TIDMSOLI
RNS Number : 9936E
Solid State PLC
13 July 2021
Solid State plc
( "Solid State", the " Group " or the "Company" )
Final Results for the 12 months ended 31 March 2021
Analyst Briefing & Investor Presentation
Solid State plc (AIM: SOLI), the specialist value added
component supplier and design-in manufacturer of computing, power,
and communications products, is pleased to announce its audited
final results for the 12 months ended 31 March 2021.
Highlights include:
Financial:
KPI 2021 2020 Change
========== =========
Reported Revenue GBP66.3m GBP67.4m -1.6%
========== ========= ========
Reported operating profit margin 6.5% 6.1% +40bps
========== ========= ========
Adjusted operating profit margin* 8.3% 7.2% +110bps
========== ========= ========
Reported profit before taxation GBP4.2m GBP4.0m +5.0%
========== ========= ========
Adjusted profit before taxation* GBP5.4m GBP4.7m +14.9%
========== ========= ========
Reported EPS 46.4p 40.1p +15.7%
========== ========= ========
Adjusted diluted EPS 54.7p 46.3p +18.1%
========== ========= ========
Underlying cash flow from operations GBP6.9m GBP8.0m -13.8%
========== ========= ========
Net cash/(net debt)** (GBP4.4m) GBP3.2m -237.5%
========== ========= ========
Dividend 16.0p 12.5p +28.0%
========== ========= ========
Open order book @ 31 May GBP51.0m GBP37.9m +34.6%
========== ========= ========
* Adjusted performance metrics are reconciled in note 10, 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 GBP3.1m (2020:
GBP3.2m), the fair value of deferred contingent consideration of
GBP7.5m (2020: nil) and excludes the right of use lease liabilities
of GBP2.5m (2020: GBP1.1m).
The Group has delivered:
-- Stable revenue year on year at GBP66.3m (2020: GBP67.4m),
reflecting diversified market sector exposure which has given the
business resilience to the COVID-19 pandemic and Brexit
challenges.
-- Record profitability reflected in adjusted operating margins
increasing 110bps to 8.3%, based on solid margins in both divisions
and the improved operational efficiencies.
-- Adjusted fully diluted EPS up 18% to 54.7p (2020: 46.3p).
-- Consistently strong operating cash generation of GBP6.9m
(2020: GBP8.0m) with reported cash conversion of 162% (2020:
195%).
-- A dividend increased 28% on prior year reflecting record performance in the year.
-- An open order book on 31 May 2021 of GBP51.0m - and GBP41.4m
(2020: GBP37.9m) on like-for-like (excludes the companies acquired
during the year) basis reflecting 9.2% organic growth in the open
order book on 31 May 2021.
Strategic Achievements in FY20/21
Notable achievements in FY20/21 to advance our strategy
included:
-- Acquisitions of Willow Technologies and Active Silicon:
o Enhanced technology adding a portfolio of own brand image
processing products and electro-mechanical components (including
component manufacturing capabilities in USA); and,
o Enhanced the international sales capabilities and resources in
the USA and Europe.
-- Internal technology development of the Group's battery pack
and Battery Management Systems (BMS) offering, own brand computing
products and building the portfolio of communications products
through the Group R&D programme.
-- Established in-house Electromagnetic Compatibility (EMC)
testing capabilities through the capital investment programme.
Commenting on the results and prospects, Gary Marsh, Chief
Executive said:
"I am pleased to report that Solid State has delivered another
year of record profits and a further step in achieving its medium
term target of doubling adjusted earnings per share, despite a
challenging market environment and the pandemic.
"The completion of two bolt-on acquisitions late in the year
significantly enhance the Group's capabilities and add to the
Group's resilience and strategic targets of achieving greater
diversity in geographical and industry sector coverage.
"The Board is confident that the achievements of the last year
and the post period end growth in open orders are a very good
foundation going into the current financial year. The experience of
our team, focus on structural growth markets and the balance sheet
strength set Solid State aside from many in our sector, giving the
Directors confidence in the mid-term prospects."
Analyst Briefing: 9.30am today, 13 July 2021
An online briefing for Analysts will be hosted by Gary Marsh,
Chief Executive, and Peter James, Group Finance Director, at 9.30am
on Tuesday 13 July 2021 to review the results and prospects.
Analysts wishing to attend should contact Walbrook PR on
solidstate@walbrookpr.com or on 020 7933 8780.
Investor Results Presentation: 4.00pm on Wednesday 14 July
2021
Gary Marsh, Chief Executive, Peter James, Group Finance
Director, and John Macmichael, Managing Director of the Value Added
Supplies division, will hold a presentation to cover the results
and prospects at 4.00pm on Wednesday 14 July 2021. 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.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
For further information please contact:
Solid State plc Via Walbrook
Gary Marsh - Chief Executive
Peter James - Group Finance Director
WH Ireland (Nominated Adviser & Joint
Broker) 0207 220 1666
Mike Coe (Corporate Finance)
Jasper Berry (Corporate Broking /
Sales)
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 / Anysia Virdi 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 military markets with durable
components, assemblies and manufactured units for use in specialist
and harsh environments. The Group's mantra is - 'Trusted technology
for demanding applications'. To see an introductory video on the
Group - https://bit.ly/3kzddx7
Operating through two main divisions: Manufacturing (Steatite
& Active Silicon) and Value Added Supplies (Solid State
Supplies, Pacer, Willow Technologies & AEC); the Group
specialises in complex engineering challenges often requiring
design-in support and component sourcing for computing, power,
communications, electronic, electro-mechanical and opto-electronic
products.
Headquartered in Redditch, UK, Solid State employs approximately
300 staff across UK and US, serving specialist markets in energy
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 12 acquisitions since 2002.
Chairman's Statement
I am pleased to report that the Group has delivered another year
of record profits despite a challenging market environment. Group
management continues to make good progress in the implementation of
its strategy by investing in people and technology, and through the
completion of two bolt-on acquisitions late in the year which
significantly enhance the Group's capabilities.
Our business model has displayed resilience in the face of the
global COVID-19 pandemic, demonstrating the benefits of our diverse
geographical, industry sector coverage and our decentralised
footprint. Whilst the acute impact of the pandemic is now receding,
there are longer term effects on component availability, logistical
disruption and inflationary pressures which are expected to endure
into 2022. These are complex and can be difficult to navigate and
call upon the full range of skills and experience of our well
established team.
The Group also entered the current financial year with a strong
balance sheet, and the addition of Willow Technologies Group
(Willow) and Active Silicon Group (Active), providing further
momentum to maintain our growth record.
Strategy
The Group provides customers broad-based access to trusted
electronic technology for demanding applications and extreme
environments and has a commercial focus on high growth markets
including security & defence, medical, green energy, transport,
communications and industrial.
Our medium-term financial objective to double fully diluted
adjusted earnings from 30 pence to 60 pence per share over a five
year period to March 2022 is on track. The accelerated growth rate
achieved in recent periods reflects the benefit of the foundations
which have been laid and the significant opportunities for
continued growth. The Directors are fully committed to continuous
development of our capabilities to build on this success, further
strengthen our partnership approach with major customers, and
continue to share rewards equitably amongst all of our
stakeholders.
Although there are acknowledged short term supply challenges for
our industry, the demand outlook for customised electronic
solutions offers exciting opportunities. Many ground breaking
technologies are embedded within our current activities, and there
is scope for further investment in specialist skills and knowledge
to expand and differentiate our offering to customers, both through
internal development and acquisition as we target international
expansion.
We are building ever closer relationships with our customers,
adding substantial value through early stage integration into their
design and development road maps, and interlocking with their
operational and logistics processes. This will be achieved by
further strengthening channels of co-operation between Group
entities, building cross-selling specialist teams to facilitate
ease of customer access to our full range of products and
services.
Governance and Accountability
The structure of the Board has continued to evolve with the
appointment of Pete Magowan as Senior Independent Director in
November 2020, at the same time as my own transition to become
independent Non-Executive Chairman. The Non-Executive element of
the Board is completed by Peter Haining, who also acted as Interim
Chairman during the year prior to my appointment.
Following my appointment, a formal board effectiveness review
was undertaken which identified some updating to board processes
and documentation which have all now been actioned. There is
further work underway to address the Environmental, Social and
Governance (ESG) agenda which will form an increasingly important
element of future reports as additional metrics are identified and
progressed.
In communication with our shareholders and others, our primary
aim is to provide timely, well balanced and succinct information
about our business and its prospects to a wide audience on a
regular basis. In addition to our Annual General Meeting and
scheduled meetings with key institutional shareholders, we
participate in periodic on-line presentations which are open to all
by prior arrangement on the "Investor Meet Company" platform (
www.investormeetcompany.com ).
People
The wider impact of the COVID-19 pandemic has placed an
extraordinary burden on all of our people in different ways. Group
management has taken great care in leading initiatives to keep our
workplaces and all of our staff safe and healthy, with focus on
broader social welfare in addition to physical protection. With the
worst effects now apparently receding and an element of normality
returning, I take this opportunity to record the sincere thanks of
the Board to everyone who has worked so diligently to ensure the
continuity of our service to customers, and the welfare of all our
people and their families.
Acquisitions
In early March 2021 we announced the acquisitions of Active
Silicon Limited and Willow Technologies Limited, two companies
which enhance our technology offering to customers as well as
providing increased international coverage. These represent the
eleventh and twelfth such transactions completed since 2002. We are
delighted to welcome these companies and their staff into the Group
fold and are very encouraged by the early successes they have
achieved under Group ownership.
We continue to evaluate opportunities to expand our range of
specialist applications and international reach through the
acquisition of high-quality businesses as a key element of our
strategy for future growth.
Dividend
The Group has paid dividends in each of the twenty five years
since joining AIM in 1996. The dividend policy is progressive, and
payments are proposed by reference to dividend cover in the range
2.5 to 3.0 times over a medium-term cycle. In the prior year, the
Board took account of the exceptional circumstances arising from
the pandemic, and total dividend payments were maintained at 12.5
pence per share covered 3.2 times by earnings.
