Solid State PLC
Annual Report 2008

Plain-text annual report

Annual Report & Accounts 31 March 2008  Solid State PLC CONTENTS Directors, Secretary and Advisers Chairman’s Statement Directors’ Report Report of the Independent Auditors Consolidated Income Statement Consolidated Statement of Changes in Equity Consolidated Balance Sheet Consolidated Cash Flow Statement Notes to the Financial Statements Notice of Annual General Meeting Page 2 3 5 9 11 12 13 14 15 51 1 Solid State PLC Directors: DIRECTORS, SECRETARY AND ADVISERS Peter Haining, FCA, Chairman Lewis Cyril Ashby Newnham, Deputy Chairman Gary Stephen Marsh, Managing Director William George Marsh, Director John Michael Lavery, Director Company Secretary and Registered Office: Peter Haining, FCA Solid State PLC Unit 2 Eastlands Lane Paddock Wood Kent TN12 6BU Company Number: 771335 Nominated Adviser: Broker: Auditors: Solicitors: Bankers: Registrars: Charles Stanley Securities 25 Luke Street London EC2A 4AR Charles Stanley Securities 25 Luke Street London EC2A 4AR BDO Stoy Hayward LLP 55 Baker Street London W1U 7EU Thomson Snell & Passmore 3 Lonsdale Gardens Tunbridge Wells Kent TN1 1NX HSBC plc 9 Wellesley Road Croydon Surrey CR9 2AA Capita IRG plc Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Country of Incorporation of Parent Company: Great Britain Legal Form: Public Limited Company 2  Solid State PLC CHAIRMAN’S STATEMENT Results The audited profit before tax of the Group was £424,442 (2007: £556,170) on revenue of £10,724,333 (2007: £12,369,904). The basic earnings per share amounted to 5.4p (2007: 7.5p). The pre-tax profit is stated after charging non-recurring costs of the re-organisation at Paddock Wood of £57,863. Following adoption of International Financial Reporting Standards no provision for amortisation of goodwill has been made in these accounts and the results for the previous year have been restated accordingly. Dividends The Directors recommend that a final dividend of 1.25p per share be paid. An interim dividend of 0.75p per share was paid in January 2008 giving a total dividend in respect of the year of 2p per share (2007: 3p per share). The final dividend will be paid on 31st October 2008 to shareholders on the register at the close of business on 17th October 2008. Trading Review The key performance indicators measured by management are sales, bookings and gross profit margins. Bookings are sales orders received. Solid State Supplies Trading conditions were difficult during this financial period with the distribution market contracting as further production moved offshore. However, our programme of introducing new higher value products meant that sales declined only marginally, from £3,719,661 to £3,545,594 and we closed the year with bookings for the year exceeding sales for the year by just over £100,000. As reported previously, during the first quarter we restructured our operations at Paddock Wood and coupled with our focus on improving gross profit margins meant that we were trading profitably by the fourth quarter with the gross profit margin on the distribution business increasing from 26.3% to 27.5%. The outlook for the rest of 2008 and 2009 suggests that trading will again be challenging and to help combat this we are actively seeking new franchise lines and will continue to reduce costs where considered appropriate. Steatite and Wordsworth Technology Sales in both companies declined over the previous year, Steatite from £4,558,707 to £3,471,297 and Wordsworth from £4,518,189 to £3,744,339, whilst bookings remained largely flat. However, bookings exceeded sales by £1,020,000 compared with a deficit in the previous year of £90,000, and the combined gross profit rose from 25.4% to 29.4%. The decline in sales being largely due to two major military related contracts that were delayed for both Steatite and Wordsworth. The integration after acquisition of RZ Pressure SARL and RZ Pressure UK into the Redditch site went well adding to our range of high value lithium batteries and opening European and International markets through a range of UN approved packs. Our strategy to focus on the creation of value added products has meant margin improvement in both companies giving a 9% return on sales (net profit before tax as a percentage of sales) and a profit figure matching the previous year on a lower sales total. Both businesses are well structured and continue to gain reputation as leading suppliers to their relevant market sectors with new and innovative product offerings along with strong technical support. This means a cautiously optimistic outlook for 2008 with a return to growth in sales along with continuing gross profit margin enhancement in a market that suffers from low cost offshore manufacturing relocation. Summary The difficult trading conditions throughout the industry are reflected in the fall in Group revenue of 13.3% compared with the previous year. Close control of gross profit margins and overheads resulted in an overall increase in gross profit margin from 29% to 29.4% and an overall reduction in overheads of £288,002 representing just over 10% of last year’s level. 3 Solid State PLC CHAIRMAN’S STATEMENT (continued) The new financial year has started strongly which contrasts with the very quiet trading period in the corresponding period last year. However, the Directors appreciate that the UK economy is likely to have a disappointing year but are confident that the Group is well placed to increase its market share in its key trading areas. The recent acquisition of RZ Pressure Instrument Supply SARL is leading to enhanced revenue and margins in the battery division of Steatite Limited and the Group continues to look for suitable acquisitions within the electronics industry. Renewal of authority to purchase the Company’s shares Last year, a resolution was passed at the Annual General Meeting to give the Company the authority to purchase its own Ordinary shares on the Stock Exchange. This authority would expire after a period of eighteen months from the passing of the resolution. In order to avoid this authority expiring during the next year and the need to call an extraordinary general meeting to renew the authority, a resolution to renew the authority is set out in the notice of the Annual General Meeting on page 51 of this document. Under the terms of the resolution to be proposed at the Annual General Meeting, the maximum number of shares which may be purchased is 923,476 shares representing 15% of the issued Ordinary share capital of the Company. The minimum price payable by the Company for its Ordinary shares will be 20p and the maximum price will be £1. The authority will automatically expire after a period of eighteen months from the passing of the resolution unless renewed. It is not the Directors’ current intention to exercise the power to purchase the Company’s Ordinary shares but they believe that under certain circumstances it would be in the Company’s best interests to do so. Your Directors consider that the resolution to be proposed at the meeting is in the best interests of the Company and its shareholders. They unanimously recommend that all Ordinary shareholders vote in favour of the resolution at the Annual General Meeting as they intend to do in respect of their beneficial holdings amounting to 1,796,989 Ordinary shares, representing 29.19% of the Company’s issued Ordinary share capital. Removal of age limit on appointment of directors The notice of the Annual General Meeting includes a Special Resolution to remove the age limit for the appointment of Directors. Section 293 of the Companies Act 1985 (which contains the age limit for Directors) has been repealed by the Companies Act 2006 to be consistent with new age discrimination laws. As the changes brought about by the Companies Act 2006 can, in some cases, be overruled by provisions in the Company’s Articles of Association it is necessary to amend the Articles to conform with the new legislation. Conclusion I would like to thank my fellow Directors and all the staff of the Group for their continued support. Peter Haining Chairman 8th September 2008 4  Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2008 The Directors submit their report together with the audited financial statements of the Group in respect of the year ended 31st March 2008. Principal Activities, Review of the Business and Future Developments The principal activities of the Group during the year continued to be those of the distribution of electronic components and materials and the manufacturing of electronic equipment. An overall review of the Group’s trading performance and future developments is given in the Chairman’s Statement. The year started quietly for all three trading companies and in June non-recurring costs of restructuring of £57,863 were incurred at Paddock Wood. The resulting fall in overheads has resulted in a return to profitability in the Paddock Wood trading operations. John Macmichael, in his role as commercial director at Paddock Wood, has been successful in securing new franchises with higher value products which should enable revenue levels to be increased with sound gross profit margins despite the continuing decline in the traditional component distribution market. At Redditch both companies saw a decline in revenue compared with the previous year. Steatite saw a decline in military business due to contracts being postponed but the acquisition and integration of the RZ Pressure business into the battery division of Steatite is providing a useful boost to revenue and has enabled the company to qualify for lower purchase prices from its principal supplier. The company is actively promoting the new markets available as a result of the UN approved packs acquired as part of the RZ acquisition. Wordsworth Technology also suffered a loss of revenue in the military sector but it is anticipated that these contracts will be awarded later in the new financial year. The ICP division of the company had a good year with significantly enhanced margins which enabled the company to record an improved net profit despite a 17% fall in revenue compared with the prior year. The Group has continued to invest in research and development activities at Redditch with expenditure of over £94,000 in the year. The Group has also invested £40,000 in a new customer relation management system at Paddock Wood which will be a useful marketing tool. Continuing improvements have been made to the websites for all divisions and it is noted that there have been increases in use of the websites and receipt of direct orders. The Group holds or issues financial instruments to finance its operations. Operations are financed by a mixture of retained profits, bank borrowings, invoice discounting facilities and long term loans. Working capital requirements are met principally out of floating rate overdraft and retained profits. In addition, various financial instruments such as trade debtors and trade creditors arise directly from the Group’s operations. The Group is mainly exposed to credit risk from credit sales. It is Group policy to assess the credit risk of new customers and to factor the information from these credit ratings into future dealings with the customers. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The directors monitor the liquidity and cash flow risk of the Group carefully. The Group has an agreed overdraft limit with the Group’s bankers to help manage fluctuations in cash flow. Cash flow is monitored by the directors on a regular basis and appropriate action is taken where additional funds are required. Results and Dividends The consolidated income statement is set out on page 11. The Directors recommend that a final dividend of 1.25p per share is paid. The total dividend for the year is thus 2p per share. The final dividend will be paid on 31st October 2008 to shareholders on the register at the close of business on 17th October 2008. 