TIDMSOLI
RNS Number : 8338E
Solid State PLC
04 July 2023
Solid State plc
( "Solid State", the " Group " or the "Company" )
Final Results for the 12 months ended 31 March 2023
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 its audited final results
for the 12 months ended 31 March 2023.
Financial overview:
Set out below are the financial key performance indicators for
the year:
KPI 2023 2022 Change
---------- ----------
Reported revenue GBP126.5 GBP85.0m 48%
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Reported operating profit margin 7.4% 4.4% 300bps
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Adjusted operating profit margin* 9.2% 8.7% 50bps
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Reported profit before taxation GBP8.4m GBP3.5m 140%
========== ========== =======
Adjusted profit before taxation* GBP10.8m GBP7.2m 50%
========== ========== =======
Reported EPS 64.5p 29.5p 119%
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Adjusted fully diluted EPS 80.7p 70.6p 14%
========== ========== =======
Adjusted cash flow from operations GBP9.4m GBP6.0m 57%
========== ========== =======
Net cash/(net debt)** (GBP8.1m) (GBP5.2m) 56%
========== ========== =======
Dividend 20.0p 19.5p 3%
========== ========== =======
Open order book @ 31 May GBP116.2m GBP89.7m 30%
========== ========== =======
* 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
redundancies and acquisition costs and fair value adjustments.
** Net cash / debt includes net cash with banks of GBP12.2m
(2022: GBP2.9m), bank borrowings of GBP14.7m (2022: GBP1.5m),
deferred consideration of GBP5.7m (2022: GBP6.6m) and excludes the
right of use lease liabilities of GBP2.0m (2022: GBP2.1m).
The Group has delivered:
-- Record year of financial performance, with demonstrable
strategic and operational progress, achieved against a backdrop of
component shortages, inflationary pressures, and volatile exchange
rates.
-- Acquisition of Custom Power LLC, a strategically aligned,
profitable and, cash generative battery pack manufacturer located
in Southern California USA for a total consideration of up to
$45.0m in August 2022.
-- Awarded contract to help deliver a new One Person Operation
CCTV system for Transport for London, as part of the Piccadilly
Line Upgrade on the London Underground Network.
-- Announced contracts worth GBP17.1m with NATO Support and
Procurement Agency (NSPA) to supply communications equipment to a
defence customer through the Group's Systems division.
-- Development of the own brand Durakool components range.
-- Formation of eTech Developments enhances Group engineering capabilities.
Strategic Achievements in 2022/23:
Notable achievements to advance the Group's strategy
include:
-- Established new 2030 ambition and strategy to maintain
compound annual growth in total shareholder return in excess of
20%.
-- Focus on structural growth markets - industrial, security and
defence, medical, transport, and energy.
-- Investment in talent and development of Group leadership team
as key differentiator and driver for future growth.
-- Further internationalisation of the Group through the acquisition of Custom Power.
-- Systems division targeting 'through-life' support
opportunities, providing "annuity" revenues and enhanced customer
value.
Post period events:
-- $10.7m follow-on order for radio frequency components from
existing customer, CyanConnode, through the Group's Components
division.
Current trading:
The Group has seen strong trading in Q1 supported by the recent
NATO contract and has a robust order book for the year ahead,
balanced with the investments made and planned. This, leads Board
to expect revenue for the 12 months ending 31 March 2024 to be
ahead of current consensus(1) , reflecting year on year growth in
excess of 15%, and adjusted profit before tax to be marginally
ahead of current consensus reflecting circa 10% year on year
growth.
Commenting on the results and prospects, Gary Marsh, Chief
Executive said:
"Solid State has had a really productive year, building on the
pillars of our long-term growth strategy. The acquisition of Custom
Power deepens sector specialism, broadens product offering and
extends international reach to an increasingly global client
base.
"By targeting structurally growing end markets and having a
specialist technology-led workforce, the Board is optimistic for
the continued success of the business. The Group remains ambitious
to meet the new 2030 targets for the benefit of all
stakeholders."
(1) Before announcement of these results analysts from brokers
Cenkos Securities plc, WH Ireland plc, and finnCap Limited, provide
equity research on Solid State, and the Company considers the
average of their research forecasts to represent market
expectations for Solid State's FY2023/24 financial year, being
revenue of GBP133m, and adjusted profit before tax* of
GBP11.3m.
* The adjustments relate to IFRS 3 acquisition amortisation,
share-based payments charges, and non-recurring charges in respect
of redundancies and acquisition costs and fair value
adjustments.
Analyst Briefing: 9.30 a.m. on Tuesday 4 July 2023
An online briefing for Analysts will be hosted by Gary Marsh,
Chief Executive, Peter James, Group Finance Director, and John
Macmichael, Managing Director Components Division, at 9.30 a.m.
today, Tuesday 4 July 2023 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: 2.00 p.m. on Wednesday 5 July 2023
Gary Marsh, Chief Executive , Peter James, Group Finance
Director, and John Macmichael, Managing Director Components
Division, will hold a presentation to cover the results and
prospects at 2.00 p.m. on Wednesday 5 July 2023. 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
. 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 .
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
Cenkos Securities plc (Nominated
Adviser & Joint Broker)
Adrian Hadden / Callum Davidson (Corporate
Finance)
Alex Pollen / Jasper Berry (Sales) 020 73978900
finnCap (Joint Broker)
Ed Frisby (Corporate Finance)
Rhys Williams / Tim Redfern (Sales
/ ECM) 020 7220 0500
Walbrook PR (Financial PR) 020 7933 8780
Tom Cooper / Nick Rome / Joe Walker 0797 122 1972
solidstate@walbrookpr.com
Analyst Research Reports: For further analyst information and
research see the Solid State plc website:
https://solidstateplc.com/research/
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
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 three acquisitions in the last three years.
chairman's statement
I am delighted to announce the Group has delivered another year
of record growth across both our divisions, with a solid demand for
our products in the market as reflected with our strong orderbook
of GBP120.1m. Total shareholder return over the five years to 2023
has been circa 29% and the Board is committed to maintaining a
level in excess of 20% going forward.
Performance
We successfully acquired Custom Power, the battery systems and
energy solutions provider based in Southern California in the
United States in August 2022, and I am pleased that the business is
performing in line with our Board's expectations. This acquisition,
alongside previously acquired Willow Technologies & Active
Silicon, has strengthened our performance in the medical and
transport sectors.
The geo-political environment continues to drive government
spending in security and defence, with Group revenue in these
sectors approaching 20%. Solid State has been successful in
building on its relationships with Tier 1 customers to the security
and defence sector. Additionally, the Systems division won a
notable contract with NATO to supply communications equipment to a
client in the defence sector and provide a foundation for long term
recurring revenue in this market as the Group targets
'through-life' support opportunities.
The macro-economic environment continues to be challenging with
higher inflation, higher interest rates and the on-going supply
chain challenges still present, albeit there has been some
stability in the component supply chain. The Group is continuing to
pro-actively engage customers to manage the supply chains. The
order book visibility (which extends approximately 18 months) is
critical as we continue to work with our customers to manage our
investment in inventory to support order fulfilment and supply
chain risk.
Environmental, Social and Governance (ESG)
ESG is at the core of Solid State's strategy and we continue to
focus on developing a governance framework that remains appropriate
for our developing business, creating a long-term sustainable
business which minimises our adverse impact on the environment and
maximising the value for our stakeholders.
We have established an ESG committee which meets regularly and
is focused on developing the ESG strategy to deliver on our goals,
including achieving Net-Zero in Scope 1 and Scope 2 emissions by
2050. This committee is working hard on how we enhance the
communication of our approach to ESG to our stakeholders both
internally and externally.
Our technology, products and systems are designed and engineered
to be high quality, often upgradable with long life which
inherently means we are starting from a strong position. These
characteristics help to differentiate us from our competitors and
enable us to be ambitious in how we do business, to maintain our
position where we believe we are a business leading on ESG in our
sector.
Our employees
On behalf of the Board, I would like to thank all our employees
for their commitment to the business. Our business has grown to
over 400 employees and the investment in our people is essential in
successfully delivering on our strategy and underpinning our
long-term performance.
We are seeing the benefit of our investment in HR last year with
key initiatives & activities being incorporated into the
Group's people and talent development plans.
The energy crisis and increased cost of living has made it a
challenging year for our employees. The Board has taken steps to
supporting our employees including paying a one-off energy bonus
and awarding an interim pay increase.
The Board & Governance
The Board strives to maintain the highest standards of corporate
governance in line with principles of the Quoted Companies Alliance
code on corporate governance. As a result of a Board evaluation,
the Board is at an advanced stage in its recruitment of an
additional independent non-executive Director in the UK. Subject to
agreeing contractual terms and completing the AIM compliance we
expect to be able announce the new appointment during the Summer,
well ahead of our AGM.
This addition to the Board will provide an equal balance of
executive and non executive directors with the Chair having a
casting vote.
The 2022 ISS report has concluded that Peter Haining is not
independent, and Nigel Rogers is overboarded. The Board has
considered these conclusions fully. We agree Peter does not meet
the definition of an independent non-executive, however we consider
he acts with independence and integrity in fulfilling his
non-executive director responsibilities. The Board considers that
the recruitment of the additional independent director establishes
an appropriate level of independent governance while enabling Peter
to continue adding value to the Board with his experience.
The Board has evaluated my capacity to fulfil my role as Chair.
This evaluation was led by the senior independent director and
concluded that I have sufficient time to fulfil all the roles to
the high standard required, even in the event of unforeseen
circumstances which may require a significant increase in time
commitment. In any event, it has subsequently been announced that I
will be stepping down from one of the other roles towards the end
of 2023.
Dividend
The Board is proposing a final dividend of 13.5 pence (2022:
13.25 pence) resulting in full year dividends of 20.0 pence (2022:
19.50 pence) which is covered 4.0 times by adjusted earnings (2022:
3.6 times). The Directors believe this policy allows a suitable
balance between investment for growth and investor return.
Subject to approval of the final dividend by shareholders at the
AGM on 6 September 2023, the final dividend will be paid on 29
September 2023 to shareholders on the register at the close of
business on 8 September 2023, and the shares will be marked
ex-dividend on 7 September 2023.
Outlook
The Board is confident it will continue to deliver further
sustainable growth for shareholders as the Group expands its
international presence, broadens its product and service offering,
and continues to target complementary acquisitions.
Our 2030 ambition and strategy highlights our ambition to
maintain compound annual growth in total shareholder return to be
in excess of 20%. We are confident we are well placed to deliver on
this ambition and are committed to making strategic investments
both organic and M&A to ensure we have a sustainable and
scalable business which will drive the mid and long term growth in
value for all our stakeholders.
Nigel Rogers
Non-Executive Chairman
Chief Executive Officer's Review
I am pleased to report that despite the challenges in the
macro-economic environment the Group has delivered significant
progress in the execution of its growth strategy and resulting
record financial results for the period, which continues to build
on the strong performance we have seen over the last 5 years.
The acquisition of Custom Power reflects an important strategic
step forward, enhancing our capabilities to service our
international customers' demands for our battery pack technology
adding USA production and engineering capabilities.
Our commitment to customer service and long-standing
relationships, and a pro-active approach to managing the
semiconductor supply chain challenges, enabled us to invest in
inventory in partnership with our customers. This has been the key
factor in enabling us to secure product and business over the last
year which has been the cornerstone of our 18% organic revenue
growth.
The last two years have highlighted the huge value of having two
distinct divisions, with the Components division supporting the
delivery in the Systems division, and the Systems division aligning
itself to be in a position to deliver on significantly larger scale
projects. It is the diversity of our business that reduces risk and
sets us apart in the industry.
Strong Business Performance
The Group has delivered another record year of financial,
strategic and operational performance which was achieved against a
backdrop of component shortages, inflationary pressures, and
volatile exchange rates.
I am very pleased to report 14% growth in adjusted diluted
earnings per share over the prior year's record result and a
significant step change in revenue year on year at GBP126.5m (2022:
GBP85.0m), with second half revenues of GBP67.1m outperforming a
strong H1.
Group adjusted operating margins are a key metric. We saw
adjusted operating margins increase by 0.5% to 9.2% during the
year. Operating margins this year have benefited from a strong mix
in sales across both divisions and lower overheads as a result of
the challenging labour market driven by recruitment taking
longer.
During the year the Group raised GBP27m, placing 2.7m shares to
assist in funding the acquisition of Custom Power. Group AEPS
increased 14% to 80.7p (2022: 70.6p). During the first half, the
Group invested a significant proportion of its operating cash
generation into working capital. Pleasingly, in the second half we
saw adjusted operating cash conversion increase to 145% with full
year cash conversion of 81% (2022: 81%).