Whilst the inherent uncertainty surrounding the effects of the
pandemic has abated since last year, the Directors continue to take
a relatively prudent short term view and consider that some
restraint in the dividend increase so as to remain at the upper end
of the long term cover target continues to be appropriate.
Accordingly, the Board is proposing a final dividend of 10.75 pence
(2020: 7.25 pence) resulting in full year dividends of 16.0 pence
(12.5 pence) which is covered 2.9 times by earnings (2020: 3.2
times).
Subject to approval of the final dividend by shareholders at the
AGM on 8 September 2021, the final dividend will be paid on 24
September 2021 to shareholders on the register at the close of
business on 3 September 2021, and the shares will be marked
ex-dividend on 2 September 2021.
Opportunities and prospects for 2021/2022
Whilst the forthcoming period will no doubt be adversely
affected by the effects of component shortages and the recovery
from COVID-19, the Group is well placed to take advantage of the
current challenges and emerge in a stronger position than many of
its competitors. Although the Group is seeing record order intake
in Q1 2021/22, its diverse sector exposure and strong open order
book will provide some resilience.
The Group's business model now serves a wide customer base of
over 2000 clients, operating across multiple sectors, offering a
broad product range with decentralised production. This
diversification provides the Group with resilience when markets are
challenging.
The Board believes two of the key technology areas where it
expects to see significant growth in demand in the medium term are
image capture, processing, and transmission, driven by increased
adoption of industrial AI and the roll out of 5G, and power control
and switching driven by the drive to reduce carbon emissions and
EV. The Group's recent acquisition of Willow Technologies and
Active Silicon are critical to ensuring that the Group is
positioned to further penetrate these sectors and gain market share
in addition to providing products which it can sell
internationally.
Positively, the Group has seen initial signs of recovery from
sectors which were significantly adversely impacted by COVID-19
such as oil & gas and commercial aviation, albeit not to
historic levels. The Group continues to benefit from opportunities
in these core areas, whilst also developing its presence in new and
emerging growth markets. The Group has a strong position in the
security and defence sector which is seeing significant investment
in technology which the Group is well placed to deliver.
Furthermore, any shift by prime contractors away from a globalised
supply chain to buying more of their vital electronics and services
closer to home will be positive for the Group.
Solid State continues to focus on cross Group collaboration
initiatives to drive organic sales. The capabilities added through
the acquisitions further add scale and capability which the Group
can provide to the enlarged customer base. We have been selected as
a supplier on two programmes which are expected to start in
FY21/22, leveraging the full capabilities of the Group, bringing
new and previously unattainable opportunities to the business.
The focus for future growth remains on high reliability, harsh
environment applications where we can add value. New applications
for our technology in robotics solutions and emerging green
transport programmes are being targeted in varied market sectors
across commercial, industrial and high reliability applications.
The Group is taking care to select markets for its products and
solutions that have not been commoditised.
Although the timing of supplies and programmes remains difficult
to predict, the Board is confident that given its strong financial
footing, technology, capabilities, niches and its sector
penetration in areas which are political priorities, for example in
transportation and medical, it is well placed to navigate these
exceptional trading conditions.
N Rogers
Chairman
Chief Executive's Review
Given the macro-economic backdrop (with the COVID-19 pandemic
and latterly Brexit and semiconductor supply shortages), this
reporting period was undoubtedly one of the most challenging in the
Group's 50 year history. As a result, I am very pleased to report
18% growth in adjusted earnings per share over the prior year's
record result and revenue broadly comparable year on year at
GBP66.3m (2019/20: GBP67.4m). The Group benefitted from one month
of revenue from the two acquisitions and some pull ins of demand at
the end of the year as its customers looked to mitigate the
well-publicised electronics supply chain issues. Despite these
challenges, the Group has been able to make significant strides in
delivering on its growth strategy in the current year.
Solid State reports a strong year-end balance sheet with net
assets of GBP25.5m and net cash at the bank of GBP3.2m (excluding
lease and deferred contingent consideration obligations). The
balance sheet strength means the Group is well placed to gain a
competitive advantage when managing the challenging market
conditions. Building on last year's record performance we look
forward to delivering further strategic progress.
The scale and broader portfolio of products now offered by the
Group's Value Added Supplies (VAS) division, has enabled VAS
revenues to be broadly maintained year on year, significantly
outperforming a market which saw a decline across 'all electronic
components' of 4% and a 12% decline for 'semiconductor' sales. The
reduction in revenues from the Manufacturing Division was more than
mitigated by improved margins and lower operating costs which
resulted in a significant improvement in profitability.
Managing the COVID-19 pandemic
During the initial few months of the pandemic, the Group faced
some reductions in demand. In managing this, the Group utilised the
Government's Coronavirus Job Retention Scheme (CJRS). At the half
year resources were adjusted to align with ongoing demand resulting
in a small number of redundancies. The CJRS grants received of
GBP0.3m allowed the Group to retain its skilled work force while it
evaluated how demand would stabilise and then recover, minimising
redundancies. Had the CJRS not been available the level of
redundancies would have been more significant at the start of the
pandemic.
The Group's sector diversity has enabled it to substantially
mitigate the COVID-19 challenges faced in the oil and gas and
commercial aerospace sectors with strong demand in other markets
including security and defence, medical and transportation.
The Group's operational response to the COVID-19 pandemic was
pro-active and swift which has meant the business has faced no
significant operational disruption. Solid State's adoption of
Office 365 ahead of the pandemic was timely meaning the workforce
was largely set up for home working. The production workforce was
engaged and integral in establishing the Group's COVID safe
protocols from the outset to ensure that the business could
continue to operate safely as a nominated critical supplier
continuing to fulfil customer demand.
Key stakeholder engagement
Solid State's pro-active approach to managing both customer and
supplier stakeholders during the year has been recognised
positively with many providing positive feedback about how the
Group has supported their businesses in these very difficult times.
This is evidenced by the Group being awarded 4 formal supplier /
customer awards recognising the Group's value to their
businesses.
Through the pandemic the business has worked hard to ensure that
it has maintained timely and relevant communication and engagement
with all stakeholders. The teamwork, support, and commitment from
and by the staff has been a real success factor. The workforce has
recognised and valued the investment in enhancing the Group's staff
welfare programmes to provide both physical and mental health
support, resources and benefits which are available to all
employees to provide some mitigation to the challenges presented by
lockdown and remote working.
The Group continues to recognise the value of, and invest in,
its staff with various ongoing professional development
initiatives. This is critical to the Group continuing to both
retain and attract exceptionally high calibre staff which is
necessary to maintain its market position and retain its trusted
business partner relationships.
Two of the initiatives instigated as part of the Group's staff
and communities engagement activities were particularly rewarding
and were highlights of the year; being the Solid State lockdown
charity walk, where as a team the staff walked the equivalent
length of England raising in excess of GBP10,000 for NHS Charities
Together, and the support for a local Redditch school where the
Group was able to supply much needed IT equipment supporting
families who did not have access to these resources at home.
Delivery of the strategy
In FY20/21 Solid State has continued to execute on its strategy,
delivering improved financial performance with important strategic
steps being taken across both operating divisions.
VAS broadening complementary component offering
The VAS division has continued to broaden its component product
lines through a new relationship with TT Electronics. Additionally,
the VAS division continues to enter into value-added partnerships
including Wireless Logic (Europe's leading provider of SIM
connectivity and Routers for M2M and IoT connectivity) and InVMA (a
leading provider of IoT asset management systems). These new
relationships adding to the Group's existing product suppliers,
combined with a partnership with ByteSnap Design Ltd (leading IOT
design solutions consultants), mean the Group has a leading-edge
end to end IoT offering which is a key technology growth driver in
the market.
VAS development of own brand component manufacturing
The acquisition of Willow brought a portfolio of
electro-mechanical products including a range of sensors and
switches with key electronics manufacturers such as Rohm and
Teledyne. These products are particularly well suited to the green
energy and power markets. The enhanced scale, capabilities, and
market position ideally places the Group to target growth
opportunities which would not have been previously attainable.
Furthermore, the acquisition of Willow provided a step change in
the portfolio of own brand components with the Hermaseal(R) and
Durakool(R) brands as well as a small number of patented contactor
products which may provide significant opportunities in the
mid-term for the EV charging market.
Willow has an established component manufacturing, R&D, and
sales capability in Elkhart, Indiana, USA which with its European
sales and technical resources mean approximately 70% of Willow's
sales are from outside the UK. This provides a platform,
establishing the foundations for the Group's international offering
which is a strategic priority.
Manufacturing portfolio of own brand modular products
Within the Manufacturing division, the Group has made
significant progress in developing its portfolio of own brand
products in all three Business Units (BUs), with the introduction
of new 1, 2 and 4U (rack mounted) servers and PCs based on latest
Intel CPUs, high density rack-mount edge servers, ideal for high
performance computing applications. A range of 24V and 48V modular
battery packs have been designed for reliable continuous daily
usage in harsh environments where shock, vibration, and varying
temperatures are likely to be experienced. The products are
tailored to in-house battery management systems and software. These
are critical to the development of the Group's greentech power
solutions and fossil fuel replacement products. The Communications
BU has seen additional standard design antennas introduced
including solutions for use with the Group's radio products in
addition to an integrated mobile command system interfacing to the
Persistent Systems mesh communications nodes.
Enhancing our technical manufacturing expertise
The acquisition of Active Silicon ("Active") into the computing
BU adds board level design and manufacturing capability in addition
to a portfolio of machine vision products and solutions. It
provides a significant technology enhancement and reflects a
strategic step forward from a relatively small acquisition.
Active's imaging products and embedded vision systems provide;
high margin, differentiated, technology driven solutions for niche
industrial applications. Active's products and solutions are
complementary to the Group's existing computing offering. There is
virtually no overlap in the customer base, and there are
opportunities to provide combined solutions to the enlarged
customer base. Furthermore, the joint capability enables the
targeting of new opportunities in growth markets which the Group
could not have competed for previously. Pleasingly, post year end a
contract for a combined solution has been secured with a key
customer in the transportation market ahead of management
expectations.
