the balance sheet date, where the terms of
the contract allow an invoicing, including a reasonable margin, in the event
of customer cancellation. The stage of completion is assessed by reference to
the contractual performance obligations with each separate customer and the
costs incurred on the contract to date in comparison to the total forecast
costs of the contract. Revenue recognition commences only when the outcome of
the contract can be reliably measured.
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.
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 statement of financial position 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 statement of financial position
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 and relevant legislation. This note provides an overview of the areas
that involved a higher degree of judgement or estimation complexity as noted,
and of items that are more likely to be materially adjusted due to assumptions
driving the estimates or judgements turning out to be wrong.
Provisions for slow-moving or obsolete inventories (estimation)
Inventories are carried at the lower of cost and net realisable value ("NRV").
NRV is reviewed in detail on an ongoing 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 prior financial year to mitigate the challenge
presented by market component shortages which were widespread in 2023. 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. In Note 15 we provide details of the
inventory provisions and the amounts written off to the consolidated statement
of comprehensive income in the year.
While year-on-year we have seen a significant decrease in the inventory values
held, there is a risk of the remaining inventory becoming excess or obsolete.
The absolute provisions have fallen £0.9m reflecting the utilisation of the
provision as we ceased the legacy US production the overall percentage of
gross stock provided for has increased 1%.
Expected credit losses (estimation)
In accordance with IFRS 9, the Group is required to assess the expected credit
loss occurring over the life of its trade receivables. The Directors recognise
that the risk of credit default continues to be higher than historical norms
as the Group's receivables increase; however, the Group has experienced no
material credit losses in the reported period after careful credit management.
As a result, the Directors have made a judgemental assessment of the potential
credit losses in the current business environment. This includes the forward
assessment of ongoing component shortages, where customers could suffer
adverse cash flow.
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 a £0.4m increase to the overall
figure from 2023 as a result of a deterioration of the aging of receivables.
If the Group were to provide for all debt that is overdue according to agreed
credit terms, the recognised provision would increase by £1.5m to £2.6m.
Estimated useful life of intangible assets arising on acquisitions
(estimation)
The periods of amortisation adopted to write down intangible assets arising on
acquisitions (Note 12) requires estimates to be made in respect of the useful
economic lives of the intangible assets to determine an appropriate
amortisation rate.
Intangible assets arising on acquisitions are amortised on a straight-line
basis over the period during which economic benefits are expected to be
received, which is, typically, five to ten years.
The amortisation charge for intangible assets arising on acquisitions is
£1.8m; if the remaining useful economic lives of the acquired assets were
limited to 5 years the charge would increase by £0.6m.
Level of R&D expenditure that is eligible for R&D tax credits
(judgement)
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 (Note 7).
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 the revised R&D tax credit scheme
as the detailed tax computations have not been completed. The assumption
reflects that the level of R&D spend is comparable with the prior year
submitted R&D claims. The result of this is an RDEC credit of £0.3m
(2023: £0.3m) which has been recognised in Other Income.
Our estimated taxation exposure at year end assumed that the level of eligible
R&D spend was comparable with prior years. At 31 March 2024, there are net
current and deferred tax provisions totalling, approximately, £2.5m (2023:
£2.9m).
Due to the uncertainties noted above, it is possible that the Group's initial
R&D position is different to the final position adopted when the tax
computation is finalised, resulting in a different tax payable or recoverable
from the amounts provided.
Recognition criteria for capitalisation of development expenditure (judgement)
The Group capitalises R&D in accordance with IAS 38 (Note 12). There is
judgement in respect of when (or if) 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 that are directly attributable to the development programme.
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.
Revenue recognition on customer contracts spanning financial periods (estimate
and judgement)
The Group continues to enter into a higher volume of contracts with customers
that require judgement on appropriate milestones to recognise the related
revenue in accordance with IFRS 15. This has partially driven the £1.1m
(2023: £1.9m) increase in contract liabilities (Note 18) in the financial
year.
Key judgements can include the timing of the transfer of ownership of
inventory to the customer under bill-and-hold arrangements as well as the
determination of the appropriate contractual milestones and whether the
criteria have been met to recognise revenue. A further area of judgement is
whether revenue can be recognised on a costs incurred to date basis, plus a
reasonable margin to support revenue recognition over time. To apply a
percentage of completion methodology requires a reasonable estimation of the
total expected costs to complete and the contractual ability to recover the
costs to date plus a margin in the event of customer cancellation.
For material contracts that involve a significant level of judgement,
management from various business areas will document and communicate the key
judgement areas regarding ownership obligations, contractual commitments, and
any other relevant inputs to result in the recognition of revenue to the Audit
Committee to ensure this judgement is appropriately reviewed and challenged.
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:
2024 2023
£'000 £'000
Geography
United Kingdom 69,921 71,649
Rest of Europe 55,360 18,202
Asia 8,759 8,811
North America 28,667 27,205
Rest of World 596 636
Total revenue 163,303 126,503
Product
Computing products 21,740 21,718
Communications products 53,530 11,005
Power products 28,120 24,789
Opto electronic and electronic components and modules 59,913 68,991
163,303 126,503
See further segmental disclosures in Note 31.
4. Operating profit
This has been arrived at after charging/(crediting):
2024 2023
£'000 £'000
Staff costs excluding share-based payments (see Note 5) 28,714 23,681
Share-based payment expenses 803 551
Depreciation of property, plant and equipment 1,581 1,159
Depreciation of right-of-use asset 1,040 965
Amortisation of intangible assets 2,281 2,035
(Profit)/loss on disposal of property, plant and equipment (1) (45)
Auditors' remuneration - audit fees 247 245
Research and development costs (includes relevant staff costs) 2,530 2,190
RDEC Credit (277) (285)
Foreign exchange expense 191 269
Stock write downs (see Note 15) 2,049 777
Acquisition of subsidiaries legal and due diligence 78 234
Other income from government grants - (14)
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.
5. Staff costs
Staff costs for all employees during the year, including the Executive
Directors, were as follows:
2024 2023
£'000 £'000
Wages and salaries 24,485 20,173
Social security costs 2,331 2,147
Pension costs 1,898 1,361
Share-based payment charges 803 551
Total staff costs 29,517 24,232
Wages and salaries include termination costs of £375k (2023: £45k).
