CONTENTS
2. Directors, Secretary and Advisers
3. Chairman’s Statement
7. Strategic Report
23. Corporate and Social Responsibility Report
27. Corporate Governance Report
41. Audit Committee Report
46. Remuneration Committee Report
59. Directors’ Report
63. Report of the Independent Auditors
70. Consolidated Statement of Comprehensive Income
71. Consolidated Statement of Changes in Equity
73. Consolidated Statement of Financial Position
74. Consolidated Statement of Cash Flows
75. Notes to the Financial Statements
120. Company Statement of Financial Position
121. Company Statement of Changes in Equity
122. Notes to the Company Financial Statements
126. Notice of Annual General Meeting
0
CONTENTS
2. Directors, Secretary and Advisers
3. Chairman’s Statement
6. Strategic Report
23. Corporate and Social Responsibility Report
27. Corporate Governance Report
41. Audit Committee Report
46. Remuneration Committee Report
59. Directors’ Report
63. Report of the Independent Auditors
70. Consolidated Statement of Comprehensive Income
71. Consolidated Statement of Changes in Equity
73. Consolidated Statement of Financial Position
74. Consolidated Statement of Cash Flows
76. Notes to the Financial Statements
119. Company Statement of Financial Position
120. Company Statement of Changes in Equity
121. Notes to the Company Financial Statements
125. Notice of Annual General Meeting
1
DIRECTORS, SECRETARY AND ADVISERS
Directors:
Nigel Rogers, Non-Executive Chairman
Gary Marsh, Chief Executive Officer
Peter James, BSc FCA, Chief Financial Officer
John Macmichael, Executive Director
Matthew Richards, Executive Director
Peter Magowan, Non-Executive Director
Peter Haining, FCA, Non-Executive Director
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:
WH Ireland Limited
24 Martin Lane
London EC4R 0DR
finnCap Limited
One Bartholomew Close
London EC1A 7BL
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
Introduction
I am pleased to report that the Group has delivered another year of record adjusted profits despite the supply chain
challenges and volatile global markets. We have delivered growth in both revenue and adjusted profits; however, the macro-
economic environment has somewhat curtailed the increase in the period.
Group management continues to make good progress in the implementation of its strategy by investing in people and
technology, and through the integration of the two bolt-on acquisitions completed in March 2021. The acquisitions’
performance and positive attitude to being part of the Group has surpassed management’s expectations and have
enhanced the value we can offer in both our Components and Systems Divisions.
The Group’s sector diversity continues to provide a resilient business model. Order intake has been strong across all sectors
including in those markets which had previously shown some weakness during the pandemic, specifically energy and
aerospace. This has resulted in a record open order book on 31 May 2022 of £89.7m, (comparatives: 31 March 2022:
£85.5m; 31 March 2021: £41.3m; 31 May 2021: £51.0m).
The record open order book and strong balance sheet, where we have invested in inventories, provide confidence in our
ability to continue to deliver growth. Whilst the most volatile period of the supply chain challenge is starting to stabilise,
component lead times remain extended, logistical delays are common and inflationary pressures are rising. These
challenges are expected to continue through the year ahead into 2023. These are complex issues that can be difficult to
navigate and call upon the full range of skills and experience of our highly competent team.
Having delivered on the five year goal of doubling adjusted diluted EPS to > 60p, the Board is refining its five-year strategic
plan to 2027. The ambition for the next five years is to replicate or beat historic performance which saw the Group deliver
>20% CAGR (Compound Annual Growth Rate) in total shareholder return over the five years to 2022.
Financial overview
Set out below are the financial key performance indicators which reflect the record year and a very pleasing result:
KPI
Reported revenue
Reported operating profit margin
Adjusted operating profit margin*
Reported profit before taxation
Adjusted profit before taxation*
Reported EPS
Adjusted fully diluted EPS
Adjusted cash flow from operations
Net cash/(net debt)**
Dividend
Open order book @ 31 May
2022
£85.0m
4.4%
8.7%
£3.5m
£7.2m
29.5p
70.6p
£6.0m
£(5.2)m
19.5p
£89.7m
2021
£66.3m
6.5%
8.3%
£4.2m
£5.4m
46.4p
54.7p
£6.9m
(£4.4m)
16.0p
£51.0m
Change
+28.2%
-210bps
+40bps
-16.7%
+33.3%
-36.4%
+29.1%
-13.0%
-18.2%
+21.9%
+75.9%
* Adjusted performance metrics are reconciled in note 31, the adjustments relate to IFRS 3 acquisition amortisation, share based payments charges, and non-recurring
charges in respect of redundancies and acquisition costs and fair value adjustments.
** Net cash / debt includes net cash with banks £1.4m (2021: £3.1m) less the fair value of deferred contingent consideration of £6.6m (2021: £7.5m) and excludes the right of
use lease liabilities of £2.1m (2021: £2.5m).
The Group has delivered:
• Revenue growth of 28.2%, including the first full year of acquisitions, with record revenue of £85.0m (2021: £66.3m)
reflecting our pro-active approach to working in partnership with customers to manage supply and demand.
• Record profitability with adjusted operating margins increasing 40bps to 8.7%, based on solid margins in both
divisions.
• Adjusted fully diluted EPS up 29.1% to 70.6p (2021: 54.7p).
•
Strong operating cash generation of £6.0m (2021: £6.9m) supported investment in inventory of £6.9m with reported
cash conversion of 161% (2021: 162%).
• A dividend increase of 21.9% on the prior year, reflecting record adjusted performance in the year.
• An open order book on 31 May 2022 of £89.7m (31 May 2021: £51.0m) highlighting 75.9% organic growth.
3
CHAIRMAN’S STATEMENT (continued)
Strategic Achievements in 2021/22
Notable achievements to advance our strategy included:
•
•
Integration of the acquisitions of Willow Technologies Group (“Willow”) and Active Silicon Group (“Active Silicon”):
o Enhanced technology adding a portfolio of own brand image processing products and electro-mechanical
components (including component manufacturing capabilities in USA).
o Broadened the international sales capabilities and resources in the USA and Europe.
Continued investment in technical capabilities through our capital investment programme:
o
Semi automated battery pack wire bonding - providing improved quality and efficiency for volume battery pack
production runs.
In-house electromagnetic compatibility (“EMC”) testing capabilities.
o
Post period events:
Proposed acquisition of Custom Power LLC (“Custom Power”), a strategically aligned, profitable, cash generative battery
pack manufacturer for a total consideration of up to $45.0m. The acquisition is expected to complete in early August
following the general meeting on 29 July 2022.
Strategy
The Group provides customers broad-based access to trusted electronic technology for demanding applications and
extreme environments and has a commercial focus on high growth markets including security & defence, medical, green
energy, transport, communications and industrial.
Our medium-term financial objective is to double fully diluted adjusted earnings (“aeps”) over each five year period. This
was exceeded in the five years to 31 March 2022, when aeps increased from 30 pence to 71 pence per share. The
accelerated growth rate achieved in recent years reflects the benefit of the foundations which have been laid and the
resulting new and exciting businesses. The Directors are fully committed to continuous development of our capabilities to
build on this success, further strengthening our partnership approach with major customers, and continuing to share
rewards equitably amongst all our stakeholders.
Not withstanding the acknowledged short term supply challenges, the demand outlook for customised electronic solutions
offers exciting opportunities. Many ground breaking technologies are embedded within our current activities, and there is
scope for further investment in specialist skills and knowledge to expand and differentiate our offering to existing and
prospective customers, both through internal development and acquisition as we target international expansion.
We are building ever closer relationships with our customers, adding substantial value through early stage integration into
their design and development road maps, and interlocking with their operational and logistics processes. This will be
achieved by further strengthening channels of co-operation between Group entities and building cross-selling specialist
teams to facilitate ease of customer access to our full range of products and services.
Governance and Accountability
The Board structure continues to evolve as we strive towards full implementation of all the principles of the Quoted
Companies Alliance code on Corporate Governance. The Board currently comprises four executive directors and three non-
executive directors, including an independent non-executive Chair and a senior independent non-executive Director. It is
the intention of the Board to recruit an additional independent non-executive Director in the coming year, ensuring
appropriate access to an open and transparent process for all candidates, being cognisant of the breadth of diversity.
Following this appointment, the Board will have an equal balance of executive and non-executive directors with a casting
vote for the chair.
An annual formal Board effectiveness review is undertaken, and any updates to Board structure, processes and
documentation are actioned without delay. There is a continuous improvement approach to addressing the Environmental,
Social and Governance (“ESG”) agenda, which is set out in this report, and this will continue to evolve in future reports as
additional metrics are identified and progressed.
In communication with our shareholders and others, our primary aim is to provide timely, well balanced, and succinct
information about our business and its prospects to a wide audience on a regular basis. In addition to our Annual General
Meeting and scheduled meetings with key institutional shareholders, we participate in periodic on-line presentations which
are open to all by prior arrangement on the “Investor Meet Company” platform (www.investormeetcompany.com).
.
4
CHAIRMAN’S STATEMENT (continued)
Acquisitions
The trading contribution from the two acquisitions made at the end of financial year 2020/21, Willow and Active Silicon,
have each exceeded management’s expectations. The Willow acquisition provided the Components Division with a wider
customer base and product offering, significantly increasing the portfolio of own brand components, enabling record
revenues. The combined skillsets of the Systems Division and the Active Silicon acquisition enabled the award of the
Transport for London Piccadilly line upgrade contract and will provide further opportunities. Active Silicon bring expertise
in the design and manufacture of imaging products and embedded vision systems.
Post year end, the intended acquisition of US battery manufacturer Custom Power was announced on 12 July 2022, subject
to shareholder approval at the general meeting on the 29 July 2022. Custom Power is a strategically significant US based
power specialist operating at scale in target growth markets for Solid State . This transaction aligns with the Group’s four
key strategic goals and is a good fit with the existing power business unit. Custom Power is a profitable, cash generative
business in high growth market sectors that will provide broader technical competencies and opportunities for stronger
relationships with key suppliers. This will enable the enlarged Group to cross sell to both businesses’ international blue-
chip customers. The size of this acquisition will be transformational to the Power business unit providing a step change,
with Custom Power delivering revenues of approximately $29.8m in their financial year ended 31 December 2021.
People
There has been further investment in the Group HR function in the current year supporting the welfare of our people.
Although the impact of the COVID-19 pandemic is receding, there has been ongoing attention to keep workplaces safe and
a focus on broader social welfare. This includes access to a wellbeing at work support programme for employees and their
families, cash back opportunities, pay reviews, bonuses and a commitment to a one-off energy bonus payment for all
employees in the next financial year.
Dividend
The Group has paid dividends every year since joining AIM in 1996. The Board is committed to maintaining a progressive
dividend policy, however the Board’s focus when deploying capital is to continue to drive strong total shareholder returns
comparable to historic periods.
Accordingly, the Board is proposing a final dividend of 13.25 pence (2021: 10.75 pence) resulting in full year dividends of
19.5 pence (16.0 pence) which is covered 3.6 times by adjusted earnings (2021: 3.4 times).
Subject to approval of the final dividend by shareholders at the AGM on 7 September 2022, the final dividend will be paid
on 5 October 2022 to shareholders on the register at the close of business on 2 September 2022, and the shares will be
marked ex-dividend on 1 September 2022.
Opportunities and prospects for 2022/2023
The Group’s business model now serves a wide customer base of over 2,000 clients, operating across multiple sectors,
offering a broad product range with specialist production facilities. This diversification provides the Group with resilience
when markets are challenging. Whilst the forthcoming period will no doubt continue to be adversely affected by
component shortages, having invested in inventories, in partnership with our customers, the Group is well placed to take
advantage of the market conditions and emerge in a stronger position than many competitors.
The acquisition of Custom Power, which is expected to complete following the general meeting on the 29 July 2022, will be
transformational for our Power business unit providing a production facility in the USA. This clearly presents a very exciting
opportunity for the Group in the power sector which is the area of the business which has the highest growth potential.
The Group has achieved high order intake in Q1 2022/23 across its diverse sector exposure. The strong open order book
provides opportunities for significant growth in the current year, albeit this is expected to be influenced by component lead
times. Presently the timing of supplies and programmes remains somewhat difficult to predict.
The group has seen a strong start to the year with Q1 billings up 31% on a like for like basis with margins comparable with
FY22. This excellent start, combined with the Group’s strong financial footing, technology, capabilities, engineering
specialisms, and its sector penetration in areas which are political priorities, for example in defence, transportation and
medical, mean the Board is confident that the Group is well placed to deliver continued growth.
N Rogers
Chairman
27 July 2022
5
STRATEGIC REPORT
Introduction to Solid State PLC
The Group supplies electronic products, technology, and solutions, primarily designed for demanding applications where
safety, performance, reliability, and quality are critical; enabling customers to focus on their core business with confidence
by delivering trusted technology for demanding environments.
Our Purpose – Why we do what we do!
To establish our position as an international leader in providing sustainably engineered electronics technology systems and
components enabling our stakeholders to realise value, maximise efficiencies, and reduce waste.
Solid State’s mission and strategy to deliver growth
Our Strategy – What we are doing
The Group’s stated strategy to deliver on our purpose and mission has four key elements:
6
STRATEGIC REPORT (continued)
The Group is focused on the design-in, supply and support of sustainably engineered, specialist electronics equipment and
solutions from components, sub-assemblies, products, and embedded systems, through to complete integrated electronic
solutions.
The market for the Group’s products and services is driven by the need for bespoke specialist electronic solutions to address
complex needs, typically in harsh environments where enhanced durability and resistance to extremes of humidity,
temperature, pressure, vibration, and wind is vital. Long life expectancy is built into our products regardless of application.
A key part of the Group’s offering is its industry leading workforce. To ensure the Group builds on this, it invests significantly
in the development of its technical staff and other professional personnel, through a combination of internal and external
training and development programmes to ensure they remain as industry experts at the forefront of their respective
technology areas. Furthermore, the Group is constantly looking to broaden its talent pool through recruitment.
The Group’s organic growth strategy is based on targeting the structural growth markets of security & defence, medical,
greentech, transport, energy, and industrial where there is significant Government and industry investment in technology
aligned to the Group’s strengths. In implementing this strategy, the Group will continue to focus on retaining its diverse,
customer and sector exposure ensuring Solid State maintains the resilience it has benefited from in recent times.
The Group actively targets markets with high barriers to entry, requiring accreditations, long standing reputations and
specialist test and measurement capabilities. This enables the business to differentiate its offering, develop long term
symbiotic customer relationships where premium products and services are valued and reflected in the margins.
The Group continues to invest in enhancing the range and scope of its accreditations. It holds multiple accreditations
covering health and safety, environmental, international aerospace standards, ATEX (controlling explosive atmospheres)
and others. Where required, facilities and personnel are security cleared to allow secure Government work to be
conducted.
The Group has industry leading test & measurement and assembly capabilities, including a Class 7 clean room assembly
facility, environmental and vibration testing capabilities, and a world class near-field RF test chamber.
In the current year, the Group has continued to make significant investments to further enhance its manufacturing and
assembly capabilities with new wire bonding technology and an EMC chamber commissioned during first quarter. These
facilities, combined with the technical and engineering expertise, mean the Group has a differentiated offering, providing
class leading capabilities which are utilised across Solid State.
Solid State PLC operating structure
Note: Custom Power acquisition is subject to shareholder approval on 29 July 2022
The Group has two operating Divisions, Components and Systems (previously Value Added Supplies and Manufacturing),
with a shared mission, strategy and consistent business values. The illustration above shows the product focus areas.
The Group’s principal operations are based in the UK with its head office in Redditch, where component supplies
warehousing and computing product manufacturing are located.
The Group’s Power business unit (BU) battery pack manufacturing centre of excellence is in Crewkerne, Somerset, with
Leominster in Herefordshire housing the bulk of the Group’s Communications BU.
7
STRATEGIC REPORT (continued)
The recent acquisitions have added industry
leading opto-electronic assembly capabilities in
Weymouth, computing board level design and
and
production
administration offices near to London Heathrow
and Gatwick, respectively.
component
sales
and
The 2020/21 Willow and Active Silicon
acquisitions provided a more established sales
function in the USA as well as a significant
freehold R&D and manufacturing facility for key
electromechanical products in Elkhart Indiana.
Components
The Components Division primarily supplies designed-in products and solutions at the component and sub assembly level.
It is a market leader in delivering innovative, designed-in technical solutions for customers. The Division serves the needs
of the original equipment manufacturing (“OEM”) and the contract electronics manufacturing (“CEM”) communities,
principally in the UK. The appointment of several new third party representative companies in the USA will be used to
continue to accelerate the development of its international sales channels.
Components represents a select number of Franchised suppliers who manufacture semiconductors, related electronic and
opto-electronic components, modules, sensors, switches and displays as well as more recently developing a portfolio of
own brand components with the acquisitions of Pacer (opto-electronic components) and Willow (electromechanical
components). The team’s depth of understanding of these products and components enables the Group to offer
outstanding levels of commercial and “added value” technical support to its customers.
The products and components supplied are from globally recognised manufacturers and include those for 5G and the
Internet of Things (“IoT”), embedded processing, control, wireless and wired communications, electromechanical, power
management, optical emitters, and sensors, displays and LED lighting.
Systems
Operating with three principal business units (“BUs”), computing, power and communications, the Systems Division is a
market leader with capabilities extending from the supply of simple electronics technology products and systems to the
delivery of turnkey integrated solutions with significant engineering-based value-added content. Capabilities encompass
design, production, testing, commissioning, training and through life support.
The Division manufactures high specification industrial computers, sophisticated custom battery packs and advanced
communication systems, including specialist antennas and high-performance video transmission products. Latterly the
acquisition of Active Silicon has enhanced the Division’s computing offering to include board level design and manufacturing
capabilities primarily for image capture, processing, and transmission. It is the technical knowhow, design skills, production
and testing resources, product quality and customer service levels, combined with over 30 years of experience of supplying
products into the most demanding of environments, that provides significant differentiation from the Group’s competitors
across the three BUs.
Consistent with the Components Division, the strong and established partnerships with key suppliers in Asia and the USA
are critical (including industry leading technology partners) and include Nvidia, IEI, Intel, Innodisk, Molicel Panasonic, LG,
Cisco and Persistent Systems.
Competitive Advantage
The Group is the subject matter expert for its customers, with deep industry knowledge and longstanding key supplier
relationships. In designing-in solutions to address the customer needs, the Group selects the most appropriate component,
module, computing technology, battery chemistry, or communications solution to ensure Solid State is a trusted partner.
The Group constantly seeks to add value for its customers, who are typically looking to embrace the adoption of the
enabling technologies where Solid State has industry leading component and manufacturing expertise, such as electronic
and optoelectronic component design-in, image processing, Artificial Intelligence (“AI”), IoT, fossil fuel replacement,
switching, cordless & portable power, and leading-edge communications / antenna solutions.
8
Chief Executive’s Review
STRATEGIC REPORT (continued)
Given the macro-economic backdrop, with the component supply shortages, Brexit and latterly inflationary pressures and
volatile exchange rates, this reporting period again served up some of the most challenging business conditions in our
history. As a result, I am very pleased to report 29.1% growth in adjusted diluted earnings per share over the prior year’s
record result and a significant step change in revenue year on year at £85.0m (2021: £66.3m).
The Group benefitted from the first full year of the two acquisitions and a few pull ins of demand at the end of the year
where our team’s supplier relationships secured product pre year end, meaning we were able to fulfil some of the strong
customer demand.
The Group has a record open order book which, combined with our inventory management plan, positions Solid State to
proactively manage the well-publicised electronics supply chain issues with our customers. Despite these ongoing
challenges, the Group has been able to make considerable strides in delivering its growth strategy in the current year.
Solid State reports a strong year-end balance sheet with net assets of £27.1m and net cash at the bank of £1.4m. The
balance sheet strength has meant we have been able to proactively invest in inventories, which has been a critical factor in
enabling the Group to provide the differentiated customer service which is core to our success. Furthermore, this strength
means the Group is well placed to continue to gain a competitive advantage when managing the challenging market
conditions which are expected to continue through 2022 and into 2023.
On 12 July 2022, the Group announced its intention to acquire Custom Power, a battery pack manufacturing business based
in California USA, for a total consideration of up to $45.0m subject to achieving an earn out hurdle. The acquisition is
expected to complete in early August following the general meeting on 29 July 2022 to approve the transaction. Full details
of the transaction have been provided to shareholders within the circular which was posted on the 13 July 2022.
This acquisition will be transformational for our Power business unit, enabling the Group to meet the increasing demand
from its blue-chip tier one customers to provide power solutions on a transatlantic basis.
Custom Power is a profitable and cash generative battery pack manufacturer. Like our business, they are engineering led
and target markets with high barriers to entry where the engineering expertise is valued, and the production horizons are
longer. As reported previously in the circular issued to shareholders, Custom Power delivered record proforma results in
the year ended 31 December 2021 with revenue of approximately $29.8m, EBITDA of $3.5m and proforma net profit of
$2.5m (reported net profit $1.9m). Building on last year’s record performance, we look forward to delivering further
strategic progress and this acquisition is a critical building block for the Group in the execution of its strategy.
The scale and broader portfolio of products now offered by the Group’s Components Division, has enabled like for like
Components’ revenues to grow 11% year on year to £52.5m. Furthermore, the Systems Division also saw like for like
revenue growth at 4% at £32.5m but most pleasing was the significant improvement in adjusted systems gross margins to
42.0% from 38.7%.
Key stakeholder engagement
Solid State’s pro-active approach to managing both customer and supplier stakeholders during the year has been
recognised positively with many providing positive feedback about how the Group has supported their businesses in these
very difficult times. This is evidenced by the Group being awarded the British Aerospace Supply to Win Gold award and
several supplier awards recognising the Group’s value to their businesses.
Throughout the pandemic and component supply challenges the business worked hard to ensure that it maintained timely
and relevant communication and engagement with all stakeholders. The teamwork, support, and commitment from and
by the staff has been a real success factor. The workforce has recognised and valued the investment in enhancing the
Group’s staff welfare programmes to provide both physical and mental health support, resources and benefits which are
available to all employees.
The Group continues to recognise the value of, and invest in, its staff with various ongoing professional development
initiatives. This is critical to the Group continuing to both retain and attract exceptionally high calibre staff which is
necessary to maintain its market position and retain its trusted business partner relationships.
We have continued to develop the Group’s staff and communities’ engagement activities; highlights in the year being a
new initiative to support local food banks near each of our UK facilities; sponsoring a room at a local YMCA to provide safe
accommodation for young people in our community and repeating the Solid State charity walk. In support of all our
employees, at the year end the Group committed to paying an energy grant in the autumn of 2022 to help our colleagues
with managing the very significant increase in the cost of living and energy costs ahead of the winter.
9
STRATEGIC REPORT (continued)
Delivery of the strategy
In FY21/22 Solid State has continued to execute on its strategy, delivering improved financial performance with important
strategic steps being taken across both operating divisions.
Internationalise the business
In developing our international sales channels, the acquisitions of both Active Silicon and Willow have accelerated our
overseas sales.
During the year within our Components Division we have added resources into our USA and UK sales force which, in
conjunction with adding several third-party representative companies in the USA, provides a foundation for growth in sales
which is starting to be translated into orders reflected in our record order book.
Post year end, the expected acquisition of Custom Power as part of our Systems Division, provides a step change for this
division to penetrate the US power market.
Investment in and enhancement of our talent
During the year we have made significant strides in developing the senior management team, which has benefitted from
the acquisitions of Willow and Active Silicon, both of which had a strong and talented work force which have been additive
to the Group. The integration of our new colleagues from the acquisitions has been very positive, providing additional depth
in talent and resource across our business.
