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CONTENTS
2. Directors, Secretary and Advisers
3. Chairman’s Statement
5. Chief Executive’s Strategic Report
18. Corporate and Social Responsibility Report
20. Corporate Governance Report
30. Audit Committee Report
35. Remuneration Committee Report
39. Directors’ Report
43. Report of the Independent Auditors
48. Consolidated Statement of Comprehensive Income
49. Consolidated Statement of Changes in Equity
50. Consolidated Statement of Financial Position
51. Consolidated Statement of Cash Flows
53. Notes to the Financial Statements
92. Company Statement of Financial Position
93. Company Statement of Changes in Equity
94. Notes to the Company Financial Statements
97. Notice of Annual General Meeting
1
Directors:
DIRECTORS, SECRETARY AND ADVISERS
Anthony Brian Frere, Non-Executive Chairman
Gary Stephen Marsh, Chief Executive Officer
Peter Haining, FCA, Non-Executive Director
Peter Owen James, BSc FCA, Executive Director
John Michael Lavery, Non-Executive Director
John Lawford Macmichael, Executive Director
Matthew Thomas Richards, Executive Director
Nigel Foster Rogers, Non Executive Director (Appointed 1 July 2019)
Company Secretary and
Registered Office:
Peter Haining, FCA
Solid State PLC
2 Ravensbank Business Park
Hedera Road, Redditch
B98 9EY
Company Number:
00771335
Nominated Adviser and
Broker:
Joint Broker:
Auditors:
Solicitors:
Bankers:
Registrars:
Country of Incorporation
of Parent Company:
Legal Form:
Domicile:
W H Ireland Limited
24 Martin Lane
London EC4R 0DR
finnCap Limited
60 New Broad Street
London EC2M 1JJ
RSM UK Audit LLP
St Philips Point, Temple Row
Birmingham
West Midlands
B2 5AF
Shakespeare Martineau LLP
1 Colmore Square
Birmingham
West Midlands
B4 6AA
Lloyds Bank PLC
125 Colmore Row
Birmingham
West Midlands
B3 3SF
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
B62 8HD
England and Wales
Public Limited Company
United Kingdom
2
CHAIRMAN’S STATEMENT
Overview of the year
The financial year ended 31 March 2019 has seen the Group deliver its best ever performance in terms of both revenue
and profit from the core business and make significant progress against its strategic objectives. Our strategy is to deliver
growth both organically and through acquisition. These results illustrate our continued commitment to deliver on this
strategy.
In addition to the acquisition in November 2018 of Pacer Technologies Limited (’Pacer’), the holding company for the
Pacer Group of companies, our Value Added Distribution (‘VAD’) division contributed record organic growth in revenues
and profits. This complemented the significant improvements seen in the Manufacturing division’s operating margins,
which have been delivered by refocusing into three key business units and concentrating on adding value to the products
and services offered. The business units are aligned with their customers and markets and serviced by centres of
excellence in the respective physical locations. This progress against our strategy sets the foundations for the future
growth of the Group.
Achievements in 2018/2019
Notable achievements in 2018/2019 to advance our strategy included:
•
•
•
•
•
delivering significant increase in sales, with the Value Added Distribution division delivering close to 25% organic
growth;
successful completion of acquisition of the Pacer Group of companies taking the Group into the opto-electronics
market, which is complementary to our existing product offering, enabling the enlarged Group to provide a more
complete service to our customers in our diverse markets;
re-focusing the Manufacturing division, to concentrate on higher ’added value’ business, which has translated into
a richer mix of business with better gross margins;
new value added facility in Weymouth, facilitating the growth of higher margin products and services. Development
of our value-added service offering and customer qualifications will support our margins going forward;
continued investment in medium term research and development to deliver increased value-added services and
manufacturing solutions such as battery packs for robotics and new security accredited computing products.
The Chief Executive’s strategic report provides further details on these achievements and the progress we have made in
executing our strategy.
Financial overview
Group revenue from continuing operations of £56.3m was up 22% on the prior year (2018: £46.3m). Our VAD division
has gained market share, delivering 25% organic revenue growth over the prior year. As reported at the half year,
Manufacturing revenues are marginally down on the prior year at £25.9m (2018: £26.6m), however, the focus on
delivering higher value added activity has meant that the volume shortfall has been more than mitigated at a gross
margin and PBT level with a 16% improvement in the gross margin to 35.6% (2018: 30.6%).
The Group achieved a gross margin of 29.1% in the year compared to 27.5% in 2018. This improvement reflects the
impact of the changing mix of sales in the Manufacturing division, with a greater proportion of high value added projects
more than offsetting the dilutive impact of the increased share of VAD revenues.
During the year we have continued to invest significantly in development activity within both the new value added
services facility in Weymouth, following the acquisition of Pacer, and in the Manufacturing division capabilities. This has
resulted in a strengthening mix of higher value added activity in the year and a strong open order book. We expect this
will provide commercial opportunities for the Group in the coming financial year and beyond.
The reported and adjusted profit after tax reflect a record year at £2.7m (2018: £2.2m) and £3.1m (2018: £2.7m)
respectively. This translates into fully diluted reported earnings per share from continuing operations and adjusted
earnings per share from continuing operations of 30.7p (2018: 26.0p) and 35.9p (2018: 30.9p) respectively.
The Group balance sheet has continued to strengthen and shows net assets of £19.9m (2018: £18.0m) with net debt of
£2.0m (2018: net cash £0.6m). Given that we took on £6m of term debt to fund the Pacer acquisition and the expansion
of our value added capabilities during the year, we are very pleased with the cash generation in the last quarter of the
year. Our underlying operating cash conversion for the year was 109% (2018: 122%) and reported operating cash
conversion was 168% (2018: 54%).
3
CHAIRMAN’S STATEMENT (continued)
As reported previously, we have continued to make strategic investments in inventory (in particular battery cells and
processors) to exploit commercial opportunities and to mitigate the risks associated with extending lead times, Brexit
and the US, China trade dispute. The investments made have enabled the Group to pursue commercial opportunities
and continue to ship products to customers despite lengthening lead times. This was critical to delivering the organic
growth and securing a number of higher value added programmes. We closed the year with inventories at £9.6m (2018:
£6.8m), reflecting the stock taken on with the Pacer acquisition and in part holding some contingency stock ahead of the
originally proposed Brexit date of 29 March 2019.
Solid State PLC has paid a dividend every year since it joined AIM in 1996. The Board is recommending a final dividend
of 8.3p, which added to the interim dividend of 4.2p per share paid on 15 February 2019, gives a total dividend for the
year of 12.5p per share (2018: 12p) an increase of 4.2%. The total dividend is 2.9 times covered in 2019, based on adjusted
profit after tax from continuing operations (2018: 2.6 times). The final dividend will be paid, subject to shareholder
approval at the Annual General Meeting to be held on 4 September 2019, on 19 September 2019 to shareholders on the
register at the close of business on 30 August 2019. The shares will be marked ex-dividend on 29 August 2019.
The Board has agreed to continue with its dividend policy whereby it will look to increase the dividend as growth in
profitability is delivered whilst targeting a dividend cover in the region of 2.50-3.00 times adjusted earnings.
Senior management and corporate governance
The Board was very pleased to welcome Nigel Rogers to the Board as a new independent Non-Executive Director, Nigel,
brings a wealth of experience and will add a fresh perspective driving the continued progress of the Group. In addition,
Nigel will chair the remuneration committee. Further details are included on page 25 of the Corporate Governance
report.
Opportunities and prospects for 2019/2020
The Group is well positioned for growth in 2019/2020 across its business units with well diversified revenue streams.
Having completed the re-organisation and re-focusing of the Manufacturing division, the division is well placed to deliver
revenue growth and improved operating margins, leveraging the hard work which has been done in the last two years.
The supply chain challenges we have seen with certain extending lead times, and cell manufacturers limiting supply to
approved pack manufacturers, only present higher barriers to entry in our markets. Our strong established relationship
with our supply chains positions our Group well for future growth.
The macro economic environment from the US China trade war to the ongoing Brexit negotiations present a level of risk
and uncertainty to the business environment in which we operate. However, our breadth of technical knowledge, service
levels from our specialist teams, scale of our operations, strong balance sheet, governance and quality standards gives
the Board confidence that the Group is well positioned to respond quickly to the challenges and opportunities that lie
ahead. The Board consider that the Group’s diversified structure gives it resilience and places it in a far stronger position
than our smaller unlisted competitors within our customers’ supply chains.
Acquisitions remain a key part of our strategy, and following the successful completion of the acquisition of Pacer during
the second half of the financial year, we continue to actively seek further acquisitions through our pipeline of
opportunities. However, we will only make acquisitions where they are fully aligned with the Group’s strategy. The focus
when looking at acquisitions is to ensure they develop our product offering; broaden the market sectors we serve and
underpin or enhance our gross profit margins.
Current year trading has been ahead of the corresponding period last year, although the order intake during the first
quarter of our new financial year has been softer than expected, we believe as a result of the unwind of Brexit stocking.
However, as the open order book remains solid this gives the Board confidence that the Group remains on track to
deliver in-line with our expectations. The Group open order book at 31 May 2019 was £35.9m (31 May 2018: £23.0m)
up 56% on the prior year primarily due to the acquisition of Pacer. The like for like proforma open order book is up 20%.
Finally, on behalf of the Board, I would like to welcome the Pacer team to the Solid State PLC group, acknowledge the
significant contribution of all our staff to the Group’s continued progress and thank them accordingly. This is a people
business which relies on the dedication of our colleagues across the Group; this is acknowledged and appreciated.
A B Frere
Chairman
2 July 2019
4
CHIEF EXECUTIVE’S STRATEGIC REPORT
Introduction to Solid State PLC
Comprised of two divisions but with a shared mission, strategy and consistent business values, Solid State Group thrives
on the trusted advisor relationship with our customers. We provide technology solutions, primarily designed for
demanding applications, safely, reliably and swiftly; freeing those customers to focus on their core business with
confidence.
Our mission and strategy to deliver growth
Our mission is “To remain at the forefront of electronics technology, delivering reliable, high quality products and
services. Adding value at every opportunity, from enquiry to order fulfilment; consistently meeting customer and partner
expectations.”
Our stated strategy is to supplement organic growth with selective acquisitions within the electronics industry which will
complement our existing Group companies and over time enable us to achieve improved operating margins through the
delivery of operational efficiencies, scale and distribution.
Our strategy to deliver this has three key elements:
1)
2)
investment in our people, our technical knowledge and resources to ensure we remain at the forefront of
electronics technology. To constantly seek opportunity to add value meeting our customers’ unmet needs and
as such maintaining long term relationships as the trusted advisor and subject matter experts.
targeting strategic acquisitions which are aligned with our core capabilities and provide access to new markets
or deepen our knowledge, ability and enhance the value we can add to our customers; and,
3) continue to develop our strategic partnerships with customers and suppliers within the electronics industry,
building our portfolio of value added services.
The Group is focused on the supply and support of specialist electronics equipment through its Value Added Distribution
(‘VAD’) and Manufacturing divisions. The VAD division is a market leader in delivering innovative, valuable, technical
solutions for customers seeking specialist, electronic and opto-electronic components and displays.
The Manufacturing division is a market leader in the design, development and supply of high specification rugged
computers, custom battery packs providing portable power and energy storage solutions and advanced communication
systems, encompassing wideband antennas and high performance video transmission products.
The market for the Group’s products and services is driven by the need for bespoke electronic solutions to address
complex needs, typically in harsh environments where enhanced durability and resistance to extreme and volatile
humidity, temperature, pressure and wind is vital. The drivers of value in our markets include safety, technical
performance, efficiency improvements, cost savings, and environmental monitoring.
Value Added Distribution (’VAD’) division
The Group’s traditional VAD division is focused on serving the needs of the electronics original equipment manufacturing
(OEM) and the contract electronics manufacturing (CEM) communities in the UK, principally from its base in Redditch.
During the year we completed the acquisition of the Pacer Group of companies (‘Pacer’). Pacer is a leading value added
distributor of opto-electronic components which complements the existing VAD product portfolio. During the year Pacer
invested in a new value added services facility in Weymouth which includes a Class 7 clean room giving the Group an
industry leading capability.
The division represents a select number of suppliers who manufacture semiconductors, related electronic and opto-
electronic components, modules and displays. The division has an in depth understanding of these products and as such
can offer outstanding levels of commercial and technical support to its customers.
5
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Value Added Distribution (’VAD’) division – cont’
The products offered are from globally recognised manufacturers and include those for the I.O.T (internet of things),
embedded processing, control, wireless and wired communications, power management, optical emitters and sensors,
and LED lighting.
The division has expertise in high-reliability components for Military and Aerospace applications. The division’s quality
management system is accredited to the International Aerospace standard AS9120.
The VAD division understands the need to provide the highest level of service to its customers and has a clear focus on
supporting the electronic and opto-electronic design community. Wherever possible the VAD division offers services for
customers who require their programmes pre-loaded onto hardware or their products prepared to go direct to the
production line. All of these services are carried out in our bespoke electrostatic discharge (ESD) safe facility in line with
our AS9100 certification. This is an offering many of our competitors are unable to provide.
Manufacturing division – Computing, Power and Communications business units
Our Manufacturing division operates from sites in Redditch, Crewkerne and Leominster. It’s a market leader in the
design, development and supply of rugged and industrial computers, portable power and energy storage solutions,
advanced communication systems, including wideband antennas and high-performance video transmission products,
where necessary our facilities and personnel are cleared by the UK Government to allow secure work.
The facility in Crewkerne, is the Group’s centre of excellence for Power products; the facility in Redditch, focuses
primarily on the delivery of Computing products; and the facility in Leominster houses the Communications business
unit, which includes our antenna design, production and test facilities.
The facility in Leominster also houses the Group’s environmental test chamber and vibration testing capabilities, in
addition to our near-field antenna test chamber, which supports in-house development and is also made available to
third parties looking to utilise the state of the art chamber on a chargeable basis. These facilities provide the Group with
class leading test and measurement capabilities which are utilised across all the manufacturing business units.
Computing business unit
The Computing business unit designs, manufactures and tests rugged and industrial computing solutions, serving a wide
range of markets including Industrial, Military, Transportation, Surveillance and Broadcasting. Success has been achieved
through specialisation in industrial computer design and integration, custom chassis builds, production, test and
certification and customisation of Windows Embedded IoT and related software products.
Our product offering includes computers and displays, time and positioning solutions, motherboards and modules. Our
capabilities extend from the provision of single board computer modules to turnkey integrated systems with significant
value added content in the design, production, testing and commissioning.
The business unit has strong and long standing commercial relationships directly with key suppliers in Asia and the USA.
Sustained digital marketing initiatives are leading to increased demand from diverse markets with emphasis on driving
the level of value added content.
Power business unit
The Power business unit provides portable power and energy storage solutions. This includes battery pack assembly,
power control, electronic design, and advanced battery testing. Working from initial design through qualification and
United Nations (UN) certified testing, production, support and disposal at end of life, the business unit is well positioned
to respond to an increasing demand for mobile and static power solutions where there is a specific requirement for high
reliability, harsh environment and, above all else, safe systems.
The business unit has over 30 years’ experience in the supply of batteries and mobile power solutions into some of the
world’s most demanding environments. Its battery packs are used in a range of sectors including: Oil and Gas, Military
and Security, Aerospace, Environmental and Oceanographic, Safety and Industrial OEMs.
The operation has seen the successful integration of the latest ISO 9001-2015 standard that is complemented by the
18001 health and safety accreditation and approval to build equipment intended for use in potentially explosive
atmospheres under the ATEX directive. These are all key considerations for our business to business customers operating
in various markets such as Aerospace, and the Oil and Gas (O&G) markets.
6
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Communications business unit
This business unit provides custom solutions that include bespoke antenna design, advanced high bandwidth radios
including related peripheral technology and domain knowledge from the in-house product support team that has direct
end user experience.
The radios are in service primarily with Special Forces users for ground based and increasingly unmanned platforms both
aerial and maritime providing situational awareness solutions. We constantly seek opportunity to enhance the base line
radio product with customised packaging for harsh environments and leveraging our in house antennas capabilities.
The Antenna group provides advanced ultra-wide band systems addressing demand from a worldwide customer base.
Our antennas are utilised in a range of applications including electronic warfare, meteorological sensors and test and
measurement applications. With over 40 years of experience, the business unit is at the forefront of antenna design and
manufacture.
Our purpose built 18,000 sq. ft facility in Leominster includes a world class near-field test chamber that sets the business
apart from competitors and allows the business unit to remain as a pre-eminent provider of ultra-wideband/high power
antenna solutions.
Group trading overview
The Solid State Group has delivered significant organic growth in revenues which have been augmented by the
acquisition of Pacer. The combination of the two has resulted in the delivery of record profits in the period.
The Pacer acquisition takes the Value Added Distribution division into the parallel market of opto-electronics which
complements the established electronics product offering, giving the VAD division significant scale, market reach and
penetration which it has not had previously.
The Manufacturing division has consolidated its activities, establishing technical centres of excellence with an
appropriate cost base to service our core sectors of Computing, Power and Communications. This underpins the business.
Refocusing its efforts where we have the expertise and product offerings that add real value to our customers has
delivered the recovery to double digit operating returns.
As noted in the principle risk and uncertainties section above, business risks have been considered and, where practical,
mitigated. However, the macro economic risk associated with Brexit uncertainty, the Chinese economy and related
US/China trading relations and the associated impact on foreign exchange is very difficult to predict and therefore
mitigate fully. Whilst we sell predominately to the UK, our customers do sell into the global markets including Europe
and Asia and some have reported challenges on new project awards.
In addition to the above we continue to see shortages and very long lead times on certain critical components, in
particular battery cells and computer processors. The strength of our balance sheet together with smart purchasing
actions have enabled us to successfully mitigate lead times and shortages. However, this continues to be a challenge
requiring active management and necessitates increased stock levels.
Divisional business review
Value Added Distribution division
The financial year 2018/19 saw the completion of a significant acquisition of the Pacer Group and exceptional organic
growth in the existing business.
This is the second year that the team has delivered exceptional organic growth in the VAD division with revenues up 25%
(2018: 19%) on a like for like basis, albeit that we believe we benefitted from some Brexit stocking in the last quarter of
the year and the previously reported one-off order for circa £1.0m. Pleasingly gross margins have been maintained.
The growth in revenue and profits demonstrate the success of the strategic plan and its tactical implementation, with
initiatives such as the sourcing and obsolescence business now making a significant contribution to the VAD division.
The addition of the VPT Franchise to the VAD division’s product portfolio in Q1 had a major impact on the year with sales
well ahead of budget. This product line represents a continuing major opportunity for the division with the leading edge
indicator of design-in activity showing high levels of activity.
7
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Following the acquisition of Microsemi by Microchip, our distribution franchise with Microsemi has been extended to
include all Microchip products post year end. This provides significant new product lines and opens up an opportunity
to sell the extended offering to our customers and targets.
The acquisition of the Pacer business brings with it, new markets and expertise, particularly in the areas of opto-
electronics and value added assembly, whilst the significant display expertise enhances that already available in the
Group. As part of the integration of Pacer in to the VAD division, a clear strategy has been defined and communicated to
all Pacer staff to ensure that it embarks on a high growth path over the coming years.
The VAD division is benefiting from access to an enlarged and wider customer base than had been previously available.
Cross selling initiatives are already bearing fruit, and efficiencies through integration have been put in place where
practical.
Marketing activity increased towards the end of the financial year to promote the broader product offering of the
enlarged VAD division, supporting the need for an enlarged design-in pipeline to feed the future sales growth.
The VAD division continues to recognise the value of, and to invest in, its staff with various ongoing professional
development initiatives. The business has been successful in attracting several specialist and highly skilled engineers into
its design-in and field based customer support function enhancing the prospects of it winning further franchises.
Operational metrics remain well controlled with underlying stock turn exceeding 5 times per annum and the VAD open
order book at 31 May 2019 at a record level £23.6m (2018: £11.3m) following the pacer acquisition. The senior
management team of the VAD division remain optimistic about the prospects for the 2019/20 financial year and expect
it to be another strong year.
Manufacturing division and business unit summaries
The Manufacturing division has focused on premium work, adding value when opportunity has allowed to drive improved
operating performance, and put in place a foundation for future sustainable profitable growth.
We focused the division to meet customer needs, establishing three business unit centres of excellence in; Computing
(in our Redditch facility), Power (in our Crewkerne facility) and Communications (in our Leominster facility).
At the beginning of the financial year, as part of the implementation of re-focusing of the division, we consolidated some
of the division’s engineering and computing sales teams, realising some operational efficiencies which, in conjunction
with a more strategic approach to supply chain management, and continued careful control and review of our fixed cost
base, has enabled the operating margins to be improved by 16% in the year to 11% (2018: 9.5%).
We continue to make strategic capital investments in a number of areas of the business with focus on technology to
provide enhanced efficiencies and technical capabilities and improve productivity. This includes automation within our
Power business unit, software tools for our Communications business unit, and EMC & environmental testing capabilities
that will serve all areas of the business, enhancing our ‘in-house’ capabilities, building our competitive advantage and
delivering value for our customers.
We have focussed on building the quantity and quality of our order book to position the business for future growth. The
open order book at 31 May 2019 has increased to £12.3m (2018: 11.8m).
Computing business unit
The Computing business unit has seen a continued increase in the demand for Artificial Intelligence (AI) / Artificial
Internet of Things (AIoT) solutions that are image/video centric, which plays to our strengths. The business unit is
particularly well positioned to address the growing trend for “Edge Computing” and related harsh environment
applications with a range of fanless high powered, long life computing solutions.
The business unit remains well diversified across market sectors and technologies. In-line with our strategy to seek new
markets for our offering we have secured an important order for a new security accredited product for a UK Government
client that will deliver revenue in the 2019/2020 financial year with additional associated prospects, demonstrating the
progress against our strategy of investment in our technical value added capabilities.
8
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Computing business unit -cont’
TEMPEST is a National Security Agency specification and a NATO certification referring to a cyber security accreditation
on information systems through preventing leaking emanations, including unintentional radio or electrical signals,
sounds, and vibrations. The business is seeing and responding to increased demand for TEMPEST compliant computing
solutions leveraging the in house computing, mechanical and domain knowledge at the Redditch facility.
During the year the business unit introduced a new series of own brand 19” rack mount servers including entry level and
high end chassis solutions with respective features and pricing competitively matched. These new own branded products
and a well defined product road map that will see further releases in the coming 18 months to position our computer
business for future growth.
In addition, we have resolved and delivered some long standing technically challenging military projects that we were
committed to deliver. We have met our obligations and delivered against the customers’ requirements maintaining a
strong relationship that will bode well for future co-operation with these ‘blue chip’ defence prime contractors.
Power business unit
In our Power business we are agnostic of cell chemistries, giving us the freedom to be the subject matter expert, as a
’trusted advisor’ to our customers, selecting the most appropriate chemistry for the customers’ requirements. Likewise,
in our selection of the optimum battery management solution. This has enabled us to make headway in designing higher
value added solutions while diversifying our markets and customer base. This is demonstrated with initial sales into the
retail technology and medical sectors where we have not traditionally been strong, to complement the Oil and Gas and
Aerospace & Defence sectors which are areas of traditional strength.
Battery cell manufacturers continue to limit the supply of product to approved third party pack providers and are
extending lead times across the industry in order that they can service the needs of the electric vehicle (EV) market. This
means that our longstanding and trusted relationships with the leading cell manufacturers are even more important and
this, together with the barriers to entry that also exist, mean we are well positioned to leverage opportunities in this
market place.
The focus for future growth remains on high reliability, harsh environment applications where we can add value. New
applications in robotics solutions are being targeted in varied market sectors including land based, sea and subsea. The
business unit is taking care to select markets for portable power and energy storage solutions that have not been
commoditised as a result of the EV market’s demand’s for ever diminishing pricing on the cell chemistries.
