REG - Solid State PLC - Interim Results, Analyst Briefing & Investor Pres
06/12/2022 07:01
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RNS Number : 6688I Solid State PLC 06 December 2022
Solid State plc
("Solid State", the "Group" or the "Company")
Interim 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,
announces results for the six months to 30 September 2022.
Highlights in the period include:
H1 2022/23 H1 2021/22 Change
Reported revenue £59.4m £39.4m 50.8%
Reported operating profit margin 7.5% 5.6% 190bps
Adjusted operating profit margin* 9.3% 8.6% 70bps
Reported profit before tax £4.18m £2.11m 98.1%
Adjusted profit before tax* £5.23m £3.27m 59.9%
Reported diluted earnings per share 36.4p 19.8p 83.3%
Adjusted diluted earnings per share 45.3p 32.7p 38.5%
Interim dividend 6.5p 6.25p 4.0%
Net cash flow from operations £0.50m £4.97m (90.0%)
* Adjusted performance metrics are reconciled in note 5, 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.
H1 2022/23 FY Change
2021/22
Net cash / (net debt)** £(16.1)m £(5.2)m 209.6%
Open order book @ 30 September 2022 / 31 March 2022 £112.5m £85.5m 31.6%
** Net cash / debt includes net cash with banks £14.1m (H1 2021/22: £5.3m),
the fair value of deferred contingent consideration of £14.4m (H1 2021/22:
£5.3m), bank loans of £15.8m (H1 2021/22: £2.0m) and excludes the right of
use lease liabilities of £2.7m (H1 2021/22: £2.3m).
Financial highlights:
· Revenues for the Period of £59.4m (2021:
£39.4m) including like-for-like constant currency organic revenue growth of
circa 31% for the Period
· Adjusted profit after tax* for the Period of
£4.16m (2021: £2.85m) a 46.0% year on year increase
· Operating cash generation of £0.58m delivers
adj. operating cash conversion of 10% due to inventory investment
· Reported net debt excluding IFRS 16 lease
obligations on 30 September 2022 of £16.1m (31 March 2022: £5.2m) (including
deferred and contingent consideration of £14.4m (31 March 2022: £6.6m))
· Financial headroom within the Group's banking
facilities is £9.2m (31 March 2022: £11.0)
· Robust open order book on 30 November 2022 of
£117.8m, up 4.7% on 30 September 2022 of £112.5m, and up 37.8% on year end
of £85.5m at 31 March 2022.
Commercial and operational highlights:
· Several important contract wins in the First Half
previously announced including: Innovative pollination contract, Power design
appointment; Transport for London contract and post period end awards of two
significant communications contracts in the defence sector by the NATO Support
and Procurement Agency
· Completion of the acquisition of US based Custom
Power in early August 2022 funded by an oversubscribed placing raising
£28.26m before expenses and £13.0m of new bank facilities provided by Lloyds
Bank
· Integration of Custom Power is underway, with
commercial collaboration progressing well
· Installation of the new wire bonding technology
in our advanced UK battery pack manufacturing facility
· Distribution contract signed with Laird
Connectivity, wireless System on Module (SoM) provider
· Completion of Willow Technologies integration
into the Components Division
· High profile component franchise EMEA bookings
award - recognition of quarter-on-quarter growth.
Commenting on the results and prospects, Nigel Rogers, Chairman of Solid
State, said:
"The Group has delivered excellent first half results and is building strong
momentum despite a more challenging macro-economic climate.
"The successful acquisition of Custom Power has added resilience to the Group
and accelerated the expansion of our Power business in the key North American
market. We continue to see acquisitions as a key pillar of our growth
strategy alongside internal investment to fuel organic growth.
"Group-wide we have worked closely with customers and suppliers to mitigate
the impact of global component shortages and macro-economic challenges. This
is evident in the order flow and the strong open order book, which gives the
Board confidence in the outturn(1) for the full year."
(1)Analysts from brokers WH Ireland Limited, finnCap Limited, and Edison
Investment Research Limited, provide equity research on Solid State, and the
Company considers the average of their research forecasts to represent market
expectations, being, for Solid State's 2022/23 financial year, revenue of
£120.3m (previously £117.3m), and adjusted profit before tax* of £10.45m
(previously £9.4m).
Analyst Briefing: 09:30am today, Tuesday 06 December 2022
An online briefing for Analysts will be hosted by Gary Marsh, Chief Executive,
and Peter James, Group Finance Director, at 9.30am today, Tuesday 06 December,
to review the results. Analysts wishing to attend should contact Walbrook PR
on solidstate@walbrookpr.com or on 020 7933 8780.
Retail Investor Presentation: 2:00pm on Wednesday 07 December 2022
Gary Marsh, Chief Executive; Peter James, Group Finance Director; and Matthew
Richards, Managing Director of the Systems division, will hold a presentation
for retail investors at 2.00pm on Wednesday 07 December 2022. The
presentation will be hosted through the digital platform Investor Meet
Company. Investors can sign up to Investor Meet Company for free and add to
meet Solid State plc via the following
link https://www.investormeetcompany.com/solid-state-plc/register-investor
(https://urldefense.proofpoint.com/v2/url?u=https-3A__www.investormeetcompany.com_solid-2Dstate-2Dplc_register-2Dinvestor&d=DwMGaQ&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=05PHl3GHdShYuaCii2fBRpoqaNr9B1d97X09daeosu0&m=J_w1tceU9zzYJ7XKVb7cI6vB50Ub0EkseNW3jQMJXh0&s=3vECInbFqFci5nlddgAz6BmJ10o04LjoiJjqEFyNUW0&e=)
. Investors who have already registered and added to meet the Company will
automatically be invited.
Questions can be submitted pre-event to solidstate@walbrookpr.com
(mailto:solidstate@walbrookpr.com) , or in real time during the presentation
via the "Ask a Question" function.
This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014.
For further information please contact:
Solid State plc Via Walbrook
Gary Marsh - Chief Executive
Peter James - Group Finance Director
WH Ireland (Nominated Adviser & Joint Broker) 020 7220 1666
Mike Coe / Sarah Mather (Corporate Finance)
Fraser Marshall (Corporate Broking / Sales)
finnCap (Joint Broker) 020 7220 0500
Ed Frisby / Fergus Sullivan (Corporate Finance)
Rhys Williams / Tim Redfern (Sales / ECM)
Walbrook PR (Financial PR) 020 7933 8780
Tom Cooper / Nick Rome 0797 122 1972
solidstate@walbrookpr.com (mailto:solidstate@walbrookpr.com)
Analyst Research Reports: For further analyst information and research see the
Solid State plc website: https://solidstateplc.com/research/
(https://urldefense.proofpoint.com/v2/url?u=https-3A__solidstateplc.com_research_&d=DwMFAg&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=05PHl3GHdShYuaCii2fBRpoqaNr9B1d97X09daeosu0&m=JmX-gQVke87P3UDBxQzNglNm9FfzH5yZtIa_SmElSS4&s=ib8r3ul2tCaEvJ39SnR1LT7nCa7gAcRQzgO-kNoyZoM&e=)
Notes to Editors:
Solid State plc (SOLI) is a value added electronics group supplying
commercial, industrial and defence markets with durable components,
assemblies, manufactured units and power units for use in specialist and harsh
environments. The Group's mantra is - 'Trusted technology for demanding
environments'. 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 (Solid State Supplies, Pacer, Willow Technologies
& AEC); the Group specialises in complex engineering challenges often
requiring design-in support and component sourcing for computing, power,
communications, electronic, electro-mechanical and opto-electronic products.