The average monthly number of employees during the year, including the
Executive Directors, was as follows:
2024 2023
Number Number
Selling and distribution 158 136
Manufacturing and assembly 176 167
Management and administration 99 101
433 404
As the Group grows, we continue to invest in and develop the senior leadership
team, that are considered to be key management personnel. This is a change
from the previous year due to the establishment of the Executive Board in 2024
and results in a streamlined assessment based on the revised Governance
structure. Comparatives for 2023 have been presented for reference under the
new basis of assessment.
This senior leadership team includes the Executive Directors. The key
management team and their total compensation, including employer's NI, totals
£2,436k (2023 on new basis: £1,881k; 2023 as disclosed: £4,075k). The
amount charged in respect of share-based payments for key management personnel
is £540k (2023 on new basis: £392k; 2023 as disclosed: £382k). The amount
charged in respect of defined contribution pension payments for key management
personnel is £56k (2023: £10k; 2023 as disclosed: £143k). Retirement
benefits are accruing to 4 Directors under money purchase schemes (2023: 4).
6. Finance costs
2024 2023
£'000 £'000
Bank borrowings 1,317 790
Interest on lease liabilities 139 46
Imputed interest 35 136
Total finance costs 1,491 972
7. Tax expense
2024 2023
£'000 £'000
Analysis of total tax expense
Total tax charge 3,281 1,840
3,281 1,840
Current tax expense
Group corporation tax on profits for the year 3,795 1,537
Adjustment in respect of prior periods (80) (283)
3,715 1,254
Deferred tax expense
Deferred tax expense (credited)/ charged to income statement (190) 398
Adjustment in respect of prior periods (244) 94
(434) 492
Total tax charge to income statement 3,281 1,746
Deferred tax expense charged to other comprehensive income - 94
Total tax charge to comprehensive income 3,281 1,840
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:
2024 2023
£'000 £'000
Profit before tax 12,187 8,436
Expected tax charge based on the standard rate of corporation tax in the UK of 3,047 1,603
25% (2023: 19%)
Effect of:
Expenses not deductible for tax purposes 137 101
Non-taxable credit (69) (62)
Difference between depreciation/amortisation for the year and capital - 115
allowances
Tax difference in relation to share options (30) 15
Research & Development - 143
Taxation difference in respect of intangibles on acquisition - (14)
Tax losses recognised/(utilised) - 78
Unrecognised tax losses 513 -
Adjustments in respect of prior years (324) (189)
Overseas tax rate differences - 56
Foreign exchange 7 (6)
Total tax charge 3,281 1,840
The UK corporation tax rate is 25%, effective from 1 April 2023 (2023: 19%).
The deferred tax liabilities and assets on 31 March 2024 and comparative
figures from 31 March 2023 have been calculated based on the 25% rate.
R&D tax credits
The Group recognised a credit of £277k (2023: £285k) within other income in
relation to claims made under the Research & Development expenditure
credit scheme ("RDEC").
8. Earnings per share
The earnings per share is based on the following:
2024 2023
£'000 £'000
Adjusted earnings post tax attributable to equity holders of the parent 11,646(1) 8,556(2)
Earnings post tax attributable to equity holders of the parent 8,872 6,693
Weighted average number of shares 11,372,709 10,374,314
Diluted number of shares 11,667,041 10,604,768
Reported EPS
Basic EPS from profit for the year 78.0p 64.5p
Diluted EPS from profit for the year 76.0p 63.1p
Adjusted EPS
Adjusted Basic EPS from profit for the year 102.4p 82.5p
Adjusted Diluted EPS from profit for the year 99.8p 80.7p
1 Calculated as Adjusted profit after taxation (£11,680k) excluding the
non-controlling interest profit (£34k)
2 Calculated as Adjusted profit after taxation (£8,553k) excluding
non-controlling interest loss (£(3)k)
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 11,372,709 (2023: 10,374,314) net of the treasury
shares disclosed in Note 27. The post tax earnings are attributable to
shareholders of Solid State PLC excluding Non-controlling interests.
The diluted earnings per share is based on 11,667,041 (2023: 10,604,768)
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 30.
9. Dividends
2024 2023
£'000 £'000
Prior year final dividend paid of 13.5p per share (2023: 13.25p) 1,529 1,500
Current year interim dividend paid of 7p per share (2023: 6.5p) 794 736
Cancelled dividends on shares held in treasury (1) (1)
2,322 2,235
Final dividend proposed for the year 14.5p per share (2023: 13.5p) 1,650 1,528
The proposed final dividend has not been accrued for as the dividend will be
approved by the shareholders at the Annual General Meeting. Subject to
approval, the ex-dividend date will be 5 September 2024 with the cash payment
date 27 September 2024.