Communications business unit
The Communications business unit encompasses antenna products and advanced radio products and is split into the
Antennas team and the Radio team. The business unit’s technology is world class with two thirds of sales from the
Leominster facility being exported worldwide.
While the absolute level of business has fallen over the prior year, as expected, the Communications business unit has
made significant progress in developing a portfolio of more standard ’off the shelf’ / ’run rate’ antenna products which
are underpinning more sustainable revenues to augment the bespoke programmes which the business has traditionally
undertaken. This includes provision of antennas for test and measurement applications within the burgeoning 5G
market.
The Radio team has established business relationships with complementary companies providing mission planning
computers, digital mapping solutions and optical sensors positioning the business as a subsystem provider of both the
data links and situational awareness product. This will allow this part of the Communications business unit to move up
the value chain, generating larger contracts and increased contribution to the division. This year we have made progress
in the early stages of developing the pipeline of international opportunities to overlay the traditional domestic demand
for an integrated communications solution where we are expanding our product offering and looking to gain market
share.
9
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Principal risks and uncertainties
The Group has a process for the identification and management of risk as part of the governance structure operated by
the Board. Management of risk is the responsibility of the Board of Directors. In managing and mitigating risk, a
comprehensive and robust system of controls and risk management processes has been developed and implemented by
the Board.
The Board’s role in risk management includes:
•
•
•
•
•
•
promoting a culture that emphasises integrity at all levels in the business;
embedding risk management within the core processes of the business;
approving appetite for risk;
determining the principal risks;
ensuring that these are communicated effectively to the businesses; and,
setting the overall policies for risk management and control.
The principal risks affecting the Group are identified by the Group Executive team within their functional areas of
responsibility and are reviewed by the Board.
In identifying the business risks below, we analyse risks across four key areas:
•
•
•
•
strategic risk;
commercial risk;
operational risk; and,
financial risk.
The principal risks identified below are listed in order of severity. Mitigation, where possible, is shown for each identified
risk area.
1. Acquisition risk – (Strategic risk)
Business risk
•
•
•
•
•
•
Loss of key customers.
Loss of key employees.
Loss of key suppliers.
Erosion of Intellectual property base.
Failure to identify and complete profitable acquisitions.
Failure to integrate management reporting structures and control disciplines.
Mitigation
• Rigorous due diligence to ensure that acquisitions can be effectively integrated and all the relevant
stakeholders are engaged, supportive and aligned.
Pro-active and early engagement with:
o
key customers and suppliers; and,
o employees through the on-site presence of Solid State PLC management.
Preparation and execution of a cross functional integration plan.
Continued invest in development of technology in the acquired businesses.
Integration into existing internal control frameworks, processes and reporting systems.
•
•
•
•
10
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
2. Product / Technology change – (Commercial risk)
Business risk
•
•
•
Failure to maintain our leading technical capabilities and knowledge which allows us to develop
electronic solutions in partnership with our customers.
Failure to manufacture solutions that meet the agreed specification.
Failure of key distribution franchises to innovate and introduce new products.
Mitigation
•
•
Continued investment in the technical training and development of our sales, engineering and
operations staff, building our capabilities.
Investment in joint R&D programmes with partners to ensure we are at the forefront of technical
electronic solutions.
• Maintain rigorous quality and engineering control processes to ensure that our products meet the
required specifications.
•
Perform all necessary detailed product testing to ensure that products are fit for purpose.
• Continuously seek new franchises and partners at the forefront of electronics technology.
3. Supply chain interruption – (Operational risk)
Business risk
• Dependency on significant suppliers or dependency on a qualified supplier within a controlled supply
chain.
Mitigation
• Active programme to maintain cross qualified second sources of supply.
• Rigorous supplier quality management processes.
• Maintain close relationships with key suppliers in order to be aware of potential supply issues.
• Appropriate levels of buffer stock holding to minimise the effects of extended lead times.
4. Competition risk – (Commercial risk)
Business risk
•
•
•
Loss of distribution supplier franchise agreement would result in significant loss of product lines and
customers.
Loss of a major contract / customer or business to a competitor.
Price / margin erosion due to predatory pricing from a competitor.
Mitigation
•
Setting a commercial strategy:
o
o Develop and maintain close relationships with suppliers and customers to become the “partner
Focused on quality, value and customer service;
of choice”, by forming multi-level partnerships;
o As a trusted partner providing product solutions from design, to pilot & volume production; and,
o Winning additional business from existing customers and capturing new customers and revenue
streams.
Continue to invest in product development to ensure competitive advantage.
•
• Continued investment in the recruitment of high quality personnel.
11
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
5. Legislative environment and compliance – (Strategic risk)
Business risk
• On-going Brexit negotiations and USA / China trade dispute causing an increased level of uncertainty
in the legislative and trading environment in which we operate
• Overseas competitors are favoured in their domestic markets
•
Failure to comply with applicable legislation, to include but not limited to:
o Export Control and International Traffic in Arms (ITAR);
o Bribery Act;
o General Data protection regulation (GDPR); and,
o Employment legislation and company legislation.
Mitigation
•
The on-going Brexit negotiations present a level of risk and uncertainty to the business environment in
which we operate, however given our level of trade with the EU is modest our exposure is lower than
some other companies. However, our breadth of technical knowledge, service levels from our specialist
sales teams, scale of our operations, structure, strong balance sheet, governance, and quality
standards mean the Board believes the Group is well positioned to respond quickly. The Board believes
that the Group’s diversified structure gives it resilience, and places it in a far stronger position than our
smaller unlisted competitors within our customers’ supply chains.
• Regular reporting of export / ITAR compliance, and detailed internal control processes and procedures.
•
•
• Adopt suitable software systems where appropriate to aid export control procedures and assist with
Continuing education of our employees on the legislative developments and requirements.
Internal reviews and external audits.
•
other compliance issues.
The individual operating companies maintain operating procedures and are certified to internationally
recognised standards, e.g. ISO 9001-2015, AS9100, AS9120, SC21.
6. Retention of key employees – (Operational risk)
Business risk
•
•
•
Loss of key people and critical skills.
Insufficient skilled employees.
Poor engagement and morale.
Mitigation
• Retention and development of our workforce is critical to the long term success of the Group.
•
•
Low staff turnover, with many employees having been with the Group for in excess of ten years.
The Group encourages and invests in continuous professional development and training in core skills
and competencies as appropriate.
The Group pro-actively looks to develop its own talent and makes use of the government
apprenticeship schemes.
The Group pro-actively communicates with its employees.
The Group reviews & benchmarks employee rewards to ensure we are fairly rewarding our employees.
•
•
•
12
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
7. Financial liquidity – (Financial risk)
Business risk
•
•
The business does not maintain sufficient funding and liquidity to meet its obligations as they fall due.
The business commits to a materially significant loss making contract.
Mitigation
•
The Group prepares financial forecasts to evaluate the level of funding required for the foreseeable
future. These forecasts are reviewed and approved by the Board.
• Based on these forecasts appropriate funding and liquidity solutions are put in place to ensure that
adequate headroom is maintained.
• At the year-end 31 March 2019, the Group had an undrawn revolving credit facility of £3.5m and the
Group had net debt of £2.0m.
• Operate a clearly defined delegation of authority matrix and contract review / contract risk register.
8. Failure of or malicious damage to IT systems – (Operational risk)
Business Risk
•
•
The inability to access business critical data.
The inability to efficiently run the operating companies.
Mitigation
The Group:
• Has been certified as meeting the “Cyber Essentials” standards.
• Runs automated daily back-ups of all business critical data.
• Operates off site storage of business critical data.
• Has established, documented and tested disaster recovery plans.
9. Natural disasters – (Operational risk)
Business risk
• Natural disaster disrupts production capability, supply of materials or customer demand.
Mitigation
•
The Group has a documented and tested disaster recovery plan for each site. In addition, the Group
has business interruption insurance.
13
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Financial Review
In order to provide a fuller understanding of the Group’s ongoing underlying performance, we have included a number
of adjusted profit measures as supplementary information, on a consistent basis with that reported by the financial
analysts that review our business. As detailed in note 32, the adjusted measures eliminate the impact of certain non-
cash charges and non-recurring items.
Revenues
Group revenues from continuing operations of £56.3m were up 22% on the prior year (2018: £46.3m) delivered from a
combination of organic growth of £4.3m or ~10% and acquisitive growth of £5.7m or ~12%.
During the year the Value Added Distribution division delivered organic revenue growth in excess of 25% which when
added to the £5.7m of revenue from the acquisition of Pacer results in the division now representing £30.4m / 54%
(2018: £19.7m / 43%) of Group revenue.
The Manufacturing division reported revenue of £25.9m (2018: £26.6m) which was marginally down on prior year. This
reduction in revenue was as a result of some re-scheduling of orders in the Power business unit from Q4 2018/19 to Q1
2019/20. Deliveries to these customers have now resumed at expected levels. The focus this year has been on quality
of value added activity which has meant that this marginal reduction in revenue was more than mitigated at a gross
margin and profit before tax level.
Gross profit
Gross profit for the year is up £3.7m to £16.4m (2018: £12.7m) reflecting margins recovering to 29.1% (2018: 27.5%)
driven by improved margins in the Manufacturing division.
VAD margins have been maintained at 23.5% on revenues which are up 54%, which when combined with the significant
improvement in the Manufacturing margins to 35.6% (2018: 30.6%) result in Group margins improving 1.6% in spite of
the potentially dilutive impact of the increased share of VAD activity.
VAD contributed £7.2m (2018: £4.6m) of gross margins which was up 57% over the prior year. The increase reflects our
success in growing revenue through the acquisition of Pacer and winning larger volume contracts. In addition the
investments we have made in developing our added value services at the Weymouth facility, and our obsolescence
sourcing and long term storage offerings which add tangible value to our customers mitigating the margin pressure. We
now have the class leading value added services capability which, looking forward, are expected to increase the product
portfolio and enable the VAD division to enhance its margins as these services develop.
The Manufacturing division contributed £9.2m (2018: £8.1m) of gross margin which is up 14% on the prior year. The
gross margin percentage has recovered to 35.6% (2018: 30.6%) primarily as a result of a change in mix of sales with the
higher sales of high value added product being achieved across all the business units. The focus on higher value added
activity has resulted in some extended commercial negotiations but now positions us well for profitable future growth.
Sales and general administration expenses
Sales and general administration expenses of £13.5m increased by £3.3m from £10.2m in 2018. This increase primarily
reflects £2.5m increase in operating costs, £1.5m of which are a result of the Pacer acquisition plus overhead inflation of
~ £0.25m plus investment in staff and third party sales resources of ~ £0.75m.
The remaining overhead increase reflects additional share based payments charges £0.2m and additional depreciation
and amortisation of £0.6m.
Adjusted sales and general administration expenses from continuing operations increased by £3.0m to £12.7m (2018:
£9.7m).
As reported last year, the VAD division invested in additional resources in order to deliver the organic growth in 2018/19
which combined with the Pacer overheads has resulted in the division’s adjusted sales and general administration
expenses increasing from £3.3m to £5.5m.
The Manufacturing division’s adjusted sales and general administration expenses have increased to £6.3m from £5.6m.
This reflects the full year impact of the amortisation of intangibles in conjunction with cost inflation.
Adjusted Head Office sales and general administration costs have remained relatively stable at £0.9m (2018: £0.8m).
14
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Within sales, general and administrative expenses the reported depreciation and amortisation from continuing
operations in the year was £1.4m which is up £0.5m from £0.9m in 2018 primarily due to the additional depreciation
post the Pacer acquisition, increased amortisation of capitalised R&D and the amortisation of the Pacer acquisition
intangibles. Adjusted depreciation and amortisation from continuing operations (excludes the amortisation of
acquisition intangibles) has increased to £1.2m (2018: £0.7m).
Operating profit
Adjusted operating margins are stable year on year at 6.5% with reported operating profit from continuing operations
up 16% to £2.9m (2018: £2.5m). Adjusted operating profit is up in excess of 20% to £3.7m (2018: £3.0m) reflecting the
growth in revenue and the improved margins. The adjustments to operating profit are set out in further detail in note
32.
We have recognised no net credit within operating profit in respect of Research and Development Expenditure Credit
(RDEC) (2018: £0.1m) however we have recognised credits within the tax line, where we are eligible for the SME R&D
tax scheme. These development programmes are a cornerstone of the Group’s future high value add revenue streams.
EPS
Adjusted fully diluted earnings per share from continuing operations for the year ended 31 March 2019 are up 16% at
35.9p (2018: 30.9p). Reported fully diluted earnings per share from continuing operations are up 18% at 30.7p (2018:
26.0p).
Cash flow from operations
Cash inflow from continuing operations for the year of £4.9m is up from £1.4m in 2018 primarily due to a cash inflow of
circa £0.3m from working capital compared to an outflow of £2.2m in the prior year. Underlying cash flow from
operations was up £0.5m at £4.0m (2018: £3.5m) after excluding the net cash benefit from advanced customer
payments. This delivers underlying operating cash conversion percentage of 109% (2018: 122%) and reported operating
cash conversion percentage of 168% (2018: 54%)
There was a working capital cash outflow in the period due to increased receivables and inventories resulting from
increased revenues and investment in inventory. Inventories have increased due to increased lead times on cells and
various electronic components and the positioning of customer requested inventory to mitigate the potential Brexit risk
at the end of March offset in part by one off customer cash advances which are excluded when calculating underlying
cash conversion.
Investing activities
During the year the Group invested £0.6m (2018: £0.4m) in property plant and equipment and £0.3m (2018: £0.3m) in
software and research and development intangibles. The increase in capital expenditure reflects investment in the new
value added services facility in Weymouth amounting to circa £0.25m investment. This aside the investment has been
maintained at the historical run rate level for capital expenditure.
Investment in subsidiaries
The acquisition of 100% of the share capital of Pacer Technologies Limited, the holding company for the Pacer Group of
companies, resulted in a cash outflow of £3.8m. The acquisition was financed through new bank facilities provided by
the Lloyds (see below financing activities) further details on the acquisition are provided in note 31.
Financing activities
The financing activities reflect the drawdown of £6.0m of acquisition facilities put in place to fund the acquisition of
Pacer. We have subsequently repaid £1.8m of borrowings which included the first repayment of the term loan and the
repayment in full of the Pacer invoice discounting facility acquired.
As a result of the strong cash generation, post year end in April 2019, the Group has made an early repayment of £2.0m
of the highest price element of the term loans taken out in respect of the acquisition of Pacer. Having done this, the
Group has been able to extend the undrawn revolving credit facility by £2.0m, maintaining the Group’s overall funding
flexibility.
15
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Dividend
The Board is proposing to increase the final dividend to 8.3p (2018: 8.0p), giving a full year dividend of 12.5p (2018: 12p).
The dividend is 2.9 times covered based on the adjusted profit after tax.
Subject to approval of the final dividend by the shareholders at the AGM on 4 September 2019, the final dividend will be
paid on 19 September 2019 to shareholders on the register at the close of business on the 30 August 2019. The shares
will be marked ex-dividend on 29 August 2019.
KPIs
In addition to the information provided in the Chairman’s Report and this Strategic Report, the Directors use several key
performance indicators to manage the business, disclosed in the financial review on pages 14 to 16. Non-financial KPIs
are not disclosed.
KPI
Sales from continuing operations
Adjusted operating profit from continuing operations
Adjusted profit before taxation from continuing operations
Adjusted diluted EPS from continuing operations
Underlying cash flow from continuing operating activities
(Net debt) / net cash
Open order book @ 31 May
Outlook
2019
£56.3m
£3.7m
£3.5m
35.9p
£4.0m
(£2.0m)
£35.9m
2018
£46.3m
£3.0m
£3.0m
30.9p
£3.5m
£0.6m
£23.0m
The margin improvement achieved by refocusing the Manufacturing division, in conjunction with a significantly stronger
open order book puts the Group in a strong position as we start the new financial year, albeit the macroeconomic
headwinds continue to be a challenge.
Investment in the Power business unit is positioning the business to win and deliver more complex, higher margin
solutions whilst automation is improving productivity. Likewise, the Computing team are targeting opportunities with
increased levels of added value to leverage our engineering and production capability. When combined these initiatives
place the Manufacturing division in a strong competitive position to deliver profitable growth.
Following the acquisition of the Pacer Group of companies, the enlarged VAD division has the scale, reach and capabilities
to attract significant franchises such as VPT which we signed during the year. We have invested significantly in our value
added services facility in Weymouth and our sourcing and obsolescence offering, which differentiate our VAD portfolio
to provide us with exciting opportunities for the future.
Over the next three years of our five year plan, we will remain focused on securing quality orders as we drive to achieve
our goal we set at the beginning of 2017 to double the size of the business through a combination of organic growth and
strategic acquisitions. The Board is confident that the achievements of the last year and the growth in our open order
book demonstrate that Solid State is making good progress towards achieving its goals and that the prospects for the
Group remain very positive.
16
CHIEF EXECUTIVE’S STRATEGIC REPORT (continued)
Cautionary statement
This report contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be identified by the fact that they do not relate only to
historical or current facts.
Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will,
may, should, would, could, is confident, or other words of similar meaning.
Undue reliance should not be placed on any such statements because they speak only as at the date of this document
and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other
factors that could cause actual results, and Solid State PLC’s plans and objectives, to differ materially from those
expressed or implied in the forward-looking statements.
There are a number of factors which could cause actual results to differ materially from those expressed or implied in
forward-looking statements. These risks and uncertainties include, among other factors, changing economic, financial,
business or other market conditions.
Solid State PLC is under no obligation to revise or update any forward looking statement contained within these financial
statements, regardless of whether those statements are affected as a result of new information, future events or
otherwise, save as required by law and regulations.
The strategic report on pages 5 to 17 has been approved by the Board of Directors and signed on its behalf by:
G S Marsh
Chief Executive Officer
2 July 2019
17
CORPORATE AND SOCIAL RESPONSIBILITY REPORT
Code of business conduct, ethics and anti-corruption
Our business conduct policy sets out the values and standards of behaviour expected from all employees. In addition, it
addresses expectations relating to the day-to-day conduct of business partners and agents who act as representatives
of Solid State PLC.
The policy also deals with how employees, business partners and agents can report any concerns that may arise.
The policy actively promotes corporate social responsibility across our Group. It addresses how we work with a wide
range of third party organisations in areas such as ethical employment policies, educational and community work.
It sets out the responsibilities of employees in ensuring that they carry out their business activities in a manner aligned
with the Group’s values and business principles.
All staff are required to ensure that they comply with all relevant laws and regulations of the countries in which we
operate and do business. The policies also set out behaviours that are unacceptable and which could bring Solid State
PLC’s reputation into disrepute.
The policy contains guidance on avoiding conflicts of interest, confidentiality, adherence to export controls, our approach
to gifts and hospitality, bribery and corruption and managing relationships with third parties.
Upholding the policy is the responsibility of all Solid State PLC employees and business partners. We actively encourage
everyone to report any behaviour which may be in breach of the Code, is unethical or illegal. This is achieved by fostering
a culture of openness and accountability, and by providing a clear procedure that enables any individual to raise breaches
of policy or malpractice directly at the highest level.
All those working for, or on behalf of, Solid State PLC are required to confirm that they have read and understood the
business conduct policy, and a copy of the policy is readily available to all employees.
Commercial business practices
We are committed to acting professionally, fairly and with integrity in all our business dealings and relationships. We
work with our partners to adopt best business practices, which include:
In our dealings with customers
Working closely in partnership with customers and potential customers to help us improve the value we can add to them
through our products and services;
Being open and honest about our products and services, communicating with customers all appropriate information they
need to ensure we consistently meet their expectations;
Ensuring that any issues or problems are dealt with efficiently, with fairness and in a timely manner;
Ensuring that we seek feedback to benchmark and evaluate what we do in order to help us deliver continuous
improvement in our products and services to maintain our value.
In our dealings with suppliers
Working with our suppliers to help us improve the value of the products and services we offer to customers with the
benefit of the access to the supply chain that we have;
Identifying and selecting suppliers to work in partnership with using fair and reasonable methodologies;
Identifying and working with suppliers who operate to ethical business standards;
Working closely with suppliers to help us improve the value of the products and services we offer customers to the
benefit of the supply chain.
In our relationships with employees and other stakeholders
Ensuring employment practices throughout the Group are fair and in full compliance with employment legislation;
Encouraging volunteer work in community activities;
Supporting local academic establishments and participating in voluntary business advisory services via professional
bodies.
18
CORPORATE AND SOCIAL RESPONSIBILITY REPORT
(continued)
Confidentiality
Our business conduct policy emphasises the need for confidentiality to be maintained in all of our business activities.
Maintaining confidentiality is a critical part of our culture. Our policy and practices help to ensure that all staff understand
what constitutes confidential information and restricts internal access based on a “need to know basis”.
Information relating to third parties is not disclosed without the third parties’ written consent. Where we conduct work
for customers including government agencies where specific confidentiality requirements exist such as the official
secrets act we have process and procedures to ensure we comply with these requirements.
Bribery Act
We implement and enforce effective systems to uphold our zero tolerance approach to bribery and corruption. To ensure
we only work with third parties whose standards are consistent with our own, all agents and third parties who act on
behalf of the Group are obliged by written agreement to comply with the standards set out in the Code.
Human rights
Solid State PLC is committed to respecting the human rights of all those working with or for us. We do not accept any
form of child or forced labour and we will not do business with anyone who fails to uphold these standards.
Modern slavery
The Modern Slavery Act addresses the role of businesses in preventing modern slavery within their organisation and in
their supply chains. The Group has a zero-tolerance approach to modern slavery and is committed to acting ethically and
with integrity in all of its business dealings and relationships and to implementing and enforcing effective systems and
controls to ensure modern slavery is not taking place anywhere in its business or in any of its supply chains. The Group
has developed and implemented policies to comply with the requirements of the UK’s Modern Slavery Act. Reference to
the policy may be found on the corporate website at www.solidstateplc.com.
How we invest in our people
Our success depends on our people. The Group recognises the important role our employees play, and that effective
teamwork is critical for us to achieve our corporate goals.
We strive to make the Solid State Group a “great place to work” where our actions demonstrate this with behaviours
that the team deliver each and every day. This is aimed at providing an environment of team work and collaborative
respect, where we are all valued for our contribution and everyone is proud to be part of “the Solid State team”.
We maintain equality of opportunity in all employment practices, policies and procedures regardless of race, nationality,
gender, age, marital status, sexual orientation, disability and religious or political beliefs. As part of our policies we set
out our approach to diversity.
Health and Safety
Solid State PLC places health and safety at the core of all the business activities to ensure a safe working environment
for everyone involved in the business. As a corner stone of our business operations Health and Safety reporting is a
standing item on the Board agenda.
All employees are encouraged to take an active role in ensuring that our working environment is a safe place to work
and visit by actively reporting all safety observations and incidents, being involved in safety audits, risk assessments and
regular awareness training sessions.
The operations teams are actively involved in electronics industry-wide initiatives, working with industry associations
and proactively registering under new regulatory directives such as Registration, Evaluation, Authorisation & restriction
of Chemicals (REACH) and Waste Electrical and Electronic Equipment recycling (WEEE).
G S Marsh
Chief Executive Officer
2 July 2019
19
CORPORATE GOVERNANCE REPORT
Statement of compliance against the UK Corporate Governance Guidance
The Board of Directors believes in high standards of corporate governance and is responsible for ensuring that the Group
has in place appropriate governance practices and is accountable to shareholders for the Group’s performance in this
area.
Solid State PLC, as a quoted company on AIM, a market operated by The London Stock Exchange PLC, is required in
accordance with AIM rule 26 to adopt a corporate governance code. Solid State PLC has chosen to adopt the QCA
corporate governance code (the “Code”) over the FRCs UK Corporate Governance Code.
In adopting the Code the Directors have provided corporate governance disclosures and explain how the company
adopts the ten principles of the Code in a manner that is considered appropriate for our company. The Code is available
on the QCA website at: www.theqca.com.