We have strengthened the USA component manufacturing facility (“AEC”) leadership team by appointing a general
manager, and bolstering the local engineering and sales resource, to accelerate the development of our own brand
electromechanical product range. Furthermore, we have invested in our sourcing team where, because of the
semiconductor shortages, we have seen very significant demand for the expertise this team offers. This has translated into
significant new revenue opportunities for our design-in Components Division.
Within our Systems Division, the divisional MD has established an integrated functional leadership team to drive this
division forward which has benefitted from the additional HR resource and talent who joined the Group as part of the Active
Silicon acquisition. Post year end, the acquisition of Custom Power will add battery industry expertise and talent. Custom
Power has a particularly strong complimentary engineering capability which will help to differentiate the Group’s power
offering.
Develop our portfolio of own brand products and complementary 3rd Party products
Our Components Division has continued to develop its portfolio of franchise manufacturers in the period, taking on the
ASUS industrial computing component line which provides IoT platforms, enhancing our portfolio of industrial computing
components.
During this period of shortages in the electronics sector, our breadth of components has enabled us to support customers
in designing-in and supplying second sources for many components, providing customers with some resilience. This work
adds value and provides new opportunities for the Group.
The Group continues to invest in R&D projects to develop our portfolio of own brand products and components.
The Computing business unit has extended our own brand fanless computing offering to include a low magnetic signature
computing product which is increasingly important for defence applications, including those with demanding EMC
requirements. In addition, we have seen our TEMPEST accredited security product portfolio become market ready, which
includes the Group’s keyboard video mouse (“KVM”) product and high-attenuation-smart-enclosure HASE units.
In the Communications business unit, the development of the standard and semi-custom antenna portfolio (horns, spirals
and sinuous antennas) has delivered a stable platform of run rate business which is enabling longer term and larger
programmes to be targeted to provide sustainable organic growth.
Within our Power business unit, we are keeping pace with the emerging battery chemistries and technology being driven
by the automotive sector. We remain a subject matter expert, offering our customers the most appropriate chemistry for
their given application. The development of our scalable and flexible modular pack solutions continues to progress
positively, albeit COVID-19 and supply chain challenges have meant the progress has been hindered somewhat.. These
products are applicable to multiple high growth, un-commoditised industrial markets that are adopting either a low carbon
power source, cordless solutions and next generation autonomous technologies.
10
STRATEGIC REPORT (continued)
Broaden our technical manufacturing expertise / technology portfolio / designed in product base
The Group has made significant investments to further enhance its manufacturing and assembly capabilities with new
automated die bonding capabilities, state of the art spectrum analysis equipment, and an in-house electromagnetic
compatibility (“EMC”) chamber which was commissioned during first quarter of FY21/22.
The EMC chamber now gives us the ability to complete pre-compliance EMC testing in-house. These facilities, combined
with technical and engineering expertise, mean the Group has a differentiated offering, providing class leading
manufacture, test and measurement capabilities that are utilised across the Group. Further investments are planned to
encompass pre compliance TEMPEST test capabilities. The Group also upgraded its environmental chamber to enable Solid
State to conduct pre-compliance testing of its products to aerospace standards.
Post year end, the Power business unit commissioned its first wire bonder to enable semi automation of battery pack
manufacturing, which is proving to be a point of differentiation with our customers, and we have already seen significant
interest arising from new and existing prestigious customers looking to benefit from this technology on their new projects.
Furthermore, this is a capability we will look to roll out to Custom Power once the transaction is complete.
In addition to the investment in manufacturing equipment, we continue to enhance our capabilities and accreditations such
as ATEX and our certification to build battery packs that are used in explosive atmospheres. Pleasingly, we are seeing growth
in this particular specialist capability.
The strength of the Group
Cross-Group collaboration has been a key strategic focus to ensure the business maximises the commercial value of its
extensive customer relationships. The Group wide “Senior Leadership team” which was formalised last year in conjunction
with the implementation of a Company Share Option Plan (“CSOP”) aligns the incentives of those individuals with Group
performance. This approach has changed the level of engagement and aligned behaviours and the benefits are continuing
to be seen with a further step change in cross-Group engagement and collaboration.
The acquisitions of Active Silicon and Willow provided additional breadth and depth to the Group’s product and technology
offering. In addition, the enlarged Group’s active customer base now exceeds 2,000, presenting significant opportunities to
sell more of the broadened product range to the enlarged customer base.
Managing and mitigating risk
The business risks have been considered and, where practical, mitigated. However, the macro-economic and geopolitical
risks including conflict in Ukraine, the aftereffects of COVID-19, electronic component shortages, uncertainty in
international trading relationships and the associated impact on foreign exchange, means that it continues to be difficult
to predict supply and demand and therefore mitigate fully.
Component lead-times remain at unprecedented lengths of over 40 weeks for many critical components, such as
semiconductors, computer processors, PCBs, some embedded processing modules, and battery cells. The Group has
continued to deliberately increase the working capital investment in inventory to attempt to secure future supply. The
lengthening order book coverage means that scheduled orders as at 30 June 2022 go beyond the end of FY25; FY23 (69%),
FY24 (21%) and FY25 and beyond (10%).
The Group’s diversity in suppliers, technology, markets, and territory is a key strength. It provides resilience and some
mitigation against global headwinds and has enabled Solid State to deliver record results. Looking forward to the current
year, we continue to believe that this diversity positions the Group well to weather the impact of any ongoing supply chain
issues and take advantage of new opportunities.
11
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;
setting the 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, the Group analyses risks across four key areas:
•
•
•
•
strategic risk;
operational risk;
commercial risk; and,
financial risk.
The assessment of the potential impact is the pre-mitigation assessment and the year on year change reflects the change
in likelihood of the risk having a significant impact on the business.
Principal risks and uncertainties
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 mitigate FX risk
arising due to international
acquisitions.
Failure to integrate
management reporting
structures and control
disciplines.
•
•
•
Mitigation and Strategy
After successful completion of two acquisitions in the
previous financial year, the Group expects to complete on
another transaction in Q2 of FY23.
In managing these deals the following process was adopted:
• 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 investment in development of technology in
the acquired businesses.
Integration into existing internal control frameworks,
processes and reporting systems.
•
•
•
•
Year on year
change in
likelihood:
Potential
impact:
Medium
Effect:
Integration of
acquired
business is not
effective
12
STRATEGIC REPORT (continued)
Principal risks and uncertainties
Legislative environment and compliance – (Strategic risk)
Business risk
•
Mitigation and Strategy
•
Conflict in Ukraine, the
enduring effects of Covid-19,
Brexit and global trade
restrictions have caused an
increased level of complexity
in the legislative and trading
environment in which the
Group operates.
•
• 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 Regulations (ITAR);
o Bribery Act;
o General Data Protection
Regulation (GDPR); and,
o Employment legislation
and company
legislation.
Year on year
change in
likelihood:
Potential
impact:
Medium
Effect:
Trading may be
disrupted /
restricted,
reduced sales
volumes and
profitability.
Solid State PLC has continued to trade while being
compliant with the government’s COVID-19 restrictions.
The business operates across seven independent
operational sites, which have remained operational and
adhered to best practice social distancing and hygiene
protocols. The Group has invested in technology and
equipment to ensure that staff who can work from home
do so when appropriate.
Post Brexit international trading has become more
challenging with a significant increase in the
administrative burden. The Group’s international
exposure is increasing as it delivers on the strategy of
growing international sales. As such the Group continues
to consider establishing a mainland EU operation to
support the Group’s international growth ambitions. The
Board believes that the Group’s size and diversified
structure gives it resilience, and places it in a far stronger
position than smaller competitors within the customers’
supply chains.
•
• Regular reporting of export / ITAR compliance, and
detailed internal control processes and procedures.
Continuing education of the Group’s employees on the
legislative developments and requirements.
Internal reviews and external audits.
•
• Adopt suitable software systems where appropriate to
aid export control procedures and assist with 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.
•
13
STRATEGIC REPORT (continued)
Principal risks and uncertainties
Supply chain interruption and cost inflation – (Operational risk)
Business risk
•
Mitigation and Strategy
• Active programme to maintain cross qualified second
The ongoing significant
electronics supply chain
challenges (caused by
demand outstripping supply)
resulting in long lead times
and Industry wide
component shortages.
• Dependency on significant
suppliers or dependency on a
qualified supplier within a
controlled supply chain.
• Risk of actual customer
demand falling short of open
orders recorded as a
consequence of double-
ordering, over ordering,
inability to obtain other
necessary components and
subsequent cancellation or
re-scheduling.
• Risk of suppliers increasing
component costs as a pre-
requisite to delivery placing
margins at risk.
sources of supply.
• Rigorous supplier quality management processes.
• Maintain close relationships with key suppliers to be
•
aware of potential supply issues.
Place scheduled orders and hold buffer stock to minimise
the effects of extended lead times.
•
• Requiring customers to place orders on non-cancellable
terms, and in some cases requiring cash deposits in
advance providing milestone payments
Close monitoring of gross margins and supply chain cost
escalation, with back-to-back pricing adjustments with
customers.
The mitigation and strategy meant that through FY20/21
and FY21/22 the Group has been able to manage the
disruption and extended lead times with limited impact.
However, if the disruption continues or worsens the
Group may see delays in projects / programmes in the
current and subsequent years.
•
Retention of key employees – (Operational risk)
Business risk
•
Loss of key people and
critical skills.
Insufficient skilled employees
Poor engagement and
morale.
•
•
Mitigation and Strategy
• Retention & development of talent is critical to the long
•
•
•
•
•
•
term success of the Group.
Senior HR resource has been added to the team during
the FY21/22 year. Reviewing and refining contracts of
employment and conditions for best practice.
Low staff turnover, many employees having been with
the Group for more than ten years.
The Group encourages and invests in CPD and training in
core skills and competencies as appropriate.
The Group pro-actively looks to develop its own talent
and will be making further use of the government
apprenticeship schemes.
The Group pro-actively communicates with its
employees.
The Group reviews & benchmarks employee rewards to
ensure the Group is fairly rewarding its employees.
• Active review of succession planning.
•
Investigation and sourcing of upgraded HR system to
streamline people management processes.
14
Year on year
change in
likelihood:
Potential
impact:
High
Effect:
Quality issues,
costs, sales
volumes and
profitability
Year on year
change in
likelihood:
Potential
impact:
Medium
Effect:
Quality and or
service level
issues rise, and
costs increased
STRATEGIC REPORT (continued)
Principal risks and uncertainties
Failure of or malicious damage to IT systems – (Operational risk)
Business risk
•
Mitigation and Strategy
•
•
The inability to access
business critical data.
The inability to efficiently run
the operating companies.
•
The existing systems are reliable and functional.
The Group has started to upgrade & standardise systems
where appropriate providing improved functionality and
support the development of the business.
Certified as meeting the “Cyber Essentials” standards
and post period our Systems Division achieved “Cyber
Essentials Plus” status. Also considering “IASME” where
appropriate.
•
• Where businesses are acquired, the Group implement
the “Cyber Essentials” standards as a key priority if they
do not already meet this standard and “Cyber Essentials
Plus / IASME” in due course.
• 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.
Natural disasters – (Operational risk)
Business risk
• Natural disaster or medical
epidemic / pandemic
disrupts production
capability, supply of
materials or customer
demand.
•
Mitigation and Strategy
•
The Group has a documented disaster recovery plan for
each site. In addition, the Group has business
interruption insurance, which subject to the terms of the
cover purchased providing some insurance mitigation.
The Group has documented COVID-19 protocols to
mitigate the impact of any further variants.
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.
•
•
Setting a commercial strategy to gain share by:
Focusing on quality, value and customer service;
Mitigation and Strategy
•
o
o Develop and maintain close relationships with suppliers
and customers to become the “partner 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.
•
•
15
Year on year
change in
likelihood:
Potential
impact:
Medium
Effect:
Costs, sales,
profitability and
reputational
damage
Year on year
change in
likelihood:
Potential
impact:
Low
Effect:
Trading may be
disrupted,
reduced sales
volumes and
profitability
Year on year
change in
likelihood:
Potential
impact:
High
Effect:
Loss of market
share, reduced
sales volumes
and profitability
Year on year
change in
likelihood:
Potential
impact:
Medium
Effect:
Sales volumes
and profitability
Year on year
change in
likelihood:
Potential
impact:
High
Effect:
Going concern /
Financial loss
and
reputational
damage
STRATEGIC REPORT (continued)
Principal risks and uncertainties
Product / Technology change – (Commercial risk)
Business risk
•
Mitigation and Strategy
•
Failure to maintain the
Group’s leading technical
capabilities and knowledge
which allows us to develop
electronic solutions in
partnership with the Group’s
customers.
Failure to manufacture
solutions that meet the
agreed specification.
Failure of key distribution
franchises to innovate and
introduce new products.
Continued investment in the technical training and
development of sales, engineering and operations staff,
building their capabilities.
Investment in joint R&D programmes with partners to
ensure the Group is at the forefront of technical
electronic solutions.
•
• Maintain rigorous quality and engineering control
processes to ensure that the Group’s products meet the
required specifications.
Perform all necessary detailed product testing to ensure
that products are fit for purpose.
Continuously seek new franchises, suppliers and partners
at the forefront of electronics technology.
•
•
Forecasting and financial liquidity – (Financial risk)
Business risk
•
Mitigation and Strategy
•
•
•
•
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.
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.
Extensive disclosure has been provided in respect of
going concern and longer-term viability (see page 39, 40
76 and 77).
•
• 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 2022, the Group had a
revolving credit facility of £7.5m (£6.0m undrawn) and
net cash (excluding deferred consideration and lease
obligations) of £1.42m (2021: £3.18m).
Subsequent to year-end, to finance the expected
acquisition of Custom Power, the Group has completed
an equity raise of up to £28.4m (assuming full
subscription under the open offer, the issue of the
maximum number of subscription shares and subject to
shareholder approval) and entered in to two new term
loan facilities with Lloyds; a £6.5m five year amortising
term loan at 2.85% and a second £6.5m three year
interest only term loan at 2.95%.
The Group has a defined delegation of authority matrix
and contract risk register.
The Group ensures sufficient funding is in place prior to
completion of acquisitions.
•
•
•
16
STRATEGIC REPORT (continued)
Chief Financial Officer’s Review
To provide a fuller understanding of the Group’s ongoing adjusted performance, several adjusted profit measures as
supplementary information are included on a consistent basis with that reported by the financial analysts that review our
business. As detailed in note 31, the adjusted measures eliminate the impact of certain non-cash charges and non-recurring
items together with the associated tax impact.
Revenues
Group revenues of £85.0m (2021: £66.3m) reflect the inclusion of a full 12 months of revenue from the two acquisitions
made at the end of financial year 20/21, both of which outperformed management expectations. Like-for-like revenue
(based on proforma 2021: £81.3m) was £3.7m (4.6%) ahead of prior year. This is an excellent result in the ongoing context
of well-publicised supply challenges as well as circa 5% foreign exchange headwinds with the average US dollar rate moving
from circa 1.30 in FY21 to 1.37 during FY22, which suppressed the revenue growth.
The UK electronics distribution and semiconductor components industry expected growth of around 2.7% in the period
while noting the absence of clear guidance from customers (source ECSN). The Components Division achieved revenues of
£52.5m (2021: £39.0m) including the Willow acquisition, with like-for-like revenues exceeding expectations up 11.5% on
the prior year at £52.5m (2021 proforma: £47.1m).
The Systems Division reported revenue of £32.5m (2021: £27.3m), with like-for-like revenue up £1.1m (3.5%) to £32.5m
(2021 proforma: £31.4m) against a very challenging macro-economic backdrop. Supply chain pressures, including
component availability, and the requirement for board and system redesigns as a result, have caused project delays.
The two acquisitions considerably outperformed initial expectations contributing significantly to the overall Group result.
The acquired businesses saw significant benefit from being part of the enlarged Group, driving considerable organic growth.
Willow had an excellent year with like for like revenues increasing by 26% to £11.5m (2021: £9.1m). Similarly, Active Silicon
saw like for like revenues increase 45% to £6.4m (2021: £4.4m), reflecting a strong recovery from the adverse impact of
COVID-19 in the comparative period.
Gross profit
Reported gross margins of £27.5m (2021: £19.9m) are up £7.6m. There was an adverse impact of acquisition accounting
charges in both years which have been excluded in the adjusted gross margins (see note 31).
Adjusted gross profit for the year is up £7.7m to £27.7m (2021: £20.0m). The Group’s adjusted gross margin has increased
to 32.6% (2021: 30.2%) reflecting increased margins in both Divisions, Components seeing a 2.5% increase and Systems a
3.5% increase.
In managing forex we look to mitigate the profit impact by quoting in currency of main supply when possible. The
improvement in the reported margin percentage is in part driven by the dollar exchange rate movements as result of the
Group benefitting from being largely naturally hedged against foreign exchange movements at a gross margin level.
The acquisitions of Active Silicon and Willow have improved the margins of their respective Divisions as they have a higher
proportion of own brand manufactured products and components, which command stronger margins.
Components contributed adjusted gross margin of £14.0m (2021: £9.4m) and the Systems Division contributed £13.7m
(2021: £10.6m).
17
STRATEGIC REPORT (continued)
Sales, general and administration expenses
Sales, general and administration (“SG&A”) expenses increased to £23.8m (2021: £15.6m), with the acquisitions adding
approximately £4.1m to base overheads. The increase is partially driven by a resumption of business activities such as travel,
marketing, and events with the easing COVID-19 restrictions. In addition, in recognition of this record performance there
was further investment in our team to attract new, and retain our existing, talent as we look to enhance our technical
expertise and drive continued growth. Post COVID-19 there was no significant grant income in 2022 (2021: £0.3m).
Furthermore, there were non-recurring expenses within SG&A, being a £1.7m increase in the Active Silicon earn-out
provision and £0.5m in relation to acquisition costs. Other exclusions from adjusted profit measures, consistent with
previous years, include acquisition intangibles amortisation of £1.0m (2021: £0.7m) and the share-based payments charge
of £0.3m (2021: £0.2m).
Adjusted SG&A expenses increased by £5.8m to £20.3m (2021: £14.5m) reflecting the addition of the acquisitions to base
costs and the decision to resume spending on controllable costs which were restricted in the COVID-19 period.
Operating profit
Adjusted operating margins increased to 8.7% (2021: 8.3%) with adjusted operating profit up to £7.4m (2021: £5.5m)
reflecting stronger margins and contribution from acquisitions. Reported operating profit was down 14% to £3.7m (2021:
£4.3m) primarily because of the increase in acquisition related accounting charges. The adjustments to operating profit are
set out in further detail in note 31.
We have recognised £0.01m (2021: £0.01m) within operating profit in respect of research and development expenditure
credit (“RDEC”) in addition to the tax credits recognised within the tax line, where we are eligible for the SME R&D tax
scheme. These development programmes are a cornerstone of the Group’s future high value add revenue streams.
18
STRATEGIC REPORT (continued)
Profit before tax
Adjusted profit before tax was up 33.2% to £7.2m (2021: £5.4m). Reported profit before tax was down 16.7% to £3.5m
(2021: £4.2m). This is reported after a share-based payments charge of £0.3m (2021: £0.2m), amortisation of acquisition
intangibles of £1.0m (2021: £0.7m) and non-recurring charges of £2.4m (2021: £0.3m). The £2.4m non recurring charges
include a £1.7m increase in the deferred contingent consideration, £0.5m of transaction costs in relation to the planned
acquisition of Custom Power and £0.2m of fair value acquisition accounting charges in relation to Willow.
Profit after tax
The Group benefits from the R&D tax credit scheme which reduces the underlying effective tax rate for the year to 14%
(2021: 12%) from the standard rate of 19%. As the Group grows and profitability increases the benefit of R&D tax credits
will diminish, furthermore once the Group exceeds the SME thresholds and is no longer eligible for the SME scheme, there
will be a step up in effective tax rate as the SME scheme is much more generous that the large company scheme.
Adjusted profit after tax was up 30.1% to £6.2m (2021: £4.7m). Reported profit after tax was down 37.5% to £2.5m (2021:
£4.0m), as we recognised the impact of the expected future tax rate change from 19% to 25%, and did not have the benefit
of the non-recurring R&D tax credits recognised in 2021, in addition to the non-recurring charges as noted above.
EPS
Adjusted fully diluted earnings per share for the year ended 31 March 2022 is up 29.1% to 70.6p (2021: 54.7p). Reported
fully diluted earnings per share is down 36.8% to 28.9p (2021: 45.7p).
Dividend
The Board is proposing a final dividend of 13.25p (2021: 10.75p), giving a full year dividend of 19.50p (2021: 16.0p) as set
out in the Chairman’s statement on page 5.
Cash flow from operations
Cash inflow from operations for the year of £6.0m is down from £6.9m in 2021, primarily due to our investment in
inventories, resulting in a working capital outflow of £2.5m (2021: £0.4m inflow). This delivers an adjusted operating cash
conversion percentage of 81% (2021: 127%) and a reported operating cash conversion percentage of 161% (2021: 162%).
The working capital cash outflow in the period of £2.5m is driven by an increase in receivables of £3.7m and inventories of
£6.9m offset in part by an increase in payables of £8.1m. The increase in inventories reflects our strategic investment in
product to support our significant increase in customer orders. The strength of customer and supplier relationships has
helped us to manage the cash challenges of the working capital investment effectively. This investment to secure product
has provided us with a competitive advantage and is critical in these times of shortages to ensure product is available to
fulfil customer demand.
Investing activities
During the year, the Group invested £1.1m (2021: £0.4m) in property plant and equipment, and £0.6m (2021: £0.3m) in
software and research & development intangibles. The Group’s capital expenditure programme saw the installation of the
new EMC test and measurement capability completed. In addition, investment in a wire bonder and improved battery test
equipment will deliver a step change in technology for the Power business unit in Systems.
19
STRATEGIC REPORT (continued)
Investing activities – cont’
In the Components Division, there was investment into the Willow sites and further replacement of older vehicles with
hybrid and electric models.
There are capital commitments of £0.3m (2021: £0.4m) at the balance sheet date, primarily relating to planned upgrades
to existing IT systems.
During the year payments in respect of the acquisitions of Active Silicon and Willow totalled £2.6m (2021: £4.1m).
Furthermore, at year end we have reassessed and increased the Active Silicon deferred contingent consideration by £1.7m
to take the total to £6.6m (2021: £7.5m). A reconciliation of deferred contingent considerations is included in Note 21.
Financing activities
The Group has entered or extended leases during the year which has resulted in the recognition of £0.3m of additional right
of use assets with a corresponding right of use liability, in accordance with IFRS16. Cash payments were made in the period
in respect of lease liabilities of £0.9m (2021: £0.6m). Two properties were exited in the period, with Willow inventory moved
to the Redditch location to rationalise activities.
The financing activities reflect a part repayment of the revolving credit facility (RCF) of £2.25m where the £3.75m drawdown
in 2021 was used to fund the acquisition of Willow and Active Silicon at the end of the last year. Solid State continues to
have a strong relationship with Lloyds Bank and Lloyds has extended the term of the £7.5m (2021: £7.5m) revolving credit
facility which is now committed until 30 November 2023. At 31 March 2022 £1.5m of the facility was drawn.
The Group has deferred contingent consideration liabilities where, at 31 March 2022, the fair value has been estimated to
be £6.6m, of which £4.6m was paid in Q1 2022/23. The Group utilised the RCF facility to fund the final £3.5m deferred
consideration payment for Willow and initial £1.1m payment for Active Silicon. Subject to Active Silicon meeting the year
two earn out performance target, it is expected that a final payment of approximately £2.0m will be payable in Q1 2023/24.
The Group paid out £1.5m (2021: £1.2m) in respect of dividends and purchase of own shares.