Sector and Divisional review
The Components division delivered revenue of GBP70.0m (2022:
GBP52.5m), a 33% increase on the prior year. This growth has been
built upon the design work which commenced during 2020 when the
shortages first started to arise, combined with work with customers
to secure order schedules and inventory to ensure we could deliver
product.
Our Systems division revenue increased by 77% to GBP57.5m (2022:
GBP32.5m). This reflects a GBP16.7m benefit in the current
financial year from the acquisition of Custom Power in August
2022.
In November 2022, the Systems division reported notable contract
wins to supply communications equipment to a client in the defence
sector through NATO. None of the revenue associated with Nato
contracts which were announced in Q3 shipped in the current
financial year, positioning the division to have a very strong
first half to the FY2023/24.
While these contracts are likely to dilute the margin mix within
the Systems business in the year ahead, they will contribute
positively to the attainment of expectations for FY23/24 and
provide a foundation for long term recurring revenue in this sector
as the Group targets 'through-life' support opportunities.
Key leadership
Pleasingly, in the second half of the year and into the new
financial year, we have seen several internal promotions as well as
continued investment in new talent in addition to the talent which
has joined our senior team from the acquisition of Custom Power
during the year. We are continuing to invest in our people and
developing our Group leadership team as this is a key
differentiator and driver for future growth as we strive to
replicate recent successes.
Acquisitions
Custom Power, the battery systems and energy solutions provider
based in Southern California in the United States, acquired in
August 2022 and integrated into the Power business unit, continues
to perform in-line with management's expectations. Positive
co-operation with the Group sales and marketing teams and exposure
to an existing customer base is generating new international
opportunities in target markets. In the year ahead we plan to
invest in and develop the technical sales team to complement and
support the established representative sales network which Custom
Power leverages to drive organic growth.
The Board continues to actively explore attractive acquisition
opportunities across its target markets both overseas and in the
UK.
As we reported in the trading update, the Custom Power open
order book was up 11% on the prior year at $18.6m (31 March 2022:
$16.8m), giving the Board confidence in the growth prospects in the
year ahead. Albeit due to the continued impact of supply chain
challenges for both Custom Power and its customers, the higher,
stretch earn out hurdle is not expected to be exceeded and as such
the Group's obligations payable to the vendors will be reduced.
Strategy
Solid State's Strategy remains broadly consistent with prior
years, combining an acquisitive and organic growth strategy to
actively target strategic customers in growth sectors with high
barriers to entry that require accreditations, long standing
credibility, and specialist skills and experience where our
technology adds tangible value. The Group's key target markets
include industrial, security and defence, medical, transport, and
energy.
We are continuing the implementation of our mid-term strategy
where we have set goals to 2030 aligned with the adoption of key
technology and geopolitical / environmental agendas.
Our four strategic pillars to drive growth remain:
-- Internationalisation of the Group;
-- Talent development embedding our ESG values;
-- Broadening our complementary product and technology portfolio;
-- Development of our "own brand" components and systems offering securing recurring revenue.
The following key milestones represent critical steps in
delivery of our strategy and are cornerstones which our 2030 plans
and ambitions will continue to build on:
-- The acquisition of Custom Power;
-- The development of the own brand Durakool components range;
-- Additional talent at Active Silicon to increase our
technologies and engineering capabilities; and
-- Formation of eTech Developments enhances engineering capabilities.
The team and the strategic foundation which the Group has put in
place over recent years underpins the ambition to maintain in
excess of 20% annual compound growth in total shareholder return
("TSR") over the next phase of the Solid State's development to
2030, maintaining the record performance which has been delivered
over the last 5 years.
Our markets and business development
One of the Group's strategic strengths is the resilience that
arises from servicing a broad range of growth markets with high
barriers to entry where customers value the high performance, long
life sustainably engineered components and systems that the Group
provides. In the current year the geo-political environment
continues to drive government spending in security and defence,
where the Group revenue in this sector has seen strong organic
growth and is now circa 18% (2022: circa 14%).
Solid State has been successful in building relationships with
Tier 1 suppliers to the medical and the security and defence
sectors, such as BAE, NATO and Siemens healthcare. This has been
augmented by the acquisition of Custom Power who have strong
customer relationships with Tier 1 defence and medical customers in
the USA such as Flextronics International, iRhythem Technologies
and General Atomics. The Group continues to see further growth
opportunities within its strategic Tier 1 customers in its target
growth sectors.
Our strategy has positioned the Group to take advantage of new
opportunities and allowing us to enter 2023 with a strong pipeline
and an order book of GBP120.1m at 31 March 2023 (31 March 2022:
GBP85.5m). Our order book combined with our inventory management
plan positions Solid State to proactively manage the
well-publicised on-going electronics supply chain issues with our
customer and gives us confidence for the year ahead.
Sustainability and development
Our ESG strategy has developed significantly during the year.
ESG is an intrinsic part of our overall purpose and strategy.
During the year we have established an ESG committee which is
working to challenge ourselves and as far as possible influence our
stakeholders to "do the right thing".
The initial findings of the ESG committee were that the
business' established principles, values, and behaviours by which
Solid State has operated for many years are fully aligned with good
practice ESG principles, as a result we believe we are leading in
this area in our sector.
However, we recognise that we have significant work to do to
ensure we measure and communicate what we do both internally and
externally. We recognise that capturing the right data practically,
and communicating it, is becoming of increasing commercial
importance. This is critical to ensuring that we can deliver on our
ambition to differentiate.
Furthermore, as the Group continues to grow, to ensure we
maintain the culture where the best practice principles, values and
behaviours of ESG, continue to be embedded into what we do and how
we do it.
Outlook
We are confident that the strategic progress and the associated
growth from new bespoke strong project demand and recurring
business will more than offset the potential short term
macro-economic and electronics sector headwinds which may arise
from foreign currency and the potential for some level of
destocking driven by improving component lead times and customers
looking to normalise working capital levels.
The supply chain shortages meant our open orderbook visibility
was extended throughout the year. Post year end higher interest
rates have increased customer focus on working capital. For some
components, lead times are starting to improve, which is resulting
in customers looking to reduce order schedules back to more normal
levels.
Current trading has been very strong with the benefit of Custom
Power combined with significant shipments of product under the NATO
contract announced in November 2022 resulting in record Q1 revenues
which were significantly up over the prior year. We do anticipate
that this is a short-term spike with revenues and profits being
particularly strong in the first half compared to traditional
norms.
With strong Q1 shipments combined with customers looking to
normalise order cover, our open orderbook at 31 May 2023 was
slightly down at GBP116.2m (31 May 2022: reported GBP89.7m, like
for like GBP104.5m) albeit it was up on the prior year both on a
reported and like for like basis.
The Group's plans to drive its organic growth strategy and
secure the delivery of the strong order book is continuing to
progress. While recruitment of talent continues to be challenging,
we have seen good progress and plan to add further talent in the
remainder of H1 and into H2 to drive mid-term organic growth.
The very strong Q1 and the strength of the order book, balanced
with the investments made and planned, means pleasingly we expect
revenue in FY2023/24 to be ahead of current consensus, reflecting
year on year growth in excess of 15%, and adjusted profit before
tax to be slightly ahead of current consensus reflecting circa 10%
year on year growth.
Gary Marsh
Chief Executive Officer
Chief Financial Officer's Review
To provide a fuller understanding of the Group's ongoing
performance, several adjusted profit measures as supplementary
information are included on a consistent basis with that reported
by the financial analysts that review our business. As detailed in
note 30, the adjusted measures eliminate the impact of certain
non-cash charges and non-recurring items together with the
associated tax impact.
Revenues
Group revenues of GBP126.5m (2022: GBP85.0m) reflect the benefit
of a significant foreign exchange tailwind (circa GBP9.3m due to
the average US dollar rate moving from circa 1.37 in FY22 to 1.20
during FY23) and the revenue from the acquisition of Custom Power
in August 2022. As previously reported, post-acquisition the
performance of Custom Power has been in-line with management
expectations. Organic constant currency revenue growth (calculated
by applying the FY22 exchange rate to FY23 legacy Group figures)
was approximately 18%.
The Components division achieved revenues of GBP69.0m (2022:
GBP52.5m) reflecting very strong organic growth. This is an
excellent result and reflects the benefits of the hard work over
the last 18 months to leverage the increased component portfolio
and secure additional design-ins, supported by our ability to
source and invest in inventory to fulfil customer demand.
The Systems division reported revenue of GBP57.5m (2022:
GBP32.5m), with Custom Power contributing GBP16.6m, meaning
like-for-like revenue up GBP8.4m (25.8%) against a challenging
macro-economic backdrop. Supply chain pressures, including
component availability, and the requirement for board and system
redesigns as a result, have caused some project delays.
Gross profit
Reported gross profit of GBP39.7m (2022: GBP27.5m) are up 44.4%,
GBP12.2m year on year. There was an adverse impact of acquisition
accounting charges in both years which have been excluded in the
adjusted gross profit (see note 30).
In managing foreign exchange risk, we look to mitigate exposure
by quoting in the currency of main supply when possible. The
reduction in the gross margin percentage is driven by the dollar
exchange rate movement as a result of the Group benefiting from
being largely naturally hedged against foreign exchange movements
at a gross margin level. In the current year the revenue tail wind
results in an estimated margin percentage headwind of circa 2.5%.
Excluding the impact of foreign exchange, the underlying margins in
both divisions reflect improvements benefiting from the richer
sales mix with higher engineering value added sales.
Adjusted gross profit for the year is up GBP12.1m to GBP39.8m
(2022: GBP27.7m), albeit because of the currency movements the
Group's adjusted gross margin percentage has decreased to 31.4%
(2022: 32.6%).
Components contributed adjusted gross profit of GBP17.5m (2022:
GBP14.0m) and Systems contributed GBP22.2m (2022: GBP13.7m).
Sales, general and administration expenses
Reported Sales, general and administration ("SG&A") expenses
increased to GBP30.3m (2022: GBP23.8m). Within SG&A, there were
acquisition related and share based payments charges totalling
GBP2.1m (2022: GBP3.5m). These items have been added back in
reporting our adjusted performance (see Note 30) and are made up as
follows:
-- GBP0.3m credit (2022: GBP1.7m debit) from the Active Silicon earn-out provision true up;
-- GBP0.3m (2022: GBP0.5m) in relation to acquisition costs;
-- GBP1.6m (2022: GBP1.0m) amortisation of IFRS3 acquisition intangibles,
-- GBP0.6m (2022: GBP0.3m) share-based payments charge; and
-- GBP0.1m (2022: GBPnil) Imputed interest charges.
Adjusted SG&A expenses on an underlying basis increased by
GBP7.8m to GBP28.1m (2022: GBP20.3m) reflecting the acquisition of
Custom Power (adding approximately GBP5.5m to overheads in the
period), 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 drive continued growth.
Operating profit
Adjusted operating margins increased to 9.2% (2022: 8.7%) with
adjusted operating profit up to GBP11.6m (2022: GBP7.4m) reflecting
the GBP1.4m contribution of Custom Power and stronger margins
across the Group. Reported operating profit was up 154% to GBP9.4m
(2022: GBP3.7m), additionally benefiting from the decrease in
acquisition related accounting charges. The adjustments to
operating profit are set out in further detail in note 30.
Based on the R&D criteria, the Group is now a large company
in terms of the classifications for UK R&D tax benefits. Under
the large company scheme, we have recognised GBP0.29m (2022:
GBP0.01m) within operating profit in respect of research and
development expenditure credit ("RDEC"). These development
programmes are a cornerstone of the Group's future high value add
revenue streams.
Profit before tax
Adjusted profit before tax was up 50.0% to GBP10.8m (2022:
GBP7.2m). Reported profit before tax was up 140% to GBP8.4m (2022:
GBP3.5m). This is reported after adjusting items totalling GBP2.4m
(2022: GBP3.7m) of which GBP0.1m (2022: GBP0.2m) 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 21%
(2022: 14%) compared to the standard rate of 19% (2022: 19%) in the
UK.
The effective tax rate has increased primarily because of three
factors: increased profits generated in the USA where the effective
corporate tax rate is higher at circa 29%, increased profitability,
diluting the benefit of R&D tax credits, and the fact the Group
no longer qualifies for the more generous SME scheme.
Adjusted profit after tax was up 38.7% to GBP8.6m (2022:
GBP6.2m). Reported profit after tax was up 168% to GBP6.7m (2022:
GBP2.5m).
The corporation tax rate in FY23/24 is planned to increase to
25% from 19% which is expected to result in an increase in our
effective rate of tax, albeit the increase has been reflected in
the recognition of the deferred tax positions on the balance sheet
which will unwind in the years ahead.