Developing product range for strategic growth markets
Historically the Group's Power business was concentrated in oil
and gas and aerospace. The strategy over recent years has been to
target new markets such as robotics and medical to provide
resilience. The trading conditions in the traditional markets
caused by the pandemic validated the strategy where medical market
demand was very strong, providing some revenue mitigation against
those adversely impacted markets. In this period, the
commercialisation of the new modular power products and solutions
was delayed due to customers being cautious in making investments
in new technology given the pandemic and supply chain
uncertainties.
However, new design in projects and development programmes are
restarting as we commence the new financial year, giving the Board
confidence that the mid-term prospects and demand for these new
products will be very strong.
The Group has developed its portfolio of semi standard antenna
products providing stability to complement the traditional bespoke
"one off" projects. The radio team is adding complementary
communications and training products to the Persistent Systems
radio solution which the Group distributes. The team has made good
progress in implementing this strategy which has delivered a solid
performance across both radios and antennas in the period. The
strategy going forward into financial year 2021/22 is to target
multi-year programmes for the Group's semi standard antenna
solutions, together with training and support contracts for the
Group's radio products. These income streams provide annuity
revenue, whilst seeking additional sensor solutions from third
parties to complement the datalinks.
The strength of the Group
Cross Group collaboration has been a key strategic focus to
ensure the business maximises the commercial value of its extensive
customer relationships. During the year, the Group wide "Senior
Leadership team" was formalised in conjunction with the
implementation of a Company Share Option Plan (CSOP) to align the
incentives of those individuals with Group performance. The
benefits of this are already starting to be seen with a step change
in the cross Group engagement and collaboration.
The acquisitions of Active and Willow provide additional breadth
and depth to the Group's product and technology offering. In
addition, the enlarged Group's active customer base now exceeds
2000, presenting significant opportunities to sell more of the
broadened product range to the enlarged customer base.
Managing and mitigating risk
The business risks have been considered and, where practical,
mitigated. However, the macroeconomic and geopolitical risks
including COVID-19, electronic component shortages, uncertainty in
international trading relationships, and the associated impact on
foreign exchange, means it is difficult to predict supply and
demand and therefore mitigate fully.
As a result of the macro environment in the electronics
industry, lead times have extended to unprecedented lengths of over
40 weeks for many critical components, such as semiconductors,
computer processors, PCBs, some embedded processing modules, and
battery cells. The Group is also seeing and managing fluctuations
in freight costs and availability.
The strength of the balance sheet together with smart purchasing
actions is enabling the business to manage these issues in the
current financial year. Stocking orders were placed with suppliers
in the first half of 2020 on some long lead time products before
customers committed to additional order schedules. This action
should help to mitigate some of the effects of the extending lead
times seen across the electronics industry.
Despite buffer stock schedules and orders placed with suppliers,
in Q4, customers recognised the electronics industry supply chain
issues and several customers pulled forward demand which benefitted
the FY20/21 out turn. However, these pull-ins, in conjunction with
extended lead times due to the Suez Canal blockage and low air
freight capacity, meant it reduced the open orderbook and depleted
the Group's buffer stocks as it enters FY21/22. The Group stock
holding was lower than expected at GBP10.6m (2020: GBP9.7m). This
equates to approximately 2.5 months' stock.
Opportunity out of adversity
Order intake since the year end has been strong, with customers
placing order schedules as post COVID confidence returns and to try
to mitigate the supply chain issues. This provides increased
confidence over customer demand, albeit the extended lead times and
supply chain challenges, might limit the opportunity to accelerate
deliveries and growth in the year ahead.
If the supply chain issues continue to deteriorate, the Group
could face disruption and delays to programmes and projects in the
middle to latter part of the financial year. However, in 2016 the
VAS division extended its portfolio of services by recruiting a
sourcing and obsolescence team. These services are now
understandably in high demand and are proving to be of real value
to the Group itself and to the Group's customer base in working to
source product and mitigate the shortages.
The Group's diversity in suppliers, technology, markets, and
latterly territory is a key strength. It provides resilience and
some mitigation against the global headwinds and has enabled Solid
State to deliver a record result. Looking forward to the current
year, this diversity combined with the strength of the Group's
balance sheet means the Group is well placed to weather the impact
of any short-term supply chain issues and take advantage of new
opportunities.
Chief Financial Officer's Review
In order to provide a fuller understanding of the Group's
ongoing underlying performance, a number of 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 10, the adjusted measures eliminate
the impact of certain non-cash charges and non-recurring items
together with the associated tax impact.
Revenues
Group revenues from continuing operations of GBP66.3m were
comparable with the prior year (2020: GBP67.4m) despite the adverse
impact of COVID-19. The results included one month of revenue from
the two acquisitions totalling GBP1.3m and the benefit of customer
demand being pulled forward as a result of the well publicised
supply chain challenges. Like-for-like revenue adjusted to exclude
the impact of the two acquisitions was down 3.6% at GBP65.0m (2020:
GBP67.4m).
As reported above, the UK electronics distribution and
semiconductor components industry faced a declining market of circa
12% over the period (source ECSN). Despite this, the VAS division
significantly outperformed the market and as a whole performed
well, delivering broadly comparable revenue at GBP39.0m with
like-for-like revenues marginally down on the prior year at
GBP38.1m (2020: GBP39.2m).
The Manufacturing division reported revenue of GBP27.3m, with
like-for-like revenue of GBP26.9m (2020: GBP28.2m) down 4.6%,
however, improved operating margins mitigate the profit impact. The
resilient performance in FY20/21 against a very challenging
macro-economic backdrop reflects the successful scaling of
resources to deliver the production demand. This has improved the
efficiency of the Group which combined with stable margins and cost
mitigation has delivered a record profit before tax in spite of the
small reduction in revenues.
Gross profit
Reported gross margins of GBP19.9m (2020: GBP20.8m) are down
GBP0.9m. There is an adverse impact of acquisition accounting
charges in the year and the benefit of the sale of some legacy
fully written down manufacturing inventory in the prior year which
have been excluded in the adjusted underlying gross margins.
Underlying gross profit for the year is down GBP0.6m to GBP20.0m
(2020: GBP20.6m), reflecting a slight margin decrease to 30.2%
(2020: 30.6%) driven by a slightly lower margin within the VAS
division at 24.2% (2020: 24.8%) due to a change in the mix of
component sales albeit individual component margins are being
maintained. The acquisition of Willow is expected to be margin
accretive to the VAS division as they have a higher proportion of
own brand manufactured components. Pleasingly, year on year the
manufacturing margins continued to be strong at 38.7% (2020:
38.7%).
VAS contributed gross margin of GBP9.4m (2020: GBP9.7m),
Manufacturing division contributed GBP10.6m (2020: GBP10.9m) both
down 3% on the prior year, which given the tough trading
environment is a resilient result.
Sales, general and administration expenses
Sales, general and administration (SG&A) expenses of
GBP15.6m (2020: GBP16.7m) decreased by GBP1.1m.
The decrease is primarily due to savings made primarily because
of the COVID-19 restrictions on business activities such as travel,
marketing, and events. In addition, because of the reduced customer
demand when COVID-19 hit we utilised the Coronavirus Job Retention
Scheme (CJRS) in the first half of the year where we received
GBP0.3m of grant income which enabled the Group to retain its
skilled work force while it evaluated how demand would stabilise
and then recover, minimising redundancies.
Furthermore, within the SG&A is Depreciation &
Amortisation (D&A) and Share Based Payment (SBP) charges of
GBP2.1m (2020: GBP2.2m) and GBP0.2m (2020: GBP0.4m)
respectively.
Adjusted SG&A expenses from continuing operations decreased
by GBP1.1m to GBP14.5m (2020: GBP15.8m) reflecting the exclusion of
GBP0.3m of one-off deal related expenses compared to the reported
variance above.
Operating profit
Adjusted operating margins increased to 8.3% (2020: 7.2%) with
adjusted operating profit from continuing operations up 14.6% to
GBP5.5m (2020: GBP4.8m) reflecting the overhead savings while
limiting the reduction in margins. Reported operating profit was up
4.9% to GBP4.3m (2020: GBP4.1m). The adjustments to operating
profit are set out in further detail in note 10.
We have recognised GBP0.01m (2020: GBP0.02m) within operating
profit in respect of Research and Development Expenditure Credit
(RDEC) in addition to the tax credits recognised within the tax
line, where we are eligible for the SME R&D tax scheme. These
development programmes are a cornerstone of the Group's future high
value add revenue streams.
Profit before tax
Adjusted profit before tax was up 14.9% to GBP5.4m (2020:
GBP4.7m). Reported profit before tax was up 5.0% to GBP4.2m (2020:
GBP4.0m). This is reported after a share based payments charge of
GBP0.2m (2020: GBP0.4m), amortisation of acquisition intangibles of
GBP0.7m (2020: GBP0.5m) and exceptional items of GBP0.3m (2020:
GBP0.2m credit).
Profit after tax
The Group benefits from the R&D tax credit scheme which
reduces the underlying effective tax rate for the year to 12%
(2020: 15%) from the standard rate of 19%. As the Group grows, and
profitability increases the benefit of R&D tax credits
diminishes and it will also no longer be eligible for the SME
scheme.
Adjusted profit after tax was up 17.5% to GBP4.7m (2020:
GBP4.0m). Reported profit after tax was up 17.6% to GBP4.0m (2020:
GBP3.4m), as we benefitted from an additional GBP0.2m of R&D
tax credits which are not expected to be recurring.
EPS
Adjusted fully diluted earnings per share from continuing
operations for the year ended 31 March 2021 is up 18.1% at 54.7p
(2020: 46.3p). Reported fully diluted earnings per share from
continuing operations is up 15.7% at 45.7p (2020: 39.5p).