5 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2008 (continued) Directors The Directors of the Company during the year were: P Haining FCA L C A Newnham G S Marsh W G Marsh J M Lavery Peter Haining FCA, aged 52, Non-executive Director, Company Secretary and Chairman Peter Haining qualified as a chartered accountant in 1980 and later worked at Binder Hamlyn. He left Binder Hamlyn in 1992, together with three colleagues, to establish The Kings Mill Partnership, who were the Company’s previous auditors. As well as fulfilling a role as Non-executive Director and Chairman, Peter Haining has specific responsibility for reviewing and advising on the Group’s budgets and financial affairs. Cyril Newnham, aged 71, Non-executive Director and Deputy Chairman Cyril Newnham is a chartered accountant who has held senior management posts in major companies, both in the UK and overseas. He has held a number of directorships within the electronics industry. He currently conducts a management consultancy practice. Details of the interests of Directors in the shares of the Company and Directors’ service contracts are stated in Note 6 to the financial statements. Corporate Governance The Board confirms that the Group has had regard, throughout the accounting period, with the provisions set out in Section 1 of the Combined Code which was issued by the Financial Reporting Council in June 2006. Whilst not required to do so, as a matter of best practice, the Directors have voluntarily endeavoured to comply with those provisions which they consider to be relevant to a company of this size. The audit committee consists of Messrs L C A Newnham and W G Marsh, and meets regularly to ensure that the financial performance of the Group is properly recorded and monitored, to meet the auditors and to review the reports from the auditors relating to accounts and internal control systems. The remuneration committee consists of Messrs W G Marsh, L C A Newnham and P Haining. The purpose of the committee is to review the performance of the full time executive Directors and to set the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of the shareholders. It is a rule of the committee that no Director shall participate in discussions or decisions concerning his own remuneration. Board of Directors The Board consists of three executive Directors and two Non-executive Directors and meets regularly throughout the year. The Board comprises the executive management of the Group and thus maintains full control over its activities. Decisions are accordingly taken quickly and effectively following consultation among the Directors concerned if any matters arise. The Board takes the view that this direct but flexible approach has enabled the Company to deal effectively with all matters. Going Concern The Directors confirm that they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. Purchase of Own Shares At the year end the Company had in place authority to purchase 923,476 ordinary shares under authority given by a resolution at the Annual General Meeting on 8th August 2007. This authority expires on 8th February 2009. 6 DIRECTORS’ REPORT For the year ended 31st March 2008 (continued) Solid State PLC Financial Instruments Details of the use of financial instruments by the Company and its subsidiaries are contained in Note 21 of the financial statements. Internal Control In respect of internal controls, the Directors are aware of the Turnbull Report and are continually reviewing the effectiveness of the systems of internal controls, the key elements of which having regard to the size of the Group are that the Board meets regularly and takes the decisions on all material matters, the organisational structure ensures that responsibilities are defined and authority only delegated where appropriate, and that the regular management accounts are presented to the Board wherein the financial performance of the Group is analysed. The Directors acknowledge that they are responsible for the system of internal control which is established in order to safeguard the assets, maintain proper accounting records and ensure that financial information used within the business or published is reliable. Any such system of control can, however, only provide reasonable, not absolute, assurance against material misstatement or loss. Statement of Directors’ Responsibilities The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report which complies with the requirements of the Companies Act 1985. The Directors are responsible for preparing the annual report and financial statements in accordance with the Companies Act 1985. The Directors are also required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. The Directors have chosen to prepare financial statements for the Company in accordance with UK Generally Accepted Accounting Practice. Group Financial Statements International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the preparation and presentation of financial statements.” In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to: • • • consistently select and apply appropriate accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. 7 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2008 (continued) Parent company financial statements Company law requires directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Directors are required to: • • select suitable accounting policies and then apply them consistently. prepare financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. • make judgements and estimates that are reasonable and prudent. • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Creditor Payment Policy The Company’s policy for the year to 31st March 2008 for all suppliers is to fix terms of payment when agreeing the terms of each business transaction, to ensure the supplier is aware of those terms and to abide by the agreed terms of payment. Creditor days based on the year end trade creditors and purchases made in the year were 52 days (2007: 36 days). Auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. A resolution to reappoint BDO Stoy Hayward LLP as auditors will be proposed at the next annual general meeting. By order of the Board P Haining FCA Secretary 8th September 2008 Registered Office: Unit 2 Eastlands Lane Paddock Wood Kent TN12 6BU 8 REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF SOLID STATE PLC Solid State PLC We have audited the Group and Parent Company financial statements (the “financial statements”) of Solid State PLC for the year ended 31st March 2008 which comprise the consolidated income statement, the consolidated and company balance sheets, the consolidated cash flow statement, the consolidated statement of changes in equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective Responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the annual financial report and Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and for preparing the Parent Company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report and the Chairman’s Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely on this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we have also evaluated the overall adequacy of the presentation of information in the financial statements. 9 Solid State PLC Opinion In our opinion: REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF SOLID STATE PLC (continued) - the Group financial statements give a true and fair view, in accordance with IFRS adopted by the European Union, of the state of the Group’s affairs as at 31st March 2008 and of the Group’s profit for the year then ended; - the Parent Company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Parent Company’s affairs as at 31st March 2008; - the financial statements have been properly prepared in accordance with the Companies Act 1985; and - the information given in the Directors’ Report is consistent with the financial statements. BDO Stoy Hayward LLP Chartered Accountants and Registered Auditors London 8th September 2008 10  Solid State PLC CONSOLIDATED INCOME STATEMENT For the year ended 31st March 2008 Revenue Cost of sales GROSS PROFIT Distribution costs Administrative expenses PROFIT FROM OPERATIONS Finance income Finance costs PROFIT BEFORE TAXATION Tax expense PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Notes 3 4 7 8 9 2008 £ 10,724,333 (7,569,347) _________ 3,154,986 (1,238,794) (1,392,107) _________ 2007 £ 12,369,904 (8,784,024) _________ 3,585,880 (1,356,520) (1,562,383) _________ 524,085 666,977 397 (100,040) _________ 424,442 (91,362) _________ 333,080 _________ 2,326 (113,133) _________ 556,170 (94,865) _________ 461,305 _________ EARNINGS PER SHARE Basic Diluted 10 10 5.4p 5.4p 7.5p 7.5p The notes on pages 15 to 45 form part of these financial statements. 11 Solid State PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31st March 2008 Share Capital £ Share Premium Reserve £ Capital Redemption Reserve £ Foreign Exchange Reserve £ Retained Earnings £ Total £ Balance at 31st March 2006 307,826 756,980 4,674 - 949,497 2,018,977 Profit for year ended 31st March 2007 Total recognised income in year Dividends Share based payment expense - _______ - _______ - - _______ - _______ - _______ - - _______ - _______ - _______ 461,305 ________ 461,305 ________ - _______ - _______ 461,305 ________ 461,305 ________ - - _______ - - _______ (61,565) 7,633 _______ (61,565) 7,633 _______ Balance at 31st March 2007 307,826 756,980 4,674 - 1,356,870 2,426,350 Profit for year ended 31st March 2008 Translation differences on overseas operation Total recognised income in year Dividends Share based payment expense Balance at 31st March 2008 - - - - 333,080 333,080 - _______ - _______ - - _______ 307,826 _______ - _______ - _______ - - _______ 756,980 _______ - _______ 52,864 _______ (52,864) _______ - _______ - _______ 52,864 _______ 280,216 _______ 333,080 _______ - - _______ - _______ (169,304) 9,753 _______ (169,304) 9,753 _______ 4,674 _______ 52,864 _______ 1,477,535 _______ 2,599,879 _______ The notes on pages 15 to 45 form part of these financial statements. 12 CONSOLIDATED BALANCE SHEET at 31st March 2008 Solid State PLC ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS CURRENT ASSETS Inventories Trade and other receivables Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Bank overdraft Trade and other payables Bank borrowings Corporation tax liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank borrowings TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES TOTAL NET ASSETS CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Share capital Share premium reserve Capital redemption reserve Foreign exchange reserve Retained earnings TOTAL EQUITY Notes £ 2008 £ 2007 £ £ 12 13 16 17 288,534 2,040,373 ________ 2,328,907 342,838 1,660,878 ________ 2,003,716 1,562,832 2,043,869 340,190 ________ 1,249,419 2,365,117 84,466 ________ 3,946,891 ________ 6,275,798 ________ 3,699,002 ________ 5,702,718 ________ 18 19 803,721 1,826,434 938,893 106,871 ________ 555,640 1,645,082 762,783 94,865 ________ 3,675,919 3,058,370 20 - ________ 217,998 ________ - ________ 3,675,919 ________ 2,599,879 ________ 307,826 756,980 4,674 52,864 1,477,535 ________ 2,599,879 ________ 217,998 ________ 3,276,368 ________ 2,426,350 ________ 307,826 756,980 4,674 - 1,356,870 ________ 2,426,350 ________ 22 23 23 23 23 The financial statements were approved by the Board of Directors and authorised for issue on 8th September 2008 and were signed on its behalf by: P. Haining Director The notes on pages 15 to 45 form part of these financial statements. 13 Solid State PLC CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st March 2008 2008 2007 £ £ £ £ OPERATING ACTIVITIES Profit before taxation Adjustments for: Depreciation Amortisation Loss on disposal of property, plant and equipment Share based payment expense Investment income Finance costs Profit from operations before changes in working capital and provisions Increase in inventories Decrease/(increase) in trade and other receivables Increase in trade payables Cash generated from operations Income taxes paid Income taxes repaid Cash flow from operating activities INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of computer software Proceeds of sales from property, plant and equipment Acquisition of subsidiary, net of cash acquired Interest received FINANCING ACTIVITIES Repayment of bank borrowings Invoice discounting finance (net movement) Interest paid Dividend paid to equity shareholders INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (Note 28) 424,442 107,794 641 579 9,753 (397) 100,040 _______ 642,852 308,035 _______ 950,887 (91,411) _______ 859,476 (540,601) _______ 318,875 (311,232) _______ 7,643 _______ (167,921) (543,375) 43,685 _______ (39,955) 42,112 _______ (188,808) - 49,444 - 2,326 _______ (262,270) (142,730) (113,133) (61,565) _______ 556,170 152,240 - 17,847 7,633 (2,326) 113,133 ______ 844,697 (667,611) _______ 177,086 2,157 _______ 179,243 (137,038) _______ 42,205 (579,698) _______ (537,493) _______ (293,042) 441,248 159,829 _______ (92,352) 941 _______ (67,310) (38,477) 13,499 (448,710) 397 _______ (335,809) 293,921 (100,040) (169,304) _______ The notes on pages 15 to 45 form part of these financial statements. 