Headquartered in Redditch, UK, Solid State employs approximately 400 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 4 acquisitions in
the last 5 years.
Unaudited Interim Results for the six months ended
30 September 2022
Chairman's First Half review
I am pleased to report the results for the six months ended 30 September 2022
("First Half", "Period" or "H1 2022/23").
We have made an excellent start to our financial year with Group revenue in
the Period of £59.4m (H1 2021/22: £39.4m), up 51% on the prior period
(like-for-like organic revenue growth is up 31%) despite the significant
challenges presented by the well-publicised electronics supply chain
constraints and the geopolitical volatility in the Period.
The Group's strategy and focus on ensuring we have sector, product, and
customer diversity to provide a resilient business model has continued to
prove its value and delivered significantly improved organic revenue growth in
the Period.
Adjusted profit before tax has also increased to £5.23m up 59.9% (H1 2021/22:
£3.27m). Reported profit before tax was £4.18m (H1 2021/22: £2.11m).
The acquisition of US based Custom Power in early August 2022, funded by an
oversubscribed placing raising £28.26m before expenses and a new term loan of
£13m provided by Lloyds Bank, has provided a step change in the
internationalisation and technical competencies of our enlarged Power
offering.
The integration of Custom Power is underway, with commercial collaboration
progressing well, albeit at an early stage and order intake continues to be
positive. Pleasingly, profit margins have also continued to trend positively
with a focus on multi cell battery packs that incorporate management
electronics where the engineering expertise is valued.
The Group continues to be acquisitive, focusing its M&A efforts in two
areas: internationalisation of the Group and acquisition of products,
technology, IP and knowhow to accelerate progress in our target growth
markets. We have a good pipeline of potential acquisition targets which are at
the early stages of discussion and evaluation.
Solid State continues to make good progress embedding ESG principles and
values throughout its business. During the period the Group has commenced a
recruitment process to appoint an additional independent non-executive
director which is expected to be completed next year.
Having achieved our five-year goal of doubling EPS to in excess of 60p last
year and announcing a goal to at least replicate those achievements, the Board
continues to develop the next phase of its strategic plan. This will
incorporate ambitious growth targets and our sustainable development agenda
taking us to the end of the decade.
Based on the trading in the First Half and prospects for the full year, the
Board is increasing the interim dividend to 6.5p (H1 2021/22: 6.25p). The
interim dividend will be paid on 17 February 2023 to shareholders on the
register at the close of business on 27 January 2023. The shares will go
ex-dividend on 26 January 2023.
Current order intake continues to be strong and trading since the Period end
has been ahead of management expectations. Prospects for the remainder of the
financial year are underpinned by the near-term open order book and the
resilience and diversity of the Group.
Solid State has gained a competitive advantage from being proactive in
managing the impacts of supply chain shortages, which continues to impact
current trading. The business will need to be equally proactive in managing
inventories and margin pressures against the weakening macro-economic
environment in the UK. In the latter part of this financial year end and in to
FY23/24 we anticipate seeing some supply chains start to improve. We
have benefitted from strong current trading during Q3 23, meaning the Company
now expects to be ahead of the current revenue and adjusted PBT consensus
expectations for FY23.
Business Overview
Solid State PLC supplies components and systems, primarily designed for
demanding applications where safety, performance, reliability and quality are
critical. This enables customers to focus on their core business with
confidence by delivering trusted technology for demanding environments.
The Group's overarching purpose is to establish its position as an
international leader in providing sustainably engineered electronics
technology systems and components enabling stakeholders to realise value,
maximise efficiencies and reduce waste.
The Group is focused on the design-in, supply and support of sustainably
engineered specialist electronics equipment from components, sub-assemblies,
and embedded systems, through to complete integrated electronic solutions.
Solid State's organic growth strategy is to actively target growth sectors
with high barriers to entry that require accreditations, long standing
credibility, and specialist skills and experience, including security and
defence, medical, green tech, transport, and energy.
The Group operates through two operating divisions: Components and Systems.
They have distinct characteristics in their respective markets; however, they
have a common mission, a clear strategy, and consistent business values.
The Components Division is developing its offering in three areas: own brand
manufactured components, franchised components, and the provision of
value-added services such as sourcing and obsolescence management. The
Components Division is a specialist in delivering innovative, valuable,
technical solutions for customers seeking cutting edge, electronic,
opto-electronic, electro-mechanical components and displays with market
leading value-added capabilities.
The Systems Division has market leading capabilities in the design,
development and supply of high specification industrial computers, circuit
board level design and manufacturing capabilities primarily for image capture,
processing, transmission, custom battery packs providing portable power and
energy storage solutions and advanced communication systems, encompassing
wideband antennas and high-performance radio products.
The Group is the subject matter expert for its customers, with deep industry
knowledge and longstanding key supplier relationships. When designing-in
solutions to address customer needs, the Group selects the most appropriate
component, module, computing technology, cell chemistry or communications
solution which ensures Solid State is a trusted partner.
Solid State constantly seeks to add value for its customers, who are typically
looking to embrace the adoption of the enabling technologies where the Group
has industry leading component and manufacturing expertise, such as electronic
and optoelectronic component design-in, image processing, AI ("Artificial
Intelligence"), IoT ("Internet of Things"), fossil fuel replacement, power
switching, cordless & portable power, and leading-edge communications /
antenna solutions.
Our stated strategy is to supplement organic growth with selective
acquisitions within the electronics industry which complement our existing
Group companies and facilitate the internationalisation of the Group and/or
provide additional products / talent / technology / IP and knowhow which can
accelerate our progress in our target growth markets.
Chief Executive's First Half review
Key stakeholder engagement
The Group is seeing record customer demand for our systems and components and
the open order book at the end of September 22 was £112.5m (31 March 2022:
£85.5m), which is up 32%. The increased demand is across our business, with
several new projects which had been delayed due to a combination of
macro-economic factors (Brexit, COVID and shortages) now being delivered. This
has resulted in like-for-like constant currency organic revenue growth of
circa 31%, with reported revenue of £59.4m.
The First Half has seen continued shortages in the electronic components
sector. Leveraging the benefits of a Components Division within the Group and
the semiconductor market intelligence it can share across the entire Company
has played an important part in achieving the levels of growth reported today.
Our proactive approach to engaging with our customers (which began as early as
the late summer of 2020), investments in inventories and increased order cover
has helped us and our customers to minimise the impacts. Lead times are
expected to continue to be extended for many components through the second
half of FY22/23 and into FY23/24, albeit for some components we have started
to see lead times beginning to reduce. In managing the supply chain challenges
we continue to face increased working capital demands to secure product. In
managing supply price rises, which vary significantly, we have communicated
these carefully to our customers, and there has been clear recognition of the
need for the financial effects to be passed on via increased selling prices.
