Solid State PLC
Annual Report 2011

Plain-text annual report

Annual Report & Accounts 31 March 2011 Solid State PLC 1 CONTENTS Page 2 sresivdA dna yraterceS ,srotceriD 3 tnemetatS s’namriahC 5 tropeR ’srotceriD 11 srotiduA tnednepednI eht fo tropeR 21 emocnI evisneherpmoC fo tnemetatS detadilosnoC 31 ytiuqE ni segnahC fo tnemetatS detadilosnoC 41 noitisoP laicnaniF fo tnemetatS detadilosnoC 51 swolF hsaC fo tnemetatS detadilosnoC 71 stnemetatS laicnaniF eht ot setoN 84 gniteeM lareneG launnA fo ecitoNSolid State PLC 2 DIRECTORS, SECRETARY AND ADVISERS Directors: Peter Haining, FCA, Chairman ,hsraM nehpetS yraG Chief Executive Officer William George Marsh, Director John Michael Lavery, Director ,nebmoC dranoeL nodroG Director John Lawford Macmichael, Director ,ererF nairB ynohtnA Director Company Secretary and Peter Haining, FCA Registered Office: Solid State PLC 2 tinU enaL sdnaltsaE dooW kcoddaP UB6 21NT tneK Company Number: 00771335 Nominated Adviser: W H Ireland Limited eunevA notsloC 4 TS4 1SB lotsirB Broker: detimiL dnalerI H W eunevA notsloC 4 TS4 1SB lotsirB Auditors: Haysmacintyre esuoH xafriaF ecalP doowluF 51 YA6 V1CW nodnoL Solicitors: Thomson Snell & Passmore snedraG eladsnoL 3 slleW egdirbnuT XN1 1NT tneK Bankers: HSBC plc daoR yelselleW 9 nodyorC AA2 9RC yerruS Registrars: Capita Registrars Limited yrtsigeR ehT daoR mahnekceB 43 mahnekceB tneK UT4 3RB Country of Incorporation of Parent Company: Great Britain Legal Form: Public Limited Company Domicile: Great Britain Solid State PLC 3 CHAIRMAN’S STATEMENT Results I am very pleased to present a set of results which not only represent a record achievement across all key performance indicators but also illustrate a step change in our business and a validation of our growth strategy. Turnover increased 57% to £21.17m (2010: £13.51m) with profit before tax increasing 135% to £1.243m (2010: £0.53m). Underlying growth for the core business, excluding the recent Rugged Systems Ltd acquisition, grew 28% to £17.26m with profit before tax increasing to £1.142m, up 115%. Despite margin pressures resulting from broader economic conditions and the inevitable pressures from competitors, Group gross profit margins rose to 27.8% (2010: 27.0%). These results have been achieved despite significant activities and costs associated with the restructuring and relocation of existing business units and integration of recent acquisitions. This investment of time and capital establishes a sound base for the next stage of our growth. Dividends The Directors recommend that a final dividend of 4p per share be paid. An interim dividend of 2p per share was paid in January 2011 giving a total dividend in respect of the year of 6p per share (2010: 3p per share). The final dividend will be paid on 9th September 2011 to shareholders on the register at the close of business on 19th August 2011. The shares will go ex dividend on 17th August 2011. Business Review Solid State is a group of companies focussed on the supply and support of specialist electronics equipment which include high tolerance and tailor made battery packs, specialist electronic components and industrial/rugged computers. The market for Solid State’s products and services is driven by the need for custom electronic solutions to address complex needs, typically in harsh environments where enhanced durability and resistance to extreme and volatile temperatures is vital. Drivers in our markets include efficiency improvement, cost saving, environmental monitoring and safety. Divisional Review The key performance indicators measured by management are sales, bookings and gross profit margins. Bookings are sales orders received. Solid State Supplies Ltd Solid State Supplies is a distributor of specialist components to the UK OEM community, selling semiconductors, related components and modules for embedded processing, control and communications, power management and LED lighting. The financial year to 31st March 2011 saw the successful completion of the restructuring activities reported in previous statements. Year-on-year bookings growth of 46% and sales growth of 32% demonstrated a positive order to fulfilment ratio. This leaves Solid State Supplies with a very healthy forward order book which stood at £2.234m as at 31st March 2011. All of the Solid State Supplies key performance indicators outperformed those reported by the industry association Electronic Components Supply Network (formerly AFDEC). Despite continuing competition, gross margins held up well and closed at 27.3% (2010: 27.2%). The company returned to a sustainable net trading profit in the year. Solid State Supplies exits the year with a highly enthusiastic workforce and very much improved morale, all of which have contributed to the successful outturn of the period. Going forward, the company expects to see a moderation in the growth curve throughout 2011/12 as austerity measures begin to be implemented and their effects start to be seen. Despite being mindful of this trend, the company continues to plan for expansion both through increased sales on existing franchises, such as the extension to the Microsemi agreement in July 2011, and through the expansion of the franchises available. The market for specialist technical components continues to grow. Solid State Supplies remains optimistic that it will continue to expand its market share through dedicating its efforts exclusively to the sale and associated technical support of specialist electronic components. Solid State PLC 4 CHAIRMAN’S STATEMENT (continued) Rugged Systems Ltd Rugged Systems is the UK’s leading provider of rugged mobile computing solutions. In the first full year of trading since its acquisition in April 2010, sales have increased by 26% compared with the previous year and Rugged Systems has returned to profit. The reorganisation and the relocation of the business have also taken place over this period. Rugged Systems enters the next financial year with some notable contracts under negotiation and a good outstanding order book but remains alert to market conditions as this sector is the area most likely to be affected by spending reviews. From 1st April 2011, the assets and operations of Rugged Systems Ltd were transferred to Steatite Ltd where it will run as a separate division and retain its well recognised trading name. The focus of its business will be to deliver greater value added to its product offering thereby enhancing profit margins. The division is targeted at becoming the largest in its sector for the UK market place. Following the transfer Rugged Systems Ltd has become a dormant wholly owned subsidiary. Steatite Ltd Steatite designs, manufacturers and supplies a range of product solutions that include, battery packs, components and a full range of rugged notebooks, industrial computer hardware and software, with the ability to design and manufacture bespoke units to customers’ exact requirements. The accounts record a strong performance with sales increasing by 29% compared with the previous year. Both the battery and computer divisions performed well, increasing their sales and exceeding margin expectations while outperforming the industry sector. Given the tragic events of the natural disaster in Japan, to avoid any supply risk, we had to significantly increase stock of certain components to help ensure we met customer delivery requirements. This stock increase is reflected in the year-end inventory level. The relocation of the business was completed during the December shutdown and was fully operational from the beginning of the new calendar year. This substantial new facility will enable Steatite to further enhance its product offering and capability to its customer base. Prospects for the year ahead remain positive with a healthy outstanding order book. However, general market conditions remain uncertain as the true extent of government expenditure cuts hit all areas of the UK economy. This will almost certainly impact the double digit growth that Steatite has achieved over the last three years. Renewal of authority to purchase the Company’s shares and new authorities to issue 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 at the end 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 1,018,715 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 5p and the maximum price will be determined by reference to current market prices. 