14 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS Solid State PLC The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations issued by the International Accounting Standards Board as adopted by the European Union (“IFRSs”) and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRSs. This is mandatory for accounting periods beginning on or after 1st January 2007. As allowed by IFRS 1, we have elected not to apply IFRS retrospectively for business combinations computed prior to 1st April 2006 and have used the carrying value of goodwill resulting from business combinations occurring before the date of transition as deemed costs, subjecting this to impairment reviews at the date of transition (1st April 2006) and at the end of each financial year thereafter. The only effect of the transition on the reported results has been the elimination of the amortisation of goodwill as a result of the prohibition of this charge imposed by IFRS 3. Consequently the goodwill on consolidation at 31st March 2007 is now carried in the balance sheet at its book value at 31st March 2006 of £1,660,878, and the amortisation charge of £91,553 in the accounts for the year ended 31st March 2007 has been eliminated. The effect has been to reduce administrative expenses and to increase net profit and retained earnings by this amount. Basis of Consolidation Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Business Combinations The consolidated financial statements incorporate the results of business combinations using the purchase method other than disclosed above. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Goodwill Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the income statement. Impairment of non-financial assets Impairment tests on goodwill are undertaken annually on 31st March, and on other non-financial assets whenever events or changes in circumstances indicate that their carrying value may not be reasonable. Where the carrying value of an asset exceeds its recoverable amount (ie the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Impairment charges are included in the administrative expenses line item in the consolidated income statement, except to the extent that they reverse gains previously recognised in the consolidated statement of recognised income and expense. An impairment loss recognised for goodwill is not reversed. 15 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Intangible Assets (other than goodwill) Intangible assets are recognised on business combinations if they are separable from the acquired entity or arise from other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see the section related to critical estimates and judgements below). Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight line basis over their useful economic lives. Cost includes all directly attributable costs of acquisition. The amortisation expense is included within the administration expense line in the consolidated income statement. Software is amortised over its useful economic life of 5 years, and UN licences are amortised over their expected useful life of 10 years from the date of original grant. Intangible assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Revenue Revenue represents sales to external customers at invoiced amounts less value added tax or local taxes on sales. Revenue is recognised when the risks and rewards of owning the goods has passed to the customer which is generally on collection. For goods that are subject to bill and hold arrangements this means: • • the goods are complete and ready for collection; the goods are separately identified from the Group’s other stock and are not used to fulfil any other orders; • and the customer has specifically requested that the goods be held pending collection. Normal payment terms apply to the bill and hold arrangements. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs. The corresponding liability is recognised within provisions. Depreciation is provided on all items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Short leasehold property improvements Fittings and equipment Computers Motor vehicles - straight line over minimum life of lease - 25% per annum on a reducing balance basis - 20% per annum on a straight line basis - 25% per annum on a reducing balance basis Depreciation is provided on all UN licences to write off the carrying value of each licence over its expected useful life, which is generally 10 years from its original grant. Leased assets Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. The land and buildings elements of property leases are considered separately for the purposes of lease classification. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in, first out basis. Work in progress and finished goods include labour and attributable overheads. Net realisable value is based on estimated selling price less any additional costs to completion and disposal. 16  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on: • • • the initial recognition of goodwill the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit: and investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the differences can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered) Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities, and the deferred tax assets and liabilities relate to taxes levied by the same tax authority. Pensions The pension schemes operated by the Group are defined contribution schemes. The pension cost charge represents the contributions payable by the Group. Foreign currency Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which it operates are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling at the balance sheet date. Exchange differences arising on retranslation of the net assets and results of the overseas operations are recognised directly in the “foreign exchange reserve”. Research and development costs Expenditure on internally developed products is capitalised if it can be demonstrated that: • • • • • • it is technically feasible to develop the product for it to be sold; adequate resources are available to complete the development; there is an intention to complete and sell the product; the Group is able to sell the product; sale of the product will generate future economic benefits; and expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within the cost of sales line in the income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the income statement as incurred. None of the development costs during the years ended 31st March 2007 and 31st March 2008 met the conditions necessary for capitalisation. 17 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Dividends Equity dividends are recognised when they become legally payable. Interim dividends are recognised when paid. Final dividends are recognised when approved by the shareholders at an annual general meeting. Financial assets The Group classifies its assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group’s accounting policy for each category is as follows: Fair value through profit or loss: This category comprises only in-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through the profit and loss account Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Financial liabilities The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was acquired. Other than financial liabilities in a qualifying hedging relationship (see below), the Group’s accounting policy for each category is as follows: Fair value through the profit and loss: This category comprises only out-of-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other financial liabilities: Other financial liabilities include the following items: • Trade payables and other short term monetary liabilities, which are recognised at amortised cost. • Bank borrowings are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of liability carried in the balance sheet. “Interest expense” in this context includes initial transaction costs and premia payable on redemption, as well as any interest while the liability is outstanding. 18  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Shared based payment Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a change is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before the vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Standards, amendments and interpretations to published standards not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1st April 2008 or later periods and which the Group has decided not to adopt early. These are: - IFRS 8, Operating Segments (effective for accounting periods beginning on or after 1st January 2009). This standard sets out requirements for the disclosure of information about an entity’s operating segments and also about the entity’s products and services, the geographical areas in which it operates, and its major customers. It replaces IAS 14, Segmental Reporting. The Group expects to apply this standard in the accounting period beginning on 1 April 2009. As this is a disclosure standard it will not have any impact on the results or net assets of the Group. - Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations (effective for accounting periods beginning on or after 1st January 2009). Management is currently assessing the impact of the Amendment on the accounts. - Amendment to IAS 1, Presentation of financial statements: a revised presentation (effective for accounting periods beginning on or after 1st January 2009). The revised IAS 1 introduces a single “statement of comprehensive income” incorporating both the profits and losses that have traditionally been reported in the income statement and other gains and losses that are currently reported in the Statement of Recognised Income and Expense or the Statement of Changes in Equity. As this is a disclosure standard it will not have any impact on the results or net assets of the Group. - Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27, ‘Consolidated and separate financial statements (both effective for accounting periods beginning on or after 1st July 2009). This revised standard and amendments to IAS 27 are still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. There are certain very significant changes to the requirements of IFRS, and options available, if accounting for business combinations. Management is currently assessing the impact of revised IFRS 3 and amendments to IAS 27 on the accounts. - - IFRIC 12 ‘Service concession arrangements’, IFRIC 13 ‘Customer loyalty programmes’, IFRC 14 ‘IAS 19 – The limit on a defined benefit asset, minimum funding, requirements and their interaction’, Amendment to IAS 23 ‘Borrowing and Amendments to IAS 32 and IAS 1 ‘Puttable Financial Instruments and Obligations Arising on Liquidation’ will not have a material impact on the financial statements of the Group. Improvements to IFRS (effective for accounting periods beginning on or after 1st July 2009). This improvements project is still to be endorsed by the European Union (EU). The amendments take various forms, including the clarification of the requirements of IFRS, the elimination of inconsistencies between Standards and a restructuring of IFRS 1 First-time Adoption of IFRS. Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly–Controlled Entity or Associate (effective for accounting periods beginning on or after 1st January 2009). These amendments are still to be endorsed by the EU. 19 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Standards, amendments and interpretations to published standards not yet effective (continued) Improvements to IFRS (continued) The amendments permit the entity at its date of transition to IFRSs in its separate financial statements to use a deemed cost to account for its investment in subsidiary, jointly-controlled entity or associate. The deemed cost of such investment could be either the fair value of the investment at the date of transition, which would be determined in accordance with IAS 39 Financial instruments: Recognition and Measurement or; the carrying amount of the investment under the previous GAAP at the date of transition. These changes would have no material effect on the financial statements of the Group. - IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on or after 1st January 2009). The revised IAS 23 is still to be endorsed by the EU. The main change from the previous version is the removal of the option of immediately recognising as an expense borrowing costs that relate to qualifying assets, broadly being assets that take a substantial period of time to get ready for use or sale. This revision will have no material impact on the financial statements of the Group. - Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidations (effective for accounting periods beginning on or after 1st January 2009). This amendment is still to be endorsed by the EU. The amendments result in certain types of financial instrument that meet the definition of a liability, but represent the residual interest in the net assets of the entity, being classified as equity. These amendments will have no material impact on the financial statements of the Group. Critical Accounting Judgements and Estimates The Group’s principal accounting policies are set out above. Management is required to exercise significant judgement and make use of estimates and assumptions in the application of these policies. Areas which Management believes require the most critical accounting judgements are: Impairment of receivables At each balance sheet date, each subsidiary evaluates the collectability of trade receivables and records provisions for impairment based on experience including, for example, comparisons of the relative age of accounts and consideration of actual write-off history. The actual level of debt collected may differ from the estimated levels of recovery, which could impact on operating results positively or negatively. Inventory provisions At each balance sheet date, each subsidiary evaluates the recoverability of inventories and records provisions against these based on an assessment of net realisable values. The actual net realisable value of inventory may differ from the estimated realisable values, which could impact on operating results positively or negatively. Impairment of intangible assets In line with IAS 36 the Group is required to test the carrying value of goodwill, at least annually, for impairment. As part of this review process the recoverable amount of goodwill is determined using value in use calculations, which requires estimates for future cash flows and as such is subject to estimates and assumptions. Further details are contained in note 14 of the financial statements. Development costs The Group is engaged in the development of new products and processes the costs of which are capitalised as intangible assets or tangible fixed assets if, in the opinion of Management, there is a reasonable expectation of economic benefits being achieved. The factors considered in making these judgements include the likelihood of future orders and the anticipated volumes, margins and duration associated with these. In the years under review no development costs were capitalised or there were no projects where there were expected to be future economic benefits due to uncertainty as to the markets for new products 20  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 2. FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Reconciliations and explanatory notes on how the transition to IFRS has affected profit and net assets previously reported under UK Generally Accepted Accounting Principles are given below: Income statement reconciliation for the year ended 31st March 2007 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Sub- note UK GAAP £’000 Adjustments £’000 IFRS £’000 12,369,904 - 12,369,904 (8,784,024) __________ - ________ (8,784.024) __________ 3,585,880 - 3,585,880 i (1,356,520) (1,653,936) __________ - 91,553 ________ (1,356,520) (1,562,383) __________ Profit from operations 575,424 91,553 666,977 Finance costs Finance income Profit before tax Tax expense Profit attributable to the equity holders of the parent (113,133) 2,326 __________ - - ________ (113,133) 2,326 __________ 464,617 91,553 556,170 (94,865) __________ - ________ (94,865) __________ 369,752 __________ 91,553 ________ 461,305 __________ 21 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 2. FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (continued) Balance sheet reconciliation as at 31st March 2007 Sub- note UK GAAP £’000 Adjustments £’000 342,838 1,569,325 ________ 1,912,163 ________ 1,249,419 2,365,117 84,466 ________ 3,699,002 ________ 5,611,165 ________ 555,640 1,645,082 762,783 94,865 ________ 3,058,370 ________ 217,998 ________ 217,998 ________ 3,276,368 ________ 2,334,797 ________ - 91,553 ________ 91,553 ________ - - - ________ - ________ 91,553 ________ - - - - ________ - ________ - ________ - ________ - ________ 91,553 ________ Property, plant and equipment Intangible assets i Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Bank overdraft Trade and other payables Bank borrowings Corporation tax liabilities Total current liabilities Non-current liabilities Bank borrowings Total non-current liabilities Total liabilities TOTAL NET ASSETS AND EQUITY There was no change to the balance sheet at 1st April 2006. 22 IFRS £’000 342,838 1,660,878 ________ 2,003,716 ________ 1,249,419 2,365,117 84,466 ________ 3,699,002 ________ 5,702,718 ________ 555,640 1,645,082 762,783 94,865 ________ 3,058,370 ________ 217,998 ________ 217,998 ________ 3,276,368 ________ 2,426,350 ________  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 2. FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (continued) Adjustments Explanations of the adjustments made to the UK GAAP income statement and balance sheets are as follows: Sub-note Explanation i ii iii iv v vi Elimination of amortisation of goodwill as a result of the prohibition of the charge imposed by IFRS 3. The carrying value of capitalised goodwill at 31st March 2006 that arose on business combinations accounted for using the acquisition method under UK GAAP was frozen at this amount and tested for impairment at 1st April 2006. Expenditure on research and development did not meet the conditions for capitalisation. Business combinations before 1st April 2006 have not been restated. IFRS 2 “Share-based payments” has been applied to employee options granted after 7th November 2002 that had not vested by 1st April 2006. IAS 39 permits derivatives to be measured at fair value through the profit and loss account. Under UK GAAP these were previously carried at cost. There is no material impact on the accounts as a result of this change in accounting policy. Under IAS 12 deferred tax is required to be provided in full on all differences between the carrying values for accounts purposes and those for taxation. Under UK GAAP, FRS 19 requires deferred tax to be provided on all timing differences that have originated but not reversed by the balance sheet date. There is no material impact on the accounts as a result of this change of policy. Cash flow statement for the year ended 31st March 2007 The only changes to the cash flow statement are presentational. The key ones include: • Presenting a statement showing movements in cash and cash equivalents, rather than just cash. Cash under UK GAAP comprised only amounts accessible in 24 hours without penalty less overdrafts repayable on demand. The components of cash equivalents are shown in note 28. • Classifying tax cash flows as relating to operating activities. • Classifying equity dividends as relating to financing activities. 3. REVENUE Revenue arises from: Sale of goods Provision of services 2008 £ 10,688,925 35,408 _________ 2007 £ 12,271,643 98,261 _________ 10,724,333 _________ 12,369,904 _________ 23 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 4. PROFIT FROM OPERATIONS This has been arrived at after charging/(crediting): Staff costs (see note 5) Employment termination costs (included in staff costs) Depreciation of property, plant and equipment Amortisation of computer software Loss on disposal of property, plant and equipment Goodwill impairment charge Auditors’ remuneration: Audit services Non-audit services Operating lease rentals: Plant and machinery Other Research and development costs Foreign exchange differences 2008 £ 1,844,172 57,863 107,794 641 579 - 38,670 - 24,724 108,140 94,422 (155,408) _________ 2007 £ 1,851,928 6,127 152,240 - 17,847 - 43,794 8,818 26,981 128,881 89,448 (72,824) _________ Included in audit fees is an amount of £1,000 (2007: £1,000) in respect of the Company. Additional, non-audit services in relation to the acquisition of RZ Pressure Instruments SARL of £Nil (2007: £8,818) arose and have been capitalised and added to the goodwill figure on consolidation. 5. STAFF COSTS Staff costs for all employees during the year, including the executive Directors, were as follows: Wages and salaries Social security costs Other pension costs 2008 £ 1,663,748 180,424 - ________ 1,844,172 ________ 2007 £ 1,673,018 178,910 - ________ 1,851,928 ________ Wages and salaries include termination costs of £57,863 (2007: £6,127) The average monthly number of employees during the year, including the three executive Directors, was as follows: Selling and distribution Manufacturing Management and administration 2008 Number 2007 Number 25 15 22 _____ 62 _____ 25 15 23 _____ 63 _____ 24  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 6. DIRECTORS’ EMOLUMENTS, INTERESTS AND SERVICES CONTRACTS The value of all elements of remuneration received by each Director in the year was as follows: 31st March 2008 Executive Directors W G Marsh G S Marsh J M Lavery Non-executive Directors P Haining L C A Newnham Salary £ Fees £ Benefits in kind £ 12,000 95,000 85,000 - - - - - ______ 12,000 12,000 ______ 4,000 11,000 16,000 - - ______ Total £ 16,000 106,000 101,000 12,000 12,000 ______ Total 192,000 ______ 24,000 ______ 31,000 ______ 247,000 ______ 31st March 2007 Executive Directors W G Marsh G S Marsh J M Lavery Non-executive Directors P Haining L C A Newnham 12,000 97,000 92,000 - - - - - ______ 12,000 12,000 ______ 4,000 10,000 16,000 - - ______ 16,000 107,000 108,000 12,000 12,000 ______ Total 201,000 ______ 24,000 ______ 30,000 ______ 255,000 ______ Pension contribs £ Share based payments £ - - - - - ______ - ______ - - - - - ______ - ______ - 4,877 4,876 - - ______ 9,753 ______ - 3,816 3,817 - - ______ 7,633 ______ The executive Directors waived their entitlement to emoluments during the year as follows: W G Marsh 2008 £ 24,000 ______ 2007 £ 24,000 ______ The principal benefits in kind relate to the provision of company cars. In addition to the above, fees totalling £47,825 (2007: £53,260) arose during the year in respect of accountancy services provided by The Kings Mill Partnership, a firm of which P Haining is a partner. A balance of £9,470 (2007: £12,055) was due to The Kings Mill Partnership at 31st March 2008. The fees for the year ended 31st March 2008 included £2,300 which relates to the purchase of RZ Pressure Instruments Supply SARL. These costs have been capitalised in investments in the Company and added to the goodwill on consolidation. 