Cash flow from operations
Cash inflow from operations for the year of GBP6.9m is down from
GBP8.0m in 2020 primarily due to a reduction in the working capital
inflow to GBP0.4m (2020: GBP1.4m). This delivers an underlying
operating cash conversion percentage of 127% (2020: 165%) and a
reported operating cash conversion percentage of 162% (2020:
197%).
There was a working capital cash inflow in the period of GBP0.4m
due to a decrease in receivables and inventories of GBP1.9m each
offset in part by a decrease in payables of GBP3.4m. The reduction
in inventories reflects the pull forward in demand and delays we
have faced in receiving scheduled orders despite placing extended
order cover with our suppliers.
Investing activities
During the year, the Group invested GBP0.4m (2020: GBP0.6m) in
property plant and equipment, and GBP0.3m (2020: GBP0.3m) in
software and research and development intangibles.
The capital expenditure reflects significant investment in IT
hardware across the Group of GBP0.3m. This aside, the investment
has been minimised due to COVID-19 albeit the capital expenditure
recommenced towards the end of the year which is reflected in year
end capital commitments of GBP0.4m.
Financing activities
The Group has entered or extended leases during the year which
has resulted in the recognition of GBP1.2m of additional right of
use assets with a corresponding right of use liability, in
accordance with IFRS16. Cash payments were made in the period in
respect of lease liabilities of GBP0.6m.
The financing activities reflect the final repayment of the last
GBP0.3m of the term loan which was repaid in May 2020 and the
drawdown of GBP3.75m of the revolving credit facility (RCF) to fund
the acquisition of Willow Technologies Group and Active Silicon
Group at the end of the year. Solid State continues to have a
strong relationship with Lloyds Bank and, having repaid the term
loan early, Lloyds has extended the term of the GBP7.5m (2020:
GBP7.5m) revolving credit facility which is now committed until the
30 November 2022. At the 31 March 2021 GBP3.75m of the facility was
drawn.
Pleasingly, as a result of the strong cash generation on 31
March 2021 the Group had net cash (excluding deferred and
contingent considerations and IFRS16 lease obligations) of GBP3.2m
(2020: GBP3.2m) which, in conjunction with the unutilised bank
facilities, provides significant funding headroom to pay the
deferred consideration.
The Group has deferred contingent consideration liabilities
where at the 31 March 2021 the fair value has been estimated to be
GBP7.5m, of which GBP2.6m was paid in Q1 2021/22. Subject to the
acquired businesses meeting the earn out performance targets it is
expected that approximately GBP4.25m will be payable in Q1 2022/23
and the remainder payable in Q1 2023/24.
The Group paid out GBP1.2m (2020: GBP1.2m) in respect of
dividends and purchase of own shares.
Statement of financial position
During the year, the Group has continued to strengthen its
balance sheet position. The Group's net assets have increased to
GBP25.5m (2020: GBP22.5m) reflecting the retained profits in the
year. Furthermore, excluding deferred and contingent considerations
and IFRS16 lease obligations the Group has maintained a net cash
position with GBP3.2m at the year end (2020: GBP3.2m) having paid
GBP4.1m (net of cash acquired) initial consideration for the
acquisitions of the Active Silicon and Willow Technologies
Groups.
Primarily as a result of the acquisitions of Active Silicon and
Willow Technologies, the Group has seen a significant increase in
non-current assets totalling GBP10.4m. Property plant and equipment
net book value has increased by GBP0.7m which includes the Group's
first freehold building in Elkhart Indiana USA. Intangible assets
net book value has increased GBP8.3m which primarily reflects the
recognition of acquisition intangibles at fair value of GBP5.4m and
goodwill of GBP3.6m.
Dividend
The Board is proposing a final dividend of 10.75p (2020: 7.25p),
giving a full year dividend of 16.0p (2020: 12.5p) as set out in
the Chairman's statement.
KPIs
In addition to the KPI information provided in the Chairman's
Report and this Strategic Report, the Directors use several key
performance indicators to manage the business, disclosed in the
financial review. Non-financial KPIs are not disclosed other than
in the environmental CO2e reporting which is included in the annual
report and accounts.
Outlook
During the financial year customer order schedules shortened
significantly, resulting in a reduction in the legacy Group
like-for-like open orderbook of GBP33.7m (2020: GBP39.9m).
Positively, post year end the Group has seen record order intake
which has increased the enlarged Group open order book at the 31
May 2021 to GBP51.0m which is up 23% from GBP41.3m on 31 March
2021. This provides confidence over customer demand for the coming
year.
As Solid State looks forward to FY21/22, the well-publicised
supply chain issues within the electronics and particularly
semiconductor sector mean the Group continues to face
inconsistencies in the traditional supply and order fulfilment
balance which may result in some projects being delayed. Solid
State has faced these challenges before, and the strength of the
Group's balance sheet means the Group is better placed to manage
the working capital demands than some of its smaller competitors,
which is presenting new customer opportunities.
In delivering on Solid State's acquisition strategy, the Group
completed two important strategic bolt-on acquisitions towards the
end of the year which are performing well and are enabling the
Group to target new customer opportunities in growth markets. The
Group continues to evaluate future acquisition opportunities albeit
these are at an early stage. These opportunities are primarily
focused on deepening the product offering in the business units of
the Group and further expansion of its international footprint.
Progress on these potentially international M&A opportunities
will be limited while travel restrictions remain. The Group will
continue to look to be opportunistic should a strategically aligned
acquisition target arise as we exit the COVID-19 pandemic.
The continued margin improvement, in conjunction with technology
developments both from internal R&D and acquisitions across all
key sectors of components, computing, power and communications
place the Group in a strong position. Having completed the
acquisition of Active Silicon, the Manufacturing division is in a
strong competitive position to deliver profitable growth in the
mid-term. The introduction of more own brand components from the
acquisition of Willow Technologies presents exciting opportunities
for development in the VAS division.
The Group's capital expenditure programme saw investment in
state-of-the-art assembly equipment in Value Added Supplies and the
on-going installation of the new EMC test and measurement
capability in Manufacturing in the second half. In FY21/22 the
Group intends to invest in upgrading the production capabilities
primarily semi-automation of some of the battery production and
upgrading some production equipment inherited from the Willow
Technologies acquisition to improve productivity.
Having appointed a new Chairman and Senior Independent Director
and completed two acquisitions which have significantly enhanced
the scale of the Group, during FY21/22 the Board will update and
refocus Solid State's five-year plan for the period 2022 to
2027.
The Group remains focused on securing quality orders as it
strives to achieve the goal set in 2017 to double adjusted EPS from
30p to 60p by FY21/22. The Board is confident that the achievements
of the last year and the post period end growth in open orders
demonstrate that Solid State is making good progress towards
achieving its goals and that the mid-term prospects for the Group
remain very positive and there are several significant
opportunities which the Group is currently bidding on which could
provide upsides for FY21/22.
G S Marsh
Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2021
2021 2020
Continuing Operations Notes GBP'000 GBP'000
Revenue 3, 8 66,281 67,417
======== ========= =========
Cost of sales (46,362) (46,614)
======== ========= =========
_______ _______
======== ========= =========
Gross profit 19,919 20,803
======== ========= =========
Sales, general and administration
expenses (15,634) (16,681)
======== ========= =========
_______ _______
======== ========= =========
Profit from operations 4,285 4,122
======== ========= =========
Finance expense (85) (120)
======== ========= =========
_______ _______
======== ========= =========
Profit before taxation 4,200 4,002
======== ========= =========
Tax expense 4 (247) (588)
======== ========= =========
_______ _______
--------------------------------------- -------- --------- ---------
Adjusted profit after taxation 4,733 4,002
======================================= ======== ========= =========
Adjustments to profit 10 (780) (588)
--------------------------------------- -------- --------- ---------
Profit after taxation 3,953 3,414
======== ========= =========
_______ _______
======== ========= =========
Profit attributable to equity holders
of the parent 3,953 3,414
======== ========= =========
_______ _______
======== ========= =========
Other comprehensive income - -
======== ========= =========
_______ _______
======== ========= =========
Total comprehensive income for the
year 3,953 3,414
======== ========= =========
_______ _______
======== ========= =========
Earnings per share 2021 2020
Basic EPS from profit for the year 5 46.4p 40.1p
====== ======
Diluted EPS from profit for the
year 5 45.7p 39.5p
====== ======
Adjusted EPS measures are reported in note 5 to the
accounts.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2021
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
2020 427 3,626 (7) 5 18,521 (43) 22,529
========== ========= ========== ============ =========== ============= ==========
Total comprehensive
income for the
year ended 31 March
2021 - - - - 3,953 - 3,953
========== ========= ========== ============ =========== ============= ==========
Share based payment
credit - - - - 171 - 171
========== ========= ========== ============ =========== ============= ==========
Foreign exchange - - 13 - - - 13
========== ========= ========== ============ =========== ============= ==========
Transactions with
owners in their
capacity as owners
========== ========= ========== ============ =========== ============= ==========
Purchase of treasury
shares - - - - - (95) (95)
========== ========= ========== ============ =========== ============= ==========
Transfer of treasury
shares to AESP - - - - (68) 68 -
========== ========= ========== ============ =========== ============= ==========
Dividends - - - - (1,069) - (1,069)
========== ========= ========== ============ =========== ============= ==========
Shares issued 1 (1) - - - - -
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
Balance at 31 March
2021 428 3,625 6 5 21,508 (70) 25,502
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2021
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
2019 427 3,627 (5) 5 16,021 (172) 19,903
========== ========= ========== ============ =========== ============= ==========
IFRS16 Leases adjustment
on adoption - - - - (14) - (14)
========== ========= ========== ============ =========== ============= ==========
Total comprehensive
income for the
year ended 31 March
2020 - - - - 3,414 - 3,414
========== ========= ========== ============ =========== ============= ==========
Share based payment
credit - - - - 381 - 381
========== ========= ========== ============ =========== ============= ==========
Foreign exchange - - (2) - - - (2)
========== ========= ========== ============ =========== ============= ==========
Rounding (1) - - - 1 - -
========== ========= ========== ============ =========== ============= ==========
Transactions with
owners in their
capacity as owners
========== ========= ========== ============ =========== ============= ==========
Shares issued 1 (1) - - - - -
========== ========= ========== ============ =========== ============= ==========
Transfer of treasury
shares to AESP - - - - (129) 129 -
========== ========= ========== ============ =========== ============= ==========
Dividends - - - - (1,153) - (1,153)
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
Balance at 31 March
2020 427 3,626 (7) 5 18,521 (43) 22,529