EPS
Adjusted fully diluted earnings per share for the year ended 31
March 2023 is up 14.3% to 80.7p (2022: 70.6p). Reported fully
diluted earnings per share is up 118% to 63.1p (2022: 28.9p).
Dividend
The Board is proposing a final dividend of 13.50p (2022: 13.25p)
for approval at the Annual General Meeting, giving a full year
dividend of 20.00p (2022: 19.50p) as set out in the Chairman's
statement.
Cash flow from operations
Having seen a significant working capital investment of GBP5.8m
in the first half, cash inflow from operations reduced to GBP0.6m.
In the second half we saw GBP1.5m of the H1 working capital
investment unwind, delivering strong cash inflow from operations of
GBP8.8m in H2. This results in a full year cash inflow from
operations of GBP9.4m (2022: GBP6.0m).
The second half adjusted operating cash conversion percentage
(cash generated from operations/adjusted operating profit) was 145%
and full year of 81% (2022: 81%). The full year reported operating
cash conversion percentage was 100% (2022: 161%).
The full year working capital cash outflow of GBP4.3m (2022:
GBP2.5m) is driven by a significant increase in inventories of
GBP12.5m, offset in part by an increase in payables of GBP6.4m and
a decrease in receivables of GBP1.8m.
The increase in inventories and payables reflects a short-term
increase in inventory of circa GBP4.4m in relation to the NATO
contract announced in November 2022 which shipped post year end
during Q1 23/24.
Post period end inventories have reduced, albeit as a result of
our strategic investment in product to support our significant
increase in customer orders our inventories remain inflated, but
proportionate to the increase in committed orderbook.
Investing activities
During the year, the Group invested GBP1.1m (2022: GBP1.1m) in
property, plant and equipment, and GBP1.2m (2022: GBP0.6m) in
software and research & development intangibles. The Group's
capital expenditure programme saw significant increase in the
Systems R&D investment and an upgrade to our UK Power facility,
with the investment in the refurbishment of the office space
combined with the wire bonder and improved battery test equipment
delivering a step change in the working environment and technology
capabilities for the UK Power business unit.
In the Components division, there was continued investment to
integrate the Willow businesses including the recognition of a
decommissioning asset and an associated provision of GBP0.4m in
relation to the planned decommissioning of the legacy mercury
product production equipment. Furthermore, across the Group we have
continued our programme to replace older vehicles with hybrid and
electric models.
There are capital commitments of GBP0.2m (2022: GBP0.3m) at the
balance sheet date, primarily relating to planned upgrades to
existing IT systems and properties.
During the period, payments in respect of the acquisitions of
Custom Power totalled GBP28.7m, and Active Silicon and Willow
totalled GBP4.6m (2022: GBP2.6m). Furthermore, at year end we have
released GBP0.3m of the Active Silicon deferred contingent
consideration as a credit to profit and loss. A reconciliation of
deferred contingent considerations of GBP5.7m (2022: GBP6.6m) is
included in note 21.
Financing activities
The Group has entered or extended leases during the period which
has resulted in the recognition of GBP0.1m of additional right of
use assets (excluding those acquired with Custom Power) with a
corresponding right of use liability, in accordance with IFRS16.
Cash payments were made in the period in respect of lease
liabilities of GBP1.1m (2022: GBP0.9m).
The financing activities reflect loans drawn down of GBP15.9m,
which includes the draw down of GBP13.0m of term loans and GBP2.9m
of the revolving credit facility (RCF), offset by loan repayments
of GBP2.8m which includes the first two quarterly repayments on the
term loan of GBP0.65m.
Solid State continues to have a strong relationship with Lloyds
Bank. Lloyds has authorised a $10m 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. Furthermore,
Lloyds have extended the term of the GBP7.5m (2022: GBP7.5m)
Revolving Credit Facility (RCF) which is now committed until 30
November 2024. At 31 March 2023 GBP2.4m of the RCF was drawn (2022:
GBP1.5m).
The Group paid out GBP2.2m (2022: GBP1.5m) in respect of
dividends and GBP0.2m (2022: GBP0.1m) for purchase of own
shares.
Statement of financial position
During the year, the Group has continued to strengthen its
balance sheet position. The Group's net assets have increased to
GBP58.0m (2022: GBP27.1m), primarily reflecting the GBP27.0m equity
raised for the Custom Power acquisition, GBP6.6m income for the
year, less GBP0.9m foreign exchange and GBP2.2m dividends paid.
As a result of the unprecedented supply chain challenges
combined with the acquisition of Custom Power and the short term
inventory built to fulfil the Q1 demand (in part arising from the
NATO contract) the Group inventory has increased to GBP33.2m (2022:
GBP17.6m).
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 secured growth.
Excluding deferred contingent considerations and IFRS16 lease
obligations, the Group had a net debt position with banks of
GBP2.4m at the year-end (2022: net cash GBP1.4m) having paid
GBP33.5m of consideration for the acquisitions of Custom Power,
Active Silicon and Willow. At 31 March 2023, the discounted fair
value of the Group's deferred consideration liabilities are
GBP5.7m, with circa GBP0.1m of discounting imputed interest to be
charged to the P&L ahead of payment.
The deferred consideration payable in August 23 in relation to
the acquisition of Custom Power is $5.0m for which the Group has
cash on deposit. The Group will utilise cash and the RCF facility
to fund the final GBP1.7m deferred consideration payment for Active
Silicon which is expected to be paid during Q2 23/24.
Peter James
Chief Financial Officer
Consolidated statement of comprehensive income
For the year ended 31 March 2023
2023 2022
Note GBP'000 GBP'000
--------------------------------------------------- ----- -------- --------
Revenue 3, 30 126,503 84,997
Cost of sales (86,829) (57,470)
--------------------------------------------------- ----- -------- --------
Gross profit 39,674 27,527
--------------------------------------------------- ----- -------- --------
Sales, general and administration expenses (30,266) (23,801)
--------------------------------------------------- ----- -------- --------
Operating profit 4 9,408 3,726
--------------------------------------------------- ----- -------- --------
Finance costs 6 (972) (226)
--------------------------------------------------- ----- -------- --------
Profit before taxation 8,436 3,500
--------------------------------------------------- ----- -------- --------
Tax expense 7 (1,746) (977)
--------------------------------------------------- ----- -------- --------
Adjusted profit after taxation 8,553 6,158
Adjustments to profit 30 (1,863) (3,635)
--------------------------------------------------- ----- -------- --------
Profit after taxation 6,690 2,523
--------------------------------------------------- ----- -------- --------
Profit attributable to equity holders of the
parent 6,693 2,523
(Loss)/profit attributable to non-controlling
interests (3) -
--------------------------------------------------- ----- -------- --------
Other comprehensive (loss)/income - FX on overseas
operations (869) 261
Other comprehensive (loss)/income - taxation 7 (94) 261
--------------------------------------------------- ----- -------- --------
Adjusted total comprehensive income 7,684 6,158
Adjustments to total comprehensive income 30 (1,957) (3,374)
--------------------------------------------------- ----- -------- --------
Total comprehensive income for the year 5,727 2,784
--------------------------------------------------- ----- -------- --------
Comprehensive income attributable to equity
holders of the parent 5,730 2,784
Comprehensive loss attributable to non-controlling
interests (3) -
--------------------------------------------------- ----- -------- --------
Earnings per share 2023 2022
--------------------------------------------------- ----- -------- --------
Basic EPS from profit for the year 8 64.5p 29.5p
Diluted EPS from profit for the year 8 63.1p 28.9p
--------------------------------------------------- ----- -------- --------
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 2023
Shares
Share Foreign Capital held
Share Premium Exchange Redemption Retained in Non-controlling Total
Capital Reserve Reserve Reserve Earnings Treasury Total interests Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------- -------- -------- --------- ---------- --------- --------- -------- --------------- --------
For the year ended 31 March 2022
Shares
Share Foreign Capital held
Share Premium Exchange Redemption Retained in Non-controlling Total
Capital Reserve Reserve Reserve Earnings Treasury Total interests Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Balance at
31 March 2021 428 3,625 6 5 21,508 (70) 25,502 - 25,502
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Share-based
payment credit - - - - 295 - 295 - 295
Transfer of
treasury
shares
to AESP - - - - (93) 93 - - -
Dividends - - - - (1,453) - (1,453) - (1,453)
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Transactions
with owners
in their
capacity
as owners - - - - (1,251) 93 (1,158) - (1,158)
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Result for
the year
ended 31 March
2022 - - - - 2,523 - 2,523 - 2,523
Other
comprehensive
income - - - - 261 - 261 - 261
Foreign
exchange - - 27 - - - 27 - 27
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Total
comprehensive
income - - 27 - 2,784 - 2,811 - 2,811
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Purchase of
treasury
shares - - - - - (80) (80) - (80)
Rounding - - - - 1 - 1 - 1
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Balance at
31 March 2022 428 3,625 33 5 23,042 (57) 27,076 - 27,076
--------------- -------- -------- --------- ----------- --------- --------- -------- --------------- --------
Consolidated statement of financial position
At 31 March 2023
2023 2022
Note GBP'000 GBP'000
------------------------------------------------------ ------- -------- --------
Assets
Non-current assets
Intangible assets 12 41,563 15,831
Property, plant and equipment 10 4,718 3,414
Right-of-use lease assets 11 1,981 1,983
Deferred tax asset 23 375 539
------------------------------------------------------ ------- -------- --------
Total non-current assets 48,637 21,767
------------------------------------------------------ ------- -------- --------
Current assets
Inventories 15 33,228 17,598
Trade and other receivables 16 19,699 17,978
Cash and cash equivalents - on deposit 22 4,032 -
Cash and cash equivalents - available on demand 22 8,192 4,983
------------------------------------------------------ ------- -------- --------
Total current assets 65,151 40,559
------------------------------------------------------ ------- -------- --------
TOTAL ASSETS 113,788 62,326
------------------------------------------------------ ------- -------- --------
Liabilities GBP'000 GBP'000
------------------------------------------------------ ------- -------- --------
Current liabilities
Trade and other payables 17 (23,735) (16,488)
Deferred and contingent consideration on acquisitions 17, 21,
- current 22 (5,679) (4,625)
19, 21,
Current borrowings 22 (1,279) (2,059)
Contract liabilities 18 (5,380) (3,461)
Corporation tax liabilities (1,110) (531)
Right-of-use lease liabilities 20 (1,057) (758)
Provisions 24 (323) -
------------------------------------------------------ ------- -------- --------
Total current liabilities (38,563) (27,922)
------------------------------------------------------ ------- -------- --------
Non-current liabilities
19, 21,
Non-current borrowings 22 (13,383) (1,500)
Provisions 24 (715) (694)
Deferred tax liability 23 (2,187) (1,832)
Right-of-use lease liabilities 20 (986) (1,326)
Deferred and contingent consideration on acquisitions 21,22 - (1,976)
------------------------------------------------------ ------- -------- --------
Total non-current liabilities (17,271) (7,328)
------------------------------------------------------ ------- -------- --------
Total liabilities (55,834) (35,250)
------------------------------------------------------ ------- -------- --------
Total net assets 57,954 27,076
------------------------------------------------------ ------- -------- --------
Share capital 25 567 428
Share premium reserve 26 30,474 3,625
Capital redemption reserve 26 5 5
Foreign exchange reserve 26 (836) 33
Retained earnings 26 27,805 23,042
Shares held in treasury 26, 27 (108) (57)
------------------------------------------------------ ------- -------- --------
Capital and reserves attributable to equity
holders of the parent 57,907 27,076
------------------------------------------------------ ------- -------- --------
Non-controlling interests 26 47 -
------------------------------------------------------ ------- -------- --------
TOTAL EQUITY 57,954 27,076
------------------------------------------------------ ------- -------- --------
The financial statements were approved by the Board of Directors
and authorised for issue on 4 July 2023 and were signed on its
behalf by:
G S Marsh P O James
Director Director
Consolidated statement of cash flows
for the year ended 31 March 2023
2023 2022
------------------------------------- ----
Note GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---- -------- -------- ------- -------
OPERATING ACTIVITIES
Profit before taxation 8,436 3,500
Adjustments for:
Property plant and equipment
depreciation 1,159 729
Right-of-use asset depreciation 965 763
Amortisation 2,035 1,327
(Profit)/loss on disposal of
property, plant and equipment (45) 3
Share-based payment expense 551 295
Finance costs 972 226
(Decrease)/increase in deferred
contingent consideration (326) 1,651
------------------------------------- ---- -------- -------- ------- -------
Profit from operations before
changes in working capital
and provisions 13,747 8,494
------------------------------------- ---- -------- -------- ------- -------
Increase in inventories (12,457) (6,922)
Decrease/(increase) in trade
and other receivables 1,767 (3,679)
Increase in trade and other
payables 6,380 8,140
Decrease in provisions - (47)
------------------------------------- ---- -------- -------- ------- -------
(4,310) (2,508)
------------------------------------- ---- -------- -------- ------- -------
Cash generated from operations 9,437 5,986
Income taxes paid (573) (941)
Income taxes recovered 184 -
------------------------------------- ---- -------- -------- ------- -------
Cash acquired (389) (941)
------------------------------------- ---- -------- -------- ------- -------
Net cash inflow from operating
activities 9,048 5,045
------------------------------------- ---- -------- -------- ------- -------
INVESTING ACTIVITIES
Purchase of property, plant
and equipment (1,145) (1,178)
Capitalised own costs and purchase
of intangible assets (1,197) (601)
Proceeds of sales from property,
plant and equipment 153 81
Settlement of deferred consideration
in respect of prior
year acquisitions (4,625) (2,572)
Payments for acquisition of
subsidiaries net of cash acquired 32 (28,662) -
------------------------------------- ---- -------- -------- ------- -------
Net cash outflow from investing
activities (35,476) (4,270)
------------------------------------- ---- -------- -------- ------- -------
FINANCING ACTIVITIES
Proceeds from issue of ordinary
shares 26,988 -
Repurchase of ordinary shares
into treasury (203) (80)
Borrowings drawn 19 15,872 -
Borrowings repaid 19 (2,772) (2,250)
Principal payment obligations
for right of use assets (1,093) (871)
Interest paid 6 (865) (127)
Transactions with non-controlling
interests 50 -
Dividend paid to equity shareholders 9 (2,235) (1,453)
------------------------------------- ---- -------- -------- ------- -------
Net cash inflow/(outflow) from
financing activities 35,742 (4,781)
------------------------------------- ---- -------- -------- ------- -------
Increase/(decrease) in cash
and cash equivalents 22 9,314 (4,006)
------------------------------------- ---- -------- -------- ------- -------
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Translational foreign exchange on opening cash (14) 16
Net increase/(decrease) in cash and cash equivalents 9,314 (4,006)
Cash available on demand at beginning of year 2,924 6,914
----------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 12,224 2,924
----------------------------------------------------- -------- --------
There were no significant non-cash transactions. Cash and cash
equivalents comprise:
2023 2022
GBP'000 GBP'000
------------------------------ -------- --------
Cash available on demand 8,192 4,983
Overdraft facility - (2,059)
Cash on deposit 4,032 -
------------------------------ -------- --------
Net cash and cash equivalents 12,224 2,924
------------------------------ -------- --------
Notes to the financial statements
For the year ended 31 March 2023
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
Whilst the financial information included in this Preliminary
Announcement has been prepared on the basis of UK-adopted
International Accounting standards, this announcement does not
itself contain sufficient information to comply with UK-adopted
International Accounting Standards.