The Group's strong customer relationships and its strong balance sheet puts
Solid State and its customers in a good position to ensure that together
product is secured, albeit the lead times are on occasion significantly
extended.
Benefitting from our recent acquisitions
In the First Half we have benefitted from the acquisition of Custom Power. The
integration of that business is underway, with commercial collaboration
progressing well, albeit at an early stage.
The engagement from the Custom Power team and other recently acquired business
teams to maximise the benefits of being part of an enlarged Group has
delivered tangible benefits and opportunities. We are currently
participating on projects that would not have been achievable without the
acquired capabilities.
Our due diligence identified that Custom Power has been adversely impacted by
component lead times which continue to present headwinds. Pleasingly both
billings and order intake have been encouraging post period end with a strong
start to Q3 23 in-line with management's expectations. Profit margins have
also continued to trend positively with a focus on winning business where the
engineering expertise in the battery packs is valued.
Delivery of the strategy
Enhancing our international sales channels
The acquisition of Custom Power provides a step change in our US power sales
offering with its established representative network in the USA. Moving
forward, the Group will continue to develop the USA sales channel by expanding
that representative network and adding Field Application Engineers capable of
selling our own brand products from the Systems Division, such as our antenna
solutions and our own brand secure computing offering, as well as our own
brand components within the Durakool® portfolio and the Pacer® branded
components.
In addition to the own brand components that can be sold globally, the Group
also has several pan-European franchises that provide opportunities to deliver
organic growth as the Group looks to develop its EU sales channel. Recent
acquisitions have brought the Group some local sales engineers,
representatives, and distribution partners in the EU. These foundations
provide an initial platform from which the Group is looking to develop its
European sales channels.
Broadening our portfolio of complementary components and products
Our Components Division has continued to develop its portfolio of franchise
manufacturers in the First Half signing Laird Connectivity who provide
wireless System on Module ("SoM") products for the latest WiFi and Bluetooth
standards enhancing our IoT offering.
During this period of shortages in the electronics sector, our breadth of
components has enabled us to support customers in designing-in and supplying
second sources for many components, providing customers with some resilience.
This work adds value and continues to provide new opportunities for the Group.
The Group continues to invest in R&D projects across both Systems and
Components, further developing our product portfolio. As the Group grows, we
will continue to benefit from the UK R&D tax credit scheme albeit based
within the large company RDEC framework.
Developing our own brand and modular components and products
The Systems Division has made significant progress in our product development.
The Computing business unit is seeing strong demand from the defence sector
for embedded computing including our own brand fan-less computing offering
(including the low magnetic signature computing products). The investment in
our in-house test and measurement capabilities such as our EMC
("Electromagnetic compatibility") chamber have proved particularly valuable in
differentiating our systems capabilities. Post period end we have invested
further in additional test equipment and software for the EMC chamber that
will allow for pre compliance TEMPEST ("Telecommunications Electronics
Material Protected from Emanating Spurious Transmissions") testing.
The Communications business unit's portfolio of standard and semi-custom
products (horns, spirals, and sinuous antennas) continues to deliver a stable
platform of run rate business over which longer term and larger programmes and
strategic relationships are being targeted to provide upside opportunities for
significant organic growth. Our complementary products allied to the
Persistent Systems mesh network radio product has enabled the radio team to
secure two new prestigious customer programmes. As part of these programmes
the team are providing associated product training and support alongside own
brand command and control hardware adding significant value to the customer
relationship.
Within our Power business unit, we have seen high demand for customer specific
development projects which has resulted in limitations on our engineering
resource. This has meant that the development of our scalable and flexible
modular pack solutions is taking longer than anticipated.
We have however made significant progress in the Period in addressing some of
the resourcing challenges by forming a joint venture engineering technology
centre in the North East of England, eTech Developments Ltd ("eTech"). eTech
has been able to initially recruit a core team of highly experienced engineers
to support the Group's engineering and development needs in the power and
power switching arena.
The customer programmes provide exciting commercial opportunities and have
progressed our technology building blocks, enhancing our capabilities which
will be applicable to multiple high growth, un-commoditised industrial markets
that are adopting either a low carbon power source, or an off-grid power
source.
The acquisition of Custom Power has further enhanced our battery pack
technology portfolio and the aim is to share this expertise across the wider
power business unit once US export control regulations have been fully
evaluated.
Furthermore, Custom Power enhances our supply chain partnerships with a
portfolio of cell manufacturers adding valuable new relationships to the Group
across a broad range of chemistries including lead acid, lithium, lithium iron
phosphate and non-lithium chemistries such as nickel metal hydride. We
continue remain aware of emerging battery technologies including solid state
battery developments being driven by the automotive sector. We remain a
subject matter expert offering our customers the most appropriate chemistry
for their given application.
Developing product range for strategic growth markets
Our Components Division has focused on ensuring they supply many of the major
components used within target growth markets such as: EV charging
infrastructure where we supply electromechanical switches, contactors,
displays, Bluetooth and cellular interfaces and the embedded processing.
These components are also critical to the next generation of technology being
adopted in the utility sector as smart metering is rolled out globally and the
PSTN ("Public Switched Telephone Network") network is being replaced with IP
("Internet Protocol") communications technologies. In addition, the Group's
opto-electronic component manufacturing team is continuing to develop the
portfolio of optical sensing components that are supplied to tier one OEMs
("Original Equipment Manufacturers") within the medical sector which
complement our core semiconductor electronic components.
The addition of Active Silicon's vision and image processing technology and
circuit board level design, combined with our industrial embedded computing
and engineering capability, has enabled our enlarged Systems Division to
provide more integrated system solutions to our strategic growth markets for
industrial image processing and in the First Half we have been developing
systems which we could not have delivered without the enlarged systems
technology offering.
The acquisition of Custom Power has brought the Group a recognised portfolio
of battery technologies across target growth markets in medical and defence.
They have expertise in high performance battery packs for drone applications
requiring specialist engineered solutions including the use of lightweight
materials and battery heating technologies.
Enhancing our technical manufacturing expertise
As reported at year end, the Group has made significant capital investments
further enhancing its manufacturing and assembly capabilities with the new
in-house EMC chamber and the commissioning of our wire bonding capability to
enable semi-automated battery pack manufacturing.
In addition to the investment in equipment the Group continues to advance
its manufacturing processes and accreditations across both Components and
Systems to enable us to win business in sectors such as medical and aerospace
where accreditations are a prerequisite.
The combination of the enhancement of our capital equipment and accreditations
provides the Group with the credentials to manufacture and test components and
systems for markets with high barriers to entry which recognise the
engineering value add in the quality of the solutions provided.
Industry leading talent development
Talent development and engagement is a core value of the Group and is a
strength which underpins the retention of our industry leading team. The
increasing size and scale of the Group provides additional opportunities for
development.