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. Resolutions are also being proposed at the Annual General Meeting with regard to the issue of further shares. One resolution will authorise the company to issue new shares up to a third of the current issued share capital by way of a rights issue and the second resolution will authorise the company to issue new shares up to 20% of the current issued share capital without rights of pre-emption for existing shareholders, and to the extent that new shares are issued under the second resolution the limit on the first resolution will be reduced such that the total number of new shares issued cannot exceed one third of the current share capital. Solid State PLC 5 CHAIRMAN’S STATEMENT (continued) Your Directors consider that the resolutions to be proposed at the meeting are 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 4,316,989 Ordinary shares, representing 63.6% of the Company’s issued Ordinary share capital. Outlook Solid State differentiates itself from its competitors through the in-depth technical knowledge of its engineers. Manufacturers recognise the benefit to both themselves and the ultimate customers of this consultative and comprehensive approach to the use of specialist products, particularly in the design of bespoke electronic solutions. This ability to work closely with customers acts to attract both new franchises and new clients. We are confident of the organic growth opportunities of this approach, which is distinct in our market. We enter the new financial year with a record order book and whilst trading conditions are a little more uncertain than this time last year, our strong project pipeline means that we look forward with optimism to the new financial year. The first quarter of the new fiscal year has seen an increase in both revenues and profitability compared to the same period last year, despite the slowdown in the pace of growth of manufacturing in the UK and the implementation of the Government’s austerity measures. With the extension to our franchise agreement with Microsemi, coupled with the potential for several major new contracts in our computer division, the Board remains confident that the step change in profitability achieved last year can be sustained and developed in the new financial year. As stated previously, we continue to seek further complementary acquisition opportunities in the UK electronics industry. Finally, I would like to thank my fellow Directors and all the staff for their continued support in what has been an outstanding year for the Group. Peter Haining Chairman 27th July 2011 Solid State PLC 6 DIRECTORS’ REPORT For the year ended 31st March 2011 The Directors submit their report together with the audited financial statements of the Group in respect of the year ended 31st March 2011. Principal Activities, Review of the Business and Future Developments The principal activities of the Group during the year continued to be those of the manufacturing of electronic equipment and the distribution of electronic components and materials. The key performance indicators recognised by management are sales, bookings and group profit margins. Bookings are sales orders received. An overall review of the Group’s trading performance and future developments is given in the Chairman’s Statement. The principal risks faced by the Group are foreign currency risk, liquidity risk and credit risk. Foreign currency risk primarily relates to the US dollar: Sterling exchange rate and although much progress has been made in recent years in converting the sales currency into line with the purchase currency on any contract, the Group still has purchases in dollars which are considerably in excess of the sales made in dollars. In the year under review the Group purchased US$6,725,000. The risk is managed by way of using forward purchase contracts to cover much of the required dollar purchases and spot purchases to buy the balance of the dollars enabling the Group to take advantage of short term exchange rate fluctuations. In addition, the extent of dollar holdings by the Group is minimised to avoid unnecessary exposure to losses in the event of the decline of the dollar against sterling. The nature of the business means that cash flow requirements fluctuate very significantly with some large contracts requiring significant funding in the short term. Invoice discounting is used as a source of funding on trade debtors in Steatite Limited and Rugged Systems Limited, but in addition the Group has an overdraft facility of £1m, about to rise to £1.5m, to ensure that facilities are always available to progress contracts, including circumstances where the contract has been awarded close to the date of commencement and advance payments to suppliers are required. Credit risk arises as the vast majority of sales are on credit terms, and the recent increase in turnover has led to trade receivables rising from £2,489,507 at the start of the year under review to £3,876,414 at the end of the year. However it is Group policy that all new customers are assessed for their credit risk before any binding contracts are entered into and all existing accounts are reviewed at least once a year. In the year under review bad debts written off have amounted to less than 0.03% of the turnover. One major decision taken during the year was to move the Steatite and Rugged Systems operation into larger premises at Redditch, a move which has resulted in significant increases in overhead levels as well as the non-recurring relocation costs. However, the decision was taken on the basis of the need for further space as the previous premises would have inhibited further growth of this business. In taking this decision the directors were mindful of the likely effects of government reductions particularly on military expenditure, but the policy of looking for business outside that sector has resulted in a wider range of turnover and already the new premises are coping with a level of activity which would have been impractical in the previous premises. The Group finances its operations by a mixture of retained profits, bank borrowings and invoice discounting facilities. The directors are pleased to note that the net tangible assets of the Group have increased during the year under review by almost £400,000 and since the end of the year further shares have been issued under share option agreements which have raised a further £200,000 of finance. The Group does not comment on environmental matters. The Group continues to look for suitable UK acquisitions within the electronics industry. Solid State PLC 7 DIRECTORS’ REPORT For the year ended 31st March 2011 (continued) Results and Dividends The consolidated statement of comprehensive income is set out on page 12. The Directors recommend that a final dividend of 4p per share is paid. The total dividend for the year is thus 6p per share. The final dividend will be paid on 9th September 2011 to shareholders on the register at the close of business on 19th August 2011. Directors The Directors of the Company during the year were: P Haining FCA G S Marsh W G Marsh J M Lavery G L Comben J L Macmichael A B Frere L C A Newnham served as a director until his resignation on 31st December 2010. Peter Haining FCA, (dob 05/09/1956), 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. 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. Gary Marsh, (dob 27/04/1966), Chief Executive Officer Gary Marsh joined the Company in 1986 having gained an HND in Business and Finance Studies. He has held various positions within the Group including that of Operations Director of Solid State Supplies prior to his appointment as its Managing Director in 1997. In addition to this role, Gary Marsh was appointed Group Managing Director in 2002 following the acquisition of Steatite. In 2011 following the acquisition of Rugged Systems Ltd he was appointed Chief Executive Officer of the Group. William Marsh, (dob 23/07/1937), Director Educated at Kingston-upon-Thames Technical College, Bill Marsh started work at Hackbridge Transformers in 1954 as a Student Apprentice. In 1960, having gained an HNC qualification in electrical/electronic engineering he joined the Royal Air Force as an Air Radar Fitter. In 1962 he joined Hewittic Rectifiers where he worked as a Design Engineer and later as a Contracts Engineer. In 1968 Bill joined International Rectifier as an Area Sales Manager, rising to the position of General Sales Manager (Northern Europe). In 1974 he joined Solid State Supplies as Managing Director until he stepped down in 1997. Following a spell as Company Chairman he has continued to serve on the Board of Directors. John Lavery, (dob 06/05/1961), Director John Lavery is an apprenticed trained engineer in Electronics Communications. He moved into Sales in the 1980’s with Steatite before being appointed to The Board of Directors at the age of 28.He has held positions of Director of Sales and Marketing after a years training with the Institute of Directors for Corporate Governance, before being appointed Managing Director of Steatite in 1999. He presently runs the operations of both Steatite and Wordsworth on behalf of Solid State plc. John Macmichael, (dob 20/04/1961), Director John Macmichael is an electronics and communications graduate whose career has encompassed design and development through applications engineering, sales, sales management and general business management. John has gained extensive management experience of multiple sales channels with distributors and OEMs both here in the UK and worldwide through his international sales management role whilst living in the USA. Formerly managing director of Breckenridge Technologies Limited John joined Solid State Supplies Limited in 2006 before being appointed managing director in April 2011. Gordon Comben, (dob 09/09/1939), Non-executive Director Gordon Comben trained as radio officer and after leaving the merchant navy worked in the electronics industry with Plessey, Texas Instruments, Philips and International Rectifier. In 1971 he founded Solid State Supplies and has been employed in various roles including Company Chairman. He is currently a Non-executive Director of the Company. Solid State PLC 8 DIRECTORS’ REPORT For the year ended 31st March 2011 (continued) Tony Frere (dob 15/10/1947) Non-executive Director Tony Frere has been in the Electronics Industry for 40 years, 30 of which serving the component distribution sector. Former directorships include Managing Director of DT Electronics and Nu Horizons Electronics. Currently a member of the Institute of Directors and sitting on the executive council of the ECSN (the electronic component supply network trade association). Details of the interests of Directors in the shares of the Company and Directors’ service contracts are stated in Note 5 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 W G Marsh and A B Frere, 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 G L Comben, A B Frere 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 four executive Directors and three 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 1st September 2010. This authority expires on 1st March 2012. Financial Instruments Details of the use of financial instruments by the Company and its subsidiaries are contained in Note 19 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. Solid State PLC 9 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 group, 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 2006. The Directors are responsible for preparing the annual report and financial statements in accordance with the Companies Act 2006. 