Statement of financial position
During the year, the Group has continued to strengthen its balance sheet position. The Group’s net assets have increased
to £27.1m (2021: £25.5m) reflecting the retained profits in the year. Excluding deferred contingent considerations and
IFRS16 lease obligations, the Group had a net cash position of £1.4m at the year-end (2021: £3.2m) having paid a further
£2.6m consideration for the acquisitions of Active Silicon and Willow.
As a result of the unprecedented supply chain challenges, the Group has increased the working capital investment in
inventory by £6.9m. Securing the supply of critical components is essential to enable the delivery of customer demand in
the next financial year. The Group has also paid suppliers on a proforma basis where required to secure inventory in short
supply (now often on lead times of six months or more). We have worked in partnership with customers who have, in many
cases, made payments in advance to secure supply, and this has been a critical part of managing working capital.
KPIs
In addition to the KPI information provided in the Chairman’s Report and this Strategic Report, the Directors use several
key performance indicators to manage the business, disclosed in the financial review on pages 17 to 20. Non-financial
KPIs are not disclosed other than in the environmental CO2e reporting on page 24.
Companies Act Section 172 requirements and disclosures
Disclosure of how the Group complies with the section 172 requirements are included on page 30.
20
STRATEGIC REPORT (continued)
Outlook
The recovery of sectors which were adversely impacted by COVID-19, such as oil & gas and commercial aviation, has
progressed. Engineering work undertaken during the pandemic particularly in the Power business unit of the Systems
Division is now converting to production orders. The Group continues to see demand in these core areas, whilst also
developing its presence in new and emerging growth markets.
Two of the key technology areas where the Company expects to see significant growth in demand; are first in image capture,
processing, and transmission, driven by increased adoption of industrial AI and the roll out of 5G; and secondly power
control and switching driven by the need to reduce carbon emissions and development of the EV (Electric Vehicle) market.
The Group’s acquisitions of Willow and Active Silicon have enabled Solid State to strengthen its position in these sectors,
with the opportunities to further penetrate these markets and so gain market share.
The Group has a strong and long established position in the security and defence sector. As a result of geo-political
uncertainties this market is seeing significant investment in technology where the Group is well placed to deliver.
Furthermore, the shift by prime contractors following the pandemic away from globalised supply chains to buying more of
their vital electronics and services closer to home continues to be positive for Solid State.
On the 12 July 2022, Solid State PLC announced the planned acquisition of Custom Power, which is expected to be
transformational for the Power business unit, providing a step change in the Group’s power capabilities giving this business
unit scale.
The Group is actively developing its pipeline of future acquisition opportunities albeit these are at an early stage. These
opportunities are primarily focused on broadening the Group’s product offering and further strengthening its international
sales channels. The Company will remain agile, continuing to look to be opportunistic should a strategically aligned
acquisition target arise.
Margin improvement, in conjunction with technology developments both from internal R&D and acquisitions across both
Divisions has placed the Group in a strong position. The Group will remain focused on cross Group collaboration initiatives
to drive organic growth. The technologies added through recent acquisitions further add scale and capability which the
Group can provide to the enlarged customer base.
During the financial year Solid State has seen record order intake, increasing the open order book 107% to £85.5m at 31
March 2022 from £41.3m at 31 March 2021. Positively, post year-end the Group has continued to drive order intake
increasing the open order book at 30 June 2022 to £92.0m up 7.6% from 31 March 2022. This provides confidence over
customer demand for the coming year.
As Solid State looks forward to FY22/23, the continuing well-publicised supply chain issues within the electronics and
particularly semiconductor sector mean the inconsistencies in the traditional supply and order fulfilment balance remain.
The strength of the Group’s balance sheet means it is better placed to manage the working capital demands than some of
its smaller competitors, which is presenting new customer opportunities. Pleasingly, the collaboration with customers and
suppliers to secure product which began in the late summer of 2020 is now delivering a strong start to sales this financial
year.
The opportunities for significant growth across both Divisions are very exciting and the acquisition of Custom Power is
expected to be an important catalyst enabling Solid State to deliver on its five year ambition of matching or exceeding the
performance achieved over the preceding five years.
21
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,
political, 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 6 to 22 has been approved by the Board of Directors and signed on its behalf by:
G S Marsh
Chief Executive Officer
27 July 2022
P O James
Chief Financial Officer
22
CORPORATE AND SOCIAL RESPONSIBILITY REPORT
Environmental
Principles
The two guiding principles that underline the Group’s environmental objectives are to reduce consumption and to reduce
waste. These principles can be embraced by everyone in the business in a small or large way to make a positive contribution
to delivering a sustainable business operation.
The Group’s activities can be summarised as largely supply, manufacturing/assembly operations, combined with office
based research, product development and other commercial functions, where we essentially receive materials and
products from suppliers, assemble them into a new product and dispatch them to customers.
Examples of how the Group can embrace these principles include direct engineering solutions such as utilisation of
technology which optimises/minimises power consumption in our systems and re-use of surplus heat. Indirect solutions
include improvement to customer yields, reducing waste and solutions that reduce power consumption.
Scope 3
The most significant impact on the environment, over which the Group has some control, is the sourcing of products and
materials (primarily from Asia and USA) and the supply of finished product to customers (Scope 3 carbon impact). To date
the Group has not been able to capture and assess the level of Scope 3 Carbon it has consumed to meet additional voluntary
disclosure requirements, however the Group does capture its scope 1 and 2 carbon consumption data.
We continue to evaluate how we best approach capturing the data from our scope 3 emissions. This is an important step
in continuing to deliver on reducing the Group’s carbon footprint and part of integrating the Group’s ESG strategy within
the 2022-2027 Group strategy review.
Solid State Plc is committed to achieving net zero by 2050. This is compliant with new measures introduced in September
2021 requiring suppliers bidding for major government contracts (>£5m) to commit to net zero by 2050 and to produce a
credible carbon reduction plan. This will require the reporting of certain Scope 3 emissions, including business travel,
employee commuting, transportation, distribution, and waste.
The most significant component of the Group’s scope 3 emissions is expected to be the impact of third-party carriers the
Group utilises to receive and deliver their products. The Group’s ability to control the environmental impact of its logistics
partners is not absolute. However, we can and do look to use preferred suppliers who are positively engaged with a carbon
reduction commitment to align with our ambitions. The first potential step change we are exploring is to move where
possible our inbound freight to sea freight rather than air freight given the significant environmental benefit of sea freight.
Scope 1 & 2
In terms of the Scope 1 and 2 emissions, the operations consume normal business energy sources such as heating and
power, which the Group aims to reduce by focusing on minimising energy consumption through the efficient operating
practices and compliance with relevant environmental legislation. However, the largest factor impacting energy
consumption in our facilities is the weather. In a year with moderate summer / winter weather our energy consumption is
low, however if we face extreme hot / cold weather the energy consumption increases significantly.
Waste management is a critical part of conducting our business. We comply with all the relevant waste legislation with the
key areas of legislation being The Waste Batteries and Accumulators Regulations 2009 and the Waste Electrical and
Electronic Equipment (WEEE) Directive in conjunction with RoHS.
Where appropriate the Group actively works with its customers to ensure that all hazardous waste is properly managed. In
complying with the waste legislation, the Group ensures that all waste is disposed of properly and waste is recycled where
it is practicable to do so.
The Group has a fleet of company cars which have been included in the Group’s carbon reporting. The Group continues to
actively move the company owned cars to be low CO2, Hybrid or Electric vehicles as they are replaced. All Group facilities
participate in recycling paper, plastic and cardboard. Local management teams are committed to good environmental
practices and are responsible for implementing appropriate programmes to meet their local obligations. The Group also
intends to explore greener options at the point of renewing the gas heating contracts for various sites.
23
CORPORATE AND SOCIAL RESPONSIBILITY REPORT
(continued)
Carbon data reporting
As a company quoted on AIM, the Group is required to report its Scope 1 and Scope 2 CO2e. The Board believes there are
direct benefits to our organisation in the measuring and reporting of environmental performance, which should assist the
Group to reduce its energy consumption and therefore resource costs, as well as gaining a better understanding of the
Group’s exposure to the risks of climate change.
This is year 3 of collecting the data which can be compared to the baseline CO2 consumption for the financial year 2019–
20. Where possible the Group has reported its figures using billed data, which relates to its premises and activities.
Data has been collected for the following CO2 emission sources: electricity consumption; gas consumption; water
consumption; company owned vehicles and waste processing. In collating this data, we have utilised the 2021 conversion
factors (2021: 2020 conversion factors) to obtain a figure for the CO2 consumption of the Group compared to the baseline
reported last year.
Our 2020 baseline was 434 tonnes of CO2e equating to 1,843,758kwh. On a like for like basis (excluding the acquisitions)
2022 continued to see a reduction due to the actions we have taken to reduce travel and activity (reflecting behavioural
changes post COVID-19) to 216 tonnes of CO2e, which equates to 1,010,900 kwh. Including the Willow and Active Silicon
acquisitions, the value for 2022 is 462 tonnes of CO2e, equating to 2,334,523kwh. This is in-line with our expectations as
the new US AEC manufacturing site is energy intensive due to the furnace for baking the glass to metal seals.
Added value is used as the intensity ratio (CO2e / £1M added value). The Group defined “added value” as the “gross margin”
as it is believed that this best represents business output. In 2019/20 our baseline intensity ratio was 20.9 Tonnes per £1m
of value added. Including the acquisitions, the 2022 ratio is 14.37 Tonnes per £1m of value added (2021: 11.3 Tonnes).
Maintaining a lower intensity ratio than 2020 is considered very positive given the change in operating activities with the
acquisition of Willow and Active Silicon. We have developed a plan to see continued mid-term reduction through best
practice actions we continue adopt to minimise and reduce our carbon consumption.
Code of business conduct, ethics, and anti-corruption
The Group’s 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 the Group.
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 the Group works 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 Anti-
corruption & Bribery Policy, and a copy of the policy is readily available to all employees.
Bribery Act
The Group implements and enforces effective systems to uphold a zero tolerance approach to bribery and corruption. To
ensure it only works with third parties whose standards are consistent with the Group’s, 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 Group’s Anti-
corruption & Bribery Policy.
24
CORPORATE AND SOCIAL RESPONSIBILITY REPORT
(continued)
Commercial business practices
The Group is 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;
The semiconductor shortages which the industry is facing has meant we are 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 by making the supply
chain as efficient as possible. We are actively looking to improve the efficiency of the supply chain and stock utilisation to
meet customer demand wherever possible.
In our relationships with employees and other stakeholders
The Group ensures employment practices throughout the Group are fair and in full compliance with employment
legislation. The team are encouraged to volunteer and support community activities and the Group is supportive of
initiatives and projects which enable our staff to make a positive contribution in their communities. In the current year, this
has included donations to local food banks and sponsoring a room at a local Youth Hostel.
Furthermore, the Group continue to support employees participating in voluntary mentoring and business advisory services
via professional bodies and educational institutions which provide fantastic development opportunities for all.
How we invest in our people
The Group’s success depends on its people. The Group recognises the important role its employees play, and that effective
teamwork is critical to achieving its corporate goals.
The Group is committed to making Solid State a “great place to work” where the teams’ actions and behaviours
demonstrate this commitment each and every day. This is aimed at providing an environment of teamwork and
collaborative respect, where the staff are all valued for their contribution, and everyone is proud to be part of “the Solid
State team”.
The Group provides employees with access to a Health cash plan to support day to day and more specialist medical needs,
including access to a GP 24 hours a day. A fully funded Employee Assistant Program is available to help employees with
financial, legal and/or mental health challenges. Employees also have access to a high street discount platform giving the
opportunity to make savings on their daily purchases. Tangible support for each employee relating to the cost of living crisis
includes at least a 5% pay rise and a commitment to make a one-off energy payment in the FY23 financial year.
The Group maintains 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.
25
CORPORATE AND SOCIAL RESPONSIBILITY REPORT
(continued)
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 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.
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 and Key management meetings.
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).
Confidentiality
The Group’s policies emphasise the need for confidentiality to be maintained in all 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 the Group conducts
work for customers, including government agencies, where specific confidentiality requirements exist such as The Official
Secrets Act, process and procedures are in place to ensure the Group complies with these requirements.
G S Marsh
Chief Executive Officer
27 July 2022
26
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 Group and
company adopt the ten principles of the Code in a manner that is considered appropriate. 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 2022, 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 its size and structure.
How the corporate governance principles are adopted at Solid State PLC
The Board considers that throughout 2021/22, 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
Explanation
Further disclosure(s)
Delivering growth
Principle 1: -“Establish a
strategy and business
model which promote
long-term value for
shareholders”
Principle 2: - “Seek to
understand and meet
shareholder needs and
expectations”
Fully
compliant
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 5 and Strategic
review on pages 6 to 22.
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.
See further reporting on the
stakeholder engagement
provided on page 30 to 31 and
page 37 to 38 of this report and
pages 24 to 26 of the corporate
and social responsibility report.
Fully
compliant
Principle 3: - “Take into
account wider
stakeholder and social
responsibilities and their
implications for long-term
success”
Directors and the management
team adopt a broad view during
decision making to take
meaningful account of the impact
of its business activities on all key
stakeholder groups.
See further reporting on the
stakeholder engagement
provided on page 30 to 31 of
this report and pages 24 to 26 of
the corporate and social
responsibility report.
27
CORPORATE GOVERNANCE REPORT (continued)
Compliance
status
Fully
compliant
Principle
Principle 4: - “Embed
effective risk
management,
considering both
opportunities and
threats, throughout the
organisation”
Explanation
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 principal and emerging
risks identified and the
mitigation and the report on its
risk management processes on
pages 38 to 40 of this report and
on pages 12 to 16 of the
strategic report.
See the Board and its sub
committees’ section in this
report on page 34 to 37.
See the Board section in this
report on pages 34 to 37.
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 N Rogers, the Chief
Executive Officer; Mr G S Marsh,
three Executive Directors and two
Non-Executive Directors. The
board intends to appoint an
additional independent non-
executive director during the
coming year.
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 and conducted
continued professional
development appropriate to the
needs of the business. In
appointing an additional
independent non-executive
director in the coming year,
candidates offering greater
breadth of diversity will be actively
encouraged.
Principle 7: - “Evaluate
Board performance
based on clear and
relevant objectives,
seeking continuous
improvement”
Fully
compliant
The Board completes an annual
internal evaluation of performance
which is led by the Chairman.
See the Board performance
evaluation section in this report
on page 37.
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.
28
CORPORATE GOVERNANCE REPORT (continued)
Principle
Principle 8: - “promote a
corporate culture that is
based on ethical values and
behaviours”
Compliance
status
Fully
compliant
Explanation
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 34 to 37 and
the corporate and social
responsibility report on pages
24 to 26.
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 34 to 37 and
the audit committee report on
pages 41 to 45.
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”
The roles and responsibilities of
each of the Directors (including
committee memberships) are
clearly defined.
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: this report on
pages 30 to 39, the corporate
and social responsibility report
on pages 24 to 26 and the
Remuneration Committee
report on pages 46 to 58.
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 2022 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).
29
CORPORATE GOVERNANCE REPORT (continued)
How Solid State PLC has complied with the Companies Act Section 172 requirements and disclosures
The following disclosure describes how the Directors have acted in the way they consider, in good faith, would be most
likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to the factors set out in section 172(1)(a) to (f).
When performing their duties under section 172 of the Companies Act, they have considered the long-term consequences
of decisions, matters affecting the Company’s employees and other stakeholder relationships, and the need to act fairly
between members of the Company.
Furthermore, they have recognised that companies are run for the benefit of their shareholders, but that the long-term
success of a business is dependent on maintaining relationships with all significant stakeholders. The Board continuously
reviews relationships that support the generation and preservation of value in the Company. These relationships include
those with employees, suppliers, customers and industrial partners, and the Group’s bankers.
Stakeholder engagement
Stakeholder
Engagement method
Investors
The key investors identified are the shareholders and lenders. The major interests in
the Group’s shares are set out in page 38 of the corporate governance report.
Key metrics for both the Group’s bank and shareholders are the share price, adjusted
profit before taxation, adjusted earnings per share, cash generation and net debt.
Through the publication of half year and full year financial reports and the Group’s
engagement with shareholders and the bank it looks to provide insight where possible
into the Group strategy and how the Group aims to create value for its shareholders by
delivering strong and sustainable results that translate into earnings and cash.
The Group seeks to promote an investor base that is interested in a long term holding
in the company. Further disclosure of how management engage with the Group’s
Investors is set out in the corporate governance report.
Disclosure
cross ref
Pages 27 –
40
Employees
Employees are those individuals who are contracted to work for the company both full
and part time.
Pages 25 –
26
The Group’s success is reliant on retaining the knowledgeable and skilled workforce
who are committed to the Group and the delivery of the strategy; maintaining and
delivering on the high standards that the Group sets for itself.
The Group has policies and procedures in place to look after the welfare of its
employees. The Board is proud of the “Solid State family” culture which is friendly and
supportive of all members of the team.
Given the nature of the business, health and safety is taken extremely seriously and
ensuring a best practice safe working environment is essential. Employee engagement
is promoted from the top down, encouraging employees to share ideas and to help the
Group deliver on its goal of continuous improvement.
The knowledge and ability of the teams is a critical cornerstone of the Group’s value.
Therefore, the Group promotes, encourages, and offers training where it is considered
beneficial to the employee and the company. Further disclosures are provided in the
corporate and social responsibility report.
30
CORPORATE GOVERNANCE REPORT (continued)
Stakeholder
Engagement method
Customers
and
Industrial
Partners
The Group uses its teams’ knowledge and ability to work collaboratively with customers
and industrial partners to provide a tailored component, product, or service to meet
their specific requirements and add value.
The Group always aims to design, manufacture, and supply products of the highest
quality. This differentiates the Group’s offering in terms of how the Group engages with
its customers and the relationships it builds in providing a tailored solution.
To meet these objectives the Group ensures that its teams have the knowledge and
expertise to meet or exceed the expectations of its customers and industrial partners.
The Group’s customer engagements help to focus where the Group invests in R&D to
enable the Group to deliver relevant and continuously evolving technical solutions.
Further disclosures are provided in the corporate and social responsibility report.
Disclosure
cross ref
Pages 24 –
26
Suppliers
The Group’s extensive supply chain relationships with component manufacturers are
critical to ensuring that the Group can meet the customers’ technical requirements for
their specific application.
Pages 24 –
26
The Group’s supplier relationships and partnerships are underpinned by the technical
knowledge that its team has of the components which the Group distributes and
designs into its manufactured solutions. As a result, the teams’ relationships with the
Group’s suppliers are a critical part of both the suppliers’ and the Group’s success.
The Group regularly engage with the Group’s suppliers to discuss performance, price
and how to continue to improve the Group’s supply chain relationships to deliver
mutual benefit.
While there are global shortages within the semiconductor electronics industry supply
chain managing these relationships is critical, and the strength of engagement will help
to ensure the Group manages the supply and demand in the times of shortage as
effectively as possible.
Key topics of engagement for the year were price and supply with the challenges that
Brexit, COVID-19 and most significantly the global semiconductor material shortages
are causing. Where possible the Group extended order schedules with suppliers as early
as 2020, even when customers were not providing the same scheduled visibility, and
plans were made with suppliers to look to minimise any supply chain disruption.
Further disclosures are provided in the corporate and social responsibility report.
31
CORPORATE GOVERNANCE REPORT (continued)
Principal decisions linked to our strategy and the stake holders impacted
Principal
decision
Setting of
annual
financial
budget and
periodic
updating of
forecasts
Basis of the decision and conclusion
The Board receives regular financial reports from the executive management, both
historic and forward looking. The Board endeavours to meet or exceed all stakeholder
expectations where possible. Based on this the Board issues appropriate stakeholder
and market communication through relevant channels.
Pleasingly, during the financial year ending 31 March 2022 the Board has seen
significant commercial progress and have been able to significantly exceed the adjusted
profit before tax expectations set at the beginning of the financial year with £7.2m
reported in this annual report.
The annual financial budget for 2023 for the Group was approved in March 2022,
indicating a reasonable view that the results for the financial year would meet or
exceed market expectation, albeit there are continued risks associated with potential
impact of electronics supply chain shortages.
Based on a solid start to the year with minimal adverse supply chain impacts to date,
the Board remained confident to continue to provide investor guidance for the year
ahead which is reflected in the notes published by the analyst and shared on the
Group’s website.
Primary
Stakeholders
Shareholders,
lenders,
employees
Changes to
Board
The Directors seek to ensure that the composition of the Board is appropriate to the
current circumstances and has enough capacity to manage growth and succession
planning.
Shareholders,
employees
The Directors are satisfied that the current board structure and composition offers an
appropriate balance between executive and non-executive directors, a broad diversity
of thought, approach and background, and an environment of constructive challenge.
In seeking to buttress compliance with the code on Corporate Governance, the board
considers it appropriate to seek an additional independent non-executive director in
the coming year, with enhanced gender and/or ethnic diversity a significant factor in
selecting an appropriate candidate.
Acquire
Custom
Power
The Group actively sought to acquire a battery pack producer with a profitable, cash
generating business model in markets aligned to the existing Group. There were limited
options that fulfilled these criteria, however Custom Power meet this criterion.
This transaction delivers on all the Groups strategic goals
•
Internationalisation, given the strong position in the US market and a
manufacturing partner in Mexico.
• Own Brand products and technology advancement as the business is active in
the growth markets of Industrial, Medical and Defence and are the market
leader of high reliability battery pack solutions for drones in the USA.
Talent development, given the strong engineering capabilities and battery
industry expertise.
•
Custom Power has complementary strengths to the existing Crewkerne power business
unit in the Systems Division, providing an opportunity to supply blue chip customers in
the key territories of North America and Europe.
Based on rigorous due diligence the board made the decision to proceed with the
transaction having renegotiated the deal to factor in the changes in the macro-
economic environment and the confidence in the capital markets. Full details of this
acquisition are set out in the circular issued to shareholders on the 13 July 2022.
32
Employees,
customers,
commercial
partners and
shareholders
Primary
Stakeholders
All
Employees,
Customers and
commercial
partners
CORPORATE GOVERNANCE REPORT (continued)
Principal decision Basis of the decision and conclusion
Banking facilities
Mitigation of
component
shortages
The Group has a proactive and constructive relationship with its bankers, Lloyds
Bank PLC. In March 2022, Lloyds agreed to extend the term of the Group’s
£7.5m revolving credit facility to 30 November 2023 to maintain funding
flexibility. The facility is subject to financial covenants which are assessed on a
six monthly basis.
Term loan facilities totalling £13m have also been agreed, subject to completion
of the Custom Power acquisition, subsequent to year end.
It became clear in 2020/21 that component supply shortages were going to
become a global issue in the semiconductor electronics sector in particular. The
Board evaluated the options available at that point in time to try to manage and
mitigate the issues wherever possible. The Board concluded that the Group was
well positioned to make strategic investments by placing scheduled orders. In
many cases these were non-cancellable, non-refundable orders to secure
inventories.
Shortages and lead-time increases have continued throughout the 2021/22
financial year and are expected to persist throughout 2022/23. The risk has the
potential to adversely impact performance, however, is mitigated by the
deliberate decision to continue to invest in working capital to secure supply to
enable delivery of the open orderbook. The Group has sought to manage the
increased requirement for proforma supplier payments
in advance by
establishing similar payment terms with customers to mitigate the working
capital impact.
Continued unprecedented demand coupled with the massive supply chain
disruptions mean that this is a risk that will continue to need careful
management. The component sourcing team is a particularly valuable resource
for the Group and its customers as product becomes difficult to source. Their
expertise is helping to secure product for the Group’s customers, albeit in some
cases at premium prices.