25 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 6. DIRECTORS’ EMOLUMENTS, INTERESTS AND SERVICES CONTRACTS (continued) The three executive Directors have service contracts with the Company which are terminable by the Company, or the relevant Director, on one year’s notice. The Directors of the Company on 8th September 2008 and at the balance sheet date, and their interest in the issued ordinary share capital of the Company at that date, at 31st March 2008 and 31st March 2007 or date of appointment if later, were as follows: W G Marsh G S Marsh J M Lavery P Haining L C A Newnham 08.09.08 31.03.08 31.03.07 1,700,500 73,420 569 12,500 10,000 1,700,500 73,420 569 12,500 10,000 1,700,500 73,154 23 12,500 10,000 Details of the options over the Company’s shares granted under the Enterprise Management Incentives Scheme are as follows: Options held at 1st Apr 2007 Lapsed Granted Options held at 31st Mar 2008 Subscrip- tion price Date of Grant Exercise Period G S Marsh J M Lavery 160,000 - 80,000 80,000 - 160,000 - 80,000 80,000 - - 317,460 - - 317,460 - 317,460 - - 317,460 60.5p 31.5p 60p 60.5p 31.5p 29.09.03 22.01.08 01.07.02 29.09.03 22.01.08 Sept 2005- Sept 2013 Jan 2009 onwards Jul 2004 – Jul 2013 Sept 2005-Sept 2013 Jan 2009 onwards The market price of the shares at 31st March 2008 was 28.5p (2007: 30.5p), with a quoted range during the year of 28.5p to 56.5p. No director exercised any share options during the year, or in the prior year. 7. FINANCE INCOME Bank deposit interest receivable Other interest receivable Government electronic filing incentives 2008 £ - 97 300 ______ 397 ______ 2007 £ 889 937 500 ______ 2,326 ______ 26  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 8. FINANCE COSTS Bank borrowings Invoice discounting interest Other interest 9. TAX EXPENSE UK corporation tax and income tax of overseas operations on profits or losses for the year Adjustment in respect of prior periods 2008 £ 71,756 21,283 7,001 ______ 100,040 ______ 2008 £ 93,875 (2,513) ______ 91,362 ______ 2007 £ 80,676 32,457 - ______ 113,133 ______ 2007 £ 94,865 - ______ 94,865 ______ The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax is the UK applied to profits for the year are as follows: Profit before tax 2008 £ 424,442 _______ 2007 £ 556,170 _______ Expected tax charge based on the standard rate of corporation tax in the UK of 30% (2007 – 30%) 127,333 166,851 Effect of: Expenses not deductible for tax purposes Deductible expenses not charged in Group accounts Depreciation for the year in excess of capital allowances Utilisation of tax losses Marginal relief Enhanced relief on research and development expenditure Non-taxable government incentive received Different tax rates and rules applied in overseas jurisdictions Adjustment to enhanced relief on research and development expenditure in prior year Deferred tax has not been provided as it is not material 6,597 (9,738) 1,370 (5,085) (3,758) (14,164) (90) (8,590) (2,513) _______ 91,362 _______ 8,627 - 9,382 (71,800) (4,630) (13,415) (150) - - _______ 94,865 _______ 27 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) . 10. EARNINGS PER SHARE The earnings per share is based on the following: Earnings Weighted average number of shares Diluted number of shares Earnings per share Diluted earnings per share 2008 £ 330,080 _______ 2007 £ 461,305 _______ 6,156,511 6,156,511 6,156,511 6,156,511 5.4p 5.4p 7.5p 7.5p 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 6,156,511 (2007: 6,156,511). The Diluted earnings per share is based on 6,156,511 (2007: 6,156,511) ordinary shares which allow for the exercise of all dilutive potential ordinary shares. Certain employee options have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of certain criteria that had not been met at the end of the year. In addition, certain employee options have also been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (ie they are out-of-the-money) and therefore it would not be advantageous for the holders to exercise the options. The number of shares included in the option agreement which have not been included in the calculation of the weighted average number of shares was 380,231 (2007: 320,000). 11. DIVIDENDS Final dividend paid for the prior year of 2p per share (2007: nil) Interim dividend paid of 0.75p per share (2007: 1p) Final dividend proposed for the year 1.25p per share (2007: 2p) 2008 £ 123,130 46,174 _______ 169,304 _______ 76,956 _______ 2007 £ - 61,565 _______ 61,565 _______ 123,130 _______ The proposed final dividend has not been accrued for as the dividend was declared after the balance sheet date. 28  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 12. TANGIBLE FIXED ASSETS Year ended 31st March 2007 Cost 1st April 2006 Additions Disposals 31st March 2007 Depreciation 1st April 2006 Charge for the year On disposal 31st March 2007 Short leasehold property improvements £ Motor vehicles £ Fittings, equipment and computers £ Total £ 337,852 1,699 (84,375) _________ 226,195 159,806 (127,007) _________ 829,390 27,303 (13,563) _________ 1,393,437 188,808 (224,945) _________ 255,176 _________ 258,994 _________ 843,130 _________ 1,357,300 _________ 287,809 34,549 (84,375) _________ 75,822 49,659 (60,116) _________ 656,244 68,032 (13,162) _________ 1,019,875 152,240 (157,653) _________ 237,983 _________ 65,365 _________ 711,114 _________ 1,014,462 _________ Net book value 31st March 2007 17,193 _________ 193,629 _________ 132,016 _________ 342,838 _________ 31st March 2006 Year ended 31st March 2008 Cost 1st April 2007 Additions Acquisition of subsidiary Disposals 31st March 2008 Depreciation 1st April 2007 Charge for the year On disposal 31st March 2008 50,043 _________ 150,373 _________ 173,146 _________ 373,562 _________ 255,176 - - _________ 258,994 57,076 - (36,829) _________ 843,130 10,234 256 (256) _________ 1,357,300 67,310 256 (37,085) _________ 255,176 _________ 279,241 _________ 853,364 _________ 1,387,781 _________ 237,983 17,193 - _________ 65,365 51,967 (23,009) _________ 711,114 38,634 - _________ 1,014,462 107,794 (23,009) _________ 255,176 _________ 94,323 _________ 749,748 _________ 1,099,247 _________ Net book value 31st March 2008 - _________ 184,918 _________ 103,616 _________ 288,534 _________ There were no capital commitments at 31st March 2007 and 31st March 2008. Disposals of motor vehicles in the year ended 31st March 2007 include one vehicle purchased from the Company by Mr G S Marsh for a consideration of £12,600. This represented the open market value. No amounts were outstanding at the year end. 29 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 13. INTANGIBLE ASSETS Year ended 31st March 2007 Cost 1st April 2006 and 31st March 2007 Amortisation 1st April 2006 and 31st March 2007 Net book value 31st March 2007 31st March 2006 Year ended 31st March 2008 Cost 1st April 2007 Additions 31st March 2008 Amortisation 1st April 2007 Charge for the year 31st March 2008 Net book value 31st March 2008 UN Licences £ Computer software £ Goodwill on consolidation £ Total £ - _________ - _________ - _________ - _________ 1,660,878 _________ 1,660,878 _________ - _________ - _________ 1,660,878 _________ 1,660,878 _________ 1,660,878 _________ 1,660,878 _________ - 38,477 _________ 1,660,878 331,859 _________ 1,660,878 380,136 _________ 38,477 _________ 1,992,737 _________ 2,041,014 _________ - 641 _________ 641 _________ - - _________ - 641 _________ - _________ 641 _________ 37,836 _________ 1,992,737 _________ 2,040,373 _________ - ______ - ______ - ______ - ______ - 9,800 ______ 9,800 ______ - - ______ - ______ 9,800 ______ 30  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 14. GOODWILL AND IMPAIRMENT Details of the carrying amount of goodwill allocated to cash generating units (CGUs) is as follows: Steatite Limited Wordsworth Technology Limited Goodwill carrying amount 2008 £ 893,214 1,099,523 _________ 1,992,737 _________ 2007 £ 561,355 1,099,523 _________ 1,660,878 _________ The recoverable amounts of all the above CGUs have been determined from a review of the current and anticipated performance of these units. In preparing the projection, a discount rate of 19% has been used based on the working average cost of capital and a future growth rate of 2.25% has been assumed beyond the first year for which the projection is based on the budget approved by the board of directors. The future growth rate has been applied for the next four years. It has been assumed investment in capital equipment will equate to depreciation over this period. The discount rate was based on the group’s “beta” which is a measure of the volatility of the share price against the market. This amounts to 0.94. The recoverable amount exceeds the carrying amount by £863,000. If any one of the following changes were made to the above key assumptions, the carrying amount would still exceed the recoverable amount. Discount rate: Increase from 19% to 22% Growth rate: Reduction from 2.25% to 1.75% 15. SUBSIDIARIES The principal subsidiaries of Solid State PLC, all of which have been included in these consolidated financial statements are as follows: Subsidiary undertakings Country of Incorporation Proportion of voting rights and Ordinary share capital held Solid State Supplies Limited Steatite Limited Great Britain Great Britain Wordsworth Technology Limited Great Britain RZ Pressure Instruments Supply SARL Switzerland SSS Highway Technologies Limited Great Britain 100% 100% 100% 100% 100% Nature of business Distribution of electronic components Distribution of electronic components and manufacture of electronic equipment Distribution of industrial computing equipment and manufacture of electronic equipment Dormant Dormant In all cases, except for RZ Pressure Instruments Supply SARL, the country of operation and of incorporation or registration is England. 16. INVENTORIES Finished goods and goods for resale Work in progress 2008 £ 1,324,017 238,815 ________ 1,562,832 ________ 2007 £ 1,195,220 54,199 ________ 1,249,419 ________ There is no material difference between the replacement cost of inventories and the amount stated above. 31 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 17. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Prepayments 2008 £ 1,965,616 13,676 64,577 ________ 2,043,869 ________ 2007 £ 2,267,797 800 96,520 ________ 2,365,117 ________ Group trade receivables include £1,082,559 (2007: £1,388,462) which are subject to an invoice discounting agreement. Under this agreement, borrowing equal to 85% of the relevant book debts can be taken with interest charged at 1.3% over bank base rate and an administration fee of 0.15% of the gross value of debts per month. At 31st March 2008 borrowing under the agreement of £920,175 (2007: £1,144,886) was available of which £722,556 (2007: £428,635) was taken up leaving unused borrowing facilities of £197,619 (2007: £716,251). Interest charges in the year amounted to £21,283 (2007: £32,457) and administration fees to £12,400 (2007: £14,993). 18. TRADE AND OTHER PAYABLES Trade payables Other taxes and social security taxes Other payables Accruals Dividends payable 19. BANK BORROWINGS Bank loans (secured) Amounts due to invoice discounters 2008 £ 1,416,357 258,797 38,204 90,890 22,186 ________ 1,826,434 ________ 2008 £ 216,337 722,556 _________ 938,893 _________ 2007 £ 1,128,386 370,114 3,179 141,572 1,831 ________ 1,645,082 ________ 2007 £ 334,148 428,635 _________ 762,783 _________ The bank loan and overdraft are secured by a fixed and floating charge over the assets of the Company and the Group. At the balance sheet date, the Group had an undrawn overdraft facility of £nil (2007: £128,826) which enables flexibility in the management of liquidity. 32 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 20. NON-CURRENT BANK BORROWING Bank loans (secured) Bank loan repayments are due: In more than one year but not more than two years In more than two years but not more than five years Solid State PLC 2008 £ - _________ - _________ - - _________ - _________ 2007 £ 217,998 _________ 217,998 _________ 217,998 - _________ 217,998 _________ There are two bank loans. The first was for £750,000 taken out in May 2002 and repayable by instalments over seven years. The second loan was for £500,000 taken out in August 2005 and repayable by instalments over three years. The loans are secured by a fixed and floating charge over the assets of the Company and the Group. 