Most recently Custom Power has added significant talent to the Group across
multiple areas. In addition to the Custom Power team the Power division has
been involved in helping to incubate a start-up company, eTech, with a nucleus
of highly experienced power engineers. Together these new teams have added
strength and depth to the Group's power engineering capabilities which are
critical to our organic growth ambitions in this area. The acquisition of
Custom Power now enables the Group to realise opportunities to increase our
service to international customers.
In addition to continuing to add engineering talent, the Group has also added
expertise, with new recruits in operations, HR, procurement, and finance.
Developing our talent pool will underpin the Group's ability to deliver future
growth. The Group continues to actively seek additional talent and skills
across the business to drive the exciting organic growth opportunities the
Group is targeting.
Financial Review
Group revenue is up 51% at £59.4m (H1 2021/22: £39.4m) with the Group
benefiting from the acquisitions of Custom Power and US Dollar foreign
currency tail winds.
Reported revenue growth was aided by a stronger US dollar, although the profit
effect was mitigated by a natural hedge from component purchases also
denominated in US dollars, resulting in a depressed gross margin percentage.
Underlying revenue on a like-for-like and constant exchange rate basis
reflects organic growth of approximately 31%, which benefitted from the
investment in inventories to provide some mitigation to the electronic
component shortages and extended lead times.
The Group has continued to benefit from demand in government funded sectors
such as transport, security, and defence.
Revenues in the Components Division of £35.3m (H1 2021/22: £24.1m) are up
46% and saw significant benefit from the investment in inventory to secure
product, facilitating the demand which has been built up post Brexit / COVID
and compounded by the extended lead times.
The Systems Division revenues of £24.0m (H1 2021/22: £15.2m) are up 58%
benefitting from the Custom Power acquisition in early August 2022.
The Power business unit ("BU") faced headwinds owing to component shortages
and customer programmes being delayed as a result of other elements of the
customers BoM ("Bill of Materials") being overdue combined with customer
design in programmes progressing more slowly due to extended component and
cell lead times. However, the level of design activity and the order book has
strengthened which provides confidence for H2 2022/23 and beyond.
Demand in our Computing Systems and Communications business units has
continued to be strong benefitting from government defence and infrastructure
projects and our inventory holding has enabled us to deliver despite the
extended lead times. The Group's diversity provides some resilience enabling
the Group to mitigate projects delays in any given area.
First Half order intake has been very strong across the Group with solid
demand from all our target sectors. As lead times start to shorten and we
enter a period of likely recession we recognise that the business environment
and competitive landscape is likely to become increasingly challenging,
putting increased pressure on all businesses which may result in customer
demand being rescheduled. We therefore remain cautious in our expectations for
the full year outturn, however the nature of our diverse customer base means
we remain confident the Group's prospects remain strong.
Group reported gross margins saw a small reduction to 31.6% (H1 2021/22:
32.7%) albeit the impact of FX was a headwind of circa 2.7% from the stronger
US dollar as noted above. FX aside, underlying Group margins improved slightly
benefitting from the strategic actions, both organic and acquisitive, to
enhance the mix of products sold, increasing the proportion of own brand
products, high value-added systems, solutions and services which command
higher margins.
Reported overheads have increased to £14.3m (H1 2021/22: £10.7m) principally
due to the additional overhead associated with the acquisitions adding circa
£1.2m; a circa £1.9m increase to invest in people including additional
headcount, employee pay rises, commissions, and recruitment fees; and
recognition of a specific doubtful debt provision of £0.4m. The Group
continues to invest to drive organic growth post COVID with increased travel
and exhibition attendance. Also included within the reported overheads are
share based payment charges and amortisation of acquisition intangibles
totalling circa £0.8m. Despite the impact of IFRS3 acquisition accounting
charges and the increased cost base as noted, reported profit before tax was
still significantly higher at £4.18m (H1 2021/22: £2.11m).
Adjusted operating margin, an increasingly important measure of Group
performance, has increased to 9.3% (H1 2021/22: 8.6%). Both divisions have
seen an improvement in adjusted operating margin, as significant organic
growth has delivered operational gearing benefits, albeit the improvement is
slightly flattered by the recruitment of new personnel being hard to find and
only joining towards the end of the Period.
Adjusted profit before tax for the First Half is up 59.9% at £5.23m (H1
2021/22: £3.27m). This is reported after a share based payments charge of
£0.11m (H1 2021/22: £0.18m), amortisation of acquisition intangibles at
£0.66m (H1 2021/22: £0.51m), an increase to the earn out deferred
consideration of £nil (H1 2021/22: £0.30m) and the unwinding of the stock
fair value adjustment of £0.09m (H1 2021/22: £0.17m). The unwinding of the
stock fair value adjustment is expected to be one off in nature whereas the
amortisation of acquisition intangibles and share based payments charges will
see increased charges in the second half of FY22/23.
Adjusted profit after tax was also up 46% at £4.16m (H1 2021/22: £2.85m).
Reported profit after tax was £3.34m (H1 2021/22: £1.73m).
In the future, the rise in corporate tax rates to 25% from 19% for the
financial year 2023-24 will result in an increased effective tax rate albeit
the benefit of R&D tax credits will continue to mean our effective rate is
below the standard rate of corporation tax. As the Group continues to grow the
R&D benefit will reduce as we will only be eligible for the large company
RDEC scheme.
All this has translated into an excellent start to our financial year with
adjusted diluted earnings per share at 45.3p (H1 2021/22: 32.7p) and with
basic EPS of 37.2p (H1 2021/22: 20.2p).
The inflow of cash from operating activities was £0.5m (H1 2021/22 inflow
£5.0m) reflecting our significant continued investment in inventories to
secure organic growth, giving an adjusted operating cash conversion of 10% (H1
2021/22: 148%).
In the last 18 months the Group has invested £10.2m into Inventory, securing
product to put the Group in a strong position to service our customers and
this has been critical to delivering the high double digit organic growth.
The Group has invested £0.7m in capital projects (H1 2021/22 £0.8m)
reflecting continued confidence in our growth opportunities and an ambition to
continue to differentiate our offering.
Deferred consideration for acquisitions totals £14.4m net of discounting (31
March 2022: £6.6m). The deferred consideration includes £2.0m for Active
Silicon and £12.4m in respect of Custom Power. The gross deferred and
contingent consideration for Custom Power totals $15m. This has been
discounted to $13.9m at acquisition. The discount will be unwound over the
period of deferment. Payments in the First Half of £4.6m were made in respect
of Active Silicon and Willow Technologies.
The Group has net debt with banks of £1.71m on 30 September 2022 (£1.42m net
cash with banks on 31 March 2022) following the debt and equity funding that
was put in place to fund the acquisition of Custom Power.
Net debt (excluding IFRS16 lease obligations) on 30 September 2022 rose to
£16.1m (31 March 2022: £5.18m) which includes deferred contingent
consideration of £14.4m (31 March 2022: £6.6m) and the new debt funding.
The Group has a £7.5m revolving credit facility of which £4.6m is undrawn
which, combined with the Group's cash reserves, mean the Group is in a strong
financial position to fund future working capital requirements, capital
investment and acquisition opportunities as they arise.