33
CORPORATE GOVERNANCE REPORT (continued)
The Board
The structure and composition of the Board has been undergoing a process of evolutionary change since Nigel’s
appointment as the first truly independent non-executive director in 2019. Since that time, this process has continued with
the addition of Pete Magowan as Senior Independent Director and Nigel’s appointment as Chairman in November 2020.
Whilst Peter Haining does not strictly meet all the criteria for an independent director set out in the QCA guidelines, we
continue to consider that he actively fosters an attitude of independence of character and judgement at all times. 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 the fact that if a Director has served for more than nine years it does not
automatically affect independence.
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 considers that this is now appropriate to the Group’s circumstances and will do so from the upcoming Annual
General Meeting and in future. Biographies of the Directors are set out on page 61. These show the range of business and
financial experience upon which the Board can 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. At present, there is not a majority of Non-Executives,
however it is the intention of the Board to seek to appoint an additional independent Non-Executive director in the
upcoming year to redress this balance, with the Chairman continuing to exercise a casting vote in the unlikely event of
deadlock. The Directors have also indicated their intention to ensure that candidates who can offer enhanced diversity,
including gender or ethnic background, will be actively encouraged in an open and transparent process.
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.
34
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, this 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
not required during the current financial year, but will lead the process of appointing an additional Non-Executive director
in the coming year. The members of the Committee would be Mr G Marsh, Mr P Magowan, Mr N Rogers and Mr P Haining.
The Nominations committee will take 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.
35
CORPORATE GOVERNANCE REPORT (continued)
Audit Committee
The Audit Committee consists of the Non-Executive Directors; Mr P Haining, Mr P Magowan and Mr N Rogers. 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 for the time
being. If there is a candidate identified during the process to appoint an additional Non-Executive director who has the
necessary skills and experience, then they may also be offered the opportunity to Chair the Audit Committee following an
appropriate handover period.
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 CFO 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 P Magowan, Mr N Rogers and Mr P Haining. The Committee meets at least
twice a year under the Chairmanship of Mr P Magowan.
The Chief Executive Officer and Group CFO 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 46 to 58.
36
CORPORATE GOVERNANCE REPORT (continued)
Attendance at meetings
Number of meetings in 2021/22
Attendance
Executive
Mr G Marsh
Mr J Macmichael
Mr M Richards
Mr P James
Non-executive
Mr N Rogers
Mr P Haining
Mr P Magowan
Board Nominations
Committee
Audit
Committee
Remuneration
Committee
000
9
9
9
9
9
9
9
9
0
3
2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3
3
3
3
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.
The Board completes an internal annual Board performance evaluation led by the Chairman.
The appraisal covers: composition; processes; behaviours; and activities and aims to develop the Board and the individuals
on the Board, promoting Board effectiveness and the implementation of Group strategy.
The current year has seen very positive progress against its strategy, with the trading performance ahead of the Board’s
expectations.
Shareholder relations
The Board regards regular communications with shareholders as one of its key responsibilities. During 2021/22, the Chief
Executive Officer and Group CFO 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. In addition, the
Chairman engaged with the company’s advisors and a select group of shareholders to discuss matters of Corporate
Governance.
The Chief Executive Officer keeps the Board fully informed of any significant matters discussed with shareholders and of
shareholders’ views. In addition, 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 Senior Independent Directors may be contacted through the
Company Secretary.
37
CORPORATE GOVERNANCE REPORT (continued)
Shareholder relations cont’
Interim and full year-end shareholder roadshows are held by the Executive Directors together with on-line investor
meetings on the “Investor Meet Company” platform (www.investormeetcompany.com). Traditionally the Company
arranged investor site visits typically twice a year subject to sufficient demand. 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. Other than the Group’s
routine engagement with investors on topics of strategy, governance and performance, the other specific matter discussed
with key shareholders included changes to the Board and the Director remuneration policy.
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.
Significant Shareholders
Shareholders over 3%*
Schroders
Seguro Nominees Limited
Mrs B Marsh
Charles Stanley & Co
BGF Investment Management Limited
Canaccord Genuity Group Inc
Mr G Comben
Mrs J Comben
Liontrust Asset Management
Mr G Marsh
% holding
9.84%
6.97%
6.44%
6.11%
5.89%
4.57%
4.27%
4.27%
4.23%
3.29%
*Significant shareholders that the Board has been notified of as of 12 May 2022. The Solid State PLC website is kept updated for notified changes during the year.
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 Committee’s views of areas of increased risk.
38
CORPORATE GOVERNANCE REPORT (continued)
Audit and Accountability – cont’
The system of internal control comprises those controls established 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.
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. 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. 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. 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 12 to 16.
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 41 to 45.
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
In assessing the going concern position of the Group for the Consolidated Financial Statements for the year ended 31 March
2022, the Directors have considered the Group’s cash flows, liquidity and business activities. At 31 March 2022, the Group
had cash balances of £2.9m, a drawn term revolving credit facility (RCF) of £1.5m and £6.0m of undrawn RCF.
Given the announcement of the expected acquisition of Custom Power post year end additional term loan facilities of
£13.0m have been made available by Lloyds bank. In assessing going concern, the board have considered both that the
transaction goes ahead and alternatively that it does not proceed, however the board expectation is that the transaction
will proceed following the meeting on the 29 July 2022.
The bank facilities are subject to financial covenants requiring the business to be EBITDA positive therefore this facility is
available to fund investment in working capital, capital investment or acquisition activities. Should the business face such
a significant downturn that it was loss making the facility would not be available to be drawn to fund additional losses
without a covenant waiver of amendment. As a result, in evaluating a stressed model the Board have only included the RCF
in the headroom to the extent it would be available within the covenants.
39
CORPORATE GOVERNANCE REPORT (continued)
Going Concern – Cont’
Based on the Group’s forecasts, the Directors have adopted the going concern basis in preparing the Financial Statements.
The Directors have made this assessment after consideration of the Group’s cash flows and related assumptions and in
accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting 2014,
the April 2016 guidance on Going concern basis of accounting and reporting on solvency and liquidity risks and the various
guidance issued in 2020 all published by the UK Financial Reporting Council to provide support to Directors and Board in
making the assessment of going concern.
Additional disclosures in respect of the Directors’ assessment and modelling to support the conclusions below are set out
on pages 76 and 77 of the basis of preparation.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence
for the next 12 months, therefore it is appropriate to adopt a going concern basis for the preparation of the Financial
Statements. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification
of assets and liabilities that would result if the Group and Company were unable to continue as a going concern.
Long term viability statement
The Directors have assessed the viability of the Group considering the Group’s current position and the potential impact of
the principal and emerging risks documented above that would threaten its business model, future performance, solvency,
or liquidity. As set out in the Going Concern assessment above, the Directors have a reasonable expectation that the Group
has adequate resources to continue in operation for the next 12 months and that the Company will be able to continue in
operation and meet its liabilities as they fall due.
The Directors have determined that a two year period to 31 March 2024 is an appropriate period over which to assess its
viability statement. This is based on the significant amount of change that can arise over two years in the electronic and
optoelectronics market; the Group’s business; and, in the macro-economic environment. This has been validated by the
impact that electronic component shortages have had on the Group’s business, the electronics industry across the World.
The Board carried out a robust assessment of the principal risks facing the Group, including those that would threaten its
growth drivers, future performance, solvency, or liquidity.
As noted above the Board has also performed specific stress testing on the impact of the component shortages might have
on future performance. The impact of component shortages is affecting many of the principal risks detailed above and as
such is the most significant factor impacting near and mid-term future financial performance. Although the Company’s
response to the component shortages continues to be management’s key focus at this time, the Directors consider the mid
and longer term opportunity in the UK Systems and Components businesses will remain very strong.
The outputs from these reviews were then used to perform liquidity analysis on the strategic plan, the downside sensitivity
reviews that were based on principal risks, which concluded the business is viable even under down side stress testing.
The expectation over the strength of the market is supported by the significant structural technological drivers including:
Connectivity, 5G, Sensing AI , Big data, and Green tech supporting net zero targets, where the electronic and opto-electronic
component & manufactured solutions the Group provides are expected to be critical elements of these enhancements. This
alignment with the Group’s strategy and core capabilities means that the Board consider that the Group will be very well
placed to take advantage of these macro-opportunities once the adverse impact of the component shortages is overcome.
G S Marsh
Chief Executive Officer
27 July 2022
40
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 CFO, Group FC, 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 CFO or Group FC being present.
As part of the Audit Committee’s review process, the Chairman of the Audit Committee and the Group CFO normally visit
each of the Group’s major business units across the year to review and challenge the local management on their draft
financial results however given the continuing impact of the COVID-19 Pandemic this year this has been conducted through
a combination of face-to-face meetings and remotely via MS Teams.
The Chairman reports his observations from these reviews 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 2021/22 were as follows:
41
AUDIT COMMITTEE REPORT (continued)
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 is appropriate, balanced and enables the users of the accounts to understand the underlying and
on-going performance of the business.
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 in these very uncertain trading times because of the impact of component shortages, COVID-19 and
inflation. The committee also considered two scenarios one where the acquisition of Custom Power completed and
alternatively where it did not complete. Based on this information as disclosed on pages 39, 40, 76 and 77 in the basis of
preparation 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.
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.
Review of Acquisition accounting.
Following review of reports from management and discussion with the CFO, which set out the updated assessment of the
fair value of deferred contingent consideration, the Committee concurred with the judgements within the acquisition
accounting, and that the treatment was in accordance with IFRS3.
The audit committee reviewed the post balance sheet events disclosures associated with the planned acquisition of Custom
Power which is subject to a general meeting on the 29 July 2022 and concluded the disclosures were appropriate.
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.
Review of judgemental areas, and specifically the level of accounting provisions.
Following review of reports from management the two areas of more significant judgment are provisions for credit defaults
based on the expected loss rate in accordance with IFRS 9, and provisions for obsolete inventories. This is an area where
there was extensive discussion, challenge and review between the auditors, management, and the audit committee.
The committee recognised that the potential for working capital exposures have historically seen one off significant write
offs, however the recent current year write offs pleasingly have been low. The Committee concurred in light of the
significant increases in working capital investment and the reduction in the provision as a percentage of the invested
working capital combined with the fact the provisioning policy had been applied consistently that the level of provisions
remains appropriate.
Annual report
At the request of the Board the Committee considered whether the 2021/22 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 & 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.
42
AUDIT COMMITTEE REPORT (continued)
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.
Following the completion of last year’s audit by RSM UK Audit LLP a comprehensive debrief was completed to ensure that
the value from the audit was maximised for all stakeholders. The output of the debrief formed part of the audit planning
and scoping process to ensure continuous improvement.
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.
Based on the scope of work the committee ensure that the proposed fees are fair and reasonable and represent value for
the services provided.
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.
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 prior year audit and the review completed of this year’s services delivered in respect of the 2021/22 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.
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. In the
current year it was flagged that taxation services have been provided by RSM to a non-significant subsidiary of the Group
in the United States due to a legacy relationship prior to acquisition. The fees are not considered significant in the context
of the Group fee.
43
AUDIT COMMITTEE REPORT (continued)
Non-audit services
The nature of the services provided by the auditors and the amounts paid to them are as detailed below:
RSM UK audit LLP (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:
• Other assurance services
•
Taxation services *
•
Services relating to corporate finance transactions
• Other non-audit services
Total fees payable to the Group auditors
31 March 22
£’000
31 March 21
£’000
120
123
-
6
-
-
-
-
48
3
_______
_______
126
174
_______
_______
* Legacy service for acquired entity and RSM LLP (USA) have resigned as tax advisors.
The audit scope for the year ended 31 March 2022 relates to the audit of the Consolidated Group Accounts and that of the
parent company. In addition to the Dormant non trading companies several of the 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 (see note 14).
Internal Audit
The Board asks the Audit Committee to review annually 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 considers there was no requirement for an internal audit function at this time.
As part of the Group Chief Financial Officer’s review processes the divisional Managing Directors and the site Financial
Controllers are obliged to positively confirm 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 capacity within financial resources was reviewed post the two acquisitions last year and
expanded as required.
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 12 to 16.
44
AUDIT COMMITTEE REPORT (continued)
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
27 July 2022
45
REMUNERATION COMMITTEE REPORT
On behalf of the Board, I am pleased to present our Directors’ Remuneration Report (the “Report”) for the year ended 31
March 2022.
The Remuneration Committee is committed to structuring the remuneration packages of Executive Directors and senior
management that are competitive and enable the Group to attract, retain and motivate talented people that can develop
and execute the Group’s strategy. To promote the long-term success of the Company, the Executive Directors incentive
benefits are performance based and earned only subject to the satisfaction of performance conditions. These performance
conditions are aligned with the interests of the shareholders.
In determining the remuneration packages for the Executive Directors for the forthcoming financial year, the Committee
took into account the following factors:
•
•
•
•
The Group’s overall performance and strategy - in particular, the Committee noted the strong organic growth in
profitability, value enhancing acquisitions, and record trading of Solid-State PLC for the year ended 31 March 2022;
Current and emerging market practice;
Best practice expectations of institutional investors; and
The competitiveness of the Company’s remuneration – the Committee looked both at other companies in the AIM
and Small Cap index as well as a set of comparators that have similar complexities to Solid State PLC.
All decisions made by the Committee have been made under the Group Remuneration Policy.
Basic salary increases for the forthcoming year have been determined by reference to a peer Group of UK listed technology
companies, an understanding of the general rate of salary inflation and a desire to ensure a competitive level of pay.
Accordingly, increases have been determined as follows:
•
•
•
Group Chief Executive
Group Chief Financial Officer
Divisional Managing Directors
– 7.5%
– 6.1%
– 6.1%
In addition to basic pay, the Committee determined that an annual bonus pool should be set aside based upon a reasonable
share of the excess of any profits earned over the market expectation at the beginning of each year. This will be set such
that:
•
•
•
No bonus accrues until the company meets or exceeds expectation (after bonus cost);
The cost of the scheme would not normally exceed one third of the excess profits; and,
Aggregate allocations from the pool (set at the discretion of the Committee at the end of each year) would not
normally exceed 60% of aggregate basic salaries.
46
REMUNERATION COMMITTEE REPORT (continued)
Business performance and resulting remuneration outcomes for the year ending 31 March 2022
It has been another record year for the Company and for Shareholders as discussed in the Strategic Report. Solid State PLC
has continued to deliver strong results for Shareholders. Trading for the year ended 31 March 2022 was strong across both
divisions and the Group has delivered full-year adjusted earnings which are 19% ahead of the market expectations from
July 2021.
Considering this performance, the Committee decided to allocate a discretionary annual bonus pool for the Executive
Directors which in total was equivalent to 60% of the Executive Group’s total basic salary. This reflects the view of the
Committee that the current year performance has been exceptionally strong in challenging times. Further details of bonus
and LTIP awards can be found on pages 50 and 51 of this report.
Share Option incentives
The Committee also recognise the benefits of implementing a long-term reward for the executive through an LTIP. This is
intended to encourage retention and motivation of executive Directors and other key members of the management team
through building an equity investment in the company aligned to the generation of long-term shareholder value.
During the previous financial year new share option plans; a HMRC approved Company Share Option Plan (“CSOP”) and an
unapproved Long Term Incentive Plan (“LTIP”) offering opportunities to build meaningful equity stakes in the Company for
approximately 12 – 15 key employees, including the executive Directors, were implemented. The first award made to the
senior leadership team followed the ratification at the AGM. These plans operate in a manner consistent with relevant
Investment Association’s guidelines, including, for example, a limit to dilution as a consequence of aggregate awards of
10% over a ten-year period. Awards under these plans are typically expected to be made annually following the AGM and
another award is planned for later this year.
Other key activities in the year ending 31 March 2022
During the year under review, the Committee held two formal meetings. As well as the implementation of the remuneration
policy, the Committee also carried out the following activities:
• Reviewed and approved the Executive Directors’ performance against financial and non-financial objectives for
the year ended 31 March 2022 and determined the bonuses payable;
• Determined salary increases for Executive Directors for the year ending 31 March 2023;
• Approved the LTIP Awards to be made in the year ending 31 March 2023 and their performance conditions;
• Reviewed and approved the annual bonus structure for Executive Directors for the year ending 31 March 2022;
• Awarded the second grant of 36,750 shares under the HMRC approved CSOP plan to senior staff;
• Awarded the second grant of 42,800 shares under the new LTIP plan to the executives.
Further detail on the above can be found in the Annual Report on Remuneration. During 2022/23, the Committee will
continue to review the reward arrangements appropriate to Executive Directors.
The Annual Report on Remuneration explains how our policy has been implemented during the year and, along with this
letter, will be subject to an advisory vote at our AGM (resolution 2). We hope that you will support this resolution.
P Magowan
Remuneration Committee Chairman
27 July 2022
47
REMUNERATION COMMITTEE REPORT (continued)
Single page remuneration summary
Corporate performance for the year
Executive Director Total Remuneration
48
REMUNERATION COMMITTEE REPORT (continued)
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: Mr P Magowan (Chairman); Mr N Rogers and, Mr P Haining.
The Rem Co, which is required to meet at least twice a year, met 2 times during the year ended 31 March 2022. 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.
Refreshed remuneration policy
In reviewing the remuneration policy, the committee has refreshed the policy as set out below.
Opportunity
Performance metrics
Any percentage
increases will
ordinarily be in line
with those across the
wider workforce.
However, salary
increases may be
higher in exceptional
circumstances, such
as the need to retain
a critical executive, or
an increase in the
scope of the
executive’s role
(including promotion
to a more senior role)
and/or in the size of
the Group.
Insurance cover
based on market
rates.
N/A
N/A
N/A
Up to 4% of base
salary in addition to
an employee
contribution of 5%.
Remuneration element and
link to strategy
Operation
Base Salary – To attract and
retain quality executives
which provides a competitive
total package
Salaries are reviewed annually
and normally fixed for 12
months, effective from 1 April.
The Committee considers:
Benefits
To help retain employees and
remain competitive in the
marketplace.
Pension
To facilitate long-term
savings provisions.
• Role, competence and
performance;
• Average change in broader
workforce pay; and,
• Group salary budgets.
Salaries will be benchmarked
against companies of a
comparable size and complexity
which operate, in similar sectors.
Directors, along with other senior
UK executives, receive an electric
or hybrid company car or car
allowance, life assurance, and
family medical insurance. (note
BIK are expected to drop as
executives transition to electric
or hybrid vehicles which attract
lower BIK.)
The Company operates a defined
contribution pension scheme.
Contributions are benchmarked
periodically against companies of
a comparable size and complexity
which operate in similar sectors.
Executive Directors may take a
cash allowance in lieu of pension
contributions.
49
REMUNERATION COMMITTEE REPORT (continued)
Remuneration element and
link to strategy
Operation
Opportunity
Performance metrics
Annual bonus
The principal long-term
measure of Shareholder
interests is Total Shareholder
Return.
The Committee considers
that this will be enhanced
through the setting and
attainment of various short-
term targets, which are
within the control of the
Executive Directors.
These are incentivised
through the bonus plan
which rewards the
achievement of annual
financial and strategic
business targets.
Up to 100% of salary
payable for
significant over-
achievement of
financial and non-
financial bonus
objectives.
The bonus will pay
0% at minimum
threshold, and 60%
at excepted
maximum. In
exceptional
circumstances, the
Committee has
discretion to declare
additional bonus up
to a maximum of
100%.
Targets (financial and non-
financial) are determined and
reviewed by the Committee
annually and are selected to be
relevant for the year in question.
Actual bonus payable is
determined by the Committee
after the financial year-end, based
on performance against these
targets.
Financial objectives are updated to
reflect acquisitions, disposals and
currency movements during the
year.
Bonus payments are delivered in
cash or shares. Clawback (of any
bonus paid) may be applied during
employment or for 1 year post-
termination in the event of gross
misconduct, material financial
misstatement, error in calculation
of outcomes or in any other
circumstance that the
Remuneration Committee
considers appropriate.
Performance is assessed on an
annual basis against financial and
personal / strategic objectives set at
the start of each year.
Financial measures will be weighted
appropriately each year according to
business priorities, and will represent
no less than 70% of the annual
bonus.
Performance vs. targeted levels will
be measured at budgeted FX rates.
Financial measures may include (but
are not limited to) PBT and Adj. FD
EPS. Non-financial measures may
include strategic measures directly
linked to the Company’s priorities.
Personal/strategic objectives will
represent no more than 30% of the
bonus and will be set annually to
capture expected individual
contributions to Solid State PLCs
strategic plan.
The personal element shall not pay
out unless financial performance is at
least at Threshold.
The Remuneration Committee has
discretion to adjust formulaic bonus
outcomes to ensure fairness for
shareholders and participants, to
ensure pay aligns underlying
company performance, and to avoid
unintended outcomes.
These adjustments can be either
upwards (within plan limits) or
downwards (including down to zero).
The Remuneration Committee may
consider measures outside of the
bonus framework to ensure there is
no reward for failure.
50
REMUNERATION COMMITTEE REPORT (continued)
Remuneration
element and link to
strategy
Company Share
Option Plan (“CSOP”)
To motivate senior
staff and executives
to deliver shareholder
value over the longer
term.
Long Term Incentive
Plan (“LTIP”)
To motivate
executives to deliver
shareholder value
over the longer term.
Operation
Opportunity
Performance metrics
Awards of up to the
applicable HMRC
approved limits
Performance metrics reflect strategic goals
and milestones.
The exercise of the award is dependent
upon the individual’s continued
employment for a three-year period from
the date of grant, subject to the good and
bad leaver provisions within the Plan rules
and the satisfaction by the Company of
certain performance conditions over the
three-year vesting period.
The performance conditions are based on
Group financial performance, which may
include (but not be limited to) Group
earnings or returns over the performance
period.
The Company’s share schemes are funded
through a combination of shares purchased
in the market and newly issued shares, as
appropriate.
Up to 125% of
salary.
Performance metrics reflect strategic goals
and milestones.
The exercise of the award is dependent
upon the individual’s continued
employment for a three-year period from
the date of grant, subject to the good and
bad leaver provisions within the Plan rules
and the satisfaction by the Company of
certain performance conditions over the
three-year vesting period.
The performance conditions are based on
Group financial performance, which may
include (but not be limited to) Group
earnings or returns over the performance
period.
The Company’s share schemes are funded
through a combination of shares purchased
in the market and newly issued shares, as
appropriate.
Awards of conditional shares
through market price options are
typically granted annually, with
vesting dependent on the
achievement of performance
conditions over the following three
years.
Dividend equivalents will be paid
on vested awards.
These awards will be made under
an HMRC approved company share
option plan (CSOP) to Senior staff
and Executive Directors,
Malus and clawback applies to
vested and unvested CSOP awards
in the event of material
misstatement of information or
misconduct.
The Company monitors the
number of shares issued under the
schemes and their impact on
dilution limits.
The Company is committed to
remaining within the Investment
Association’s 10% dilution limit.
Awards of conditional shares
through nil-cost options are
typically granted annually, with
vesting dependent on the
achievement of performance
conditions over the following three
years.
Vested awards are subject to a
two-year holding period, in
aggregate a five-year period from
award to exercise.
Dividend equivalents will be paid
on vested awards.
These awards will be made under
an unapproved share option plan
(USOP) to Executive Directors,
Malus and clawback applies to
vested and unvested LTIP awards in
the event of material misstatement
of information or misconduct.
The Company monitors the
number of shares issued under the
schemes and their impact on
dilution limits.
The Company is committed to
remaining within the Investment
Association’s 10% dilution limit.
51
REMUNERATION COMMITTEE REPORT (continued)
Details of the policy on fees paid to the Company’s Non-Executive Directors are set out in the table below:
Remuneration element and link to
strategy
Operation
Opportunity
Fees to attract and retain Non-
Executive Directors of the highest
calibre with broad commercial and
other experience relevant to the
Company.