The Group expects to publish full Consolidated Financial
Statements in July 2023. The financial information set out in this
Preliminary Announcement does not constitute the Group's
Consolidated Financial Statements for the years ended 31 March 2023
or 2022 but is derived from those Financial Statements which were
approved by the Board of Directors on 4 July 2023. The auditor, RSM
UK Audit LLP, has reported on the Group's Consolidated Financial
Statements and the report was unqualified and did not contain a
statement under section 498 (2) or 498 (3) of the Companies Act
2006.
The statutory financial statements for the year ended 31 March
2023 have not yet been delivered to the Registrar of Companies and
will be delivered following the Company's Annual General
Meeting.
The Group financial statements have been prepared and approved
by the Directors in accordance with UK-adopted International
Accounting Standards.
The Group's accounting policies are set out in the 2022 Annual
Report and Accounts and have been applied consistently in 2023.
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 (GBP'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 2023,
the Directors have considered the Group's cash flows, liquidity and
business activities.
At 31 March 2023, the Group had net debt with banks of GBP2.4m
and deferred consideration liabilities of GBP5.7m, giving reported
net debt (excluding IFRS16) of GBP8.1m. Furthermore, the Group has
a GBP7.5m revolving credit facility, of which GBP5.1m 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 Council (Risk
Management, Internal Control and Related Financial and Business
Reporting 2014, the April 2016 guidance on going concern basis of
accounting and reporting on solvency and liquidity risks, and the
various guidance issued in 2020). This guidance provides support to
Directors and the Board in making the assessment of going
concern.
In preparing the going concern assessment, the Directors
considered the principal risks and uncertainties that the business
faced. The Board concluded that the three areas of risk that
remained the most uncertain were the direct and indirect supply
chain disruption risks in addition to inflation. The Directors have
given careful consideration to the potential impact of ongoing
global electronic component shortages and rising inflation on the
cashflows and liquidity of the Group over the next 12-month
period.
Customer demand has remained solid and, in the last financial
year, we have seen customers maintaining strong order cover to help
to manage global electronics supply chain issues. The most
significant impact on the Group's future performance is the
potential for an unwinding of customer stock holdings as the
uncertainty arising from the extended electronic component lead
times improves and there is a need to manage working capital and
cash more tightly.
Management has taken all possible actions to minimise and
mitigate the potential impact of this unwind; however, there is
potential for some rescheduling of demand/de-stocking in the second
half of 2023/24 and, potentially, into 2024/25. While the actions
do not mitigate the risk fully, it still positions the Group to
manage the impact as effectively as possible (as demonstrated
historically over the last two trading years).
The Directors have prepared revised "stressed" forecasts, 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 on applying various
sensitivity scenarios to a base case to 30 September 2023, which
has been prepared based on an extension of the budget for
FY23/24.
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 69% 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
Directors currently believe the Group would fully comply with
covenants and, thus, maintain sufficient liquidity to meet its
liabilities as they fall due.
In considering the assessment of the Group's going concern
position, the Directors have also identified that the Group could
look to both the Group's bankers and/or the equity markets if
additional liquidity were required. Albeit, none of the
sensitivities indicate that the Group would require additional
sources of liquidity.
In the post balance sheet period, the rolling 12-month order
intake remains strong, maintaining a book-to-bill ratio of 1.09,
and reflects strong order cover. Furthermore, the Group has put in
place a $10m approved short-term working capital overdraft facility
until the end of September to ensure that there is funding, should
it be needed, to manage any short-term spikes in working capital as
a result of the delivery of the significant NATO contracts
announced in the prior year. In addition, GBP1.6m of the short-term
deferred consideration on acquisitions was settled in Q1 and the
remainder will be settled in early August using the cash set aside
on deposit for this purpose.
The Directors have concluded that the potential impact of the
electronic component shortages and higher inflation, as described
above, does not represent a material uncertainty over the Group and
Company's ability to continue as a going concern. Nevertheless, it
is acknowledged that there are, potentially, material variations in
the 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 12 months; therefore, it is appropriate to adopt a going
concern basis for the preparation of the financial statements.
Accordingly, these financial statements do not include any
adjustments to the carrying amount or classification of assets and
liabilities that would result if the Group and Company were unable
to continue as a going concern.
Changes in accounting policy and disclosures
New standards, amendments and interpretations adopted in the
year.
The following new standards, amendments and interpretations have
been adopted by the Group for the first time for the financial year
beginning on 1 April 2022:
-- Amendments to IAS 16 regarding deductions from the cost of
property, plant and equipment amounts received from selling items
produced while the Company is preparing the asset for its intended
use, effective for annual reporting periods beginning on or after 1
January 2022
-- Amendments to IAS 37 regarding the costs to include when
assessing whether a contract is onerous, effective for annual
reporting periods beginning on or after 1 January 2022
The adoption of these standards and amendments has not had a
material impact on the financial statements.
New standards, amendments and interpretations to published
standards issued, but not yet effective and not early adopted
A number of new standards, amendments and interpretations to
existing standards have been published that will be mandatory for
the Group's accounting periods beginning on, or after, 1 April 2022
or later periods, and which the Group has decided not to adopt
early, are listed below. The Group intends to adopt these standards
considered relevant to the Group when they become effective.
-- Amendments to IAS 1 and IFRS Practice Statement 2, regarding
the classification of liabilities and disclosure of accounting
policies, effective for annual reporting periods beginning on, or
after, 1 January 2024
-- Amendments to IAS 8 regarding the definition of accounting
estimates, effective for annual reporting periods beginning on, or
after, 1 January 2023
-- Amendments to IAS 12 regarding deferred tax on leases and
decommissioning obligations, effective for annual reporting periods
beginning on, or after, 1 January 2023
-- Amendments to references to the Conceptual framework in IFRS Standards
The Directors anticipate that none of the new standards,
amendments to standards or interpretations will have a significant
effect on the financial statements of the Group.
Principle of consolidation
The consolidated financial statements incorporate the financial
results and position of the Parent and its subsidiaries.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are deconsolidated from
the date that control ceases. The acquisition method of accounting
is used to account for business combinations by the Group.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the transferred asset. Accounting policies of
subsidiaries have been changed, where necessary, to ensure
consistency with the policies adopted by the Group.
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, 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; and
-- the development expenditure can be reliably measured
Directly attributable costs refers to the materials consumed;
the directly attributable labour; and the incremental overheads
incurred in the development activity. General operating costs,
administration costs and selling costs do not form part of directly
attributable costs.
All research and other development costs are expensed as
incurred.
Capitalised development costs are amortised on a straight-line
basis over the period, during which the economic benefits are
expected to be received, 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 either held at amortised cost,
fair value through other comprehensive income (FVOCI) or fair value
through profit or loss, dependent on the business model and cash
flow characteristics of the financial instrument.
Financial assets and financial liabilities are recognised when
the Company becomes party to the contractual provisions of the
instrument.
Trade and other receivables
Trade receivables are initially measured at their transaction
price. Other receivables are initially recognised at fair value
plus transaction costs.
Receivables are held to collect the contractual cash flows,
which are solely payments of principal and interest. Therefore,
these receivables are, subsequently, measured at amortised cost
using the effective interest rate method.
The effect of discounting on these financial instruments is not
considered to be material.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and
highly liquid interest-bearing securities with maturities of three
months or less. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
Impairment of financial assets
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.
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 balance sheet
differs from its tax base, except for differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting nor taxable profit;
and
-- investments in subsidiaries and jointly controlled entities
where the Group is able to control the timing of the reversal of
the difference and it is probable the difference will not reverse
in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the differences can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted, or substantively, enacted by the
balance sheet date and are expected to apply when the deferred tax
liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities, and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority.
Share-based payment
Where share options are awarded to employees, the fair value of
the options at the date of grant is charged to the consolidated
statement of comprehensive income over the vesting period.
Non-market vesting conditions are taken into account by adjusting
the number of equity instruments expected to vest at each statement
of financial position date so that, ultimately, the cumulative
amount recognised over the vesting period is based on the number of
options that eventually vest. Market vesting conditions are
factored into the fair value of options granted. As long as all
other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
2. Critical accounting estimates and judgements
The preparation of financial statements requires the use of
accounting estimates, which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the Group's accounting policies 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.
Acquisition accounting (estimation)
In accounting for the Custom Power acquisition (see Note 32) in
accordance with IFRS 3, there were several key areas identified
where the estimation of the value could have changed if key
assumptions were varied. This primarily relates to the fair value
of tangible assets, the fair value of brand and customer
relationship intangible assets, and the recognition of the $5m of
contingent consideration (and the impact to the resultant goodwill
carrying value).
A GBP0.9m uplift to the carrying value of tangible assets was
booked as a fair value adjustment, primarily reflecting the
substantial replacement cost value for testing equipment. The
estimation range on these assets was calculated as between GBPNil
(book value) and GBP1.7m (estimated replacement cost). The fair
value adopted was based on the best estimate of depreciated
replacement cost for items that are not available for sale on the
open market, due to creation via internally generated expertise,
and the expected useful economic life ("UEL") for those assets. If
the estimated full replacement cost had been used, the uplift value
recognised could have increased by GBP0.8m.
A third-party expert completed an independent valuation of IFRS
3, intangible assets recognised on acquisition, with two material
assets identified, being Customer Relationships and Brand. These
assets will be depreciated between three and ten years based on the
value of incremental earnings in the model. Estimates required
included customer attrition, future profitability, and appropriate
discount rates.
The $5m contingent consideration liability has not been
recognised in the acquisition accounting consideration as the
stretch threshold set for revenue is not expected to be achieved.