========== ========= ========== ============ =========== ============= ==========
______ _______ _______ _______ _______ ______ ______
========== ========= ========== ============ =========== ============= ==========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2021
2021 2020
Notes GBP'000 GBP'000 GBP'000 GBP'000
====== ============== ============= ============= =============
ASSETS
====== ============== ============= ============= =============
NON-CURRENT ASSETS
====== ============== ============= ============= =============
Property, plant and equipment 2,981 2,286
====== ============== ============= ============= =============
Right of use lease assets 2,476 1,055
====== ============== ============= ============= =============
Intangible assets 16,557 8,213
====== ============== ============= ============= =============
__________ __________
====== ============== ============= ============= =============
TOTAL NON-CURRENT ASSETS 22,014 11,554
====== ============== ============= ============= =============
CURRENT ASSETS
====== ============== ============= ============= =============
Inventories 10,629 9,662
====== ============== ============= ============= =============
Trade and other receivables 14,222 13,859
====== ============== ============= ============= =============
Deferred tax asset 188 86
====== ============== ============= ============= =============
Cash and cash equivalents 6,914 3,517
====== ============== ============= ============= =============
____________, ____________
====== ============== ============= ============= =============
TOTAL CURRENT ASSETS 31,953 27,124
====== ============== ============= ============= =============
___________ ___________
====== ============== ============= ============= =============
TOTAL ASSETS 53,967 38,678
====== ============== ============= ============= =============
___________ ___________
====== ============== ============= ============= =============
LIABILITIES
====== ============== ============= ============= =============
CURRENT LIABILITIES
====== ============== ============= ============= =============
Trade and other payables 11,890 10,597
====== ============== ============= ============= =============
Contract liabilities 2,299 2,486
====== ============== ============= ============= =============
Current borrowings 7 - 333
====== ============== ============= ============= =============
Corporation tax liabilities 801 774
====== ============== ============= ============= =============
Right of use lease liabilities 741 471
====== ============== ============= ============= =============
___________ ___________
====== ============== ============= ============= =============
TOTAL CURRENT LIABILITIES 15,731 14,661
====== ============== ============= ============= =============
NON CURRENT LIABILITIES
====== ============== ============= ============= =============
Non current borrowings 7 3,750 -
====== ============== ============= ============= =============
Right of use lease liabilities 1,802 677
====== ============== ============= ============= =============
Provisions 741 304
====== ============== ============= ============= =============
Deferred tax liability 1,491 507
====== ============== ============= ============= =============
Deferred consideration on acquisitions 7 4,950 -
====== ============== ============= ============= =============
___________ ___________
====== ============== ============= ============= =============
TOTAL NON-CURRENT LIABILITIES 12,734 1,488
====== ============== ============= ============= =============
____________ ____________
====== ============== ============= ============= =============
TOTAL LIABILITIES 28,465 16,149
====== ============== ============= ============= =============
____________ ____________
====== ============== ============= ============= =============
NET ASSETS 25,502 22,529
====== ============== ============= ============= =============
____________ ____________
====== ============== ============= ============= =============
CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
============= ============= =============
Share capital 428 427
====== ============== ============= ============= =============
Share premium reserve 3,625 3,626
====== ============== ============= ============= =============
Capital redemption reserve 5 5
====== ============== ============= ============= =============
Foreign exchange reserve 6 (7)
====== ============== ============= ============= =============
Retained earnings 21,508 18,521
====== ============== ============= ============= =============
Shares held in treasury (70) (43)
====== ============== ============= ============= =============
____________ ____________
====== ============== ============= ============= =============
TOTAL EQUITY 25,502 22,529
====== ============== ============= ============= =============
____________ ____________
====== ============== ============= ============= =============
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2021
2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
======= ======== ======== ======== ========
OPERATING ACTIVITIES
======= ======== ======== ======== ========
Profit before taxation 4,200 4,002
======== ======== ======== ========
Adjustments for:
======= ======== ======== ======== ========
Property Plant and equipment depreciation 614 646
======== ======== ======== ========
Right of use asset depreciation 497 468
======== ======== ======== ========
Amortisation 978 960
======== ======== ======== ========
Impairment of right of use asset - 84
======== ======== ======== ========
Profit on disposal of property, plant
and equipment (22) (31)
======== ======== ======== ========
Share based payment expense 171 381
======== ======== ======== ========
Finance costs 85 120
======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
Profit from operations before changes
in working capital and provisions 6,523 6,630
======== ======== ======== ========
Decrease in inventories 1,852 1
======== ======== ======== ========
Decrease/(increase) in trade and
other receivables 1,925 (444)
======== ======== ======== ========
(Decrease)/increase in trade and
other payables (3,363) 1,801
======== ======== ======== ========
(Decrease)/Increase in provisions (7) 54
======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
407 1,412
==================================================== ======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
Cash generated from operations 6,930 8,042
======== ======== ======== ========
Income taxes paid (432) (385)
======== ======== ======== ========
Income taxes recovered - -
======= ======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
(432) (385)
==================================================== ======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
Net cash inflow from operating activities 6,498 7,657
======== ======== ======== ========
INVESTING ACTIVITIES
======= ======== ======== ======== ========
Purchase of property, plant and equipment (356) (579)
======== ======== ======== ========
Capitalised own costs and purchase
of intangible assets (302) (281)
======== ======== ======== ========
Proceeds of sales from property,
plant and equipment 77 103
======== ======== ======== ========
Payments for acquisition of subsidiaries (note (4,119) -
net of cash acquired 9)
======= ======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
Net cash outflow from investing activities (4,700) (757)
======== ======== ======== ========
FINANCING ACTIVITIES
======= ======== ======== ======== ========
Repurchase of ordinary shares into (95) -
treasury
======= ======== ======== ======== ========
Borrowings drawn 3,750 -
======= ======== ======== ======== ========
Borrowings repaid (333) (5,334)
======== ======== ======== ========
Principal payment obligations for
right of use assets (575) (513)
======== ======== ======== ========
Interest paid (37) (80)
======== ======== ======== ========
Dividend paid to equity shareholders (1,069) (1,153)
======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
Net cash inflow/(outflow) from financing
activities 1,641 (7,080)
======== ======== ======== ========
_______ _______
======= ======== ======== ======== ========
Increase/(decrease) in cash and cash
equivalents 3,439 (180)
======== ======== ======== ========
_______ _______
==================================================== ======== ======== ======== ========
2021 2020
GBP'000 GBP'000
Translational foreign exchange on opening
cash (42) 5
========= =========
Net increase/(decrease) in cash and cash
equivalents 3,439 (180)
========= =========
Cash and cash equivalents at beginning
of year 3,517 3,692
========= =========
_______ _______
========= =========
Cash and cash equivalents at end of year 6,914 3,517
========= =========
_______ _______
========= =========
There were no significant non-cash transactions. Cash and cash
equivalents comprise:
2021 2020
GBP'000 GBP'000
Cash available on demand 6,914 3,517
========= =========
_______ _______
========= =========
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2021
1. ACCOUNTING POLICIES
Solid State PLC ("the Company") is a public company
incorporated, domiciled and registered in England and Wales in the
United Kingdom. The registered number is 00771335 and the
registered address is: 2 Ravensbank Business Park, Hedera Road,
Redditch, B98 9EY.
Basis of preparation
The principal accounting policies adopted in the preparation of
the financial statements are set out below. These policies have
been consistently applied to all the years presented.
Whilst the financial information included in this preliminary
announcement has been prepared on the basis of the requirements of
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and effective at 31 March
2021, this announcement does not itself contain sufficient
information to comply with International Accounting Standards. The
financial information set out in this preliminary announcement does
not constitute the company's statutory financial statements for the
years ended 31 March 2021 or 31 March 2020 but is derived from
those financial statements.
The Group financial statements are presented in pounds sterling
which is the functional and presentational currency of the Group
and all values are rounded to the nearest thousand (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 2021,
the Directors have considered the Group's cash flows, liquidity and
business activities.
At 31 March 2021, the Group had net cash at banks of GBP3.2m and
an undrawn revolving credit facility (RCF) of GBP3.75m.
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 Boards in making the assessment of going concern.
In assessing going concern the Directors have given careful
consideration of the potential impact of the on-going COVID-19
pandemic and the global electronic component shortages on the
cashflows and liquidity of the Group over the next 12 month
period.
Throughout the COVID-19 pandemic, the United Kingdom's exit from
the EU, customer demand has remained solid and in recent months we
have seen customers extending order cover to help to manage the
Global electronics supply chain issues. The most significant impact
on the Group future performance is the uncertainty arising from the
extending electronic component lead times. Management have taken
all possible actions to minimise and mitigate the potential impact
of these shortage.
If the shortages continue into the later part of the financial
year 2021/22 as expected the risk does have the potential to
adversely impact performance. While the actions do not mitigate the
risk fully it certainly has significantly reduced the risk in the
first half of 2021/22 and positions the Group to manage the period
beyond as effectively as possible.
In preparing the going concern assessment the Directors
considered the principal risks and uncertainties that the business
faced. Three areas have been identified as potentially more
significant: direct supply chain disruption limiting our ability to
supply; indirect supply chain disruption delaying customer
programmes and demand; and a COVID-19 outbreak causing operational
disruption. The board concluded that the two areas of risk which
remained the most uncertain were the direct and indirect supply
chain disruption risks.
The Directors have prepared revised "stressed" forecasts taking
account of the results to date, current expected demand, and
mitigating actions which could be taken, together with an
assessment of the liquidity headroom against the cash and bank
facilities.
