TIDMSOLI
RNS Number : 1150E
Solid State PLC
02 July 2019
Solid State plc
("Solid State", the "Company" or the "Group")
Final Results for the year ended 31 March 2019
Solid State plc (AIM: SOLI), the AIM listed manufacturer of
computing, power and communications products, and value added
distributor of electronic components, is pleased to announce its
Final Results for the year ended 31 March 2019.
Highlights in the period include:
Financial:
2019 2018 Change**
Revenue GBP56.3m GBP46.3m +22%
Adjusted profit before tax* GBP3.5m GBP3.0m +18%
Reported profit after tax GBP2.7m GBP2.2m +19%
Adjusted diluted earnings per share 35.9p 30.9p +16%
Gross profit margin 29.1% 27.5% +154bps
Adjusted operating margin 6.5% 6.6% -7bps
Dividends 12.5p 12p +4%
*Profit before tax adjusted for acquisition and re-organisation
costs, amortisation of acquisition intangibles, share based
payments, non-recurring tax credits and the associated tax effect
of the other adjustments.
** Calculated based on the reported figures in GBP'000 in the
primary statements rather than the figures in GBP'm.
Operational:
-- Acquisition of Pacer Group, taking the Group into the complementary opto-electronics market;
-- Delivered significant increase in sales, with the Value Added
Distribution ('VAD') division delivering close to 25% organic
growth;
-- Re-focusing the Manufacturing division, to concentrate on
higher 'added value' business, which has translated into a richer
mix of business with better gross margins;
-- New value added facility in Weymouth, facilitating the growth
of higher margin products and services; and,
-- Continued investment in medium term research and development
to deliver increased higher margin services and manufacturing
solutions such as battery packs for robotics and new security
accredited computing products.
Post period end:
-- Extension of Microchip franchise; and,
-- Appointment of Nigel Rogers as independent Non-Executive Director.
Commenting on the results and prospects, Tony Frere, Chairman of
Solid State said:
"The financial year ended 31 March 2019 has seen the Group
deliver its best ever performance in terms of both revenue and
profit from the core business and make significant progress against
its strategic objectives.
"Our strategy is to deliver growth both organically and through
acquisition. These results illustrate our success in both aspects,
and our continued commitment to deliver on this strategy and our
aspiration to double the size of the business.
"The Group open order book at 31 May 2019 was up 56% on the
prior year at GBP35.9m. The acquisition of Pacer has been a large
contributor, however like for like, the proforma open order book
was still up 20%. This gives the Board confidence that the Group
remains on track to deliver in-line with our expectations."
Capital Markets Lunch:
A presentation of the results and an update on prospects will be
held on Monday 8 July 2019 in the City. Those keen to attend should
contact Tom Cooper on tom.cooper@walbrookpr.com or 0797 122
1972.
Investor Site Visits:
Solid State conducts site visits for investors at its Redditch
head office where operations for both the value added distribution
and manufacturing operations can be seen. Those interested in
attending should contact Tom Cooper on tom.cooper@walbrookpr.com or
0797 122 1972.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
For further information please contact:
Solid State plc 01527 830 630
Gary Marsh - Chief Executive investor.information@solidstateplc.com
Peter James - Group Finance Director
WH Ireland (Nominated Adviser & Joint
Broker) 0117 945 3470
Mike Coe / Chris Savidge (Corporate
Finance)
Jasper Berry / David Kilbourn (Corporate
Broking / Sales)
finnCap (Joint Broker)
Ed Frisby (Corporate Finance)
Rhys Williams (Sales) 020 7220 0500
Walbrook PR (Financial PR) 020 7933 8780
Tom Cooper / Paul Vann 0797 122 1972
tom.cooper@walbrookpr.com
Notes to Editors:
Solid State plc (SOLI) is a value added electronics group
supplying industrial and military markets with ruggedised/durable
components, assemblies and manufactured units for use in harsh
environments. The Group's mantra is - 'Trusted technology for
demanding applications'.
Operating through two main divisions: Manufacturing (Steatite)
and Value Added Distribution (Solid State Supplies & Pacer);
the Group specialises in complex engineering challenges often
requiring design-in support and component sourcing for computing,
power, communications, electronic and optoelectronic products.
Headquartered in Redditch, Solid State employs over 200 staff
across the UK with a branch office in the USA, serving specialist
markets in oil & gas production, transportation, medical,
construction, security, military and field maintenance.
Solid State was established in 1971 and admitted to AIM in June
1996. The Group has grown organically and by acquisition - having
made 10 acquisitions.
.
CHAIRMAN'S STATEMENT
Overview of the year
The financial year ended 31 March 2019 has seen the Group
deliver its best ever performance in terms of both revenue and
profit from the core business and make significant progress against
its strategic objectives. Our strategy is to deliver growth both
organically and through acquisition. These results illustrate our
continued commitment to deliver on this strategy.
In addition to the acquisition in November 2018 of Pacer
Technologies Limited ('Pacer'), the holding company for the Pacer
Group of companies, our Value Added Distribution ('VAD') division
contributed record organic growth in revenues and profits. This
complemented the significant improvements seen in the Manufacturing
division's operating margins, which have been delivered by
refocusing into three key business units and concentrating on
adding value to the products and services offered. The business
units are aligned with their customers and markets and serviced by
centres of excellence in the respective physical locations. This
progress against our strategy sets the foundations for the future
growth of the Group.
Achievements in 2018/2019
Notable achievements in 2018/2019 to advance our strategy
included:
-- delivering significant increase in sales, with the Value
Added Distribution division delivering close to 25% organic
growth;
-- successful completion of acquisition of the Pacer Group of
companies taking the Group into the opto-electronics market, which
is complementary to our existing product offering, enabling the
enlarged Group to provide a more complete service to our customers
in our diverse markets;
-- re-focusing the Manufacturing division, to concentrate on
higher 'added value' business, which has translated into a richer
mix of business with better gross margins;
-- new value added facility in Weymouth, facilitating the growth
of higher margin products and services. Development of our
value-added service offering and customer qualifications will
support our margins going forward;
-- continued investment in medium term research and development
to deliver increased value-added services and manufacturing
solutions such as battery packs for robotics and new security
accredited computing products.
The Chief Executive's strategic report provides further details
on these achievements and the progress we have made in executing
our strategy.
Financial overview
Group revenue from continuing operations of GBP56.3m was up 22%
on the prior year (2018: GBP46.3m). Our VAD division has gained
market share, delivering 25% organic revenue growth over the prior
year. As reported at the half year, Manufacturing revenues are
marginally down on the prior year at GBP25.9m (2018: GBP26.6m),
however, the focus on delivering higher value added activity has
meant that the volume shortfall has been more than mitigated at a
gross margin and PBT level with a 16% improvement in the gross
margin to 35.6% (2018: 30.6%).
The Group achieved a gross margin of 29.1% in the year compared
to 27.5% in 2018. This improvement reflects the impact of the
changing mix of sales in the Manufacturing division, with a greater
proportion of high value added projects more than offsetting the
dilutive impact of the increased share of VAD revenues.
During the year we have continued to invest significantly in
development activity within both the new value added services
facility in Weymouth, following the acquisition of Pacer, and in
the Manufacturing division capabilities. This has resulted in a
strengthening mix of higher value added activity in the year and a
strong open order book. We expect this will provide commercial
opportunities for the Group in the coming financial year and
beyond.
The reported and adjusted profit after tax reflect a record year
at GBP2.7m (2018: GBP2.2m) and GBP3.1m (2018: GBP2.7m)
respectively. This translates into fully diluted reported earnings
per share from continuing operations and adjusted earnings per
share from continuing operations of 30.7p (2018: 26.0p) and 35.9p
(2018: 30.9p) respectively.
The Group balance sheet has continued to strengthen and shows
net assets of GBP19.9m (2018: GBP18.0m) with net debt of GBP2.0m
(2018: net cash GBP0.6m). Given that we took on GBP6m of term debt
to fund the Pacer acquisition and the expansion of our value added
capabilities during the year, we are very pleased with the cash
generation in the last quarter of the year. Our underlying
operating cash conversion for the year was 109% (2018: 122%) and
reported operating cash conversion was 168% (2018: 54%).
As reported previously, we have continued to make strategic
investments in inventory (in particular battery cells and
processors) to exploit commercial opportunities and to mitigate the
risks associated with extending lead times, Brexit and the US,
China trade dispute. The investments made have enabled the Group to
pursue commercial opportunities and continue to ship products to
customers despite lengthening lead times. This was critical to
delivering the organic growth and securing a number of higher value
added programmes. We closed the year with inventories at GBP9.6m
(2018: GBP6.8m), reflecting the stock taken on with the Pacer
acquisition and in part holding some contingency stock ahead of the
originally proposed Brexit date of 29 March 2019.