Group net assets have increased to £60.5m (31 March 2022: £27.1m) primarily
due to the equity fund raise adding £27.0m, total comprehensive income in the
period of £3.3m and foreign exchange gain on retranslation of US assets of
£2.9m.
Dividends
The Board is committed to maintaining a progressive dividend policy as part of
delivering growth in shareholder returns, albeit with the recent acquisitions
and the growth ambitions, dividends are expected to be a smaller component of
total shareholder returns.
Having secured a term loan to part finance the acquisition of Custom Power and
against a backdrop of increasing interest rates, the Board is proposing a
modest progression in the dividend. Given the strong trading performance in
the First Half and prospects for the full year, the Board has decided to
declare an increase in the interim dividend up 4% to 6.5p per share (H1
2021/22: 6.25p). This follows a full year dividend increase of 22% last
financial year.
The interim dividend will be paid on 17 February 2023 to shareholders on the
register at the close of business on 27 January 2023. The shares will go
ex-dividend on 26 January 2023.
Statement of Directors' Responsibilities
The Directors confirm that this condensed consolidated interim financial
information has been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as set out in the basis of
preparation paragraph within the accounting policies, and that the interim
management report herein includes a fair review of the information required by
DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the
first six months and their impact on the condensed consolidated interim
financial information, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· material related party transactions in the first six months and
any material changes in the related party transactions described in the last
annual report.
Forward-looking statements
Certain statements in this half year report are forward-looking. Although the
Group believes that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that these expectations
will prove to be correct. Because these statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements. We undertake no obligation to
update any forward-looking statements whether arising as a result of new
information, future events or otherwise.
Outlook
The First Half has seen a record underlying trading period, against a
challenging market backdrop. The Group's strategy and focus on ensuring we
have sector, product, and customer diversity to provide a resilient business
model has continued to prove its value.
Having completed the acquisition of Custom Power we have established the
capability to target and service our international power customers. This will
be a key foundation of delivering significant organic growth in our target
markets in the medium term. Furthermore, this opens up opportunities for
cross-division collaboration, offering the full range of Group capabilities
and products means the Group continues to be well placed to deliver organic
growth, developing own brand products and solutions for the Group's target
growth markets.
The continued development of the technical capabilities which the Group now
has to offer (including enhanced test and measurement, semi-automated
wire-bonding for battery pack manufacturing and enhanced engineering
capabilities) better positions the Group to be able to engage with its tier
one customers.
Extended component lead times mean customer order cover remains at c.18 months
(50% longer than historical norms). This increases the absolute value of the
order book which stands at £117.8m on the 30 November 2022. We expect that as
lead times start to normalise so will customer order cover and the associated
order book value. The strength of the order book gives the board significant
confidence for the second half and into FY23/24.
The Board is confident of exceeding previous expectations for the year ending
31 March 2023. Whilst there is still some uncertainty as to potential impacts
of component shortages and lead times, there is potential further upside in
the second half of the year, delivery of which is dependent upon the impact of
the supply chain constraints.
Finally, the Board continues to recognise that the excellent progress and
execution of the Group's strategy is only possible because of the hard work
and contribution from our staff across the whole of the Group. Consequently,
the Board would like to extend its thanks to all Group employees.
Gary Marsh (Chief Executive Officer)
06 December 2022
INTERIM CONSOLIDATED INCOME STATEMENT
for the six months ended 30 September 2022
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Continuing Operations
Revenue 59,357 39,381 84,997
Cost of sales (40,588) (26,495) (57,470)
_______ _______ _______
Gross profit 18,769 12,886 27,527
Sales, general and administration expenses (14,296) (10,671) (23,801)
_______ _______ _______
Profit from operations 4,473 2,215 3,726
Finance costs (291) (106) (226)
_______ _______ _______
Profit before taxation 4,182 2,109 3,500
Taxation expense (843) (379) (977)
_______ _______ _______
Adjusted profit after taxation 4,160 2,845 6,158
Adjustments to profit (821) (1,115) (3,635)
Profit after taxation 3,339 1,730 2,523
_______ _______ _______
Profit attributable to equity holders of the parent 3,343 1,730 2,523
Profit/ (loss) attributable to non-controlling interests (4) - -
_______ _______ _______
3,339 1,730 2,523
Other comprehensive income - - 261
_______ _______ _______
Adjusted total comprehensive income for the period 4,160 2,845 6,158
Adjustments to total comprehensive income (821) (1,115) (3,374)
Total comprehensive income for the period 3,339 1,730 2,784
_______ _______ _______
Comprehensive income attributable to equity holders of the parent 3,343 1,730 2,784
Comprehensive income attributable to non-controlling interests (4) - -
_______ _______ _______
3,339 1,730 2,784
Earnings per share (see note 6)
Basic EPS from profit for the period 37.2p 20.2p 29.5p
Diluted EPS from profit for the period 36.4p 19.8p 28.9p
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2022 (unaudited)
Share Share Foreign Capital Shares Non-controlling interests Total equity
capital premium exchange redemption Retained held in
reserve reserve reserve earnings treasury Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 March 2021 428 3,625 6 5 21,508 (70) 25,502 - 25,502
Total comprehensive income for the period - - - - 1,730 - 1,730 - 1,730
Foreign exchange - - 35 - - - 35 - 35
Dividends - - - - (920) - (920) - (920)
Share based payment credit - - - - 179 - 179 - 179
______ _______ ______ _______ _______ _______ ______ ______ ______
Balance at 30 September 2021 428 3,625 41 5 22,497 (70) 26,526 - 26,526
Total comprehensive income for the period - - - - 1,054 - 1,054 - 1,054
Purchase of treasury shares - - - - - (80) (80) - (80)
Foreign exchange - - (8) - - - (8) - (8)
Transfer of treasury shares to All Employee Share Plan - - - - (93) 93 - - -
Dividends - - - - (533) - (533) - (533)
Share based payment credit - - - - 116 - 116 - 116
Rounding - - - - 1 - 1 - 1
______ _______ ______ _______ _______ _______ ______ ______ ______
Balance at 31 March 2022 428 3,625 33 5 23,042 (57) 27,076 - 27,076
Issue of new Shares 138 26,850 - - - - 26,988 - 26,988
Total comprehensive income for the period - - - - 3,343 - 3,343 (4) 3,339
Foreign exchange - - 2,905 - - - 2,905 - 2,905
Dividends - - - - - - - - -
Transactions with non-controlling interests - - - - - - - 50 50
Share based payment credit - - - - 113 - 113 - 113
______ _______ ______ _______ _______ _______ ______ _______ ______
Balance at 30 September 2022 566 30,475 2,938 5 26,498 (57) 60,425 46 60,471
______ _______ ______ _______ _______ _______ ______ _______ ______
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
on 30 September 2022
Unaudited Unaudited Audited
as at as at as at
30 Sept 22 30 Sept 21 31 Mar 22
Assets £'000 £'000 £'000
Non-current assets
Property, plant and equipment 4,838 3,404 3,414