The bank facilities are subject to financial covenants requiring
the business to be EBITDA positive therefore this facility is
available to fund investment in working capital, capital investment
or acquisition activities.
Should the business face such a significant downturn that it was
loss making the facility would not be available to be drawn to fund
additional losses without a covenant waiver or amendment. As a
result, in evaluating a stressed forecast model the Board have not
included the RCF in the headroom.
This financial modelling is based on applying various
sensitivity scenarios to a base case to 30 September 2022 which has
been prepared based on an extension of the budget for FY21/22.
In the period since the balance sheet date Group like-for-like
order intake was up circa 82.5% over the average for the prior
period albeit the prior period was adversely impacted by the start
of the pandemic. The current year order intake is exceptionally
strong and reflects a significant improvement in order cover which
does help to manage extending component lead times.
In preparing a severe downside scenario with no overhead
mitigation, it assumes a shortfall in Group revenue of 25% over 12
months period with limited cost mitigation. This results in EBITDA
reducing by 89% compared to the Board's base case expectations.
Even with this level of Group EBITDA reductions, when combined with
the mitigating actions that are within the Group's control, the
Directors currently believe the Group would retain a reasonable
cash surplus thus maintaining sufficient liquidity to meet its
liabilities as they fall due.
In considering the assessment of the Group's going concern
position the Directors have also identified that the Group could
look to both the Group's bankers and or the equity markets if
additional liquidity were required. Albeit none of the
sensitivities indicate that the Group would require additional
sources of liquidity.
In the post balance sheet period, the Group's cash generation
has been strong and the completion payments on the acquisitions of
GBP2.6m have been funded out of cash generation in the period.
The Directors have concluded that the potential impact of the
electronic component shortages and COVID-19 pandemic described
above does not represent a material uncertainty over the Group and
Company's ability to continue as a going concern. Nevertheless, it
is acknowledged that there are potentially material variations in
the forecasted level of financial performance for the coming
year.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
next 12 months, therefore it is appropriate to adopt a going
concern basis for the preparation of the Financial Statements.
Accordingly, these financial statements do not include any
adjustments to the carrying amount or classification of assets and
liabilities that would result if the Group and Company were unable
to continue as a going concern.
Changes in accounting policy and disclosures
New standards, amendments and interpretations adopted in the
year.
The following new standards, amendments and interpretations have
been adopted by the Group for the first time for the financial year
beginning on the 1 April 2020:
-- Amendments to IFRS 3, 'Business combinations', - Definition of a business
-- Amendments to IAS 1 - Presentation of financial statements
and IAS 8 Accounting policies changes in accounting estimates and
errors which are intended to make the definition of material easier
to understand.
-- Amendments to IFRS 9, IAS 39 and IFRS 17: - Interest rate benchmark reform.
-- Amendment to IFRS16 in relation to COVID-19 related rent concessions beyond 30 June 2021.
-- Amendments to the Conceptual framework.
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 2021
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 17 Insurance contracts which establishes the principles
for the recognition, measurement, presentation and disclosure of
insurance contracts and supersedes IFRS 4.
-- Amendments to IFRS 10 Consolidated financial statements and
IAS 28 investments in associates and joint ventures which clarifies
the accounting treatment for sales or contribution of assets
between an investor and its associate or joint venture.
-- Amendments to references to the Conceptual framework in IFRS Standards.
The Directors anticipate that none of the new standards,
amendments to standards and interpretations will have a significant
effect on the financial statements of the Group.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the Group's accounting policies. This note provides an
overview of the areas that involved a higher degree of judgement or
complexity, and of items which are more likely to be materially
adjusted due to estimates and assumptions turning out to be
wrong.
Acquisition accounting
In accounting for the acquisitions in accordance with IFRS 3 the
key judgements relate to the fair value of the deferred contingent
consideration and the fair value of the intangible assets. The
deferred contingent consideration has been recognised at GBP4.95m
and the fair value of the intangible assets recognised is GBP5.4m.
The intangible assets have been recognised based on a Multi-Period
Excess Earnings Method (MEEM) model. See note 9 for further
detailed disclosures.
Expected credit losses
In accordance with IFRS 9 the Group is required to make an
assessment of the expected credit loss occurring over the life of
its trade receivables. As a result of the COVID-19 disruption to
businesses across the globe the Directors expect that the risk of
credit default has significantly increased over historical
norms.
As a result, the Directors have made a judgemental assessment of
the potential increase in credit losses in the current business
environment.
The increase in the provision based on the Directors judgemental
assessment of expected credit loss reflects an increase of GBP0.15m
to GBP0.65m. The increase in the year is significant but not
considered material to the financial statements as a whole.
Estimated useful life of research and development and intangible
assets arising on acquisitions
The periods of amortisation adopted to write down capitalised
product and process development requires estimates to be made in
respect of the useful economic lives of the intangible assets to
determine an appropriate amortisation rate.
Capitalised development costs are amortised over the period
during which economic benefits are expected to be received which is
typically 1 - 5 years. Intangible assets arising on acquisitions
are amortised straight line over the period during which economic
benefits are expected to be received which is typically 5 - 10
years.
The amortisation charge for capitalised development costs in the
current year is GBP250k; if the lives were reduced by one year
across all the projects which are being amortised the charge would
increase by circa GBP100k.
The amortisation charge for intangible assets arising on
acquisitions in the current year is GBP680k; if the lives were
reduced by one year the charge would increase by GBP51k.
Recognition criteria for capitalisation of development
expenditure
The Group capitalises R&D in accordance with IAS 38. There
is judgement in respect of when R&D projects meet the
requirement for capitalisation, which internal costs are directly
attributable and therefore appropriate to capitalise and when the
development programme is complete, and capitalisation should
cease.
Amounts capitalised include the total cost of any external
products or services and labour costs directly attributable to the
development programme. Management judgement is involved in
determining the appropriate internal costs to capitalise and the
amounts involved.
If there is any uncertainty in terms of the technical
feasibility, ability to sell the product or any other risk that
means the programme does not meet the requirements of the standard
the R&D costs are expensed within the consolidated statement of
comprehensive income.
Estimation of level of R&D expenditure which is eligible for
R&D tax credits under the SME and large company scheme.
Uncertainties exist in relation to the interpretation of complex
tax legislation, changes in tax laws and the amount and timing of
future taxable income. This could necessitate future adjustments to
taxable income and expense already recorded.
At the year-end date, tax liabilities and assets reflect
management's judgements in respect of the application of the tax
regulations, in particular the R&D tax.
In assessing our year-end corporation tax liability, we have
made a provisional assessment as to the likely amount of
development expenditure that will be eligible under each of the
HMRCs large company and SME R&D tax credit schemes as the
detailed tax computations have not been completed.
Our judgement at year end assumed that the level of eligible
spend was comparable with prior years. At 31 March 2021 there are
current and deferred tax provisions totalling approximately
GBP2.1m.
Due to the uncertainties noted above, it is possible that the
Group's initial estimates are different to the final position
adopted when the tax computation is finalised, resulting in a
different tax payable or recoverable from the amounts provided.
Provisions for slow moving or obsolete inventories
Inventories are carried at the lower of cost and net realisable
value (NRV). NRV is reviewed in detail on an on-going basis and
provision for obsolete inventory is made based on 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. REVENUE
The Group derives revenue from the transfer of goods at a point
in time in the following major product lines and geographical
regions:
2021 2020
GBP'000 GBP'000
United Kingdom 46,301 48,596
========= =========
Rest of Europe 7,349 6,885
========= =========
Asia 3,342 4,416
========= =========
North America 9,148 7,235
========= =========
Rest of World 141 285
========= =========
_______ _______
========= =========
Total revenue 66,281 67,417
========= =========
_______ _______
========= =========
2021 2020
GBP'000 GBP'000
Computing products 10,643 10,267
========= =========
Communications products 5,678 5,292
========= =========
Power products 10,978 12,611
========= =========
Opto electronic and electronic components
and modules 38,982 39,247
========= =========
_______ _______
========= =========
Total revenue 66,281 67,417
========= =========
_______ _______
========= =========
See further segmental disclosures in note 8.
4. TAX EXPENSE
2021 2020
GBP'000 GBP'000
Analysis of continuing total tax expense
========= =========
Total tax charge from continuing operations 247 588
========= =========
_______ _______
========= =========
247 588
========= =========
______ ______
========= =========
Current tax expense
========= =========
UK corporation tax on profits for the year 610 616
========= =========
Adjustment in respect of prior periods (182) 22
========= =========
_______ _______
========= =========
428 638
========= =========
Deferred tax credit (181) (50)
========= =========
______ ______
========= =========
Total tax charge 247 588
========= =========
______ ______
========= =========
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:
2021 2020
GBP'000 GBP'000
Profit before tax 4,200 4,002
========= =========
_______ _______
========= =========
Expected tax charge based on the standard rate
of corporation tax in the UK of 19% (2019: 19%) 798 760
========= =========
Effect of:
========= =========
Expenses not deductible for tax purposes 20 24
========= =========
Difference between depreciation for the year
and capital allowances (3) 42
========= =========
Tax relief on exercise of share options exercised (11) 4
========= =========
Enhanced relief on research and development
expenditure (366) (338)
========= =========
Overseas tax rate differences 3 10
========= =========
Deferred tax asset (recognised) (10) (5)
========= =========
Change in rate in respect of deferred tax recognition - 69
========= =========
Adjustments in respect of prior years (182) 22
========= =========
Foreign exchange (2) -
========= =========
_______ _______
========= =========
Total tax charge 247 588
========= =========
_______ _______
========= =========
The UK corporation tax rate is 19% (effective from 1 April 2017)
and amendments were substantively enacted on 17 March 2020, the
rate of corporation tax was set to remain at 19%. The deferred tax
liabilities on 31 March 2021 have been calculated based on this
rate.
As announced in the budget on the 03 March 2021, the UK
corporation tax rate is expected to increase to 25% with effect
from 1 April 2023. This change was not substantively enacted at the
balance sheet date and has not been reflected in the tax
calculations.