Solid State PLC has paid a dividend every year since it joined
AIM in 1996. The Board is recommending a final dividend of 8.3p,
which added to the interim dividend of 4.2p per share paid on 15
February 2019, gives a total dividend for the year of 12.5p per
share (2018: 12p) an increase of 4.2%. The total dividend is 2.9
times covered in 2019, based on adjusted profit after tax from
continuing operations (2018: 2.6 times). The final dividend will be
paid, subject to shareholder approval at the Annual General Meeting
to be held on 4 September 2019, on 19 September 2019 to
shareholders on the register at the close of business on 30 August
2019. The shares will be marked ex-dividend on 29 August 2019.
The Board has agreed to continue with its dividend policy
whereby it will look to increase the dividend as growth in
profitability is delivered whilst targeting a dividend cover in the
region of 2.50-3.00 times adjusted earnings.
Senior management and corporate governance
The Board was very pleased to welcome Nigel Rogers to the Board
as a new independent Non-Executive Director. Nigel brings a wealth
of experience and will add a fresh perspective driving the
continued progress of the Group. In addition, Nigel will chair the
remuneration committee.
Opportunities and prospects for 2019/2020
The Group is well positioned for growth in 2019/2020 across its
business units with well diversified revenue streams.
Having completed the re-organisation and re-focusing of the
Manufacturing division, the division is well placed to deliver
revenue growth and improved operating margins, leveraging the hard
work which has been done in the last two years.
The supply chain challenges we have seen with certain extending
lead times, and cell manufacturers limiting supply to approved pack
manufacturers, only present higher barriers to entry in our
markets. Our strong established relationship with our supply chains
positions our Group well for future growth.
The macro economic environment from the US China trade war to
the ongoing Brexit negotiations present a level of risk and
uncertainty to the business environment in which we operate.
However, our breadth of technical knowledge, service levels from
our specialist teams, scale of our operations, strong balance
sheet, governance and quality standards gives the Board confidence
that the Group is well positioned to respond quickly to the
challenges and opportunities that lie ahead. The Board consider
that the Group's diversified structure gives it resilience and
places it in a far stronger position than our smaller unlisted
competitors within our customers' supply chains.
Acquisitions remain a key part of our strategy, and following
the successful completion of the acquisition of Pacer during the
second half of the financial year, we continue to actively seek
further acquisitions through our pipeline of opportunities.
However, we will only make acquisitions where they are fully
aligned with the Group's strategy. The focus when looking at
acquisitions is to ensure they develop our product offering;
broaden the market sectors we serve and underpin or enhance our
gross profit margins.
Current year trading has been ahead of the corresponding period
last year, although the order intake during the first quarter of
our new financial year has been softer than expected, we believe as
a result of the unwind of Brexit stocking. However, as the open
order book remains solid this gives the Board confidence that the
Group remains on track to deliver in-line with our expectations.
The Group open order book at 31 May 2019 was GBP35.9m (31 May 2018:
GBP23.0m) up 56% on the prior year primarily due to the acquisition
of Pacer. The like for like proforma open order book is up 20%.
Finally, on behalf of the Board, I would like to welcome the
Pacer team to the Solid State PLC group, acknowledge the
significant contribution of all our staff to the Group's continued
progress and thank them accordingly. This is a people business
which relies on the dedication of our colleagues across the Group;
this is acknowledged and appreciated.
A B Frere
Chairman
CHIEF EXECUTIVE'S STRATEGIC REPORT
Introduction to Solid State PLC
Comprised of two divisions but with a shared mission, strategy
and consistent business values, Solid State Group thrives on the
trusted advisor relationship with our customers. We provide
technology solutions, primarily designed for demanding
applications, safely, reliably and swiftly; freeing those customers
to focus on their core business with confidence.
Our mission and strategy to deliver growth
Our mission is "To remain at the forefront of electronics
technology, delivering reliable, high quality products and
services. Adding value at every opportunity, from enquiry to order
fulfilment; consistently meeting customer and partner
expectations."
Our stated strategy is to supplement organic growth with
selective acquisitions within the electronics industry which will
complement our existing Group companies and over time enable us to
achieve improved operating margins through the delivery of
operational efficiencies, scale and distribution.
Our strategy to deliver this has three key elements:
1) investment in our people, our technical knowledge and
resources to ensure we remain at the forefront of electronics
technology. To constantly seek opportunity to add value meeting our
customers' unmet needs and as such maintaining long term
relationships as the trusted advisor and subject matter
experts.
2) targeting strategic acquisitions which are aligned with our
core capabilities and provide access to new markets or deepen our
knowledge, ability and enhance the value we can add to our
customers; and,
3) continue to develop our strategic partnerships with customers
and suppliers within the electronics industry, building our
portfolio of value added services.
The Group is focused on the supply and support of specialist
electronics equipment through its Value Added Distribution ('VAD')
and Manufacturing divisions. The VAD division is a market leader in
delivering innovative, valuable, technical solutions for customers
seeking specialist, electronic and opto-electronic components and
displays.
The Manufacturing division is a market leader in the design,
development and supply of high specification rugged computers,
custom battery packs providing portable power and energy storage
solutions and advanced communication systems, encompassing wideband
antennas and high performance video transmission products.
The market for the Group's products and services is driven by
the need for bespoke electronic solutions to address complex needs,
typically in harsh environments where enhanced durability and
resistance to extreme and volatile humidity, temperature, pressure
and wind is vital. The drivers of value in our markets include
safety, technical performance, efficiency improvements, cost
savings, and environmental monitoring.
Value Added Distribution ('VAD') division
The Group's traditional VAD division is focused on serving the
needs of the electronics original equipment manufacturing (OEM) and
the contract electronics manufacturing (CEM) communities in the UK,
principally from its base in Redditch.
During the year we completed the acquisition of the Pacer Group
of companies ('Pacer'). Pacer is a leading value added distributor
of opto-electronic components which complements the existing VAD
product portfolio. During the year Pacer invested in a new value
added services facility in Weymouth which includes a Class 7 clean
room giving the Group an industry leading capability.
The division represents a select number of suppliers who
manufacture semiconductors, related electronic and opto-electronic
components, modules and displays. The division has an in depth
understanding of these products and as such can offer outstanding
levels of commercial and technical support to its customers.
The products offered are from globally recognised manufacturers
and include those for the I.O.T (internet of things), embedded
processing, control, wireless and wired communications, power
management, optical emitters and sensors, and LED lighting.
The division has expertise in high-reliability components for
Military and Aerospace applications. The division's quality
management system is accredited to the International Aerospace
standard AS9120.
The VAD division understands the need to provide the highest
level of service to its customers and has a clear focus on
supporting the electronic and opto-electronic design community.
Wherever possible the VAD division offers services for customers
who require their programmes pre-loaded onto hardware or their
products prepared to go direct to the production line. All of these
services are carried out in our bespoke electrostatic discharge
(ESD) safe facility in line with our AS9100 certification. This is
an offering many of our competitors are unable to provide.
Manufacturing division - Computing, Power and Communications
business units
Our Manufacturing division operates from sites in Redditch,
Crewkerne and Leominster. It's a market leader in the design,
development and supply of rugged and industrial computers, portable
power and energy storage solutions, advanced communication systems,
including wideband antennas and high-performance video transmission
products, where necessary our facilities and personnel are cleared
by the UK Government to allow secure work.
The facility in Crewkerne, is the Group's centre of excellence
for Power products; the facility in Redditch, focuses primarily on
the delivery of Computing products; and the facility in Leominster
houses the Communications business unit, which includes our antenna
design, production and test facilities.
The facility in Leominster also houses the Group's environmental
test chamber and vibration testing capabilities, in addition to our
near-field antenna test chamber, which supports in-house
development and is also made available to third parties looking to
utilise the state of the art chamber on a chargeable basis. These
facilities provide the Group with class leading test and
measurement capabilities which are utilised across all the
manufacturing business units.
Computing business unit
The Computing business unit designs, manufactures and tests
rugged and industrial computing solutions, serving a wide range of
markets including Industrial, Military, Transportation,
Surveillance and Broadcasting. Success has been achieved through
specialisation in industrial computer design and integration,
custom chassis builds, production, test and certification and
customisation of Windows Embedded IoT and related software
products.
Our product offering includes computers and displays, time and
positioning solutions, motherboards and modules. Our capabilities
extend from the provision of single board computer modules to
turnkey integrated systems with significant value added content in
the design, production, testing and commissioning.
The business unit has strong and long standing commercial
relationships directly with key suppliers in Asia and the USA.
Sustained digital marketing initiatives are leading to increased
demand from diverse markets with emphasis on driving the level of
value added content.
Power business unit
The Power business unit provides portable power and energy
storage solutions. This includes battery pack assembly, power
control, electronic design, and advanced battery testing. Working
from initial design through qualification and United Nations (UN)
certified testing, production, support and disposal at end of life,
the business unit is well positioned to respond to an increasing
demand for mobile and static power solutions where there is a
specific requirement for high reliability, harsh environment and,
above all else, safe systems.