The fair value of this element of the consideration is estimated to
be Nil as the hurdle is an "all or nothing" target and will not be
achieved based on the agreed budget target and the current open
orderbook. This is still considered an estimate as there is an
outside possibility that Custom Power may receive a
transformational order, where all components are easily available
to fulfil by the deadline. However, in the opinion of the
Directors, this is considered highly unlikely.
The above estimations of the quantum of the fair value of
intangibles and tangible assets and the consideration would impact
the recognised goodwill value.
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. As a result of the continued component shortages and
rising inflation across the globe, the Directors expect that the
risk of credit default continues to be higher than historical
norms, however, the 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 invest in most of the goods required to
complete their product and suffer adverse cash flow due to any
missing components and the impact of rising inflation. In these
financial statements the Directors have provided full disclosures
of the provisions for credit default in Note 21.
Custom Power also has a historically high collection rate and
trades with large, reputable customers so is judged to have
decreased the overall credit risk of the Group. The calculation of
the provision based on the Directors' judgemental assessment of
expected credit loss reflects the impact of the acquisition of
Custom Power with a small increase to the overall figure from 2022
of GBP39k.
If the Group were to provide for all debt that is overdue
according to agreed credit terms, the recognised provision would
increase by GBP2m to GBP2.7m.
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 financial year to
mitigate the challenge presented by market component shortages. An
element of working capital risk can be mitigated with receiving
advance customer deposits, however, there remains a risk of default
and order cancellation.
Differences between such estimates and actual market conditions
may have a material impact on the amount of the carrying value of
inventories and may result in adjustments to cost of sales. If an
additional 10% of the year-on-year increase in underlying inventory
values were to be provided, the provision increase would be
GBP1.2m. See Note 15 for details of the inventory provisions and
the amounts written off to the consolidated statement of
comprehensive income in the year.
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 the
Custom Power acquisition in August is GBP575k; if the lives of all
the acquired assets were reduced to five years, the impact would be
to increase the charge by GBP554k.
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 each of the HMRCs large company and SME
R&D tax credit schemes as the detailed tax computations have
not been completed. The assumption is that the statutory Group
entities previously eligible for the SME R&D tax scheme will
move into the large company scheme for the 2023 tax year, so a
GBP285k RDEC credit 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 2023, there are net current and deferred tax provisions
totalling approximately GBP2.9m (2022: GBP1.8m).
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 (judgement)
The Group is now entering into a higher volume of contracts with
customers that require judgement on appropriate milestones to
recognise the related revenue. This has partially driven the
GBP1.9m increase in contract liabilities (Note 18) in the financial
year.
Key judgements can include the timing of transfer of ownership
of inventory to the customer under bill-and-hold arragements as
well as the determination of the appropriate contractual milestones
and whether the criteria have been met to recognise revenue.
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.
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:
2023 2022
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Geography
United Kingdom 71,649 53,030
Rest of Europe 18,202 15,726
Asia 8,811 6,542
North America 27,205 9,175
Rest of World 636 524
------------------------------------------------------ -------- --------
Total revenue 126,503 84,997
------------------------------------------------------ -------- --------
2023 2022
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Product
Computing products 21,718 16,103
Communications products 11,005 7,745
Power products 24,789 8,681
Opto electronic and electronic components and modules 68,991 52,468
------------------------------------------------------ -------- --------
126,503 84,997
------------------------------------------------------ -------- --------
See further segmental disclosures in Note 31.
4. Profit from operations
This has been arrived at after charging/(crediting):
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Staff costs excluding share-based payments (see Note
5) 23,646 16,562
Share-based payment expenses 551 295
Depreciation of property, plant and equipment 1,159 729
Depreciation of right-of-use asset 965 763
Amortisation of intangible assets 2,035 1,327
(Profit)/loss on disposal of property, plant and equipment (45) 3
Auditors' remuneration:
Audit fees 245 120
Other assurance fees - -
Non audit fees
Other advisory services - 6
Research and development costs (includes relevant staff
costs) 2,190 2,044
RDEC Credit (285) (10)
Foreign exchange expense/(credit) 269 (33)
Stock write downs 777 59
Acquisition of subsidiaries legal and due diligence 234 533
Other income from government grants (14) (2)
----------------------------------------------------------- -------- --------
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:
2023 2022
GBP'000 GBP'000
---------------------------- -------- --------
Wages and salaries 20,173 13,985
Social security costs 2,147 1,377
Pension costs 1,361 1,200
Share-based payment charges 551 295
---------------------------- -------- --------
Total staff costs 24,232 16,857
---------------------------- -------- --------
Wages and salaries include termination costs of GBP45k (2022:
GBP56k).
The average monthly number of employees during the year,
including the Executive Directors, was as follows:
2023 2022
Number Number
------------------------------ ------- -------
Selling and distribution 136 134
Manufacturing and assembly 167 110
Management and administration 101 59
------------------------------ ------- -------
404 303
------------------------------ ------- -------
As the Group continues to grow, we continue to invest in and
develop the senior leadership team, which are considered to be key
management.
This senior management team includes Executive Directors. The
key management team and their total compensation, including
employers NI, totals GBP4,075k (2022: GBP3,857k). The amount
charged in respect of share-based payments for key management
personnel is GBP382k (2022: GBP202k). The amount charged in respect
of defined contribution pension payments for key management
personnel is GBP143k (2022: GBP198k).
6. Finance costs
2023 2022
GBP'000 GBP'000
------------------------------------------- -------- --------
Bank borrowings 790 127
Interest on lease liabilities 46 99
Imputed Interest on deferred consideration 136 -
------------------------------------------- -------- --------
Total finance costs 972 226
------------------------------------------- -------- --------
7. Tax expense
2023 2022
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Analysis of total tax expense
Total tax charge 1,840 716
------------------------------------------------------------- -------- --------
1,840 716
------------------------------------------------------------- -------- --------
Current tax expense
Group corporation tax on profits for the year 1,537 735
Adjustment in respect of prior periods (283) (8)
------------------------------------------------------------- -------- --------
1,254 727
Deferred tax expense
Deferred tax expense charged to income statement 398 250
Adjustment in respect of prior periods 94 -
------------------------------------------------------------- -------- --------
Total tax charge to income statement 1,746 977
Deferred tax expense/(credit) charged to other comprehensive
income 94 (261)
------------------------------------------------------------- -------- --------
Total tax charge to comprehensive income 1,840 716
------------------------------------------------------------- -------- --------
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:
2023 2022
GBP'000 GBP'000
-------------------------------------------------------------- -------- --------
Profit before tax 8,436 3,500
-------------------------------------------------------------- -------- --------
Expected tax charge based on the standard rate of corporation
tax in the UK of 19% (2022: 19%) 1,603 665
Effect of:
Expenses not deductible for tax purposes 101 443
Non-taxable credit (62) -
Difference between depreciation/amortisation for the
year and capital allowances 115 (60)
Tax relief on exercise of share options exercised (60) -
Deferred tax asset released/(recognised) on share option
expense 75 (226)
Movement in relief on research and development expenditure 143 (483)
Change in rate in respect of deferred tax recognition - 343
Taxation difference in respect of Intangibles on acquisition (14) -
Tax losses recognised/(utilised) 78 -
Adjustments in respect of prior years (189) (9)
Overseas tax rate differences 56 8
Foreign exchange (6) 35
-------------------------------------------------------------- -------- --------
Total tax charge 1,840 716
-------------------------------------------------------------- -------- --------
The UK corporation tax rate is 19% (effective from 1 April
2017). Amendments were, substantively, enacted on 24 May 2021, so
the rate of UK corporation tax will rise to 25% from 1 April 2023.
The deferred tax liabilities and assets on 31 March 2023 and
comparative figures from March 2022 have been calculated based on
this revised 25% rate.
R&D tax credits
The Group recognised a credit of GBP285k (2022: GBP10k) within
other income in relation to claims made under the Research and
Development expenditure credit scheme (RDEC). The UK entities in
the Group are no longer considered eligible for the SME scheme
estimated based on tax calculations. Claims were made under the SME
scheme and recognised within the tax expense for the March 2022
comparative period.
8. Earnings per share
The earnings per share is based on the following:
2023 2022
GBP'000 GBP'000
---------------------------------------------- ---------- ---------
Reported earnings post tax 6,693 2,523
Adjusted earnings post tax 8,553 6,158
Weighted average number of shares 10,374,314 8,551,455
Diluted number of shares 10,604,768 8,728,268
---------------------------------------------- ---------- ---------
Reported EPS
Basic EPS from profit for the year 64.5p 29.5p
Diluted EPS from profit for the year 63.1p 28.9p
---------------------------------------------- ---------- ---------
Adjusted EPS
Adjusted Basic EPS from profit for the year 82.5p 72.0p
Adjusted Diluted EPS from profit for the year 80.7p 70.6p
---------------------------------------------- ---------- ---------
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 10,374,314
(2022: 8,551,455) net of the treasury shares disclosed in Note
27.
The diluted earnings per share is based on 10,604,768 (2022:
8,728,268) 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
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Prior year final dividend paid of 13.25p per share
(2022: 10.75p) 1,500 920
Current year interim dividend paid of 6.5p per share
(2022: 6.25p) 736 535
Cancelled dividends on shares held in treasury (1) (2)
-------------------------------------------------------- -------- --------
2,235 1,453
-------------------------------------------------------- -------- --------
Final dividend proposed for the year at 13.5p per share
(2022: 13.25p) 1,528 1,134
-------------------------------------------------------- -------- --------
The proposed final dividend has not been accrued for as the
dividend will be approved by the shareholders at the Annual General
Meeting.
10. Property, plant and equipment
Short Fittings,
leasehold equipment
Land and property Motor and
buildings improvements vehicles computers Total
Year ended 31 March 2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------------------- ---------- ------------- --------- ---------- --------
Short Fittings,
leasehold equipment
Land and property Motor and
buildings improvements vehicles computers Total
Year ended 31 March 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ------------- --------- ---------- --------
Cost
1 April 2021 446 1,951 678 3,570 6,645
Additions - 121 302 755 1,178
Disposals - (98) (207) (158) (463)
Foreign exchange 20 2 - 2 24
---------------------------- ---------- ------------- --------- ---------- --------
31 March 2022 466 1,976 773 4,169 7,384
---------------------------- ---------- ------------- --------- ---------- --------
Depreciation and impairment
1 April 2021 - 896 371 2,397 3,664
Charge for the year - 189 103 437 729
On disposals - (98) (166) (160) (424)
Foreign exchange - - - 1 1
---------------------------- ---------- ------------- --------- ---------- --------
31 March 2022 - 987 308 2,675 3,970
---------------------------- ---------- ------------- --------- ---------- --------
Net book value
31 March 2022 466 989 465 1,494 3,414
---------------------------- ---------- ------------- --------- ---------- --------
11. Right-of-use assets
Land and Motor
buildings vehicles/other Total
Year ended 31 March 2023 GBP'000 GBP'000 GBP'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
------------------------- ---------- --------------- --------
Amortisation
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
------------------------- ---------- --------------- --------
Land and Motor
buildings vehicles/other Total
Year ended 31 March 2022 GBP'000 GBP'000 GBP'000
------------------------- ---------- --------------- --------
Cost
1 April 2021 3,604 188 3,792
Additions 285 28 313
Disposals (69) (3) (72)
------------------------- ---------- --------------- --------
31 March 2022 3,820 213 4,033
------------------------- ---------- --------------- --------
Depreciation
1 April 2021 1,263 53 1,316
Charge for the year 701 62 763
Disposals (27) (2) (29)
------------------------- ---------- --------------- --------
31 March 2022 1,937 113 2,050
------------------------- ---------- --------------- --------
Net book value
31 March 2022 1,883 100 1,983
------------------------- ---------- --------------- --------
12. Intangible assets
Goodwill Acquisition
Development Computer on intangible
Year ended 31 March costs software consolidation assets Total
2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 (Note 32) - 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
----------------------- ----------- --------- -------------- ----------- --------
The cost of acquisition intangible assets includes the estimated
net present value identified on acquisition of:
-- customer relationships with a net book value of GBP8,594k and
a remaining useful economic life between one and ten years.
-- brand with a net book value of GBP2,777k and a remaining
useful economic life of approx. six years.
The development costs relate to the cost of developing new
products and technology to enable the Company to extend its
operations into new growth areas. Any assets developed that are no
longer deemed to meet the recognition criteria of development costs
have been written down.