R&D tax credits
The Group recognised a credit of GBP10k (2020: GBP24k) 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.
5. EARNINGS PER SHARE
The earnings per share is based on the following:
2021 2020
GBP'000 GBP'000
Adjusted continuing earnings post tax 4,733 4,002
========== ==========
Reported continuing earnings post tax 3,953 3,414
========== ==========
Weighted average number of shares 8,524,883 8,510,074
========== ==========
Diluted number of shares 8,650,237 8,635,331
========== ==========
Reported EPS
========== ==========
Basic EPS from profit for the year 46.4p 40.1p
========== ==========
Diluted EPS from profit for the year 45.7p 39.5p
========== ==========
Adjusted EPS
========== ==========
Adjusted Basic EPS from profit for the
year 55.5p 47.0p
========== ==========
Adjusted Diluted EPS from profit for
the year 54.7p 46.3p
========== ==========
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 8,524,883
(2020: 8,510,074) net of the treasury shares.
The diluted earnings per share is based on 8,650,237 (2020:
8,635,331) 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 10.
6. DIVIDS
2021 2020
GBP'000 GBP'000
Prior year final dividend paid of 7.25p
per share (2020: 8.3p) 620 708
========= =========
Current year interim dividend paid of
5.25p per share (2020: 5.25p) 450 448
========= =========
Cancelled dividends on shares held in
treasury (1) (3)
========= =========
_______ _______
========= =========
1,069 1,153
========= =========
_______ _______
========= =========
Final dividend proposed for the year 10.75p
per share (2020: 7.25p) 919 620
========= =========
_______ _______
========= =========
The proposed final dividend has not been accrued for as the
dividend will be approved by the shareholders at the annual general
meeting.
7. NET DEBT
Year ended 31 March 2020 Other non-cash
(GBP'000) At 1 April movement At 31 March
2020 Cash flow 2021
Bank borrowing due within
one year (333) 333 - -
============= ============ =============== ==============
Bank borrowing due after
one year - (3,750) - (3,750)
============= ============ =============== ==============
_______ _______ _______ _______
============= ============ =============== ==============
Total borrowings (333) (3,417) - (3,750)
============= ============ =============== ==============
Deferred consideration
on acquisition of subsidiaries
within one year - - (2,572) (2,572)
============= ============ =============== ==============
Deferred consideration
on acquisition of subsidiaries
after one year - - (4,950) (4,950)
============= ============ =============== ==============
Cash and cash equivalents 3,517 3,439 (42) 6,914
============= ============ =============== ==============
_______ _______ _______ _______
============= ============ =============== ==============
(Net debt) / net cash 3,184 22 (7,564) (4,358)
============= ============ =============== ==============
_______ _______ _______ _______
============= ============ =============== ==============
2021 2020
GBP'000 GBP'000
Increase / (decrease) in cash in the year 3,439 (180)
========= =========
Increase in borrowings in the year (3,750) -
========= =========
Repayment of borrowings in the year 333 5,334
========= =========
_______ _______
========= =========
Net movement resulting from cashflows 22 5,154
========= =========
_______ _______
========= =========
2021 2020
GBP'000 GBP'000
Net cash at 1 April 3,184 (1,975)
========= =========
Net movement resulting from cashflows 22 5,154
========= =========
Contingent consideration recognised in year (2,572) -
- short term
========= =========
Contingent consideration recognised in year (4,950) -
- long term
========= =========
Other non-cash movements (42) 5
========= =========
_______ _______
========= =========
(Net debt) / Net cash at 31 March (4,358) 3,184
========= =========
_______ _______
========= =========
8. 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 Supplies division comprises Solid
State Supplies Ltd, Pacer LLC, Pacer Components Ltd, Willow
Technologies Limited and American Electronic Components, Inc.
companies. The Manufacturing division includes Steatite Ltd, Active
Silicon Limited and Active Silicon Inc.
Year ended 31 March 2021
Value Added
Supplies Manufacturing Head Continuing
division division office operations
GBP'000 GBP'000 GBP'000 GBP'000
External revenue 38,982 27,299 - 66,281
============ ================ ========== =============
______ ______ ______ ______
============ ================ ========== =============
Profit before tax 2,011 4,353 (2,164) 4,200
============ ================ ========== =============
Taxation (337) (310) 400 (247)
============ ================ ========== =============
______ ______ ______ ______
============ ================ ========== =============
Profit after taxation 1,674 4,043 (1,764) 3,953
============ ================ ========== =============
Consolidated statement of
financial position
============ ================ ========== =============
Assets 22,631 14,852 16,484 53,967
============ ================ ========== =============
Liabilities (8,804) (7,680) (11,981) (28,465)
============ ================ ========== =============
______ ______ ______ ______
============ ================ ========== =============
Net assets 13,827 7,172 4,503 25,502
============ ================ ========== =============
Other
============ ================ ========== =============
Capital expenditure:
============ ================ ========== =============
Tangible fixed assets 413 343 - 756
============ ================ ========== =============
Tangible fixed assets -
acquisitions 504 99 - 603
============ ================ ========== =============
Intangible assets 45 257 - 302
============ ================ ========== =============
Intangible assets - acquisitions 3 19 8,998 9,020
============ ================ ========== =============
Right of use assets 315 881 - 1,196
============ ================ ========== =============
Right of use assets - acquisitions 27 699 - 726
============ ================ ========== =============
Depreciation - PPE 379 235 - 614
============ ================ ========== =============
Depreciation - right of
use assets 207 290 - 497
============ ================ ========== =============
Amortisation 19 279 680 978
============ ================ ========== =============
Share based payments - - 171 171
============ ================ ========== =============
Interest 35 14 36 85
============ ================ ========== =============
______ _____ ______ ______
============ ================ ========== =============
No individual customer contributed more than 10% of the Group's
revenue in the financial year ended 31 March 2021 or the prior
year.
Year ended 31 March 2020
Value Added
Supplies Manufacturing Head Continuing
division division office operations
GBP'000 GBP'000 GBP'000 GBP'000
External revenue 39,247 28,170 - 67,417
============ ================ ========== =============
______ ______ ______ ______
============ ================ ========== =============
Profit before tax 2,252 4,439 (2,689) 4,002
============ ================ ========== =============
Taxation (510) (538) 460 (588)
============ ================ ========== =============
______ ______ ______ ______
============ ================ ========== =============
Profit after taxation 1,742 3,901 (2,229) 3,414
============ ================ ========== =============
Consolidated statement of
financial position
============ ================ ========== =============
Assets 18,649 11,890 8,139 38,678
============ ================ ========== =============
Liabilities (6,521) (7,845) (1,783) (16,149)
============ ================ ========== =============
______ ______ ______ ______
============ ================ ========== =============
Net assets 12,128 4,045 6,356 22,529
============ ================ ========== =============
Other
============ ================ ========== =============
Capital expenditure:
============ ================ ========== =============
Tangible fixed assets 384 196 - 580
============ ================ ========== =============
Intangible assets 2 279 - 281
============ ================ ========== =============
Right of use Assets 181 120 - 301
============ ================ ========== =============
Depreciation - PPE 323 323 - 646
============ ================ ========== =============
Depreciation - right of
use assets 222 246 - 468
============ ================ ========== =============
Impairment 84 - - 84
============ ================ ========== =============
Amortisation 51 404 505 960
============ ================ ========== =============
Share based payments - - 381 381
============ ================ ========== =============
Interest 21 19 80 120
============ ================ ========== =============
______ _____ ______ ______
============ ================ ========== =============
External revenue Total assets by Net tangible capital
by location of assets expenditure by
location of customer location
of assets
2021 2020 2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============ =========== =========== ========== ============ ===========
United Kingdom 46,301 48,596 49,616 36,919 1,058 881
============ =========== =========== ========== ============ ===========
Rest of Europe 7,349 6,885 1 1 - -
============ =========== =========== ========== ============ ===========
Asia 3,342 4,416 - - - -
============ =========== =========== ========== ============ ===========
North America 9,148 7,235 4,151 1,758 -
============ =========== =========== ========== ============ ===========
Other 141 285 - - - -
============ =========== =========== ========== ============ ===========
_______ _______ _______ _______ _______ _______
============ =========== =========== ========== ============ ===========
66,281 67,417 53,768 38,678 1,058 881
============ =========== =========== ========== ============ ===========
_______ _______ _______ _______ _______ _______
============ =========== =========== ========== ============ ===========
All the above relate to continuing operations.
Capital expenditure excludes acquisitions of assets as per note
9.
9. ACQUISITIONS DURING THE YEAR
Active Silicon Group
On the 26 February 2021, the Group acquired 100% of the share
capital of Active Silicon Limited and its 100% subsidiary for an
initial consideration of GBP6.15m which, when adjusted for the cash
on the balance sheet, results in an effective net initial
consideration of GBP2.15m.
In addition to the initial consideration there is a 25 month
earn out period. The earn out consideration will be paid in two
tranches based on the level of profit after tax generated in the
periods ending 31 March 2022 and 31 March 2023 respectively. In
aggregate, the fair value of the earn out consideration is
estimated to be GBP1.45m under IFRS 3.
Active Silicon Limited is the UK trading entity and holds Active
Silicon Inc., the US sales entity. Established in 1988, Active
Silicon designs and manufactures imaging and embedded vision
systems allowing the capture, processing, and transmission of image
data in high performance and critical environments. World-class
products include innovative embedded systems for IoT applications,
pioneering autofocus-zoom cameras and high-speed acquisition cards
allowing real-time, high-resolution image capture over long cable
lengths. With a longstanding, global customer base, Active
Silicon's products have applications in multiple areas of industry,
science, and technology - including advanced manufacturing, life
sciences, robotics, medical imaging, security and defence. Active
Silicon is ISO9001: 2015 registered.
Active Silicon's headquarters and research & development
centre are in Iver (west of London) with its production facility
nearby in Langley. In addition, it has a US subsidiary, Active
Silicon Inc., which operates from Severna Park, Maryland. This
office provides sales, support, and operations for the North
American market.