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: (cid:129) consistently select and apply appropriate accounting policies; (cid:129) present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and (cid:129) 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. 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: (cid:129) select suitable accounting policies and then apply them consistently. (cid:129) prepare financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. (cid:129) make judgements and estimates that are reasonable and prudent. (cid:129) 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 2011 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 50 days (2010: 56 days). DIRECTORS’ REPORT For the year ended 31st March 2011 (continued) Solid State PLC 10 DIRECTORS’ REPORT For the year ended 31st March 2011 (continued) 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 haysmacintyre as auditors will be proposed at the next annual general meeting. By order of the Board P Haining FCA Secretary 27th July 2011 Registered Office: Unit 2, Eastlands Lane, Paddock Wood, Kent, TN12 6BU Solid State PLC 11 REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF SOLID STATE PLC We have audited the financial statements of Solid State PLC for the year ended 31st March 2011 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom GAAP). This report is made solely to the company’s members, as a body, in accordance with Section 495 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on pages 9 and 10, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors’ Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: (cid:129) the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2011 and the group’s profit for the year then ended; (cid:129) the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; (cid:129) the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and (cid:129) the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: (cid:129) adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches visited by us; or (cid:129) the parent company financial statements are not in agreement with the accounting records and returns; or (cid:129) certain disclosures of directors’ remuneration specified by law are not made; or (cid:129) we have not received all the information and explanations we require for our audit. David Cox (Senior statutory auditor) Fairfax House for and on behalf of haysmacintyre, Statutory Auditor 15 Fulwood Place 27th July 2011 London WC1V 6AY Solid State PLC The notes on pages 17 to 47 form part of these financial statements. 12 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31st March 2011 2011 2010 setoN £ £ 321,905,31 803,961,12 2 euneveR)731,568,9( )846,282,51( selas fo tsoC _________ _________ 689,346,3 066,688,5 TIFORP SSORG )254,133,1( )955,448,1( stsoc noitubirtsiD)250,067,1( )555,547,2( sesnepxe evitartsinimdA _________ _________ 284,255 645,692,1 3 SNOITAREPO MORF TIFORP )796,22( )051,35( 6 stsoc ecnaniF _________ _________ 587,925 693,342,1 NOITAXAT EROFEB TIFORP )051,421( )219,472( 7 esnepxe xaT _________ _________ YTIUQE OT ELBATUBIRTTA TIFORP536,504 484,869 TNERAP EHT FO SREDLOH _________ _________ OTHER COMPREHENSIVE INCOME/(EXPENSE) 4,708 (3,000) Translation differences on overseas operations _________ _________ TOTAL COMPREHENSIVE INCOME FOR THE YEAR 973,192 402,635 _________ _________ ERAHS REP SGNINRAE p6.6 p7.51 8 cisaBp6.6 p0.51 8 detuliD Solid State PLC The notes on pages 17 to 47 form part of these financial statements. 13 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31st March 2011 ngieroF latipaC erahS deniateR egnahcxE noitpmedeR muimerP erahS evreseR evreseR latipaC Reserve Earnings Total Balance at 31st March 2009 307,826 756,980 4,674 58,126 1,837,390 2,964,996 Total comprehensive income For the year ended 31st March 2010 - - - (3,000) 405,635 402,635 Share based payment expense - - - - 12,546 12,546 )596,481( )596,481( - - - - sdnediviD _______ _______ _______ _______ _______ _______ Balance at 31st March 2010 307,826 756,980 4,674 55,126 2,070,876 3,195,482 Total comprehensive income For the year ended 31st March 2011 - - - 4,708 968,484 973,192 Share based payment expense - - - - 16,188 16,188 )062,642( )062,642( - - - - sdnediviD _______ _______ _______ _______ _______ _______ Balance at 31st March 2011 307,826 756,980 4,674 59,834 2,809,288 3,938,602 _______ _______ _______ _______ _______ _______ Solid State PLC The notes on pages 17 to 47 form part of these financial statements. 14 CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 31st March 2011 2011 2010 setoN £ £ £ £ STESSA STESSA TNERRUC-NON 448,992 657,316 01 tnempiuqe dna tnalp ,ytreporP 649,820,2 816,473,2 11 stessa elbignatnI ________ ________ TOTAL NON-CURRENT ASSETS 2,988,374 2,328,790 STESSA TNERRUC 025,787,1 276,567,2 41 seirotnevnI 783,265,2 396,412,4 51 selbaviecer rehto dna edarT 538,343 300,37 stnelaviuqe hsac dna hsaC ________ ________ 247,396,4 863,350,7 STESSA TNERRUC LATOT ________ ________ 235,220,7 247,140,01 STESSA LATOT ________ ________ SEITILIBAIL SEITILIBAIL TNERRUC 726,164 232,184 tfardrevo knaB 288,271,2 021,119,3 61 selbayap rehto dna edarT 307,360,1 469,481,1 71 sgniworrob knaB 418,811 628,852 seitilibail xat noitaroproC ________ ________ TOTAL CURRENT LIABILITIES 5,836,142 3,817,026 NON CURRENT LIABILITIES - 000,002 81 sgniworroB 420,01 899,66 02 ytilibail xat derrefeD ________ ________ TOTAL NON-CURRENT LIABILITIES 266,998 10,024 ________ ________ 050,728,3 041,301,6 SEITILIBAIL LATOT ________ ________ 284,591,3 206,839,3 STESSA TEN LATOT ________ ________ CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY TNERAP EHT FO SREDLOH 628,703 628,703 12 latipac erahS 089,657 089,657 22 evreser muimerp erahS 476,4 476,4 22 evreser noitpmeder latipaC 621,55 438,95 22 evreser egnahcxe ngieroF 678,070,2 882,908,2 22 sgninrae deniateR ________ ________ 284,591,3 206,839,3 YTIUQE LATOT ________ ________ The financial statements were approved by the Board of Directors and authorised for issue on 27th July 2011 and were signed on its behalf by: P. Haining G S Marsh Director Director Solid State PLC The notes on pages 17 to 47 form part of these financial statements. 15 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31st March 2011 2011 2010 £ £ £ £ SEITIVITCA GNITAREPO 587,925 693,342,1 noitaxat erofeb tiforP :rof stnemtsujdA 929,88 391,311 noitaicerpeD 596,7 080,22 noitasitromA(Profit)/Loss on disposal of property, plant and equipment (6,179) 4,928 645,21 881,61 esnepxe tnemyap desab erahS 796,22 051,35 stsoc ecnaniF _______ _______ segnahc erofeb snoitarepo morf tiforP 085,666 828,144,1 snoisivorp dna latipac gnikrow ni )194,332( )055,638( seirotnevni ni )esaercnI((Increase) in trade and other receivables (1,268,263) (342,513) Increase in trade and other payables 1,216,980 334,117 ________ ________ )788,142( )338,788( _______ _______ 396,424 599,355 snoitarepo morf detareneg hsaC )289,321( )934,411( diap sexat emocnI _______ _______ )289,321( )934,411( _______ _______ 117,003 655,934 seitivitca gnitarepo morf wolf hsaC SEITIVITCA GNITSEVNIPurchase of property, plant and equipment (483,553) (158,014) )538,3( )777,31( erawtfos retupmoc fo esahcruPProceeds of sales from property, plant and equipment 70,466 53,558 Consideration paid on acquisition of subsidiary (225,263) - Cash within subsidiary over which control has - 825,751 deniatbo neeb _______ _______ )192,801( )995,494( _______ _______ 024,291 )340,55( SEITIVITCA GNICNANIF - 000,002 deviecer naol mret muideM - )009,552( gnirotcaf tbed fo tnemyapeR - )350,6( esael ecnanif fo tnemyapeRInvoice discounting finance (net movement) 121,261 351,664 )796,22( )051,35( diap tseretnIDividend paid to equity shareholders (246,260) (184,695) _______ _______ 272,441 )201,042( _______ _______ (DECREASE)/INCREASE IN CASH AND CASH 296,633 )541,592( STNELAVIUQE _______ _______ Solid State PLC 16 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31st March 2011 (continued) Cash and cash equivalents comprise: 2011 2010 £ £ 296,633 )541,592( stnelaviuqe hsac dna hsac ni esaercni/)esaerced( teN )484,154( )297,711( raey fo gninnigeb ta stnelaviuqe hsac dna hsaC )000,3( 807,4 stnelaviuqe hsac dna hsac no sniag egnahcxE _______ _______ )297,711( )922,804( raey fo dne ta stnelaviuqe hsac dna hsaC _______ _______ There were no significant non-cash transactions. 