10. Property, plant and equipment
Year ended 31 March 2024 Land and Buildings Short Motor Vehicles Fittings, Equipment and Computers Total
£'000 Leasehold Property Improvements £'000 £'000 £'000
£'000
Cost
1 April 2023 496 2,071 997 6,179 9,743
Foreign exchange (8) (2) - (22) (32)
Additions - 627 245 830 1,702
Disposals - (1) (51) (524) (576)
31 March 2024 488 2,695 1,191 6,463 10,837
Depreciation and impairment
1 April 2023 - 1,172 385 3,468 5,025
Foreign exchange - - - (8) (8)
Charge - 335 167 1,079 1,581
Impairment 488 - - - 488
Disposals - - (42) (436) (478)
31 March 2024 488 1,507 510 4,103 6,608
Net book value
31 March 2024 - 1,188 681 2,360 4,229
Year ended 31 March 2023 Land and Buildings Short Motor Vehicles Fittings, Equipment and Computers Total
£'000 Leasehold Property Improvements £'000 £'000 £'000
£'000
Cost
1 April 2022 466 1,976 773 4,169 7,384
Foreign exchange 30 1 - (33) (2)
Additions - 94 308 1,113 1,515
Acquisitions - - - 991 991
Disposals - - (84) (61) (145)
31 March 2023 496 2,071 997 6,179 9,743
Depreciation and impairment
1 April 2022 - 987 308 2,675 3,970
Foreign exchange - - - (11) (11)
Charge - 164 151 844 1,159
Impairment - - - - -
Disposals - 21 (74) (40) (93)
31 March 2023 - 1,172 385 3,468 5,025
Net book value
31 March 2023 496 899 612 2,711 4,718
11. Right-of-use lease assets
Year ended 31 March 2024 Land and Buildings Motor Vehicles/Other Total
£'000 £'000 £'000
Cost
1 April 2023 4,775 220 4,995
Additions 2,595 59 2,654
Disposals - (17) (17)
Foreign exchange (9) - (9)
31 March 2024 7,361 262 7,623
Depreciation
1 April 2023 2,851 163 3,014
Charge for the year 1,020 20 1,040
Disposals - (17) (17)
31 March 2024 3,871 166 4,037
NBV
1 April 2023 1,924 57 1,981
31 March 2024 3,490 96 3,586
Year ended 31 March 2023 Land and Buildings Motor Vehicles/Other Total
£'000 £'000 £'000
Cost
1 April 2022 3,820 213 4,033
Additions 115 7 122
Acquisition additions 883 - 883
Disposals (63) - (63)
Foreign exchange 20 - 20
31 March 2023 4,775 220 4,995
Depreciation
1 April 2022 1,937 113 2,050
Charge for the year 915 50 965
Disposals (33) - (33)
Foreign exchange 32 - 32
31 March 2023 2,851 163 3,014
Net book value
31 March 2023 1,924 57 1,981
12. Intangible assets
Year ended 31 March 2024 Development costs Computer software Goodwill Acquisition intangible Assets Total
£'000 £'000 £'000 £'000 £'000
Cost
1 April 2023 2,593 1,087 29,726 15,475 48,881
Foreign exchange - (2) (315) (105) (422)
Additions 1,024 288 - - 1,312
Disposals - (103) - - (103)
31 March 2024 3,617 1,270 29,411 15,370 49,668
Amortisation
1 April 2023 1,911 455 - 4,952 7,318
Foreign exchange - 10 - (9) 1)
Charge for the year 265 197 - 1,819 2,281
Disposals - (41) - - (41)
31 March 2024 2,176 621 - 6,762 9,559
Net book value
31 March 2024 1,441 649 29,411 8,608 40,109
The cost of acquisition intangible assets includes the estimated net present
value identified on acquisition of:
• customer relationships with a net book value of £6.7m and a
remaining useful economic life between one and eight years; and
• brand with a net book value of £1.9m and a remaining useful
economic life of approx. five years.
The cost of acquisition intangible assets comprises the estimated net present
value of customer relationships, orderbook value and brand values 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 impaired.
Year ended 31 March 2023 Development Computer Goodwill Acquisition Total
costs software £'000 intangible £'000
£'000 £'000 assets
£'000
Cost
1 April 2022 1,783 724 9,898 8,781 21,186
Foreign exchange - (2) (492) (164) (658)
Additions 810 387 - - 1,197
Acquisitions - 52 20,320 6,858 27,230
Disposals - (74) - - (74)
31 March 2023 2,593 1,087 29,726 15,475 48,881
Amortisation
1 April 2022 1,583 399 - 3,373 5,355
Foreign exchange - (1) - (23) (24)
Charge for the year 328 105 - 1,602 2,035
Disposals - (48) - - (48)
31 March 2023 1,911 455 - 4,952 7,318
Net book value
31 March 2023 682 632 29,726 10,523 41,563
Cost NBV
£'000 £'000
Systems Division commercial relationships 8,664 6,017
Components Division commercial relationships 6,706 2,591
31 March 2024 15,370 8,608
13. Goodwill and impairment
Details of the carrying amount of goodwill allocated to cash-generating units
(CGUs) are as follows:
2024 2023
£'000 £'000
Systems Division - UK 3,946 3,946
Systems Division - USA 19,513 19,828
Components division 5,952 5,952
Total 29,411 29,726
The recoverable amounts of all the above groups of CGUs have been determined
from a review of the current and anticipated performance of these units using
a value-in-use calculation over a period of five years then a terminal value.
In preparing the base case projection, a pre-tax discount rate of between 11%
and 12% (2023: between 10% and 12%) was used based on the Group's estimated
weighted average cost of capital.
Future growth rates of 7.5% to 23% based on the markets and a terminal growth
rate of 2.5% (2023: 2.5%) have been assumed beyond the first year. The
projection is based on the budget approved by the Board of Directors. It has
been assumed that investment in capital equipment will equate to depreciation
over this period. The key assumptions are the growth rates and discount rates.
The recoverable amount exceeds the carrying amount for the Group by £80.5m
(2023: £141.9m) in the base case. The UK groups of CGUs have very significant
headroom (in excess of 150%) and it is not considered reasonably possible that
changes to the assumptions would trigger an impairment.
The CGU with the least headroom is the USA Systems Division, with a headroom
of £6.4m (2023: £14.5m). The goodwill associated with the USA Systems CGU is
$24.6m (2023: $24.6m) and the value in GBP recalculated at the exchange rate
at the reporting date is £19.5m (2023: £19.8m).
Given this CGU is a recent addition, a more detailed model was prepared based
on the significant growth plans for the business, with the key assumptions in
the base case reflecting a discount rate of 12% and revenue growth of 23% over
the 5 year period. An increase in the discount rate of 6% to 18% or a
reduction in the growth rate of 9% to 14% would substantially erode the
headroom. Based on this detailed assessment, the carrying value of the
goodwill is supported.