21. FINANCIAL INSTRUMENTS The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s financial instruments comprise cash and cash equivalents and various items such as trade payables and receivables that arise directly from its operations. The Group is exposed through its operations to the following risks: • Credit risk • Foreign currency risk • Liquidity risk • Cash flow interest rate risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks and consequently the objectives, policies and processes are unchanged from the previous period. The Board has overall responsibility for the determination of the Group’s risk management policies. The objective of the Board is to set policies that seek to reduce the risk as far as possible without unduly affecting the Group’s competitiveness and effectiveness. Further details of these policies are set out below: 33 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 21. FINANCIAL INSTRUMENTS (continued) Credit risk The Group is exposed to credit risk primarily on its trade receivables, which are spread over a range of customers and countries, a factor that helps to dilute the concentration of the risk. It is Group policy, implemented locally, to assess the credit risk of each new customer before entering into binding contracts. Each customer account is then reviewed on an ongoing basis (at least once a year) based on available information and payment history. The maximum exposure to credit risk is represented by the carrying value in the balance sheet as shown in note 17. The amount of the total exposure shown in note 17 is stated net of provisions for doubtful debts. The credit risk on liquid funds is limited as the funds are held at banks with high credit ratings assigned by international credit rating agencies. Foreign currency risk Foreign exchange transaction risk arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. The general policy for the Group is to sell to customers in the same currency that goods are purchased in reducing the transactional risk. Where transactions are not matched excess foreign currency amounts generated from trading are converted back to sterling and required foreign currency amounts are converted from sterling and the use of forward currency contracts is considered. Foreign exchange translation risk arises on translation of the balance sheets of Group operations whose functional currency is different to that of the Group as a whole. The predominant area where this risk applies is US dollars and Swiss francs. Liquidity risk The Group operates a Group overdraft facility common to all its trading companies and invoice discounting is used on some sales to customers meaning that the UK business can receive immediate payment on its sales. The Group has approximately a three month visibility in its trading and runs a rolling 3 month cash flow forecast. If any part of the Group identifies a shortfall in its future cash position the Group has sufficient facilities that it can direct funds to the location where they are required. If this situation is forecast to continue into the future remedial action is taken. Cash flow interest rate risk External Group borrowings are approved centrally. The Board accepts that this neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments. It considers, however, that by ensuring approval of borrowings is made by the Board the risk of borrowing at excessive interest rates is reduced. The Board considers that the rates being paid are in line with the most competitive rates it is possible for the Group to achieve. Credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Current financial assets Trade and other receivables Cash and cash equivalents 34 Loans and Receivables 2008 £ 2,043,869 340,190 ________ 2,384,059 ________ 2007 £ 2,365,117 84,466 ________ 2,449,583 ________  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 21. FINANCIAL INSTRUMENTS (continued) The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: UK Non UK Carrying value 2008 £ 1,879,272 164,597 2007 £ 2,301,638 63,479 ________ ________ 2,043,869 ________ 2,365,117 ________ The Group policy is to make a provision against those debts that are overdue, unless there are grounds for believing that all or some of the debts will be collected. During the year the value of provisions made in respect of bad and doubtful debts was £38,000 which represented less than 0.36% of revenue. This provision is included within the distribution costs in the Consolidated Income Statement. Trade receivables ageing by geographical segment Geographical area 2008 UK Non UK Total Total £ Current £ 30 days past due £ 60 days past due £ 90 days past due £ 2,010,736 164,597 ________ 1,818,335 100,944 ________ 115,833 63,490 ________ 7,000 - ______ 69,568 163 ______ 2,175,333 1,919,279 179,323 7,000 69,731 Less: Provisions (131,464) - (54,733) (7,000) (69,731) Total 2007 UK Non UK Total ________ ________ ______ ______ ______ 2,043,869 ________ 1,919,279 ________ 125,490 ______ - ______ - ______ 2,421,120 63,479 ________ 2,201,722 49,496 ________ 146,596 6,156 _______ 34,133 2,556 ______ 38,669 5,271 ______ 2,484,599 2,251,218 152,752 36,689 43,940 Less: Provisions (119,482) - (38,853) (36,689) (43,940) ________ ________ _______ ______ ______ Total 2,365,117 ________ 2,251,218 ________ 113,899 _______ - ______ - ______ 35 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 21. FINANCIAL INSTRUMENTS (continued) The Group records impairment losses on its trade receivables separately from gross receivables. The movements on this allowance account during the year are summarised below: Opening balance Increases in provisions Written off against provisions 2008 £ 119,482 38,000 (26,018) _______ 131,464 _______ 2007 £ 76,446 57,000 (13,964) _______ 119,482 _______ The main factor used in assessing the impairment of trade receivables is the age of the balances and the circumstances of the individual customer. As shown in the above table, at 31st March 2008 trade receivables of £125,490 which were past their due date were not impaired (2007: £113,899). All of these were less than 60 days past their due date. 36  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 21. FINANCIAL INTRUMENTS (continued) Liquidity risk Current financial Liabilities Trade and other payables Bank borrowings Bank overdraft Non current financial Liabilities Loans and borrowings Financial liabilities measured at amortised cost 2007 £ 1,645,082 762,783 555,640 ________ 2008 £ 1,826,434 938,893 803,721 ________ 3,569,048 ________ 2,963,505 ________ - ________ 217,998 ________ The following are maturities of financial liabilities, including estimated contracted interest payments. 2008 Secured bank loans Bank overdrafts Amounts due to invoice Discounters Trade and other payables 2007 Secured bank loans Bank overdrafts Amounts due to invoice discounters Trade and other payables Carrying amount 216,337 803,721 Contractual cash flow 227,803 803,721 6 months or less 162,329 803,721 6 – 12 months 65,474 - 1 – 2 years - - 2 or more Years - - 722,556 1,933,305 ________ 722,556 1,933,305 ________ 722,556 1,826,434 ________ - 106,871 - - ________ _______ _ - - ________ 3,675,919 ________ 3,687,385 ________ 3,515,040 ________ 172,345 - ________ _______ - ________ 552,146 555,640 593,956 555,640 185,684 555,640 180,469 - 227,803 - - - 428,635 1,739,947 ________ 428,635 1,739,947 ________ 428,635 1,645,082 ________ - 94,865 - - ________ _______ - - ________ 3,276,368 ________ 3,318,178 ________ 2,815,041 ________ 275,334 227,803 ________ _______ - ________ Interest rate risk The Group finances its business through a mixture of bank overdrafts, bank and other loans and invoice discounting facilities. During the year the Group utilised these facilities at floating rates of interest. The Group bank loan with HSBC plc incurs interest at the rate of 1.3% over the HSBC’s base rate and bank overdraft with HSBC plc incurs interest at the rate of 1.3% over the HSBC’s base rate. The Group is affected by changes in the UK interest rate. Details of interest payable under the invoice discounting agreement are stated in Note 17. 37 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 21. FINANCIAL INTRUMENTS (continued) Interest rate risk (continued) The US Dollar overdraft facility bears the interest rate of 1.3% over the HSBC’s US dollar base rate and is therefore affected by changes in the US interest rate. The fair value of the Group’s financial instruments is not materially different to the book value. In terms of sensitivity, if the HSBC base rate had been 1% higher throughout the year the level of interest payable would have been £14,630 (2007: £18,519) higher and if 1% lower throughout the year the level of interest payable would have been lower by the same amounts. Foreign currency risk The Group’s main foreign currency risk is the short term risk associated with accounts receivable and payable denominated in currencies that are not subsidiaries functional currency. The risk arises on the difference in the exchange rate between the time invoices are raised/received and the time invoices are settled/paid. For sales denominated in foreign currencies the Group will try to ensure that the purchases associated with the sale will be in the same currency. All monetary assets and liabilities of the Group were denominated in sterling with the exception of the following items which were denominated in US dollars, and which are included in the financial statements at the sterling value based on the exchange rate ruling at the balance sheet date. The following table shows the net liabilities exposed to exchange rate risk that the Group has at 31st March 2008: Trade receivables Cash and cash equivalents Trade payables 2008 £ 416,594 157,272 (593,252) _________ (19,386) _________ 2007 £ 233,514 28,809 (388,060) _________ (125,737) _________ There were also net liabilities of £34,074 in euros (2007: £10,938), net liabilities of £Nil in Japanese yen (2007: £14,356) and net liabilities of £8,109 in Swiss francs. (2007: £Nil) The Group is exposed to currency risk because it undertakes trading transactions in US dollars, euros, Swiss francs and Japanese yen. The Directors do not generally consider it necessary to enter into derivative financial instruments to manage the exchange risk arising from its operations, but from time to time when the Directors consider foreign currencies are weak and it is known that there will be a requirement to purchase those currencies, forward arrangements are entered into. Details of those outstanding at the balance sheet date are given below. The effect of a strengthening of 10% in the rate of exchange in the currencies against sterling at the balance sheet date would have resulted in an estimated net decrease in pre-tax profit for the year and a decrease in net assets of approximately £6,800 (2007: £16,800) and the effect of a weakening of 10% in the rate of exchange in the currencies against sterling at the balance sheet date would have resulted in an estimated net increase in pre-tax profit for the year and an increase in net assets of approximately £6,200 (2007: £15,000). 38  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 21. FINANCIAL INTRUMENTS (continued) Foreign currency risk (continued) At 31st March 2007 the Group had entered into agreements with its bankers to purchase US dollars as follows: $ 150,000 350,000 150,000 100,000 250,000 150,000 Rate 1.9609 1.95 – 1.9904 1.9609 1.9675 1.9675 1.9608 2nd April 2007 16th April 2007 1st May 2007 1st May 2007 15th May 2007 1st June 2007 At 31st March 2008 the Group had entered into agreement with its bankers to purchase US dollars as follows: 1st April 2008 15th April 2008 1st May 2008 15th May 2008 2nd June 2008 16th June 2008 100,000 300,000 100,000 50,000 100,000 50,000 2.0055 1.97 2.00-2.05 1.9985 2.00-2.05 1.9930 Applying the actual exchange rate at the balance sheet date to these agreements gives rise to a liability of £1,396 at 31st March 2008 and to an asset of £69 at 31st March 2007. In view of the immaterial nature of these amounts, no adjustment has been made in the financial statements. Capital under management The Group considers its capital to comprise its ordinary share capital, share premium account, capital redemption reserve, foreign exchange reserve and accumulated retained earnings. In managing its capital, the Group’s primary objective is to maximise returns for its equity shareholders. The Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain sufficient funding to enable the Group to meet its working capital and strategic investment need. In making decisions to adjust its capital structure to achieve these aims the Group considers not only its short term position but also its long term operational and strategic objectives. The Group’s gearing ratio at 31st March 2008 is shown below: Cash and cash equivalents Bank overdrafts Bank loans Invoice discounting advance Share capital Share premium account Retained earnings Capital redemption reserve Foreign exchange reserve Gearing ratio 39 2008 £ (340,190) 803,721 216,337 722,556 ________ 1,402,424 ________ 307,826 756,980 1,477,535 4,674 52,864 ________ 2,599,879 ________ 0.278 ________ 2007 £ (84,466) 555,640 552,146 428,635 ________ 1,451,955 ________ 307,826 756,980 1,356,870 4,674 - ________ 2,426,350 ________ 0.177 ________ Solid State PLC 22. SHARE CAPITAL NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) Authorised 9,000,000 ordinary shares of 5p each Allotted issued and fully paid 6,156,511 ordinary shares of 5p each 2008 £ 2007 £ 450,000 _________ 307,826 _________ 450,000 _________ 307,826 _________ An Enterprise Management Incentive Scheme was adopted by the Company in September 2000 and formally approved at an Extraordinary General Meeting on 12th December 2000. Details of options granted are set out in Note 6. At 31st March 2008 the number of shares covered by option agreements amounted to 634,920 (2007: 320,000). No options were exercised in the year (2007: nil). 