2011 2010 £ £ 538,343 300,37 dnamed no elbaliava hsaC )726,164( )232,184( stfardrevO _______ _______ )297,711( )922,804( _______ _______ Solid State PLC 17 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS 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 2006 applicable to companies preparing their accounts under IFRSs. The consolidated financial statements have been prepared under the historical cost convention. 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. 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 statement of comprehensive income 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. 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 statement of comprehensive income, except to the extent that they reverse gains previously recognised in the consolidated statement of recognised income and expense. An impairment loss recognised for goodwill is not reversed. Solid State PLC 18 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. 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 statement of comprehensive income. Software is amortised over its useful economic life of 5 years. 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. Depreciation is provided on all items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Short leasehold property improvements- straight line over minimum life of lease Fittings and equipment- 25% per annum on a reducing balance basis Computers- 20% per annum on a straight line basis Motor vehicles- 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 statement of comprehensive income 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. NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 19 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (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: (cid:129) the initial recognition of goodwill (cid:129) 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 (cid:129) 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 retranslated at the rates ruling at the balance sheet date. Exchange differences arising are recognised in the statement of comprehensive income. On consolidation, the statement of financial position of overseas operations are translated into sterling at rates approximating to those ruling at the statement of financial position 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: (cid:129) it is technically feasible to develop the product for it to be sold; (cid:129) adequate resources are available to complete the development; (cid:129) there is an intention to complete and sell the product; (cid:129) the Group is able to sell the product; (cid:129) sale of the product will generate future economic benefits; and (cid:129) 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 statement of comprehensive income. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the statement of comprehensive income as incurred. None of the development costs during the years ended 31st March 2010 and 31st March 2011 met the conditions necessary for capitalisation. Solid State PLC 20 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 statement of financial position at fair value with changes in fair value recognised in the statement of comprehensive income. Other than derivatives, 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 liability 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 statement of financial position at fair value with changes in fair value recognised in the statement of comprehensive income. Other financial liabilities: Other financial liabilities include the following items: (cid:129) Trade payables and other short term monetary liabilities, which are recognised at amortised cost. (cid:129) 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 statement of financial position “Interest expense” in this context includes initial transaction costs and premia payable on redemption, as well as any interest while the liability is outstanding. NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 21 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (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 statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each statement of financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period. Standards and 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 2013 or later periods and which the group has decided not to adopt early are: IFRS 9 Financial Instruments (effective for accounting periods beginning or after 1st January 2013). IFRS 9 introduces new requirements for classifying and measuring financial assets and liabilities. IFRS 10 Consolidated Financial Statements (effective for accounting periods beginning on or after 1st January 2013). IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more entities. IFRS 11 Joint Arrangements (effective for accounting periods beginning on or after 1st January 2013). IFRS 11 focuses on the rights and obligations of joint arrangements, rather than its legal form. IFRS 12 Disclosure of Interests in Other Entities (effective for accounting periods beginning on or after 1st January 2013). IFRS 12 introduces new disclosure requirements for all forms of interests in other entities including subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 13 Fair Value Measurement (effective for accounting periods beginning on or after 1st January 2013). IFRS 10 establishes a single framework for all fair value measurements when fair value is required or permitted by IFRS. The implementation of these standards is not expected to have any material effect on the Group’s financial statements. REVENUE2. Revenue arises from: 2011 2010 £ £ 957,044,31 587,570,12 sdoog fo elaS 463,86 325,39 secivres fo noisivorP _________ _________ 321,905,31 803,961,12 _________ _________ Solid State PLC 22 3. PROFIT FROM OPERATIONS This has been arrived at after charging/(crediting): 2011 2010 £ £ 538,111,2 571,020,3 )4 eton ees( stsoc ffatS 000,5 011,87 )stsoc ffats ni dedulcni( stsoc noitanimret tnemyolpmE 929,88 391,311 tnempiuqe dna tnalp ,ytreporp fo noitaicerpeD 596,7 080,22 erawtfos retupmoc fo noitasitromA(Profit)/loss on disposal of property, plant and equipment (6,179) 4,928 - - egrahc tnemriapmi lliwdooG :noitarenumer ’srotiduA 000,1 000,1 seef tiduAAudit of accounts of associates of the company pursuant to legislation 35,002 26,395 :slatner esael gnitarepO 661,92 569,12 yrenihcam dna tnalP 108,301 771,241 rehtO 164,78 216,411 stsoc tnempoleved dna hcraeseR )846,721( )728,212( secnereffid egnahcxe ngieroF 000,131 000,261 snwod etirw kcotS _______ _______ The foreign exchange differences have been treated as a reduction in cost of sales rather than as a negative overhead. 4. STAFF COSTS Staff costs for all employees during the year, including the executive Directors, were as follows: 2011 2010 £ £ 295,219,1 379,176,2 seiralas dna segaW 004,791 466,882 stsoc ytiruces laicoS 348,1 835,95 stsoc noisnep rehtO ________ ________ 538,111,2 571,020,3 ________ ________ Wages and salaries include termination costs of £78,110 (2010: £5,000) The average monthly number of employees during the year, including the three executive Directors, was as follows: 2011 2010 Number Number 32 92 noitubirtsid dna gnilleS 91 02 gnirutcafunaM 42 82 noitartsinimda dna tnemeganaM __ __ 66 77 __ __ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 23 Salary Fees Benefits in kind Total emoluments Pension contributions Share based payments Total £ £ £ £ £ £ £ 31st March 2011 Executive Directors W G Marsh 12,000 - 5,000 17,000 - - 17,000 G S Marsh 210,000 - 12,000 222,000 - 6,000 228,000 J M Lavery 165,000 - 16,000 181,000 48,000 6,000 235,000 J L Macmichael 80,000 - 10,000 90,000 - 4,000 94,000 Non-executive Directors 000,51 - - 000,51 - 000,51 - gniniaH PL C A Newnham 9,000 - - 9,000 - - 9,000 G L Comben 6,000 - 13,000 19,000 - - 19,000 A B Frere 15,000 - - 15,000 - - 15,000 ______ ______ ______ ______ ______ ______ ______ Total 497,000 15,000 56,000 568,000 48,000 16,000 632,000 ______ ______ ______ ______ ______ ______ ______ 31st March 2010 Executive Directors W G Marsh 12,000 - 5,000 17,000 - - 17,000 G S Marsh 107,000 - 11,000 118,000 - 6,000 124,000 J M Lavery 107,000 - 15,000 122,000 2,000 6,000 130,000 Non-executive Directors 000,21 - - 000,21 - 000,21 - gniniaH PL C A Newnham G L Comben 12,000 12,000 - - - 5,000 12,000 17,000 - - - - 12,000 17,000 ______ ______ ______ ______ ______ ______ ______ Total 250,000 12,000 36,000 298,000 2,000 12,000 312,000 ______ ______ ______ ______ ______ ______ ______ The executive Directors waived their entitlement to emoluments during the year as follows: 0102 1102 £ £ 000,42 000,42 hsraM G W ______ ______ The principal benefits in kind relate to the provision of company cars. In addition to the above, fees totalling £56,000 (2010: £50,895) 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 £14,472 (2010: £11,574) was due to The Kings Mill Partnership at 31st March 2011. NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 5. DIRECTORS’ EMOLUMENTS, INTERESTS AND SERVICES CONTRACTS The value of all elements of remuneration received by each Director in the year was as follows: Solid State PLC 24 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 5. DIRECTORS’ EMOLUMENTS, INTERESTS AND SERVICES CONTRACTS (continued) The four 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 27th July 2011 and at the statement of financial position date, and their interest in the issued ordinary share capital of the Company at that date, at 31st March 2011 and 31st March 2010 or date of appointment if later, were as follows: 27.07.11 31.03.11 31.03.10 606,727,2 601,517,2 000,000,2 nebmoC L G 005,007,1 000,886,1 000,884,1 