14. Subsidiaries
The subsidiaries of Solid State PLC included in these consolidated financial
statements are as follows:
Subsidiary undertakings Proportion of voting Nature of business
rights and Ordinary share capital held
Solid State Supplies Limited UK 100% Supply of electronic components
Steatite Limited UK 100% Supply of electronic components and manufacture of electronic equipment
Custom Power Holdings Inc USA 100% Holding company
Custom Power LLC(1) USA 100% Battery systems and energy solutions supplier
Solsta Holdings Inc. USA 100% Holding company
Pacer Technologies Limited(3) UK 100% Non-trading entity
Pacer Components Limited(1) UK 100% Supply of opto-electronic components
Pacer LLC(1) USA 100% Supply of opto-electronic components
Willow Technologies Limited UK 100% Supply of opto-electronic components
American Electronic Components, Inc.(1) USA 100% Supply of opto-electronic components
Active Silicon Limited UK 100% Digital image design and manufacturing
Active Silicon, Inc.(1) USA 100% Manufacturing sales facility
Solid State Supplies Electronics Limited Ireland 100% Sales office
eTech Developments Limited(2) UK 100% Engineering consultation
Custom Power Limited(3) UK 100% Non-trading entity
Creasefield Limited(3) UK 100% Non-trading entity
Q-Par Angus Limited(3) UK 100% Non-trading entity
Ginsbury Electronics Limited(3) UK 100% Non-trading entity
Wordsworth Technology Kent Limited(3) UK 100% Non-trading entity
Solsta Limited(3) UK 100% Non-trading entity
Durakool Limited(3) UK 100% Non-trading entity
1 Indirect holdings. All other holdings are direct.
2 75% owned up to 31 January 2024 when the remaining 25% non-controlling
interest was acquired by Solid State PLC.
3 The non-trading entities are exempt from filing audited accounts with
the Registrar under s479a of the Companies Act 2006.
Subsequent to the year end, two new USA holding companies were established;
Solid State US, Inc. and Steatite Systems Holdings, Inc.
Aside from the operations in the USA and Ireland identified above, the
countries of operation and of incorporation are 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
Custom Power Holdings Inc 10910 Talbert Ave, Fountain Valley, CA 92708, USA
Custom Power LLC 10910 Talbert Ave, Fountain Valley, CA 92708, USA
Solsta Holdings Inc. 1209 Orange Stret, Wilmington, County of New Castle, Delaware 19801
As set out in the Audit Committee Report, the 100% owned 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.
15. Inventories
2024 2023
£'000 £'000
Finished goods and goods for resale 21,748 30,195
Work in progress 3,336 3,033
Total inventories 25,084 33,228
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 £4.1m (2023: £5.1m).
An impairment loss of £2.0m (2023: £1.1m loss) was recognised in the cost of
sales during the year against inventory due to slow-moving and obsolete items.
£3.0m of inventory was written off against provisions held.
Inventory recognised in cost of sales during the year, as an expense, was
£105.3m (2023: £84.0m).
16. Trade and other receivables
2024 2023
£'000 £'000
Trade receivables 27,997 16,379
Other receivables 154 163
Prepayments 3,375 3,157
31526,624 19,699
An impairment loss against trade receivables of £407k (2023: credit of £77k)
was recognised within operating costs during the year.
17. Trade and other payables
Note 2024 2023
£'000 £'000
Trade payables 10,011 12,919
Other taxes and social security taxes 3,945 2,952
Other payables 322 376
Accruals 7,366 7,488
Deferred consideration on acquisitions 21 - 4,029
Contingent consideration on acquisitions 21 - 1,650
21,644 29,414
18. Contract liabilities
2024 2023
£'000 £'000
Contract liabilities 6,460 5,380
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 £2,923k (2023: £2,910k), which
was included within contract liabilities in the prior year.
19. Bank borrowings and facilities
2024 2023
£'000 £'000
Current borrowings
Bank borrowings - overdraft facility 2,056 -
Bank borrowings - term loans 1,342 1,279
Non-current borrowings
Bank borrowings 9,718 13,383
Total borrowings 13,116 14,662
2024 2023
£'000 £'000
Within one year 3,398 1,279
Between one and two years 7,734 4,958
Between two and five years 1,984 8,425
Total borrowings 13,116 14,662
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:
• The Group has a Term Loan of £6.5m entered into in August 2022 as
part of the Custom Power acquisition financing that is repayable in full in
August 2025. The Group's intention is to refinance this facility during the
next financial year. The full principal balance was utilised at year end.
• The Group also entered into a Term Loan of £6.5m in August 2022
as part of the Custom Power acquisition financing that is repayable in
quarterly tranches over a five-year period. A principal balance of £4.55m was
outstanding at year end.
• Revolving credit facility of £10.0m (2023: £7.5m) of which £Nil
(2023: £2.4m) was drawn at the balance sheet date. This facility was
committed until November 2024 and was renewed in March 2024 to a November 2025
commitment date.
• The Group has a multi-currency overdraft facility of £5.0m (2023:
£3.0m), which was utilised for £2.1m USD at year end (2023: £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.
During March 2024, the Group agreed a facility extension on the USD overdraft
facility of up to $6.0m from 1 April to 30 June 2024 in order to cover the
maximum potential impact of the NATO project's timing differences to the
cashflow. This extension was not utilised during Q1 FY25 as there were no
adverse working capital timing differences.
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
2024 2023
£'000 £'000
Current right-of-use lease liabilities 1,106 1,057
Non-current right-of-use lease liabilities 2,466 986
Total right-of-use lease liabilities 3,572 2,043
2024 2023
£'000 £'000
Within one year 1,106 1,057
Between one and two years 1,307 942
Between two and five years 1,159 44
Total right-of-use lease liabilities 3,572 2,043
Lease liabilities relate to leased properties and vehicles and an analysis of
the undiscounted maturity analysis of the remaining lease payments is
presented in Note 21.
The following is a reconciliation of the Group's lease liabilities:
2024 2023
£'000 £'000
Right-of-use lease liabilities at 1 April 2,043 2,084
Additions 2,654 123
Acquisitions - 883
Payments made (1,237) (1,026)
Discounting charge 139 46
Disposals (17) (56)
Foreign Exchange (10) (11)
Right-of-use lease liabilities at 31 March 3,572 2,043
Extension and termination options are included in a number of property leases
across the Group. Lease liabilities have been recognised up to the next lease
break point where the Group has the option to exit at that point in time. This
is re-assessed annually and when a decision has been made not to exercise a
break clause, the corresponding liability and asset are recognised
accordingly.
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 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.
The acquisition of Custom Power and the related draw-down of additional
long-term fixed borrowings is a substantive change in the Group's exposure to
financial instrument risks. Consequently, the objectives, policies and
processes have been reassessed to determine the updated risk profile (where
relevant).
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 banks 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.
Liquidity risk
The Group operates a Group overdraft facility common to all its trading
companies (with the exception of the recent Willow, Active and Custom Power
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 six-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 fully eliminates 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. The
Group does not currently hedge interest rates on financing, but monitors the
impact of rising interest rates and will put an instrument in place if
considered an effective risk mitigation.