This statement describes how the Group is applying the relevant principles of governance, as set out in the Code.
Throughout the year ended 31 March 2019, the Group has applied the principles of the Code. In adopting the Code the
board has also been cognisant of the guidance issued from other regulatory bodies in respect of best practice corporate
governance such as the FRC to ensure that the governance framework adopted at Solid State PLC is rigorous, robust and
appropriate for our size and structure.
How the corporate governance principles are adopted at Solid State PLC
The Board considers that throughout 2018/19, Solid State PLC has sought to comply with the “Ten Principles” within the
code and this report sets out how the Board has done this through the year. This statement addresses the main subject
areas of the Code namely; delivering growth, maintaining a dynamic management framework, and building trust.
Principle
Compliance
status
Explaination
Further disclosure(s)
Delivering growth
Principle 1: -“Establish a
strategy and business model
which promote long-term
value for shareholders”
Fully
compliant
Group business strategy is set out
in the Chairman’s statement and
the Strategic Review above.
See the Chairman’s Statement
on pages 3 to 4 and Strategic
review on pages 5 to 17.
Principle 2: - “Seek to
understand and meet
shareholder needs and
expectations”
Principle 3: - “Take into
account wider stakeholder
and social responsibilities
and their implications for
long-term success”
Fully
compliant
Fully
compliant
Strategic issues, and the
appropriate business model to
exploit opportunities and mitigate
risks, are under continuous review
by the board.
Regular meetings are held with
shareholders at the release of
interim and full year results, the
AGM and a number of additional
ad hoc meetings.
Directors and the management
team adopt a broad view during
decision making to take
meaningful account of the impact
of our business on all key
stakeholder groups.
See further reporting on the
stakeholder engagement
provided on page 27 of this
report and pages 18 to 19 of
the corporate and social
responsibility report.
See further reporting on the
stakeholder engagement
provided on page 27 of this
report and pages 18 to 19 of
the corporate and social
responsibility report.
20
CORPORATE GOVERNANCE REPORT (continued)
Compliance
status
Fully
compliant
Principle
Principle 4: - “Embed
effective risk management,
considering both
opportunities and threats,
throughout the
organisation”
Explaination
Further disclosure(s)
The group operates a system of
internal controls to safeguard
group assets and protect the
business from identified risks.
These controls are subject to
examination during the annual
external audit process.
See the risks identified and the
mitigation and the report our
risk management processes on
pages 27 to 28 of this report
and on pages 10 to 13 of the
strategic report.
Maintain a dynamic management framework
Principle 5: - “Maintain the
board as a well-functioning,
balanced team led by the
chair”
Fully
compliant
At the year-end the Board
comprises the Non-Executive
Chairman; Mr A B Frere, the Chief
Executive Officer; Mr G S Marsh,
three Executive Directors and two
Non-Executive Directors.
Fully
compliant
Principle 6: - “ensure that
between them the
directors have the
necessary up-to-date
experience, skills and
capabilities”
The board is satisfied that the
current composition provides the
required degree of skills,
experience, diversity and
capabilities appropriate to the
needs of the business.
It was identified last year that a
new independent director would
add value and fresh perspective to
the Board resulting in the post year
end appointment of Nigel Rogers.
See the Board and its sub
committees’ section in this
report on page 23 to 26.
See the Board section in this
report on pages 23 to 26.
Principle 7: - “Evaluate
board performance based
on clear and relevant
objectives, seeking
continuous improvement”
Partially
compliant
The Board has completed an
internal evaluation of performance
which is led by the Chairman.
See the Board performance
evaluation section in this report
on page 26.
The Chairman also actively
encourages self-evaluation by all
board members, and feedback on
the conduct and content of board
meetings.
The board will continue to keep
under review whether a more
structured independent review is
required in future.
21
CORPORATE GOVERNANCE REPORT (continued)
Principle
Principle 8: - “promote a
corporate culture that is
based on ethical values and
behaviours”
Compliance
status
Fully
compliant
Explaination
Further disclosure(s)
The board expects high ethical and
moral standards. The board and all
employees expected to be
accountable for their actions and
in compliance with the Company
handbook. Employees are actively
encouraged to participate in
training courses and maintain CPD.
See the Board section in this
report on pages 23 to 26 and
the corporate and social
responsibility report on pages
18 to 19.
Principle 9: - “Maintain
governance structures and
processes that are fit for
purpose and support good
decision-making by the
board”
Fully
compliant
The board as a whole take
responsibility for ensuring
appropriate corporate governance
practices are adopted.
See the Board section in this
report on pages 23 to 26 and
the audit committee report on
pages 32 to 34.
The roles and responsibilities of
each of the directors (including
committee memberships) are
clearly defined.
Fully
compliant
Building trust
Principle 10: -
“Communicate how the
company is governed and is
performing by maintaining
a dialogue with
shareholders and other
relevant stakeholders”
Regular meetings with
shareholders and other key
stakeholder groups provide a
specific opportunity for raising any
concerns related to corporate
governance, including any
significant votes cast against or
abstaining from shareholder
resolutions.
Further narrative disclosure is
provided in: Corporate
governance report on pages 20
to 29, the corporate and social
responsibility report on pages
18 to 19 and the remuneration
committee report on pages 35
to 38.
The Board views maintaining high standards in its governance and management of the affairs of the Group as a
fundamental part of discharging its stewardship responsibilities.
Accordingly, both the Board and the Audit Committee continue to keep under review the Group’s whole system of
internal control, which comprises not only financial controls but also operational controls, compliance and risk
management.
This process was in place throughout the 2019 financial year and accords with the Revised Guidance for Directors on Risk
Management, Internal Control and Related Financial & Business Reporting (formerly called the Turnbull Guidance).
22
CORPORATE GOVERNANCE REPORT (continued)
The Board
The Board acknowledges that none of the Non-Executives would be independent in accordance with the FRC Code,
however the QCA guidelines acknowledge for growing companies it may not be possible for boards to meet the definition
of “independence” for all Non-Executive Directors and sets out that it is important for the board to foster an attitude of
independence of character and judgement, and the fact that a Director has served for more than nine years does not
automatically affect independence, although concurrent tenure with management could hinder the ability to be
objective. Based on the QCA guidelines the board conclude that the Non-Executives are independent in terms of
character and judgement in how they execute their role as Non-Executive Directors.
As we reported previously the Board feels that stability in the Non-Executive team over the last year has been very
valuable especially as there has been two changes in the Executive team within the last 3 years. The value, the
knowledge, and the experience of the industry and business held by Mr A B Frere, Mr P Haining and Mr J M Lavery out-
weighs the short term potential lack of perceived independence.
During the year Mr J M Lavery announced his intention to retire from the board as part of the planned succession and
development of the Board. The Board has completed a nomination process to appoint a replacement independent non-
executive Director who will also take on the responsibility of chairing the remuneration committee going forward. Post
year end the Board announced that Nigel Rogers will be appointed to the Board from 1 July 2019. Further details of the
nominations and appointment process is provided on page 24.
The Board is mindful of the threats to independence and actively manages the potential risk to ensure that the Non-
Executives provide independent constructive challenge. The terms and conditions of appointment of the Non-Executive
Directors are available for inspection upon request to the Company Secretary.
Rules concerning the appointment and replacement of Directors of the Group are contained in the Articles of Association
(“Articles”). Amendments to the Articles must be approved by a special resolution of shareholders. Under the Articles,
all Directors are subject to election by shareholders at the first Annual General Meeting following their appointment,
and to re-election thereafter at intervals of no more than three years.
The Board has considered the FRC’s guidance to companies outside the FTSE 350 to consider the annual re-election of
all Directors and consider that this would be overly burdensome for the current nature of the Group. Biographies of the
Directors are set out on page 41. These show the range of business and financial experience upon which the Board is
able to call.
The Board’s goal is to ensure that its membership should be balanced between Executives and Non-Executives and have
the appropriate skills and experience and knowledge of the business. The Board recognises the special position and role
of the Chairman under the Code and has approved the formal division of responsibilities between the Chairman and
Chief Executive Officer.
The Chairman is responsible for the leadership of the Board and ensuring its effectiveness, and the Chief Executive Officer
manages the Group and has the prime role, with the assistance of the Board, of developing and implementing business
strategy.
One of the roles of the Non-Executive Directors under the leadership of the Chairman is to undertake detailed
examination and discussion of the strategies proposed by the Executive Directors, so as to ensure that decisions are in
the best long term interests of shareholders and take proper account of the interests of the Group’s other stakeholders.
The Chairman ensures that meetings of Non-Executive Directors without the Executive Directors are held.
23
CORPORATE GOVERNANCE REPORT (continued)
How the Board operates
The Board meets regularly through the year and is provided with appropriate strategic, operational and financial
information prior to each meeting with monthly reports to enable it to monitor the performance of the Group.
Directors are required to devote such time and effort to their duties as is required to secure their proper discharge and,
for Non-Executive Directors, his typically entails one or two days of meetings per month as well as reading and
preparation time.
At Board meetings the Chairman ensures that all Directors are able to make an effective contribution and every Director
is encouraged to participate and provide their perspective and opinions. The Chairman always seeks to achieve
unanimous decisions of the Board following due discussion of agenda items.
All Directors have direct access to the advice and services of the Company Secretary who is responsible for ensuring that
Board procedures are followed and are allowed to take independent professional advice if necessary, at the Company’s
expense.
The Board has a formal schedule of matters referred to it for decision. This list includes appropriate strategic, financial,
organisational and compliance issues, including the approval of high level announcements, circulars, the report and
accounts and certain strategic and management issues.
Examples of such items include but are not limited to:
•
•
•
•
•
•
•
the approval of interim and annual results;
the approval of the annual budget;
approval of acquisitions or disposals;
approval of major items of capital expenditure;
the approval of significant contracts;
approval of changes to corporate or capital structure; and,
financial issues, including changes in accounting policy, the approval of dividends, bank facilities and guarantees.
Committees of the Board
Executive Committee
The Executive Committee consists of the Executive Directors under the chairmanship of Mr G S Marsh and is responsible
for the development of strategy, annual budgets and operating plans linked to the management and control of the day-
to-day operations of the Group.
The Executive Committee is also responsible for monitoring key commercial opportunities and relationships, day to day
stakeholder engagement and for ensuring that the Board policies are carried out on a Group-wide basis.
Nominations Committee
The Nominations Committee is formed when required as a sub-committee of the Board. The Nominations committee
was formed and oversaw the recruitment process to appoint Nigel Rogers as a non executive director which was
completed in the current financial period.
The Nominations committee took responsibility for identifying; the skills, experience, personal qualities and capabilities
required for the next stage in the company’s development, linked to the company’s strategy.
The nominations committee appointed an external agency to assist with the recruitment process based on the
specification set out to ensure that a comprehensive list of suitable candidates was identified in a “long list”. From the
long list the committee completed the initial review of the candidates and first round interviews to identify a shortlist of
preferred candidates that were interviewed by the whole Board to select the preferred candidate for the role.
24
CORPORATE GOVERNANCE REPORT (continued)
Audit Committee
The Audit Committee consists of the Non-Executive Directors; Mr P Haining, Mr J M Lavery and Mr A B Frere. The
Committee meets at least twice a year under the Chairmanship of Mr P Haining, who the Board has evaluated to have
recent relevant financial experience.
The Chairman of the Audit Committee is not deemed independent by virtue of his length of service and that he has
previously held an Executive position. However, given that the Board considers that Mr P Haining fulfils the role with
independence of character and judgement, the Board has concluded that it is appropriate to retain the financial
experience and knowledge of the business possessed by Mr P Haining in his role as Chairman of the Audit Committee.
The Audit Committee has specific written terms of reference which deal with its authority and responsibilities and these
are available for inspection from the Company Secretary. Its duties include monitoring internal controls throughout the
Group, approving the Group’s accounting policies, and reviewing the Group’s interim results and full year financial
statements before submission to the full Board. The Audit Committee also reviews and approves the scope and content
of the Group’s annual risk assessment programme and the annual audit and monitors the independence of the external
auditors.
The Audit Committee acts to ensure that the financial performance of the Group is properly recorded and monitored, in
fulfilling their role they meet annually with the auditors and review the reports from the auditors relating to accounts
and internal control systems.
The Group does not have an independent Internal Audit function, as it is not considered appropriate given the scale of
the Group’s operations, however the Group operates internal peer reviews, with a scope of evaluating and testing the
Group’s financial control procedures, to standardise processes around best practice. Any significant issues are reported
to the Chairman of the Audit Committee and shared with the external auditors as appropriate.
The Group Finance Director and the external auditors attend meetings of the Audit Committee by invitation. The
Committee also holds separate meetings with the external auditors, as appropriate.
Remuneration Committee
The Remuneration Committee consists of Mr A B Frere, Mr J M Lavery and Mr P Haining. The Committee meets at least
twice a year under the Chairmanship of Mr A B Frere.
While the Corporate Governance code suggests the Chairman of the Group should not also be Chairman of the
Remuneration Committee, as Mr A B Frere is the only Non-Executive Director not to have held an Executive position, it
is felt that it is appropriate that Mr A B Frere chairs this committee. However, going forward Mr N Rogers, as the new
independent Non-Executive Director, will chair this committee following his appointment post year end.
The Chief Executive Officer and Group Finance Director have attended some of the meetings of the Remuneration
Committee by invitation to respond to questions raised by the Committee, but they are excluded from any matter
concerning the details of their own remuneration.
The Remuneration Committee has specific terms of reference which deal with its authority and duties and these are
available for inspection from the Company Secretary.
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. In fulfilling this responsibility, the Remuneration Committee is responsible for setting salaries, incentives
and other benefit arrangements of Executive Directors and overseeing the Group’s employee share schemes.
Members of the Remuneration Committee do not participate in decisions concerning their own remuneration. Further
details are provided in the remuneration report on pages 35 to 38.
25
CORPORATE GOVERNANCE REPORT (continued)
Attendance at meetings
Number of meetings in 2018/19
Attendance
Executive
Mr G S Marsh
Mr J L Macmichael
Mr M T Richards
Mr P O James
Non-executive
Mr A B Frere
Mr P Haining
Mr J M Lavery
Board
Audit Committee
Remuneration
Committee
10
10
10
10
10
9
10
8
3
n/a
n/a
n/a
3
3
3
3
2
n/a
n/a
n/a
n/a
2
2
2
Board performance evaluation
The Chief Executive reviews the performance of the Executive Directors on a periodic basis and reports to the
Remuneration Committee.
The performance of the Directors, the Chairman and of the Board are monitored on an ongoing basis. Annually the
Remuneration Committee evaluates performance as part of the review of remuneration and discretionary bonus awards.
During 2018/19 the Board and the Remuneration Committee evaluated the Board performance, including but not limited
to Board balance, Board skills and remuneration, to ensure that the Board structure is fit for purpose and is appropriate
for the next phase of the Group’s development and growth.
This review identified that the Board continued to make progress against its strategy with the current trading
performance ahead of the Board’s expectations. As a result of the pleasing performance in the current year the Executive
Directors’ share bonus options vested, modest cash bonuses and salary increases were awarded to the Executive Board
Members. Further details are provided in the remuneration report on pages 35 to 38.
The evaluation identified that while the Board’s skills and balance were appropriate, and the Non-Executives remained
independent in terms of character and judgement in how they execute their role as Non-Executive Directors, the current
non executives had all been on the board for in excess of nine year.
As a result, the Board acknowledged that the appointment of a truly independent replacement Non-Executive Director
post year end would bring a fresh perspective which would be a significant benefit as the Board continues to develop
and drive progress against its strategic objectives and Goals.
26
CORPORATE GOVERNANCE REPORT (continued)
Shareholder relations
The Board regards regular communications with shareholders as one of its key responsibilities. During 2018/19, the Chief
Executive Officer and Group Finance Director met with institutional investors on a regular basis to discuss the Group’s
performance, the shareholder’s views, and to ensure that the strategies and objectives of the Group are well understood.
The Chief Executive Officer keeps the Board fully informed of any significant matters discussed with shareholders and of
shareholders’ views. In addition to this the Board receives copies of the analysts’ reports which the Company is made
aware of.
The Non-Executive Directors, having considered the Code, are of the view that this approach to shareholder
communication remains appropriate for the Group. However, should shareholders have concerns which they feel cannot
be resolved through normal shareholder meetings, the Chairman, and the remaining Non-Executive Directors may be
contacted through the Company Secretary.
Interim and full year-end shareholder roadshows are held by the Executive Directors together with a Capital Markets
Lunch. The Company also arranges investor site visits typically twice a year. These events enable shareholders and
potential shareholders to understand first-hand the business, visit the operations and meet the wider team.
Furthermore, shareholders attending the AGM are invited to ask the Directors questions about the business. The
Company also maintains the Group’s website, which provides details of the Group’s business including its strategy,
technologies, operations and products.
The Group website has a separate investor relations section which provides the Group’s news flow, share price
information, and financial reports including the annual and interim reports. Hard copies of these financial reports are
also available by request. The website can be found at: www.solidstateplc.com.
In accordance with the recommendations of the Code, the Company will advise shareholders attending the AGM of the
number of proxy votes lodged in respect of each resolution, analysed between ‘For’, ‘Against’, ‘at the Chairman’s
discretion’ and ‘abstentions’. These are advised after the resolutions have been dealt with on a show of hands, providing
that a poll has not been called for or required.
Audit and Accountability
The Code requires that Directors review the effectiveness of the Group’s system of internal controls on a continuing
basis. The scope of the review covers all key controls including financial, operational and compliance controls as well as
risk management.
The Board has put in place a framework of internal controls to manage the risks faced by the Group and the Audit
Committee has responsibility to review, monitor and make policy recommendations to the Board upon all such matters.
The Directors acknowledge their responsibility for the Group’s system of internal control. The Board, through the Audit
Committee, keeps this system under continuous review and formally considers its content and its effectiveness on a bi-
annual basis. In completing their review of the effectiveness of the Group’s system of internal controls the Audit
Committee has taken account of any material developments up to the date of the signing of the financial statements. In
addition, recognition is given to the external audit findings, which help to inform the Audit Committee’s views of areas
of increased risk.
The system of internal control comprises those controls established in order to provide assurance that the assets of the
Group are safeguarded against unauthorised use or disposal and to ensure the maintenance of proper accounting
records and the reliability of financial information used within the business or for publication.
Any system of internal control can only provide reasonable, but not absolute, assurance against material misstatement
or loss, as it is designed to manage rather than to eliminate the risk of failing to achieve the business objectives of the
Group.
The Directors acknowledge their responsibility for preparing the Annual Report and Accounts. The Audit Committee
reviews the Group’s reporting processes with the aim of ensuring that the financial reporting, when taken as a whole, is
fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
27
CORPORATE GOVERNANCE REPORT (continued)
Risk Management
The Board reviews and approves an Annual Budget and Business Plan prior to the start of each financial year. This
includes reviewing the key strategic, operational and financial objectives for the year, together with a detailed financial
budget.
The Executive Committee is accountable to the Board for delivery of the Annual Business Plan. The Executives report
performance against the plan on a monthly basis, which includes detailed analysis of budgetary variances and updated
financial projections.
Each Executive Director is responsible for identifying and managing the risks relating to their respective areas of
responsibility, including the risks relating to strategy, the Annual Business Plan and day-to-day business.
To provide a framework for the delivery of the Group’s strategy and plans, the Executive Committee has developed an
organisational structure with clear roles and responsibilities and clear lines of reporting.
In addition to day-to-day risk management the Executive Directors formally assess the major business risks and evaluate
their potential impact on the Group. These risks and the reporting of the risk assessment is included in the strategic
report on pages 10 to 13.
Internal Control
In respect of internal controls, the Directors 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, 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.
Further details over the internal controls are set out in the Audit Committee report on page 30.
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.
Going Concern
The Directors, after making enquiries, considering the available resources, the financial forecast together with available
cash and committed borrowing facilities, have formed a judgement that there is a reasonable expectation that the
Company and the Group have adequate resources to continue operating for the foreseeable future and therefore the
going concern basis has been adopted in preparing these financial statements.
In reaching this conclusion the Board has considered the magnitude of potential impacts resulting from uncertain future
events or changes in conditions, the likelihood of their occurrence and the likely effectiveness of mitigating actions that
the Directors would consider undertaking.
28
CORPORATE GOVERNANCE REPORT (continued)
Long term viability statement
The Directors have considered the viability of the Group over a three year period to 31 March 2022, taking account of
the Group’s current position and the potential impact of the principal risks and uncertainties documented in the Strategic
Report.
In making this statement the Directors have considered the resilience of the Group, taking account of its current position,
the principal risks facing the business in severe but reasonable scenarios, and the effectiveness of any mitigating actions.
The Directors have determined that the three-year period to 31 March 2022 is an appropriate period over which to
provide its viability statement. In making their assessment the Directors have taken account of the Group’s current
funding headroom (see note 18), its ability to raise new finance in most market conditions and other potential mitigating
actions.
Based on this assessment the Directors have a reasonable expectation that the Group and Company will be able to
continue in operation and meet its liabilities as they fall due over the period to 31 March 2022.
G S Marsh
Chief Executive Officer
2 July 2019
29
AUDIT COMMITTEE REPORT
The Audit Committee is chaired by Mr P Haining FCA, a Chartered Accountant. He is considered by the Board and Audit
Committee to have the necessary current relevant financial knowledge, qualifications and experience for this role.
In accordance with the QCA guidance the Board has reviewed and evaluated Mr P Haining’s performance as a Non-
Executive Director and confirm that he remains independent in terms of both his character, his judgement and based on
how he conducts himself as a Non-Executive Director and chair of the Audit Committee.
Therefore, given the knowledge, experience and skills of Mr P Haining the Board consider that he remains the most
appropriate member of the Board to Chair the Audit Committee.
Primary responsibilities of the audit committee:
• Reviewing the effectiveness of the Group’s procedures for the identification, assessment and reporting of risk,
financial reporting processes and internal control policies.
• Managing the relationship with the auditors to ensure that the external audit is effective, objective,
independent and of a high quality. Furthermore, the Audit Committee ensures that the scope of the audit, the
auditors’ terms of engagement, and fees are reasonable and appropriate.
Considering whether there is a need for an internal audit function and make a recommendation to the Board
as to what is appropriate for the Board to gain assurance over the financial processes, procedures, controls and
reporting of the group.
•
• Reviewing significant financial reporting issues, accounting policies, and judgements and estimates adopted by
management and monitoring the integrity of the Group’s financial statements independently of the Executive
Directors and external auditors.
• Advising the Board on whether the Committee believes the Annual Report and Accounts, taken as a whole, are
fair, balanced and understandable and provide the information necessary for shareholders to assess the Group
and Company’s performance, business model and strategy.
Activities during the year:
The Audit Committee met three times during the year. The meetings were also attended by the Group Finance Director,
and representatives of the Group’s external auditors by invitation.
At meetings attended by the external auditors, time is allowed for the Audit Committee to discuss issues with the
external auditors without the Group Finance Director being present.
As part of the Audit Committee’s review process, the Chairman of the Audit Committee and the Group Finance Director
visit each of the group’s major business units across the year to review and challenge the local management on their
draft financial results.
The Chairman reports his observations from these visits to the Audit Committee and the Board as part of the process for
approving of the Annual Report and Accounts.
The Committee operates under formal terms of reference and these are reviewed annually. An annual rolling agenda is
used to ensure that all matters within the Audit Committee’s Terms of Reference during the year are appropriately
covered. The Committee considers that it has discharged its responsibilities as set out in its terms of reference to the
extent appropriate during the year.
Financial reporting
The Audit Committee reviewed the appropriateness of the Group’s interim and full year financial statements, including
evaluating the significant financial reporting judgments made by management to ensure that they were appropriate,
considering the reports from management and ensuring that the external auditors concurred with management and the
committee’s conclusions.
The main areas of focus considered by the Committee during 2018/19 were as follows:
The presentation of the financial statements, including the presentation of adjusted performance measures.