23. RESERVES Full details of movements in reserves are set out in the consolidated statement of changes in equity on page 12. The following describes the nature and purpose of each reserve within owners’ equity. Reserve Description and Purpose Share premium Capital redemption Foreign exchange Retained earnings Amount subscribed for share capital in excess of nominal value. Amounts transferred from share capital on redemption of issued shares. Gains/losses from the retranslation of net assets of overseas operations into sterling Cumulative net gains and losses recognised in the consolidated income statement. 24. LEASING COMMITMENTS At 31st March 2008 the Group had future commitments under operating leases as follows: 2008 £ 46,933 105,000 ______ 9,117 6,264 ______ 2007 £ 97,933 - _________ 6,315 29,806 _________ Group Buildings: Leases expiring in less than one year Leases expiring in one to five years Plant and machinery: Leases expiring in less than one year Leases expiring in one to five years 40  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 25. SHARE BASED PAYMENT The Group operates an approved Enterprise Management Incentive Scheme whereby Mr G S Marsh and Mr J M Lavery have been granted options to purchase shares in Solid State PLC at a subscription price which was not less than the market value at the time the option was granted. The options in place at 31st March 2008 all have an exercise period of any time after one year from the date of the grant subject to the Group share price having equalled or exceeded 50p per share at the close of business on 20 consecutive business days. The options in place at 31st March 2007 comprised an option granted on 29th September 2003 to purchase 160,000 to Mr G S Marsh at an exercise price of 60.5p, an option granted on 1st July 2002 to purchase 80,000 to Mr J M Lavery at an exercise price of 60p and an option granted on 29 September 2003 to Mr J M Lavery to purchase 80,000 at an exercise price of 60.5p. All these options were cancelled on 22nd January 2008, when the new options were granted. In accordance with the transitional provisions of FRS 20, Share-based payment, the standard was applied retrospectively to grants of equity instruments after 7th November 2002 that were unvested as of 1st April 2005 and all liabilities for share based transactions existing at 1st April 2005. None of the options have been exercised since the scheme was put into place. Details of the current options are stated in Note 6. The share-based remuneration expenses amounted to £9,753 for the year (2007: £7,633). The following information is relevant to the determination of the fair value of the options. The 2008 details relate to options that were granted during the year and the 2007 details relate to options which were in place at 31st March 2007 but were cancelled on 22nd January 2008. Equity settled share based payments Option pricing model used Weighted average share price at grant date Exercise price Weighted average contractual life Expected volatility Expected dividend growth rate Risk free interest rate 2008 2007 Binominal Tree 31.5p 31.5p 1.2 years Black - Scholes 60.5p 60.5p 4.0 years 78.52% - 4.31% 45.00% - 4.30% The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of daily share prices over the twelve months prior to the date of the grant. The market vesting conditions have been factored into the calculation by applying an appropriate discount to the fair value of equivalent share options without the specified vesting conditions. 41 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 26 ACQUISITIONS DURING THE PERIOD On 3rd November 2007 the Group acquired 100% of the voting equity instruments of RZ Pressure Instruments Supply SARL, a company incorporated in Switzerland whose principal activity was the manufacture and supply of industrial batteries. During December 2007 the business was transferred to Redditch where it is now operating as a division of Steatite Limited. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: Fair value of assets acquired UN licences Property, plant and equipment Inventories Receivables Cash Payables Tax liabilities Consideration paid Cash Cost of acquisition Goodwill £ 9,800 256 20,371 120,000 176,009 (21,521) (12,055) _______ 292,860 _______ 577,048 47,671 ________ 624,719 ________ 331,859 ________ At 31st March 2008, £37,511 of the cash consideration remained outstanding. In all cases, apart from the UN licences, which were not recognised in the company records, the book value of assets and liabilities was the same as the fair values. The main factors leading to the recognition of goodwill are the anticipated synergistic cost savings resulting from the amalgamation of the business with the battery division of Steatite Limited. Since the acquisition date, RZ Pressure Instruments Supply SARL has contributed £4,265 to Group profit. It has not been practical to quantify the effect on Group profit if the acquisition date had been 1st April 2007 or the revenue of the combined entity on the same basis as the company did not have 31st March as an accounting reference date and did not produce periodic management accounts which could be used for this purpose. 27. RELATED PARTY DISCLOSURES The only related party disclosures for both the Group and the Company are stated in Note 6 and Note 12. 42  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 28. NOTES SUPPORTING CASH FLOW STATEMENT Cash and cash equivalents comprise: Cash available on demand Overdrafts 2008 £ 340,190 (803,721) _________ (463,531) _________ 2007 £ 84,466 (555,640) _________ (471,174) _________ Net increase/(decrease) in cash and cash equivalents 7,643 (537,493) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year There were no significant non-cash transactions. (471,174) _________ (463,531) _________ 66,319 _________ (471,174) _________ 43 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 29. SEGMENT INFORMATION The Group’s primary reporting format for segment information is business segments which reflect the management reporting structure in the Group. The distribution division includes Solid State Supplies Limited and the manufacturing division includes Wordsworth Technology Limited and Steatite Limited which incorporates RZ Pressure. Year ended 31st March 2008 Revenue External Intercompany Profit/(loss) before tax Balance sheet Assets Liabilities Net assets/(liabilities) Other Capital expenditure - Tangible fixed assets - Intangible fixed assets Depreciation, amortisation and other non cash expenses Distribution division £ Manufacturing division £ Head office £ Total £ 3,545,594 - ________ 3,545,594 ________ (78,374) ________ 1,605,438 (1,880,237) ________ (274,799) ________ 10,234 38,477 58,432 ________ 7,178,739 142,335 ________ 7,321,074 ________ 715,816 ________ 4,670,360 (1,502,307) ________ 3,168,053 ________ 57,076 341,659 88,582 ________ - - ________ 10,724,333 142,335 ________ - ________ 10,866,668 ________ (213,000) ________ 424,442 ________ - (293,375) ________ (293,375) ________ 6,275,798 (3,675,919) ________ 2,599,879 ________ - - 67,310 380,136 - ________ 147,014 ________ 44  Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 29. SEGMENT INFORMATION (continued) Year ended 31st March 2007 Revenue External Intercompany Profit/(loss) before tax Balance sheet Assets Liabilities Net assets/(liabilities) Other Capital expenditure - Tangible fixed assets - Intangible fixed assets Depreciation, amortisation and other non cash expenses Distribution division £ Manufacturing division £ Head office £ Total £ 3,719,661 - ________ 3,719,661 ________ 49,377 ________ 1,881,279 (1,794,900) ________ 86,379 ________ 131,750 - 71,805 ________ 8,650,243 436,717 ________ 9,086,960 ________ 684,793 ________ 3,821,439 (1,130,486) ________ 2,690,953 ________ - - ________ 12,369,904 436,717 ________ - ________ 12,806,621 ________ (178,000) ________ 556,170 ________ - (350,982) ________ (350,982) ________ 5,702,718 (3,276,368) ________ 2,426,350 ________ 57,058 - - - 188,808 - 155,282 ________ - ________ 227,087 ________ The Group’s secondary reporting format for reporting segment information is geographic segments. External revenue by location of customer Total assets by location of assets 2008 2007 2008 2007 United Kingdom Europe North America Asia Africa Australasia South America £ 9,951,944 561,843 100,175 92,002 12,589 5,780 - ________ £ 11,604,721 663,798 72,269 18,180 6,741 1,635 2,560 ________ £ £ 6,159,228 5,702,718 - - - - - - ________ ________ 116,570 - - - - - Net tangible capital expenditure by location of assets 2008 2007 £ 53,811 - - - - - - ________ £ 139,364 - - - - - - ________ 10,724,333 ________ 12,369,904 ________ 6,275,798 5,702,718 ________ ________ 53,811 ________ 139,364 ________ All the above relate to continuing operations. 45 Solid State PLC FIXED ASSETS Investments CURRENT ASSETS Debtors COMPANY BALANCE SHEET at 31st March 2008 Notes 2008 £ 2,464,056 _________ 2,464,056 4 5 6 7 8 9 9 9 2007 £ 1,879,474 ________ 1,879,474 118,810 ________ 1,991,284 217,998 ________ 1,773,286 ________ 307,826 756,980 4,674 703,806 ________ 1,773,286 ________ - ________ - 860,214 ________ 447,789 ________ 447,789 335,979 ________ (860,214) ________ 1,603,842 - ________ 1,603,842 ________ 307,826 756,980 4,674 534,362 ________ 1,603,842 ________ CREDITORS: Amounts falling due within one year NET CURRENT (LIABILITIES)/ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: Amounts falling due after more than one year NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Capital redemption reserve Profit and loss account SHAREHOLDERS’ FUNDS The financial statements were approved by the Board of Directors and authorised for issue on 8th September 2008. P Haining Director The notes on pages 47 to 50 form part of these financial statements. 46  Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2008 1. ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s financial statements. Basis of preparation The financial statements have been prepared in accordance with applicable UK accounting standards and under the historical cost convention. The accounts have been prepared on the going concern basis. Profit and loss account Under section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit and loss account. The loss for the year ended 31st March 2008 is disclosed in Note 9. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at closing rates of exchange. Investments in subsidiaries Investments in subsidiaries are stated at cost less amounts provided for impairment. Other financial liabilities Other financial liabilities include the following items: • Amounts owed by group undertakings and other creditors, which are recognised at amortised cost. • Bank borrowings are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liabilities carried in the balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Shared based payment Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the profit and loss account over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a change is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for factors to achieve a market vesting condition. Where the terms and conditions of options are modified before the vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the profit and loss account over the remaining vesting period. 2. STAFF COSTS Staff costs amounted £9,753 (2007: £7,633) and comprised the share based payment expense. There were 3 employees (2007: 3), all of whom were executive directors and none of whom received any remuneration from the Company. No other remuneration was paid by the Company and the Directors receive their remuneration from subsidiary companies. Details of directors’ emoluments are given in note 6 to the Group financial statements. 