The fees paid to the Non
Executive Directors are
determined by the Board
(excluding the Non-Executive
Directors or group of Non
Executive Directors whose
remuneration is being discussed).
Fee levels are benchmarked
against similar roles at
comparable companies. Time
commitment and responsibility
are considered when reviewing
fee levels.
Fee levels are reviewed annually, with
any adjustments effective 1 April in the
year following review. It is expected
that increases to Non-Executive
Director fee levels will normally be in
line with salaried employees over the
life of this policy. However, in the
event that there is a material
misalignment with market, or a
material change in the time
commitment required to fulfil a Non-
Executive Director role, the Board has
the power to make an appropriate
adjustment to the fee level.
Performance
metrics
N/A
Notes to the remuneration policy and performance conditions and target setting
Each year, the Committee will determine the weightings, performance metrics and targets as well as timing of grants and
payments for the annual bonus, CSOP and LTIP plans within the approved remuneration policy and relevant plan rules.
The Committee evaluates a number of factors which assist in reaching their conclusions and view. These include, but are
not limited to, the strategic priorities for the Company over the mid/long term, Shareholder feedback, the risk profile of
the business and the macroeconomic climate.
The Annual Bonus Scheme is measured against a balance of profitability, and the delivery of key strategic areas of
importance for the business. The profitability metrics used include adjusted profit before tax and /or adjusted fully diluted
EPS.
The CSOP and LTIP are assessed against a performance measure identified as the most relevant to driving sustainable
bottom line business performance, as well as providing value for Shareholders. This measure is currently considered to be
real growth in adjusted fully diluted EPS.
Targets are set against the annual and long-term plans, taking into account analysts’ forecasts, the Company’s strategic
plans, prior year performance, estimated vesting levels and the affordability of pay arrangements. Targets are set to provide
an appropriate balance of risk and reward to ensure that, while being motivational for participants, maximum payments
are only made for exceptional performance.
In exceptional circumstances, the Committee has the discretion to adjust and/or set different targets and performance
conditions for annual bonus and long-term incentive plans, provided the new conditions are no tougher or easier than the
original conditions. This includes events where conditions are unable to fulfil their original intended purpose. Awards may
also be adjusted in certain circumstances (e.g. for a rights issue, a corporate restructuring or for special dividends).
Any discretion exercised by the Committee in the adjustment of performance conditions will be fully explained to
Shareholders in the relevant report. If the discretion is material and upwards, the Committee will consult with major
Shareholders in advance. No such discretion was exercised during FY21/22.
The Committee can also grant additional LTIP awards to participants in return for their bearing the Company’s liability to
employer’s National Insurance arising on the exercise of such grants made to them above. The additional award ensures
that the participants are in a neutral position on an after-tax basis, assuming no change in tax rates.
All historical awards that have been granted before the date this policy came into effect and remain outstanding (including
those detailed on page 58 of this report) remain eligible to vest based on their original award terms.
52
REMUNERATION COMMITTEE REPORT (continued)
Recruitment (and appointment) policy
The remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s
approved remuneration policy in force at the time of appointment. The same approach would be adopted where a Director
is promoted to the Board from within the Group.
Element
Base salary
Pension
Benefits
Annual Bonus
Recruitment Policy
The base salaries of new appointees will be determined by reference to relevant market data, experience
and skills of the individual, internal relativities, and current basic salary. Where new appointees have
initial basic salaries set below market, any shortfall may be managed with phased increases over multiple
years subject to the individual’s development in the role.
New appointees will receive pension contributions or an equivalent cash supplement in line with existing
policy.
New appointees will be eligible to receive benefits which may include (but are not limited to) those
outlined in the policy table.
The structure described in the policy table will apply to new appointees with the relevant maximum
being pro-rated to reflect the proportion of employment over the year. Targets for the personal element
will be tailored to each executive.
LTIP
New appointees will be granted awards under the LTIP on the same terms as other executives, as
described in the policy table.
In addition, a new recruit may be awarded up to 125% of salary in performance shares, which would be
subject to the same performance measures and rules in force for the LTIPs at the time of appointment.
Compensation for
forfeited remuneration
The approach in respect of compensation for forfeited remuneration in respect of a previous employer
will be considered on a case-by-case basis taking into account all relevant factors, such as performance
achieved or likely to be achieved, the proportion of the performance period remaining and the form of
the award.
The Committee retains the ability to make use of the relevant guidance to facilitate the “buyout”. Any
“buy-out” awards would have a fair value no higher than the remuneration forfeited.
Notice period and payment for loss of office
It is the Company’s policy that Executive Directors should have service contracts incorporating a notice period of one year.
However, it may be necessary occasionally to offer shorter or longer initial notice periods to new Directors.
Under the terms of their service contracts, any termination payments are not pre-determined but are determined in
accordance with the Director’s contractual rights, taking account of the circumstances and the Director’s duty to mitigate
loss. The Company’s objective is to manage its exposure to the risk of a potential termination payment.
Non-Executive Directors have letters of appointment for a term of one year whereupon they are normally renewed, but
generally for no more than nine years in aggregate. Non-Executive Directors are not eligible for payment on termination,
other than payment to the end of their contracts.
53
REMUNERATION COMMITTEE REPORT (continued)
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.
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 the company’s policy on re-election they are re-elected annually by the shareholders at the
AGM. The appointment can be terminated on six months’ notice by either party.
N Rogers
G S Marsh
P O James
M T Richards
J L Macmichael
P Haining
P Magowan
Non-Executive Chairman
Group Chief Executive
Group Chief Financial Officer
Systems MD
Components MD
Non-Executive Director
Non-Executive Director
External appointments
Date of contract / letter
of appointment
19/06/2019
19/06/1996
18/11/2016
06/04/2016
26/05/2010
31/10/2017
17/11/2020
Contractual notice period
6 months by either party
12 months by either party
12 months by either party
12 months by either party
12 months by either party
6 months by either party
6 months by either party
With the approval of the Board in each case, and subject to the overriding requirements of the Group, Executive Directors
may accept external appointments as Non-Executive Directors of other companies and retain any fees received.
During the year ended 31 March 2022, 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 and is a Director of Bradley Drive Management Company Ltd.
LTIP and Bonus leaver provisions
Reason for leaving
Annual bonus
Resignation
Good leaver / Change of control
LTIP
Resignation
Good leaver / Change of control
Calculation of vesting / payment
No annual bonus payable
Cash bonuses will typically be paid to the extent that performance objectives have been
met. Any resulting bonus will typically be prorated for time worked. The Remuneration
Committee retains discretion to vary this treatment in individual circumstances.
Outstanding awards would normally lapse however the committee has the discretion to
approve vesting based on a pro-rata time apportionment and assessment of achievement
of performance conditions.
The Committee determines whether and to what extent outstanding awards vest based
on the extent to which performance conditions have been achieved. The Remuneration
Committee retains discretion to vary this treatment in individual circumstances.
The determination of vesting will be made as soon as reasonably practical following the
end of the performance period or such earlier date as the Remuneration Committee may
agree (within 12 months in the event of death).
In the event of change of control, the following 3 years’ awards will vest on a pro-rata
time apportionment and assessment of achievement of performance conditions as a
minimum. Any award above this level will be at the committee’s discretion. For the initial
awards under the LTIP there are transitional provisions applicable.
In the event of a change of control, awards may alternatively be exchanged for new
equivalent awards in the acquirer by mutual agreement where appropriate.
A Good leaver is defined as a participant ceasing to be employed by the Group by reason of death, disability, ill health,
retirement, or any other reason that the Committee determines in its absolute discretion.
54
REMUNERATION COMMITTEE REPORT (continued)
Consideration of employment conditions elsewhere in the Group
The remuneration policy, which has been implemented for the current Executive Directors, is more weighted towards
performance-related pay than for other employees. The reason for this is to establish a clear link between remuneration
received by the Executive Directors and the creation of Shareholder value.
As mentioned on page 46 of this Annual Report and Accounts, when setting the policy, the Committee takes account of pay
and employment conditions elsewhere in the Group but has not used any remuneration comparison measures between
the Executive Directors and other employees.
Consideration of Shareholder views
The Committee’s policy is to receive updates on the views of Shareholders and their representative bodies on best practice
and take these into account. It seeks the views of key Shareholders on matters of remuneration in which it believes they
would be interested.
Adoption of the refined policy for 2022/23
In addition to reviewing and refining the policy to adopt last year to move towards best practice, the committee has
reviewed the Executive remuneration for the coming year. The results of this review have been set out in this report.
(i) Executive remuneration
During the period, the Committee decided it was appropriate to commence an external review of Executive salaries and
performance bonuses. To aid this the Committee have engaged with an external employment benefits consultant to
independently review remuneration against appropriate benchmarking.
The impact of the review of salaries and bonuses was as follows:
1 April 2020 to
31 March 2021
1 April 2021 to
31 March 2022
From 1 April
2022
1 April 2020 to
31 March 2021
1 April 2021 to
31 March 2022
G S Marsh
P O James
J L Macmichael
M T Richards
Bonus (£’000)
111
87
96
96
______
Directors’ remuneration for the year ended 31 March 2022 is set out on page 57 of this document.
Salary pa (£’000)
200
165
165
165
______
Salary pa (£’000)
185
145
160
160
______
Salary pa (£’000)
215
175
175
175
Bonus (£’000)
105
105
105
105
______
(ii) Chairman and Non-Executive Director remuneration
The Chairman and the Non-Executive Directors received fee sets 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 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 Non-Executive Directors are not eligible to participate in the Company’s performance related bonus plan or long term
incentive plans. Full terms and conditions for each of the Non-Executive Directors are available at the Company’s registered
office and will be available upon request at the AGM for 15 minutes prior to the meeting and during the meeting.
N Rogers*
P Haining
P J Magowan**
1 April 2020 to
31 March 2021
Total Fees pa
(£’000)
42
25
7
______
1 April 2021 to
31 March 2022
Total Fees pa
(£’000)
62
25
30
______
From 1 April
2022
Total Fees pa
(£’000)
66
26
32
*Mr N Rogers was appointed on 17 November 2020 as Chairman and his annual fee of £62,000 was charged pro-rata in 20/21, prior to his appointment
as Chairman Nigel’s annual Non-Executive fees were £30,000.
**Mr P Magowan was appointed on 1 January 2021 as such his annual fee of £30,000 was charged pro-rata in 20/21.
55
REMUNERATION COMMITTEE REPORT (continued)
(iii) Equity-based incentive schemes for 2022
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 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).
The last grant was made in June 2017. 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.
Company Share Option Plan (“CSOP”)
For 2022, normal CSOP awards of up to the HMRC tax approved levels of £30,000 may be made to senior staff and Executive
Directors, as outlined in the Policy Table. For all participants, awards will vest after three years in accordance with the
performance conditions applicable to each grant. The performance conditions will be determined and set by the
Remuneration Committee in accordance with the remuneration policy. No award will vest below Threshold performance,
and vesting will increase on a straight-line basis between Threshold, Target and Stretch.
Long Term Incentive Plan (“LTIP”)
For 2022, normal LTIP awards of up to 125% of salary may be made to Executive Directors, as outlined in the Policy Table.
For all participants, awards will vest after three years in accordance with the performance conditions applicable to each
grant. The performance conditions will be determined and set by the Remuneration Committee in accordance with the
remuneration policy. No award will vest below Threshold performance, and vesting will increase on a straight-line basis
between Threshold, Target and Stretch.
For the year ahead the Remuneration Committee intends to make a share option award in the range of 45% to 75% of
salary which will be granted subsequent to the AGM when the shareholders will participate in an advisory vote at the
forthcoming AGM (resolution 2).
The Remuneration Committee intend to make annual awards in accordance with the Policy principles following the AGM
where they have had the results of the shareholders advisory vote.
56
REMUNERATION COMMITTEE REPORT (continued)
Remuneration for 31 March 2022 (audited)
The value of all elements of remuneration received by each Director in the year was as follows:
31 March 2022
G S Marsh
P O James
J L Macmichael
M T Richards
N Rogers
P Haining
P J Magowan
Total
Salary/
Fees
£’000
200
165
165
165
62
12
30
______
799
______
Consultant
fees
£’000
-
-
-
-
-
13
-
______
13
______
EMI share
bonus*
£’000
-
-
-
-
-
-
-
______
-
______
Cash Bonus
**
£’000
105
105
105
105
-
-
-
______
420
______
Benefits
in kind
£’000
6
23
25
4
-
-
-
______
58
______
Pension
Cont’n
£’000
4
7
1
7
-
-
-
______
19
______
Single
figure Total
£’000
315
300
296
281
62
25
30
______
1,309
______
* There were no LTIP or EMI shares granted which were due to vest in the period.
** All Bonuses including the Director bonuses have been accrued, however payment was deferred until the end of Q1 when the results had been finalised
though not yet formally signed off.
31 March 2021
G S Marsh
P O James
J L Macmichael
M T Richards
N Rogers*
P Haining
P J Magowan**
Consultant
Fees
£’000
-
-
-
-
-
13
-
______
13
______
*Mr N Rogers was appointed on 17 November 2020 as Chairman and his annual fee of £62,000 has been charged pro-rata.
Cash Bonus
****
£’000
111
87
96
96
-
-
-
______
390
______
EMI share
bonus***
£’000
-
-
-
-
-
-
-
______
-
______
Benefits
in kind
£’000
31
23
34
3
-
-
-
______
91
______
Salary/
Fees
£’000
185
145
160
160
42
12
7
______
711
______
Pension
Cont’n
£’000
3
5
3
6
-
1
-
______
18
______
Total
Single
figure total
£’000
330
260
293
265
42
26
7
______
1,223
______
**Mr P Magowan was appointed on 1 January 2021 as such his annual fee of £30,000 has been charged pro-rata.
*** There were no LTIP or EMI shares granted which were due to vest in the period.
**** All Bonuses including the Director bonuses have been accrued however payment was deferred until the end of Q1 when the audited results had
been signed off.
The principal benefits in kind relate to the provision of company cars, fuel, and private healthcare.
Of the current year share-based payments charge £144k (2021: £77k) relates to the Directors.
In addition to the above consultancy fees, additional fees totalling £31k (2021: £25k) arose during the year in respect of
accountancy services and out of pocket expenses provided by The Kings Mill Practice, a firm of which Mr P Haining is the
proprietor. A balance of £9k (2021: £9k) was due to The Kings Mill Practice at 31 March 2022.
57
REMUNERATION COMMITTEE REPORT (continued)
The Directors’ interest in the issued ordinary share capital of the Company at today’s date, at 31 March 2022 and 31 March
2021 or date of appointment if later, were as follows:
27 July 22
31 March 22
31 March 21
G S Marsh
M T Richards
P O James
J L Macmichael
N Rogers
P Haining
P J Magowan
280,892
10,376
3,205
122,491
4,400
54,627
4,000
280,892
10,376
3,205
122,491
4,400
54,627
4,000
280,906
10,375
3,204
122,430
4,400
54,564
4,000
Long Term Incentive Plan and Enterprise Management Incentive scheme (‘EMI’)
Details of the options over the Company’s shares granted under the LTIP and Enterprise Management Incentives Scheme
are as follows:
Options
held at
31.03.21
26,700
42,700
42,700
26,700
Granted
10,700
Exercised
-
Lapsed
10,700
10,700
10,700
-
-
-
-
-
-
-
Options
held at
31.03.22
37,400
Exercise
Price
0.1p – 5p
Date of
grant
29.10.21 April 2018 to April 2031
Exercise
period
53,400
0.1p – 5p
29.10.21 April 2018 to April 2031
53,400
0.1p – 5p
29.10.21 April 2018 to April 2031
37,400
0.1p – 5p
29.10.21 April 2018 to April 2031
G S Marsh
P O James
M T Richards
J L Macmichael
During the year to 31 March 2022, the Board Granted an award of 10,700 shares to each of the Executive Directors which,
subject to the performance criteria, will be eligible to vest in 2024. No options were exercised in the year. The market price
of the shares on 31 March 2022 was £11.75 (2021: £8.30), with a quoted range during the year of £8.30 to £14.05 (2021:
£3.51 to £9.00).
Options
held at
31.03.20
16,000
32,000
32,000
32,000
Granted
10,700
Exercised
-
Lapsed
10,700
10,700
10,700
-
-
16,000
-
-
-
-
Options
held at
31.03.21
26,700
Exercise
price
0.1p – 5p
Date of
grant
28.10.20 April 2018 to April 2030
Exercise
period
42,700
0.1p – 5p
28.10.20 April 2018 to April 2030
42,700
0.1p – 5p
28.10.20 April 2018 to April 2030
26,700
0.1p – 5p
28.10.20 April 2018 to April 2030
G S Marsh
P O James
M T Richards
J L Macmichael
During the year to 31 March 2021, the Board Granted an award of 10,700 shares to each of the Executive Directors which,
subject to the performance criteria, will be eligible to vest in 2023.
Mr J L Macmichael exercised 16,000 share options with an exercise price of 0.01p on the 2 July 2020 and sold an equivalent
16,000 shares which he already held on the 1 July 2020 at a price of £5.20 resulting in net proceeds and a gain of £83,200.
P J Magowan
Remuneration Committee Chairman
27 July 2022
58
DIRECTORS’ REPORT
The Directors submit their report together with the audited financial statements of the Group in respect of the year ended
31 March 2022.
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 supplier of electronic components and materials.
The key performance indicators recognised by management are set out in the KPI section of the strategic report (page 20).
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:
N F Rogers
G S Marsh
P O James, BSc FCA
J L Macmichael
M T Richards
P Haining, FCA
P Magowan
Details of the interests of Directors in the shares of the Company and Directors’ service contracts are stated in the
Remuneration Committee Report on pages 46 to 58.
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 27 to 40.
Internal Control
Details of how the Board has implemented its internal control framework and processes are set out in the corporate
governance report on pages 27 to 40.
Board of Directors
The structure and operation of the Board of Directors is set out in the corporate governance report on pages 27 to 40.
Principal risks and uncertainties
Details of the principal risks and uncertainties of the Group are set out in the strategic report on pages 12 to 16.
Financial Instruments
Details of the use of financial instruments by the Group are contained in note 21 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 8 September 2021. This authority expires on 8 March 2023. During
the year the company repurchased 7,000 shares with a nominal value of £350 at market value of £80k into treasury shares
which get used for the all-employee share scheme.
Dividends
Details of the dividends are disclosed in note 9 and in the Chairman’s Statement on page 5.
Post balance sheet events
Details of post balance sheet events are included on pages 3, 4, 15, 76 and 77 and note 32.
59
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 their core markets of electronic
communications, mobile battery power and rugged and industrial computing. During the year we invested in excess of
£2.0m (2021: £1.5m) in research and development. The Company continues to claim R&D tax credits where eligible.
Share options award
On 6 October 2021 and 29 October 2021, the company granted options to the Senior Leadership team and the Executive
Directors under the Company’s CSOP and LTIP respectively, further details are provided in the remuneration report on
pages 46 to 58 and note 28.
Employee engagement and Consultation
The Group places considerable value on the involvement of its employees and continues to keep them informed on matters
affecting them as employees and on the various factors impacting the performance of the Group. This is achieved through
formal and informal meetings, Divisional business reviews “Town Hall” all hands briefings and Division and Group
newsletter updates. Employees are encouraged to be involved in the Group’s performance by participation in long term
incentive plans or share option schemes for the senior team and the all-employee share scheme. The Executive Directors
regularly engage with and visit the Group’s sites and the Board meetings are also rotated across the various UK locations.
Further details set out in the compliance with section 172 and within the corporate governance report on pages 27 to 40.
Disabled persons
The Group gives fair consideration to applications for employment made by disabled persons, bearing in mind the particular
aptitudes and abilities of the applicant concerned. In the event of employees becoming disabled, every effort will be made
to ensure that their employment with the Group continues and that appropriate training and/or reasonable adjustments
are arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should
provide consistent opportunities to that of other employees.
Further details are set out in the corporate governance report on pages 27 to 40.
Insurance
The Group has in place appropriate Directors’ and Officers’ indemnity insurance for all Group companies.
Business relationships
Further details are set out in the corporate governance report on pages 27 to 40.
Going Concern
Further details are set out in the corporate governance report on pages 27 to 40.
Renewal of authority to purchase the Company’s shares
Last year, a resolution was passed at the Annual General Meeting to give the Company the authority to purchase its own
Ordinary shares on the Stock Exchange. This authority would expire after a period of eighteen months from the passing of
the resolution. In order to avoid this authority expiring during the next year and the need to call an extraordinary general
meeting to renew the authority, a resolution to renew the authority is set out in the notice of the Annual General Meeting
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.
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.
60
DIRECTORS’ REPORT (continued)
Nigel Rogers (dob: April 1961), Non-Executive Director (appointed 01 July 2019)
Nigel qualified as a Chartered Accountant in 1983 with PwC. He became Group Finance Director of Stadium Group plc in
1996, 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, increasing strategic focus on the growth
of its laser marking business until leaving in April 2015 to begin a plural career. Nigel is also Chairman of Transense
Technologies plc and Chairman of Surgical Innovations Group plc.
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 Components Division 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.
Pete Magowan, (dob August 1967), Senior Independent Non-Executive Director (appointed Jan 2021).
Pete holds a Bachelor of Science degree in Electrical and Electronic Engineering from the University of Manchester Institute
of Science and Technology and a Diploma in Marketing from the University of Bristol Business School. Pete started his career
in marketing with STMicroelectronics before becoming an early employee and main Board member of ARM Holdings plc.
Pete then went on to become a General Partner at Alta Berkeley Ventures and an Executive at Fidelity International. Pete
is also a Non Executive director of Filtronics plc.
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.
61
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. The Directors have elected
under company law and are required by the AIM Rules of the London Stock Exchange to prepare the Group financial
statements in accordance with UK-adopted international accounting standards in conformity with the requirements of the
Companies Act 2006 and have elected under company law to prepare the parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and
applicable law).
The group financial statements are required by law and UK adopted international accounting standards in conformity with
the requirements of the Companies Act 2006 to present fairly the financial position and performance of the group. The
Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to
financial statements giving a true and fair view are references to their achieving a fair presentation.
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 the profit or loss of the Group 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 UK adopted
international accounting standards in conformity with the requirements of the Companies Act 2006;
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 requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and the Company 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 Solid State plc website. Legislation in
the UK governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
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 re-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
27 July 2022
Registered Office: 2 Ravensbank Business Park, Hedera Road, Redditch, B98 9EY
62
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 2022 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement
of Changes in Equity, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Company
Statement of Financial Position, Company Statement of Changes in Equity and notes to the financial statements, including
significant accounting policies. The financial reporting framework that has been applied in the preparation of the group
financial statements is applicable law and UK-adopted International Accounting Standards. 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 2022 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with UK adopted International
Accounting Standards;
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 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.
Summary of our audit approach
Key audit matters
Group
• Revenue recognition
• Inventory valuation and provisioning
Parent Company
• No key audit matters
Materiality
Group
• Overall materiality: £450,000 (2021: £375,000)
• Performance materiality: £337,000 (2021: 281,000)
Parent Company
• Overall materiality: £331,000 (2021: £321,000)
• Performance materiality: £248,000 (2021: 240,000)
Scope
Our audit procedures covered 80% of revenue, 90% of total assets and 86%
of profit before tax.
63
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group
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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our report.
Group key audit matters
Revenue recognition
Key audit matter
description
the matter
in
How
was addressed
the audit
The risk – revenue recognition
Refer to accounting policies and critical accounting judgements in notes 1 and 2 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.
Our response
We assessed whether revenue was recognised in line with the Group’s revenue recognition
policies and IFRS 15.
Our procedures included a combination of controls, data analytics and substantive testing. 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, including
agreement of specific contractual terms.