Credit risk
The carrying amount of financial assets represents the maximum credit
exposure. The Group maintains its cash reserves at reputable banks. The
maximum exposure to credit risk at the reporting date was:
Loans and receivables 2024 2023
£'000 £'000
Trade and other receivables 28,151 16,542
Cash and cash equivalents 8,445 12,224
36,596 28,766
The maximum exposure to credit risk for trade receivables at the reporting
date by geographic region was:
Trade receivables exposure 2024 2023
£'000 £'000
UK 10,363 8,257
Non-UK 17,634 8,122
27,997 16,379
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 £435k (2023: £233k), which represented 0.3%
(2023: 0.2%) of revenue. This provision is included within the sales, general
and administration expenses in the consolidated statement of comprehensive
income. Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable expectation of
recovery include, amongst others, the failure of a debtor to engage in a
repayment plan with the Group, insolvency or a lack of contact with the
customer.
Trade receivables ageing by geographical segment
Total Current 30 days 60 days 90 days
Geographical area £'000 £'000 past due past due past due
£'000 £'000 £'000
2024
UK 11,447 10,772 642 8 25
Non-UK 17,633 15,710 1,387 204 332
Total trade receivables 29,080 26,482 2,029 212 357
UK (213) (110) (82) - (21)
Non-UK (870) (616) (52) (1) (201)
Total provisions (1,083) (726) (134) (1) (222)
Total 27,997 25,756 1,895 211 135
IFRS9
UK expected loss rate 1.86% 1.02% 12.77% 0.00% 84.00%
Non-UK expected loss rate 4.93% 3.92% 3.75% 0.49% 60.54%
Total Current 30 days 60 days 90 days
Geographical area £'000 £'000 past due past due past due
£'000 £'000 £'000
2023
UK 8,576 7,969 394 81 132
Non-UK 8,492 6,711 725 971 85
Total 17,068 14,680 1,119 1,052 217
UK (319) (131) (80) (1) (107)
Non-UK (370) (164) (4) (119) (83)
Total provisions (689) (295) (84) (120) (190)
Total 16,379 14,385 1,035 932 27
IFRS9
UK expected loss rate 3.72% 1.64% 20.30% 1.23% 81.06%
Non-UK expected loss rate 4.36% 2.44% 0.55% 12.26% 97.64%
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:
2024 2023
£'000 £'000
Opening balance 689 649
Acquisition of subsidiaries - 124
Increase/(decrease) in provisions 407 (77)
Written off against provisions (10) (9)
Foreign exchange (3) 2
Closing balance 1,083 689
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 2024, trade receivables of
£2,241k, which were past their due date, were not impaired (2023: £1,994k).
Liquidity risk
2024 Carrying Contractual 12 months 1-2 2-5 5+
amount cash flow or less Years Years £'000 Years
£'000 £'000 £'000 £'000 £'000
Trade and other payables 20,737 20,737 20,737 - - -
Borrowings 13,116 14,508 4,227 3,029 7,252 -
Right-of-use lease liabilities 3,572 3,879 1,139 1,403 1,337 -
Provisions 969 969 126 565 278 -
38,394 40,093 26,229 4,997 8,867 -
2023 Carrying Contractual 12 months 1-2 2-5 5+
amount cash flow or less Years Years £'000 Years
£'000 £'000 £'000 £'000 £'000
Trade and other payables 21,628 21,628 21,628 - - -
Borrowings 14,662 16,722 2,142 5,671 8,909 -
Right-of-use lease liabilities 2,043 2,138 1,088 792 258 -
Provisions 1,038 1,038 323 94 621 -
Deferred consideration on acquisition 5,679 5,679 5,679 - - -
45,050 47,205 30,860 6,557 9,788 -
Movement in deferred consideration on acquisitions 2024 2023 2024 2023 2024 2023 2024 2023
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Willow Active Custom Power Group
1 April 2023 - 3,500 1,650 3,101 4,029 - 5,679 6,601
Initial recognition - - - - - 8,264 - 8,264
Decrease in estimation - - (21) (326) - - (21) (326)
Settlement - (3,500) (1,629) (1,125) (3,906) (4,065) (5,535) (8,690)
Foreign Exchange - - - - (123) (170) (123) (170)
31 March 2024 - - - 1,650* - 4,029 - 5,679
* Level 3 contingent consideration values calculated based on forecast
management data.
The fair value hierarchy of financial instrument is considered as follows:
Level 1: The fair value of financial instruments traded in active markets
(such as publicly traded derivatives, and equity securities) is based on
quoted market prices at the end of the reporting period. These instruments are
included in level 1.
Level 2: The fair value of financial instruments that are not traded in an
active market (e.g. over-the-counter derivatives) is determined using
valuation techniques that maximise the use of observable market data and rely
as little as possible on entity-specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is
included in level 2.
Level 3: If one or more of the significant inputs is not based on observable
market data, the instrument is included in level 3. This is the case for
unlisted equity securities.
All the Group's financial instruments as disclosed are considered to fall
under Level 1, except for the deferred contingent consideration due on
acquisitions in 2023 (Willow and Active), which were classified as Level 3
instruments.
The measurement of the contingent deferred consideration liability on Active
Silicon was based on the performance of the business during the 25-month
earn-out period up to 31 March 2023. The basis of the calculation was a
multiple of the post tax profit included within the consolidated Group
financial statements and the only immaterial variable that changed was the
final taxation figure. The contingent consideration in relation to Custom
Power was recognised at £Nil value based on the discounted future forecasts
prepared as described in Note 2 and the required threshold was not reached
during 2024.
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.
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 2024 2023
£'000 £'000
Trade receivables 19,831 8,870
Cash and cash equivalents (268) 8,235
Trade payables (6,011) (8,149)
13,552 8,956
EUR 2024 2023
£'000 £'000
Trade receivables 563 448
Cash and cash equivalents 541 444
Trade payables (261) (178)
843 714
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 2024 (2023: £Nil) with
£Nil net exposure (2023: £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, £1,309k (2023: £1,074k). In
addition, 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, £1,599k (2023: £879k).