The business unit has over 30 years' experience in the supply of
batteries and mobile power solutions into some of the world's most
demanding environments. Its battery packs are used in a range of
sectors including: Oil and Gas, Military and Security, Aerospace,
Environmental and Oceanographic, Safety and Industrial OEMs.
The operation has seen the successful integration of the latest
ISO 9001-2015 standard that is complemented by the 18001 health and
safety accreditation and approval to build equipment intended for
use in potentially explosive atmospheres under the ATEX directive.
These are all key considerations for our business to business
customers operating in various markets such as Aerospace, and the
Oil and Gas (O&G) markets.
Communications business unit
This business unit provides custom solutions that include
bespoke antenna design, advanced high bandwidth radios including
related peripheral technology and domain knowledge from the
in-house product support team that has direct end user
experience.
The radios are in service primarily with Special Forces users
for ground based and increasingly unmanned platforms both aerial
and maritime providing situational awareness solutions. We
constantly seek opportunity to enhance the base line radio product
with customised packaging for harsh environments and leveraging our
in house antennas capabilities.
The Antenna group provides advanced ultra-wide band systems
addressing demand from a worldwide customer base. Our antennas are
utilised in a range of applications including electronic warfare,
meteorological sensors and test and measurement applications. With
over 40 years of experience, the business unit is at the forefront
of antenna design and manufacture.
Our purpose built 18,000 sq. ft facility in Leominster includes
a world class near-field test chamber that sets the business apart
from competitors and allows the business unit to remain as a
pre-eminent provider of ultra-wideband/high power antenna
solutions.
Group trading overview
The Solid State Group has delivered significant organic growth
in revenues which have been augmented by the acquisition of Pacer.
The combination of the two has resulted in the delivery of record
profits in the period.
The Pacer acquisition takes the Value Added Distribution
division into the parallel market of opto-electronics which
complements the established electronics product offering, giving
the VAD division significant scale, market reach and penetration
which it has not had previously.
The Manufacturing division has consolidated its activities,
establishing technical centres of excellence with an appropriate
cost base to service our core sectors of Computing, Power and
Communications. This underpins the business. Refocusing its efforts
where we have the expertise and product offerings that add real
value to our customers has delivered the recovery to double digit
operating returns.
Business risks have been considered and, where practical,
mitigated. However, the macro economic risk associated with Brexit
uncertainty, the Chinese economy and related US/China trading
relations and the associated impact on foreign exchange is very
difficult to predict and therefore mitigate fully. Whilst we sell
predominately to the UK, our customers do sell into the global
markets including Europe and Asia and some have reported challenges
on new project awards.
In addition to the above we continue to see shortages and very
long lead times on certain critical components, in particular
battery cells and computer processors. The strength of our balance
sheet together with smart purchasing actions have enabled us to
successfully mitigate lead times and shortages. However, this
continues to be a challenge requiring active management and
necessitates increased stock levels.
Divisional business review
Value Added Distribution ('VAD') division
The financial year 2018/19 saw the completion of a significant
acquisition of the Pacer Group and exceptional organic growth in
the existing business.
This is the second year that the team has delivered exceptional
organic growth in the VAD division with revenues up 25% (2018: 19%)
on a like for like basis, albeit that we believe we benefitted from
some Brexit stocking in the last quarter of the year and the
previously reported one-off order for circa GBP1.0m. Pleasingly
gross margins have been maintained.
The growth in revenue and profits demonstrate the success of the
strategic plan and its tactical implementation, with initiatives
such as the sourcing and obsolescence business now making a
significant contribution to the VAD division.
The addition of the VPT Franchise to the VAD division's product
portfolio in Q1 had a major impact on the year with sales well
ahead of budget. This product line represents a continuing major
opportunity for the division with the leading edge indicator of
design-in activity showing high levels of activity.
Following the acquisition of Microsemi by Microchip, our
distribution franchise with Microsemi has been extended to include
all Microchip products post year end. This provides significant new
product lines and opens up an opportunity to sell the extended
offering to our customers and targets.
The acquisition of the Pacer business brings with it, new
markets and expertise, particularly in the areas of
opto-electronics and value added assembly, whilst the significant
display expertise enhances that already available in the Group. As
part of the integration of Pacer in to the VAD division, a clear
strategy has been defined and communicated to all Pacer staff to
ensure that it embarks on a high growth path over the coming
years.
The VAD division is benefiting from access to an enlarged and
wider customer base than had been previously available. Cross
selling initiatives are already bearing fruit, and efficiencies
through integration have been put in place where practical.
Marketing activity increased towards the end of the financial
year to promote the broader product offering of the enlarged VAD
division, supporting the need for an enlarged design-in pipeline to
feed the future sales growth.
The VAD division continues to recognise the value of, and to
invest in, its staff with various ongoing professional development
initiatives. The business has been successful in attracting several
specialist and highly skilled engineers into its design-in and
field based customer support function enhancing the prospects of it
winning further franchises.
Operational metrics remain well controlled with underlying stock
turn exceeding 5 times per annum and the VAD open order book at 31
May 2019 at a record level GBP23.6m (2018: GBP11.3m) following the
pacer acquisition. The senior management team of the VAD division
remain optimistic about the prospects for the 2019/20 financial
year and expect it to be another strong year.
Manufacturing division and business unit summaries
The Manufacturing division has focused on premium work, adding
value when opportunity has allowed to drive improved operating
performance, and put in place a foundation for future sustainable
profitable growth.
We focused the division to meet customer needs, establishing
three business unit centres of excellence in; Computing (in our
Redditch facility), Power (in our Crewkerne facility) and
Communications (in our Leominster facility).
At the beginning of the financial year, as part of the
implementation of re-focusing of the division, we consolidated some
of the division's engineering and computing sales teams, realising
some operational efficiencies which, in conjunction with a more
strategic approach to supply chain management, and continued
careful control and review of our fixed cost base, has enabled the
operating margins to be improved by 16% in the year to 11% (2018:
9.5%).
We continue to make strategic capital investments in a number of
areas of the business with focus on technology to provide enhanced
efficiencies and technical capabilities and improve productivity.
This includes automation within our Power business unit, software
tools for our Communications business unit, and EMC &
environmental testing capabilities that will serve all areas of the
business, enhancing our 'in-house' capabilities, building our
competitive advantage and delivering value for our customers.
We have focussed on building the quantity and quality of our
order book to position the business for future growth. The open
order book at 31 May 2019 has increased to GBP12.3m (2018:
11.8m).
Computing business unit
The Computing business unit has seen a continued increase in the
demand for Artificial Intelligence (AI) / Artificial Internet of
Things (AIoT) solutions that are image/video centric, which plays
to our strengths. The business unit is particularly well positioned
to address the growing trend for 'Edge Computing' and related harsh
environment applications with a range of fanless high powered, long
life computing solutions.
The business unit remains well diversified across market sectors
and technologies. In-line with our strategy to seek new markets for
our offering we have secured an important order for a new security
accredited product for a UK Government client that will deliver
revenue in the 2019/2020 financial year with additional associated
prospects, demonstrating the progress against our strategy of
investment in our technical value added capabilities.
TEMPEST is a National Security Agency specification and a NATO
certification referring to a cyber security accreditation on
information systems through preventing leaking emanations,
including unintentional radio or electrical signals, sounds, and
vibrations. The business is seeing and responding to increased
demand for TEMPEST compliant computing solutions leveraging the in
house computing , mechanical and domain knowledge at the Redditch
facility.
During the year the business unit introduced a new series of own
brand 19" rack mount servers including entry level and high end
chassis solutions with respective features and pricing
competitively matched. These new own branded products and a well
defined product road map that will see further releases in the
coming 18 months to position our computer business for future
growth.
In addition, we have resolved and delivered some long standing
technically challenging military projects that we were committed to
deliver. We have met our obligations and delivered against the
customers' requirements maintaining a strong relationship that will
bode well for future co-operation with these 'blue chip' defence
prime contractors.
Power business unit
In our Power business we are agnostic of cell chemistries,
giving us the freedom to be the subject matter expert, as a
'trusted advisor' to our customers, selecting the most appropriate
chemistry for the customers' requirements. Likewise, in our
selection of the optimum battery management solution. This has
enabled us to make headway in designing higher value added
solutions while diversifying our markets and customer base. This is
demonstrated with initial sales into the retail technology and
medical sectors where we have not traditionally been strong, to
complement the Oil and Gas and Aerospace & Defence sectors
which are areas of traditional strength.
Battery cell manufacturers continue to limit the supply of
product to approved third party pack providers and are extending
lead times across the industry in order that they can service the
needs of the electric vehicle (EV) market. This means that our
longstanding and trusted relationships with the leading cell
manufacturers are even more important and this, together with the
barriers to entry that also exist, mean we are well positioned to
leverage opportunities in this market place.