We evaluated the provision for returns by assessment of the level and nature of post year end
credit notes.
A selection of transactions posted to nominal ledger codes outside of the normal revenue cycle
were identified using a data analytic tool and investigated.
64
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
Group key audit matters
Inventory valuation and provisioning
Key audit matter
description
The risk – inventory valuation and provisioning
Refer to accounting policies and critical accounting judgements in notes 1, 2 and 15.
How the matter
was addressed in
the audit
The group holds a combination of finished goods and goods for re-sale, together with work in
progress. Finished goods and goods 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 assessed the estimation techniques used and the appropriateness for the nature of inventory
and the sector. We then tested the year-end inventory provisioning calculations prepared by
management, including their arithmetical integrity.
We challenged management on their key assumptions and obtained justifications 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 was 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
We have determined that there are no key audit matters to communicate in our report.
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 the effects of 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. Based on our professional judgement, we determined materiality as
follows:
Group
Parent company
Overall materiality
£450,000 (2021: £375,000)
£331,000 (2021: £321,000)
Basis for determining overall materiality
6.5% of adjusted profit before tax 5% of net assets
Rationale for benchmark applied
Adjusted result before tax chosen
as the Group is profit oriented
Net assets chosen as the parent is
a holding company
Performance materiality
£337,000 (2021: £281,000)
£248,000 (2021: £240,000)
Basis for determining performance
materiality
Reporting of misstatements to the Audit
Committee
75% of overall materiality
75% of overall materiality
in excess of
Misstatements
£22,500
and misstatements
below that threshold that, in our
view, warranted reporting on
qualitative grounds.
in excess of
Misstatements
£16,500
and misstatements
below that threshold that, in our
view, warranted reporting on
qualitative grounds.
65
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
An overview of the scope of our audit
The group consists of 11 components, located in the United Kingdom, USA and Ireland.
The coverage achieved by our audit procedures was:
Full scope audit
Specific audit procedures
Total
Number of
components
4
1
5
Revenue
Total assets
Profit before tax
80%
-%
80%
86%
4%
90%
86%
-%
86%
Analytical procedures at group level were performed for the remaining 6 components.
Specific audit procedures were performed in respect of 1 component relating to existence and valuation of inventory
where inventory was considered material to the group.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and
parent company’s ability to continue to adopt the going concern basis of accounting included:
•
•
•
•
•
obtaining and reviewing the cash flow forecasts prepared by management
checking the mathematical accuracy of the cash flow forecasts
reviewing the cash flow forecasts in light of our understanding of the business and current wider economic
conditions and challenging the key assumptions within the forecasts
considering management’s sensitivities and stressed forecasts, including the mitigating actions which could be
taken
considering the impact of the post balance sheet events and impact on forecasts for the alternative scenarios of
the proposed acquisition being completed or otherwise
In forming our assessment of going concern we have noted the profitable and cash generative position of the existing
group, the strength of the balance sheet and the existing funding arrangements. We have also considered the alternative
forecasts which include the anticipated funding arrangements to support the proposed acquisition.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group’s or the parent company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
66
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
Other information
The other information comprises the information included in the annual report, other than the financial statements and
our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
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.
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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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 62, 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.
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.
67
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
The extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient
appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on the determination
of material amounts and disclosures in the financial statements, to perform audit procedures to help identify instances of
non-compliance with other laws and regulations that may have a material effect on the financial statements, and to respond
appropriately to identified or suspected non-compliance with laws and regulations identified during the audit.
In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial
statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material
misstatement due to fraud through designing and implementing appropriate responses and to respond appropriately to
fraud or suspected fraud identified during the audit.
However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure
that the entity’s operations are conducted in accordance with the provisions of laws and regulations and for the prevention
and detection of fraud.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit
engagement team:
•
•
•
obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks
that the group and parent company operate in and how the group and parent company are complying with the legal
and regulatory frameworks;
inquired of management, and those charged with governance, about their own identification and assessment of the
risks of irregularities, including any known actual, suspected or alleged instances of fraud;
discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment
of how and where the financial statements may be susceptible to fraud.
The most significant laws and regulations were determined as follows:
Legislation /
Regulation
IFRS, FRS102 and
Companies Act
2006
Tax compliance
regulations
Export Control and
International
Traffic in Arms
(ITAR)
Health and safety
legislation
Additional audit procedures performed by the audit engagement team included:
Review of the financial statement disclosures and testing to supporting
documentation;
Completion of disclosure checklists to identify areas of non-compliance.
Inspection of advice received from external tax advisors
Audit of the calculation of the research and development tax allowances to ensure
suitably supported and in line with legislation.
ISAs limit the required audit procedures to identify non-compliance with these laws
and regulations to inquiry of management and where appropriate, those charged
with governance (as noted above) and inspection of legal and regulatory
correspondence, if any.
ISAs limit the required audit procedures to identify non-compliance with these laws
and regulations to inquiry of management and where appropriate, those charged
with governance (as noted above) and inspection of legal and regulatory
correspondence, if any.
68
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SOLID STATE PLC (continued)
The areas that we identified as being susceptible to material misstatement due to fraud were:
Risk
Revenue
recognition
Management
override of controls
Audit procedures performed by the audit engagement team:
See key audit matters above.
Testing the appropriateness of journal entries and other adjustments;
Assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and
Evaluating the business rationale of any significant transactions that are unusual or
outside the normal course of business.
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
27 July 2022
69
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2022
Revenue
Cost of sales
Gross profit
Sales, general and administration expenses
Operating profit
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
Adjusted total comprehensive income
Adjustments to total 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
Notes
3, 30
4
6
7
31
7
31
8
8
2022
£’000
84,997
(57,470)
_______
27,527
(23,801)
_______
3,726
(226)
_______
3,500
(977)
_______
6,158
(3,635)
2,523
_______
2,523
_______
261
_______
6,158
(3,374)
2,784
_______
2022
29.5p
28.9p
2021
£’000
66,281
(46,362)
_______
19,919
(15,634)
_______
4,285
(85)
_______
4,200
(247)
_______
4,733
(780)
3,953
_______
3,953
_______
-
_______
4,733
(780)
3,953
_______
2021
46.4p
45.7p
Adjusted EPS measures are reported in note 8 to the accounts.
All results presented for the current and comparative period are generated from continuing operations.
The notes on pages 76 to 118 form part of these financial statements.
70
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2022
Share
Capital
£’000
428
Share
Premium
Reserve
£’000
3,625
Foreign
Exchange
Reserve
£’000
6
Capital
Redemption
Reserve
£’000
5
Retained
Earnings
£’000
21,508
Shares
held in
Treasury
£’000
(70)
Total
Equity
£’000
25,502
2,784
27
295
-
-
-
-
-
2,784
-
295
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
-
-
-
-
-
-
-
-
-
-
-
-
(80)
(80)
(93)
93
-
(1,453)
-
(1,453)
Balance at 31 March 2021
Total comprehensive income
for the year ended 31 March
2022
Foreign exchange
Share based payment credit
Transactions with owners in
their capacity as owners
Purchase of treasury shares
Transfer of treasury shares
to AESP
Dividends
Rounding
-
______
-
_______
-
_______
-
_______
1
_______
-
______
1
______
Balance at 31 March 2022
428
______
3,625
_______
33
_______
5
_______
23,042
_______
(57)
______
27,076
______
The notes on pages 76 to 118 form part of these financial statements.
71
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2022
Share
Capital
£’000
427
Share
Premium
Reserve
£’000
3,626
Foreign
Exchange
Reserve
£’000
(7)
Capital
Redemption
Reserve
£’000
5
Retained
Earnings
£’000
18,521
Shares
held in
Treasury
£’000
(43)
Total
Equity
£’000
22,529
3,953
13
171
-
-
-
-
-
3,953
-
171
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
-
-
-
-
-
-
-
-
-
-
-
-
(95)
(95)
(68)
68
-
(1,069)
-
(1,069)
Balance at 31 March 2020
Total comprehensive income
for the year ended 31 March
2021
Foreign exchange
Share based payment credit
Transactions with owners in
their capacity as owners
Purchase of treasury shares
Transfer of treasury shares
to AESP
Dividends
Shares issued
1
______
(1)
_______
-
_______
-
_______
-
_______
-
______
-
______
Balance at 31 March 2021
428
______
3,625
_______
6
_______
5
_______
21,508
_______
(70)
______
25,502
______
The notes on pages 76 to 118 form part of these financial statements.
72
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2022
Company Number: 00771335
Notes
£’000
£’000
£’000
£’000
2022
2021
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Right of use lease assets
Intangible assets
Deferred tax asset
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
Right of use lease liabilities
TOTAL CURRENT LIABILITIES
NON CURRENT LIABILITIES
Non current borrowings
Right of use lease liabilities
Provisions
Deferred tax liability
Deferred consideration on acquisitions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
10
11
12
23
15
16
23
22
17
18
19,21,22
20
19,21,22
20
24
23
22
3,414
1,983
15,831
539
__________
17,598
17,978
-
4,983
____________,
21,113
3,461
2,059
531
758
___________
1,500
1,326
694
1,832
1,976
___________
2,981
2,476
16,557
-
__________
21,767
22,014
31,953
___________
53,967
___________
40,559
___________
62,326
___________
10,629
14,222
188
6,914
____________
11,890
2,299
-
801
741
___________
27,922
15,731
3,750
1,802
741
1,491
4,950
___________
7,328
____________
35,250
____________
27,076
____________
428
3,625
5
33
23,042
(57)
____________
27,076
____________
12,734
____________
28,465
____________
25,502
____________
428
3,625
5
6
21,508
(70)
____________
25,502
____________
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
25
26
26
26
26
26, 27
TOTAL EQUITY
The financial statements were approved by the Board of Directors and authorised for issue on 27 July 2022 and were signed
on its behalf by:
G S Marsh, Director
P O James, Director
The notes on pages 76 to 118 form part of these financial statements.
73
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2022
OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Property Plant and equipment depreciation
Right of use asset depreciation
Amortisation
Loss/(profit) on disposal of property, plant and equipment
Share based payment expense
Finance costs
Recognition of increase in deferred contingent consideration
Profit from operations before changes in working capital and
provisions
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions
Cash generated from operations
Income taxes paid
Net cash inflow from operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Capitalised own costs and purchase of intangible assets
Proceeds of sales from property, plant and equipment
Payments for acquisition of subsidiaries net of cash acquired
Net cash outflow from investing activities
FINANCING ACTIVITIES
Repurchase of ordinary shares into treasury
Borrowings drawn
Borrowings repaid
Principal payment obligations for right of use assets
Interest paid
Dividend paid to equity shareholders
Net cash (outflow)/inflow from financing activities
(Decrease)/increase in cash and cash equivalents
22
2022
2021
Notes
£’000
£’000
£’000
£’000
3,500
4,200
729
763
1,327
3
295
226
1,651
_______
8,494
614
497
978
(22)
171
85
-
_______
6,523
(6,922)
(3,679)
8,140
(47)
_______
1,852
1,925
(3,363)
(7)
_______
(2,508)
_______
5,986
407
_______
6,930
(941)
_______
(432)
_______
(941)
_______
5,045
(432)
_______
6,498
22
22
22
6
(1,178)
(601)
81
(2,572)
_______
(80)
-
(2,250)
(871)
(127)
(1,453)
_______
(356)
(302)
77
(4,119)
_______
(4,270)
(4,700)
(95)
3,750
(333)
(575)
(37)
(1,069)
_______
(4,781)
_______
(4,006)
_______
1,641
_______
3,439
_______
The notes on pages 76 to 118 form part of these financial statements.
74
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2022 (continued)
Translational foreign exchange on opening cash
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2022
£’000
16
(4,006)
6,914
_______
2,924
_______
There were no significant non-cash transactions. Cash and cash equivalents comprise:
Cash available on demand
Overdraft facility
Net cash and cash equivalents
2022
£’000
5,045
(2,121)
_______
2,924
_______
2021
£’000
(42)
3,439
3,517
_______
6,914
_______
2021
£’000
6,914
-
_______
6,914
_______
The notes on pages 76 to 118 form part of these financial statements.
75
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES
Solid State PLC (“the Company”) is a public company incorporated, domiciled and registered in England and Wales
in the United Kingdom. The registered number is 00771335 and the registered address is: 2 Ravensbank Business
Park, Hedera Road, Redditch, B98 9EY.
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. These
policies have been consistently applied to all the years presented.
These financial statements have been prepared in accordance with UK adopted International Accounting Standards
in conformity with the requirements of the Companies Act 2006 (“IFRS”).
The Group financial statements are presented in pounds sterling which is the functional and presentational currency
of the Group and all values are rounded to the nearest thousand (£’000) except when otherwise indicated.
Going concern
In assessing the going concern position of the Group for the Consolidated Financial Statements for the year ended
31 March 2022, the Directors have considered the Group’s cash flows, liquidity and business activities.
At 31 March 2022, the Group had net cash at banks of £2.9m, an undrawn revolving credit facility (RCF) of £6.0m
and a drawn RFF of £1.5m.
Based on the Group’s forecasts, the Directors have adopted the going concern basis in preparing the Financial
Statements. The Directors have made this assessment after consideration of the Group’s cash flows and related
assumptions and in accordance with the Guidance published by the UK Financial Reporting Council (Risk
Management, Internal Control and Related Financial and Business Reporting 2014, the April 2016 guidance on Going
concern basis of accounting and reporting on solvency and liquidity risks and the various guidance issued in 2020).
This guidance provides support to Directors and Board in making the assessment of going concern.
In preparing the going concern assessment the Directors considered the principal risks and uncertainties that the
business faced which have been disclosed on pages 12 to 16. Four areas have been identified as potentially more
significant: direct supply chain disruption limiting our ability to supply; indirect supply chain disruption delaying
customer programmes and demand; rising inflation and a further COVID-19 outbreak causing operational disruption.
The Board concluded that the three areas of risk which remained the most uncertain were the direct and indirect
supply chain disruption risks in addition to inflation. The Directors have given careful consideration to the potential
impact of on-going global electronic component shortages and rising inflation on the cashflows and liquidity of the
Group over the next 12 month period.
Customer demand has remained solid and in the last financial year we have seen customers significantly extending
order cover to help to manage the Global electronics supply chain issues. The most significant impact on the Group’s
future performance is the continued and worsening uncertainty arising from the extending electronic component
lead times.
Management have taken all possible actions to minimise and mitigate the potential impact of this shortage, however
the impact is expected to continue throughout 2022/23 and potentially into 2023/24. While the actions do not
mitigate the risk fully it still positions the Group to manage the impact as effectively as possible as demonstrated
historically over the last two trading years.
76
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
Given the post year end announcement of the intention to acquire Custom Power is subject to shareholder approval
on the 29 July 2022, albeit the directors expect to receive shareholder support for the transaction, they have
considered the going concern position of the Group under both scenarios, being the deal is rejected or approved.
The Directors have prepared revised “stressed” forecasts taking account of the results to date, current expected
demand, and mitigating actions which could be taken, together with an assessment of the liquidity headroom against
the cash and bank facilities. This includes the additional £13m term loan facilities provided by Lloyds bank to facilitate
the acquisition of Custom Power and the equity fund raise (subject to shareholder approval).
The Board’s evaluation of going concern was based on a minimum equity raise of £15m, therefore the additional
shareholder support which has been announced post year end, with the equity fund raise expected to be in the
region of £28.4m (subject to the take up of the open offer) significantly increases the funding headroom.
The bank facilities are subject to financial covenants requiring the business to be EBITDA positive therefore this
facility is available to fund investment in working capital, capital investment or acquisition activities.
Should the business face such a significant downturn that it was loss making the facility would not be available to be
drawn to fund additional losses without a covenant waiver or amendment. Therefore, in evaluating a stressed
forecast model the Board only included the RCF in the headroom to the extent it is available within the covenants.
This financial modelling is based on applying various sensitivity scenarios to a base case to 30 September 2023 which
has been prepared based on an extension of the budget for FY22/23.
In the period since the year end the rolling 12 month order intake remains strong, maintaining a book to bill ratio of
1.38, and reflects a continued improvement in order cover which does help to manage extending component lead
times.
In preparing a severe downside scenario with no overhead mitigation, it assumes a shortfall in Group revenue of
~13% over 12 months period and a 2% margin erosion with limited cost mitigation. This results in EBITDA reducing
by ~48% compared to the Board’s base case expectations. Even with this level of Group EBITDA reductions, when
combined with the mitigating actions that are within the Group’s control, the Directors currently believe the Group
would retain a reasonable cash surplus, comply with covenants and thus maintaining sufficient liquidity to meet its
liabilities as they fall due.
In considering the assessment of the Group’s going concern position the Directors have also identified that the Group
could look to both the Group’s bankers and or the equity markets if additional liquidity were required. Albeit none
of the sensitivities indicate that the Group would require additional sources of liquidity.
In the post balance sheet period, the Group has continued to build up the inventory level to ensure customer
demand can be met. In addition, the £4.6m short term deferred consideration on acquisitions was settled in Q1,
partially utilising the RCF. The Group continues to focus on obtaining advanced customer deposits to manage the
working capital investment required to secure long lead time / short supply components.
The Directors have concluded that the potential impact of the electronic component shortages and rising inflation
as described above does not represent a material uncertainty over the Group and Company’s ability to continue as
a going concern. Nevertheless, it is acknowledged that there are potentially material variations in the forecasted
level of financial performance for the coming year.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational
existence for the next 12 months, therefore it is appropriate to adopt a going concern basis for the preparation of
the Financial Statements. Accordingly, these financial statements do not include any adjustments to the carrying
amount or classification of assets and liabilities that would result if the Group and Company were unable to continue
as a going concern.
77
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
Changes in accounting policy and disclosures
New standards, amendments and interpretations adopted in the year.
The following new standards, amendments and interpretations have been adopted by the Group for the first time
for the financial year beginning on the 1 April 2021:
• Amendments to references to the Conceptual framework in IFRS Standards.
• Amendments to IFRS 9, IAS 39, IFRS 7: – Interest rate benchmark reform.
The adoption of these standards and amendments has not had a material impact on the financial statements.
New standards, amendments and interpretations to published standards issued but not yet effective and not early
adopted
A number of new standards, amendments and interpretations to existing standards have been published that will
be mandatory for the Group’s accounting periods beginning on or after 1 April 2022 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.
• Amendments to IAS 1 and IFRS Practice Statement 2, regarding the classification of liabilities and disclosure
of accounting policies, effective for annual reporting periods beginning on or after 1 January 2023.
• Amendments to IAS 8 regarding the definition of accounting estimates, effective for annual reporting
periods beginning on or after 1 January 2023.
• Amendments to IAS 12 regarding deferred tax on leases and decommissioning obligations, effective for
annual reporting periods beginning on or after 1 January 2023.
• Amendments to IAS 16 regarding deductions from the cost of property, plant and equipment amounts
received from selling items produced while the company is preparing the asset for its intended use,
effective for annual reporting periods beginning on or after 1 January 2022.
• Amendments to IAS 37 regarding the costs to include when assessing whether a contract is onerous,
effective for annual reporting periods beginning on or after 1 January 2022.
• Amendments to references to the Conceptual framework in IFRS Standards.
The Directors anticipate that none of the new standards, amendments to standards and interpretations will have a
significant effect on the financial statements of the Group.
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.
78
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
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. ongoing 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.
79
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
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 1 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.
80
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
Intangible Assets (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 or a straight line basis over 3 to 5 years
with an appropriate residual value as considered most appropriate
• Computers- between 20% and 33.3% 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.
Leases
IFRS 16 “Leases” addresses the definition of a lease, the recognition and measurement of leases and establishes the
principles for the reporting useful information to users of the financial statements about the leasing activities of
both lessees and lessors.
The Group has applied judgement to determine the lease term for some lease contracts in which as lessee there
includes a renewal option. The assessment of whether the Group is reasonably certain to exercise such options
impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognised.
The lease liability reflects the present value of the future rental payments and interest, discounted using either the
effective interest rate or the incremental borrowing rate of the entity.
Payments associated with short-term leases and leases of low value assets are recognised on a straight-line basis
over the lease term as an expense within the income statement.
81
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying
asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and
impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or
before the commencement date less any lease incentives received. Right-of-use assets are related to the
property leases, plant and machinery and motor vehicles and are depreciated on a straight-line basis over the
lease term.
Right of use lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease payments include lease payments less any lease
incentives receivable. In calculating the present value of lease payments, the Group uses its incremental
borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily
determinable.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there
is a modification, a change in the lease term or a change in the lease payments (e.g., changes to future payments
resulting from a change in an index or rate used to determine such lease payments).
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on either average purchase cost
or the cost of purchase on a first in, first out basis which is the most appropriate for the category of inventory.
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.
Financial Instruments
Classification and measurement of financial instruments under IFRS9 classifies 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.
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.
82
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
Impairment of financial assets
IFRS 9 requires an 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.
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
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
•
Lease liabilities
83
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
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 non-current liabilities.
They are initially recognised at fair value net of direct transaction costs and subsequently held at amortised cost.
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.
Adjusted performance metrics and non-recurring charges / credits
Nonrecurring charges / credits 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 non-
recurring 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.
In presenting our adjusted performance metrics we also exclude the non-cash charges/credits that relates to
acquisition accounting and share based payments and the associated tax effect of these items.
84
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
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.
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.
Where performance obligations have not be satisfied at the reporting date any advanced payments are
recognised as contract liabilities.
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.
85
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
Government Grants
Income received from government grants is recognised as ‘Other Income’ within operating profit in the
Statement of Comprehensive Income in the same period as the staff costs to which the income relates.
Government grant income is only recognised once there is reasonable assurance both that the Group will comply
with any conditions and that the grant will be received. The Group utilised the UK Government‘s Coronavirus Job
Retention Scheme, ‘furlough scheme’, during the COVID-19 pandemic.
Pensions
The pension schemes operated by the Group are defined contribution schemes. The pension cost charge
represents the contributions payable by the Group.
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.
86
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
1.
ACCOUNTING POLICIES (continued)
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.
87
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
2.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom
equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting
policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity,
and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be
wrong.
Acquisition accounting
In accounting for the Active Silicon acquisition in accordance with IFRS 3 the key judgement relates to the fair
value of the deferred contingent consideration at the balance sheet date. The 25 month deferred contingent
consideration was originally recognised in the comparative period at a total of £1.45m based the budgeted and
forecast profit after tax expectations.
The Active Silicon acquisition outperformed the current year budget expectation by 220% after achieving all-time
record company revenues and resulting profits for the financial year. The shift from initial assumptions was
driven by customer demand and order placement not only recovering post COVID-19 but achieving
unprecedented levels, despite component shortages. Subsequent to year end, a cash payment of £1.13m was
settled in relation to the first 13 month tranche of deferred consideration.
Based on the Active Silicon open orderbook, the performance to date in Q1 and management expectations for
the full 2023 financial year, the total carrying value of the deferred contingent consideration has been increased
by £1.65m to £3.1m. The key assumption for 2023 is the expected revenue based on existing and expected
customer orders. Should the post-tax profit metric be 10% higher than assumed, the deferred contingent
consideration will also increase by 10%. The increase has been expensed to the income statement and treated
as a non-recurring adjustment to profit (as per Note 31).
The revised deferred consideration balance is considered prudent and reasonable by the Directors based on
forecasts calculated on the information currently available. This is a judgemental estimate based on performance
and key market changes, including component shortages and macro-economic factors, may result a difference
between the estimation and final payment.
Expected credit losses
In accordance with IFRS 9 the Group is required to assess the expected credit loss occurring over the life of its
trade receivables. As a result of the continued component shortages and rising inflation across the globe the
Directors expect that the risk of credit default continues to be higher than historical norms. However, the COVID-
19 business disruption risk has reduced.