Right of use lease assets 2,652 2,206 1,983
Intangible assets 47,198 16,027 15,831
Deferred tax asset 3,143 - 539
_______ _______ _______
Total non-current assets 57,831 21,637 21,767
Current assets
Inventories 24,940 12,728 17,598
Trade and other receivables 24,711 14,986 17,978
Deferred tax asset - 203 -
Cash and cash equivalents - on deposit 8,929 - -
Cash and cash equivalents - available on demand 7,117 5,323 4,983
_______ _______ _______
Total current assets 65,697 33,240 40,559
_______ _______ _______
Total assets 123,528 54,877 62,326
_______ _______ _______
Unaudited Unaudited Audited
as at as at as at
30 Sept 22 30 Sept 21 31 Mar 22
Liabilities £'000 £'000 £'000
Current liabilities
Trade and other payables (17,040) (12,759) (16,488)
Current borrowings (2,122) - (2,059)
Contract liabilities (5,209) (2,720) (3,461)
Deferred consideration on acquisitions - current (14,414) (4,200) (4,625)
Corporation tax liabilities (1,312) (986) (531)
Right of use lease liabilities (1,338) (694) (758)
_______ _______ _______
Total current liabilities (41,435) (21,359) (27,922)
Non-current liabilities
Non-current borrowings (15,628) (2,000) (1,500)
Provisions (717) (694) (694)
Deferred tax liability (3,867) (1,666) (1,832)
Right of use lease liabilities (1,410) (1,582) (1,326)
Deferred consideration on acquisitions - (1,050) (1,976)
_______ _______ _______
Total non-current liabilities (21,622) (6,992) (7,328)
_______ _______ _______
Total liabilities (63,057) (28,351) (35,250)
_______ _______ _______
Total net assets 60,471 26,526 27,076
_______ _______ _______
Share capital 566 428 428
Share premium reserve 30,475 3,625 3,625
Capital redemption reserve 5 5 5
Foreign exchange reserve 2,938 41 33
Retained earnings 26,498 22,497 23,042
Shares held in treasury (57) (70) (57)
_______ _______ _______
Capital and reserves attributable to equity holders of the parent 60,425 26,526 27,076
Non-controlling interests 46 - -
_______ _______ _______
Total equity 60,471 26,526 27,076
_______ _______ _______
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 September 2022
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Operating activities
Profit before taxation 4,182 2,109 3,500
Adjustments for:
Property, plant and equipment depreciation 458 326 729
Right of use asset depreciation 433 365 763
Amortisation 922 691 1,327
(Profit) / loss on disposal of property, plant and equipment (19) (14) 3
Share based payment expense 113 179 295
Finance costs 291 106 226
Recognition of increase in deferred contingent consideration - - 1,651
_______ _______ _______
Profit from operations before changes in working capital and provisions 6,380 3,762 8,494
Increase in inventories (3,370) (2,084) (6,922)
Increase in trade and other receivables (2,736) (731) (3,679)
Increase in trade and other payables 305 4,084 8,140
Decrease in provisions - (47) (47)
_______ _______ _______
Cash generated from operations 579 4,984 5,986
Income taxes paid (79) (13) (941)
Net cash flows from operating activities 500 4,971 5,045
Investing activities
Purchase of property, plant and equipment (730) (756) (1,178)
Capitalised own costs and purchase of intangible assets (183) (160) (601)
Proceeds from sale of property, plant and equipment 47 33 81
Payments for acquisition of subsidiaries net of cash acquired (29,156) (2,572) (2,572)
_______ _______ _______
Net cash flows from investing activities (30,022) (3,455) (4,270)
Financing activities
Issue of ordinary shares 26,988 - -
Repurchase of ordinary shares into treasury - - (80)
Borrowings drawn 14,505 - -
Borrowings repaid (156) (1,750) (2,250)
Payment obligations for right of use assets (458) (394) (871)
Interest paid (270) (75) (127)
Dividends paid to equity shareholders - (920) (1,453)
Transactions with non-controlling interests 50 - -
_______ _______ _______
Net cash flows from financing activities 40,659 (3,139) (4,781)
_______ _______ _______
Increase/ (decrease) in cash and cash equivalents 11,137 (1,623) (4,006)
_______ _______ _______
Unaudited Unaudited Audited
as at as at as at
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Translational foreign exchange on opening cash 83 32 16
Net increase / (decrease) in cash and cash equivalents 11,137 (1,623) (4,006)
Net cash and cash equivalents brought forward 2,924 6,914 6,914
_______ _______ _______
Net cash and cash equivalents carried forward 14,144 5,323 2,924
_______ _______ _______
Unaudited Unaudited Audited
as at as at as at
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Represented by:
Cash and cash equivalents - available on demand 7,117 5,323 4,983
Cash and cash equivalents - on deposit 8,929 - -
Cash and cash equivalents - overdraft facility (1,902) - (2,059)
_______ _______ _______
Net cash and cash equivalents 14,144 5,323 2,924
_______ _______ _______
NOTES TO THE INTERIM REPORT
for the six months ended 30 September 2022
1. Basis of preparation of interim financial information
General information
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.
The interim financial statements are unaudited and do not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 March 2022, prepared in accordance
with UK-adopted International Accounting Standards, have been filed with the
Registrar of Companies. The Auditors' Report on these accounts was
unqualified, did not include any matters to which the Auditors drew attention
by way of emphasis without qualifying their report and did not contain any
statements under section 498 of the Companies Act 2006.
Basis of preparation
These condensed interim financial statements for the six months ended 30
September 2022 have been prepared in accordance with IAS 34, 'Interim
financial reporting', as contained in UK-adopted International Accounting
Standards except for the acquisition accounting fair value exercise, where the
recognition of the deferred tax positions, the fair value of the consideration
and therefore the goodwill are on a provisional basis.
The condensed interim financial statements should be read in conjunction with
the annual financial statements for the year ended 31 March 2022, which have
been prepared in accordance with UK-adopted International Accounting
Standards.
The consolidated interim financial statements have been prepared in accordance
with the recognition and measurement principles of UK-adopted International
Accounting Standards expected to be effective for the year ending 31 March
2023.
Going concern
In assessing going concern the Directors gave careful consideration of the
potential impact of the global electronic component shortages on the cashflows
and liquidity of the Group over the next 12 month period.
Throughout the COVID pandemic, the United Kingdom's exit from the European
Union, and the supply chain shortages customer demand has remained solid.
Customer order cover remains extended, helping us to manage the global
electronics supply chain issues. The most significant impact on the Group's
future performance is the uncertainty arising from the extending electronic
component lead times. Management have taken all possible actions to minimise
and mitigate the potential impact of shortage.
Shortages are expected to continue be a significant factor in the financial
year 2022/23 and in to 2023/24 and the risk does have the potential to
adversely impact performance. While the actions do not mitigate the risk fully
it certainly has significantly reduced the impact in the first half of 2022/23
and positions the Group to manage the period beyond as effectively as
possible. In assessing going concern for the period ended 30 September 2022,
the financial modelling applied various sensitivity scenarios to a base case
to 31 March 2024 which was prepared based on an extension of the budget for
FY22/23.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the next 12 months,
therefore it is appropriate to adopt a going concern basis for the preparation
of the interim financial information. Accordingly, this interim financial
information does 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.