The focus for future growth remains on high reliability, harsh
environment applications where we can add value. New applications
in robotics solutions are being targeted in varied market sectors
including land based, sea and subsea. The business unit is taking
care to select markets for portable power and energy storage
solutions that have not been commoditised as a result of the EV
market's demand's for ever diminishing pricing on the cell
chemistries.
Communications business unit
The Communications business unit encompasses antenna products
and advanced radio products and is split into the Antennas team and
the Radio team. The business unit's technology is world class with
two thirds of sales from the Leominster facility being exported
worldwide.
While the absolute level of business has fallen over the prior
year, as expected, the Communications business unit has made
significant progress in developing a portfolio of more standard
'off the shelf' / 'run rate' antenna products which are
underpinning more sustainable revenues to augment the bespoke
programmes which the business has traditionally undertaken. This
includes provision of antennas for test and measurement
applications within the burgeoning 5G market.
The Radio team has established business relationships with
complementary companies providing mission planning computers,
digital mapping solutions and optical sensors positioning the
business as a subsystem provider of both the data links and
situational awareness product. This will allow this part of the
Communications business unit to move up the value chain, generating
larger contracts and increased contribution to the division. This
year we have made progress in the early stages of developing the
pipeline of international opportunities to overlay the traditional
domestic demand for an integrated communications solution where we
are expanding our product offering and looking to gain market
share.
Financial Review
In order to provide a fuller understanding of the Group's
ongoing underlying performance, we have included a number of
adjusted profit measures as supplementary information, on a
consistent basis with that reported by the financial analysts that
review our business. As detailed in note 8, the adjusted measures
eliminate the impact of certain non-cash charges and non-recurring
items.
Revenues
Group revenues from continuing operations of GBP56.3m were up
22% on the prior year (2018: GBP46.3m) delivered from a combination
of organic growth of GBP4.3m or 10% and acquisitive growth of
GBP5.7m or 12%.
During the year the Value Added Distribution division delivered
organic revenue growth in excess of 25% which when added to the
GBP5.7m of revenue from the acquisition of Pacer results in the
division now representing GBP30.4m / 54% (2018: GBP19.7m / 43%) of
Group revenue.
The Manufacturing division reported revenue of GBP25.9m (2018:
GBP26.6m) which was marginally down on prior year. This reduction
in revenue was as a result of some re-scheduling of orders in the
Power business unit from Q4 2018/19 to Q1 2019/20. Deliveries to
these customers have now resumed at expected levels. The focus this
year has been on quality of value added activity which has meant
that this marginal reduction in revenue was more than mitigated at
a gross margin and profit before tax level.
Gross profit
Gross profit for the year is up GBP3.7m to GBP16.4m (2018:
GBP12.7m) reflecting margins recovering to 29.1% (2018: 27.5%)
driven by improved margins in the Manufacturing division.
VAD margins have been maintained at 23.5% on revenues which are
up 54%, which when combined with the significant improvement in the
Manufacturing margins to 35.6% (2018: 30.6%) result in Group
margins improving 1.6% in spite of the potentially dilutive impact
of the increased share of VAD activity.
VAD contributed GBP7.2m (2018: GBP4.6m) of gross margins which
was up 57% over the prior year. The increase reflects our success
in growing revenue through the acquisition of Pacer and winning
larger volume contracts. In addition the investments we have made
in developing our added value services at the Weymouth facility,
and our obsolescence sourcing and long term storage offerings which
add tangible value to our customers mitigating the margin pressure.
We now have the class leading value added services capability
which, looking forward, are expected to increase the product
portfolio and enable the VAD division to enhance its margins as
these services develop.
The Manufacturing division contributed GBP9.2m (2018: GBP8.1m)
of gross margin which is up 14% on the prior year. The gross margin
percentage has recovered to 35.6% (2018: 30.6%) primarily as a
result of a change in mix of sales with the higher sales of high
value added product being achieved across all the business units.
The focus on higher value added activity has resulted in some
extended commercial negotiations but now positions us well for
profitable future growth.
Sales and general administration expenses
Sales and general administration expenses of GBP13.5m increased
by GBP3.3m from GBP10.2m in 2018. This increase primarily reflects
GBP2.5m increase in operating costs, GBP1.5m of which are a result
of the Pacer acquisition plus overhead inflation of GBP0.25m plus
investment in staff and third party sales resources of
GBP0.75m.
The remaining overhead increase reflects additional share based
payments charges GBP0.2m and additional depreciation and
amortisation of GBP0.6m.
Adjusted sales and general administration expenses from
continuing operations increased by GBP3.0m to GBP12.7m (2018:
GBP9.7m).
As reported last year, the VAD division invested in additional
resources in order to deliver the organic growth in 2018/19 which
combined with the Pacer overheads has resulted in the division's
adjusted sales and general administration expenses increasing from
GBP3.3m to GBP5.5m.
The Manufacturing division's adjusted sales and general
administration expenses have increased to GBP6.3m from GBP5.6m.
This reflects the full year impact of the amortisation of
intangibles in conjunction with cost inflation.
Adjusted Head Office sales and general administration costs have
remained relatively stable at GBP0.9m (2018: GBP0.8m).
Within sales, general and administrative expenses the reported
depreciation and amortisation from continuing operations in the
year was GBP1.4m which is up GBP0.5m from GBP0.9m in 2018 primarily
due to the additional depreciation post the Pacer acquisition,
increased amortisation of capitalised R&D and the amortisation
of the Pacer acquisition intangibles. Adjusted depreciation and
amortisation from continuing operations (excludes the amortisation
of acquisition intangibles) has increased to GBP1.2m (2018:
GBP0.7m).
Operating profit
Adjusted operating margins are stable year on year at 6.5% with
reported operating profit from continuing operations up 16% to
GBP2.9m (2018: GBP2.5m). Adjusted operating profit is up in excess
of 20% to GBP3.7m (2018: GBP3.0m) reflecting the growth in revenue
and the improved margins. The adjustments to operating profit are
set out in further detail in note 8.
We have recognised no net credit within operating profit in
respect of Research and Development Expenditure Credit (RDEC)
(2018: GBP0.1m) however we have recognised credits within the tax
line, where we are eligible for the SME R&D tax scheme. These
development programmes are a cornerstone of the Group's future high
value add revenue streams.
EPS
Adjusted fully diluted earnings per share from continuing
operations for the year ended 31 March 2019 are up 16% at 35.9p
(2018: 30.9p). Reported fully diluted earnings per share from
continuing operations are up 18% at 30.7p (2018: 26.0p).
Cash flow from operations
Cash inflow from continuing operations for the year of GBP4.9m
is up from GBP1.4m in 2018 primarily due to a cash inflow of circa
GBP0.3m from working capital compared to an outflow of GBP2.2m in
the prior year. Underlying cash flow from operations was up GBP0.5m
at GBP4.0m (2018: GBP3.5m) after excluding the net cash benefit
from advanced customer payments. This delivers underlying operating
cash conversion percentage of 109% (2018: 122%) and reported
operating cash conversion percentage of 168% (2018: 54%)
There was a working capital cash outflow in the period due to
increased receivables and inventories resulting from increased
revenues and investment in inventory. Inventories have increased
due to increased lead times on cells and various electronic
components and the positioning of customer requested inventory to
mitigate the potential Brexit risk at the end of March offset in
part by one off customer cash advances which are excluded when
calculating underlying cash conversion.
Investing activities
During the year the Group invested GBP0.6m (2018: GBP0.4m) in
property plant and equipment and GBP0.3m (2018: GBP0.3m) in
software and research and development intangibles. The increase in
capital expenditure reflects investment in the new value added
services facility in Weymouth amounting to circa GBP0.25m
investment. This aside the investment has been maintained at the
historical run rate level for capital expenditure.
Investment in subsidiaries
The acquisition of 100% of the share capital of Pacer
Technologies Limited, the holding company for the Pacer Group of
companies, resulted in a cash outflow of GBP3.8m. The acquisition
was financed through new bank facilities provided by the Lloyds
(see below financing activities) further details on the acquisition
are provided in note 7.
Financing activities
The financing activities reflect the drawdown of GBP6.0m of
acquisition facilities put in place to fund the acquisition of
Pacer. We have subsequently repaid GBP1.8m of borrowings which
included the first repayment of the term loan and the repayment in
full of the Pacer invoice discounting facility acquired.
As a result of the strong cash generation, post year end in
April 2019, the Group has made an early repayment of GBP2.0m of the
highest price element of the term loans taken out in respect of the
acquisition of Pacer. Having done this, the Group has been able to
extend the undrawn revolving credit facility by GBP2.0m,
maintaining the Group's overall funding flexibility.