Following review of reports from management the Committee concurred that the presentation of the adjusted
performance measures are appropriate, balanced and enables the users of the accounts to understand the underlying
and on-going performance of the business. In finalising the accounts the committee noted that the external auditors
materially concurred with management and the committee’s conclusions.
30
AUDIT COMMITTEE REPORT (continued)
Review of the impact of the acquisition accounting for the Pacer acquisition under IFRS 3.
The Committee reviewed the reports prepared by management which set out the judgments adopted in accounting for
the acquisition of the Pacer Group of companies in accordance with IFRS 3. The committee reviewed the detailed
assumptions which supported the material judgements relating to acquisition accounting as a whole with specific focus
on the dilapidation provisions and the fair value of acquired intangibles. The committee noted that the impact of any
change in the assumptions would be to increase or decrease goodwill accordingly. As such they also considered the value
that has been attributed to the Goodwill. Based on the review the committee concluded that the judgements adopted
were reasonable and appropriate. In finalising the accounts the committee noted that the external auditors materially
concurred with management and the committee’s conclusions.
Review of the impact of the new leases standard IFRS 16.
The Committee reviewed the reports prepared by management which set out the impact of adopting the new standard
which will come into effect for the year ending 31 March 2020.
The report identifies that there will likely be a significant impact on the presentation of both the statement of
comprehensive income and the statement of financial position.
On adoption of the new standard the opening balance sheet which will be 31 March 2018, and the comparative period,
which will be the financial year ended 31 March 2019 will need to be restated.
The standard requires that material leases are recognised on balance sheet within property plant and equipment as a
“right to use asset” which will be depreciated. A right of use liability recognised in respect of future payment obligations.
The committee reviewed the key judgements in determining the value of the right of use assets and liabilities and
disclosure and the accounting policies section of the accounts to ensure that the users of the accounts were given a clear
indication of the likely impact of the adoption and restatement which will be reflected in next year’s accounts. In finalising
the accounts the committee noted that the external auditors materially concurred with management and the
committee’s conclusions that the disclosure in the current year was appropriate.
Review for the potential impairment of goodwill and other intangible assets.
The Committee reviewed and challenged the key assumptions, judgements and sensitivities in the report from
management. The Committee concurred that the expected future cash flows of the group support the carrying value of
goodwill and other intangible assets, and that there were no triggering events which suggested any potential impairment
of goodwill and other intangible assets. In finalising the accounts the committee noted that the external auditors
materially concurred with management and the committee’s conclusions.
Review of product development costs capitalised.
Following review of reports from management and discussion with the Head of Manufacturing Engineering and
Operations, the Committee concurred that the product development costs were capital in nature, and that the treatment
was in accordance with IAS 38. In finalising the accounts the committee noted that the external auditors materially
concurred with management and the committee’s conclusions.
Accounting for R&D tax credits.
Following review of reports from management and correspondence with the companies’ R&D tax advisors, setting out
the level of the R&D claim, the level of the R&D tax credit which is deferred and amortised to match to capitalised
development programmes, the Committee concurred that the R&D tax credit accounting was appropriate. In finalising
the accounts the committee noted that the external auditors materially concurred with management and the
committee’s conclusions.
Review of judgemental areas, and specifically the level of accounting provisions.
Following review of reports from management the Committee concurred that the provisioning policy had been applied
consistently and the level of provisions remains appropriate. In finalising the accounts the committee noted that the
external auditors materially concurred with management and the committee’s conclusions.
31
AUDIT COMMITTEE REPORT (continued)
Going concern
The Committee assessed the appropriateness of the going concern assumption. In doing this the committee reviewed
the resources available to the Group, taking account of the Group’s trading and cash flow forecast together with available
funding headroom. Based on this as disclosed on page 28 the committee concluded that the Going Concern principle
was appropriate. In finalising the accounts the committee noted that the external auditors accepted management and
the committee’s conclusions.
Annual report
At the request of the Board the Committee considered whether the 2018/19 annual report was fair, balanced and
understandable and whether it provided the relevant information for stakeholders to assess the Group’s performance,
business model and strategy.
Having taken account of the other information provided to the Board throughout the year, the Committee was satisfied
that, taken as a whole, the annual report was fair, balanced and understandable.
The Committee was satisfied that based on its review, challenge and debate of the draft financial statements and the
key accounting items, that the assumptions made, the judgements applied and the accounting and disclosures were
appropriate.
The Committee reviewed and recommended the approval of the narrative reporting statements on corporate
governance, internal control and risk management in the annual report and the half year and trading statements.
External auditors
The Audit Committee has developed a formal Auditor Independence Policy. In accordance with this policy, the
Committee oversees the relationship with the external auditors and monitors all services provided by them and all fees
payable to them. This is to ensure that potential conflicts of interest are considered and that an independent, objective
and professional relationship is maintained.
haysmacintyre had been the Company’s external auditors for 9 years. The Committee considers the reappointment of
the external auditor and their independence on an annual basis. As part of this year’s evaluation it was considered
appropriate that we should seek to appoint alternative independent auditors to ensure that independence and the
perception of independence was maintained.
As a result of this an audit tender process was conducted where the audit committee in conjunction with the Group
Finance Director met with three audit firms who prepared and completed a comprehensive a proposal. This appointment
process included an assessment of the control procedures that the potential audit firms have in place to ensure audit
quality and maintain its independence, including the regular rotation of the audit partner.
In addition, the proposal process evaluated the risk identification and assessment process and the resulting approach to
the proposed scope of work which is then aligned to ensuring the proposed fees are fair and reasonable and represent
value for the services provided. As a result of the rigorous proposal process the Audit Committee concluded that RSM
UK Audit LLP (“RSM”) should be appointed as independent auditors to the Group.
As in prior years the provision of external audit and tax compliance are separated where practical. As such tax advice is
provided by Bevan Buckland LLP and The Kings Mill Practice.
The Audit Committee also monitors the effectiveness of the annual audit. In advance of the financial year end, the
Committee receives a detailed audit plan from the auditors which identifies the auditors’ assessment of the key risks and
their intended areas of focus. This is agreed with the Committee to ensure that the scope and coverage of audit work is
appropriate.
In addition, Solid State PLC’s management also provide the Committee with feedback on their view of the quality and
effectiveness of the audit. This feedback is considered in conjunction with the Committee’s own review of the auditor’s
performance in delivering an effective, objective, independent and a high-quality audit.
Based on the proposal process and references sought from other clients of RSM and the review completed of this year’s
services delivered in respect of the 2018/19 audit of Solid State PLC both management and the audit committee were
satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and they assessed the
quality of the audit process as good.
32
AUDIT COMMITTEE REPORT (continued)
Non-audit services
The Committee also regularly reviews the nature, extent, objectivity and cost of non-audit services provided by the
external auditors.
Under this policy, the award to the Group’s auditors of audit related services, tax consulting services or other non-audit
related services in excess of £10,000 must first be approved by the Audit Committee. The policy also sets out guidelines
for the recruitment of employees or former employees of the external auditor.
In addition the Group’s auditors are required to make a formal report to the Audit Committee annually on the safeguards
that are in place to maintain their independence and the internal safeguards in place to ensure their objectivity.
To ensure compliance with this policy the Audit Committee reviewed and approved the remuneration received by both
haysmacintyre and RSM for audit services, audit-related services and non-audit work in this year of transition.
The nature of the services provided by the auditors and the amounts paid to them are as detailed below:
RSM UK audit LLP (2019) (group auditors)
Fees payable to company’s auditors for the audit of the parent company
accounts and consolidated financial statements
Fees payable to company’s auditor and its associates for other services:
The audit of the company’s subsidiaries
•
• Other assurance services
•
Taxation services
Total fees payable to the Group auditors
haysmacintyre (2018) (group auditors)
Fees payable to company’s auditors for the audit of the parent company
accounts and consolidated financial statements
Fees payable to company’s auditor and its associates for other services:
The audit of the company’s subsidiaries
•
• Other assurance services – Financial Due Diligence
•
Taxation services
Total fees payable to haysmacintyre
31 March 19
£’000
31 March 18
£’000
63
-
17
-
-
_______
80
-
-
-
_______
-
_______
_______
31 March 19
£’000
31 March 18
£’000
-
56
-
54
-
_______
54
-
1
-
_______
57
_______
_______
The audit scope for the year ended 31 March 2019 relates to the audit of the Consolidated Group Accounts and that of
the parent company. For the first time in 2018 all UK trading subsidiaries have adopted the exemption from the
requirements to file audited financial statements by virtue of section 479A of the Companies Act 2006. In adopting the
exemption Solid State PLC has provided a statutory guarantee to these subsidiaries in accordance with section 479C of
the Companies Act 2006.
33
AUDIT COMMITTEE REPORT (continued)
Internal Audit
The Board asks the Audit Committee to annually review the requirement for an internal audit function, having regard to
the size of the Group, the costs of such a function versus the likely benefit and the sufficiency of the assurance to validate
the functioning of the system of internal control, given the operational and financial circumstances facing the Group.
Based on the review of the management reporting and external audit assurances over controls and financial reporting,
the Audit committee consider there was no requirement for an internal audit function at this time.
As part of the Group Financial directors review processes the divisional Managing Directors and the site Financial
Controllers are obliged to positively confirm, quarterly, that the agreed procedures are in place and are being adhered
to, with specific reference to key controls such as bank and control account reconciliations.
It has been reviewed by the Committee and they remain satisfied with the arrangements. No significant failings or
weaknesses were identified by the internal management review and sign off process, but several minor improvements
were identified and implemented.
The Committee also considers the discharge of the Board’s responsibilities in the areas of corporate governance, financial
reporting and internal control, including the internal management of risk, as identified in the FRC’s revised guidance on
Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.
Risk management activities are dealt with in more detail in the Strategic Report on pages 10 to 13.
Internal control
The Audit Committee reviews the effectiveness of the Group’s system of internal controls and risk management activities
bi-annually as part of the half year end and full year public reporting.
The key procedures that the Directors have established with a view to providing effective internal control include the
following:
a clearly defined organisational structure and delegated limits of authority;
•
• Group policies and procedures in respect of financial reporting and control, contract approval, project appraisal,
human resources, quality control, health and safety, information security and corporate governance and
compliance;
the preparation of annual budgets and regular forecasts which are approved by the Board;
the monitoring of performance against budget and forecasts and the reporting of any variances in a timely
manner to the Board;
regular review and self-assessment of the risks to which the Group is exposed, taking steps to monitor and
mitigate these wherever possible;
•
•
•
• where appropriate, taking out insurance cover; and,
•
approval by the Audit Committee of audit plans and, on behalf of the Board, receipt of reports on the Group’s
accounting and financial reporting practices and its internal controls together with reports from the external
auditors as part of their normal audit work.
P Haining FCA
Audit Committee Chairman
2 July 2019
34
REMUNERATION COMMITTEE REPORT
Remuneration report
This report is prepared to address the reporting requirements of the QCA code which the company has adopted in
accordance with AIM rule 26.
Remuneration Committee
The Company’s remuneration policy is the responsibility of the Remuneration Committee (the ‘Rem Co’), which was
established in 2017. The terms of reference of the Rem Co are outlined on the Group website: www.solidstateplc.com.
The members of the Committee are: A B Frere (Chairman); Mr P Haining; and, Mr J M Lavery. Mr J M Lavery has
announced his intention to resign as a Director during 2019 once a suitable replacement is appointed. Post year end it
has been announced that Mr N Rogers will be joining the board as the new independent Non-Executive Director and will
join the Rem Co in place of Mr J M Lavery and take over as Chairman of the Rem Co from Mr A B Frere who will remain
as a member of the committee.
The Rem Co, which is required to meet at least twice a year, met twice during the year ended 31 March 2019. The Chief
Executive Officer and certain executives may be invited to attend meetings of the Committee to assist it with its
deliberations, but no executive is present when his or her own remuneration is discussed.
During the year the Committee has not sought independent advice however as set out in the terms of reference the
committee are able to seek independent advice when it is required at the companies’ expense.
Remuneration policy
(i) Executive remuneration
The Committee has a duty to establish a remuneration policy which will enable it to attract and retain individuals of the
highest calibre to run the Group.
Its policy is to ensure that the executive remuneration packages of executive directors and the fee of the Chairman are
appropriate given performance, scale of responsibility, experience and consideration of the remuneration packages for
similar executive positions in companies it considers to be comparable.
A high performing executive team is critical to delivering shareholder value. Packages are intended to motivate
executives to achieve the highest level of performance.
An element of the total remuneration package, in the form of cash bonus and Enterprise Management Incentive scheme
(‘EMI’) awards, is performance driven.
Executive remuneration currently comprises a base salary, an annual performance-related bonus, EMI participation, a
pension contribution to the executive director’s individual money purchase scheme at 2% of base salary for the year
ended 31 March 2019 (increasing to 4% for the year ending 31 March 2020), family private health cover, company car or
car allowance and life assurance.
The previous salary and benefit review took effect from 1 April 2017 and there was no review during 2017/18.
There has been an interim review of salaries and performance bonuses completed at the end of financial year ended 31
March 2019, taking into account Group, individual performance and internal relativities. However, with the appointment
of a new independent non-executive director who is taking on the responsibility of being Chair of the Remuneration
committee going forward a full detailed review will be completed as part of taking on this role.
The impact of the interim review of salaries and bonuses was as follows:
31 March 2019
G S Marsh
P O James
J L Macmichael
M T Richards
1 April 2017
to 31 March
2018
Salary pa
(£’000)
163
120
140
140
______
1 April 2018
to 31 March
2019
Salary pa
(£’000)
163
120
140
140
______
From 1 April
2019
Salary pa
(£’000)
175
130
150
150
______
1 April 2017
to 31 March
2018
Cash bonus
(£’000)
Nil
Nil
Nil
Nil
______
1 April 2018
to 31 March
2019
Cash bonus
(£’000)
Nil
20
20
15
______
Directors’ remuneration for the year ended 31 March 2019 is set out on page 37 of this document.
35
REMUNERATION COMMITTEE REPORT (continued)
(ii) Chairman and non-executive director remuneration
The Chairman and the non-executive directors receive a fixed fee set out in the table below. The fixed fee covers
preparation for and attendance at meetings of the full Board and committees thereof. Should there be any services
provided in relation to “special projects” that may arise there may be an appropriate incremental fee agreed for these
services.
The Chairman and the executive directors are responsible for setting the level of non-executive remuneration. The non-
executive directors are also reimbursed for all reasonable expenses incurred in attending meetings. The Chairman is not
involved in setting his own remuneration.
(iii) Annual bonus plan
The Company operates a discretionary bonus scheme for executive directors for delivery of exceptional performance
against pre-set relevant corporate objectives.
Bonuses, representing up to 16.6% of annual salary, were awarded for the year ended 31 March 2019 having regards to
the combination of performance measures both personal performance and company performance which included
operational, financial performance and progress against strategic objectives.
(iv) Equity-based incentive schemes
The Committee strongly believes that equity-based incentive schemes increase the focus of employees in improving
Group performance, whilst at the same time providing a strong incentive for retaining and attracting individuals of a high
calibre.
Enterprise Management incentive scheme (‘EMI’)
The Solid State plc Enterprise Management incentive scheme (‘EMI’), comprising conditional (performance-related)
share awards (technically structured as nominal cost options pursuant to which participants must pay 0.1p per share on
the exercise of their awards).
No EMI awards were made in 2018/19. The last grant was made in June 2017 and the Committee intends to complete a
full review and overhaul of the Executive remuneration. Following this review, the remuneration committee will make
any changes that are appropriate to the Executive remuneration packages which will include full disclosure of any
changes in the share incentives and the associated performance conditions.
All awards will lapse at the end of the applicable performance period to the extent that the applicable performance
criteria conditions have not been satisfied with no opportunity for retesting. In the event of a good leaver event or a
change of control of the Company, the EMI awards may vest early, but only to the extent that, in the opinion of the
Committee, the performance conditions have been satisfied at that time. The awards will generally also be subject to a
time pro-rated reduction to reflect the reduced period of time between the grant of the awards and the time of vesting,
although this reduction may not be applied in certain cases.
There were 48,000 EMI options awarded to each director in June 2017. These options vest in three equal tranches based
on performance conditions in respect of each year ending 31 March 2018, 31 March 2019 and 31 March 2020.
The 2017 EMI awards are subject to two performance conditions. Firstly, the executive must remain in post at the vesting
date, secondly the options fully vest based on exceeding the board approved budget by 25%. Vesting commences for
performance in excess of the board approved budget with the options vesting pro-rata on a straight-line basis up to 25%
above the board approved budget where the awards fully vest. The market value at the date of grant was £4.23.
Awards that do not vest as a result of not meeting the performance criteria in any particular year lapse.
(v) Service contracts and letters of appointment
The executive directors have entered into service agreements which can be terminated by either party by providing the
required notice period set out in their respective service contracts.
During the year ended 31 March 2019, the executive directors did not hold any non-executive directorships with other
companies other than Mr P O James who on a voluntary basis is a non-executive director for the British Waterski
Federation Limited.
The Chairman and non-executive directors have entered into letters of appointment for an initial fixed period up to the
first AGM where in accordance with the Article of Association they are re-elected by the shareholders. Subsequently in
accordance with the Article of Association all directors are required to stand for re-election by rotation at the AGM on a
three year cycle. The appointment can be terminated on six months’ notice by either party.
36
REMUNERATION COMMITTEE REPORT (continued)
The value of all elements of remuneration received by each Director in the year was as follows:
31 March 2019
G S Marsh
P O James
J L Macmichael
M T Richards
A B Frere
P Haining
J M Lavery
Total
Salary/
Fees
£’000
163
120
140
140
12
12
12
______
599
______
Consultant
fees
£’000
-
-
-
-
51
13
13
______
77
______
EMI share
bonus**
£’000
61
61
61
61
n/a
n/a
n/a
______
244
______
Cash
Bonus
£’000
-
20
20
15
n/a
n/a
n/a
______
55
______
Benefits
in kind
£’000
35
27
29
34
-
-
1
______
126
______
Pension
Cont’n
£’000
8
2
4
3
-
-
-
______
17
______
Single
figure Total
£’000
267
230
254
253
63
25
26
______
1,118
______
** 16,000 EMI share bonus options vested in relation to the financial year ended 31 March 2019 performance. The
valuation of these options included in the single figure total remuneration above is based on the 31 March 2019 share
price of £3.81.
Of the current year share based payments charge £241k (2018: £57k) relates to the Directors.
31 March 2018
G S Marsh
P O James
J L Macmichael
M T Richards
A B Frere
P Haining
J M Lavery
Total
Salary/
Fees
£’000
163
120
140
140
12
12
12
______
599
______
Consultant
fees
£’000
n/a
n/a
n/a
n/a
51
13
13
______
77
______
EMI share
bonus**
£’000
-
-
-
-
n/a
n/a
n/a
______
-
______
Cash
Bonus
£’000
-
-
-
-
n/a
n/a
n/a
______
-
______
Benefits
in kind
£’000
44
51*
26
31
-
-
2
______
154
______
Pension
Cont’n
£’000
7
1
2
1
-
-
-
______
11
______
Single
figure Total
£’000
214
172
168
172
63
25
27
______
841
______
* benefits in kind in the year for Mr P O James included a relocation allowance of £25k.
** None of the EMI share bonus options vested in the period.
The principal benefits in kind relate to the provision of company cars, fuel and private healthcare.
In addition to the above consultancy fees, additional fees totalling £26k (2018: £33k) arose during the year in respect of
accountancy services provided by The Kings Mill Practice, a firm of which Mr P Haining is the proprietor. A balance of
£7k (2018: £3k) was due to The Kings Mill Practice at 31 March 2019.
In addition to the above, fees totalling £2k (2018: £1k) arose during the year in respect of out of pocket expenses and
services of Mr A B Frere provided by Condev Limited. A balance of £5k (2018: £5k) was due to Condev Limited at 31
March 2019.
In addition to the above, fees totalling £1k (2018: £nil) arose during the year in respect of out of pocket expenses and
services of Mr J M Lavery provided by John Lavery Consulting Limited. A balance of £1k (2018: £1k) was due to John
Lavery Consulting Limited at 31 March 2019.
The Executive Directors have service contracts with the Company which are terminable by the Company, or the relevant
Director, on one year’s notice, with the exception of Mr M T Richards and Mr P O James whose period of notice is
currently three months.
37
REMUNERATION COMMITTEE REPORT (continued)
The Directors of the Company on 2 July 2019 and at the statement of financial position date, and their interest in the
issued ordinary share capital of the Company at that date, at 31 March 2019 and 31 March 2018 or date of appointment
if later, were as follows:
02.07.19
31.03.19
31.03.18
G S Marsh
J M Lavery
P Haining
J L Macmichael
A B Frere
M T Richards
P O James
N Rogers
280,862
118,393
54,443
122,337
13,006
4,800
684
-
280,862
118,393
54,443
122,337
13,006
4,800
684
-
481,894
118,281
52,501
120,222
8,004
2,400
-
-
Enterprise Management incentive scheme (‘EMI’)
Details of the options over the Company’s shares granted under the Enterprise Management Incentives Scheme are as
follows:
Options
held at
31.03.18
32,000
32,000
32,000
32,000
Granted
-
Exercised
-
Lapsed
-
-
-
-
-
-
Options
held at
31.03.19
32,000
32,000
32,000
32,000
-
-
-
-
Exercise
price
0.01p
0.01p
0.01p
Date of
grant
01.06.17 April 2018 to April 2027
Exercise
period
01.06.17 April 2018 to April 2027
01.06.17 April 2018 to April 2027
0.01p
01.06.17 April 2018 to April 2027
G S Marsh
P O James
M T Richards
J L Macmichael
During the year the performance criteria for the second tranche of the options was met and as such 16,000 shares vested
of each Director’s options totalling 64,000 options. None of the vested options were exercised at the balance sheet date.
The remaining 16,000 options held by each director have performance vesting criteria relating to the financial
performance for the year ending 31 March 2020.
The market price of the shares at 31 March 2019 was £3.81 (2018: £3.84), with a quoted range during the year of £2.42
to £4.24 (2018: £3.78 to £5.21).
Options
held at
01.04.17
-
Granted
48,000
Exercised
-
Lapsed
(16,000)
-
-
-
48,000
48,000
48,000
-
-
-
(16,000)
(16,000)
(16,000)
Options
held at
31.03.18
32,000
32,000
32,000
32,000
Exercise
price
0.01p
0.01p
0.01p
0.01p
Date of
grant
01.06.17 April 2018 to April 2027
Exercise
period
01.06.17 April 2018 to April 2027
01.06.17 April 2018 to April 2027
01.06.17 April 2018 to April 2027
G S Marsh
P O James
M T Richards
J L Macmichael
During the prior year the performance criteria for the first tranche of the options were not met therefore on the 31
March 2018 16,000 of each Director’s options lapsed totalling 64,000 options.
A B Frere
Remuneration Committee Chairman
2 July 2019
38
DIRECTORS’ REPORT
The Directors submit their report together with the audited financial statements of the Group in respect of the year
ended 31 March 2019.
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 value added distribution of electronic components and materials.
The key performance indicators recognised by management are set out in the KPI section of the strategic report on page
16.
An overall review of the Group’s trading performance and future developments is given in the Chairman’s Statement
and Strategic Report. Other than as reported in the corporate and social responsibility section of this report the Group
does not comment on environmental matters.
Directors
The Directors of the Company during the year were:
A B Frere
G S Marsh
J L Macmichael
J M Lavery
P Haining, FCA
M T Richards
P O James, BSc FCA
Details of the interests of Directors in the shares of the Company and Directors’ service contracts are stated in the
Directors remuneration report on pages 35 to 38.
Corporate Governance
The Board confirms that the Group has had regard, throughout the accounting period, with the provisions set out in the
Quoted Companies Alliance (QCA) Code and the UK Corporate Governance Code which was issued by the Financial
Reporting Council in April 2016.