2. Accounting policies
The accounting policies are unchanged from the financial statements for the
year ended 31 March 2022 other than as noted below.
Financial instruments
The carrying value of cash, trade and other receivables, other equity
instruments, trade and other payables and borrowings also represent their
estimated fair values. Other than the impact of discounting the deferred and
contingent consideration associated with the Custom Power acquisition, which
is disclosed in note 11, there are no material differences between carrying
value and fair value at 30 September 2022.
Additional disclosure of the basis of measurement and policies in respect of
financial instruments are described on pages 103 to 108 of our 31 March 2022
Annual Report and remain unchanged at 30 September 2022.
Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the consolidated financial statements for the year ended 31 March 2022
other than those disclosed below.
In accounting for the acquisition of Custom Power there are several very
significant fair value adjustments which are significant accounting estimates.
The most significant judgements and estimates relate to the following:
1) Discount rates adopted in determining the fair value of the
consideration. A 1% increase in the discount rate would result in a $0.1m
decrease in the fair value of the consideration.
2) Forecast cashflows and the WACC discount rate adopted in determining
the fair value of the IFRS 3 acquisition intangibles. The cashflows adopted in
valuing the intangibles were consistent with the Board's investment appraisal.
A 1% increase in the discount rate would result in a £0.6m decrease in the
fair value of the IFRS 3 acquisition intangibles.
3) The fair value estimates in uplifting the property plant and
equipment to depreciated replacement cost. The Custom Power engineering team
has completed a detailed identification exercise of the material property,
plant and equipment. Where third party quotes can be obtained to ascertain
depreciated replacement cost these have been obtained. However, many of the
assets identified are bespoke or internally generated assets as such there is
no readily available market price. Therefore, the engineering team have
prepared internally generated reasonable estimates of the depreciated
replacement cost.
The impact of these estimates results in the recognition of a fair value
uplift to the net assets acquired of $9,471k (£7,827k) as set out in note 11.
These adjustments on initial recognition are presentational within the balance
sheet reducing the residual goodwill. The fair value adjustments will be
amortised through the P&L (where applicable) in accordance with the
Group's accounting policies which will reduce the reported profit and loss in
subsequent periods as these assets are written down.
Recent accounting developments
The accounting policies adopted are consistent with those of the previous
financial year and in preparing the interim financial statements, there were
no standards, amendments or interpretations applied for the first time that
had a material impact for the Group.
3. Principal risks and uncertainties
The principal risks and uncertainties impacting the Group are described on
pages 12 to 16 of our 31 March 2022 Annual Report and remain unchanged at 30
September 2022.
They include: acquisitions, legislative environment and compliance, supply
chain interruption and cost inflation, retention of key employees, failure of
or malicious damage to IT systems, natural disasters, competition, product /
technology change and forecasting and financial liquidity.
4. Segmental information
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Revenue
Systems 24,013 15,234 32,517
Components 35,344 24,147 52,480
_______ _______ _______
Group revenue 59,357 39,381 84,997
_______ _______ _______
5. Adjusted profit measures
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Acquisition fair value adjustments within cost of sales 90 168 168
Acquisition fair value adjustments and reorganisation costs 178 - 533
Increase in deferred contingent consideration of Active Silicon - 300 1,650
Amortisation of acquisition intangibles 661 514 1,028
Share based payments 114 179 295
Taxation effect (222) (221) (327)
Deferred tax rate change impact on acquisition intangibles and share based - 175 288
payments
Recognition of deferred tax assets in other comprehensive income - - (261)
_______ _______ _______
Total adjustments to other comprehensive income 821 1,115 3,374
_______ _______ _______
Reported gross profit 18,769 12,886 27,527
Adjusted gross profit 18,859 13,054 27,695
Reported operating profit 4,473 2,215 3,726
Adjusted operating profit 5,516 3,374 7,400
Reported operating profit margin percentage 7.5% 5.6% 4.4%
Adjusted operating profit margin percentage 9.3% 8.6% 8.7%
Reported profit before tax 4,182 2,109 3,500
Adjusted profit before tax 5,225 3,268 7,174
Reported profit after tax 3,339 1,730 2,523
Adjusted profit after tax 4,160 2,845 6,158
Reported other comprehensive income 3,339 1,730 2,784
Adjusted other comprehensive income 4,160 2,845 6,158
6. Earnings per share
The earnings per share is based on the following:
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Adjusted earnings post tax 4,164 2,845 6,158
Reported earnings post tax 3,343 1,730 2,523
_______ _______ _______
Weighted average number of shares 8,998,193 8,550,531 8,551,455
Diluted weighted average number of shares 9,193,936 8,698,270 8,728,268
_______ _______ _______
Reported EPS
Basic EPS from profit for the period 37.2p 20.2p 29.5p
Diluted EPS from profit for the period 36.4p 19.8p 28.9p
Adjusted EPS
Adjusted basic EPS from profit for the period 46.3p 33.2p 72.0p
Adjusted diluted EPS from profit for the period 45.3p 32.7p 70.6p
7. Dividends
Dividends paid during the period from 1 April 2021 to 30 September 2022 were
as follows:
24 September 2021 Final dividend year ended 31 March 2021 10.75p per share
18 February 2022 Interim dividend year ended 31 March 2022 6.25p per share
Post period end
5 October 2022 Final dividend year ended 31 March 2022 13.25p per share
The Directors are intending to pay an interim dividend for the year ending 31
March 2023 on 17 February 2023 of 6.5p per share. This dividend has not been
accrued at 30 September 2022.
8. Share capital
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
Allotted issued and fully paid
Number of ordinary 5p shares 11,322,394 8,564,878 8,564,878
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Allotted issued and fully paid
Ordinary 5p shares 566 428 428
The ordinary shares carry no right to fixed income, the holders are entitled
to receive dividends as declared and are entitled to one vote per share at
shareholder meetings.
On the 2 August 2022 the Company issued 2,757,516 shares with a placing price
of £10.25 generating gross proceeds of £28,265k and net proceeds of
£26,988k. The share placing received shareholder approval at the general
meeting on the 29 July 2022.
These funds in conjunction with the new facilities provided by Lloyds bank, as
set out in note 10, were utilised to the fund the acquisition of Custom Power
on the 5 August 2022 as disclosed in note 11.
Full details of movements in reserves are set out in the consolidated
statement of changes in equity above.
The following describes the nature and purpose of each reserve within owners'
equity.
Reserve Description and Purpose
Share premium Amount subscribed for share capital in excess of nominal value.
Capital redemption Amounts transferred from share capital on redemption of issued shares.
Retained earnings Cumulative net gains and losses recognised in the consolidated statement of
comprehensive income.
Shares held in treasury Shares held by the Group for future staff share plan awards
Foreign exchange Foreign exchange translation differences arising from the translation of the
financial statements of foreign operations
Non-controlling interest Equity attributable to non-controlling shareholders.