Dividend
The Board is proposing to increase the final dividend to 8.3p
(2018: 8.0p), giving a full year dividend of 12.5p (2018: 12p). The
dividend is 2.9 times covered based on the adjusted profit after
tax.
Subject to approval of the final dividend by the shareholders at
the AGM on 4 September 2019, the final dividend will be paid on 19
September 2019 to shareholders on the register at the close of
business on the 30 August 2019. The shares will be marked
ex-dividend on 29 August 2019.
KPIs
In addition to the information provided in the Chairman's Report
and this Strategic Report, the Directors use several key
performance indicators to manage the business. Non-financial KPIs
are not disclosed.
KPI 2019 2018
Sales from continuing operations GBP56.3m GBP46.3m
========== =========
Adjusted operating profit from continuing operations GBP3.7m GBP3.0m
========== =========
Adjusted profit before taxation from continuing GBP3.5m GBP3.0m
operations
========== =========
Adjusted diluted EPS from continuing operations 35.9p 30.9p
========== =========
Underlying cash flow from continuing operating GBP4.0m GBP3.5m
activities
========== =========
(Net debt) / net cash (GBP2.0m) GBP0.6m
========== =========
Open order book @ 31 May GBP35.9m GBP23.0m
========== =========
Outlook
The margin improvement achieved by refocusing the Manufacturing
division, in conjunction with a significantly stronger open order
book puts the Group in a strong position as we start the new
financial year, albeit the macroeconomic headwinds continue to be a
challenge.
Investment in the Power business unit is positioning the
business to win and deliver more complex, higher margin solutions
whilst automation is improving productivity. Likewise, the
Computing team are targeting opportunities with increased levels of
added value to leverage our engineering and production capability.
When combined these initiatives place the Manufacturing division in
a strong competitive position to deliver profitable growth.
Following the acquisition of the Pacer Group of companies, the
enlarged VAD division has the scale, reach and capabilities to
attract significant franchises such as VPT which we signed during
the year. We have invested significantly in our value added
services facility in Weymouth and our sourcing and obsolescence
offering, which differentiate our VAD portfolio to provide us with
exciting opportunities for the future.
Over the next three years of our five year plan, we will remain
focused on securing quality orders as we drive to achieve our goal
we set at the beginning of 2017 to double the size of the business
through a combination of organic growth and strategic acquisitions.
The Board is confident that the achievements of the last year and
the growth in our open order book demonstrate that Solid State is
making good progress towards achieving its goals and that the
prospects for the Group remain very positive.
G S Marsh
Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
2019 2018
Continuing Operations Notes GBP'000 GBP'000
Revenue 6 56,299 46,268
======== ========= =========
Cost of sales (39,927) (33,525)
======== ========= =========
_______ _______
======== ========= =========
Gross profit 16,372 12,743
======== ========= =========
Sales, general and administration
expenses (13,452) (10,229)
======== ========= =========
_______ _______
======== ========= =========
Profit from operations 2,920 2,514
======== ========= =========
Finance expense (109) (33)
======== ========= =========
_______ _______
======== ========= =========
Profit before taxation 2,811 2,481
======== ========= =========
Tax expense 3 (153) (238)
======== ========= =========
_______ _______
--------------------------------------- -------- --------- ---------
Adjusted profit after taxation 3,108 2,663
======================================= ======== ========= =========
Adjustments to profit 8 (450) (420)
--------------------------------------- -------- --------- ---------
Profit after taxation 2,658 2,243
======== ========= =========
_______ _______
======== ========= =========
Profit attributable to equity holders
of the parent 2,658 2,243
======== ========= =========
_______ _______
======== ========= =========
Other comprehensive income - -
======== ========= =========
_______ _______
======== ========= =========
Total comprehensive income for the
year 2,658 2,243
======== ========= =========
_______ _______
======== ========= =========
Earnings per share 2019 2018
Basic EPS from profit for the year 4 31.3p 26.5p
====== ======
Diluted EPS from profit for the
year 4 30.7p 26.0p
====== ======
Adjusted EPS measures are reported in note 4.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
Share Foreign Capital Shares
Share Premium Exchange Redemption Retained held Total
Capital Reserve Reserve Reserve Earnings in Treasury Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 March
2018 425 3,629 - 5 14,204 (243) 18,020
========== ========= ========== ============ =========== ============= ==========
Total comprehensive
income for the
year ended 31 March
2019 - - - - 2,658 - 2,658
========== ========= ========== ============ =========== ============= ==========
Shares issued 2 (2) - - - -
========== ========= ========== ============ =========== ============= ==========
Foreign exchange - - (5) - - - (5)
========== ========= ========== ============ =========== ============= ==========
Purchase of treasury
shares - - - - - (34) (34)
========== ========= ========== ============ =========== ============= ==========
Transfer of treasury
shares to AESP - - - - (105) 105 -
========== ========= ========== ============ =========== ============= ==========
Dividends - - - (1,036) - (1,036)
========== ========= ========== ============ =========== ============= ==========
Share based payment
credit - - - 300 - 300
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
Balance at 31 March
2019 427 3,627 (5) 5 16,021 (172) 19,903
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
Share Foreign Capital Shares
Share Premium Exchange Redemption Retained held Total
Capital Reserve Reserve Reserve Earnings in Treasury Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 March
2017 425 3,629 - 5 12,826 (243) 16,642
========== ========= ========== ============ =========== ============= ==========
Total comprehensive
income for the
year ended 31 March
2018 - - - - 2,243 - 2,243
========== ========= ========== ============ =========== ============= ==========
Dividends - - - - (1,015) - (1,015)
========== ========= ========== ============ =========== ============= ==========
Share based payment
credit - - - - 150 - 150
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
Balance at 31 March
2018 425 3,629 - 5 14,204 (243) 18,020
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2019
2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ======== ========
ASSETS
======== ======== ======== ========
NON-CURRENT ASSETS
======== ======== ======== ========
Property, plant and equipment 2,425 2,253
======== ======== ======== ========
Intangible assets 8,892 6,167
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL NON-CURRENT ASSETS 11,317 8,420
======== ======== ======== ========
CURRENT ASSETS
======== ======== ======== ========
Inventories 9,648 6,823
======== ======== ======== ========
Trade and other receivables 13,389 10,048
======== ======== ======== ========
Deferred tax asset 105 -
======== ======== ======== ========
Cash and cash equivalents 3,692 575
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL CURRENT ASSETS 26,834 17,446
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL ASSETS 38,151 25,866
======== ======== ======== ========
_______ _______
======== ======== ======== ========
LIABILITIES
======== ======== ======== ========
CURRENT LIABILITIES
======== ======== ======== ========
Trade and other payables 8,725 5,718
======== ======== ======== ========
Contract liabilities 2,511 1,317
======== ======== ======== ========
Current borrowings 1,333 -
======== ======== ======== ========
Corporation tax liabilities 519 384
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL CURRENT LIABILITIES 13,088 7,419
======== ======== ======== ========
NON CURRENT LIABILITIES
======== ======== ======== ========
Non current borrowings 4,334 -
======== ======== ======== ========
Provisions 250 -
======== ======== ======== ========
Deferred tax liability 576 427
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL NON-CURRENT LIABILITIES 5,160 427
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL LIABILITIES 18,248 7,846
======== ======== ======== ========
_______ _______
======== ======== ======== ========
NET ASSETS 19,903 18,020
======== ======== ======== ========
_______ _______
======== ======== ======== ========
CAPITAL AND RESERVES ATTRIBUTABLE
TO EQUITY
======== ======== ======== ========
HOLDERS OF THE PARENT
======== ======== ======== ========
Share capital 427 425
======== ======== ======== ========
Share premium reserve 3,627 3,629
======== ======== ======== ========
Capital redemption reserve 5 5
======== ======== ======== ========
Foreign exchange reserve (5) -
======== ======== ======== ========
Retained earnings 16,021 14,204
======== ======== ======== ========
Shares held in treasury (172) (243)
======== ======== ======== ========
_______ _______
======== ======== ======== ========
TOTAL EQUITY 19,903 18,020
======== ======== ======== ========
_______ _______
=================================== ======== ======== ======== ========
The financial statements were approved by the Board of Directors
and authorised for issue on 2 July 2019 and were signed on its
behalf by:
G S Marsh, Director P O James, Director
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2019
2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ======== ========
OPERATING ACTIVITIES
======== ======== ======== ========
Profit before taxation 2,811 2,481
======== ======== ======== ========
Adjustments for:
======== ======== ======== ========
Depreciation 698 489
======== ======== ======== ========
Amortisation 732 406
======== ======== ======== ========
Loss/(profit) on disposal of property,
plant and equipment 6 (11)
======== ======== ======== ========
Share based payment expense 300 150
======== ======== ======== ========
Finance costs 109 33
======== ======== ======== ========
_______ _______
======== ======== ======== ========
Profit from operations before changes
in working capital and provisions 4,656 3,548
======== ======== ======== ========
Increase in inventories (1,198) (1,246)
======== ======== ======== ========
Increase in trade and other receivables (1,071) (1,723)
======== ======== ======== ========
Increase in trade and other payables 2,540 779
======== ======== ======== ========