hsraM G W 386,37 907,37 961,193 hsraM S G 428 068 023,813 yrevaL M J 005,21 005,21 005,25 gniniaH P - - 000,11 leahcimcaM L J - - 000,65 ererF B A Details of the options over the Company’s shares granted under the Enterprise Management Incentives Scheme are as follows: snoitpO snoitpO esicrexE fo etaD esicrexE ta dleh ta dleh doirep tnarg ecirp 11.30.13 detnarG despaL 01.40.10 G S Marsh 317,460 - - 317,460 31.5p 22.01.08 Jan 2010 onwards J M Lavery 317,460 - - 317,460 31.5p 22.01.08 Jan 2010 onwards J L Macmichael - - 60,000 60,000 62p 23.12.10 Dec 2011 onwards The market price of the shares at 31st March 2011 was 99p (2010: 37.5p), with a quoted range during the year of 37.5p to £1.01. No director exercised any share options during the year, or in the prior year. Since the balance sheet date, G S Marsh and J M Lavery have fully exercised their options and on 10th May 2011 each received further options under the scheme over 120,603 shares at an exercise price of 99.5p per share, exercisable subject to certain performance criteria being met between May 2012 and March 2016. On 1st April 2011, further share options under the Scheme were granted to J L Macmichael. These options are over 88,085 shares at an exercise price of 94p per share, exercisable subject to certain performance criteria being met at any time from April 2012. Solid State PLC 25 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 6. FINANCE COSTS 2011 2010 £ £ 565,11 142,81 sgniworrob knaB 474,01 440,12 tseretni gnitnuocsid eciovnI 856 568,31 tseretni rehtO ______ ______ 53,150 22,697 ______ ______ Other interest includes £8,798 (2010: £nil) to G L Comben and £2,850 (2010: £nil) to W G Marsh in respect of their unsecured loans to the group. Further details of these loans are stated in Note 18 on page 31. 7.TAX EXPENSE 2011 2010 £ £ Current tax expense UK corporation tax and income tax of overseas operations on 418,811 628,852 raey eht rof sessol ro stiforp )886,4( )573,4( sdoirep roirp fo tcepser ni tnemtsujdA ______ ______ 254,451 114,126 Deferred tax expense 20,461 10,024 _______ _______ Total tax charge 274,912 124,150 _______ _______ The deferred tax expense has been reduced by £5,139 (2010: £nil) as a result of the reduction in the applicable rate of corporation tax from 28% to 26%. The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to profits for the year are as follows: 2011 2010 £ £ 587,925 693,342,1 xat erofeb tiforP _______ _______ Expected tax charge based on the standard rate of corporation tax in the UK of 28% (2010 – 28%) 348,151 148,340 Effect of: 535,8 875,11 sesoprup xat rof elbitcuded ton sesnepxE Deductible expenses not charged in Group accounts (9,649) (9,649) Difference between depreciation for the year and capital allowances 1,065 1,225 - )594,64( sessol xat fo noitasilitU )642,1( )592,1( feiler lanigraM Enhanced relief on research and development expenditure (24,068) (18,367) Adjustment to enhanced relief on research and development )886,4( )573,4( raey roirp ni erutidnepxe _______ _______ 051,421 219,472 egrahc xat latoT _______ _______ Solid State PLC 26 8. EARNINGS PER SHARE The earnings per share is based on the following: 2011 2010 £ £ 536,504 484,869 sgninraE _______ _______ 115,651,6 115,651,6 serahs fo rebmun egareva dethgieW 115,651,6 843,444,6 serahs fo rebmun detuliD p6.6 p7.51 erahs rep sgninraE p6.6 p0.51 erahs rep sgninrae detuliD 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(2010: 6,156,511). The Diluted earnings per share is based on 6,444,348 (2010: 6,156,511) ordinary shares which allow for the exercise of all dilutive potential ordinary shares. In the prior year, certain employee options were not included in the calculation of diluted EPS because their exercise was contingent on the satisfaction of certain criteria that had not been met at the end of the year. In addition, certain employee options were also excluded from the calculation of diluted EPS as their exercise price was 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 share options which have not been included in the calculation of the weighted average number of shares was 60,000 (2010: 634,920). 9. DIVIDENDS 2011 2010 £ £ Final dividend paid for the prior year of 2p per share (2010: 2p) 123,130 123,130 565,16 031,321 )p1 :0102( erahs rep p2 fo diap dnedivid miretnI _______ _______ 246,260 184,695 _______ _______ Final dividend proposed for the year 4p per share (2010: 2p) 271,657 123,130 ______ _______ The proposed final dividend has not been accrued for as the dividend was declared after the statement of financial position date. NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 27 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 10. PROPERTY, PLANT AND EQUIPMENT trohS sgnittiF dlohesael dna tnempiuqe rotoM ytreporp latoT sretupmoc selcihev stnemevorpmi £ £ £ £ Year ended 31st March 2010 tsoC 273,364,1 316,898 385,903 671,552 9002 lirpA ts1 110,851 255,52 954,231 - snoitiddA )369,241( - )369,241( - slasopsiD ________ _______ _______ _______ 024,874,1 561,429 970,992 671,552 0102 hcraM ts13 ________ _______ _______ _______ noitaicerpeD 421,471,1 036,887 813,031 671,552 9002 lirpA ts1 929,88 419,73 510,15 - raey eht rof egrahC )774,48( - )774,48( - lasopsid nO ________ _______ _______ _______ 675,871,1 445,628 658,69 671,552 0102 hcraM ts13 ________ _______ _______ _______ eulav koob teN 448,992 126,79 322,202 - 0102 hcraM ts13 ________ _______ _______ _______ Year ended 31st March 2011 tsoC 024,874,1 561,429 970,992 671,552 0102 lirpA ts1 355,384 930,05 381,432 133,991 snoitiddA 938,7 938,7 - - yraidisbus fo noitisiuqcA)802,393( )008,2( )232,531( )671,552( slasopsiD ________ _______ _______ _______ 406,675,1 342,979 030,893 133,991 1102 hcraM ts13 ________ _______ _______ _______ noitaicerpeD 675,871,1 445,628 658,69 671,552 0102 lirpA ts1 391,311 755,93 461,56 274,8 raey eht rof egrahC )129,823( )069,1( )587,17( )671,552( lasopsid nO ________ _______ _______ _______ 848,269 141,468 532,09 274,8 1102 hcraM ts13 ________ _______ _______ _______ eulav koob teN 657,316 201,511 597,703 958,091 1102 hcraM ts13 ________ _______ _______ _______ At 31st March 2011 the Group was committed to purchase a motor vehicle at a cost of £42,627. There were no capital commitments at 31st March 2010. Solid State PLC 28 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 12. INTANGIBLE ASSETS Other elbignatni no lliwdooG retupmoC NU latoT stessa noitadilosnoc erawtfos secneciL £ £ £ £ £ Year ended 31st March 2010 1st April 2009 9,800 38,477 1,992,737 - 2,041,014 538,3 - - 538,3 - snoitiddA ________ _______ ________ ______ _____ 31st March 2010 9,800 42,312 1,992,737 - 2,044,849 ________ _______ ________ ______ _____ noitasitromA 802,8 - - 802,8 - 9002 lirpA ts1Charge for the year - 7,695 - - 7,695 ________ _______ ________ ______ _____ 31st March 2010 - 15,903 - - 15,903 ________ _______ ________ ______ _____ eulav koob teN31st March 2010 9,800 26,409 1,992,737 - 2,028,946 ________ _______ ________ ______ _____ Year ended 31st March 2011 tsoC1st April 2010 9,800 42,312 1,992,737 - 2,044,849 777,31 - - 777,31 - snoitiddAAcquisition of subsidiary - - 213,541 140,434 353,975 ________ _______ ________ ______ _____ 31st March 2011 9,800 56,089 2,206,278 140,434 2,412,601 ________ _______ ________ ______ _____ noitasitromA 309,51 - - 309,51 - 0102 lirpA ts1Charge for the year - 8,037 - 14,043 22,080 ________ _______ ________ ______ _____ 31st March 2011 - 23,940 - 14,043 37,983 ________ _______ ________ ______ _____ eulav koob teN31st March 2011 9,800 32,149 2,206,278 126,391 2,374,618 ________ _______ ________ ______ _____ Other intangible assets comprise the estimated net present value of customer relationships of Rugged Systems Limited at the date of acquisition. Solid State PLC 29 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 12. GOODWILL AND IMPAIRMENT Details of the carrying amount of goodwill allocated to cash generating units (CGUs) is as follows: tnuoma gniyrrac lliwdooG 2011 2010 £ £ 737,299,1 737,299,1 detimiL etitaetS - 145,312 detimiL smetsyS degguR ________ ________ 2,206,278 1,992,737 ________ ________ 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 15% (2010: 15%) 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 0.84 (2010: 0.84). The recoverable amount exceeds the carrying amount by £7,666,000 (2010: £2,110,000). 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 15% to 18% Growth rate: Reduction from 2.25% to 1.75% 13. SUBSIDIARIES The principal subsidiaries of Solid State PLC, all of which have been included in these consolidated financial statements are as follows: Subsidiary undertakings Solid State Supplies Limited detimiL etitaetSRugged Systems Limited In all cases the country of operation and of incorporation or registration is England. With effect from 1st April 2011 the trade of Rugged Systems Limited has been transferred to Steatite Limited and the company became dormant. Country of Incorporation Proportion of voting rights and Ordinary share capital held Nature of business Great Britain 100% Distribution of electronic components dna stnenopmoc cinortcele fo noitubirtsiD %001 niatirB taerGmanufacture of electronic equipment Great Britain 100% Supply of computer products Solid State PLC 30 14. INVENTORIES 2011 2010 £ £ 405,224,1 399,293,2 elaser rof sdoog dna sdoog dehsiniF 610,563 976,273 ssergorp ni kroW ________ ________ 025,787,1 276,567,2 ________ ________ There is no material difference between the replacement cost of inventories and the amount stated above. 