Details of how the Group has adopted the QCA Code and corporate governance principles are set out in the corporate
governance report on pages 20 to 29
Internal Control
Details of the use of the board has implemented its internal control framework and processes are set out in the corporate
governance report on pages 20 to 29.
Board of Directors
The structure and operation of the Board of Directors is set out in the corporate governance report on pages 20 to 29.
Principal risks and uncertainties
Details of the principal risks and uncertainties of the Group are set out in the strategic report on pages 10 to 13.
Financial Instruments
Details of the use of financial instruments by the Group are contained in note 19 of the financial statements.
Purchase of Own Shares
At the year end the Company had in place authority to purchase up to 15% of the issued ordinary shares under authority
given by a resolution at the Annual General Meeting on 6 September 2018. This authority expires on 6 March 2020.
Dividends
Details of the dividends are disclosed in note 9 and in the chief executives strategic report on page 16.
39
DIRECTORS’ REPORT (continued)
Research and Development
During the year the Group has continued to invest in research and development in partnership with some of its
customers to develop technical electronic solutions to address the demand of our customers in its core markets of
Electronic communications, Mobile Battery Power and Rugged and industrial computing. During the year we invested in
excess of £1.7m (2018: £1.6m) in research and development. The Company continues to claim R&D tax credits where
eligible.
Share options award
On 1 June 2017 the company granted options to the Executive Directors (who previously had no outstanding options)
under the Company’s EMI Share bonus Plan, as detailed in the remuneration report on pages 35 to 38, note 27.
Going Concern
Further details are set out in the corporate governance report on pages 20 to 29.
Renewal of authority to purchase the Company’s shares and 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 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 to issue 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 10% 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.
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.
40
DIRECTORS’ REPORT (continued)
Anthony Frere (dob: October 1947), Chairman
Tony 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. Tony currently sits on the
executive council of the ECSN (the Electronic Component Supply Network trade association), and in 2013 was appointed
as Deputy Chairman, and was appointed as Chairman in April 2014.
Gary Marsh, (dob: April 1966), Chief Executive Officer
Gary 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 was appointed Group Managing Director in 2002 following the acquisition
of Steatite. In 2011 following the acquisition of Rugged Systems he was appointed as Group Chief Executive Officer.
Peter James, (dob: June 1979), Director
Peter qualified as a Chartered Accountant with PricewaterhouseCoopers LLP (PwC) in 2003. He was appointed to the
Board of Solid State PLC in February 2017. Before joining Solid State PLC, Peter was Group Financial Controller at IQE plc
where he was a key member of the senior leadership team successfully completing two significant transactions, funded
through an equity fund raising and a global refinancing. Subsequently he led the integration project, aligning the enlarged
Group with its customer markets serviced by manufacturing sites, delivering efficiency and material savings. At PwC
Peter gained a wide range of experience in Audit and Financial Due Diligence advising a broad range of companies in a
variety of sectors, including multinational main market and AIM listed companies. In addition, on a voluntary basis Peter
is a Non-Executive Director for the British Water Ski and Wakeboard Federation Limited providing independent financial
oversight as Chair of the Audit and Finance Committee.
John Macmichael, (dob: April 1961), Director
John 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. He presently runs the operations of Solid State Supplies Limited on behalf of Solid State PLC.
Matthew Richards, (dob: October 1963), Director
Matthew was appointed as Managing Director of Steatite Limited in April 2016. Matthew comes to the Board with 30
years of experience in the defence electronics industry. He has a track record of success in both private and public
companies, most recently as Senior Vice President and Managing Director at API Technologies Corp running operations
in the UK, Canada and USA, specialising in RF and Security solutions with a focus on high reliability and harsh environment
applications. Prior to that, Matthew held business development and sales leadership roles with the L3 Corporation. He
has extensive experience dealing with the Government customers at home and abroad having travelled extensively in
Europe, the Middle East and Asia. Matthew started his career installing and commissioning terrestrial and satellite
antennas systems for broadcast and military users before moving into sales in the early 1980s.
Peter Haining FCA, (dob: September 1956), Non-Executive Director and Company Secretary
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.
Nigel Rogers (dob: April 1961), Non-Executive Director (appointed 01 July 2019)
Nigel qualified as a Chartered Accountant in 1983 with PwC. He managed the flotation of Stadium Group plc (“Stadium”)
as Group Finance Director, before progressing to Group Chief Executive Officer in 2001. He joined 600 Group plc as Group
Chief Executive Officer in 2012 and led the turnaround of the AIM-quoted global machine tool business (Colchester-
Harrison), increasing strategic focus on the growth of its laser marking business (Electrox) until April 2015. Nigel has been
Non-Executive Deputy Chairman of Transense Technologies plc, since July 2015. Nigel was appointed Executive Chairman
of Surgical Innovations Group plc in October 2015 and has transitioned to Non executive chairman on 1 March 2019.
John Lavery, (dob May 1961), Non-Executive 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 year’s training with the Institute of Directors for Corporate Governance, before being appointed
Managing Director of Steatite in 1999. Following the appointment of Matthew Richards with effect from 31 July 2016,
John Lavery became a Non-Executive Director of the Group.
41
DIRECTORS’ REPORT (continued)
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report, Strategic Report, the Directors’ Report and the Group
and parent company financial statements in accordance with applicable law and regulations. Company law requires the
Directors to prepare Group and parent company financial statements for each financial year. As required by the AIM
Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with
IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in
accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including
FRS 102. Under company law the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period.
In preparing each of the Group and parent company financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and estimates that are reasonable and prudent;
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted
by the EU;
for the parent company financial statements, state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the financial statements; and
•
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group
and the parent company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Group and Company to enable them to ensure that the financial statements comply with the Companies Act 2006 and
Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities. In addition, the Directors are
responsible the maintenance and integrity of the corporate and financial information included in the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
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 corporate and financial information on 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. The work carried out by the auditors does not include consideration of the maintenance
and the integrity of the website and accordingly the auditor accepts no responsibility for any changes that have occurred
to the financial statements when they are presented on the website.
Auditors
Each of the persons who are Directors at the time when this Directors’ Report is approved has confirmed that:
•
•
so far as that Director is aware, there is no relevant audit information of which the parent company’s auditors
are unaware, and
that Director has taken all steps that ought to have been taken as a Director in order to be aware of any
information needed by the auditors in connection with preparing their report and to establish that the parent
company’s auditors are aware of that information.
A resolution to appoint RSM UK Audit LLP as auditors will be proposed at the next annual general meeting.
By order of the Board
P Haining FCA
Secretary
2 July 2019
Registered Office: 2 Ravensbank Business Park, Hedera Road, Redditch, B98 9EY
42
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC
Opinion
We have audited the financial statements of Solid State plc (the ‘parent company’) and its subsidiaries (the ‘group’) for
the year ended 31 March 2019 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 statement of financial position, the company statement of changes in equity and
notes to the financial statements, including a summary of significant accounting policies. 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, including Financial Reporting Standard 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
•
•
•
•
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 2019 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of the group and the parent company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to
you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis
of accounting for a period of at least twelve months from the date when the financial statements are authorised
for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
group and parent company financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on
the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the group and parent company financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
43
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
Group key audit matters
The risk - revenue recognition
Refer to accounting policies and critical accounting judgements in Note 1 to the group financial statements and note 3.
The group’s revenue comprises sales of electronic equipment to its customers after deductions for discounts and
anticipated returns. There are also certain contracts where retentions have been received or where obligations are
satisfied in stages.
Revenue underpins the key measures of performance of the group.
There is a risk that revenue could be misstated through:
•
•
•
inappropriate application of the group’s revenue recognition policies;
recognition of revenue in the wrong period; or
inaccurate estimates for returns or where revenue is recognised over time.
Our response
We assessed whether revenue was recognised in line with the Group's revenue recognition policies, and lFRS15.
Our procedures included a combination of controls and substantive tests. We selected a sample of items to check that
revenue was recognised on shipment and that the cut-off of revenue transactions around the year end was
appropriate.
We critically assessed the revenue recognition for specific contracts where revenue is recognised over the course of
the agreement and resulted in deferred income. We also reviewed the provision for returns by assessment of the level
and nature of post year end credit notes.
The risk – acquisition accounting
Refer to accounting policies and critical accounting judgements in Note 1 to the group financial statements and note
31.
During the year the group acquired the Pacer group. There is a risk that the acquisition was not accounted for in
accordance IFRS 3 Business Combinations.
There were a number of judgements and estimates involved in accounting for the acquisition, most notably in relation
to fair value adjustments to the acquired balance sheet and the recognition of acquisition intangible assets and
goodwill.
Our response
We considered the completeness of assets and liabilities identified on acquisition.
We reviewed and challenged management's judgements and estimates for the fair values of assets, liabilities and
contingent liabilities acquired. This included reperforming the calculations and assessing the assumptions used in
separating brand and customer lists. We applied sensitivities to the key assumptions and considered the impact on the
valuation.
Our procedures also considered management’s rationalisation of the residual goodwill value.
The disclosures included in the financial statements were compared against the requirements of IFRS 3.
44
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
The risk – stock valuation and provisioning
Refer to accounting policies and critical accounting judgements in note 1, and note 14.
The group holds a combination of finished goods and good for re-sale, together with work in progress. Finished goods
and good for re-sale comprise a range of bought in and manufactured specialist electronic equipment. Work in
progress is substantially the material cost of assemblies and manufactured products at varying stages of completion at
the year end.
The valuation of inventory, which by its nature is specialist, involves judgement relating to the potential obsolescence
of inventory including net realisable value (NRV).
The group has in place a policy for addressing this risk and recognises provisions accordingly.
Our response
We attended and undertook physical inventory counts at key locations across the group validating that inventory held
was accurately recorded and was in good physical condition.
We reviewed and tested the year-end inventory provisioning calculations prepared by management, including their
arithmetic integrity.
We have obtained justification from management on the assumptions adopted within the provisioning calculations and
assessed any specific areas where a provision was considered necessary. We performed testing to ensure that the
valuation of inventory is stated at the lower of cost or NRV by comparing the sales value of the products to their actual
cost.
Parent company key audit matters
There were no parent company key audit matters.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing
and extent of our audit procedures. When evaluating whether misstatements, both individually and on the financial
statements as a whole, could reasonably influence the economic decisions of the users we take into account the
qualitative nature and the size of the misstatements. During planning materiality for the group financial statements as
a whole was calculated as £350,000, which was not significantly changed during the course of our audit. Materiality for
the parent company financial statements as a whole was calculated as £348,000, which was not significantly changed
during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted
differences in excess of £20,000, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
Our parent company and group audit approach included full scope audits of the:
•
•
•
•
parent company;
two main UK trading subsidiaries, Steatite Limited and Solid State Supplies Limited;
Pacer group from the point of acquisition for the purposes of the consolidation; and
consolidation process.
We also performed overall analytical procedures on the consolidated results and position.
45
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
Other information
The directors are responsible for the other information. The other information comprises the information included in
the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and their environment obtained
in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’
Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us
to report to you if, in our opinion:
•
•
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit
have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 42, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
46
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 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.
Ian Wall (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
St Philips Point
Temple Row
Birmingham
B2 5AF
2 July 2019
47
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
Continuing Operations
Revenue
Cost of sales
Gross profit
Sales, general and administration expenses
Profit from operations
Finance expense
Profit before taxation
Tax expense
Adjusted profit after taxation
Adjustments to profit
Profit after taxation
Profit attributable to equity holders of the parent
Other comprehensive income
Total comprehensive income for the year
Earnings per share
Basic EPS from profit for the year
Diluted EPS from profit for the year
Adjusted EPS measures are reported in note 8 to the accounts.
Notes
3, 30
4
6
7
32
8
8
2019
£’000
56,299
(39,927)
_______
16,372
(13,452)
_______
2,920
(109)
_______
2,811
(153)
_______
3,108
(450)
2,658
_______
2,658
_______
-
_______
2,658
_______
2019
31.3p
30.7p
2018
£’000
46,268
(33,525)
_______
12,743
(10,229)
_______
2,514
(33)
_______
2,481
(238)
_______
2,663
(420)
2,243
_______
2,243
_______
-
_______
2,243
_______
2018
26.5p
26.0p
The notes on pages 53 to 91 form part of these financial statements.
48
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
Share
Capital
£’000
425
Share
Premium
Reserve
£’000
3,629
Foreign
Exchange
Reserve
£’000
-
Capital
Redemption
Reserve
£’000
5
Retained
Earnings
£’000
14,204
Shares
held in
Treasury
£’000
(243)
Total
Equity
£’000
18,020
2,658
-
(5)
-
-
-
(34)
(34)
2,658
-
-
-
-
2
-
-
-
-
-
-
(2)
-
-
-
-
(5)
-
-
-
-
-
-
-
-
(105)
105
-
(1,036)
-
(1,036)
Balance at 31 March 2018
Total comprehensive income
for the year ended 31 March
2019
Shares issued
Foreign exchange
Purchase of treasury shares
Transfer of treasury shares
to AESP
Dividends
Share based payment credit
-
______
-
_______
_______
-
_______
300
_______
-
______
300
______
Balance at 31 March 2019
427
______
3,627
_______
(5)
_______
5
_______
16,021
_______
(172)
______
19,903
______
Share
Capital
£’000
425
Share
Premium
Reserve
£’000
3,629
Foreign
Exchange
Reserve
£’000
-
Capital
Redemption
Reserve
£’000
5
Retained
Earnings
£’000
12,826
Shares
held in
Treasury
£’000
(243)
Total
Equity
£’000
16,642
-
-
-
-
-
-
-
-
2,243
-
2,243
(1,015)
-
(1,015)
Balance at 31 March 2017
Total comprehensive income
for the year ended 31 March
2018
Dividends
Share based payment credit
-
______
-
_______
-
_______
-
_______
150
_______
-
______
150
______
Balance at 31 March 2018
425
______
3,629
_______
-
_______
5
_______
14,204
_______
(243)
______
18,020
______
The notes on pages 53 to 91 form part of these financial statements.
49
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2019
Company Number: 00771335
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Intangible assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Deferred tax asset
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Contract liabilities
Current borrowings
Corporation tax liabilities
TOTAL CURRENT LIABILITIES
NON CURRENT LIABILITIES
Non current borrowings
Provisions
Deferred tax liability
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
Notes
£’000
£’000
£’000
£’000
2019
2018
10
11
14
15
23
22
16
17
21, 22
21, 22
20
23
2,425
8,892
2,253
6,167
_______
11,317
_______
8,420
9,648
13,389
105
3,692
_______
8,725
2,511
1,333
519
_______
4,334
250
576
_______
26,834
_______
38,151
_______
17,446
_______
25,866
_______
6,823
10,048
-
575
_______
5,718
1,317
-
384
_______
13,088
7,419
-
-
427
_______
5,160
_______
18,248
_______
19,903
_______
427
3,627
5
(5)
16,021
(172)
_______
19,903
_______
427
_______
7,846
_______
18,020
_______
425
3,629
5
-
14,204
(243)
_______
18,020
_______
CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
Share capital
Share premium reserve
Capital redemption reserve
Foreign exchange reserve
Retained earnings
Shares held in treasury
24
25
25
25
25
26
TOTAL EQUITY
The financial statements were approved by the Board of Directors and authorised for issue on 2 July 2019 and were signed
on its behalf by:
G S Marsh, Director
P O James, Director
The notes on pages 53 to 91 form part of these financial statements.
50
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2019
OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Depreciation
Amortisation
Loss/(profit) on disposal of property, plant and equipment
Share based payment expense
Finance costs
Profit from operations before changes in working capital and
provisions
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Decrease in provisions
Cash generated from operations
Income taxes paid
Income taxes recovered
Net cash flow from operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds of sales from property, plant and equipment
Consideration paid on acquisition of subsidiaries
Net cash flow from investing activities
FINANCING ACTIVITIES
Issue of ordinary shares
Borrowings drawn
Borrowings repaid
Interest paid
Dividend paid to equity shareholders
Net cash flow from financing activities
Increase/(decrease) in cash and cash equivalents
2019
2018
£’000
£’000
£’000
£’000
2,811
2,481
698
732
6
300
109
_______
4,656
489
406
(11)
150
33
_______
3,548
(1,198)
(1,071)
2,540
(10)
_______
(1,246)
(1,723)
779
-
_______
261
_______
4,917
(2,190)
_______
1,358
(243)
-
_______
(6)
39
_______
(243)
4,674
33
1,391
(600)
(300)
113
(3,812)
_______
(34)
6,000
(1,776)
(109)
(1,036)
_______
(402)
(349)
77
-
_______
(4,599)
(674)
-
-
-
(33)
(1,018)
_______
3,045
_______
3,120
_______
(1,051)
_______
(334)
_______
The notes on pages 53 to 91 form part of these financial statements.
51
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2019 (continued)
Translational foreign exchange on opening cash
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2019
£’000
(3)
3,120
575
_______
3,692
_______
There were no significant non-cash transactions. Cash and cash equivalents comprise:
Cash available on demand
2019
£’000
3,692
_______
The notes on pages 53 to 91 form part of these financial statements.
2018
£’000
-
(334)
909
_______
575
_______
2018
£’000
575
_______
52
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019
1.
ACCOUNTING POLICIES
Solid State PLC (“the Company”) is a public company incorporated, domiciled and registered in England and Wales
in the United Kingdom. The registered number is 00771335 and the registered address is: 2 Ravensbank Business
Park, Hedera Road, Redditch, B98 9EY.
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. 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.
As allowed by IFRS 1, we have elected not to apply IFRS retrospectively for business combinations computed prior
to 1 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 (1
April 2006) and at the end of each financial year thereafter.
The Group financial statements are presented in pounds sterling and all values are rounded to the nearest
thousand (£’000) except when otherwise indicated.
Going concern
The Group meets its day to day working capital requirements through its bank facilities and available cash. The
Group’s forecasts and projections taking account of reasonable possible changes in trading performance show
that the Group has adequate resources to continue as a operate for the foreseeable future. As such the going
concern basis of accounting has been used in the preparation of these financial statements. The directors have
not identified any material uncertainties in this regard.
Changes in accounting policy and disclosures
IFRS 15
In the prior year the Group chose to early adopt IFRS 15 as issued in May 2014; in accordance with the transition
provisions in IFRS 15 therefore there is no change in accounting policy in the current year and disclosures are
consistent with those adopted last year.
53
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
New standards, amendments and interpretations adopted in the year.
The following new standards, amendments and interpretations have been adopted by the group for the first time
for the financial year beginning on the 1 April 2018:
•
IFRS 9 Financial Instruments (effective for accounting periods beginning or after 1 January 2018).
• Annual improvements 2014-2016 cycle (effective for accounting periods beginning or after 1 January
2018)
• Amendments to IFRS 2 Share-based Payment to clarify the classification and measurement of certain
share based payment transactions (effective for accounting periods beginning or after 1 January 2018)
IFRIC 22 Foreign currency translation of advanced consideration (effective for accounting periods
beginning or after 1 January 2018)
•
The adoption of these standards and amendments has not had a material impact on the Group’s consolidated
financial statements.
IFRS 9
‘Financial instruments’ replaces IAS 39 ‘Financial instruments: Recognition and Measurement’. The standard is
effective for accounting periods beginning on or after 1 January 2018. The standard covers three elements:
•
•
Classification and measurement: Changes to a more principle based approach to classify financial assets
as either held at amortised cost, fair value through other comprehensive income (FVOCI) or fair value
through profit or loss, dependent on the business model and cash flow characteristics of the financial
asset;
Impairment: Moves to an impairment model based on expected credit losses based on a three stage
approach; and
• Hedge accounting: The IFRS 9 hedge accounting requirements are designed to allow hedge accounting
to be more closely aligned with the Group’s underlying risk management. A new International Accounting
Standards Board (IASB) project is in progress to develop an approach to better reflect dynamic risk
management in entities’ financial statements.
The Group has adopted IFRS 9 - Financial Instruments for the financial year starting 1 April 2018. The Group does
not hold complex financial instruments and therefore the majority of changes to the standard do not change the
existing accounting for assets or liabilities held. All financial assets and liabilities will continue to be measured at
amortised cost. The Group applied the simplified method of the expected credit loss model when calculating
impairment losses on its financial assets measured at amortised cost, such as trade receivables. This resulted in
greater judgement due to the need to factor in forward looking information when estimating the appropriate
amount of provisions. The magnitude of this judgement is not considered material as the total provision is
immaterial.
In applying IFRS 9 the Group considered the probability of a default occurring over the contractual life of its trade
receivables balances on initial recognition of those assets. The Group has chosen not to restate comparatives on
adoption of IFRS 9 as the impact of the changes on transition are immaterial, therefore, these changes have been
processed in the current year. We have also adopted the new disclosure requirements and updated the relevant
accounting policies.
54
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
New standards, amendments and interpretations to published standards issued but not yet effective and not
early adopted
A number of new standards, amendments and interpretations to existing standards have been published that will
be mandatory for the Group’s accounting periods beginning on or after 1 April 2019 or later periods and which
the Group has decided not to adopt early are listed below. The Group intends to adopt these standards when
they become effective.
•
•
IFRS 16 Leases (effective for accounting periods beginning on or after 1 January 2019)
IFRIC 23 Uncertainty over income tax treatments (effective for accounting periods beginning or after 1
January 2019) this standard has not yet been endorsed by the EU.
Of the standards and interpretations in issue but not yet effective only IFRS 16 is expected to have any potentially
material impact on the results and financial position of the Group. IFRS 16 will be effective from 1 January 2019
and in its current form requires all leases to be reflected on-balance sheet.
Under IFRS 16 ‘Leases’, lessees will be required to apply a single model to recognise a lease liability and asset for
all leases, including those classified as operating leases under current accounting standards, unless the underlying
asset has a low value, or the lease term is 12 months or less. The adoption of IFRS 16 will have a significant impact
on the financial statements as each lease will give rise to a right of use asset which will be depreciated on a straight
line basis, and a lease liability with a related interest charge. This depreciation and interest will replace the
operating lease payments currently recognised as an expense. At 31 March 2019, operating lease commitments
were £1,409k (see note 28) and operating lease payments for 2019 were £476k (see note 4).
The Group expects to adopt this standard for the financial year ending 31 March 2020 and will restate the
comparative period (financial year ended 31 March 2019) and the opening balance sheet (31 March 2018). The
expected impact of the restatement on adoption is set out below.
The impact on the opening balance sheet as at 31 March 2018 is expected to result in the recognition of a right
of use asset within property plant and equipment of £1,029k, the recognition of a right of use liability of £1,029k.
The impact on the restated comparative statement of comprehensive income for the year ended 31 March 2019
is expected to result in operating lease costs reducing by £433k offset by increased depreciation of right of use
asset of £416k and recognition of an interest charge arising on the unwind of the discounting of the right of use
liability of £31k. This will result in a net reduction in the reported profit before tax of £14k.
The impact on the restated comparative statement of financial position as at 31 March 2019 is expected to result
in the recognition of a right of use asset within property plant and equipment with net book value of £953k, the
recognition of a right of use liability of £967k and a reduction in reserves of £14k
Principle of consolidation
The consolidated financial statements incorporate the financial results and position of the Parent and its
subsidiaries.
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for
business combinations by the Group.
Intercompany transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of
the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated
statement of comprehensive income, consolidated statement of changes in equity and consolidated statement
of financial position respectively.
55
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Business combinations
The purchase method of accounting is used to account for all business combinations, regardless of whether equity
instruments or other assets are acquired. Acquisition-related costs are expensed as incurred.
The consideration transferred for the acquisition of a subsidiary comprises the: fair values of the assets
transferred; liabilities incurred to the former owners of the acquired business; equity interests issued by the
group; fair value of any asset or liability resulting from a contingent consideration arrangement; and, fair value of
any pre-existing equity interest in the subsidiary.
Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-
controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-
controlling interest’s proportionate share of the acquired entity’s net identifiable assets.