Decrease in provisions (10) -
======== ======== ======== ========
_______ _______
======== ======== ======== ========
261 (2,190)
=========================================== ======== ======== ======== ========
_______ _______
======== ======== ======== ========
Cash generated from operations 4,917 1,358
======== ======== ======== ========
Income taxes paid (243) (6)
======== ======== ======== ========
Income taxes recovered - 39
======== ======== ======== ========
_______ _______
======== ======== ======== ========
(243) 33
=========================================== ======== ======== ======== ========
Net cash flow from operating activities 4,674 1,391
======== ======== ======== ========
INVESTING ACTIVITIES
======== ======== ======== ========
Purchase of property, plant and equipment (600) (402)
======== ======== ======== ========
Purchase of intangible assets (300) (349)
======== ======== ======== ========
Proceeds of sales from property,
plant and equipment 113 77
======== ======== ======== ========
Consideration paid on acquisition (3,812) -
of subsidiaries
======== ======== ======== ========
_______ _______
======== ======== ======== ========
Net cash flow from investing activities (4,599) (674)
======== ======== ======== ========
FINANCING ACTIVITIES
======== ======== ======== ========
Issue of ordinary shares (34) -
======== ======== ======== ========
Borrowings drawn 6,000 -
======== ======== ======== ========
Borrowings repaid (1,776) -
======== ======== ======== ========
Interest paid (109) (33)
======== ======== ======== ========
Dividend paid to equity shareholders (1,036) (1,018)
======== ======== ======== ========
_______ _______
======== ======== ======== ========
Net cash flow from financing activities 3,045 (1,051)
======== ======== ======== ========
_______ _______
======== ======== ======== ========
Increase/(decrease) in cash and cash
equivalents 3,120 (334)
======== ======== ======== ========
_______ _______
=========================================== ======== ======== ======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2019 (continued)
2019 2018
GBP'000 GBP'000
Translational foreign exchange on opening (3) -
cash
========= =========
Net increase/(decrease) in cash and cash
equivalents 3,120 (334)
========= =========
Cash and cash equivalents at beginning
of year 575 909
========= =========
_______ _______
========= =========
Cash and cash equivalents at end of year 3,692 575
========= =========
_______ _______
========= =========
There were no significant non-cash transactions. Cash and cash
equivalents comprise:
2019 2018
GBP'000 GBP'000
Cash available on demand 3,692 575
========= =========
_______ _______
========= =========
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019
1. ACCOUNTING POLICIES
All figures are taken from the 31 March 2019 audited annual
accounts which were approved by the directors on 2 July 2019,
unless denoted as 'unaudited'. Comparative figures in the results
for the year ended 31 March 2018 have been taken from the 2018
audited annual accounts.
This financial information is presented in pounds sterling and
all values are rounded to the nearest thousand (GBP'000) except
when otherwise indicated.
The financial information for the year ended 31 March 2019 does
not constitute statutory accounts as defined in section 435 (1) and
(2) of the Companies Act 2006.
Whilst this preliminary announcement has been prepared in
accordance with International Financial Reporting Standards (IFRS)
and IFRS Interpretations Committee (IFRIC) interpretations adopted
for use by the European Union, with those parts of the Companies
Act 2006 applicable to companies reporting under these condensed
financial statements do not contain sufficient information to
comply with IFRS.
The auditors have reported on these accounts; their reports were
unqualified, did not include a reference to any matter to which the
auditors drew attention by way of emphasis of matter and did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
Statutory accounts for the year ended 31 March 2018 have been
delivered to the Registrar of Companies and those for the year
ended 31 March 2019 will be delivered to the Registrar of Companies
shortly.
Certain statements in this announcement constitute
forward-looking statements. Any statement in this announcement that
is not a statement of historical fact including, without
limitation, those regarding the Group's future expectations,
operations, financial performance, financial condition and business
is a forward-looking statement. Such forward-looking statements are
subject to risks and uncertainties that may cause actual results to
differ materially. These risks and uncertainties include, among
other factors, changing economic, financial, business or other
market conditions. These and other factors could adversely affect
the outcome and financial effects of the plans and events described
in this announcement and the Group undertakes no obligation to
update its view of such risks and uncertainties or to update the
forward-looking statements contained herein. Nothing in this
announcement should be construed as a profit forecast.
Basis of preparation
The financial information in this preliminary announcement has
been prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations adopted for use in the
European Union (collectively Adopted IFRSs).
We have extracted below from the Annual Report and Accounts for
the 31 March 2019 the most significant elements of the principal
accounting policies adopted in the preparation of the financial
statements. All the Group accounting policies have been
consistently applied to all the years presented, unless otherwise
stated.
Changes in accounting policy and disclosures
New standards, amendments and interpretations adopted in the
year.
The following new standards, amendments and interpretations have
been adopted by the Group for the first time for the financial year
beginning on the 1 April 2018:
-- IFRS 9 Financial Instruments (effective for accounting
periods beginning or after 1 January 2018).
-- Annual improvements 2014-2016 cycle (effective for accounting
periods beginning or after 1 January 2018)
-- Amendments to IFRS 2 Share-based Payment to clarify the
classification and measurement of certain share based payment
transactions (effective for accounting periods beginning or after 1
January 2018)
-- IFRIC 22 Foreign currency translation of advanced
consideration (effective for accounting periods beginning or after
1 January 2018)
The adoption of these standards and amendments has not had a
material impact on the Group's consolidated financial
statements.
IFRS 9
'Financial instruments' replaces IAS 39 'Financial instruments:
Recognition and Measurement'. The standard is effective for
accounting periods beginning on or after 1 January 2018. The
standard covers three elements:
-- Classification and measurement: Changes to a more principle
based approach to classify 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
asset;
-- Impairment: Moves to an impairment model based on expected
credit losses based on a three stage approach; and
-- Hedge accounting: The IFRS 9 hedge accounting requirements
are designed to allow hedge accounting to be more closely aligned
with the Group's underlying risk management. A new International
Accounting Standards Board (IASB) project is in progress to develop
an approach to better reflect dynamic risk management in entities'
financial statements.
The Group has adopted IFRS 9 - Financial Instruments for the
financial year starting 1 April 2018. The Group does not hold
complex financial instruments and therefore the majority of changes
to the standard do not change the existing accounting for assets or
liabilities held. All financial assets and liabilities will
continue to be measured at amortised cost. The Group applied the
simplified method of the expected credit loss model when
calculating impairment losses on its financial assets measured at
amortised cost, such as trade receivables. This resulted in greater
judgement due to the need to factor in forward looking information
when estimating the appropriate amount of provisions. The magnitude
of this judgement is not considered material as the total provision
is immaterial.
In applying IFRS 9 the Group considered the probability of a
default occurring over the contractual life of its trade
receivables balances on initial recognition of those assets. The
Group has chosen not to restate comparatives on adoption of IFRS 9
as the impact of the changes on transition are immaterial,
therefore, these changes have been processed in the current year.
We have also adopted the new disclosure requirements and updated
the relevant accounting policies.
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 2019
or later periods and which the Group has decided not to adopt early
are listed below. The Group intends to adopt these standards when
they become effective.
-- IFRS 16 Leases (effective for accounting periods beginning on or after 1 January 2019)
-- IFRIC 23 Uncertainty over income tax treatments (effective
for accounting periods beginning or after 1 January 2019) this
standard has not yet been endorsed by the EU.
Of the standards and interpretations in issue but not yet
effective only IFRS 16 is expected to have any potentially material
impact on the results and financial position of the Group. IFRS 16
will be effective from 1 January 2019 and in its current form
requires all leases to be reflected on-balance sheet.
Under IFRS 16 'Leases', lessees will be required to apply a
single model to recognise a lease liability and asset for all
leases, including those classified as operating leases under
current accounting standards, unless the underlying asset has a low
value, or the lease term is 12 months or less. The adoption of IFRS
16 will have a significant impact on the financial statements as
each lease will give rise to a right of use asset which will be
depreciated on a straight line basis, and a lease liability with a
related interest charge. This depreciation and interest will
replace the operating lease payments currently recognised as an
expense. At 31 March 2019, operating lease commitments were
GBP1,409k and operating lease payments for 2019 were GBP476k.
The Group expects to adopt this standard for the financial year
ending 31 March 2020 and will restate the comparative period
(financial year ended 31 March 2019) and the opening balance sheet
(31 March 2018). The expected impact of the restatement on adoption
is set out below.
The impact on the opening balance sheet as at 31 March 2018 is
expected to result in the recognition of a right of use asset
within property plant and equipment of GBP1,029k, the recognition
of a right of use liability of GBP1,029k.