All hardware is designed in-house with some subcontract
manufacturing taking place in Europe. Final assembly, inspection
and testing is undertaken at the UK production facility.
Benefits of the Acquisition:
Solid State will combine Active Silicon's expertise and
technology with the industrial computer product portfolio from its
Steatite manufacturing division. This enables the enlarged Group to
address the growing demand for 3D vision and robotic applications,
as well as the increased requirements for embedded machine vision
and edge AI computing products.
The enhanced in-house capability resulting from the addition of
Active Silicon to the Group extends the scope for the design and
manufacture of own brand products, with the resulting margin and
customer retention benefits.
Active Silicon Group
Book Fair value Fair value
value Adjustment to Group
GBP'000 GBP'000 GBP'000
Intangible assets 19 1,400 1,419
========= ============ ===========
Property plant and equipment 106 (7) 99
========= ============ ===========
Right of use assets - 699 699
========= ============ ===========
Inventory 1,243 (17) 1,226
========= ============ ===========
Trade and other receivables 821 (8) 813
========= ============ ===========
Trade and other payables (640) (46) (686)
========= ============ ===========
Right of use lease liabilities - (699) (699)
========= ============ ===========
Provision for dilapidations (18) (15) (33)
========= ============ ===========
Cash and cash equivalents 4,008 - 4,008
========= ============ ===========
Deferred tax asset / (liability) 84 (261) (177)
========= ============ ===========
_______ _______ _______
========= ============ ===========
Net assets on acquisition 5,623 1,046 6,669
========= ============ ===========
Goodwill on acquisition - - 935
========= ============ ===========
_______ _______ _______
========= ============ ===========
Consideration 7,604
========= ============ ===========
_______
========= ============ ===========
Discharged by:
========= ============ ===========
Cash paid on acquisition 5,171
========= ============ ===========
S-T Deferred contingent consideration
- Completion Accounts 983
========= ============ ===========
L-T Deferred contingent consideration
- Earn Out 1,450
========= ============ ===========
_______
========= ============ ===========
7,604
========= ============ ===========
The intangible assets are in relation to customer contacts and
relationships. The goodwill recognised represents expected
synergies from combining the operations of Active Silicon with
those of the existing Computing BU within the manufacturing
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 one month period post
acquisition included in the Statement of Comprehensive Income
arising from Active's operations were GBP415k and GBP39k
respectively. The Group incurred acquisition related costs of
GBP76k on legal fees and due diligence costs, included in sales,
general and administration expenses.
As payment is due in under 2 years and the amount is an
estimation, using a risk-free discount rate of 2.5% the Group has
assessed the impact of discounting to be immaterial and has not
therefore discounted the contingent consideration.
Had the acquisition been completed on the 1 April 2020,
Management estimate that that the revenue would have been circa
GBP4.4m and pre-tax profit would be circa GBP0.2m.
Willow Technology Group
On the 02 March 2021, the Group acquired 100% of the share
capital of Willow Technology Limited and its 100% subsidiary for an
initial consideration of GBP9.6m which, when adjusted for the cash
on the balance sheet, results in an effective net initial
consideration of GBP4.5m.
In addition to the initial consideration there is a 12 month
earn out period. The earn out consideration will be calculated as a
function of the post-tax profit of Willow Technologies for the
period ended 31 March 2022, subject to a minimum profit threshold
of GBP700,000. The maximum earn out consideration payable is
GBP3.5m. Under IFRS 3 the Board has concluded that the fair value
of the deferred contingent consideration is GBP3.5m.
Willow Technologies, founded in 1989, is a highly respected
value added distributor of electro-mechanical components operating
within the UK, Germany, Spain and the USA. Willow Technologies'
specialisms are in switching, sensing, resistive devices and
hermetic seal solutions, the company sells a wide portfolio of
electromechanical technologies. Willow is ISO9001: 2015
registered.
American Electronic Components Inc. ("AEC"), founded as Durakool
in 1935 and acquired by Willow Technologies in 2006, is based in
Indiana USA. AEC specialises in the design, manufacture and supply
of component level, electromechanical switching, sensing and glass
to metal seal solutions. The company has over 85 years of
applications experience with a well-established and loyal customer
base. AEC is ISO9001: 2008 and ISO14001:2004 Registered.
Benefits of the Acquisition:
The acquisition of Willow and AEC into the Value Added Supplies
division of Solid State meets a significant number of strategic
priorities and offers the opportunity for future growth in multiple
structural markets and geographic territories.
Furthermore, the Acquisition meets the objective of increasing
the division's penetration of the strategically important, EV, EV
charging, green tech and medical markets. The consequent
acquisition of the Durakool(R) and Hermaseal(R) established brand
names and associated patents brings further opportunity for growth
through product development and the extension of the brand to
potentially cover other products within the Group. The widening of
the product offering within the Value Added Supplies division will
bring greater resilience to the business, access to a wider
customer base and increase the importance of the division to its
existing customer base.
Whilst the Acquisition falls under the Value Added Supplies
division it is expected that both Willow and AEC will operate as
stand-alone companies throughout the earn out period. Both
companies are however expected to benefit from access to the wider
resources available in the Value Added Supplies business and in
particular from access to the wider customer base. Post-acquisition
a detailed strategic appraisal of non-core manufactured components
will be undertaken to evaluate whether or not they should be
discontinued with an appropriate last time buy process implemented
in order to improve strategic focus and production
efficiencies.
Willow Technology Group
Book Fair value Fair value
value Adjustment to Group
GBP'000 GBP'000 GBP'000
Intangible assets 3 4,000 4,003
========= ============ ===========
Property plant and equipment 504 - 504
========= ============ ===========
Right of use assets - 27 27
========= ============ ===========
Inventory 1,479 142 1,621
========= ============ ===========
Trade and other receivables 1,559 (5) 1,554
========= ============ ===========
Trade and other payables (1,230) (175) (1,405)
========= ============ ===========
Right of use lease liabilities - (28) (28)
========= ============ ===========
Provision for dilapidations - (10) (10)
========= ============ ===========
Cash and cash equivalents 5,099 - 5,099
========= ============ ===========
Deferred tax (123) (761) (884)
========= ============ ===========
_______ _______ _______
========= ============ ===========
Net assets on acquisition 7,291 3,190 10,481
========= ============ ===========
Goodwill on acquisition - - 2,663
========= ============ ===========
_______ _______ _______
========= ============ ===========
Consideration 13,144
========= ============ ===========
_______
========= ============ ===========
Discharged by:
========= ============ ===========
Cash paid on acquisition 8,055
========= ============ ===========
S-T Deferred contingent consideration
- Completion Accounts 1,589
========= ============ ===========
L-T Deferred contingent consideration
- Earn Out 3,500
========= ============ ===========
_______
========= ============ ===========
13,144
========= ============ ===========
The intangible assets are in relation to customer contacts and
relationships. The goodwill recognised represents expected
synergies from combining the operations of Willow Technologies with
those of the existing VAS 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 one month period post
acquisition included in the Statement of Comprehensive Income
arising from Willow's operations were GBP906k and GBP152k
respectively. The Group incurred acquisition related costs of
GBP130k on legal fees and due diligence costs, included in sales,
general and administration expenses.
As payment is due in just over 1 year and the amount is an
estimation, using a risk-free discount rate of 2.5% the Group has
assessed the impact of discounting to be immaterial and has not
therefore discounted the contingent consideration.
Had the acquisition been completed on the 1 April 2020
management estimate that that the revenue would have been circa
GBP9.1m and pre-tax profit would be circa GBP0.8m.
10. 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 understanding and
provide clarity over the Group's performance on an on-going cash
basis before imputed non-cash accounting charges. This is
consistent with how analysts and investors tell us they review our
business performance in presenting an adjusted profit metric
adjusting for the following items:
-- Non-cash charges arising from share-based payments and the
amortisation of acquisition intangibles.
-- Non-recurring cash costs relating to the re-organisation of
the Manufacturing division and acquisition costs.
-- Non-recurring profit from the sale of fully written down stock.
-- Non-recurring tax credits arising primarily from prior year
R&D claims and tax deductions on share options.
2021 2020
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Acquisition and re-organisation costs 336 -
========= =========
Non recurring profit from sale of full written
down stock - (160)
========= =========
Amortisation of acquisition intangibles 680 505
========= =========
Share based payments 171 381
========= =========
_______ _______
========= =========
Adjustment to profit before tax 1,187 726
========= =========
Current and deferred taxation effect (226) (138)
========= =========
Non recurring tax credits (181) -
========= =========
_______ _______
========= =========
Adjustments to profit after tax 780 588
========= =========
2021 2020
GBP'000 GBP'000
Reported gross profit 19,919 20,803
========= =========
Adjustments to gross profit 73 (160)
========= =========
_______ _______
========= =========
Adjusted gross profit 19,992 20,643
========= =========
_______ _______
========= =========
Reported operated profit 4,285 4,122
========= =========
Adjustments to operating profit 1,187 726
========= =========
_______ _______
========= =========
Adjusted operating profit 5,472 4,848
========= =========
_______ _______
========= =========
Reported operating margin percentage 6.5% 6.1%
========= =========
Operating margin percentage impact of adjustments 1.8% 1.1%
========= =========
_______ _______
========= =========
Adjusted operating margin percentage 8.3% 7.2%
========= =========
_______ _______
========= =========
Reported profit before tax 4,200 4,002
========= =========
Adjustments to profit before tax 1,187 726
========= =========
_______ _______
========= =========
Adjusted profit before tax 5,387 4,728
========= =========
_______ _______
========= =========
Reported profit after tax 3,953 3,414
========= =========
Adjustments to profit after tax 780 588
========= =========
_______ _______
========= =========
Adjusted profit after tax 4,733 4,002
========= =========
_______ _______
========= =========
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END
FR DKBBBCBKDPOD
(END) Dow Jones Newswires
July 13, 2021 02:00 ET (06:00 GMT)
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