Goodwill Acquisition
Development Computer on intangible
Year ended 31 March costs software consolidation assets Total
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ----------- --------- -------------- ----------- --------
Cost
1 April 2021 1,433 473 9,898 8,781 20,585
Additions 350 251 - - 601
Acquisitions - - - - -
-------------------- ----------- --------- -------------- ----------- --------
31 March 2022 1,783 724 9,898 8,781 21,186
-------------------- ----------- --------- -------------- ----------- --------
Amortisation
1 April 2021 1,333 350 - 2,345 4,028
Charge for the year 250 49 - 1,028 1,327
-------------------- ----------- --------- -------------- ----------- --------
31 March 2022 1,583 399 - 3,373 5,355
-------------------- ----------- --------- -------------- ----------- --------
Net book value
31 March 2022 200 325 9,898 5,408 15,831
-------------------- ----------- --------- -------------- ----------- --------
Cost NBV
GBP'000 GBP'000
--------------------------------------------- -------- --------
Systems Division commercial relationships 8,769 7,126
Components Division commercial relationships 6,706 3,397
--------------------------------------------- -------- --------
31 March 2023 15,475 10,523
--------------------------------------------- -------- --------
13. Goodwill and impairment
Details of the carrying amount of goodwill allocated to
cash-generating units (CGUs) are as follows:
2023 2022
GBP'000 GBP'000
-------------------------------- -------- --------
Systems Division - UK 3,946 3,946
Systems Division - Custom Power 19,828 -
Components division 5,952 5,952
-------------------------------- -------- --------
Total 29,726 9,898
-------------------------------- -------- --------
The recoverable amounts of all the above CGUs have been
determined from a review of the current and anticipated performance
of these units using a value in use calculation over a period of 5
years then a terminal value. In preparing the base case projection,
a pre-tax discount rate of between 10% and 12% (2022: 10%) was used
based on the Group's estimated weighted average cost of
capital.
Future growth rates of between 5% and 7.5% and terminal growth
rate of 2.5% (2022: 2.5%) has been assumed beyond the first year,
for which the projection is based on the budget approved by the
Board of Directors. It has been assumed 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 GBP141.9m (2022: GBP95.0m) in the base case.
The headroom within the UK Systems Division is significant at
GBP59.9m (2022: GBP53.8m), and the Custom Power CGU GBP14.5m with
the Components division having headroom of GBP75.7m (2022:
GBP47.3m). The following changes can be made to the above key
assumptions in respect of each division and the carrying amount
would still exceed, or equal, the recoverable amount for each CGU.
It is not considered reasonably possible that changes to the
assumptions would trigger an impairment.
Discount rate: Increase the rate of each CGU by 2%
Growth rate: Reduce the annual growth to Nil and retain a 2.5%
terminal growth rate
The Custom Power goodwill carrying value is $24,588k and the
value in GBP is recalculated at the closing reporting date exchange
rate with an FX loss of GBP492k from the acquisition date.
14. Subsidiaries
The subsidiaries of Solid State PLC included in these
consolidated financial statements are as follows:
Proportion of voting
rights and Ordinary
Subsidiary undertakings share capital held Nature of business
-------------------------- ------- -------------------- -------------------------------
Solid State Supplies UK 100% Supply of electronic components
Limited
-------------------------- ------- -------------------- -------------------------------
Steatite Limited UK 100% Supply of electronic components
and manufacture
of electronic equipment
-------------------------- ------- -------------------- -------------------------------
Custom Power Holdings USA 100% Holding Company
Inc
-------------------------- ------- -------------------- -------------------------------
Custom Power LLC* USA 100% Battery systems and energy
solutions supplier
-------------------------- ------- -------------------- -------------------------------
Pacer Technologies Limited UK 100% Non trading entity
-------------------------- ------- -------------------- -------------------------------
Pacer Components Limited* UK 100% Supply of opto-electronic
components
-------------------------- ------- -------------------- -------------------------------
Pacer LLC* USA 100% Supply of opto-electronic
components
-------------------------- ------- -------------------- -------------------------------
Willow Technologies UK 100% Supply of opto-electronic
Limited components
-------------------------- ------- -------------------- -------------------------------
American Electronic USA 100% Supply of opto-electronic
Components, Inc.* components
-------------------------- ------- -------------------- -------------------------------
Active Silicon Limited UK 100% Digital image design and
manufacturing
-------------------------- ------- -------------------- -------------------------------
Active Silicon, Inc.* USA 100% Manufacturing sales facility
-------------------------- ------- -------------------- -------------------------------
Solid State Supplies Ireland 100% Sales office
Electronics Limited
-------------------------- ------- -------------------- -------------------------------
eTech Developments Limited UK 75% Engineering consultation
-------------------------- ------- -------------------- -------------------------------
Custom Power Limited UK 100% Non trading entity
-------------------------- ------- -------------------- -------------------------------
Creasefield Limited UK 100% Non trading entity
-------------------------- ------- -------------------- -------------------------------
Q-Par Angus Limited UK 100% Non trading entity
-------------------------- ------- -------------------- -------------------------------
Ginsbury Electronics UK 100% Non trading entity
Limited
-------------------------- ------- -------------------- -------------------------------
Wordsworth Technology UK 100% Non trading entity
Kent Limited
-------------------------- ------- -------------------- -------------------------------
Solsta Limited UK 100% Non trading entity
-------------------------- ------- -------------------- -------------------------------
Durakool Limited UK 100% Non trading entity
-------------------------- ------- -------------------- -------------------------------
* Indirect holdings. All other holdings are direct.
The non trading entities are exempt from filing audited accounts
with the registrar under Section 479a of the Companies Act
2006.
Subsequent to the year end, a new USA holding company, Solsta
Holding Inc. was incorporated.
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, 1101 Lafayette Street, Elkhart, Indiana,
Inc. 46516, USA
-------------------------------- --------------------------------------------
Active Silicon, Inc. 479 Jumpers Hole Road, Suite 301, Severna
Park, MD 21146, USA
-------------------------------- --------------------------------------------
Solid State Supplies Electronics 3rd Floor Ulysses House, 23/24 Foley Street,
Limited 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
-------------------------------- --------------------------------------------
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
2023 2022
GBP'000 GBP'000
------------------------------------ -------- --------
Finished goods and goods for resale 30,195 15,333
Work in progress 3,033 2,265
------------------------------------ -------- --------
Total inventories 33,228 17,598
------------------------------------ -------- --------
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
GBP5,053k (2022: GBP3,694k).
An impairment loss of GBP1,012k (2022: GBP610k loss) was
recognised in the cost of sales during the year against inventory
due to slow-moving and obsolete items.
Inventory recognised in cost of sales during the year, as an
expense, was GBP83,958k (2022: GBP57,812k).
16. Trade and other receivables
2023 2022
GBP'000 GBP'000
------------------ -------- --------
Trade receivables 16,379 14,948
Other receivables 163 126
Prepayments 3,157 2,904
------------------ -------- --------
19,699 17,978
------------------ -------- --------
An impairment credit against trade receivables of GBP77k (2022:
Credit of GBP13k) was recognised within operating costs during the
year.
17. Trade and other payables (current)
2023 2022
Note GBP'000 GBP'000
----------------------------------------- ------ -------- --------
Trade payables 12,919 8,083
Other taxes and social security taxes 2,952 2,607
Other payables 376 89
Accruals 7,488 5,709
Deferred consideration on acquisitions 21, 32 4,029 -
Contingent consideration on acquisitions 21 1,650 4,625
----------------------------------------- ------ -------- --------
29,414 21,113
----------------------------------------- ------ -------- --------
18. Contract liabilities
2023 2022
GBP'000 GBP'000
--------------------- -------- --------
Contract liabilities 5,380 3,461
--------------------- -------- --------
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 GBP2,910k (2022:
GBP1,980k), which was included within contract liabilities in the
prior year.
19. Bank borrowings and facilities
2023 2022
GBP'000 GBP'000
------------------------------------- -------- --------
Current borrowings
Bank borrowings - overdraft facility - 2,059
Bank borrowings - term loans 1,279 -
Non-current borrowings
Bank borrowings 13,383 1,500
------------------------------------- -------- --------
Total borrowings 14,662 3,559
------------------------------------- -------- --------
2023 2022
GBP'000 GBP'000
--------------------------- -------- --------
Within one year 1,279 2,059
Between one and two years 4,958 1,500
Between two and five years 8,425 -
--------------------------- -------- --------
Total borrowings 14,662 3,559
--------------------------- -------- --------
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 GBP6.5m entered into in August
2022, as part of the Custom Power acquisition financing, which is
repayable in full in August 2025. The full principal balance was
utilised at the year end.
-- The Group also entered into a term loan of GBP6.5m 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 GBP5.85m was outstanding at the year end.
-- A revolving credit facility of GBP7.5m (2022: GBP7.5m) of
which GBP2.4m (2022: GBP1.5m) was drawn at the balance sheet date.
This facility was committed until November 2023 and then renewed in
March 2023 to a November 2024 commitment date.
-- In addition, the Group has a multi-currency overdraft
facility of GBP3.0m (2022: GBP3.0m), which was not utilised at the
year end (2022: GBP2.1m for USD). Subsequent to the year end, the
Group agreed a facility extension on the USD overdraft facility of
up to $10m to the end of September 2023 in order to cover the
maximum potential impact of the NATO project's timing differences
to cashflow.
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 GBPNil or higher.
The Group's banking facilities are subject to three financial
covenants: 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
2023 2022
GBP'000 GBP'000
------------------------------------------- -------- --------
Current right-of-use lease liabilities 1,057 758
Non-current right-of-use lease liabilities 986 1,326
------------------------------------------- -------- --------
Total right-of-use lease liabilities 2,043 2,084
------------------------------------------- -------- --------
2023 2022
GBP'000 GBP'000
------------------------------------- -------- --------
Within one year 1,057 758
Between one and two years 942 650
Between two and five years 44 676
------------------------------------- -------- --------
Total right-of-use lease liabilities 2,043 2,084
------------------------------------- -------- --------
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:
2023 2022
GBP'000 GBP'000
------------------------------------------- -------- --------
Right-of-use lease liabilities at 1 April 2,084 2,543
Additions 123 313
Acquisitions 883 -
Payments made (1,026) (795)
Discounting charge 46 99
Disposals (56) (76)
FX (11) -
------------------------------------------- -------- --------
Right-of-use lease liabilities at 31 March 2,043 2,084
------------------------------------------- -------- --------
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 as
well as an overall basis.
Liquidity risk
The Group operates a Group overdraft facility common to all its
trading companies (with the exception of the 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 GBPNil 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:
2023 2022
Loans and receivables GBP'000 GBP'000
---------------------------- -------- --------
Trade and other receivables 16,542 15,074
Cash and cash equivalents 12,224 2,924
---------------------------- -------- --------
28,766 17,998
---------------------------- -------- --------
The maximum exposure to credit risk for trade receivables at the
reporting date by geographic region was:
2023 2022
Debt exposure GBP'000 GBP'000
-------------- -------- --------
UK 8,257 8,471
Non-UK 8,122 6,477
-------------- -------- --------
16,379 14,948
-------------- -------- --------
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 GBP233k (2022: GBP193k), which represented 0.2% (2022: 0.1%) 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
30 days 60 days 90 days
Total Current past due past due past due
Geographical area GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 3.71% 1.65% 20.17% 1.00% 80.94%
Non-UK expected loss rate 4.35% 2.44% 0.59% 12.26% 97.38%
------------------------- -------- -------- --------- --------- ---------
30 days 60 days 90 days
Total Current past due past due past due
Geographical area GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- --------- --------- ---------
2022
UK 8,860 8,273 418 128 41
Non-UK 6,737 6,122 412 116 87
------------------------- -------- -------- --------- --------- ---------
Total 15,597 14,395 830 244 128
------------------------- -------- -------- --------- --------- ---------
UK (389) (322) (21) (11) (35)
Non-UK (260) (136) (24) (23) (77)
------------------------- -------- -------- --------- --------- ---------
Total provisions (649) (458) (45) (34) (112)
------------------------- -------- -------- --------- --------- ---------
Total 14,948 13,937 785 210 16
------------------------- -------- -------- --------- --------- ---------
IFRS9
UK expected loss rate 4.4% 3.9% 5.0% 8.6% 85.4%
Non-UK expected loss rate 3.9% 2.2% 5.8% 19.8% 88.5%
------------------------- -------- -------- --------- --------- ---------
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:
2023 2022
GBP'000 GBP'000
---------------------------------- -------- --------
Opening balance 649 658
Acquisition of subsidiaries 124 -
(Decrease)/increase in provisions (77) (14)
Written off against provisions (9) 4
Foreign exchange 2 1
---------------------------------- -------- --------
Closing balance 689 649
---------------------------------- -------- --------
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 2023, trade
receivables of GBP1,994k, which were past their due date, were not
impaired
(2022: GBP1,011k).