9. Non-current assets
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Goodwill 34,554 9,898 9,898
Acquisition intangibles 12,152 5,923 5,408
Research and development 125 50 200
Software 367 156 325
_______ _______ _______
Intangible assets 47,198 16,027 15,831
Property plant and equipment 4,838 3,404 3,414
Right of use assets 2,652 2,206 1,983
Deferred tax asset 3,143 - 539
_______ _______ _______
Total non-current assets 57,831 21,637 21,767
_______ _______ _______
10. Net debt
Unaudited Unaudited Audited
Six months to Six months to Year to
30 Sept 22 30 Sept 21 31 Mar 22
£'000 £'000 £'000
Cash and cash equivalents - overdraft (1,902) - (2,059)
Bank borrowing (including overdraft) due within one year (220) - -
Bank borrowing due after one year (15,628) (2,000) (1,500)
_______ _______ _______
Total borrowings (17,750) (2,000) (3,559)
Deferred consideration on acquisitions within one year (14,414) (4,200) (4,625)
Deferred consideration on acquisitions after one year - (1,050) (1,976)
Cash and cash equivalents - on deposit 8,929 - -
Cash and cash equivalents - on demand 7,117 5,323 4,983
_______ _______ _______
(Net debt) / net cash (16,118) (1,927) (5,177)
_______ _______ _______
During the period the Group has taken on two £6.5m term loans totalling
£13.0m. The first tranche is interest only and committed for three years from
the 5 August 2022 and the second tranche is repayable over five years with
quarterly repayments. Both tranches bear variable interest based on a margin
over base rate.
In addition to the new term loans, Lloyds have provided two standby letters of
credit to the vendors as security over the deferred consideration on the
acquisition of Custom Power (See note 11). Lloyds has taken a fixed charge
over the $10m of cash on deposit which will be used to settle the deferred
consideration. Both the cash on deposit and the deferred consideration are
included within the definition of net debt above.
The Group has retained its £7.5m revolving credit facility which is committed
to November 2023 and bears variable interest based on a margin over base rate.
11. Acquisition accounting for Custom Power LLC
Custom Power LLC
Book Fair value Fair value Fair value
value Adjustment to Group to Group *
$'000 $'000 $'000 £'000
Intangible assets - 8,298 8,298 6,858
Property plant and equipment 362 895 1,257 1,039
Right of use assets - 1,069 1,069 883
Deferred tax asset - 3,056 3,056 2,526
Inventory 4,105 61 4,166 3,443
Trade and other receivables 4,368 (250) 4,118 3,403
Trade and other payables (2,305) (158) (2,463) (2,036)
Right of use lease liabilities - (1,069) (1,069) (883)
Provision for dilapidations - (25) (25) (21)
Cash and cash equivalents 319 - 319 264
Deferred tax liability - (2,406) (2,406) (1,988)
_______ _______ _______ _______
Net assets on acquisition 6,849 9,471 16,320 13,488
Goodwill on acquisition - - 27,612 22,822
_______ _______ _______ _______
Discounted consideration 43,932 36,310
_______ _______
Discharged by:
Cash paid on acquisition 30,000 24,795
Short term deferred consideration 10,000 8,266
Short term deferred contingent consideration - Earn out 5,000 4,132
_______ _______
Gross consideration 45,000 37,193
Discounting (1,068) (883)
_______ _______
Discounted consideration 43,932 36,310
* Exchange rate at date of acquisition was 1.21
Solid State Plc incorporated Custom Power Holdings Inc. as a new 100% owned US
subsidiary to subsequently acquire Custom Power, LLC on 5 August 2022. Custom
Power LLC is a company based in Orange County, California that designs and
manufactures custom battery pack solutions. The entire membership interest of
the LLC was purchased for a maximum consideration of $45m, including $10m of
deferred consideration (payable in two equal tranches in February 2023 and
August 2023) and a $5m earn-out payable on achievement of a revenue
performance target.
The fair value of intangible assets recognised is in relation to the brand
"Custom Power", the open orderbook and the customer relationships. The
goodwill recognised represents expected synergies from combining the
operations of Custom Power LLC with those of the existing Systems Division,
expected value from incremental sales arising across the combined operation
that is not separately recognisable at the date of acquisition and the value
of the work force not recognised as an intangible asset under IFRS 3 revised.
The Group acquired the membership interests of Custom Power LLC, which is a
disregarded entity for US tax, so we expect to benefit from a tax deduction in
the U.S in relation to the goodwill arising. This results in the initial
recognition of a deferred tax asset of $3,056k (£2,526k). The related timing
differences giving rise to the deferred tax recognised will unwind over a 10
year period.
The revenue and profit after tax for the post acquisition period included in
the Statement of Comprehensive Income arising from Custom Power's operations
were $4,005k (£3,452k) and $255k (£220k) respectively. The Group incurred
acquisition related costs of £743k (of which £565k was expensed in prior
periods and £178k expensed in the current period) on legal fees and due
diligence costs, included in sales, general and administration expenses.
The Group has set aside $10.0m of cash on deposit (disclosed as a separate
element of cash and cash equivalents on the face of the consolidated balance
sheet) fully funding the short term deferred consideration of $10 million.
The final $5.0m deferred contingent consideration only becomes payable if
Custom Power achieves last twelve-month revenue in excess of $37.5m within an
18-month period post acquisition. The deferred and contingent consideration
amounts have been discounted at an appropriate cost of debt and WACC
respectively. The impact is to reduce the fair value of the consideration by
£883k. The discounting will be charged as a non-cash interest charge over the
period of the deferment.
The acquisition accounting is on a provisional basis for this interim report,
in particular the determination of the deferred taxation values and the fair
of the consideration (and therefore the goodwill quantum).
12. Formation of eTech Developments Limited
On the 8 June 2022 the Group formed a new entity, eTech Developments Limited,
registered Co. number 14159260. eTech Developments Limited is 75% owned by
Solid State PLC and 25% owned by eTech49 Limited. This is a new business which
is providing engineering consultancy by employing a small engineering team.
During the period the core team has been recruited, and the team are providing
Power engineering services to the Group and external customers on an arm's
length basis.
13. Related party transactions
Consistent with the year ended 31 March 2022 the ongoing related party
transactions in the period were those with the trading companies which are
used by the non-executive directors for their consultancy services. These
transactions are disclosed in the remuneration report in the annual report to
the 31 March 2022 and will be updated in the full year report to the year
ending 31 March 2023.
eTech Developments Limited was incorporated in the period and the Group has
traded with the non-controlling interest (eTech 49 Limited) to receive their
initial £50,000 cash contribution for the 25% share purchase and allocated
the proportion of the initial trading expense. There are no other material
related party transactions.
14. Post balance sheet events
Post period end, 56,400 share option awards were awarded under the LTIP plan
with 14,100 share options to each of the executive directors. Furthermore,
45,325 shares have been awarded to the key management employees under the CSOP
plan.
During November, the Group announced the successful award of two separate
defence contracts to the Systems Division from the NATO Support and
Procurement Agency ("NSPA") to supply communications equipment for £7.3m
(delivery expected to complete in this financial year) and £9.8m (delivery
expected in the 23/24 financial year) respectively.
The statement will be available to download on the Company's website:
www.solidstateplc.com.
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