The excess of the: consideration transferred; amount of any non-controlling interest in the acquired entity; and,
acquisition-date fair value of any previous equity interest in the acquired entity, over the fair value of the net
identifiable assets acquired is recorded as goodwill.
If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference
is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration
is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange.
The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing
could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously
held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising
from such remeasurement are recognised in profit or loss.
Impairment of non-financial assets
Non financial assets that have an indefinite useful life (e.g. Goodwill) or other intangible assets which are not
ready to use and therefore not subject to amortisation (e.g. on going incomplete R&D programmes) are reviewed
at least annually for impairment.
Impairment tests on goodwill are undertaken annually on 31 March, and on other non-financial assets whenever
events or changes in circumstances indicate that their carrying value may not be reasonable. Where the carrying
value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
Impairment charges are included in sales, general and administration expenses in the consolidated statement of
comprehensive income, except to the extent that they reverse gains previously recognised in the consolidated
statement of recognised income and expense. An impairment loss recognised for goodwill is not reversed.
56
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Intangible Assets
a) Goodwill
Goodwill arising on an acquisition is recognised as an asset and initially measured at cost, being the excess of the
fair value of the consideration over the fair value of the identifiable assets, liabilities and contingent liabilities
acquired. Goodwill is not amortised. However, it is reviewed for potential impairment at least annually or more
frequently if events or circumstances indicate a potential impairment. For the purpose of impairment testing,
goodwill is allocated to each of the Cash Generating Units to which is relates. Any impairment identified is charged
directly to consolidated statement of comprehensive income. Subsequent reversals of impairment losses for
goodwill are not recognised.
b) Development costs
Expenditure incurred that is directly attributable to the development of new or substantially improved products
or processes is recognised as an intangible asset when the following criteria are met:
•
•
•
•
•
•
the product or process is intended for use or sale;
the development is technically feasible to complete;
there is an ability to use or sell the product or process;
it can be demonstrated how the product or process will generate probable future economic benefits;
there are adequate technical, financial and other resources to complete the development; and
the development expenditure can be reliably measured.
Directly attributable costs refers to the materials consumed; the directly attributable labour; and the incremental
overheads incurred in the development activity. General operating costs, administration costs and selling costs
do not form part of directly attributable costs.
All research and other development costs are expensed as incurred.
Capitalised development costs are amortised on a straight line basis over the period, during which the economic
benefits are expected to be received, which typically range between 2 and 5 years. Amortisation expense is
included within sales, general and administration expenses in the statement of comprehensive income.
The estimated remaining useful lives of development costs are reviewed at least on an annual basis. Amortisation
commences once the project is completed and revenues are being generated.
The carrying value of capitalised development costs is reviewed for potential impairment at least annually, or
more frequently if events or circumstances indicate a potential impairment. Any impairment identified is
immediately charged to the consolidated statement of comprehensive income.
c) Software
Externally acquired software assets are initially recognised at cost and subsequently amortised on a straight line
basis over their useful economic lives. Cost includes all directly attributable costs of acquisition. In addition
directly attributable costs incurred in the development of bespoke software for the Group’s own use are
capitalised.
The useful economic life over which the software is being amortised has been assessed to be 3 to 5 years.
The carrying value of capitalised software costs is reviewed for potential impairment at least annually, or more
frequently if events or circumstances indicate a potential impairment. Any impairment identified is immediately
charged to the consolidated statement of comprehensive income.
The costs of maintaining internally developed software, and annual licence fees to utilise third party software, are
expensed as incurred.
57
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
d) Other intangibles
Other intangible assets are those which arise on business combinations in accordance with IFRS 3 revised. These
intangible assets form part of the identifiable net assets of an acquired business and are recognised at their fair
value and amortised on a systematic basis over their useful economic life which is typically 5 to 10 years. This
includes customer relationships, the fair value of which has been evaluated using the multi period excess
earnings method “MEEM”.
The MEEM model valuation was cross checked to the cost of product development and customer qualification
to which the relationships relate.
Capitalised acquisition intangibles are amortised on a straight line basis over the period, during which the
economic benefits are expected to be received, which typically range between 5 and 10 years. Amortisation
expense is included within sales, general and administration expenses in the statement of comprehensive
income.
The carrying value of other intangible assets is reviewed for potential impairment at least annually, or more
frequently if events or circumstances indicate a potential impairment. Any impairment identified is immediately
charged to the consolidated statement of comprehensive income.
Property, plant and equipment
Property, plant and equipment is stated at historical cost or deemed cost where IFRS 1 exemptions have been
applied, less accumulated depreciation and any recognised impairment losses.
Costs include the original purchase price of the asset and the costs attributable to bringing the asset to its working
condition for its intended use including any qualifying finance expenses.
Depreciation is provided on all items of property, plant and equipment to write off the carrying value of items
over their expected useful economic lives. It is applied at the following rates:
Short leasehold property improvements- straight line over minimum life of lease
Fittings and equipment- 25% per annum on a reducing balance basis
Computers- 20% per annum on a straight line basis
Motor vehicles- 25% per annum on a reducing balance basis
The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at each balance sheet
date. An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is
greater than its estimated net realisable value. Gains and losses on disposal are determined by comparing
proceeds with carrying amounts. These are included in the consolidated statement of comprehensive income.
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.
Where substantially all the risks and rewards of ownership have passed to the Group (a “finance lease”), the
assets are capitalised as tangible fixed assets and are depreciated over the shorter of the lease term and their
useful lives. The capital elements of future obligations under the leases are included as liabilities in the
consolidated statement of financial position. The interest element of the rental obligation is charged to the
consolidated statement of comprehensive income over the period of the lease and represents a constant
proportion of the balance of the capital outstanding. Assets held under hire purchase agreements are treated
as assets held under finance leases for accounting purposes.
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.
58
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Financial Instruments
Classification and measurement of IFRS9 has changed to a more principle based approach to classify financial
assets as either held at amortised cost, fair value through other comprehensive income (FVOCI) or fair value
through profit or loss, dependent on the business model and cash flow characteristics of the financial instrument.
Financial assets and financial liabilities are recognised when the company becomes party to the contractual
provisions of the instrument.
Financial assets
The Group classifies its financial assets as subsequently measured at amortised cost under IFRS 9 if it meets both
of the following criteria:
• Hold to collect business model test – The asset is held within a business model whose objective is to
•
hold the financial asset in order to collect contractual cash flows; and
Solely payments of principal and interest (SPPI) contractual cash flow characteristics test – The
contractual terms of the financial asset give rise to cash flows that are SPPI on the principal amount
outstanding on a specified date.
Financial assets include:
•
•
Trade and other receivables
Cash and cash equivalents
The measurement of these financial assets held at amortised cost remains unchanged since the introduction of
IFRS9 from the 1 April 2018.
Trade and other receivables
Trade receivables are initially measured at their transaction price. Other receivables are initially recognised at
fair value plus transaction costs.
Receivables are held to collect the contractual cash flows which are solely payments of principal and interest.
Therefore, these receivables are subsequently measured at amortised cost using the effective interest rate
method.
The effect of discounting on these financial instruments is not considered to be material.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and highly liquid interest-bearing securities with
maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the
balance sheet.
Impairment of financial assets
IFRS9 introduces a new impairment model. Under IAS 39, an entity only considers those impairments that arise
as a result of incurred loss events. The effects of possible future loss events cannot be considered, even when
they are expected.
IFRS 9 introduces a new expected credit loss (‘ECL’) model which broadens the information that an entity is
required to consider when determining its expectations of impairment. Under this new model, expectations of
future events must be taken into account and this will result in the earlier recognition of potential impairments.
An impairment loss is recognised for the expected credit losses on financial assets when there is an increased
probability that the counterparty will be unable to settle an instrument’s contractual cash flows on the
contractual due dates, a reduction in the amounts expected to be recovered, or both.
The probability of default and expected amounts recoverable are assessed using reasonable and supportable
past and forward-looking information that is available without undue cost or effort. The expected credit loss is
a probability-weighted amount determined from a range of outcomes and takes into account the time value of
money.
59
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Impairment of trade receivables
For trade receivables, expected credit losses are measured by applying an expected loss rate to the gross carrying
amount. The expected loss rate comprises the risk of a default occurring and the expected cash flows on default
based on the aging of the receivable.
The risk of a default occurring always takes into consideration all possible default events over the expected life
of those receivables (“the lifetime expected credit losses”). Different provision rates and periods are used based
on groupings of historic credit loss experience by product type, customer type and location.
Impairment of other receivables
The measurement of
‘performing’,
‘underperforming’ or ‘non-performing’ based on the company’s assessment of increases in the credit risk of the
financial asset since its initial recognition and any events that have occurred before the year-end which have a
detrimental impact on cash flows.
losses depends on whether the financial asset
impairment
is
The financial asset moves from ‘performing’ to ‘underperforming’ when the increase in credit risk since initial
recognition becomes significant.
In assessing whether credit risk has increased significantly, the company compares the risk of default at the year-
end with the risk of a default when the investment was originally recognised using reasonable and supportable
past and forward-looking information that is available without undue cost.
The risk of a default occurring takes into consideration default events that are possible within 12 months of the
year-end (“the 12-month expected credit losses”) for ‘performing’ financial assets, and all possible default events
over the expected life of those receivables (“the lifetime expected credit losses”) for ‘underperforming’ financial
assets.
Impairment losses and any subsequent reversals of impairment losses, are adjusted against the carrying amount
of the receivable and are recognised in profit or loss.
Financial Liabilities and equity
The classification and measurement of financial liabilities in accordance with IFRS 9 Financial Instruments
remains largely unchanged from IAS 39 Financial Instruments: Recognition and Measurement.
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the company after
deducting all of its liabilities.
Financial liabilities are classified as either:
•
•
Financial liabilities at amortised cost; or
Financial liabilities as at fair value through profit or loss (FVTPL).
All financial liabilities are measured at amortised cost and include:
Trade and other payables
Contract liabilities
•
•
• Borrowings
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers.
Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as noncurrent liabilities.
They are initially recognised at fair value net of direct transaction costs and subsequently held at amortised cost.
60
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Contract liabilities
Contract liabilities comprise payments in advance of revenue recognition and revenue deferred due to contract
performance obligation not being completed.
They are classified as current liabilities if the contract performance obligations payment are due to be completed
within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as
noncurrent liabilities.
Contract liabilities are recognised initially at fair value, and subsequently stated at amortised cost.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred and subsequently stated at
amortised cost. Borrowing costs are expensed using the effective interest method.
Equity instruments and Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
Treasury Shares
Where any Group company purchases the Parent Company’s equity share capital (treasury shares), the
consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from
equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of.
These shares are held in a separate negative reserve in the capital section of the consolidated statement of
financial position. Any dividends payable in relation to these shares are cancelled.
Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects, is included in equity attributable to the
Company’s equity holders.
Dividends
Equity dividends are recognised when they become legally payable. Interim dividends are recognised when paid.
Final dividends are recognised when approved by the shareholders at an annual general meeting.
Exceptional items
Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide
further understanding of the financial performance of the Group. Transactions are classified as exceptional
where they relate to an event that falls outside of the ordinary activities of the business and where individually
or in aggregate, they have a material impact on the financial statements.
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.
61
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Revenue
The Group manufactures and distributes a range of electronic equipment. Revenue comprises sales to external
customers after discounts, excluding value added taxes.
The Group’s performance obligations with respect to physical goods is to deliver a finished product to a customer.
Revenue is recognised when control of the products has transferred, being when the products are delivered to
the customer, the customer has full control over the products supplied, and there is no unfulfilled obligation that
could affect the customer’s acceptance of the products.
Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss
have been transferred to the customer, and either the customer has accepted the products in accordance with
the sales contract, the acceptance provisions have lapsed, or the group has objective evidence that all criteria
for acceptance have been satisfied.
For goods that are subject to bill and hold arrangements this means:
•
•
the goods are complete and ready for collection;
the goods are separately identified from the Group’s other stock and are not used to fulfil any other
orders;
• and the customer has specifically requested that the goods be held pending collection.
Normal payment terms apply to the bill and hold arrangements.
Revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur.
No element of financing is deemed present as the sales are made with a credit term of 30 to 90 days, which is
consistent with market practice. The Group does not expect to have any contracts where the period between
the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.
As a consequence, the Group does not adjust any of the transaction prices for the time value of money.
The Group’s obligation to provide a refund for faulty products under the standard warranty terms is recognised
as a returns provision. A receivable is recognised when the goods are delivered as this is the point in time that
the consideration is unconditional because only the passage of time is required before the payment is due.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Executive
Directors, who are responsible for allocating resources and assessing performance of the operating segments.
A business segment is a group of assets and operations engaged in providing products or services that are subject
to risks and returns that are different from those of other business segments.
A geographical segment is engaged in providing products or services within a particular economic environment
that are subject to risks and returns that are different from those of segments operating in other economic
environments.
The Executive Directors assess the performance of the operating segments based on the measures of revenue,
Profit Before Taxation (PBT) and Profit After Taxation (PAT). Central overheads are not allocated to the business
segments.
Pensions
The pension schemes operated by the Group are defined contribution schemes. The pension cost charge
represents the contributions payable by the Group.
62
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
1.
ACCOUNTING POLICIES (continued)
Current and deferred taxation
Income tax on the profit or loss for the year comprises current and deferred tax.
Taxable profit differs from accounting profit because it excludes certain items of income and expense that are
recognised in the financial statements but are treated differently for tax purposes. Current tax is the amount of
tax expected to be payable or receivable on the taxable profit or loss for the current period. This amount is then
amended for any adjustments in respect of prior periods.
Current tax is calculated using tax rates that have been written into law (‘enacted’) or irrevocably
announced/committed by the respective Government (‘substantively enacted’) at the period-end date. Current
tax receivable (assets) and payable (liabilities) are offset only when there is a legal right to settle them net and
the entity intends to do so. This is generally true when the taxes are levied by the same tax authority.
Because of the differences between accounting and taxable profits and losses reported in each period, temporary
differences arise on the amount certain assets and liabilities are carried at for accounting purposes and their
respective tax values. Deferred tax is the amount of tax payable or recoverable on these temporary differences.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance
sheet differs from its tax base, except for differences arising on:
•
•
•
the initial recognition of goodwill
the initial recognition of an asset or liability in a transaction which is not a business combination and at
the time of the transaction affects neither accounting nor taxable profit: and
investments in subsidiaries and jointly controlled entities where the Group is able to control the timing
of the reversal of the difference and it is probable the difference will not reverse in the foreseeable
future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be
available against which the differences can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted
by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are
settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax
assets and liabilities, and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
Share based payment
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to
the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions
are taken into account by adjusting the number of equity instruments expected to vest at each statement of
financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on
the number of options that eventually vest. Market vesting conditions are factored into the fair value of options
granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market
vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the
options, measured immediately before and after the modification, is also charged to the consolidated statement
of comprehensive income over the remaining vesting period.
63
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
2.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom
equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting
policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity,
and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be
wrong.
Acquisition accounting
In accordance with IFRS 3 and the Groups accounting policy, in preparing these accounts the two significant
judgements relate to the recognition of a dilapidations provision of £260k at the date of acquisition in respect
of leasehold premises and the key assumptions adopted in the MEEM model to assess the fair value of the
identifiable intangible assets. The key assumptions in the model are the discount rate of 10%, customer
attrition rate of 5% pa, and the growth rate of 5%. Based on the model the fair value of the intangibles is valued
at £1.4m on acquisition which will be amortised over 7 years.
The results of the fair value assessment completed which included key judgements noted above results in
goodwill arising on the acquisition to £1.8m. If there were any changes to the judgemental items noted above
the corresponding impact would be to increase or reduce goodwill accordingly.
Estimated useful life of research and development and intangible assets arising on acquisitions
The periods of amortisation adopted to write down capitalised product and process development requires
judgements to be made in respect of estimating the useful economic lives of the intangible assets to determine
an appropriate amortisation rate.
Capitalised development costs are amortised over the period during which economic benefits are expected to
be received which is typically 2 – 5 years. Intangible assets arising on acquisitions are amortised straight line over
the period during which economic benefits are expected to be received which is typically 5 – 10 years.
The amortisation charge for capitalised development costs in the current year is £416k; if the lives were reduced
by one year across all the projects which are being amortised the charge would increase by circa £175k.
The amortisation charge for intangible assets arising on acquisitions in the current year is £284k; if the lives were
reduced by one year the charge would increase by £36k.
Estimated goodwill impairment
Goodwill is not amortised; however, it is reviewed for impairment at least annually or more frequently if events
or circumstances indicate a potential impairment. For the purpose of impairment testing Goodwill is allocated to
each of the cash generating units (CGU) to which it relates.
The impairment assessment is made based on the discounted future cashflows of the CGU. Forecasting the future
cashflows requires judgement. The key assumptions made in preparing the discounted future cashflows and the
sensitivities are set out in note 12.
Recognition criteria for capitalisation of development expenditure
The Group capitalises R&D in accordance with IAS 38. There is judgement in respect of when R&D projects meet
the requirement for capitalisation, which internal costs are directly attributable and therefore appropriate to
capitalise and when the development programme is complete, and capitalisation should cease.
Amounts capitalised include the total cost of any external products or services and labour costs directly
attributable to the development programme. Management judgement is involved in determining the
appropriate internal costs to capitalise and the amounts involved.
If there is any uncertainty in terms of the technical feasibility, ability to sell the product or any other risk that
means the programme does not meet the requirements of the standard the R&D costs are expensed within the
consolidated statement of comprehensive income.
64
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
2.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS – (Continued)
Estimation of level of R&D expenditure which is eligible for R&D tax credits under the SME and large
company scheme.
Uncertainties exist in relation to the interpretation of complex tax legislation, changes in tax laws and the amount
and timing of future taxable income. This could necessitate future adjustments to taxable income and expense
already recorded.
At the year-end date, tax liabilities and assets reflect management’s judgements in respect of the application of
the tax regulations, in particular the R&D tax.
In assessing our year-end corporation tax liability, we have made a provisional assessment as to the likely amount
of development expenditure that will be eligible under each of the HMRCs large company and SME R&D tax
credit schemes as the detailed tax computations have not been completed.
Our judgement at year end assumed that the level of eligible spend was comparable with prior years. At 31 March
2019 there are current and deferred tax provisions totalling £1.0m.
Due to the uncertainties noted above, it is possible that the Group’s initial estimates are different to the final
position adopted when the tax computation is finalised, resulting in a different tax payable or recoverable from
the amounts provided.
Provisions for returns
The Group provides for an estimate of sales returns at the year end, which reduces product sales and accounts
receivable, and increases stock. This provision is estimated by management based on historical experience and
judgement on current contract sales.
The estimation process used to determine the provision has been applied on a consistent basis with previous
years and no material adjustments have been necessary to increase or decrease these reserves as a result of a
significant change in underlying estimates.
Due to the significant value of sales in the Group, the difference between the actual and estimated returns could
impact operating results both positively and negatively.
Provisions for slow moving or obsolete inventories
Inventories are carried at the lower of cost and net realisable value (NRV). NRV is reviewed in detail on an on
going basis and provision for obsolete inventory is made based on a number of factors including age of
inventories, the risk of technical obsolescence and the expected future usage.
Differences between such estimates and actual market conditions may have a material impact on the amount of
the carrying value of inventories and may result in adjustments to cost of sales. See note 14 for details of the
inventory provisions and the amounts written off to consolidated statement of comprehensive income in the
year.
Share based payments expense
Non market performance and service conditions are included in the assumptions about the number of options
that are expected to vest. At the end of each reporting period the Group revises its estimates of the number of
options that are expected to vest based on the non market vesting conditions. It recognises the impact of the
revision to the original estimates, if any, in the consolidated statement of comprehensive income, with a
corresponding adjustment to equity.
This requires a judgement as to how many options will meet the future vesting criteria. None of the Director’s
options that were potentially available to vest at the end of the current financial year met performance criteria,
therefore they have lapsed at year end.
The judgment adopted in calculating the current year charge is that 100% of the 2018/19 and 20% of the 2019/20
options will meet the non market vesting criteria. If 100% of the 2019/20 options were expected to vest the share
based payments expense in the year would be £108k higher.
65
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
3.
REVENUE
The Group derives revenue from the transfer of goods at a point in time in the following major product lines and
geographical regions:
United Kingdom
Rest of Europe
Asia
North America
Rest of World
Total revenue
Computing products
Communications products
Power products
Opto electronic and electronic components and modules
Total revenue
See further segmental disclosures in note 30.
2019
£’000
44,989
5,230
2,540
3,426
114
_______
56,299
_______
2019
£’000
12,063
3,650
10,184
30,402
_______
56,299
_______
2018
£’000
36,001
5,013
1,972
2,991
291
_______
46,268
_______
2018
£’000
10,876
4,690
11,017
19,685
_______
46,268
_______
66
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
4.
PROFIT FROM OPERATIONS
This has been arrived at after charging/(crediting):
Continuing charges /(credits)
Staff costs (see note 5)
Depreciation of property, plant and equipment
Amortisation of intangible assets
Profit on disposal of property, plant and equipment
Auditors’ remuneration*:
Audit fees
Audit of accounts of associates of the company pursuant to
Non audit fees:
legislation
Taxation advisory services
Other advisory services
Operating lease rentals:
2019
£’000
8,753
698
732
7
63
17
-
54
2018
£’000
8,174
489
406
(11)
56
-
-
1
Plant and machinery
Other
Research and development costs (includes relevant staff costs)
Foreign exchange differences
Stock write downs
45
371
1,670
171
547
_______
*During the year the company changed the firm who provide our audit services. As a result, we have analysed the auditor’s remuneration
between the respective firms on page 33.
36
440
1,785
(144)
680
_______
The foreign exchange differences have been treated as an adjustment to cost of sales rather than as an overhead.
Details of transactions with businesses associated with the Directors remuneration report on page 35 to 38.
As set out in the audit committees report the UK trading subsidiaries are exempt from the requirements to have
an audit and file audited financial statements by virtue of section 479A of the Companies Act 2006. In adopting
the exemption Solid State PLC has provided a statutory guarantee to these subsidiaries in accordance with
section 479C of the Companies Act 2006.
67
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
5.
STAFF COSTS
Staff costs for all employees during the year, including the Executive Directors, were as follows:
Wages and salaries
Social security costs
Other pension costs
Share based payment charges
Total staff costs
2019
£’000
7,421
829
503
300
_______
9,053
_______
2018
£’000
7,080
762
332
150
_______
8,324
_______
Wages and salaries include termination costs of £93k (2018: £75k)
The average monthly number of employees during the year, including the Executive Directors, was as follows:
Selling and distribution
Manufacturing
Management and administration
2019
Number
124
86
33
_______
243
_______
2018
Number
100
90
26
_______
216
_______
Key management is considered to be Group Board Directors. Therefore, the key compensation is disclosed in the
director’s remuneration report on page 35 to 38 which includes Directors emoluments, interests and services
contracts.
68
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
6.
FINANCE EXPENSE
Bank borrowings
Other interest
Total finance expense
7.
TAX EXPENSE
Analysis of continuing and discontinuing total tax expense
Total tax charge from continuing operations
Current tax expense
UK corporation tax on profits or losses for the year
Adjustment in respect of prior periods
Deferred tax (credit)/ charge
Deferred tax adjustment in respect of prior periods
Total tax charge
2019
£’000
109
-
______
109
______
2018
£’000
31
2
______
33
______
2019
£’000
2018
£’000
153
_______
153
______
376
(67)
_______
309
(156)
-
______
153
______
238
_______
238
______
468
(330)
_______
138
5
95
______
238
______
69
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
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:
Profit before tax including discontinued operations
Expected tax charge based on the standard rate of corporation tax in the UK
of 19% (2018 19%)
Effect of:
Expenses not deductible for tax purposes
Difference between depreciation for the year and capital allowances
Tax relief on exercise of share options exercised
Enhanced relief on research and development expenditure
Differences in current and deferred tax rates
Deferred tax asset not recognised
Amortisation of intangibles
Adjustments in respect of prior years
Total tax charge
2019
£’000
2,811
_______
2018
£’000
2,481
_______
534
471
25
25
(52)
(359)
(27)
74
-
(67)
_______
6
7
-
(4)
-
(7)
(235)
_______
153
_______
238
_______
The UK corporation tax rate of 19% (effective from 1 April 2017) is reducing to 18% (effective 1 April 2020) which
was substantially enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was
substantively enacted on 6 September 2016. This will reduce the Group’s future current tax charge accordingly.