Liquidity risk
Carrying Contractual 12 months 1-2 2-5 5+
amount cash flow or less Years Years Years
------------------------------ -------- ----------- --------- ------ ------ ------
2023
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 -
------------------------------ -------- ----------- --------- ------ ------ ------
2022
Trade and other payables 16,488 16,488 16,488 - - -
Borrowings 3,559 3,559 2,059 1,500 - -
Right-of-use lease liabilities 2,084 2,215 781 690 744 -
Provisions 694 694 - 150 544 -
Deferred consideration
on acquisition 6,601 6,601 4,625 1,976 - -
------------------------------ -------- ----------- --------- ------ ------ ------
29,426 29,557 23,953 4,316 1,288 -
------------------------------ -------- ----------- --------- ------ ------ ------
Movement in deferred
consideration on 2023 2022 2023 2022 2023 2022 2023 2022
acquisitions GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------- -------- -------- -------- -------- -------- -------- --------
Willow Active Custom Power Group
--------------------- ------------------ ------------------ ------------------ ------------------
1 April 3,500 5,089 3,101 2,433 - - 6,601 7,522
Initial recognition - - - - 8,264 - 8,264 -
Increase/(decrease)
in estimation - - (326) 1,651 - - (326) 1,651
Settlement (3,500) (1,589) (1,125) (983) (4,065) - (8,690) (2,572)
FX movement - - - - (170) - (170) -
--------------------- -------- -------- -------- -------- -------- -------- -------- --------
1,650
31 March - 3,500(*) (*) 3,101(*) 4,029 - 5,679 6,601
--------------------- -------- -------- -------- -------- -------- -------- -------- --------
* 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: I f 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 deferred contingent
consideration due on acquisitions (Willow and Active table above)
which are classified as Level 3 instruments.
The measurement of the contingent deferred consideration
liability on Active Silicon is based on the performance of the
business during the 25 month earn-out period up to the 31st March
2023. The basis of the calculation is a multiple of the post tax
profit included within the consolidated Group financial statements
and the only immaterial variable that is considered subject to
change is the final taxation figure. The contingent consideration
in relation to Custom Power has been recognised at GBPNil value
based on the discounted future forecasts prepared as described in
Note 2.
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:
2023 2022
USD GBP'000 GBP'000
-------------------------- -------- --------
Trade receivables 8,870 8,786
Cash and cash equivalents 8,235 (1,308)
Trade payables (8,149) (4,005)
-------------------------- -------- --------
8,956 3,473
-------------------------- -------- --------
2023 2022
EUR GBP'000 GBP'000
-------------------------- -------- --------
Trade receivables 448 287
Cash and cash equivalents 444 272
Trade payables (178) (175)
-------------------------- -------- --------
714 384
-------------------------- -------- --------
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 2023 (2022: GBPNil) with GBPNil net exposure (2022:
GBPNil).
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, GBP1,074k (2022: GBP428k). 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, GBP879k
(2022: GBP351k).
Interest rate risk
The Group finances its ongoing business through a revolving
credit facility. During the year, the Group utilised this facility
at a floating rate of interest. The Group also, partially, financed
the acquisition of Custom Power with two new term loans drawn down
in August 2022, as described in Note 19.
The Group's banking facilities with Lloyds Bank PLC incur
interest at the rate of 2.55% over LIBOR. The Group is affected by
changes in the UK interest rate. As the loans are all based on
variable interest rates, the fair value of the Group's borrowings
is not materially different to the book value.
In terms of sensitivity, if the ruling base rate had been 1%
higher throughout the year, the level of interest payable would
have been GBP122k (2022: GBP82k) 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 2023 was
GBP66,070k (2022: GBP32,251k).
The Group defines net (cash)/leverage as net (cash)/debt plus
deferred consideration, which totals GBP8,117k (2022: GBP5,177k).
In calculating net (cash)/debt, the Group has excluded the
right-of-use lease liabilities of GBP2,042k (2022: GBP2,084k) from
its definition and calculation.
When managing its capital, the Group's main objectives when
managing capital are to safeguard the Group's ability to continue
as a going concern, to provide returns for shareholders and
benefits for other stakeholders, and to maintain an optimal capital
structure to reduce the cost of capital.
Consistent with others in the industry, the Group monitors
capital based on the gearing ratio. This ratio is calculated as
leverage divided by total capital. At 31 March 2023, the gearing
ratio was 12.3% (2022: 16.0%).
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 2023 is shown below:
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Cash and cash equivalents (12,224) (4,983)
Borrowings/bank overdrafts 14,662 3,559
Deferred consideration 5,679 6,601
----------------------------------------------------------- -------- --------
Net leverage/(cash) 8,117 5,177
----------------------------------------------------------- -------- --------
Share capital 567 428
Share premium account 30,474 3,625
Retained earnings 27,805 23,042
Capital redemption reserve 5 5
Foreign exchange reserve (836) 33
Shares held in treasury (108) (57)
----------------------------------------------------------- -------- --------
Equity 57,907 27,076
----------------------------------------------------------- -------- --------
Gearing ratio (net leverage/(equity + net leverage)/cash)) 12.3% 16.0%
----------------------------------------------------------- -------- --------
22. Net debt
At Other At
1 April non-cash 31 March
Year ended 31 March 2023 (GBP'000) 2022 Cash flow movement 2023
-------------------------------------- -------- --------- --------- ---------
Bank borrowing due within one year - (1,279) - (1,279)
Bank borrowing due after one year (1,500) (11,822) (61) (13,383)
-------------------------------------- -------- --------- --------- ---------
Total borrowings (1,500) (13,101) (61) (14,662)
Deferred consideration on acquisition
of subsidiaries within one year (4,625) 4,625 (5,679) (5,679)
Deferred consideration on acquisition
of subsidiaries after one year (1,976) - 1,976 -
Cash and cash equivalents 2,924 9,314 (14) 12,224
-------------------------------------- -------- --------- --------- ---------
(Net debt)/net cash (5,177) 838 (3,778) (8,117)
-------------------------------------- -------- --------- --------- ---------
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Increase/(decrease) in cash in the year 9,314 (4,006)
Increase in borrowings in the year (15,873) -
Repayment of borrowings in the year 2,772 2,250
Payment of deferred consideration on acquisitions 4,625 2,572
-------------------------------------------------- -------- --------
Net movement resulting from cashflows 838 816
-------------------------------------------------- -------- --------
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Net debt at 1 April (5,177) (4,358)
Net movement resulting from cashflows 838 816
Contingent consideration recognised in year - short
term (3,704) -
Contingent consideration recognised in year - long-term - (1,651)
Other non-cash movements (74) 16
-------------------------------------------------------- -------- --------
Net debt at 31 March (8,117) (5,177)
-------------------------------------------------------- -------- --------
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 2022 was 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:
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- --------
At 1 April (1,293) (1,303)
Deferred tax arising on acquisition of subsidiaries 67 -
(Expense)/credit for the year (485) 348
Effect of changes to foreign exchange rates (7) 5
Deferred tax adjustment in respect of prior periods (94) -
Effect of tax rate change - (343)
----------------------------------------------------- -------- --------
Net deferred tax at 31 March (1,812) (1,293)
----------------------------------------------------- -------- --------
Deferred tax (liabilities)/assets in relation to:
Accelerated capital allowances on property plant and
equipment (747) (504)
Short-term timing differences on intangible assets (1,736) (1,437)
Share-based payments 351 415
Short-term timing differences 114 98
Losses carried forward 206 135
----------------------------------------------------- -------- --------
Net deferred tax at 31 March (1,812) (1,293)
----------------------------------------------------- -------- --------
Deferred tax assets 375 539
Deferred tax liabilities (2,187) (1,832)
----------------------------------------------------- -------- --------
Net deferred tax at 31 March (1,812) (1,293)
----------------------------------------------------- -------- --------
The movements in respect of deferred tax in the year were as
follows:
Short-term
timing
Accelerated differences Short-term Losses
capital on intangible Share-based timing carried
allowances assets payments differences forward Total
---------------------------- ----------- -------------- ----------- ------------ -------- -------
At 1 April (504) (1,437) 415 98 135 (1,293)
Acquisition of subsidiaries (31) 62 - 36 - 67
Recognised in statement
of comprehensive income (212) (361) 30 (20) 71 (492)
Recognised in other
comprehensive income - - (94) - - (94)
---------------------------- ----------- -------------- ----------- ------------ -------- -------
At 31 March (747) (1,736) 351 114 206 (1,812)
---------------------------- ----------- -------------- ----------- ------------ -------- -------
The UK corporation tax rate is 19% (effective from 1 April
2017), which was, substantively, enacted on 17 March 2020. As
substantively enacted on 24 May 2021, the UK corporation tax rate
will increase to 25% with effect from 1 April 2023. The impact of
recalculating the deferred tax at the 25% rate was recognised in
comprehensive income in the 2022 comparative period.
The amount of the net reversal of deferred tax expected to occur
next year is, approximately, GBP447k (2022: GBP231k) relating to
the timing differences identified above.
The deferred tax asset of GBP166k (2022: GBP261k), 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. The movement in the
deferred tax asset has been debited to other comprehensive income
("OCI") and treated as an adjustment to profit. The share price
post year end, when the shares are exercised, may be 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, GBP275k. The associated
deferred tax asset of, approximately, GBP69k has not been
recognised due to the uncertainty over the recoverability combined
with the fact it is immaterial.
24. Provisions
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
At 1 April 694 741
Dilapidations acquired on acquisitions at FV 22 -
Provisions utilised during the year - (18)
Recognition of decommissioning asset 323 -
(Released)/charged to statement of comprehensive income (1) (29)
-------------------------------------------------------- -------- --------
Provisions at 31 March 1,038 694
-------------------------------------------------------- -------- --------
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. Based on using a discount rate of 6%, the Group has assessed
the impact of discounting to be immaterial and has not, therefore,
discounted the provisions. Provisions are split in current GBP323k
(2022: Nil) and non-current GBP715k (2022: 694k).
25. Share capital
2023 2022
GBP'000 GBP'000
------------------------------------------------------------ -------- --------
Allotted issued and fully paid 11,346,394 (2022: 8,564,878)
Ordinary shares of 5p 567 428
------------------------------------------------------------ -------- --------
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.
2023 2022
Shares Value Shares Value
No. GBP'000 No. GBP'000
------------------------------------ ---------- -------- --------- --------
Share Capital at 1 April 8,564,878 428 8,564,878 428
Issue of new shares on equity raise 2,757,516 138 - -
Share options exercised 24,000 1 - -
------------------------------------ ---------- -------- --------- --------
Share Capital at 31 March 11,346,394 567 8,564,878 428
------------------------------------ ---------- -------- --------- --------
At 31 March 2023, the number of shares covered by option
agreements amounted to 352,925 (2022: 248,100). At the balance
sheet date, there were 72,000 (2022: 96,000) share options which
had vested and remained unexercised. 24,000 (2022: Nil) options
were exercised in the current year.
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 GBP1,275k (2022:
GBPNil).
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 Shares held by the Group for future staff share plan
treasury 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 2023, the Group held 9,146 (2022: 6,946) shares in
treasury with a cost of GBP108k (2022: GBP57k). No shares have been
cancelled.
2023 2022
Shares Shares
--------------------------------------------------------- -------- --------
At 1 April 6,946 11,374
Purchase of shares into treasury 15,000 7,000
Transfer of shares to the All Employee Share Plan (AESP) (12,800) (11,428)
--------------------------------------------------------- -------- --------
At 31 March 9,146 6,946
--------------------------------------------------------- -------- --------
28. Share-based payment
The total amount charged to the income statement in 2023 in
respect of share-based payments was GBP551k (2022: GBP295k).
The company operates two long-term share incentive schemes set
out below:
Long-term incentive plan (LTIP):
Normal LTIP awards of up to 125% of salary may be made to
Executive Directors and senior management.
For all participants, awards will vest after three years in
accordance with the performance conditions applicable to each
grant. Options are granted with a contractual life of ten years and
with a fixed exercise price of 5p equal to the par value of the
shares or as otherwise disclosed in the Remuneration Report.
The performance conditions will be determined and set by the
Remuneration Committee in accordance with the remuneration policy.
No award will vest below Threshold performance, and vesting will
increase on a straight-line basis between threshold, target and
stretch.
On 4 October 2022, 56,000 (2022: 42,800) share options were
granted to the Executive Directors under the LTIP.
Principal assumptions 2023 2022
---------------------------------------------------- ----- -----
Weighted average share price at grant date in pence 986 1,085
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 49% 47%
Weighted average risk-free rate 2.28% 1.50%
Dividend yield 2.10% 2.50%
---------------------------------------------------- ----- -----
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 GBP30,000
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.
Between 4 October 2022 and 12 January 2023, 48,825 (2022:
36,750) share options were granted to senior management under
CSOP.