15. TRADE AND OTHER RECEIVABLES 2011 2010 £ £ 705,984,2 414,678,3 selbaviecer edarT - 808,2 selbaviecer rehtO088,27 174,533 stnemyaperP ________ ________ 783,265,2 396,412,4 ________ ________ Group trade receivables include £1,768,843 (2010: £1,318,785) 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 2% over bank base rate and an administration fee of 0.175% of the gross value of the debts per month. At 31st March 2011 borrowing under the agreement of £1,348,700 (2010: £1,063,703) was available of which £1,184,164 (2010: £1,063,703) was taken up. Interest charges in the year amounted to £21,044 (2010: £10,474) and administration fees to £30,826 (2010: £17,770). 16. TRADE AND OTHER PAYABLES (CURRENT) 2011 2010 £ £ 167,525,1 871,086,2 selbayap edarT 738,123 291,394 sexat ytiruces laicos dna sexat rehtO 475,21 576,902 selbayap rehtO 041,341 760,023 slaurccA 075,961 800,802 emocni derrefeD ________ ________ 288,271,2 021,119,3 ________ ________ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 31 17. BANK BORROWINGS 2011 2010 £ £ 307,360,1 469,481,1 sretnuocsid eciovni ot eud stnuomA _______ ________ The bank overdraft is 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 £608,000 (2010: £140,000). 18. TRADE AND OTHER PAYABLES (NON CURRENT) 2011 2010 £ £ - 000,002 snaol mret muideM _______ ________ The medium term loans comprise loans of £150,000 from G L Comben and £50,000 from W G Marsh. The loans are unsecured and interest is payable at the rate of 6% per annum. The loans were made on 1st June 2010 and are repayable on 31st May 2012. 19. 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: (cid:129) Credit risk (cid:129) Foreign currency risk (cid:129) Liquidity risk (cid:129) 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 on the next page: NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 32 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 19. 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 statement of financial position as shown in note 16 and in the statement of financial position. The amount of the exposure shown in note 15 is stated net of provisions for doubtful debts. The credit risk on liquid funds is low 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: Loans and Receivables 2011 2010 £ £ Current financial assets 783,265,2 396,412,4 selbaviecer rehto dna edarT538,343 300,37 stnelaviuqe hsac dna hsaC ________ ________ 222,609,2 696,782,4 ________ ________ Solid State PLC 33 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 19. FINANCIAL INSTRUMENTS (continued) The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Carrying value 2011 2010 £ £ 116,643,2 331,308,3 KU 698,241 182,37 KU noN ________ ________ 705,984,2 414,678,3 ________ ________ 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 £7,262 (2010: £20,000) which represented less than 0.03% (2010: 0.15%) of revenue. This provision is included within the management and administration costs in the Consolidated Statement of Comprehensive Income. Trade receivables ageing by geographical segment 30 days 60 days 90 days Geographical area Total Current past due past due past due £ £ £ £ £ 1102 407,75 357,11 290,132 984,216,3 830,319,3 KU- - 661,01 511,36 182,37 KU noN ______ ______ _______ ________ ________ latoT 407,75 357,11 852,142 406,576,3 913,689,3 )407,75( )357,11( )844,04( - )509,901( snoisivorP :sseL ______ ______ _______ ________ ________ - - 018,002 406,576,3 414,678,3 latoT ______ ______ _______ ________ ________ 2010 453,1 392,3 241,531 564,903,2 452,944,2 KU - 391,2 097,1 319,831 698,241 KU noN ______ ______ ________ ________ ________ 453,1 684,5 239,631 873,844,2 051,295,2 latoT )453,1( )684,5( )308,59( - )346,201( snoisivorP :sseL ______ ______ ______ ________ ________ - - 921,14 873,844,2 705,984,2 latoT ______ ______ ______ ________ ________ Solid State PLC 34 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 19. 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: 2011 2010 £ £ 141,201 346,201 ecnalab gninepO 000,02 262,7 snoisivorp ni sesaercnI)894,91( - snoisivorp tsniaga ffo nettirW _______ _______ 109,905 102,643 _______ _______ 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 earlier table, at 31st March 2011 trade receivables of £200,810 which were past their due date were not impaired (2010: £41,129). All of these were less than 60 days past their due date. Liquidity risk Financial liabilities measured at amortised cost 2011 2010 £ £ Current financial liabilities 803,002,2 106,119,3 selbayap rehto dna edarT 307,360,1 469,481,1 sgniworrob knaB 102,434 032,564 tfardrevo knaB ________ ________ 212,896,3 597,165,5 ________ ________ Non current financial liabilities - 000,002 sgniworrob dna snaoL ________ ________ Solid State PLC 35 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 19. FINANCIAL INSTRUMENTS (continued) The following are maturities of financial liabilities, including estimated contracted interest payments. erom ro 1 21 – 6 shtnom 6 lautcartnoC gniyrraC sraey shtnom ssel ro wolf hsac tnuoma 2011 Secured bank loans - - - - - Bank overdrafts 481,232 481,232, 481,232 - - Amounts due to invoice discounters 1,184,964 1,184,964 1,184,964 - Other loans 200,000 200,000 - - 200,000 Trade and other payables 3,911,120 3,911,120 3,911,120 - - ________ ________ ________ _______ _______ 5,777,316 5,777,316 5,577,316 - 200,000 ________ ________ ________ _______ _______ 2010 Secured bank loans - - - - - Bank overdrafts 461,627 461,627 461,627 - - Amounts due to invoice discounters 1,063,703 1,063,703 1,063,703 - Trade and other payables 2,172,882 2,172,882 2,172,882 - - ________ ________ ________ _______ _______ 3,698,212 3,698,212 3,698,212 - - _______ _______ ________ ________ ________ Interest rate risk The Group finances its business through a mixture of bank overdrafts and invoice discounting facilities. During the year the Group utilised these facilities at floating rates of interest. The Group bank overdraft with HSBC plc incurs interest at the rate of 2.3% 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 15. Interest rate risk (continued) The US Dollar overdraft facility bears the interest rate of 2.3% 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 £14,030 (2010: £19,235) higher and if 1% lower throughout the year the level of interest payable would have been lower by the same amount. Solid State PLC 36 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 19. FINANCIAL INSTRUMENTS (continued) Foreign currency risk The Group’s main foreign currency risk is the short term risk associated with accounts receivable and payable denominated in currencies that are not the subsidiaries functional currency. The risk arises on the difference in the exchange rate between the time invoices are raised/received and the time invoices are settled/paid. For sales denominated in foreign currencies the Group will try 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 statement of financial position date. The following table shows the net liabilities exposed to exchange rate risk that the Group has at 31st March 2011: 2011 2010 £ £ 497,636 001,119 selbaviecer edarT 697,48 395,51 stnelaviuqe hsac dna hsaC )929,528( )329,991,1( selbayap edarT _______ _______ )933,401( )032,372( _______ _______ There were also net liabilities of £7,422 in euros (2010: £32,954). The Group is exposed to currency risk because it undertakes trading transactions in US dollars and euros. 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 statement of financial position date are given later in this note. The effect of a strengthening of 10% in the rate of exchange in the currencies against sterling at the statement of financial position date would have resulted in an estimated net decrease in pre-tax profit for the year and a decrease in net assets of approximately £21,300 (2010: £13,700) and the effect of a weakening of 10% in the rate of exchange in the currencies against sterling at the statement of financial position date would have resulted in an estimated net increase in pre-tax profit for the year and an increase in net assets of approximately £21,300 (2010: £13,700). Solid State PLC 37 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 19. FINANCIAL INSTRUMENTS (continued) Foreign currency risk (continued) At 31st March 2010 the Group had entered into agreement with its bankers to purchase US dollars as follows: $ Rate 1st April 2010 200,000 1.5582 4th May 2010 200,000 1.558 1st June 2010 200,000 1.529 At 31st March 2011 the Group had entered into agreement with its bankers to purchase US dollars as follows: $ Rate 1st April 2011 200,000 1.5985 1st April 2011 100,000 1.6223 1st April 2011 200,000 1.6350 9995.1 000,05 1102 yaM ts11st June 2011 150,000 1.6240 2nd June 2011 150,000 1.6150 Applying the actual exchange rate at the statement of financial position date to these agreements gives rise to an asset of £3,128 at 31st March 2011 (2010: an asset of £10,561). 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 2011 is shown below: 2011 2010 £ £ )538,343( )300,37( stnelaviuqe hsac dna hsaC 726,164 232,184 stfardrevo knaB 307,360,1 469,481,1 ecnavda gnitnuocsid eciovnI - 000,002 snaol mret muideM ________ ________ 594,181,1 391,397,1 ________ ________ 628,703 628,703 latipac erahS 089,657 089,657 tnuocca muimerp erahS 417,991,2 882,908,2 sgninrae deniateR 476,4 476,4 evreser noitpmeder latipaC 621,55 438,95 evreser egnahcxe ngieroF ________ ________ 023,423,3 206,839,3 ________ ________ 262.0 13.0 oitar gniraeG ________ ________ Solid State PLC 38 20. DEFERRED TAX 2011 2010 £ £ secnawolla latipac detareleccA At 1st - 420,01 0102 lirpA - 315,63 yraidisbus fo noitisiuqcA 420,01 006,52 raey eht rof egrahC - )931,5( egnahc etar xat fo tceffE ______ _____ At 31st 420,01 899,66 1102 hcraM ______ _____ Deferred tax rates are at 26% (2010: 28%) being the rate substantially enacted. 