The impact on the restated comparative statement of
comprehensive income for the year ended 31 March 2019 is expected
to result in operating lease costs reducing by GBP433k offset by
increased depreciation of right of use asset of GBP416k and
recognition of an interest charge arising on the unwind of the
discounting of the right of use liability of GBP31k. This will
result in a net reduction in the reported profit before tax of
GBP14k.
The impact on the restated comparative statement of financial
position as at 31 March 2019 is expected to result in the
recognition of a right of use asset within property plant and
equipment with net book value of GBP953k, the recognition of a
right of use liability of GBP967k and a reduction in reserves of
GBP14k
Business combinations
The purchase method of accounting is used to account for all
business combinations, regardless of whether equity instruments or
other assets are acquired. Acquisition-related costs are expensed
as incurred.
The consideration transferred for the acquisition of a
subsidiary comprises the: fair values of the assets transferred;
liabilities incurred to the former owners of the acquired business;
equity interests issued by the group; fair value of any asset or
liability resulting from a contingent consideration arrangement;
and, fair value of any pre-existing equity interest in the
subsidiary.
Identifiable assets acquired, and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis
either at fair value or at the non-controlling interest's
proportionate share of the acquired entity's net identifiable
assets.
The excess of the: consideration transferred; amount of any
non-controlling interest in the acquired entity; and,
acquisition-date fair value of any previous equity interest in the
acquired entity, over the fair value of the net identifiable assets
acquired is recorded as goodwill.
If those amounts are less than the fair value of the net
identifiable assets of the business acquired, the difference is
recognised directly in profit or loss as a bargain purchase. Where
settlement of any part of cash consideration is deferred, the
amounts payable in the future are discounted to their present value
as at the date of exchange. The discount rate used is the entity's
incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under
comparable terms and conditions.
Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value with changes in fair
value recognised in profit or loss.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
Exceptional items
Exceptional items 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 exceptional 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.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the Group's accounting policies. This note provides an
overview of the areas that involved a higher degree of judgement or
complexity, and of items which are more likely to be materially
adjusted due to estimates and assumptions turning out to be
wrong.
In preparing this preliminary announcement we have extracted the
most significant accounting estimates and judgements from the
report and accounts. The full report and accounts includes a
comprehensive list which is not included in this announcement.
Acquisition accounting
In accordance with IFRS 3 and the Groups accounting policy, in
preparing these accounts the two significant judgements relate to
the recognition of a dilapidations provision of GBP260k at the date
of acquisition in respect of leasehold premises and the key
assumptions adopted in the MEEM model to assess the fair value of
the identifiable intangible assets. The key assumptions in the
model are the discount rate of 10%, customer attrition rate of 5%
pa, and the growth rate of 5%. Based on the model the fair value of
the intangibles is valued at GBP1.4m on acquisition which will be
amortised over 7 years.
The results of the fair value assessment completed which
included key judgements noted above results in goodwill arising on
the acquisition to GBP1.8m. If there were any changes to the
judgemental items noted above the corresponding impact would be to
increase or reduce goodwill accordingly.
Estimated useful life of research and development and intangible
assets arising on acquisitions
The periods of amortisation adopted to write down capitalised
product and process development requires judgements to be made in
respect of estimating the useful economic lives of the intangible
assets to determine an appropriate amortisation rate.
Capitalised development costs are amortised over the period
during which economic benefits are expected to be received which is
typically 2 - 5 years. Intangible assets arising on acquisitions
are amortised straight line over the period during which economic
benefits are expected to be received which is typically 5 - 10
years.
The amortisation charge for capitalised development costs in the
current year is GBP416k; if the lives were reduced by one year
across all the projects which are being amortised the charge would
increase by circa GBP175k.
The amortisation charge for intangible assets arising on
acquisitions in the current year is GBP284k; if the lives were
reduced by one year the charge would increase by GBP36k.
Provisions for slow moving or obsolete inventories
Inventories are carried at the lower of cost and net realisable
value (NRV). NRV is reviewed in detail on an on going basis and
provision for obsolete inventory is made based on a number of
factors including age of inventories, the risk of technical
obsolescence and the expected future usage.
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.
3. TAX EXPENSE
2019 2018
GBP'000 GBP'000
Analysis of continuing and discontinuing
total tax expense
========= =========
Total tax charge from continuing operations 153 238
========= =========
_______ _______
========= =========
153 238
========= =========
______ ______
========= =========
Current tax expense
========= =========
UK corporation tax on profits or losses
for the year 376 468
========= =========
Adjustment in respect of prior periods (67) (330)
========= =========
_______ _______
========= =========
309 138
========= =========
Deferred tax (credit)/ charge (156) 5
========= =========
Deferred tax adjustment in respect of
prior periods - 95
========= =========
______ ______
========= =========
Total tax charge 153 238
========= =========
______ ______
========= =========
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:
2019 2018
GBP'000 GBP'000
Profit before tax including discontinued operations 2,811 2,481
========= =========
_______ _______
========= =========
Expected tax charge based on the standard
rate of corporation tax in the UK of 19% (2018
19%) 534 471
========= =========
Effect of:
========= =========
Expenses not deductible for tax purposes 25 6
========= =========
Difference between depreciation for the year
and capital allowances 25 7
========= =========
Tax relief on exercise of share options exercised (52) -
========= =========
Enhanced relief on research and development
expenditure (359) (4)
========= =========
Differences in current and deferred tax rates (27) -
========= =========
Deferred tax asset not recognised 74
========= =========
Amortisation of intangibles - (7)
========= =========
Adjustments in respect of prior years (67) (235)
========= =========
_______ _______
========= =========
Total tax charge 153 238
========= =========
_______ _______
========= =========
The UK corporation tax rate of 19% (effective from 1 April 2017)
is reducing to 18% (effective 1 April 2020) which was substantially
enacted on 26 October 2015, and an additional reduction to 17%
(effective 1 April 2020) was substantively enacted on 6 September
2016. This will reduce the Group's future current tax charge
accordingly. The deferred tax liabilities at 31 March 2019 have
been calculated based on these rates.
R&D tax credits
The Group recognised a credit of GBPnil (2018: GBP109k) within
operating profit in relation to claims made under the Research and
Development expenditure credit scheme (RDEC). There were also
claims made under the SME scheme which are recognised within the
tax expense.
4. EARNINGS PER SHARE
The earnings per share is based on the following:
2019 2018
GBP'000 GBP'000
Adjusted continuing earnings post tax 3,108 2,663
========== ==========
Reported continuing earnings post tax 2,658 2,243
========== ==========
Weighted average number of shares 8,488,675 8,459,118
========== ==========
Diluted number of shares 8,648,719 8,618,468
========== ==========
Reported EPS
========== ==========
Basic EPS from profit for the year 31.3p 26.5p
========== ==========
Diluted EPS from profit for the year 30.7p 26.0p
========== ==========
Adjusted EPS
========== ==========
Adjusted Basic EPS from profit for the
year 36.6p 31.5p
========== ==========
Adjusted Diluted EPS from profit for
the year 35.9p 30.9p
========== ==========
Earnings per ordinary share has been calculated using the
weighted average number of shares in issue during the year. The
weighted average number of equity shares in issue was 8,488,675
(2018: 8,459,118) net of the treasury shares.
The diluted earnings per share is based on 8,648,719 (2018:
8,618,468) 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 8.
5. DIVIDS
2019 2018
GBP'000 GBP'000
Prior year final dividend paid of 8p per
share (2018: 8p) 682 680
========= =========
Current year interim dividend paid of
4.2p per share (2018: 4p) 358 340
========= =========
Cancelled dividends on shares held in
treasury (4) (5)
========= =========
_______ _______
========= =========
1,036 1,015
========= =========
_______ _______
========= =========
Final dividend proposed for the year 8.3p
per share (2018: 8p) 708 683
========= =========
_______ _______
========= =========
The proposed final dividend has not been accrued for as the
dividend will be approved by the shareholders at the annual general
meeting.
6. SEGMENT INFORMATION
The Group's primary reporting format for segment information is
business segments which reflect the management reporting structure
in the Group. The Value Added Distribution division comprises Solid
State Supplies Ltd, Pacer LLC and Pacer Components Ltd companies
the Manufacturing division includes Steatite Ltd.