Interest rate risk
The Group finances its ongoing business through a revolving credit facility
and two term loans as described in Note 19. During the year, the Group
utilised the RCF facility at a floating rate of interest. The Group's banking
facilities with Lloyds Bank PLC incur interest at the rate of 2.55% over Bank
of England base rate. 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 £172k (2023: £122k)
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 2024 was £69,291k (2023: £66,070k).
The Group defines net (cash)/leverage as net (cash)/debt plus deferred
consideration, which totals £4,671k (2023: £8,117k). In calculating net
(cash)/debt, the Group has excluded the right-of-use lease liabilities of
£3,572k (2023: £2,042k) from its definition and calculation.
When managing its capital, the Group's main objectives 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 2024, the gearing ratio was 6.7% (2023: 12.3%).
The Group seeks to maintain a gearing ratio that balances risks and returns at
an acceptable level and to maintain sufficient funding to enable the Group to
meet its working capital and strategic investment needs 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 2024 is shown below:
2024 2023
£'000 £'000
Cash and cash equivalents (8,445) (12,224)
Borrowings/bank overdrafts 13,116 14,662
Deferred consideration - 5,679
Net debt 4,671 8,117
Share capital 569 567
Share premium account 30,581 30,474
Retained earnings 35,086 27,805
Other Reserves (64) 5
Foreign exchange reserve (1,515) (836)
Shares held in treasury (37) (108)
Equity 64,620 57,907
Gearing ratio (net leverage/(equity + net leverage)/cash)) 6.7% 12.3%
22. Net debt
Year ended 31 March 2024 (£'000) At Cash flow Other At
1 April non-cash movement 31 March 2024
2023
Bank borrowing due within one year (1,279) (777) (1,342) (3,398)
Bank borrowing due after one year (13,383) 2,393 1,272 (9,718)
Total borrowings (14,662) 1,616 (70) (13,116)
Deferred consideration on acquisition of subsidiaries within one year (5,679) 5,535 144 -
Cash and cash equivalents 12,224 (3,751) (28) 8,445
Net debt (8,117) 3,400 46 (4,671)
2024 2023
£'000 £'000
(Decrease)/increase in cash in the year (3,751) 9,314
Increase in borrowings in the year (2,126) (15,873)
Repayment of borrowings in the year 3,742 2,772
Payment of deferred consideration on acquisitions 5,535 4,625
Net movement resulting from cash flows 3,400 838
2024 2023
£'000 £'000
Net debt at 1 April 2023 (8,117) (5,177)
Net movement resulting from cash flows 3,400 838
Deferred consideration released/(recognised) 21 (3,704)
Other non-cash movements 25 (74)
Net debt at 31 March 2024 (4,671) (8,117)
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 balance at 31 March 2024 is 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. No overdraft was utilised as at 31 March 2023.
Lease liabilities are excluded from the Group's definition of net debt and a
separate roll-forward of lease liabilities is presented in Note 20.
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:
2024 2023
£'000 £'000
At 1 April (1,812) (1,293)
Deferred tax arising on acquisition of subsidiaries - 67
Credit/ (expense) for the year 190 (485)
Effect of changes to foreign exchange rates 4 (7)
Deferred tax adjustment in respect of prior periods 244 (94)
Net deferred tax at 31 March (1,374) (1,812)
Deferred tax (liabilities)/assets in relation to:
Accelerated capital allowances on property, plant and equipment (590) (747)
Short-term timing differences on intangible assets (1,596) (1,736)
Share-based payments 604 351
Short-term timing differences 151 114
Losses carried forward 57 206
Net deferred tax at 31 March (1,374) (1,812)
Deferred tax assets 605 375
Deferred tax liabilities (1,979) (2,187)
Net deferred tax at 31 March (1,374) (1,812)
The movements in respect of deferred tax in the year were as follows:
Accelerated Short-term timing Share-based payments Short-term timing Losses carried forward Total
capital allowances differences on intangible assets £'000 differences £'000 £'000
£'000 £'000 £'000
At 1 April (747) (1,736) 351 114 206 (1,812)
Recognised in statement of comprehensive income 153 136 253 38 (146) 434
Effect of changes to foreign exchange rates 4 4 - (1) (3) 4
At 31 March (590) (1,596) 604 151 57 (1,374)
The UK corporation tax rate is 25% (2023: 19%) effective from 1 April 2023,
which was substantively enacted on 24 May 2021.
The amount of the net reversal of deferred tax expected to occur next year is,
approximately, £550k (2023: £447k) relating to the timing differences
identified above.
A deferred tax asset of £166k (2023: £166k), 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
recalculated in the year after initial recognition in 2022. There was no
calculated movement in the deferred tax asset, so £Nil has been debited to
other comprehensive income ("OCI") or treated as an adjustment to profit. The
share price post year end, when the shares are exercised, may be higher/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.
24. Provisions
2024 2023
£'000 £'000
At 1 April 1,038 694
Dilapidations acquired on acquisitions at fair value - 22
Recognition of dilapidation provisions 178 -
Provisions utilised during the year (248) -
Recognition of decommissioning asset - 323
Foreign Exchange 1 -
(Released)/charged to statement of comprehensive income - (1)
Provisions at 31 March 969 1,038
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 five years. Provisions are split in current
£126k (2023: £323k) and non-current £843k (2023: £715k).
25. Share capital
2024 2023
£'000 £'000
Allotted issued and fully paid 11,376,644 (2023: 11,346,394) ordinary shares 569 567
of 5p
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.
2024 2023
Shares Value Shares Value
No. £'000 No. £'000
Share capital at 1 April 11,346,394 567 8,564,878 428
Issue of new shares 12,000 1 2,757,516 138
Share options exercised 18,250 1 24,000 1
Share capital at 31 March 11,376,644 569 11,346,394 567
At 31 March 2024, the number of shares covered by option agreements amounted
to 418,350 (2023: 352,925). At the balance sheet date, there were 128,050
(2023: 72,000) share options which had vested and remained unexercised. 18,250
options were exercised in the current year (2023: 24,000).
26. Reserves
Full details of movements in reserves are set out in the consolidated
statement of changes in equity. The total value of transaction costs incurred
that have been offset against the share premium account movement in the year
total £Nil (2023: £1,275k).