Principal assumptions 2023 2022
---------------------------------------------------- ----- -----
Weighted average share price at grant date in pence 1,006 1,050
Weighted average exercise price in pence 1,008 1,050
Weighted average vesting period (years) 3 3
Option life (years) 10 10
Weighted average expected life (years) 3 3
Weighted average expected volatility factor 49% 46%
Weighted average risk-free rate 2.28% 1.50%
Dividend yield 2.10% 2.50%
---------------------------------------------------- ----- -----
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. 24,000 were
exercised in the year, leaving 72,000, which remain unexercised at
the balance sheet date.
2023 2022
Average Average
2023 exercise 2022 exercise
Number price in Number price in
of options pence of options pence
----------------- ----------- --------- ----------- ---------
At 1 April 248,100 225 175,550 125
Granted 104,825 471 79,550 488
Exercised (24,000) 0.1 - -
Cancelled/lapsed - - (7,000) (707)
----------------- ----------- --------- ----------- ---------
At 31 March 328,925 320 248,100 225
----------------- ----------- --------- ----------- ---------
24,000 options were exercised in the year (2022: Nil) and the
weighted average share price at the date share options were
exercised was 1,320p.
As at 31 March 2023, the total number of long-term incentive
awards and share options held by employees was 328,925 (2022:
248,100) as follows:
Option
period 2023 Number 2022 Number
Option price pence/share ending of options of options
------------------------ -------- ----------- -----------
31 March
0.1p 2027 72,000 96,000
31 March
5p - 592p 2030 74,300 74,300
31 March
5p - 1050p 2031 77,800 77,800
31 March
5p - 1254p 2032 104,825 -
------------------------ -------- ----------- -----------
At 31 March 328,925 248,100
------------------------ -------- ----------- -----------
No share options have vested in the period (2022: Nil).
All Employee Share plan (AESP)
AESP awards, of up to HMRC tax-approved levels, are given 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 27 February 2023, 12,800 (2022: 12,250) share options
were awarded to the employees under the AESP.
The share price at the date of award was 1,160p (2022: 960p). As
the awards are, effectively, GBPnil 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 GBP148k (2022: GBP118k) as part of the total share-based
payments charge.
29. Capital commitments
At 31 March 2023, there were capital commitments of GBP172k
(2022: GBP303k).
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 relating to acquisition costs (including
fair value adjustments and earn-out estimation changes)
-- Non-recurring tax credits arising, primarily, from prior year
R&D claims and tax deductions on share options
-- 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
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Reported gross profit 39,674 27,527
Adjustments to gross profit 88 168
-------------------------------------------------- -------- --------
Adjusted gross profit 39,762 27,695
-------------------------------------------------- -------- --------
Reported operated profit 9,408 3,726
Adjustments to operating profit 2,219 3,674
-------------------------------------------------- -------- --------
Adjusted operating profit 11,627 7,400
-------------------------------------------------- -------- --------
Reported operating margin percentage 7.4% 4.4%
Operating margin percentage impact of adjustments 1.8% 4.3%
-------------------------------------------------- -------- --------
Adjusted operating margin percentage 9.2% 8.7%
-------------------------------------------------- -------- --------
Reported profit before tax 8,436 3,500
Adjustments to profit before tax 2,355 3,674
-------------------------------------------------- -------- --------
Adjusted profit before tax 10,791 7,174
-------------------------------------------------- -------- --------
Reported profit after tax 6,690 2,523
Adjustments to profit after tax 1,863 3,635
-------------------------------------------------- -------- --------
Adjusted profit after tax 8,553 6,158
-------------------------------------------------- -------- --------
Reported total other comprehensive income 5,727 2,784
Adjustments to total other comprehensive income 1,957 3,374
-------------------------------------------------- -------- --------
Adjusted total other comprehensive income 7,684 6,158
-------------------------------------------------- -------- --------
Components Systems Head office Total
2023 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- ---------- -------- ----------- --------
Acquisition fair value adjustments
within cost of sales - 88 - 88
Acquisition fair value adjustments,
reorganisation and deal costs - 289 15 304
Decrease 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
------------------------------------------- ---------- -------- ----------- --------
Movement of deferred tax asset in
OCI re. share price impact
on options - - 94 94
------------------------------------------- ---------- -------- ----------- --------
Adjustments to total other comprehensive
income - 161 1,796 1,957
------------------------------------------- ---------- -------- ----------- --------
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.
In evaluating our adjusted performance metric in respect of
Earnings Per Share (EPS) the board consider "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 "Reported 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).
Whilst we disclose "Reported 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 metric much less
appropriate when assessing performance.
Components Systems Head office Total
2022 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ---------- -------- ----------- --------
Acquisition fair value adjustments
within cost of sales 168 - - 168
Acquisition fair value adjustments,
reorganisation and deal costs - 533 - 533
Increase in deferred consideration
on acquisition of Active Silicon - 1,650 1,650
Amortisation of acquisition intangibles - - 1,028 1,028
Share-based payments - - 295 295
----------------------------------------- ---------- -------- ----------- --------
Adjustment to profit before
tax 168 2,183 1,323 3,674
----------------------------------------- ---------- -------- ----------- --------
Current and deferred taxation
effect (31) (75) (221) (327)
Deferred tax rate change impact
on acquisition intangibles and
share-based payments - - 288 288
----------------------------------------- ---------- -------- ----------- --------
Adjustments to profit after
tax 137 2,108 1,390 3,635
----------------------------------------- ---------- -------- ----------- --------
Recognition of deferred tax asset
in OCI re. share price impact
on options - - (261) (261)
----------------------------------------- ---------- -------- ----------- --------
Adjustments to total other comprehensive
income 137 2,108 1,129 3,374
----------------------------------------- ---------- -------- ----------- --------
Acquisition fair value adjustments within cost of sales relates
to the unwind of the IFRS3 fair value uplift on stock to selling
price less cost to sell in both periods.
Acquisition fair value adjustments, reorganisation and deal
costs in the current year and comparative period relate to
transaction costs for the acquisition of Custom Power.
31. Segment information
The Group's primary reporting format for segment information is
business segments, which reflect the management reporting structure
in the Group. The Components Division comprises Solid State
Supplies 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.
Components Systems Head Total
division division office Group
Year ended 31 March 2023 GBP'000 GBP'000 GBP'000 GBP'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
------------------------------------- ---------- --------- --------- --------
No individual customer contributed more than 10% of the Group's
revenue in the financial year ended 31 March 2023 or the prior
year.
Components Systems Head Total
Year ended 31 March 2022 division division office Group
--------------------------------------- ---------- --------- ------- --------
External revenue 52,480 32,517 - 84,997
--------------------------------------- ---------- --------- ------- --------
Profit before tax 4,433 2,492 (3,425) 3,500
Taxation (903) (297) 223 (977)
--------------------------------------- ---------- --------- ------- --------
Profit after taxation 3,530 2,195 (3,202) 2,523
Consolidated statement of financial
position
Assets 24,616 21,665 16,045 62,326
Liabilities (11,587) (14,253) (9,410) (35,250)
--------------------------------------- ---------- --------- ------- --------
Net assets 13,029 7,412 6,635 27,076
Other
Capital expenditure:
Tangible assets 524 654 - 1,178
Tangible assets - acquisitions - - - -
Intangible fixed assets 268 333 601
Intangible fixed assets - acquisitions - - - -
Right-of-use assets 216 97 - 313
Right-of-use assets - acquisitions - - - -
Depreciation - PPE 331 398 - 729
Depreciation - right-of-use assets 264 499 - 763
Amortisation 20 279 1,028 1,327
Share-based payments - - 295 295
Interest 48 61 117 226
--------------------------------------- ---------- --------- ------- --------
External revenue
by Total assets by Net capital expenditure
location of customer location of assets by location of assets
2023 2022 2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ---------- ---------- --------- ------------ -----------
United Kingdom 71,649 53,030 102,687 59,023 2,134 1,723
Rest of Europe 18,202 15,726 31 1 - -
Asia 8,811 6,542 - - - -
North America 27,205 9,175 11,070 3,302 578 56
Other 636 524 - - - -
--------------- ----------- ---------- ---------- --------- ------------ -----------
126,503 84,997 113,788 62,326 2,712 1,779
--------------- ----------- ---------- ---------- --------- ------------ -----------
32. Acquisition accounting for Custom Power LLC
Fair value Fair value Fair value
Book value Adjustment to Group to Group*
$'000 $'000 $'000 GBP'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 - 81 81 67
Inventory 4,105 (303) 3,802 3,142
Trade and other receivables 4,368 (250) 4,118 3,403
Trade and other payables (2,305) (337) (2,642) (2,183)
Right-of-use lease liabilities(**) - (1,069) (1,069) (883)
Provision for dilapidations - (25) (25) (21)
Cash and cash equivalents 319 - 319 264
----------------------------------- ---------- ----------- ---------- ----------
Net assets on acquisition 6,849 8,359 15,208 12,569
----------------------------------- ---------- ----------- ---------- ----------
Goodwill on acquisition - - 24,588 20,321
----------------------------------- ---------- ----------- ---------- ----------
Discounted consideration 39,796 32,890
----------------------------------- ---------- ----------- ---------- ----------
Discharged by:
Cash paid on acquisition 30,001 24,795
Short-term deferred consideration 10,000 8,264
----------------------------------- ---------- ----------- ---------- ----------
Gross consideration 40,001 33,059
----------------------------------- ---------- ----------- ---------- ----------
Discounting (205) (169)
----------------------------------- ---------- ----------- ---------- ----------
Discounted consideration 39,796 32,890
----------------------------------- ---------- ----------- ---------- ----------
* Exchange rate at date of acquisition was 1.21.
** These adjustments are GAAP alignments rather than fair value
adjustments.
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, which designs and manufactures custom battery
pack solutions. The entire membership interest, and therefore
control, 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
contingent 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 order book 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 IFRS3
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 US in relation to the goodwill arising.
The goodwill carrying value on consolidation is not amortised, but
is assessed for impairment at the end of each reporting period. If
no impairment is recognised, the initial asset recognised for
deferred taxation will unwind until it becomes a deferred tax
liability when the local deduction is fully recognised.
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 $19.8m (GBP16.7m) and $1.7m
(GBP1.4m), respectively. If Custom Power had been acquired on 1
April 22, the estimated values to include in the Group's Statement
of Comprehensive Income would have been revenue of $29.4m
(GBP24.5m) and profit after tax of $2.4m (GBP2.0m). The Group
incurred acquisition related costs of GBP786k (of which GBP565k was
expensed in prior periods and GBP221k expensed in the current
period) on legal fees and due diligence costs, included in sales,
general and administration expenses.
Lloyds Bank Plc provided a $10m standby letter of credit which
was fully funded by the $10m cash on deposit. By setting aside $10m
in a separate deposit account, to minimise charges, the Group fully
funded the short-term deferred consideration. $5 million was
settled in the year, leaving a balance of $5m disclosed as a
separate element of cash and cash equivalents on the face of the
consolidated balance sheet.
The final $5m of deferred contingent consideration only becomes
payable if Custom Power achieves a last 12-month revenue in excess
of $37.5m within an 18-month period post acquisition. Based on the
information available to management at the year end date, this
stretch hurdle is, currently, not considered to be achievable, and
the contingent consideration of $5m has been removed from the
goodwill calculations. The deferred consideration amounts were
discounted at an appropriate cost of debt and the impact was to
reduce the fair value of the consideration by $205k. The
discounting will be charged as a non-cash interest charge over the
period of the deferment with GBP136k charged to date.
The total cash settled to date is the initial consideration of
GBP24.8m plus the first $5m of deferred consideration at
GBP4.1m.
33. Related parties
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 following an
initial GBP150k investment. This is a new business, which provides
engineering consultancy by employing an engineering team. The team
provide power engineering services to the Group and external
customers on an arm's length basis.
eTech made sales to the Group totalling GBP196k (2022: GBPNil)
and purchases from the Group totalling GBP49k (2022: GBPNil). As at
31 March 2023, GBP60k is owed to the Group from eTech and GBP8k is
owed from eTech to the Group.
34. Post balance sheet events
Subsequent to the year end, the Group agreed a facility
extension on the USD overdraft facility of up to $10m to the end
September 2023 in order to cover the maximum potential impact of
the NATO project's timing differences to cashflow.
A new USA holding company, Solsta Holding Inc., was incorporated
with the intention to simplify the structure of the US Components
Division legal entities. This entity is 100% owned by Solid State
Plc.
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END
FR NKNBBBBKBAOK
(END) Dow Jones Newswires
July 04, 2023 02:00 ET (06:00 GMT)
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