The deferred tax liabilities at 31 March 2019 have been calculated based on these rates.
R&D tax credits
The Group recognised a credit of £nil (2018: £109k) within operating profit in relation to claims made under the
Research and Development expenditure credit scheme (RDEC). There were also claims made under the SME
scheme which are recognised within the tax expense.
70
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
8.
EARNINGS PER SHARE
The earnings per share is based on the following:
Adjusted continuing earnings post tax
Reported continuing earnings post tax
Weighted average number of shares
Diluted number of shares
Reported EPS
Basic EPS from profit for the year
Diluted EPS from profit for the year
Adjusted EPS
Adjusted Basic EPS from profit for the year
Adjusted Diluted EPS from profit for the year
2019
£’000
3,108
2,658
2018
£’000
2,663
2,243
8,488,675
8,648,719
8,459,118
8,618,468
31.3p
30.7p
36.6p
35.9p
26.5p
26.0p
31.5p
30.9p
Earnings per ordinary share has been calculated using the weighted average number of shares in issue during
the year. The weighted average number of equity shares in issue was 8,488,675 (2018: 8,459,118) net of the
treasury shares disclosed in note 26.
The diluted earnings per share is based on 8,648,719 (2018: 8,618,468) ordinary shares which allow for the
exercise of all dilutive potential ordinary shares.
The adjustments to profit made in calculating the adjusted earnings are set out in note 32.
9.
DIVIDENDS
Prior year final dividend paid of 8p per share (2018: 8p)
Current year interim dividend paid of 4.2p per share (2018: 4p)
Cancelled dividends on shares held in treasury
Final dividend proposed for the year 8.3p per share (2018: 8p)
2019
£’000
682
358
(4)
_______
1,036
_______
708
_______
2018
£’000
680
340
(5)
_______
1,015
_______
683
_______
The proposed final dividend has not been accrued for as the dividend will be approved by the shareholders at
the annual general meeting.
71
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
10. PROPERTY, PLANT AND EQUIPMENT
Year ended 31 March 2019
Cost
1 April 2018
Additions
Acquisitions
Disposals
31 March 2019
Depreciation and impairment
1 April 2018
Charge for the year
On disposal
31 March 2019
Net book value
31 March 2019
Year ended 31 March 2018
Cost
1 April 2017
Additions
Disposals
31 March 2018
Depreciation and impairment
1 April 2017
Charge for the year
On disposal
31 March 2018
Net book value
31 March 2018
Short
leasehold
property
investments
£’000
1,439
14
-
_______
1,453
_______
348
146
-
_______
494
_______
959
_______
Short
leasehold
property
investments
£’000
1,380
59
-
_______
1,439
_______
215
133
-
_______
348
_______
1,091
_______
72
Motor
vehicles
£’000
1,107
243
(276)
_______
1,074
_______
433
291
(156)
_______
568
_______
506
_______
Motor
vehicles
£’000
1,066
195
(154)
_______
1,107
_______
304
217
(88)
_______
433
_______
674
_______
Fittings,
equipment
and
computers
£’000
2,010
343
390
-
_______
2,743
_______
1,522
261
-
_______
1,783
_______
960
_______
Fittings,
equipment
and
computers
£’000
1,862
148
-
_______
2,010
_______
1,383
139
-
_______
1,522
_______
488
_______
Total
£’000
4,556
600
390
(276)
_______
5,270
_______
2,303
698
(156)
_______
2,845
_______
2,425
_______
Total
£’000
4,308
402
(154)
_______
4,556
_______
1,902
489
(88)
_______
2,303
_______
2,253
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
11.
INTANGIBLE ASSETS
Year ended 31 March 2019
Cost
1 April 2018
Additions
Acquisitions
31 March 2019
Amortisation
1 April 2018
Charge for the year
31 March 2019
Net book value
31 March 2019
Development
Costs
£’000
Computer
Software
£’000
Goodwill on
Consolidation
£’000
Acquisition
Intangible
Assets
£’000
683
300
-
_______
983
_______
300
416
_______
716
_______
267
_______
321
-
-
_______
321
_______
182
32
_______
214
_______
107
_______
4,543
-
1,757
_______
6,300
_______
-
-
_______
-
_______
6,300
_______
1,978
-
1,400
_______
3,378
_______
876
284
_______
1,160
_______
2,218
_______
Total
£’000
7,525
300
3,157
_______
10,982
_______
1,358
732
_______
2,090
_______
8,892
_______
The cost of acquisition intangible assets comprises the estimated net present value of customer relationships
identified on acquisitions. The development costs relate to the cost of developing new products and technology
to enable the company to extend its operations into new growth areas. Any assets developed that are no longer
deemed to meet the recognition criteria of development costs have been written down.
Year ended 31 March 2019 - Acquisition intangible assets
Manufacturing division commercial relationships
Value Added Distribution division commercial relationships
Total
Cost
£’000
675
2,703
_______
3,378
_______
Net book
value
£’000
240
1,978
_______
2,218
_______
73
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
11.
INTANGIBLE ASSETS – (continued)
Year ended 31 March 2018
Development
Costs
£’000
Computer
Software
£’000
Goodwill on
Consolidation
£’000
Acquisition
Intangible
Assets
£’000
Cost
1 April 2017
Additions
31 March 2018
Amortisation
1 April 2017
Charge for the year
31 March 2018
Net book value
31 March 2018
Total
£’000
7,176
349
_______
7,525
_______
952
406
_______
1,358
_______
347
336
_______
683
_______
140
160
_______
300
_______
308
13
_______
321
_______
155
27
_______
182
_______
4,543
-
_______
4,543
_______
-
-
_______
-
_______
1,978
-
_______
1,978
_______
657
219
_______
876
_______
383
_______
139
_______
4,543
_______
1,102
_______
6,167
_______
The cost of acquisition intangible assets comprises the estimated net present value of customer relationships
identified on acquisitions. The development costs relate to the cost of developing new products and technology
to enable the company to extend its operations into new growth areas. Any assets developed that are no longer
deemed to meet the recognition criteria of development costs have been written down.
Year ended 31 March 2018 - Acquisition intangible assets
Manufacturing division commercial relationships
Value Added Distribution division commercial relationships
Total
Cost
£’000
676
1,302
_______
1,978
_______
Net book
value
£’000
310
792
_______
1,102
_______
74
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
12. GOODWILL AND IMPAIRMENT
Details of the carrying amount of goodwill allocated to cash generating units (CGUs) are as follows:
Goodwill carrying amount
Manufacturing division
Value Added Distribution division
Total
2019
£’000
3,011
3,289
_______
6,300
_______
2018
£’000
3,011
1,532
_______
4,543
_______
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 10% (2018: 10%) has been
used based on the Group’s estimated weighted average cost of capital.
A future growth rate of 2.5% (2018: 2.5%) 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 recoverable amount exceeds the carrying amount by £54,241k (2018: £22,752k).
If the following changes were made to the above key assumptions, the carrying amount would still exceed the
recoverable amount.
Discount rate: Increase from 10% to 15%
Growth rate: Reduction from 2.5% to nil%
13.
SUBSIDIARIES
The subsidiaries of Solid State PLC, included in these consolidated financial statements are as follows:
Subsidiary undertakings
Solid State Supplies Limited
Steatite Limited
Pacer Technologies Limited
Pacer Components Limited
Pacer LLC
Creasefield Limited
Q-Par Angus Limited
Ginsbury Electronics Limited
Q-Par Angus (Hedera) Limited
Wordsworth Technology Kent Limited
Ginsbury Electronics (Hedera) Limited
UK
UK
UK
UK
USA
UK
UK
UK
UK
UK
UK
Proportion of voting
rights and Ordinary
share capital held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Distribution of electronic components.
Distribution of electronic components and
manufacture of electronic equipment.
Non trading entity
Distribution of opto-electronic components.
Distribution of opto-electronic components.
Non trading entity
Non trading entity
Non trading entity
Non trading entity
Non trading entity
Non trading entity
During the year Rugged Systems Limited has been dissolved. The non trading entities are exempt from filing
audited accounts with the registrar under section 479a of the Companies Act 2006.
In all cases the country of operation and of incorporation is England and Wales, with the same registered office
as Solid State PLC.
All UK trading subsidiaries are exempt from the requirements to have an audit and file audited financial
statements by virtue of section 479A of the Companies Act 2006. In adopting the exemption Solid State PLC has
provided a statutory guarantee to these subsidiaries in accordance with section 479C of the Companies Act 2006.
75
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
14.
INVENTORIES
Finished goods and goods for resale
Work in progress
Total inventories
2019
£’000
8,712
936
_______
9,648
_______
2018
£’000
5,731
1,092
_______
6,823
_______
The Directors are of the opinion that the replacement value of inventories is not materially different to the
carrying value stated above. These carrying values are stated net of provisions of £1,666k (2018: £931k).
An impairment loss of £680k (2018: £547k) was recognised in cost of sales during the year against inventory due
to slow moving and obsolete items.
Inventory recognised in cost of sales during the year as an expense was £37,168k (2018: £30,453k).
15.
TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Prepayments
2019
£’000
11,428
280
1,681
_______
13,389
_______
2018
£’000
9,077
78
893
_______
10,048
_______
Impairment losses against trade receivables of £53k were recognised during the year (2018: credit of £7k).
16.
TRADE AND OTHER PAYABLES (CURRENT)
2019
£’000
5,052
1,084
14
2,575
_______
8,725
_______
2018
£’000
3,568
862
33
1,255
_______
5,718
_______
Trade payables
Other taxes and social security taxes
Other payables
Accruals
76
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
17.
CONTRACT LIABILITIES
Contract liabilities
2019
£’000
2,511
_______
2018
£’000
1,317
_______
The contract liabilities identified above relate to unsatisfied performance obligations resulting from proforma
and advanced customer payments where we have not recognised the revenue and provisions for product
returned for rework. All of these contract liabilities are expected to be recognised in the subsequent financial
year.
18.
BANK FACILITIES
The bank facility 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 the following facilities:
•
•
£2.0m Acquisition term loan tranche A of which £2.0m remained drawn at the balance sheet date and
was repayable in Nov 2021.
£4.0m Acquisition term loan tranche B of which £3.7m remained drawn at the balance sheet date and
is repayable in twelve quarterly instalment with the final repayment date of November 2021.
• Revolving credit facility of £3.5m which was undrawn at the balance sheet date. This is a committed
•
facility until Nov 2020 when it is due for renewal.
In addition the group has a multi-currency overdraft facility of £1,000k (2018: £2,000k) which was
undrawn at both year ends.
The multi currency overdraft facility is in place to facilitate flexibility in managing currency payment. However,
the Group cannot exceed a maximum utilised facilities of £9.5m.
The groups banking facilities are subject to three financial covenants, being: leverage; debt service; and, a
tangible net worth covenant. These covenants were met at all measurement points throughout the period.
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:
•
•
•
•
Credit risk
Foreign currency risk
Liquidity risk
Cash flow interest rate risk
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments.
This note describes the Group’s objectives, policies and processes for managing those risks. Further quantitative
information in respect of these risks is presented throughout these financial statements.
There have been no substantive changes in the Group’s exposure to financial instrument risks and consequently
the objectives, policies and processes are unchanged from the previous period.
The Board has overall responsibility for the determination of the Group’s risk management policies. The
objective of the Board is to set policies that seek to reduce the risk as far as possible without unduly affecting
the Group’s competitiveness and effectiveness. Further details of these policies are set out below.
77
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (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 re-presented by the carrying value in the statement of financial position
as shown in note 15 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 a bank with a high credit rating assigned by
international credit rating agencies.
Foreign currency risk
Foreign exchange transaction risk arises when individual Group operations enter into transactions denominated
in a currency other than their functional currency. The general policy for the Group is to sell to customers in the
same currency that goods are purchased in, reducing the transactional risk. Where transactions are not matched
excess foreign currency, amounts generated from trading are converted back to sterling and required foreign
currency amounts are converted from sterling. The use of forward currency contracts are not used speculatively
and are considered where the Group has a demand for foreign currency that it can reliably forecast.
Liquidity risk
The Group operates a Group overdraft facility common to all its trading companies.
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 Group maintains its cash
reserves at a reputable bank. The maximum exposure to credit risk at the reporting date was:
Loans and Receivables
Current financial assets
Trade and other receivables
Cash and cash equivalents
2019
£’000
2018
£’000
11,708
3,692
_______
15,400
_______
9,155
575
_______
9,730
_______
78
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
19.
FINANCIAL INSTRUMENTS (continued)
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Carrying value
UK
Non UK
2019
£’000
9,088
2,340
_______
11,428
_______
2018
£’000
7,542
1,535
_______
9,077
_______
The Group policy is to make a provision against those debts that are overdue, unless there are grounds for
believing that all or some of the debts will be collected. During the year the value of provisions made in respect
of bad and doubtful debts was a charge of £39k (2018: £7k) which re-presented 0.01% (2018: 0.01%) of revenue.
This provision is included within the sales, general and administration expenses in the Consolidated Statement
of Comprehensive Income.
Trade receivables ageing by geographical segment
Geographical area
Total
£’000
Current
£’000
2019
UK
Non UK
Total
UK
Non UK
Total provisions
Total
IFRS 9
UK expected loss rate
Non UK expected loss rate
Geographical area
2018
UK
Non UK
Total
Less: Provisions
Total
30 days
past due
£’000
842
222
_______
1,064
-
(2)
_______
(2)
_______
1,062
_______
0.00%
0.90%
_______
30 days
past due
£’000
280
33
_______
313
-
_______
60 days
past due
£’000
126
68
_______
194
-
(1)
_______
(1)
_______
193
_______
0.00%
1.47%
_______
60 days
past due
£’000
10
71
_______
81
(2)
_______
90 days
past due
£’000
184
123
_______
307
(97)
(91)
_______
(188)
_______
119
_______
52.72%
73.98%
_______
90 days
past due
£’000
80
75
_______
155
(32)
_______
9,188
2,431
_______
11,619
(97)
(94)
_______
(191)
_______
11,428
_______
1.06%
3.87%
_______
8,036
2,018
_______
10,054
-
-
_______
-
_______
10,054
_______
0.00%
0.00%
_______
Total
£’000
Current
£’000
7,553
1,558
_______
9,111
(34)
_______
7,183
1,379
_______
8,562
-
_______
9,077
_______
8,562
_______
313
_______
79
_______
123
_______
79
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2018 (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:
Opening balance
Acquisition of subsidiaries
Increase / (decrease) in provisions
Written off against provisions
Foreign exchange
Closing balance
2019
£’000
34
79
152
(72)
(2)
_______
191
_______
2018
£’000
32
-
7
(5)
-
_______
34
_______
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 31 March 2019 trade receivables of £1,565k which were past their due date were
not impaired (2018: £515k).
Liquidity risk
The following are maturities of financial liabilities, including estimated contracted interest payments.
Carrying
amount
Contractual
cash flow
6 months
or less
6-12
Months
1 or more
years
2019
Trade and other payables
Borrowings
Provisions
2018
Trade and other payables
8,725
5,667
250
_______
14,642
_______
5,718
_______
5,718
_______
8,725
5,952
250
_______
14,927
_______
5,718
_______
5,718
_______
8,725
741
-
_______
9,466
_______
5,718
_______
5,718
_______
-
732
-
_______
732
_______
-
_______
-
_______
-
4,479
250
_______
4,729
_______
-
_______
-
_______
80
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
19.
FINANCIAL INSTRUMENTS (continued)
Interest rate risk
The Group finances its business through a Revolving credit facility and two term loans. During the year the Group
utilised this facility at a floating rate of interest.
The Groups banking facilities with Lloyds Bank plc incurs interest at the rate of between 2.0% and 2.55% over
LIBOR. The Group is affected by changes in the UK interest rate.
As the loans are all based on variable interest rates the fair value of the Group’s financial instruments is not
materially different to the book value.
In terms of sensitivity, if the ruling base rate had been 1% higher throughout the year the level of interest payable
would have been £44k (2018: £13k) higher and if 1% lower throughout the year the level of interest payable
would have been lower by the same amount.
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 assets/(liabilities) exposed to US dollar exchange rate risk that the Group has
at 31 March 2018:
Trade receivables
Cash and cash equivalents
Trade payables and accruals
2019
£’000
6,078
243
(1,246)
_______
5,075
_______
2018
£’000
3,425
411
(1,444)
_______
2,392
_______
There were also net assets of £163k in euros (2018: £50k).
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. There were no forward purchase agreements in place at 31 March 2019 (2018: £nil) with £nil
net exposure (2018: £nil).
The effect of a strengthening of 10% in the rate of exchange in the currencies against sterling at the statement
of financial position date would have resulted in an estimated net increase in pre-tax profit for the year and an
increase in net assets of approximately £582k (2018: £265k) 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 decrease in pre-tax profit for the year and a decrease in net assets of approximately £476k (2018:
£217k).
81
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2018 (continued)
19.
FINANCIAL INSTRUMENTS (continued)
Capital risk management
The Group defines total capital as equity in the consolidated statement of financial position plus net debt or less
net funds plus deferred consideration. Total capital at 31 March 2019 was £21,878k (2018: £17,445k).
The Group defines leverage as net debt plus deferred consideration which totals £1,975k (2018: £575k net cash).
In managing its capital, the Group’s main objectives when managing capital are to safeguard the Group’s ability
to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders
and to maintain an optimal capital structure to reduce the cost of capital.
Consistent with others in the industry, the Group monitors capital based on the gearing ratio. This ratio is
calculated as net debt plus deferred consideration divided by total capital. At 31 March 2019 the gearing ratio
was 9.0% (2018 (3.3)%).
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 the
light of changes in economic conditions and the characteristic of the underlying assets.
In making decisions to adjust its capital structure to achieve these aims the Group considers not only its short-
term position but also its long term operational and strategic objectives and sets the amount of capital in
proportion to risk.
The Group’s gearing ratio at 31 March 2019 is shown below:
2019
£’000
(3,692)
5,667
_______
1,975
_______
427
3,627
16,021
5
(5)
(172)
_______
19,903
_______
9.02%
_______
2018
£’000
(575)
-
_______
(575)
_______
425
3,629
14,204
5
-
(243)
_______
18,020
_______
(3.3)%
_______
Cash and cash equivalents
Borrowings / bank overdrafts
Net (cash)/leverage
Share capital
Share premium account
Retained earnings
Capital redemption reserve
Foreign exchange reserve
Shares held in treasury
Equity
Gearing ratio (net leverage / equity + net leverage/(cash))
82
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
20.
PROVISIONS
At 1 April
Provision for dilapidations acquired
Provisions utilised during the year
Charged / credited to statement of comprehensive income
Provisions at 31 March
2019
£’000
-
260
10
-
_______
250
_______
2018
£’000
-
-
-
_______
-
_______
The Group’s has provided for dilapidations provisions for premises which it expects to exit within the next 5
years. Based on using a risk-free discount rate of 2.5% the Group has assessed the impact of discounting to be
immaterial and has not therefore discounted the provisions.
21.
BORROWINGS
Current borrowings
Bank borrowings
Non current borrowings
Bank borrowings
Total borrowings
Within one year
Between one and two year
Between two and five years
Total borrowings
83
2019
£’000
1,333
4,334
_______
5,667
_______
2019
£’000
1,333
1,333
3,001
_______
5,667
_______
2018
£’000
-
-
_______
-
_______
2018
£’000
-
-
-
_______
-
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
22.
NET DEBT
Year ended 31 March 2019 (£’000)
Bank borrowing due within one year
Bank borrowing due after one year
Total borrowings
Cash and cash equivalents
(Net debt) / net cash
Increase / (decrease) in cash in the year
Increase in borrowings in the year
Repayment of borrowings in the year
Net movement resulting from cashflows
Net cash at 1 April
Net movement resulting from cashflows
Borrowings acquired in the year
Other non-cash movements
(Net debt) / net cash at 31 March
At 1 April
2018
-
-
_______
-
575
_______
575
_______
Cash flow
(1,333)
(2,891)
_______
(4,224)
3,120
_______
(1,104)
_______
Other non-
cash
movement
At 31 March
2019
-
(1,443)
_______
(1,443)
(3)
_______
(1,446)
_______
2019
£’000
3,120
(6,000)
1,776
_______
(1,104)
_______
2019
£’000
575
(1,104)
(1,443)
(3)
_______
(1,975)
_______
(1,333)
(4,334)
_______
(5,667)
3,692
_______
(1,975)
_______
2018
£’000
(334)
-
-
_______
(334)
_______
2018
£’000
909
(334)
-
-
_______
575
_______
84
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
23.
DEFERRED TAX
The Group’s deferred tax positions arise primarily on share-based payments, accelerated capital allowances,
capitalised development costs and intangible assets arising on acquisition of subsidiaries:
At 1 April
Deferred tax arising on acquisition of subsidiaries
(Credit)/charge for the year
Deferred tax adjustment in respect of prior periods
Effect of tax rate change
Net deferred tax at 31 March
Deferred tax liabilities/(assets) in relation to:
Accelerated capital allowances on property plant and equipment
Short term timing differences on intangible assets
Share based payments
Short term timing differences
Losses carried forward
Net deferred tax at 31 March
Deferred tax assets
Deferred tax liabilities
Net deferred tax at 31 March
2019
£’000
427
201
129
-
(27)
_______
472
_______
108
481
(57)
(29)
(31)
_______
472
_______
104
576
_______
472
_______
2018
£’000
327
-
5
95
-
_______
427
_______
102
354
(29)
-
-
_______
427
_______
-
427
_______
427
_______
A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April
2020) were substantially enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April
2020) was substantively enacted on 6 September 2016. This will reduce the Group’s future current tax charge
accordingly. The deferred tax liabilities at 31 March 2019 have been calculated based on these rates.
The amount of the net reversal of deferred tax expected to occur next year is approximately £117k (2018: £51k)
relating to the timing differences identified above.
There is an unrecognised deferred tax asset of £1k (2018: £20k) in respect of the future tax deduction that
would be available based on the share price at the balance sheet date compared to the share price at the date
of grant of the options and share bonus which is used to calculate the share based payments charge. If this
deferred tax asset had been recognised it would have been credited to other comprehensive income.
This was not recognised given it is immaterial and the share bonus being exercised post year end when the
share price was lower than at the balance sheet date therefore this deferred tax asset is not expected to be
recoverable.
In addition, there is an unrecognised deferred tax asset in relation to losses carried forward. The losses carried
forward are approximately £70k. The associated deferred tax asset of approximately £15k has not been
recognised due to the uncertainty over the recoverability combined with the fact it is immaterial.
85
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
24.
SHARE CAPITAL
Allotted issued and fully paid
8,532,878 (2018: 8,496,512) ordinary shares of 5p
2019
£’000
2018
£’000
427
_______
425
_______
Details of options granted are set out in the Directors remuneration report on page 35 to 38. At 31 March 2019
the number of shares covered by option agreements amounted to 64,000 (2018: 128,000).
Share options exercised in the prior year by the Directors are disclosed in the Directors remuneration report
on page 35 to 38.
An Enterprise Management Incentive Scheme was adopted by the company in September 2000 and formally
approved at an Extraordinary General Meeting on 12 December 2000.
25.
RESERVES
Full details of movements in reserves are set out in the consolidated statement of changes in equity on page 49.
The following describes the nature and purpose of each reserve within owners’ equity.