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
Other reserves Capital redemption amount transferred from share capital on redemption of
issued shares. Settlement value with non-controlling interests in excess of
net asset carrying value
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
Non-controlling interest Equity attributable to non-controlling shareholders
27. Treasury shares
At 31 March 2024, the Group held 21,146 (2023: 9,146) shares in treasury with
a cost of £37k (2023: £108k). No shares have been cancelled.
2024 2023
No No
At 1 April 9,146 6,946
Purchase of shares into treasury - 15,000
Issue of shares into treasury 12,000 -
Transfer of shares to the All Employee Share Plan (AESP) - (12,800)
At 31 March 21,146 9,146
28. Share-based payment
The total amount charged to the income statement in 2024 in respect of
share-based payments was £0.8m (2023: £0.6m).
The Company operates three 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 7 February 2024 56,400 (2023: 56,400) share options were granted to the
Executive Directors under the LTIP. The assessed fair value at grant date of
options granted during the year was £11.21 per option (2023: £9.26). The
fair value was determined using a Black-Scholes model and the principal
assumptions are set out below.
Principal assumptions 2024 2023
Weighted average share price at grant date in pence 1,185 986
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 37% 49%
Weighted average risk-free rate 4.31% 2.28%
Dividend yield 1.86% 2.10%
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 7 February 2024, 50,875 (2023: 48,825) share options were granted to the
senior management under CSOP. The assessed fair value at grant date of options
granted during the year was £3.15 per option (2023: £3.14). The fair value
was determined using a Black-Scholes model and the principal assumptions are
set out in the table below.
31,500 CSOP options vested in the year and 18,250 were exercised.
Principal assumptions 2024 2023
Weighted average share price at grant date in pence 1,185 1,006
Weighted average exercise price in pence 1,052 1,008
Weighted average vesting period (years) 3 3
Option life (years) 10 10
Weighted average expected life (years) 3 3
Weighted average expected volatility factor 37% 49%
Weighted average risk-free rate 4.31% 2.28%
Dividend yield 1.86% 2.10%
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. £Nil (2023: 24,000) were exercised in the
year, leaving 72,000, which remain unexercised at the balance sheet date.
2024 2024 2023 2023
Number of options Average exercise price in pence Number of options Average exercise price in pence
At 1 April 328,925 320 248,100 225
Granted 107,675 988 104,825 471
Exercised (18,250) (592) (24,000) 0.1
Cancelled/lapsed - - - -
At 31 March 418,350 759 328,925 320
The weighted average exercise prices of options exercisable at the end of the
period is 63p. The weighted average remaining contractual life of share
options outstanding at the end of the period is 7.5 years (2023: 7.7 years).
As at 31 March 2024, the total number of long-term incentive awards and share
options held by employees was 418,350 (2023: 328,925) as follows:
Option price pence/share Option period ending 2024 Number of options 2023 Number of options
0.1p 31 March 2027 72,000 72,000
5p - 592p 31 March 2030 56,050 74,300
5p - 1050p 31 March 2031 77,800 77,800
5p - 1254p 31 March 2032 105,225 104,825
5p - 1185p 31 March 2034 107,275 -
At 31 March 418,350 328,925
All Employee Share plan ("AESP"):
AESP awards 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 28 March 2024, 13,950 (2023: 12,800) share options were awarded to the
employees under the AESP.
The share price at the date of award was 1,325p (2023: 1,160p). 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 £185k (2023: £148k) as part of
the total share-based payments charge.
29. Capital commitments
At 31 March 2024, there were capital commitments of £23k (2023: £172k).
30. 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
ongoing 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 costs in relation to restructuring of the USA
Components business model
• Non-recurring costs relating to acquisition costs (including fair
value adjustments and earn-out estimation changes)
• Tax effect of the adjusted items
• The movement via OCI of the 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 options
and share bonus
2024 2023
£'000 £'000
Gross profit 51,827 39,674
Adjustments to gross profit - 88
Adjusted gross profit 51,827 39,762
Operating profit 13,678 9,408
Adjustments to operating profit 3,358 2,219
Adjusted operating profit 17,036 11,627
Operating margin percentage 8.4% 7.4%
Operating margin percentage impact of adjustments 2.1% 1.8%
Adjusted operating margin percentage 10.4% 9.2%
Profit before tax 12,187 8,436
Adjustments to profit before tax 3,392 2,355
Adjusted profit before tax 15,579 10,791
Profit after tax 8,906 6,690
Adjustments to profit after tax 2,774 1,863
Adjusted profit after tax 11,680 8,553
Reported total other comprehensive income 8,227 5,727
Adjustments to total other comprehensive income 2,774 1,957
Adjusted total other comprehensive income 11,001 7,684
2024 Components Systems Head office Total
£'000 £'000 £'000 £'000
Acquisition fair value adjustments within cost of sales - - - -
Acquisition fair value adjustments, reorganisation and deal costs 736 - - 736
Amortisation of acquisition intangibles - - 1,819 1,819
Share-based payments - - 803 803
Imputed interest on deferred consideration unwind - 34 - 34
Adjustment to profit before tax 736 34 2,622 3,392
Current and deferred taxation effect 73 - (691) (618)
Adjustments to profit after tax 809 34 1,931 2,774
Movement of deferred tax asset re share price impact on options - - - -
Adjustments to total other comprehensive income 809 34 1,931 2,774
All amortisation charges relating to acquisition intangibles have been
consistently classified into head office overheads for the current and
comparative year to provide a consistent presentation and accurate
representation of underlying divisional trading as presented to the Directors.
Reorganisation costs in 2024 relate to the USA Components business
restructure. Acquisition fair value adjustments, reorganisation and deal costs
in 2023 relate to transaction costs for the acquisition of Custom Power.
In evaluating our adjusted performance metric in respect of Earnings Per Share
("EPS"), the Board considers "Adjusted Fully Diluted EPS" to be the most
appropriate metric as our investors and the analysts who cover Solid State PLC
use this metric to monitor performance. However, we also recognise the equal
importance of the statutory metric of 'EPS' as the other relevant metric
(which includes the IFRS2 charge for the value gained from employees but
excludes the dilution so not to double count with the charge).