As a result, the Directors have made a judgemental assessment of the potential credit losses in the current
business environment. In these financial statements the Directors have provided full disclosures of the provisions
for credit default in note 21.
The calculation of the provision based on the Directors judgemental assessment of expected credit loss reflects
no change to the overall figure from 2021 of £0.65m.
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.
88
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
2.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS – (Continued)
Estimated useful life of research and development and intangible assets arising on acquisitions
The periods of amortisation adopted to write down capitalised product and process development requires
estimates to be made in respect of the useful economic lives of the intangible assets to determine an appropriate
amortisation rate.
Capitalised development costs are amortised over the period during which economic benefits are expected to
be received which is typically 1 – 5 years. Intangible assets arising on acquisitions are amortised straight line over
the period during which economic benefits are expected to be received which is typically 5 – 10 years.
The amortisation charge for capitalised development costs in the current year is £250k; if the lives were reduced
by one year across all the projects which are being amortised the charge would increase by circa £100k.
The amortisation charge for intangible assets arising on acquisitions in the 2021 comparative year is £772k; if the
lives were reduced by one year the charge would increase by £129k.
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
2022 there are net current and deferred tax provisions totalling approximately £1.8m (2021: £2.1m).
Due to the uncertainties noted above, it is possible that the Group’s initial estimates are different to the final
position adopted when the tax computation is finalised, resulting in a different tax payable or recoverable from
the amounts provided.
Provisions for slow moving or obsolete inventories
Inventories are carried at the lower of cost and net realisable value (NRV). NRV is reviewed in detail on an on-
going basis and provision for obsolete inventory is made based on several factors including age of inventories,
the risk of technical obsolescence, the risk that customers default on customised product and the expected future
usage.
This estimate is considered highly judgemental given the deliberate investment in inventory during the financial
year to mitigate the challenge presented by market component shortages. An element of working capital risk
can be mitigated with receiving advance customer deposits, however there remains a risk of default and order
cancellation.
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 15 for details of the
inventory provisions and the amounts written off to the consolidated statement of comprehensive income in the
year.
89
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
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.
2022
£’000
53,030
15,726
6,542
9,175
524
_______
84,997
_______
2022
£’000
16,103
7,745
8,681
52,468
_______
84,997
_______
2021
£’000
46,301
7,349
3,342
9,148
141
_______
66,281
_______
2021
£’000
10,643
5,678
10,978
38,982
_______
66,281
_______
90
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
4.
PROFIT FROM OPERATIONS
This has been arrived at after charging/(crediting):
Staff costs excluding share based payments (see note 5)
Share based payment expenses
Depreciation of property, plant and equipment
Depreciation of right of use asset
Amortisation of intangible assets
Loss/(profit) on disposal of property, plant and equipment
Auditors’ remuneration:
Audit fees
Other assurance fees
Non audit fees:
Corporate finance services
Other advisory services
2022
£’000
16,562
295
729
763
1,327
3
120
-
2021
£’000
11,656
171
614
497
978
(26)
123
-
Research and development costs (includes relevant staff costs)
Foreign exchange (credit)/expense
Stock write downs/(backs)
Acquisition of subsidiaries legal and due diligence *
Other Income from government grants **
48
3
1,664
564
(5)
194
(297)
_______
* 2022 relates to the post year end planned acquisition of Custom Power. 2021 includes the £48k corporate finance fees from the Group
auditors as disclosed and £155k from other professional services firms.
-
6
2,044
(33)
59
533
(2)
_______
** Furlough scheme in 2021
The foreign exchange differences have been treated as an adjustment to cost of sales rather than as an overhead
as they arise from sales income and cost of sales expenditures.
Details of transactions with businesses associated with the Directors are included within the Remuneration
Committee report on pages 46 to 58.
91
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
5.
STAFF COSTS
Staff costs for all employees during the year, including the Executive Directors, were as follows:
Wages and salaries
Social security costs
Pension costs
Share based payment charges
Total staff costs
2022
£’000
13,985
1,377
1,200
295
_______
16,857
_______
2021
£’000
9,751
1,012
893
171
_______
11,827
_______
Wages and salaries include termination costs of £56k (2021: £69k).
The average monthly number of employees during the year, including the Executive Directors, was as follows:
Selling and distribution
Manufacturing and assembly
Management and administration
2022
Number
134
110
59
_______
303
_______
2021
Number
112
103
30
_______
245
_______
In the previous year a formalised senior management team was formed and included with the Company Share
Option Plan. As the Group continues to grow, we continue to invest in and develop the senior leadership team
which are considered to be key management. This senior management team, which includes executive Directors.
The key management team and their total compensation, including employers NI, totals £3,857k (2021: £2,981k).
6.
FINANCE EXPENSE
Bank borrowings
Interest on lease liabilities
Total finance expense
2022
£’000
127
99
______
226
______
2021
£’000
37
48
______
85
______
92
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
7.
TAX EXPENSE
Analysis of total tax expense
Total tax charge
Current tax expense
Group corporation tax on profits for the year
Adjustment in respect of prior periods
Deferred tax expense/(credit) charged to income statement
Total tax charge to income statement
Deferred tax (credit)/expense charged to other comprehensive income
2022
£’000
2021
£’000
716
_______
247
_______
716
______
247
______
735
(8)
_______
727
250
______
977
610
(182)
_______
428
(181)
______
247
(261)
______
-
______
Total tax charge to comprehensive income
247
______
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:
716
______
Profit before tax
Expected tax charge based on the standard rate of corporation tax in the UK of 19%
(2021: 19%)
Effect of:
Expenses not deductible for tax purposes
Difference between depreciation/amortisation for the year and capital allowances
Tax relief on exercise of share options exercised
Enhanced relief on research and development expenditure
Overseas tax rate differences
Deferred tax asset recognised
Change in rate in respect of deferred tax recognition
Adjustments in respect of prior years
Foreign exchange
Total tax charge
2022
£’000
3,500
_______
2021
£’000
4,200
_______
665
798
443
(60)
-
(483)
8
(226)
343
(9)
35
_______
20
(3)
(11)
(366)
3
(10)
-
(182)
(2)
_______
716
_______
247
_______
The UK corporation tax rate is 19% (effective from 1 April 2017). Amendments were substantively enacted on 24
May 2021, so the rate of UK corporation tax will rise to 25% from 1 April 2023. The deferred tax liabilities on 31
March 2022 have been calculated based on this revised 25% rate. This change was not substantively enacted at
the March 2021 balance sheet date and the deferred tax comparatives were calculated at the existing 19% rate.
93
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
7.
TAX EXPENSE (continued)
R&D tax credits
The Group recognised a credit of £10k (2021: £10k) 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.
8.
EARNINGS PER SHARE
The earnings per share is based on the following:
Adjusted earnings post tax
Reported 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
2022
£’000
6,158
2,523
2021
£’000
4,733
3,953
8,551,455
8,728,268
8,524,883
8,650,237
29.5p
28.9p
72.0p
70.6p
46.4p
45.7p
55.5p
54.7p
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 8,551,455 (2021: 8,524,883) net of the
treasury shares disclosed in note 27.
The diluted earnings per share is based on 8,728,268 (2021: 8,650,237) 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 31.
9.
DIVIDENDS
Prior year final dividend paid of 10.75p per share (2021: 7.25p)
Current year interim dividend paid of 6.25p per share (2021: 5.25p)
Cancelled dividends on shares held in treasury
Final dividend proposed for the year 13.25p per share (2021: 10.75p)
2022
£’000
920
535
(2)
_______
1,453
_______
1,134
_______
2021
£’000
620
450
(1)
_______
1,069
_______
919
_______
The proposed final dividend has not been accrued for as the dividend will be approved by the shareholders at
the annual general meeting.
94
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
10.
PROPERTY, PLANT AND EQUIPMENT
Year ended 31 March 2022
Cost
1 April 2021
Additions
Disposals
Foreign Exchange
31 March 2022
Depreciation and impairment
1 April 2021
Charge for the year
On disposals
Foreign Exchange
31 March 2022
Net book value
31 March 2022
Year ended 31 March 2021
Cost
1 April 2020
Acquisitions
Additions
Disposals
Foreign Exchange
31 March 2021
Depreciation and impairment
1 April 2020
Charge for the year
On disposals
Foreign Exchange
31 March 2021
Net book value
31 March 2021
Land and
Buildings
£’000
446
-
-
20
_______
466
_______
-
-
-
-
_______
-
_______
466
_______
Land and
Buildings
£’000
-
446
-
-
-
_______
446
_______
-
-
-
-
_______
-
_______
446
_______
Short
leasehold
property
improvements
£’000
1,951
121
(98)
2
_______
1,976
_______
896
189
(98)
-
_______
987
_______
989
_______
Short
leasehold
property
improvements
£’000
1,518
31
402
-
-
_______
1,951
_______
727
169
-
-
_______
896
_______
1,055
_______
Fittings,
equipment
and
computers
£’000
3,570
755
(158)
2
_______
4,169
_______
2,397
437
(160)
1
_______
2,675
_______
1,494
_______
Fittings,
equipment
and
computers
£’000
3,142
126
303
-
(1)
_______
3,570
_______
2,054
345
-
(2)
_______
2,397
_______
1,173
_______
Motor
vehicles
£’000
678
302
(207)
-
_______
773
_______
371
103
(166)
-
_______
308
_______
465
_______
Motor
vehicles
£’000
847
-
51
(220)
-
_______
678
_______
440
100
(169)
-
_______
371
_______
307
_______
Total
£’000
6,645
1,178
(463)
24
_______
7,384
_______
3,664
729
(424)
1
_______
3,970
_______
3,414
_______
Total
£’000
5,507
603
756
(220)
(1)
_______
6,645
_______
3,221
614
(169)
(2)
_______
3,664
_______
2,981
_______
There are capital commitments of £303k (2021: £371k) at the balance sheet date.
95
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
11.
RIGHT OF USE ASSETS
Year ended 31 March 2022
Cost
1 April 2021
Additions
Disposals
31 March 2022
Depreciation
1 April 2021
Charge for the year
Disposals
31 March 2022
Net book value
31 March 2022
Land and
buildings
£’000
Motor vehicles/
other
£’000
3,604
285
(69)
_______
3,820
_______
1,263
701
(27)
_______
1,937
_______
1,883
_______
188
28
(3)
_______
213
_______
53
62
(2)
_______
113
_______
100
_______
Year ended 31 March 2021
Land and
buildings
£’000
Motor vehicles/
other
£’000
Cost
1 April 2020
Additions
Acquisition additions
Disposals
31 March 2021
Depreciation
1 April 2020
Charge for the year
Disposals
31 March 2021
Net book value
31 March 2021
1,894
1,124
726
(140)
_______
3,604
_______
944
459
(140)
_______
1,263
_______
2,341
_______
120
72
-
(4)
_______
188
_______
15
38
-
_______
53
_______
135
_______
The total depreciation expense of £763k (2021: £497k) has been charged to operating expenses.
96
Total
£’000
3,792
313
(72)
_______
4,033
_______
1,316
763
(29)
_______
2,050
_______
1,983
_______
Total
£’000
2,014
1,196
726
(144)
_______
3,792
_______
959
497
(140)
_______
1,316
_______
2,476
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
12.
INTANGIBLE ASSETS
Year ended 31 March 2022
Cost
1 April 2021
Additions
Acquisitions (note 31)
31 March 2022
Amortisation
1 April 2021
Charge for the year
31 March 2022
Net book value
31 March 2022
Development
Costs
£’000
Computer
Software
£’000
Goodwill on
Consolidation
£’000
Acquisition
Intangible
Assets
£’000
1,433
350
-
_______
1,783
_______
1,333
250
_______
1,583
_______
200
_______
473
251
-
_______
724
_______
350
49
_______
399
_______
325
_______
9,898
-
-
_______
9,898
_______
-
-
_______
-
_______
9,898
_______
8,781
-
-
_______
8,781
_______
2,345
1,028
_______
3,373
_______
5,408
_______
Total
£’000
20,585
601
-
_______
21,186
_______
4,028
1,327
_______
5,355
_______
15,831
_______
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 2022 - Acquisition intangible assets
Systems Division commercial relationships
Components Division commercial relationships
Total
Cost
£’000
2,075
6,706
_______
8,781
_______
Net book
value
£’000
1,205
4,203
_______
5,408
_______
A decision was taken to accelerate the amortisation of intangible assets related to the 2013 acquisition of ‘2001’
commercial relationships within the Components division from 10 years to 7 years based on a reassessment of
the UEL of that asset in the year ended 31 March 2021. This was an additional charge of £264k to comprehensive
income in 2021 and took the net book value to nil.
97
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
12.
INTANGIBLE ASSETS (continued)
Year ended 31 March 2021
Development
Costs
£’000
Computer
Software
£’000
Goodwill on
Consolidation
£’000
Acquisition
Intangible
Assets
£’000
Cost
1 April 2020
Additions
Acquisitions
31 March 2021
Amortisation
1 April 2020
Charge for the year
31 March 2021
Net book value
31 March 2021
1,183
250
-
_______
1,433
_______
1,083
250
_______
1,333
_______
100
_______
402
52
19
_______
473
_______
302
48
_______
350
_______
123
_______
6,300
-
3,598
_______
9,898
_______
-
-
_______
-
_______
9,898
_______
3,378
-
5,403
_______
8,781
_______
1,665
680
_______
2,345
_______
6,436
_______
Total
£’000
11,263
302
9,020
_______
20,585
_______
3,050
978
_______
4,028
_______
16,557
_______
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 2021 - Acquisition intangible assets
Systems Division commercial relationships
Components division commercial relationships
Total
Cost
£’000
2,075
6,706
_______
8,781
_______
Net book
value
£’000
1,426
5,010
_______
6,436
_______
98
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
13. GOODWILL AND IMPAIRMENT
Details of the carrying amount of goodwill allocated to cash generating units (CGUs) are as follows:
Goodwill carrying amount
Systems Division
Components division
Total
2022
£’000
3,946
5,952
_______
9,898
_______
2021
£’000
3,946
5,952
_______
9,898
_______
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 pre tax discount rate of 10% (2021: 10%)
has been used based on the Group’s estimated weighted average cost of capital.
A future growth and terminal growth rate of 2.5% (2021: 2.5%) has been assumed beyond the first year, for
which the projection is based on the budget approved by the Board of Directors. It has been assumed investment
in capital equipment will equate to depreciation over this period.
The recoverable amount exceeds the carrying amount for the Group by £94,447k (2021: £64,382k).
The headroom within the Systems Division is significant at £53,765k (2021: £43,250k), with the more sensitive
CGU the Components division with headroom of £47,318k (2021: £25,636k). If the following changes were made
to the above key assumptions in respect of each division, the carrying amount would still exceed the recoverable
amount for both divisions.
Discount rate: Increase from 10% to 20%
Growth rate: Reduction from 2.5% to nil%
14.
SUBSIDIARIES
The subsidiaries of Solid State PLC included in these consolidated financial statements are as follows:
Subsidiary undertakings
Nature of business
Proportion of
voting rights and
Ordinary share
capital held
Solid State Supplies Limited
Steatite Limited
Pacer Technologies Limited
Pacer Components Limited*
Pacer LLC*
Willow Technologies Limited
American Electronic Components, Inc.*
Active Silicon Limited
Active Silicon, Inc.*
Solid State Supplies Electronics Limited
Custom Power Limited
Creasefield Limited
Q-Par Angus Limited
Ginsbury Electronics Limited
Wordsworth Technology Kent Limited
Creasefield Crewkerne Limited
UK
UK
UK
UK
USA
UK
USA
UK
USA
Ireland
UK
UK
UK
UK
UK
UK
*Indirect holdings. All other holdings are direct.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Supply of electronic components.
Supply of electronic components and
manufacture of electronic equipment.
Non trading entity
Supply of opto-electronic components.
Supply of opto-electronic components.
Supply of opto-electronic components.
Supply of opto-electronic components.
Digital image design and manufacturing.
Manufacturing sales facility
Sales office
Non trading entity
Non trading entity
Non trading entity
Non trading entity
Non trading entity
Non trading entity
The non-trading entities are exempt from filing audited accounts with the registrar under section 479a of the
Companies Act 2006.
99
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
14.
SUBSIDIARIES (continued)
Aside from the operations in the USA and Ireland identified above, the country of operation and of incorporation
is England and Wales, with the same registered office as Solid State PLC. The registered offices for operations in
the US and Ireland are listed below.
Subsidiary undertaking
Registered Office
Pacer USA LLC
American Electronic Components, Inc.
Active Silicon, Inc.
Solid State Supplies Electronics Limited 3rd Floor Ulysses House, 23/24 Foley Street, Dublin 1, Dublin D01 W2T2, Ireland
661 Maplewood Drive, Suite 10, Jupiter, FL 33458, USA
1101 Lafayette Street, Elkhart, Indiana, 46516, USA
479 Jumpers Hole Road, Suite 301, Severna Park, MD 21146, USA
As set out in the audit committee 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.
Subsequent to year end, eTech Developments Limited was incorporated in the UK with Solid State Plc owning
75% of the ordinary shares and voting rights in the Company.
15.
INVENTORIES
Finished goods and goods for resale
Work in progress
Total inventories
2022
£’000
15,333
2,265
_______
17,598
_______
2021
£’000
9,056
1,573
_______
10,629
_______
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 £3,694k (2021: £3,271k).
An impairment loss of £610k (2021: £418k loss) 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 £57,812k (2021: £43,061k).
16.
TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Prepayments
2022
£’000
14,948
126
2,904
_______
17,978
_______
2021
£’000
11,683
157
2,382
_______
14,222
_______
An impairment credit against trade receivables of £13k (2021: Loss of £608k) was recognised within operating
costs during the year.
100
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
17.
TRADE AND OTHER PAYABLES (CURRENT)
Trade payables
Other taxes and social security taxes
Other payables
Accruals
Deferred consideration on acquisitions
18.
CONTRACT LIABILITIES
Contract liabilities
2022
£’000
8,083
2,607
89
5,709
4,625
_______
21,113
_______
2021
£’000
4,192
1,301
88
3,737
2,572
_______
11,890
_______
2022
£’000
2021
£’000
3,461
_______
2,299
_______
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 these contract liabilities are expected to be recognised in the subsequent financial year.
Revenue recognised within the year includes £1,980k (2021: £2,161k) which was included within contract
liabilities in the prior year.
19.
BANK BORROWINGS AND FACILITIES
Current borrowings
Bank borrowings – overdraft facility
Non-current borrowings
Bank borrowings
Total borrowings
Within one year
Between one and two years
Between two and five years
Total borrowings
101
2022
£’000
2,059
2021
£’000
-
1,500
_______
3,750
_______
3,559
_______
3,750
_______
2022
£’000
2021
£’000
2,059
1,500
-
_______
-
3,750
-
_______
3,559
_______
3,750
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
19.
BANK BORROWINGS AND FACILITIES (continued)
The bank facilities are secured by a fixed and floating charge over the assets of the Company and the Group. At
the balance sheet date, the Group had the following facilities:
• Revolving credit facility of £7.5m (2021: £7.5m) of which £1.50m (2021: £3.75m) was drawn at the
balance sheet date. This facility was committed until November 2022 and was renewed in March 2022
to a November 2023 commitment date.
In addition, the Group has a multi-currency overdraft facility of £3.0m (2021: £1.0m) which was utilised
for USD of £2.1m at year end (2021: Nil).
•
The multi-currency overdraft facility is in place to provide flexibility in financing short-term multi-currency
working capital requirements. This facility is available to utilise as long as the overall balance netted across all
accounts in the bank nets to an overall position of £Nil or higher.
The Group’s 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.
20.
RIGHT OF USE LEASE LIABILITIES
Current right of use lease liabilities
Non-current right of use lease liabilities
Total right of use lease liabilities
Within one year
Between one and two years
Between two and five years
Total right of use lease liabilities
2022
£’000
758
1,326
_______
2,084
_______
2022
£’000
758
650
676
_______
2,084
_______
2021
£’000
741
1,802
_______
2,543
_______
2021
£’000
741
654
1,148
_______
2,543
_______
102
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
21.
FINANCIAL INSTRUMENTS
The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s
financial performance.
The Group’s financial instruments comprise cash and cash equivalents and various items such as trade payables
and receivables that arise directly from its operations. The carrying value of all financial instruments equal their
fair values. 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.
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 binding
contracts. Each customer account is then reviewed on an ongoing basis (at least once a year) based on available
information and payment history.
The maximum exposure to credit risk is represented by the carrying value of receivables as shown in note 16 and
in the statement of financial position. The amount of the exposure shown in note 16 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. Forward currency contracts are not used speculatively and are
considered where the Group has a demand for foreign currency that it can reliably forecast. The Group overdraft
facility is available on an individual currency basis as well as an overall basis.
Liquidity risk
The Group operates a Group overdraft facility common to all its trading companies (with the exception of the
2021 acquisitions). This facility has a right of offset, so individual accounts in an overdraft position can be netted
from cash held in other accounts in the same bank to a maximum position of £Nil in total.
The Group has approximately a three month visibility in its trading and runs a rolling 6 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 remedial action
is taken.
103
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
21.
FINANCIAL INSTRUMENTS (continued)
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 the 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
2022
£’000
2021
£’000
15,074
2,924
_______
17,998
_______
11,840
6,914
_______
18,754
_______
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Carrying value
UK
Non UK
2022
£’000
8,471
6,477
_______
14,948
_______
2021
£’000
7,700
3,983
_______
11,683
_______
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 £193k (2021: £618k) which represented 0.1% (2021: 1.0%) of revenue.
This provision is included within the sales, general and administration expenses in the Consolidated Statement
of Comprehensive Income.
104
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
21.
FINANCIAL INSTRUMENTS (continued)
Trade receivables ageing by geographical segment
Geographical area
Total
£’000
Current
£’000
2022
UK
Non UK
Total
UK
Non UK
Total provisions
Total
IFRS 9
UK expected loss rate
Non UK expected loss rate
8,860
6,737
_______
15,597
(389)
(260)
_______
(649)
_______
14,948
_______
4.4%
3.9%
_______
8,273
6,122
_______
14,395
(322)
(136)
_______
(458)
_______
13,937
_______
3.9%
2.2%
_______
Geographical area
Total
£’000
Current
£’000
2021
UK
Non UK
Total
UK
Non UK
Total provisions
Total
IFRS 9
UK expected loss rate
Non UK expected loss rate
8,175
4,168
_______
12,343
(496)
(164)
_______
(660)
_______
11,683
_______
6.1%
3.9%
_______
8,008
3,907
_______
11,915
(401)
(100)
_______
(501)
_______
11,414
_______
5.0%
2.6%
_______
105
30 days
past due
£’000
418
412
_______
830
(21)
(24)
_______
(45)
_______
785
_______
5.0%
5.8%
_______
30 days
past due
£’000
112
216
_______
328
(50)
(22)
_______
(72)
_______
256
_______
44.6%
10.2%
_______
60 days
past due
£’000
128
116
_______
244
(11)
(23)
_______
(34)
_______
210
_______
8.6%
19.8%
_______
60 days
past due
£’000
15
5
_______
20
(10)
(2)
_______
(12)
_______
8
_______
66.7%
40.0%
_______
90 days
past due
£’000
41
87
_______
128
(35)
(77)
_______
(112)
_______
16
_______
85.4%
88.5%
_______
90 days
past due
£’000
40
40
_______
80
(35)
(40)
_______
(75)
_______
5
_______
87.5%
100.0%
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
21.
FINANCIAL INSTRUMENTS (continued)
The Group records provision for 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
(Decrease)/ Increase in provisions
Written off against provisions
Foreign exchange
Closing balance
2022
£’000
658
-
(14)
4
1
_______
649
_______
2021
£’000
496
19
618
(474)
(1)
_______
658
_______
The main factor used in assessing the expected impairment losses 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 2022 trade receivables of £1,011k which were past their due date were
not impaired (2021: £269k).