Year ended 31 March 2019
Value Added Manufacturing Head Continuing
Distribution division office operations
division GBP'000 GBP'000 GBP'000
GBP'000
External revenue 30,402 25,897 - 56,299
============== =============== ========== =============
______ ______ ______ ______
============== =============== ========== =============
Profit before tax 1,677 2,707 (1,573) 2,811
============== =============== ========== =============
Taxation (349) (86) 282 (153)
============== =============== ========== =============
______ ______ ______ ______
============== =============== ========== =============
Profit after taxation 1,328 2,621 (1,291) 2,658
============== =============== ========== =============
Balance Sheet
============== =============== ========== =============
Assets 17,387 12,137 8,627 38,151
============== =============== ========== =============
Liabilities (5,665) (6,227) (6,356) (18,248)
============== =============== ========== =============
______ _____ ______ ______
============== =============== ========== =============
Net assets 11,722 5,910 2,271 19,903
============== =============== ========== =============
Other
============== =============== ========== =============
Capital expenditure:
============== =============== ========== =============
Tangible fixed assets 62 538 - 600
============== =============== ========== =============
Intangible assets - 300 - 300
============== =============== ========== =============
Depreciation 417 281 - 698
============== =============== ========== =============
Amortisation 18 430 284 732
============== =============== ========== =============
Share based payments - - 300 300
============== =============== ========== =============
Interest 7 2 100 109
============== =============== ========== =============
______ _____ ______ ______
============== =============== ========== =============
No individual customer contributed more than 10% of the Group's
revenue in the financial year ended 31 March 2019 or the prior
year.
Year ended 31 March 2018
Value Added Manufacturing Head Continuing
Distribution division office operations
division GBP'000 GBP'000 GBP'000
GBP'000
External revenue 19,685 26,583 - 46,268
============== =============== ========== =============
______ ______ ______ ______
============== =============== ========== =============
Profit before tax 1,295 2,375 (1,189) 2,481
============== =============== ========== =============
Taxation (251) (213) 226 (238)
============== =============== ========== =============
______ ______ ______ ______
============== =============== ========== =============
Profit after taxation 1,044 2,162 (963) 2,243
============== =============== ========== =============
Balance Sheet
============== =============== ========== =============
Assets 9,486 10,821 5,559 25,866
============== =============== ========== =============
Liabilities (3,052) (4,273) (521) (7,846)
============== =============== ========== =============
______ _____ ______ ______
============== =============== ========== =============
Net assets 6,434 6,548 5,038 18,020
============== =============== ========== =============
Other
============== =============== ========== =============
Capital expenditure:
============== =============== ========== =============
Tangible fixed assets 190 212 - 402
============== =============== ========== =============
Intangible assets 12 337 - 349
============== =============== ========== =============
Depreciation 180 309 - 489
============== =============== ========== =============
Amortisation 21 165 220 406
============== =============== ========== =============
Share based payments - - 150 150
============== =============== ========== =============
Interest 6 3 24 33
============== =============== ========== =============
______ _____ ______ ______
============== =============== ========== =============
External revenue Total assets by Net tangible capital
by location of assets expenditure by
location of customer location
of assets
2019 2018 2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============ =========== =========== ========== ============ ===========
United Kingdom 44,989 36,001 38,151 25,866 600 402
============ =========== =========== ========== ============ ===========
Rest of Europe 5,230 5,013 - -
============ =========== =========== ========== ============ ===========
Asia 2,540 1,972 - -
============ =========== =========== ========== ============ ===========
North America 3,426 2,991 - -
============ =========== =========== ========== ============ ===========
Other 114 291 - -
============ =========== =========== ========== ============ ===========
_______ _______ _______ _______ _______ _______
============ =========== =========== ========== ============ ===========
56,299 46,268 38,151 25,866 600 402
============ =========== =========== ========== ============ ===========
_______ _______ _______ _______ _______ _______
============ =========== =========== ========== ============ ===========
All the above relate to continuing operations.
7. ACQUISITIONS DURING THE YEAR
On the 9 November 2018 the Group acquired 100% of the share
capital of Pacer Technologies and its 100% subsidiaries for a cash
consideration of GBP3,812k.
Pacer Technologies is the holding company with two trading
subsidiaries, Pacer Components Limited, the UK trading entity and
Pacer LLC the US sales entity.
Pacer was established in 1989 to specialise in the distribution
and custom design of optoelectronic components, lasers and displays
to the OEM market in the medical, military, commercial, industrial
and security sectors. Serving an international client base, Pacer
has a reputation for supplying high quality components in a
customer-centric manner, often involving custom design and
manufacturing to address individual needs.
Pacer operates in two areas, Components and Displays, supplying
world class blue chip companies. The Components business is
distribution based with a smaller proportion of its sales derived
from manufacturing, own brand and assembly based products. Products
include industrial LEDs and light sources, lasers and laser range
finders, photon detection and counting equipment. The Displays
business complements and enhances that of Solid State Supplies.
Products include industrial and commercial grade displays.
In the UK, Pacer operates from offices in Pangbourne and
Weymouth, with a sales office in Crawley. Its US subsidiary is
based in Florida.
Book Fair value Fair value
value Adjustment to Group
GBP'000 GBP'000 GBP'000
Intangible assets 190 1,210 1,400
========= ============ ===========
Property plant and equipment 419 (29) 390
========= ============ ===========
Inventory 1,574 59 1,633
========= ============ ===========
Trade and other receivables 2,306 (29) 2,277
========= ============ ===========
Trade and other payables (1,705) (36) (1,741)
========= ============ ===========
Provision for dilapidations (10) (250) (260)
========= ============ ===========
Net Borrowings (1,443) - (1,443)
========= ============ ===========
Deferred tax (16) (185) (201)
========= ============ ===========
_______ _______ _______
========= ============ ===========
Net assets on acquisition 1,315 740 2,055
========= ============ ===========
Goodwill on acquisition 1,757
========= ============ ===========
_______ _______ _______
========= ============ ===========
Consideration 3,812
========= ============ ===========
_______ _______ _______
========= ============ ===========
Discharged by:
========= ============ ===========
Cash paid on acquisition 3,812
========= ============ ===========
_______ _______ _______
========= ============ ===========
The intangible assets are in relation to customer contacts and
relationships. The goodwill recognised represents expected
synergies from combining the operations of Pacer with those of the
existing Value Added Distribution division, expected value from
incremental sales arising across the combined operation that is not
separately recognisable at the date of acquisition and the value of
the work force not recognised as an intangible asset under IFRS 3
revised.
The revenue and profit after tax for the five month period post
acquisition included in the Statement of Comprehensive Income
arising from Pacer's operations were GBP5,711k and GBP67k
respectively.
Had the acquisition been completed on the 1 April 2018
management estimate that that the revenue would have been circa
GBP15.0m and pre-tax profit would be circa GBP0.1m after the debt
service costs.
8. ADJUSTMENTS TO PROFIT
The Group's results are reported after a number of imputed
non-cash charges and non-recurring items. We have provided
additional adjusted performance metrics to aid an understanding and
provide clarity over the Group's performance on an on-going cash
basis before imputed non-cash accounting charges consistent with
how analysts and investors tell us they review our business
performance.
We have presented an adjusted profit metric adjusting for the
following items:
-- Non-cash accounting charges arising from share-based payments
and the amortisation of acquisition intangibles.
-- Non-recurring cash costs relating to the re-organisation of
the Manufacturing division and acquisition costs.
-- Non-recurring tax credits arising primarily from prior year
R&D claims and enhanced deductions on share issues.
2019 2018
GBP'000 GBP'000
----------------------------------------- --------- ---------
Acquisition and re-organisation costs 149 150
========= =========
Amortisation of acquisition intangibles 284 219
========= =========
Share based payments 300 150
========= =========
_______ _______
========= =========
Adjustment to profit before tax 733 519
========= =========
Current and deferred taxation effect (142) (99)
========= =========
Non recurring tax credits (141) -
========= =========
_______ _______
========= =========
Total 450 420
========= =========
2019 2018
GBP'000 GBP'000
Reported operated profit from continuing
operations 2,920 2,514
========= =========
Adjustments to operating profit from continuing
operations 733 519
========= =========
_______ _______
========= =========
Adjusted operating profit from continuing
operations 3,653 3,033
========= =========
_______ _______
========= =========
Reported operating margin percentage from
continuing operations 5.2% 5.4%
========= =========
Operating margin percentage impact of adjustments 1.3% 1.2%
========= =========
Adjusted operating margin percentage from
continuing operations 6.5% 6.6%
========= =========
_______ _______
========= =========
Reported profit before tax from continuing
operations 2,811 2,481
========= =========
Adjustments to profit before tax 733 519
========= =========
_______ _______
========= =========
Adjusted profit before tax from continuing
operations 3,544 3,000
========= =========
_______ _______
========= =========
Reported profit after tax from continuing
operations 2,658 2,243
========= =========
Adjustments to profit after tax 450 420
========= =========
_______ _______
========= =========
Adjusted profit after tax from continuing
operations 3,108 2,663
========= =========
_______ _______
========= =========
9. The Annual Report and Accounts will be sent to shareholders
shortly and made available to the public at the registered office
of the Company at 2 Ravensbank Business Park, Hedera Rd, Redditch,
B98 9EY and will also be available to download on the Company's
website www.solidstateplc.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UGUQGMUPBGRG
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