While we disclose "Fully Diluted EPS" and "Adjusted EPS" for completeness in
Note 8, these are not considered to be as appropriate metrics by the Board as
"'Reported' Fully Diluted EPS" reflects a double hit to the results of the
IFRS2 charge and the dilution and "Adjusted EPS" does not reflect either the
IFRS2 charge or the dilution, which clearly makes these metrics much less
appropriate when assessing performance.
2023 Components Systems Head Total
£'000 £'000 office £'000
£'000
Acquisition fair value adjustments within cost of sales - 88 - 88
Acquisition fair value adjustments, reorganisation and deal costs - 289 15 304
Increase in deferred consideration on acquisition of Active Silicon - (326) - (326)
Amortisation of acquisition intangibles - - 1,602 1,602
Share-based payments - - 551 551
Imputed interest on deferred consideration unwind - 136 - 136
Adjustment to profit before tax - 187 2,168 2,355
Current and deferred taxation effect - (26) (466) (492)
Adjustments to profit after tax - 161 1,702 1,863
Recognition of deferred tax asset re share price impact on options - - 94 94
Adjustments to total other comprehensive income - 161 1,796 1,957
Acquisition fair value adjustments within cost of sales in 2023 relates to the
unwind of the IFRS3 fair value uplift on stock to selling price less cost to
sell in both periods.
31. Segment information
The Group's primary reporting format for segmental information is aligned with
the Divisional management structure of the Group. We provide financial
information to enable Divisional management operational control and
consolidated data for Board decision making. The Components Division comprises
Solid State Supplies Limited, Pacer LLC, Pacer Components Limited, Willow
Technologies Limited and American Electronic Components, Inc. The Systems
Division includes Steatite Limited, Custom Power LLC, Active Silicon Limited,
Active Silicon Inc. and eTech Developments Limited.
Year ended 31 March 2024 Components division Systems division Total
£'000 £'000 Head Group
office £'000
£'000
External revenue 59,834 103,469 - 163,303
Operating (loss)/ profit (682) 19,337 (4,977) 13,678
Adjusted operating profit 54 19,337 (2,355) 17,036
(Loss)/ profit before tax (748) 19,190 (6,255) 12,187
Taxation (553) (4,074) 1,346 (3,281)
Profit after taxation (1,301) 15,116 (4,909) 8,906
Consolidated statement of financial position
Assets 27,559 46,643 39,382 113,584
Liabilities (10,853) (26,404) (11,707) (48,194)
Net assets 16,706 20,239 27,675 64,620
Other
Capital expenditure:
Intangible assets 143 1,169 - 1,312
Tangible fixed assets 275 1,423 4 1,702
Right-of-use assets 156 2,498 - 2,654
Depreciation and Impairment - PPE 1,033 995 1 ,2,029
Depreciation - right-of-use assets 182 858 - 1,040
Amortisation 131 331 1,819 2,281
Share-based payments - - 803 803
Interest 67 146 1,278 1,491
One individual customer contributed more than 10% of the Group's revenue at
£33.4m (20%) in the financial year ended 31 March 2024 (2023: No one customer
contributed more than 10%).
Year ended 31 March 2023 Components division Systems division Total
£'000 £'000 Head Group
office £'000
£'000
External revenue 68,986 57,517 - 126,503
Operating profit 5,754 7,941 (4,287) 9,408
Adjusted operating profit 5,754 7,992 (2,119) 11,627
Profit before tax 5,723 7,718 (5,005) 8,436
Taxation (1,041) (1,488) 783 (1,746)
Profit after taxation 4,682 6,230 (4,222) 6,690
Consolidated statement of financial position
Assets 30,435 38,408 44,945 113,788
Liabilities (13,220) (25,331) (17,283) (55,834)
Net assets 17,215 13,077 27,662 57,954
Other
Capital expenditure:
Intangible assets 339 858 - 1,197
Intangible assets - acquisitions - 52 27,178 27,230
Tangible fixed assets 836 679 - 1,515
Tangible fixed assets - acquisitions - 991 - 991
Right-of-use assets 115 7 - 122
Right-of-use assets - acquisitions - 883 - 883
Depreciation - PPE 559 600 - 1,159
Depreciation - right-of-use assets 217 748 - 965
Amortisation 50 383 1,602 2,035
Share-based payments - - 551 551
Interest 30 222 720 972
External revenue by Total assets by Net capital expenditure
location of customer location of assets by location of assets
2024 2023 2024 2023 2024 2023
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 69,921 71,649 101,179 102,687 2,779 2,134
Rest of Europe 55,360 18,202 - 31 - -
Asia 8,759 8,811 - - - -
North America 28,667 27,205 10,503 11,070 235 578
Other 596 636 - - - -
163,303 126,503 111,682 113,788 3,014 2,712
32. Related parties
During the period, fees totalling £48k (2023: £53k) in respect of
accountancy services and out of pocket expenses were provided by The Kings
Mill Practice, a firm of which Mr P Haining is the proprietor. A balance of
£5k (2023: £5k) was due to The Kings Mill Practice at 31 March 2024.
33. Post balance sheet events
During Q1 of FY25 the Group intends to commit to a 15 year lease for premises
in Tewkesbury with break clauses at 5 and 10 years. The annual rent is £160k,
resulting in a minimum commitment of £0.8m. The assessment of expected tenure
and resulting right of use asset and liability will be recognised in H1 FY25.
On 1 April 2024 a long-term incentive award for the senior management team in
the USA was communicated. This award has a maximum liability of $4.2m, is
based on delivering growth in revenue as well as EBITDA margin and can
commence vesting based on achievement of set performance goals from 2028 to
2030. While the Group has the option to equity or cash settle these awards,
the scheme is expected to be cash settled as the number of shares is uncertain
and the reward is a fixed quantum for a given performance.
Subsequent to the year end, the Group agreed a facility extension on the USD
overdraft facility of up to $6m to the end of June 2024 in order to cover the
maximum potential impact of the NATO project's timing differences to cash
flow. This facility was not utilised.
Two new USA holding companies were incorporated, Solid State US, Inc. and
Steatite Systems Holdings, Inc. with the intention to simplify the structure
of the US Systems Division legal entities. Solid State PLC owns 100% of Solid
State US, Inc., which in turn owns 100% of Steatite Systems Holdings, Inc.
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