47 Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2008 3. SHARE BASED PAYMENT The Group operates an approved Enterprise Management Incentive Scheme whereby Mr G S Marsh and Mr J M Lavery have been granted options to purchase shares in Solid State PLC at a subscription price which was not less than the market value at the time the option was granted. The options in place at 31st March 2008 all have an exercise period of any time after one year from the date of the grant subject to the Group share price having equalled or exceeded 50p per share at the close of business on 20 consecutive business days. The options in place at 31st March 2007 comprised an option granted on 29th September 2003 to purchase 160,000 to Mr G S Marsh at an exercise price of 60.5p, an option granted on 1st July 2002 to purchase 80,000 to Mr J M Lavery at an exercise price of 60p and an option granted on 29 September 2003 to Mr J M Lavery to purchase 80,000 at an exercise price of 60.5p. All these options were cancelled on 22nd January 2008, when the new options were granted. In accordance with the transitional provisions of FRS 20, Share-based payment, the standard was applied retrospectively to grants of equity instruments after 7th November 2002 that were unvested as of 1st April 2005 and all liabilities for share based transactions existing at 1st April 2005. None of the options have been exercised since the scheme was put into place. Details of the current options are stated in Note 6 of the consolidated financial statements. The share-based remuneration expenses amounted to £9,753 for the year (2007: £7,633). The following information is relevant to the determination of the fair value of the options. The 2008 details relate to options that were granted during the year and the 2007 details relate to options which were in place at 31st March 2007 but were cancelled on 22nd January 2008. Equity settled share based payments Option pricing model used Weighted average share price at grant date Exercise price Weighted average contractual life Expected volatility Expected dividend growth rate Risk free interest rate 2008 2007 Binominal Tree 31.5p 31.5p 1.2 years Black - Scholes 60.5p 60.5p 4.0 years 78.52% - 4.31% 45.00% - 4.30% The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of daily share prices over the twelve months prior to the date of the grant. The market vesting conditions have been factored into the calculation by applying an appropriate discount to the fair value of equivalent share options without the specified vesting conditions. 48  Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 4. INVESTMENTS Company Cost 1st April 2007 Additions Disposals 31st March 2008 Net book value 31st March 2008 31st March 2007 Subsidiary undertakings Group undertakings £ 1,879,474 584,719 (137) ________ 2,464,056 ________ 2,464,056 ________ 1,879,474 ________ The principal undertakings in which the Company’s interest at the year end is 20% or more are as follows: Proportion of voting rights and Ordinary share capital held Nature of business Subsidiary undertakings Solid State Supplies Limited Steatite Limited Wordsworth Technology Limited RZ Pressure Instruments Supply SARL SSS Highway Technologies Limited 100% 100% 100% 100% 100% Distribution of electronic components Distribution of electronic components and manufacture of electronic equipment Distribution of industrial computing equipment and manufacture of electronic equipment Dormant Dormant In all cases the country of operation and of incorporation or registration is England apart from RZ Pressures Instruments Supply SARL which is incorporated in Switzerland. 5. DEBTORS Amounts owed by Group undertakings 6. CREDITORS: Amounts falling due within one year Bank loans (secured) Amounts owed to Group undertakings Other creditors 49 2008 £ - ________ 2008 £ 216,337 584,180 59,697 ________ 860,214 ________ 2007 £ 447,789 ________ 2007 £ 334,148 - 1,831 ________ 335,979 ________ Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2008 (continued) 7. CREDITORS: Amounts falling due after more than one year Bank loans (secured) 2008 £ - ______ 2007 £ 217,998 ______ There are two bank loans. The first was for £750,000 taken out in May 2002 and repayable by instalments over seven years. The second loan was for £500,000 taken out in August 2005 and repayable by instalments over three years. The loans are secured by a fixed and floating charge over the assets of the Company and the Group. The Company has guaranteed bank borrowings of its subsidiary undertakings, Solid State Supplies Limited, Steatite Limited and Wordsworth Technology Limited. At the year end the liabilities covered by those guarantees amounted to £803,721 (2007: £555,640). The Company accounts for guarantees provided to Group companies as insurance contracts, recognising a liability only to the extent that it is probable the guarantees will be called upon. 8. SHARE CAPITAL Authorised 9,000,000 ordinary shares of 5p each Allotted issued and fully paid 6,156,511 ordinary shares of 5p each 2008 £ 450,000 ________ 307,826 ________ 2007 £ 450,000 ________ 307,826 ________ An Enterprise Management Incentive Scheme was adopted by the Company in September 2000 and formally approved at an Extraordinary General Meeting on 12th December 2000. Details of options granted are set out in Note 6 of the Consolidated Accounts. At 31st March 2008 the number of shares covered by option agreements amounted to 634,920 (2007: 320,000). No options were exercised in the year (2007: nil). 9. RESERVES 1st April 2007 Loss for the year Add: Share based expense Dividend paid 31st March 2008 Share premium account Capital redemption reserve Profit and loss account 756,980 - _______ 756,980 - _______ 756,980 - ________ 756,980 ________ 4,674 - _____ 4,674 - _____ 4,674 - _____ 4,674 _____ 703,806 (9,893) _______ 693,913 9,753 _______ 703,666 (169,304) _______ 534,362 _______ The loss for the year comprises the share based expense and the loss on disposal of a dormant subsidiary. The cumulative amount of goodwill which has been eliminated against reserves at 31st March 2008 is £30,000 (2007: £30,000). 50  Solid State PLC NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the annual general meeting of Solid State PLC will be held at Unit 2, Eastlands Lane, Paddock Wood, Kent TN12 6BU on 30th October 2008 at 11.00am for the following purposes: (1) (2) (3) (4) (5) (6) (7) To pass the following resolution: That Article 88 of the Company’s Articles of Association be and is hereby deleted in its entirety. (Resolution 1) SPECIAL RESOLUTION ORDINARY RESOLUTIONS To receive and adopt the accounts for the year ended 31st March 2008, together with the reports of the Directors and auditors thereon. (Resolution 2) To declare a final dividend of 1.25p per share. (Resolution 3) To reappoint William George Marsh, who retires by rotation, as a Director of the Company in accordance with the Companies Articles of Association. (Resolution 4) To reappoint Lewis Cyril Ashby Newnham, who retires by rotation, as a Director of the Company in accordance with the Companies Articles of Association. (Resolution 5) To reappoint BDO Stoy Hayward LLP as auditors of the Company and to authorise the Directors to fix their remuneration. (Resolution 6) To pass the following resolution: That the Company is, pursuant to Section 166 of the Companies Act 1985, hereby generally and unconditionally authorised to make market purchases (within the meaning of Section 163 of the Companies Act 1985) of ordinary shares of 5p each in the capital of the Company (“ordinary shares”) provided that:- the minimum price which may be paid for the ordinary shares is 20p per ordinary share; i) ii) the maximum price which may be paid for the ordinary shares is £1.00 per ordinary share; iii) the authority hereby conferred shall expire after a period of 18 months from the passing of this resolution unless such authority is renewed prior to such expiry; the authority hereby conferred is in substitution for any existing authority to purchase ordinary shares under the said Section 166; the Company may make a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiry of such authority and may make a purchase or purchases of ordinary shares in pursuance of any such contract; and the maximum number of ordinary shares hereby authorised to be purchased by the Company does not exceed 15 per cent of the issued ordinary share capital of the Company at the date of the passing of this resolution. (Resolution 7) iv) vi) v) BY ORDER OF THE BOARD P Haining FCA Secretary 8th September 2008 Registered office: Unit 2, Eastlands Lane, Paddock Wood, Kent TN12 6BU NOTES: 1. Proxies Only holders of ordinary shares are entitled to attend and vote at this meeting. A member entitled to attend and vote may appoint a proxy or proxies who need not be a member of the Company to attend (and on a poll to vote) instead of him or her. Forms of proxy need to be deposited with the Company’s registrar, Capita Group plc, Balfour House, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not later than 48 hours before the time of the meeting. Completion of a form of proxy will not preclude a member attending and voting in person at the meeting. 2. Documents on Display The register of Directors’ interests in the share capital and debentures of the Company, together with copies of service agreements under which Directors of the Company are employed, are available for inspection at the Company’s registered office during normal business hours from the date of this notice until the date of the Annual General Meeting and will also be available for inspection at the place of the Annual General Meeting for at least 15 minutes prior to the meeting. 51 This page has been left blank intentionally 52 SOLID STATE PLC FORM OF PROXY Please read the notes below before completing the form. Any amendments to this form should be initialled by the signatory. I/We (name/(s) in full of address(es) being a member(s) of the above named company, hereby appoint the Chairman of the Meeting, or failing him as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at Unit 2, Eastlands Lane, Paddock Wood, Kent, TN12 6BU on Thursday 30th October 2008 at 11.00am and at any adjournment thereof. Resolution For Against 1. To remove the age limit on the appointment of directors. 2. To receive and adopt the accounts for the year ended 31st March 2008 together with the reports of the Directors and auditors thereon. 3. To declare a final dividend of 1.25p per share. 4. To re-appoint William George Marsh, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. 5. To re-appoint Lewis Cyril Ashby Newnham, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. 6. To re-appoint BDO Stoy Hayward LLP as auditors of the Company and to authorise the Directors to fix their remuneration. 7. To authorise the Company to purchase its own shares. Signature Notes Date 1. You may appoint one or more proxies of your own choice, if you are unable to attend the meeting but would like to vote. If such an appointment is made, delete the words “the Chairman of the Meeting” and insert the name(s) of the person or persons appointed as proxy/proxies in the space provided. A proxy need not be a member of the Company. If no name is entered above, the return of this form duly signed will authorise the Chairman of the meeting to act as your proxy. 2. In the case of a corporation, this form of proxy must be properly executed under the hand of its duly authorised officer or attorney or any other person authorised to sign on behalf of the corporation. 3. To be valid, this form must be deposited (together with any power of attorney or other authority under which it is signed or a notarially certified copy of such power or a copy certified in accordance with Powers of Attorney Act 1971 or in some other manner approved by the Directors), at Capita IRG plc, The Registry, 34 Beckenham Road, Kent BR3 4TU, not later than 48 hours before the time appointed for the Meeting. The completion and return of a form of proxy will not, however, preclude shareholders from attending and voting in person at the Meeting. 4. 5. If two or more persons are jointly entitled to a share conferring the right to vote, any one of them may vote at the Meeting either in person or by proxy, but if more than one joint holder be present at the Meeting either in person or by proxy the one whose name stands first in the Register of Members in respect of the joint holding shall alone be entitled to vote. In any event the names of all joint holders should be stated above. If this form is returned without any indication as to how the person(s) appointed shall vote on the resolutions, such persons(s) will exercise his/her/their discretion as to how to vote or whether to abstain from voting. Unless instructed other wise, the proxy may also vote or abstain from voting as he or she thinks fit on any other business, which may properly come before the meeting (including amendments to resolutions). Please return this form to: Capita IRG plc, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU 

Continue reading text version or see original annual report in PDF format above