21. SHARE CAPITAL 2011 2010 £ £ diap ylluf dna deussi dettollA 628,703 628,703 hcae p5 fo serahs yranidro 115,651,6 _______ _______ Since the balance sheet date, a further 634,920 shares have been issued at 31.5p as a result of the exercise by G S Marsh and J M Lavery of share options. 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 5. At 31st March 2011 the number of shares covered by option agreements amounted to 694,920 (2010: 634,920). No options were exercised in the year (2010: Nil). However certain options have been exercised since the balance sheet and further options have been granted. Details are given in Note 5. 22. RESERVES Full details of movements in reserves are set out in the consolidated statement of changes in equity on page 14. The following describes the nature and purpose of each reserve within owners’ equity. esopruP dna noitpircseD evreseR Share premium Amount subscribed for share capital in excess of nominal value. Capital redemption Amounts transferred from share capital on redemption of issued shares. Foreign exchange Gains/losses from the retranslation of net assets of overseas operations into sterling Retained earnings Cumulative net gains and losses recognised in the consolidated income statement. 23. LEASING COMMITMENTS The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2011 2010 £ £ 204,68 144,161 raey 1 naht retal oN 555,23 729,635 sraey 5 naht retal on dna raey 1 naht retaL - 005,765 sraey 5 naht retaL ______ ______ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC 39 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 24. SHARE BASED PAYMENT The Group operates an approved Enterprise Management Incentive Scheme whereby Mr G S Marsh, Mr J M Lavery and Mr J L Macmichael 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 2011 all have an exercise period of any time after one year from the date of the grant subject to, in the case of Mr G S Marsh and Mr J M Lavery, the Group share price having equalled or exceeded 50p per share at the close of business on 20 consecutive business days and in the case of Mr J L Macmichael Solid State Supplies Limited having achieved a turnover for a financial year of at least four million pounds. As at 31st March 2011, none of the options had been exercised since the scheme was put into place, but options were exercised by Mr G S Marsh and Mr J M Lavery in May 2011. Details of the current options and further options granted since the statement of financial position date are stated in Note 5. The share-based remuneration expenses amounted to £16,188 for the year (2010: £12,546). The following information is relevant to the determination of the fair value of the options. 2011 Equity settled share based payments selohcS kcalB desu ledom gnicirp noitpO p26 etad tnarg ta ecirp erahs egareva dethgieW p26 ecirp esicrexE %15 noitaived dradnatS %78.1 etar tseretni eerf ksiR The standard deviation is based on the 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. Solid State PLC 40 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 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 Rugged Systems and Steatite Limited which incorporates RZ Pressure and Wordsworth Technology Limited. Year ended 31st March 2010 Distribution Manufacturing Head latoT eciffo noisivid noisivid £ £ £ £ Revenue 321,905,31 - 686,469,9 734,445,3 lanretxE 521,6 - 521,6 - ynapmocretnI ________ ________ ________ _________ 3,544,437 9,970,811 - 13,515,248 ________ ________ ________ _________ Profit/(loss) before tax (40,748) 779,533 (209,000) 529,785 ________ ________ ________ ________ Balance sheet 235,220,7 - 763,273,5 561,056,1 stessA )620,718,3( )544,94( )862,807,1( )313,950,2( seitilibaiL ________ _______ ________ ________ Net assets/(liabilities) (409,148) 3,664,099 (49,445) 3,205,506 ________ _______ _________ ________ Other erutidnepxe latipaC- Tangible fixed assets 69,929 88,082 - 158,011 - Intangible fixed assets 3,835 - - 3,835 Depreciation, amortisation and other non cash expenses 53,956 67,596 - 121,552 796,22 856 474,01 565,11 diap tseretnI ________ ________ ________ ________ 25. Solid State PLC 41 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 25. SEGMENT INFORMATION (continued) Year ended 31st March 2011 Distribution Manufacturing Head latoT eciffo noisivid noisivid £ £ £ £ euneveR 803,961,12 - 816,994,61 096,966,4 lanretxE 006,732 - 006,732 - ynapmocretnI ________ ________ ________ _________ 809,604,12 - 812,737,61 096,966,4 ________ ________ ________ _________ Profit/(loss) before tax 244,745 1,495,172 (496,421) 1,243,496 ________ ________ ________ ________ Balance sheet 247,140,01 - 248,065,7 009,084,2 stessA)120,431,3( seitilibaiL (2,836,133) (132,986) (6,103,140) ________ _______ ________ ________ Net assets/(liabilities) (653,121) 4,724,709 (132,986) 3,938,602 ________ _______ _________ ________ Other erutidnepxe latipaC- Tangible fixed assets 172,870 318,522 - 491,392 257,763 - 257,763 - stessa dexif elbignatnI -Depreciation, amortisation and other non cash expenses 54,666 74,428 - 129,094 051,35 - 950,12 190,23 diap tseretnI ________ ________ ________ ________ Included within the manufacturing division is £1,803,000 (2010: £1,864,461) relating to income from a major customer which accounts for greater than 10% of the Group’s turnover in the prior year. Net tangible capital essa latoT yb eunever lanretxE ts by expenditure by location stessa fo stessa fo noitacol remotsuc fo noitacol 2011 2010 2011 2010 2011 2010 £ £ £ £ £ £ United Kingdom 19,892,533 12,351,720 10,029,908 7,007,211 491,392 104,456 Ireland 154,736 109,893 - - - - Europe 846,851 763,260 11,834 15,321 - - North America 89,929 95,930 - - - - Asia 164,049 159,643 - - - - Africa 16,000 15,894 - - - - Australasia 4,646 12,442 - - - - South America 564 341 - - - - _______ ______ ________ ________ _________ _________ 654,401 293,194 235,220,7 247,140,01 321,905,31 803,961,12 _______ ______ ________ ________ _________ _________ All the above relate to continuing operations. Solid State PLC 42 26. ACQUISITION DURING THE YEAR On 1st April 2010 the Group acquired 100% of the ordinary shares in Rugged Systems Limited for a cash consideration of £225,263. The investment in Rugged Systems Limited will be included in the Group’s statement of financial position at its fair value at the date of acquisition. Rugged Systems Limited is one of Europe’s leading suppliers of rugged mobile computer, display and communications services which will strengthen the Group’s product offering. Analysis of the acquisition of Rugged Systems Limited: Net assets at the date of acquisition. eulav riaF eulav riaF kooB puorG ot stnemtsujda eulav £ £ £ 434,041 434,041 - stessa dexif elbignatnI 938,7 )158,36( 096,17 stessa dexif elbignaT 206,141 - 206,141 kcotS 340,483 - 340,483 srotbeD 825,751 - 825,751 dnah ni dna knab ta hsaC )112,387( - )112,387( srotiderC )315,63( )315,63( - xat derrefeD _______ ______ _______ 227,11 070,04 )843,82( noitisiuqca no )seitilibail(/stessa teN ______ _______ 145,312 noitisiuqca no gnisira lliwdooG _______ 362,522 _______ Discharged by: 362,522 hsaC _______ In addition to the purchase price, the Group incurred costs relating to the acquisition of £7,500. These are included in administrative expenses. The intangible fixed assets comprise the estimated net present value of customer relationships. The goodwill arises from the expected synergies from adding Rugged Systems Limited to the rugged computer division of Steatite Limited with the aim of becoming the UKs leading supplier of rugged computers. The revenue included in the Consolidated Statement of Comprehensive Income arising from Rugged Systems Limited was £3,907,885 and the profit before taxation was £101,829. NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) Solid State PLC The notes on pages 46 to 49 form part of these financial statements. 43 COMPANY BALANCE SHEET at 31st March 2011 0102 1102 setoN £ £ £ £ STESSA DEXIF 650,454,2 264,037,2 4 stnemtsevnI ________ _________ 650,454,2 264,037,2 STESSA TNERRUC 190,524,1 217,424,1 5 srotbeD 306,452 - dnah ni dna knab ta hsaC ________ ________ 496,976,1 217,424,1 CREDITORS: Amounts falling due within 882,229 430,119 6 raey eno ________ ________ 604,757 876,315 STESSA TNERRUC TEN ________ ________ 264,112,3 041,442,3 STESSA TEN ________ ________ SEVRESER DNA LATIPAC 628,703 628,703 7 latipac erahs pu dellaC 089,657 089,657 8 tnuocca muimerp erahS 476,4 476,4 8 evreser noitpmeder latipaC 289,141,2 066,471,2 8 tnuocca ssol dna tiforP ________ ________ 264,112,3 041,442,3 SDNUF ’SREDLOHERAHS ________ ________ The financial statements were approved by the Board of Directors and authorised for issue on 27th July 2011. P Haining G S Marsh Director Director Solid State PLC 44 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 408(4) of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account. The loss for the year ended 31st March 2011 is disclosed in Note 8. 