Reserve
Share premium
Capital redemption
Retained earnings
Shares held in treasury
Description and Purpose
Amount subscribed for share capital in excess of nominal value.
Amounts transferred from share capital on redemption of issued
shares.
Cumulative net gains and losses recognised in the consolidated
statement of comprehensive income.
Shares held by the Group for future staff share plan awards
26.
TREASURY SHARES
At 31 March 2019 the Group held 29,374 (2018: 37,394) shares in treasury with a cost of £172k (2018: £234k).
No shares have been cancelled.
At 1 April
Purchase of shares into treasury
Transfer of shares to the All Employee Share Plan (AESP)
At 31 March
2019
shares
37,394
10,000
(18,020)
_______
29,374
_______
2018
shares
37,394
-
-
_______
37,394
_______
86
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
27.
SHARE BASED PAYMENT
On 1 June 2017 the company granted nil cost EMI options to each of the following Directors (who prior to this
had no outstanding options) under the Company’s Long Term Incentivisation Plan, as follows:
Name
Number of options granted
Grant Price
Exercise price
Mr G S Marsh
Mr M T Richards
Mr J L Macmichael
Mr P O James
48,000
48,000
48,000
48,000
£4.23
£4.23
£4.23
£4.23
0.1p
0.1p
0.1p
0.1p
The share price at the date of Grant was £4.23 as the options are effectively £nil cost options the fair value is
determined to equal to the share price at the date of grant under the Black Sholes model.
The options are subject to performance criteria determined by the Remuneration Committee linked to the pre
tax profit performance of the Group in each year of a three year vesting period from the date of grant. The
performance period runs from 1 April 2017 to 31 March 2020.
The performance conditions attached to the options are identical for all the Directors. Performance is measured
on an annual basis over the three year period with a maximum of 16,000 options available in each of years one,
two and three.
In each year, 10% of the maximum award vests for Group performance in-line with the Board approved budgeted
pre tax profit with a scale such that the maximum award only vests in the event that the Group budgeted pre tax
profit is exceeded by 25%.
The Remuneration Committee retains the ability to pay at its discretion additional cash and share bonuses in
exceptional circumstances.
In January 2019, 17,600 (2018: nil) shares were awarded under the All Employee Share Plan. The share price at
the date of award was £3.34 resulting in a £59k share based payment charge recognised in the year as part of
the 2019 share based payment expense of £300k.
In respect of the financial year ended 31 March 2018 36,366 nil cost bonus share awards were made and vested
for specific employees who have met the performance criteria for Bonus shares. The share price at the date of
award of the bonus shares and therefore the fair value was £2.55 resulting in a £93k share based payment charge
recognised in the year as part of the 2018 share based payment expense of £150k.
64,000 of the Executive Directors’ options vested as the performance criteria for full vesting were acheivedin the
year ended 31 March 2019. (In the year ended 31 March 2018 the 64,000 first year option lapsed as the
performance criteria were not achieved).
There was no other long term share based incentive plan in place for the year ended 31 March 2019.
87
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
28.
LEASING COMMITMENTS
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
29.
CAPITAL COMMITMENTS
At 31 March 2019 and 31 March 2018 there were no capital commitments.
30.
SEGMENT INFORMATION
2019
£’000
2018
£’000
484
925
-
_______
377
880
-
_______
The Group’s primary reporting format for segment information is business segments which reflect the
management reporting structure in the Group. The Value Added Distribution division comprises Solid State
Supplies Ltd, Pacer LLC and Pacer Components Ltd companies the Manufacturing division includes Steatite Ltd.
Year ended 31 March 2019
External revenue
Profit before tax
Taxation
Profit after taxation
Balance Sheet
Assets
Liabilities
Net assets
Other
Capital expenditure:
Tangible fixed assets
Intangible assets
Depreciation
Amortisation
Share based payments
Interest
Value Added
Distribution
division
£’000
30,402
______
1,677
(349)
______
1,328
Manufacturing
division
£’000
25,897
______
2,707
(86)
______
2,621
17,387
(5,665)
______
11,722
62
-
417
18
-
7
______
12,137
(6,227)
_____
5,910
538
300
281
430
-
2
_____
Head
office
£’000
-
______
(1,573)
282
______
(1,291)
8,627
(6,356)
______
2,271
-
-
-
284
300
100
______
Continuing
operations
£’000
56,299
______
2,811
(153)
______
2,658
38,151
(18,248)
______
19,903
600
300
698
732
300
109
______
No individual customer contributed more than 10% of the Group’s revenue in the financial year ended 31 March
2019 or the prior year.
88
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
30.
SEGMENT INFORMATION (continued)
Year ended 31 March 2018
External revenue
Profit before tax
Taxation
Profit after taxation
Balance Sheet
Assets
Liabilities
Net assets
Other
Capital expenditure:
Tangible fixed assets
Intangible assets
Depreciation
Amortisation
Share based payments
Interest
United Kingdom
Rest of Europe
Asia
North America
Other
Value Added
Distribution
division
£’000
19,685
______
1,295
(251)
______
1,044
Manufacturing
division
£’000
26,583
______
2,375
(213)
______
2,162
9,486
(3,052)
______
6,434
190
12
180
21
-
6
______
10,821
(4,273)
_____
6,548
212
337
309
165
-
3
_____
Head
office
£’000
-
______
(1,189)
226
______
(963)
5,559
(521)
______
5,038
-
-
-
220
150
24
______
Continuing
operations
£’000
46,268
______
2,481
(238)
______
2,243
25,866
(7,846)
______
18,020
402
349
489
406
150
33
______
External revenue by
location of customer
Total assets by
location of assets
2019
£’000
2018
£’000
44,989
5,230
2,540
3,426
114
_______
36,001
5,013
1,972
2,991
291
_______
2019
£’000
38,151
_______
2018
£’000
25,866
-
-
-
-
_______
Net tangible capital
expenditure by location
of assets
2019
£’000
600
_______
2018
£’000
402
-
-
-
-
_______
56,299
_______
46,268
_______
38,151
_______
25,866
_______
600
_______
402
_______
All the above relate to continuing operations.
89
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
31. ACQUISITIONS DURING THE YEAR
On the 9 November 2018 the Group acquired 100% of the share capital of Pacer Technologies and its 100%
subsidiaries for a cash consideration of £3,812k.
Pacer Technologies is the holding company with two trading subsidiaries, Pacer Components Limited, the UK
trading entity and Pacer LLC the US sales entity.
Pacer was established in 1989 to specialise in the distribution and custom design of optoelectronic components,
lasers and displays to the OEM market in the medical, military, commercial, industrial and security sectors.
Serving an international client base, Pacer has a reputation for supplying high quality components in a customer-
centric manner, often involving custom design and manufacturing to address individual needs.
Pacer operates in two areas, Components and Displays, supplying world class blue chip companies. The
Components business is distribution based with a smaller proportion of its sales derived from manufacturing,
own brand and assembly based products. Products include industrial LEDs and light sources, lasers and laser
range finders, photon detection and counting equipment. The Displays business complements and enhances that
of Solid State Supplies. Products include industrial and commercial grade displays.
In the UK, Pacer operates from offices in Pangbourne and Weymouth, with a sales office in Crawley. Its US
subsidiary is based in Florida.
Intangible assets
Property plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Provision for dilapidations
Net Borrowings
Deferred tax
Net assets on acquisition
Goodwill on acquisition
Consideration
Discharged by:
Cash paid on acquisition
Book
value
£’000
Fair value
Adjustment
£’000
Fair value
to Group
£’000
190
419
1,574
2,306
(1,705)
(10)
(1,443)
(16)
_______
1,210
(29)
59
(29)
(36)
(250)
-
(185)
_______
1,315
740
_______
_______
_______
_______
_______
_______
1,400
390
1,633
2,277
(1,741)
(260)
(1,443)
(201)
_______
2,055
1,757
_______
3,812
_______
3,812
_______
The intangible assets are in relation to customer contacts and relationships. The goodwill recognised represents
expected synergies from combining the operations of Pacer with those of the existing Value Added Distribution
division, expected value from incremental sales arising across the combined operation that is not separately
recognisable at the date of acquisition and the value of the work force not recognised as an intangible asset
under IFRS 3 revised.
The revenue and profit after tax for the five month period post acquisition included in the Statement of
Comprehensive Income arising from Pacer’s operations were £5,711k and £67k respectively.
Had the acquisition been completed on the 1 April 2018 management estimate that that the revenue would have
been circa £15.0m and pre-tax profit would be circa £0.1m after the debt service costs.
90
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019 (continued)
32. ADJUSTMENTS TO PROFIT
The Group’s results are reported after a number of imputed non-cash charges and non-recurring items. We have
provided additional adjusted performance metrics to aid an understanding and provide clarity over the Group’s
performance on an on-going cash basis before imputed non-cash accounting charges consistent with how
analysts and investors tell us they review our business performance.
We have presented an adjusted profit metric adjusting for the following items:
• Non-cash accounting charges arising from share-based payments and the amortisation of acquisition
intangibles.
• Non-recurring cash costs relating to the re-organisation of the Manufacturing division and acquisition costs.
• Non-recurring tax credits arising primarily from prior year R&D claims and enhanced deductions on share
issues.
Acquisition and re-organisation costs
Amortisation of acquisition intangibles
Share based payments
Adjustment to profit before tax
Current and deferred taxation effect
Non recurring tax credits
Total
Reported operated profit from continuing operations
Adjustments to operating profit from continuing operations
Adjusted operating profit from continuing operations
Reported operating margin percentage from continuing operations
Operating margin percentage impact of adjustments
Adjusted operating margin percentage from continuing operations
Reported profit before tax from continuing operations
Adjustments to profit before tax
Adjusted profit before tax from continuing operations
Reported profit after tax from continuing operations
Adjustments to profit after tax
Adjusted profit after tax from continuing operations
91
2019
£’000
149
284
300
_______
733
(142)
(141)
_______
450
2019
£’000
2,920
733
_______
3,653
_______
5.2%
1.3%
6.5%
_______
2,811
733
_______
3,544
_______
2,658
450
_______
3,108
_______
2018
£’000
150
219
150
_______
519
(99)
-
_______
420
2018
£’000
2,514
519
_______
3,033
_______
5.4%
1.2%
6.6%
_______
2,481
519
_______
3,000
_______
2,243
420
_______
2,663
_______
Company Number: 00771335
COMPANY STATEMENT OF FINANCIAL POSITION
at 31 March 2019
2019
2018
Notes
£’000
£’000
£’000
£’000
FIXED ASSETS
Investments
CURRENT ASSETS
Debtors
Deferred tax asset
Cash at bank and in hand
CREDITORS: Amounts falling due within one year
Current borrowings
NET CURRENT LIABILITIES
NON CURRENT LIABILITIES
Non current borrowings
NET ASSETS
CAPITAL AND RESERVES
Called up share capital
Share premium account
Capital redemption reserve
Retained earnings
Shares held in treasury
SHAREHOLDERS’ FUNDS
4
5
6
7
8
8
8
9
13,320
9,508
6,205
67
31
_______
6,303
(7,064)
(1,333)
_______
2,979
-
-
_______
2,979
(5,590)
_______
(2,094)
_______
(2,611)
_______
(4,334)
-
6,892
_______
427
3,627
5
3,005
(172)
_______
6,892
_______
6,897
_______
425
3,629
5
3,081
(243)
_______
6,897
_______
The company made a total comprehensive income in the year of £765k (2018: loss £744k).
The financial statements were approved by the Board of Directors and authorised for issue on 2 July 2019.
G S Marsh, Director
P O James, Director
The notes on pages 95 to 97 form part of these financial statements.
92
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
Share
Capital
Share
Premium
reserve
Capital
Redemption
Reserve
Retained
earnings
Shares
Held in
Treasury
Share-
holders
Funds
Balance at 1 April 2018
425
3,629
Issue of new shares
2
(2)
Total comprehensive
income
For the year ended 31
March 2019
Share based payment
expense
Treasury shares purchased
Shares transfer to the AESP
Dividends
-
-
-
-
-
-
5
-
-
-
-
3,081
(243)
6,897
-
765
300
-
(105)
-
-
(34)
105
-
300
(34)
-
-
_______
-
_______
-
_______
(1,036)
_______
-
_______
(1,036)
_______
Balance at 31 March 2019
427
_______
3,627
_______
5
_______
3,005
_______
(172)
_______
6,892
_______
Share
Capital
Share
Premium
reserve
Capital
Redemption
Reserve
Retained
earnings
Shares
Held in
Treasury
Share-
holders
Funds
Balance at 1 April 2017
425
3,629
Total comprehensive loss
For the year ended 31
March 2018
Share based payment
expense
Dividends
-
-
-
-
5
-
-
4,690
(243)
8,506
(744)
150
-
-
(744)
150
-
_______
-
_______
-
_______
(1,015)
_______
-
_______
(1,015)
_______
Balance at 31 March 2018
425
_______
3,629
_______
5
_______
3,081
_______
(243)
_______
6,897
_______
93
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2019
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
These financial statements have been prepared in accordance with applicable United Kingdom Accounting
standards, including Financial Reporting Standard 102 -The Financial Reporting Standard applicable in the UK and
Republic of Ireland (“FRS 102”) and with the Companies Act 2006. The financial statements have been prepared
under the historical cost convention.
The financial statements are prepared in sterling rounded to the nearest thousand pounds (£’000).
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/profit for the year ended 31 March 2018 is disclosed in the Statement of
Changes in Equity.
Going concern
The going concern basis of accounting has been used in the preparation of these financial statements. The
Directors have not identified any material uncertainties in this regard.
Foreign currencies
Foreign currency transactions are translated at the rates ruling when they occurred. Foreign currency monetary
assets and liabilities are translated at the rate of exchange ruling at the statement of financial position date. Any
differences are taken to the statement of comprehensive income.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less amounts provided for impairment. When the trade and assets
of a subsidiary are consolidated / re-organised the investment is re-allocated based on the cost method where
the commercial substance and economic reality is that the Investment carrying value remains intact. The carrying
value of the revised investments are evaluated for impairment in accordance with FRS102.
Other financial liabilities
Other financial liabilities are accounted for on the same basis as in the consolidated accounts see accounting
policy on page 60 as there is no material difference between FRS102 and IFRS.
Share based payment
Share based payments are accounted for on the same basis as in the consolidated accounts see accounting policy
on page 63 as there is no material difference between FRS102 and IFRS.
Treasury Shares
Treasury shares are accounted for on the same basis as in the consolidated accounts see accounting policy on
page 61 as there is no material difference between FRS102 and IFRS.
94
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2019
2.
STAFF COSTS
Staff costs amounted £925k (2018: £750k) and comprised the share based payment expense of £300k (2018:
£150k) provision for employer’s national insurance on exercise of share options of £41k (2018: £21k).
Included within the Company Staff costs are the salary and related costs in respect of Mr A B Frere, Mr G S Marsh,
Mr P O James (appointed 20 February 2017), Mr J Lavery (Non-Executive Fees) and Mr P Haining. No other
Directors remuneration was paid by the Company. Details of the Directors whose emoluments were paid by
other Group companies are given in the Directors remuneration report on page 35 to 38.
3.
SHARE BASED PAYMENT
See Group share based payments disclosures in note 27 to the Group accounts.
4.
INVESTMENTS
Subsidiary undertakings
Cost
1 April
Additions
31 March
Net book value
31 March
2019
£’000
9,508
3,812
_______
13,320
_______
2018
£’000
9,508
-
_______
9,508
_______
13,320
_______
9,508
_______
The additions in the period related to the Acquisition of the Pacer Group of companies disclosed in note 31.
Subsidiary undertakings
Net book value of investment in:
Steatite limited
Solid State Supplies Limited
Pacer Technologies Limited
Total investments at 31 March
Subsidiary undertakings
See Group subsidiary undertakings disclosures in note 13 to the Group accounts.
5.
DEBTORS
Amounts owed by Group undertakings
Other debtors
Prepayments
95
2019
£’000
5,307
4,201
3,812
_______
13,320
_______
2019
£’000
6,193
2
10
_______
6,205
_______
2018
£’000
5,307
4,201
-
_______
9,508
_______
2018
£’000
2,969
-
10
_______
2,979
_______
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2019
6.
CREDITORS
Bank overdraft (secured)
Amounts owed to Group undertakings
Other taxes and social security costs
Trade and other creditors
Accruals
2019
£’000
-
6,756
88
33
187
_______
7,064
_______
2018
£’000
336
5,144
28
35
47
_______
5,590
_______
The Company has guaranteed bank borrowings of all of its subsidiary undertakings, the main trading subsidiaries
are Solid State Supplies Limited, Steatite Limited, Pacer Components Limited and Pacer LLC. At the year end the
liabilities covered by those guarantees amounted to £nil (2018: £nil). 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
See Group share capital disclosures in note 24 to the Group accounts.
8.
RESERVES
See Group reserves disclosures in note 25 to the Group accounts.
9.
OWN SHARES HELD IN TREASURY
See Group treasury shares disclosures in note 26 to the Group accounts.
10.
LEASING COMMITMENTS
The company’s future minimum payments under operating leases are as follows:
Within one year
Between one and five years
Later than five years
2019
£’000
-
-
-
_______
2018
£’000
2
-
-
_______
96
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of Solid State PLC will be held at 2, Ravensbank Business Park,
Hedera Road Redditch B98 9EY, on 4 September 2019 at 9.30am for the following purposes:
ORDINARY RESOLUTIONS
(1)
(2)
(3)
(4)
(5)
To receive and adopt the accounts for the year ended 31 March 2019, together with the reports of the Directors
and auditors thereon. (Resolution 1)
To declare a final dividend of 8.3p per share. (Resolution 2)
To reappoint Mr John Lawford Macmichael, who retires by rotation, as a Director of the Company in accordance
with the Company’s Articles of Association. (Resolution 3)
To reappoint Mr Peter Haining, who retires by rotation, as a Director of the Company in accordance with the
Company’s Articles of Association. (Resolution 4)
To reappoint Mr Nigel Foster Rogers, being a director of the Company appointed since the last annual general
meeting, in accordance with the Company’s Articles of Association. (Resolution 5)
To reappoint RSM UK Audit LLP as auditors of the Company. (Resolution 6)
To authorise the Directors to fix the auditors’ remuneration. (Resolution 7)
(6)
(7)
(8) To amend the company’s articles of association and memorandum as follows:
(9)
i) delete clause 3 and replace with “do not use”.
ii) delete the references to authorised share capital in the Company’s memorandum
The Companies Act 2006 abolished the concept of authorised share capital of the company therefore this
resolution updates the articles in accordance with the Companies Act 2006 in this regard. (Resolution 8)
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 £140,792.49 (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
in any other case, up to an aggregate nominal amount of £85,328.78 (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.
ii)
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 8)
97
NOTICE OF ANNUAL GENERAL MEETING (continued)
SPECIAL RESOLUTIONS
(10)
i)
ii)
To pass the following resolution:
That the Company is authorised to allot equity securities pursuant to resolution 9 above up to an aggregate
nominal amount of £42,664.39, which is 10% of the issued share capital, as if Section 561 of the Companies Act
2006 (existing shareholders – right of pre-emption):
did not apply to the allotment; or
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 has expired. (Resolution 10)
(11)
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)
ii)
iii)
iv)
v)
vi)
the minimum price which may be paid for the ordinary shares is 5p per ordinary share;
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;
the authority hereby conferred shall expire after a period of 18 months from the passing of this
resolution unless such authority is renewed prior to such expiry;
the authority hereby conferred is in substitution for any existing authority to purchase ordinary shares
under the said Section 701;
the Company may make a contract to purchase ordinary shares under the authority hereby conferred
prior to the expiry of such authority which will be executed wholly or partly after the expiry of such
authority and may make a purchase or purchases of ordinary shares in pursuance of any such contract;
and
the maximum number of ordinary shares hereby authorised to be purchased by the Company does
not exceed 15 per cent of the issued ordinary share capital of the Company at the date of the passing
of this resolution. (Resolution 11)
BY ORDER OF THE BOARD
P Haining FCA
Secretary
2 July 2019
Registered office: 2 Ravensbank Business Park, Hedera Road, Redditch, B98 9EY
98
NOTICE OF ANNUAL GENERAL MEETING (continued)
NOTES:
Entitlement to attend and vote
1. Only those members registered on the Company’s register of members at close of business 2 days before the
time appointed for the meeting, or if this meeting is adjourned, at close of business on the day two days prior to
the adjourned meeting shall be entitled to attend and vote at this meeting.
Attending in person
2.
If you wish to attend the meeting in person, please bring photographic identification with you to the meeting.
Appointment of proxies
3.
4.
If you are a member of the company at the time set out in note 1 above, you are entitled to appoint a proxy to
exercise all or any of your rights to attend, speak and vote at the meeting and you should have received a proxy
form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and
the notes to the proxy form.
If you are not a member of the company but you have been nominated by a member of the company to enjoy
information rights, you do not have a right to appoint any proxies under the procedures set out in this
“Appointment of proxies” section.
5. A proxy does not need to be a member of the company but must attend the Meeting to represent you. Details
of how to appoint the Chairman of the Meeting or another person as your proxy using the proxy form are set out
in the notes to the proxy form.
6. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different
shares. You may not appoint more than one proxy to exercise rights attached to any one share.
7. A vote withheld is not a vote in law, which means that the vote will not be counted in the circulation of votes for
or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter
which is put before the Meeting.
Appointment of proxy using hard copy proxy form
8. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their
vote. To appoint a proxy using the proxy form, the form must be completed and signed and sent or delivered to
Neville Registrars Limited, Neville House, Steelpark Road, Halesowen, B62 8HD, not later than 48 hours before the
time appointed for the Meeting. The completion and return of a form of proxy will not, however, preclude
shareholders from attending and voting in person at the Meeting.
In the case of a member which is a company, the proxy form must be executed under its common seal or signed
on its behalf by an officer of the company or an attorney for the company.
Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of
such power of authority) must be included with the proxy form.
Appointment of proxy joint members
9.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the
appointment submitted by the most senior holder will be accepted, Seniority is determined by the order in which
the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the
first-named being the most senior).
99
NOTICE OF ANNUAL GENERAL MEETING (continued)
NOTES:
Changing proxy instructions
10. To change your proxy instructions simply submit a new proxy appointment using the methods set out above.
Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended
instructions; and amended proxy appointment received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions
using another hard-copy proxy form, please contact Neville Registrars Limited, Neville House, Steelpark Road,
Halesowen, B62 8HD.
If you submit more than one valid proxy appointment, the appointment received last before the latest time for
the receipt of proxies will take precedence.
Termination of proxy appointments
11. In order to revoke a proxy instruction, you will need to inform the Company using one of the following methods:
a. By sending a signed hard copy notice clearly stating your intention to revoke your proxy appoint to Neville
Registrars Limited, Neville House, Steelpark Road, Halesowen, B62 8HD.
b.
In the case of a member which is a company, the revocation notice must be executed under its common seal
or signed on its behalf by an officer of the Company or an attorney for the company. Any power of attorney
or any other authority under which the revocation notice is signed (or a duly certified copy of such power of
authority) must be included with the revocation notice.
In either case, the revocation notice must be received by the Neville Registrars Limited, Neville House, Steelpark
Road, Halesowen, B62 8HD, not later than 48 hours before the time appointed for the Meeting.
Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have
appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated.
Issued shares and total voting rights
12. As at 2 July 2019 the Company’s issued share capital comprised of 8,532,878 ordinary shares of 5p each which
includes 29,374 shares held in treasury. Each ordinary share carries the right to one vote at a general meeting of
the Company and, therefore, the total number of voting rights in the Company as at 2 July 2019 8,503,504.
Documents on display
13. The following documents will be available for inspection at the place of the Annual General Meeting prior to the
meeting until the time of the Meeting and for at least 15 minutes prior to the meeting:
a. The register of Directors’ interests in the share capital and debentures of the Company; and
b. Copies of service agreements under which Directors of the Company are employed
100
101