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: (cid:129)(cid:129) Amounts owed by group undertakings and other creditors, which are recognised at amortised cost. (cid:129) 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 they 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 £16,188 (2010: £12,546) and comprised the share based payment expense. There were 4 employees (2010: 4), 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 5 to the Group financial statements. NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2011 (cid:129)(cid:129)Solid State PLC 45 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2011 3. SHARE BASED PAYMENT The Group operates an approved Enterprise Management Incentive Scheme whereby Mr G S Marsh, Mr J M Lavery and Mr J L Macmichael 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 2011 all have an exercise period of any time after one year from the date of the grant subject to, in the case of Mr G S Marsh and Mr J M Lavery, the Group share price having equalled or exceeded 50p per share at the close of business on 20 consecutive business days and in the case of Mr J L Macmichael Solid State Supplies Limited having achieved a turnover for a financial year of at least four million pounds. As at 31st March 2011, none of the options had been exercised since the scheme was put into place, but options were exercised by Mr G S Marsh and Mr J M Lavery in May 2011. Details of the current options and further options granted since the statement of financial position date are stated in Note 5. The share-based remuneration expenses amounted to £16,188 for the year (2010: £12,546). The following information is relevant to the determination of the fair value of the options. 2011 Equity settled share based payments selohcS kcalB desu ledom gnicirp noitpO p26 etad tnarg ta ecirp erahs egareva dethgieW p26 ecirp esicrexE %15 noitaived dradnatS %78.1 etar tseretni eerf ksiR The standard deviation is based on the 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. Solid State PLC 46 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 4. INVESTMENTS Company Group undertakings £ Cost 1st April 2010 2,454,056 Addition 276,406 ________ 264,037,2 1102 hcraM ts13 ________ Net book value 264,037,2 1102 hcraM ts13 ________ 650,464,2 0102 hcraM ts13 ________ Subsidiary undertakings The principal undertakings in which the Company’s interest at the year end is 20% or more are as follows: gnitov fo noitroporP rights and Ordinary share capital held Nature of business sgnikatrednu yraidisbuS stnenopmoc cinortcele fo noitubirtsiD %001 detimiL seilppuS etatS diloS dna stnenopmoc cinortcele fo noitubirtsiD %001 detimiL etitaetSmanufacture of electronic equipment stcudorp retupmoc fo ylppuS %001 detimiL smetsyS degguR In all cases the country of operation and of incorporation or registration is England. 5. DEBTORS 2011 2010 £ £ 190,524,1 217,424,1 sgnikatrednu puorG yb dewo stnuomA _______ _______ 6. CREDITORS: Amounts falling due within one year 2011 2010 £ £ 624,72 200,61 )deruces( tfardrevo knaB 040,398 314,298 sgnikatrednu puorG ot dewo stnuomA 228,1 916,2 srotiderc rehtO _______ _______ 911,034 922,288 _______ _______ Solid State PLC 47 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2011 (continued) 6. CREDITORS: Amounts falling due within one year (continued) The Company has guaranteed bank borrowings of its subsidiary undertakings, Solid State Supplies Limited, Steatite Limited and Rugged Systems Limited. At the year end the liabilities covered by those guarantees amounted to £465,230 (2010: £567,337). 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. 7. SHARE CAPITAL 2011 2010 £ £ Allotted issued and fully paid 628,703 628,703 hcae p5 fo serahs yranidro 115,651,6 _______ _______ Since the balance sheet date a further 634,920 shares have been issued at 31.5p as a result of the exercise by G S Marsh and J M Lavery of share options. 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 5 of the Consolidated Accounts. At 31st March 2011 the number of shares covered by option agreements amounted to 694,920 (2010: 634,920). Since the balance sheet date further option over 329,291 have been granted. Details are set out in Note 5 of the Consolidated Accounts. No options were exercised in the year (2010: nil). 8. RESERVES Share premium Capital redemption Profit & loss ser tnuocca erve account 289,141,2 476,4 089,657 0102 lirpA ts1 057,262 - - raey eht rof tiforP _______ _____ _______ 237,404,2 476,4 089,657 881,61 - - esnepxe desab erahS :ddA _______ _____ _______ 029,024,2 476,4 089,657 062,642 - - diap dnediviD _______ _____ ________ 066,471,2 476,4 089,657 1102 hcraM ts13 _______ _____ ________ The profit for the year comprises a dividend received and the share based expense. Overheads relating to the audit of the Company and to its listing on the London Stock Exchange are processed in the accounts of Solid State Supplies Limited. The cumulative amount of goodwill which has been eliminated against reserves at 31st March 2011 is £30,000 (2010: £30,000). Solid State PLC 48 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 8th September 2011 at 11.00am for the following purposes: ORDINARY RESOLUTIONS (1) To receive and adopt the accounts for the year ended 31st March 2011, together with the reports of the Directors and auditors thereon. (Resolution 1) (2) To declare a final dividend of 4p per share. (Resolution 2) (3) To reappoint Gary Stephen Marsh, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. (Resolution 3) (4) To reappoint Peter Haining, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. (Resolution 4) (5) To reappoint haysmacintyre as auditors of the Company. (Resolution 5) (6) To authorise the Directors to fix the auditors’ remuneration, (Resolution 6) (7) To pass the following resolution: That the Directors be generally and unconditionally authorised to allot shares in the Company (Relevant Securities): i) comprising equity securities (as defined by section 560 of the Companies Act 2006) up to an aggregate nominal amount of £113,190.50 (which is 33% of the issued share capital) (such amount to be reduced by the nominal amount of any Relevant Securities allotted under paragraph (ii) below) in connection with an offer by way of a rights issue: (a) to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings; and (b) to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and ii) in any other case, up to an aggregate nominal amount of £67,914.30 (which is 20% of the issued share capital) (such amount to be reduced by the nominal amount of any equity securities allotted under paragraph i) above, provided that this authority shall, unless renewed, varied or revoked by the Company, expire after a period of 18 months from the passing of this resolution or, if earlier, the date of the next annual general meeting of the Company save that the Company may, before such expiry, make offers or agreements which would or might require Relevant Securities to be allotted and the Directors may allot Relevant Securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This resolution revokes and replaces all unexercised authorities previously granted to the Directors to allot Relevant Securities but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. (Resolution 7) SPECIAL RESOLUTIONS (8) To pass the following resolution: That the Company is authorised to allot equity securities pursuant to resolution 7 above up to an aggregate nominal amount of £67,914.30, which is 20% of the issued share capital , as if Section 561 of the Companies Act 2006 (existing shareholders – right of pre-emption): i) did not apply to the allotment; or ii) applied to the allotment with such modifications as the Directors may determine provided that this authority shall, unless renewed, varied or revoked by the company, expire after a period of 18 months from the passing of this resolution save that the company may, before such expiry, make offers or agreements which would or might require equity securities to be allotted and the Directors may allot equity securities in pursuance of such offer or agreement not withstanding that the authority conferred by the resolution ahs expired. (Resolution 8) Solid State PLC 49 NOTICE OF ANNUAL GENERAL MEETING (continued) SPECIAL RESOLUTIONS (continued) (9) To pass the following resolution: That the Company is, pursuant to Section 701 of the Companies Act 2006, hereby generally and unconditionally authorised to make market purchases (within the meaning of Section 693 of the Companies Act 2006) of ordinary shares of 5p each in the capital of the Company (“ordinary shares”) provided that:- i) the minimum price which may be paid for the ordinary shares is 5p per ordinary share; ii) the maximum price that may be paid for such shares is, in respect of a share contracted to be purchased on any day , an amount (exclusive of all expenses) equal to 105 per cent of the average middle market quotations of the ordinary shares of the company as derived from the Daily Official List of the London Stock Exchange on the 10 dealing days immediately preceding the day on which the shares are contracted to be purchased; 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; iv) the authority hereby conferred is in substitution for any existing authority to purchase ordinary shares under the said Section 701; v) 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 vi) 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 9) BY ORDER OF THE BOARD P Haining FCA Director 27th July 2011 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 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. This page has been left blank intentionally This page has been left blank intentionally This page has been left blank intentionally 

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