Liquidity risk
The following are maturities of financial liabilities, including estimated contracted interest payments.
Carrying
Amount
Contractual
cash flow
12 months
or less
1 – 2
Years
2 – 5
Years
5+
Years
2022
Trade and other payables
Borrowings
Right of use lease liabilities
Provisions
Deferred consideration on
acquisition
2021
Trade and other payables
Borrowings
Right of use lease liabilities
Provisions
Deferred consideration on
acquisition
16,488
3,559
2,084
694
6,601
16,488
3,559
2,215
694
6,601
16,488
2,059
781
-
4,625
-
1,500
690
150
1,976
-
-
744
544
-
-
-
-
-
-
_______
_______
_______
_______
_______
_______
29,426
_______
29,557
_______
23,953
_______
4,316
_______
1,288
_______
-
_______
9,318
3,750
2,543
741
7,522
9,318
3,750
2,736
741
7,522
9,318
-
763
71
2,572
-
3,750
694
20
4,250
-
-
1,279
650
700
-
-
-
-
-
_______
_______
_______
_______
_______
_______
23,874
_______
24,067
_______
12,724
_______
8,714
_______
2,629
_______
-
_______
106
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
21.
FINANCIAL INSTRUMENTS (continued)
Movement in deferred
consideration on acquisitions
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Opening balance
Increase/recognition
Settlement
Closing balance
Foreign currency risk
Willow
Active
Total
5,089
-
(1,589)
_______
3,500
_______
-
5,089
-
_______
5,089
_______
2,433
1,651
(983)
_______
3,101
_______
-
2,433
-
_______
2,433
_______
7,522
1,651
(2,572)
_______
6,601
_______
-
7,522
-
_______
7,522
_______
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, as far as practical, to ensure that the purchases
associated with the sale will be in the same currency. As a result of advanced purchasing of components, there
is a timing difference on USD, where the Group overdraft has been utilised as required.
All monetary assets and liabilities of the Group were denominated in sterling except for the following items,
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 tables show the Group net assets/(liabilities) exposed to US dollar and Euro exchange rate risk::
USD
Trade receivables
Cash and cash equivalents
Trade payables
EUR
Trade receivables
Cash and cash equivalents
Trade payables
2022
£’000
8,786
(1,308)
(4,005)
_______
3,473
_______
2022
£’000
287
272
(175)
_______
2021
£’000
5,727
3,121
(930)
_______
7,918
_______
2021
£’000
337
942
(115)
_______
1,164
_______
The Group is exposed to currency risk because it undertakes trading transactions in US dollars and Euros (and
immaterial transactions in other currencies). 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 2022 (2021: £nil) with £nil net exposure (2021: £nil).
384
_______
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 £428k (2021: £1,009k) 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 £351k
(2021: £826k).
107
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
21.
FINANCIAL INSTRUMENTS (continued)
Interest rate risk
The Group finances its business through a Revolving credit facility. During the year the Group utilised this facility
at a floating rate of interest.
The Group’s banking facilities with Lloyds Bank Plc incurs interest at the rate of 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 borrowings 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 £82k (2021: £41k) higher and if 1% lower throughout the year the level of interest payable
would have been lower by the same amount.
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 2022 was £32,251k (2021: £29,860k).
The Group defines net (cash)/leverage as net (cash)/debt plus deferred consideration which totals £5,177k (2021:
£4,358k). In calculating net (cash)/debt the Group has excluded the right of use lease liabilities of £2,084k (2021:
£2,543k) from its definition and calculation.
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 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 leverage divided by total capital. At 31 March 2022 the gearing ratio was 16.0% (2021: 14.6%).
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 2022 is shown below:
Cash and cash equivalents
Borrowings / bank overdrafts
Deferred Consideration
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))
108
2022
£’000
(4,983)
3,559
6,601
_______
5,177
_______
428
3,625
23,042
5
33
(57)
_______
27,076
_______
16.0%
_______
2021
£’000
(6,914)
3,750
7,522
_______
4,358
_______
428
3,625
21,508
5
6
(70)
_______
25,502
_______
14.6%
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
22.
NET DEBT
Year ended 31 March 2022 (£’000)
Bank borrowing due within one year
Bank borrowing due after one year
Total borrowings
Deferred consideration on acquisition of
subsidiaries within one year
Deferred consideration on acquisition of
subsidiaries after one year
Cash and cash equivalents
(Net debt) / net cash
At 1 April
2021
-
(3,750)
_______
(3,750)
(2,572)
(4,950)
6,914
_______
(4,358)
_______
(Decrease)/ increase in cash in the year
Decrease/ (Increase) in borrowings in the year
Repayment of borrowings in the year
Payment of deferred consideration on acquisitions
Net movement resulting from cashflows
(Net debt) / Net cash at 1 April
Net movement resulting from cashflows
Contingent consideration recognised in year – short term (note 17)
Contingent consideration recognised in year – long term
Other non-cash movements
Net debt at 31 March
Other non-
cash
movement
At 31 March
2022
-
-
_______
-
(4,625)
-
(1,500)
_______
(1,500)
(4,625)
Cash flow
-
2,250
_______
2,250
2,572
-
2,974
(1,976)
(4,006)
_______
816
_______
16
_______
(1,635)
_______
2022
£’000
(4,006)
-
2,250
2,572
_______
816
_______
2022
£’000
(4,358)
816
-
(1,651)
16
_______
(5,177)
_______
2,924
_______
(5,177)
_______
2021
£’000
3,439
(3,750)
333
-
_______
22
_______
2021
£’000
3,184
22
(2,572)
(4,950)
(42)
_______
(4,358)
_______
Although the Group’s banking facilities allow a right of offset between cash balances held at the bank with
overdraft balances at the same bank, the overdraft balances have been presented as gross on the Statement of
Financial Position rather than net in accordance with the Interpretations Committee March 2016 Agenda decision
on IAS 32 interpretation of cash-pooling arrangements.
109
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
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 for the year
Effect of changes to foreign exchange rates
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
The movements in respect of deferred tax in the year were as follows:
Accelerated
capital
allowances
Share
based
Payments
Short term
timing
differences
on
intangible
assets
2022
£’000
(1,303)
-
348
5
-
(343)
_______
(1,293)
_______
(504)
(1,437)
415
98
135
_______
(1,293)
_______
539
(1,832)
_______
(1,293)
_______
2021
£’000
(421)
(1,061)
181
(2)
-
-
_______
(1,303)
_______
(331)
(1,266)
96
95
103
_______
(1,303)
_______
188
(1,491)
_______
(1,303)
_______
Short term
timing
differences
Losses
carried
forward
Total
At 1 April
Change in tax rate
Recognised in
statement of
comprehensive income
Recognised in other
comprehensive income
At 31 March
(331)
(83)
(90)
(1,266)
(344)
173
95
38
21
96
13
(11)
103
32
-
(1,303)
(344)
93
-
-
261
-
-
261
_______
(504)
_______
_______
(1,437)
_______
_______
415
_______
_______
98
_______
_______
135
_______
_______
(1,293)
_______
110
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
23.
DEFERRED TAX (continued)
The UK corporation tax rate is 19% (effective from 1 April 2017) which was substantively enacted on 17 March
2020. The comparative deferred tax liabilities at 31 March 2021 were calculated based on this rate. As
substantively enacted on 24 May 2021, the UK corporation tax rate will increase to 25% with effect from 1 April
2023. The impact of re-calculating the deferred tax at the 25% rate is recognised in comprehensive income.
The amount of the net reversal of deferred tax expected to occur next year is approximately £231k (2021: £191k)
relating to the timing differences identified above.
The deferred tax asset of £261k (2021: £84k) 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, was recognised in the year. This
deferred tax asset has been credited to other comprehensive income (“OCI”) and treated as an adjustment to
profit. The share price post year end when the shares are exercised may be lower than at the balance sheet date,
therefore this deferred tax asset is considered judgemental as it may not be fully recoverable.
In addition, there is an unrecognised deferred tax asset in relation to capital losses carried forward. The capital
losses carried forward are approximately £275k. The associated deferred tax asset of approximately £69k has
not been recognised due to the uncertainty over the recoverability combined with the fact it is immaterial.
The deferred tax asset has been reclassified as long-term in the current year; the comparative was retained in
current as it was not material.
24.
PROVISIONS
At 1 April
Dilapidations acquired on acquisitions at FV
Provisions utilised during the year
Recognition of dilapidation asset
(Released)/charged to statement of comprehensive income
Provisions at 31 March
2022
£’000
741
-
(18)
-
(29)
_______
694
_______
2021
£’000
304
43
(7)
400
-
_______
741
_______
The Group has provided for property related provisions which include obligations in respect of exited legacy
premises and dilapidations provisions 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.
25.
SHARE CAPITAL
Allotted issued and fully paid
8,564,878 (2021: 8,564,878) ordinary shares of 5p
2022
£’000
2021
£’000
428
_______
428
_______
The ordinary shares carry no right to fixed income, the holders are entitled to receive dividends as declared and
are entitled to one vote per share at shareholder meetings.
Details of options granted are set out in the Remuneration Committee Report on pages 46 to 58. At 31 March
2022 the number of shares covered by option agreements amounted to 248,100 (2021: 79,550). At the balance
sheet date there were 96,000 (2021: 96,000) share options which had vested and remained unexercised. No
options were exercised in the current year (2021: Nil).
111
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
26.
RESERVES
Full details of movements in reserves are set out in the consolidated statement of changes in equity on page 71.
The following describes the nature and purpose of each reserve within owners’ equity.
Reserve
Share premium
Capital redemption
Retained earnings
Shares held in treasury
Foreign exchange
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.
Foreign exchange translation differences arising from
the translation of the financial statements of foreign
operations .
27.
TREASURY SHARES
At 31 March 2022 the Group held 6,946 (2021: 11,374) shares in treasury with a cost of £57k (2021: £70k). 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
2022
shares
11,374
7,000
(11,428)
_______
6,946
_______
2021
Shares
7,374
15,000
(11,000)
_______
11,374
_______
28.
SHARE BASED PAYMENT
The total amount charged to the income statement in 2022 in respect of share-based payments was £295,000
(2021: £171,000).
The company operates two long term share incentive schemes set out below:
Long term incentive plan (LTIP):
Normal LTIP awards of up to 125% of salary may be made to Executive Directors and Senior management, as
outlined in the Policy Table of the remuneration report on page 53.
For all participants, awards will vest after three years in accordance with the performance conditions applicable
to each grant. Options are granted with a contractual life of ten years and with a fixed exercise price of 5p equal
to the par value of the shares or as otherwise disclosed in the remuneration report.
The performance conditions will be determined and set by the Remuneration Committee in accordance with the
remuneration policy. No award will vest below Threshold performance, and vesting will increase on a straight-
line basis between threshold, target and stretch.
112
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
28.
SHARE BASED PAYMENT (continued)
On the 29 October 2021 42,800 (2021: 42,800) share options were granted to the Executive Directors under the
LTIP.
Principal assumptions
Weighted average share price at grant date in pence
Weighted average exercise price in pence
Weighted average vesting period (years)
Option life (years)
Weighted average expected life (years)
Weighted average expected volatility factor
Weighted average risk free rate
Dividend yield
2022
1,085
5
3
10
3
47%
1.50%
2.5%
2021
580
5
3
10
3
50%
0.75%
2.5%
The expected volatility factor is based on historical share price volatility over the three years immediately
preceding the grant of the option. The expected life is the average expected period to exercise. The risk-free rate
of return is the yield of zero-coupon UK government bonds of a term consistent with the assumed option life.
Non-market performance conditions are incorporated into the calculation of fair value by estimating the
proportion of share options that will vest and be exercised based on a combination of historical trends and future
expected trading performance. These are reassessed at the end of each period for each tranche of unvested
options.
Company Share Option Plan (CSOP):
CSOP awards of up to the HMRC tax approved levels of £30,000 may be made to senior staff and Executive
Directors, as outlined in the Policy Table of the remuneration report on page 53. For all participants, awards will
vest after three years in accordance with the performance conditions applicable to each grant.
Options are granted with a contractual life of ten years and with a fixed exercise price equal to the market value
of the shares under option at the date of grant or as otherwise disclosed in the remuneration report
The performance conditions will be determined and set by the Remuneration Committee in accordance with the
remuneration policy. No award will vest below Threshold performance, and vesting will increase on a straight-
line basis between threshold, target and stretch.
On the 06 October 2021 36,750 (2021: 36,750) share options were granted to the senior management under
CSOP.
Principal assumptions
Weighted average share price at grant date in pence
Weighted average exercise price in pence
Weighted average vesting period (years)
Option life (years)
Weighted average expected life (years)
Weighted average expected volatility factor
Weighted average risk free rate
Dividend yield
2022
1,050
1,050
3
10
3
46%
1.50%
2.5%
2021
587
592
3
10
3
50%
0.75%
2.5%
113
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
28.
SHARE BASED PAYMENT (continued)
Movement in share options during the year
In addition to the current CSOP and LTIP there are bought forward executive EMI options which have vested
which remain unexercised at the balance sheet date.
At 1 April
Granted
Exercised
Cancelled / lapsed
At 31 March
2022
Number of
options
2022 average
exercise price
in pence
2021
Number of
options
2021 average
exercise price
in pence
175,550
79,550
-
(7,000)
_______
248,100
_______
125
488
-
(707)
_______
225
_______
112,000
79,550
16,000
-
_______
175,000
_______
0.1
276
0.1
-
_______
125
_______
No options were exercised in the year and the weighted average share price at the date share options were
exercised in 2021 was 544p.
As at 31 March 2022, the total number of long-term incentive awards and share options held by employees was
248,100 (2021: 175,550) as follows:
Option price pence/share
0.1p
5p – 592p
5p – 1050p
At 31 March
Option period
ending
31 March 2027
31 March 2030
31 March 2031
2022
Number
of options
96,000
74,300
77,800
_______
248,100
_______
2021 Number
of options
96,000
79,550
-
_______
175,550
_______
No share options have vested in the period (2021: Nil).
All Employee Share plan (AESP)
AESP awards of up to the HMRC tax approved levels to all UK employees. These awards vest tax free from the
AESP after at least three years but not more than five years from the date of grant subject to continued
employment.
On the 7 March 2022 12,250 (2021: 10,900) share options were awarded to the employees under the AESP.
The share price at the date of award was 960p (2021: 680p). As the awards are effectively £nil cost awards, the
fair value is determined to equal to the share price at the date of grant under the Black Scholes model. This
resulted in a share based payments charge of £118k (2021: £74k) as part of the total share based payments
charge.
29.
CAPITAL COMMITMENTS
At 31 March 2022 there were capital commitments of £303k (2021: £371k).
114
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
30.
SEGMENT INFORMATION
The Group’s primary reporting format for segment information is business segments which reflect the
management reporting structure in the Group. The Components Division comprises Solid State Supplies Ltd,
Pacer LLC, Pacer Components Ltd, Willow Technologies Limited and American Electronic Components, Inc.. The
Systems Division includes Steatite Ltd, Active Silicon Limited and Active Silicon Inc..
Year ended 31 March 2022
External revenue
Profit before tax
Taxation
Profit after taxation
Consolidated statement of financial position
Assets
Liabilities
Net assets
Other
Capital expenditure:
Tangible fixed assets
Tangible fixed assets - acquisitions
Intangible assets
Intangible assets – acquisitions
Right of use assets
Right of use assets – acquisitions
Depreciation - PPE
Depreciation – right of use assets
Amortisation
Share based payments
Interest
Components
division
£’000
52,480
______
3,627
(903)
______
2,724
Systems
division
£’000
32,517
______
2,270
(297)
______
1,973
Head
office
£’000
-
______
(2,397)
223
______
(2,174)
Total
Group
£’000
84,997
______
3,500
(977)
______
2,523
24,616
(11,587)
______
21,665
(14,253)
______
16,045
(9,410)
______
62,326
(35,250)
______
13,029
7,412
6,635
27,076
524
-
268
-
216
-
331
264
20
-
48
______
654
-
333
-
97
-
398
499
279
-
61
_____
-
-
-
-
-
-
-
1,028
295
117
______
1,178
-
601
-
313
-
729
763
1,327
295
226
______
No individual customer contributed more than 10% of the Group’s revenue in the financial year ended 31 March
2022 or the prior year.
115
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
30.
SEGMENT INFORMATION (continued)
Year ended 31 March 2021
External revenue
Profit before tax
Taxation
Profit after taxation
Consolidated statement of financial position
Assets
Liabilities
Net assets
Other
Capital expenditure:
Tangible fixed assets
Tangible fixed assets - acquisitions
Intangible assets
Intangible assets – acquisitions
Right of use assets
Right of use assets – acquisitions
Depreciation - PPE
Depreciation – right of use assets
Amortisation
Share based payments
Interest
Components
division
£’000
38,982
______
2,011
(337)
______
1,674
22,631
(8,804)
______
13,827
413
504
45
3
315
27
379
207
19
-
35
______
Systems
division
£’000
27,299
______
4,353
(310)
______
4,043
14,852
(7,680)
______
7,172
343
99
257
19
881
699
235
290
279
-
14
_____
Head
office
£’000
-
______
(2,164)
400
______
(1,764)
Total
Group
£’000
66,281
______
4,200
(247)
______
3,953
16,484
(11,981)
______
4,503
53,967
(28,465)
______
25,502
-
-
-
8,998
-
-
-
-
680
171
36
______
756
603
302
9,020
1,196
726
614
497
978
171
85
______
External revenue by
location of customer
Total assets by
location of assets
Net capital
expenditure by location
of assets
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
United Kingdom
Rest of Europe
Asia
North America
Other
53,030
15,726
6,542
9,175
524
_______
46,301
7,349
3,342
9,148
141
_______
59,023
1
-
3,302
-
_______
49,616
1
-
4,151
-
_______
1,723
-
-
56
-
_______
1,058
-
-
-
-
_______
84,997
_______
66,281
_______
62,326
_______
53,768
_______
1,779
_______
1,058
_______
Capital expenditure excludes acquisitions of assets as per note 10 and 12 in 2021.
116
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
31. ADJUSTMENTS TO PROFIT
The Group’s results are reported after several imputed non-cash charges and non-recurring items. We have
provided additional adjusted performance metrics to aid understanding and provide clarity over the Group’s
performance on an on-going cash basis before imputed non-cash accounting charges. This is consistent with how
analysts and investors tell us they review our business performance in presenting an adjusted profit metric
adjusting for the following items:
• Non-cash charges arising from share-based payments and the amortisation of acquisition intangibles.
• Non-recurring cash costs relating to the re-organisation of the Systems Division and acquisition costs
(including fair value adjustments).
• Non-recurring tax credits arising primarily from prior year R&D claims and tax deductions on share options.
• The impact of the change in deferred tax rate from 19% to 25% on charges treated as adjustments.
• The recognition in OCI of a deferred tax asset relating to 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.
Reported gross profit
Adjustments to gross profit
Adjusted gross profit
Reported operated profit
Adjustments to operating profit
Adjusted operating profit
Reported operating margin percentage
Operating margin percentage impact of adjustments
Adjusted operating margin percentage
Reported profit before tax
Adjustments to profit before tax
Adjusted profit before tax
Reported profit after tax
Adjustments to profit after tax
Adjusted profit after tax
Reported total other comprehensive income
Adjustments to total other comprehensive income
Adjusted total other comprehensive income
117
2022
£’000
27,527
168
_______
27,695
_______
3,726
3,674
_______
7,400
_______
4.4%
4.3%
_______
8.7%
_______
3,500
3,674
_______
7,174
_______
2,523
3,635
_______
6,158
_______
2,784
3,374
_______
6,158
_______
2021
£’000
19,919
73
_______
19,992
_______
4,285
1,187
_______
5,472
_______
6.5%
1.8%
_______
8.3%
_______
4,200
1,187
_______
5,387
_______
3,953
780
_______
4,733
_______
3,953
780
_______
4,733
_______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2022
31. ADJUSTMENTS TO PROFIT (CONTINUED)
The split of the adjustments is as follows:
Acquisition fair value adjustments within cost of sales
Acquisition fair value adjustments, reorganisation and deal costs
Increase in deferred consideration on acquisition of Active Silicon
Amortisation of acquisition intangibles
Share based payments
Adjustment to profit before tax
Current and deferred taxation effect
Deferred tax rate change impact on acquisition intangibles and share
based payments
Non-recurring tax credits
Adjustments to profit after tax
Recognition of deferred tax asset in OCI re. share price impact on options
Adjustments to total other comprehensive income
2022
£’000
168
533
1,650
1,028
295
_______
3,674
(327)
288
-
_______
3,635
(261)
_______
3,374
2021
£’000
73
263
-
680
171
_______
1,187
(226)
-
(181)
_______
780
-
_______
780
Acquisition fair value adjustments within cost of sales relates to the unwind of the IFRS 3 fair value uplift on stock
to selling price less cost to sell in both periods.
Acquisition fair value adjustments, reorganisation and deal costs in the current year relate to transaction costs
for the acquisition of Custom Power. The costs in the comparative period relate to £195k transaction costs on
Willow and Active Silicon and £69k redundancy costs.
32.
POST BALANCE SHEET EVENTS
Intended Acquisition of Custom Power LLC (“Custom Power”)
Post year end the Group announced on 12 July 2022 its intention to raise up to £28.4m of equity to fund the
acquisition of Custom Power for up to $45m. New additional term loan debt facilities of £13m and $10m of
standby letters of credit have been agreed by Lloyds Bank PLC in support of the transaction.
Full details of the acquisition are set out in the announcement on the 12 July 2022 and in the circular issued to
shareholders on the 13 July 2022 ahead of the general meeting on the 29 July 2022. The announcement, circular
and investor presentation are available on the Group’s website www.solidstateplc.com.
Formation of eTech Developments Limited
On the 8 June 2022 the Group formed a new entity, eTech Developments Limited, registered Co. number
14159260. eTech Developments Limited is 75% owned by Solid State PLC. This is a new business which is
expected to provide engineering consultancy by employing a small engineering team. Once the team are
recruited, the team are expected to provide Power engineering services to the Group and external customers on
an arm’s length basis.
118
COMPANY STATEMENT OF FINANCIAL POSITION
at 31 March 2022
Company Number: 00771335
2022
2021
Notes
£’000
£’000
£’000
£’000
FIXED ASSETS
Investments
Deferred tax asset
CURRENT ASSETS
Trade and other receivables
Deferred tax asset
Cash and cash equivalents
4
5
CREDITORS: Amounts falling due within one year
6
NET CURRENT LIABILITIES
NON CURRENT LIABILITIES
Non current borrowings
Deferred consideration on acquisitions
NET ASSETS
CAPITAL AND RESERVES
Called up share capital
Share premium account
Capital redemption reserve
Retained earnings
Shares held in treasury
SHAREHOLDERS’ FUNDS
7
7
8
9
9
9
10
35,654
415
_______
1,725
-
276
_______
2,001
(28,255)
_______
34,003
-
_______
36,069
34,003
3,223
96
16
_______
3,335
(22,511)
_______
(26,254)
_______
(19,176)
_______
(1,500)
(1,976)
_______
(3,750)
(4,950)
_______
(3,476)
(8,700)
6,339
_______
428
3,625
5
2,338
(57)
_______
6,339
_______
6,127
_______
428
3,625
5
2,139
(70)
_______
6,127
_______
The company made a profit after tax in the year of £1,189k (2021: £284k) and Other Comprehensive Income of £261k
(2021: Nil). Total Comprehensive Income for the period was £1,450k (2021: 284k).
The financial statements were approved by the Board of Directors and authorised for issue on 27 July 2022.
G S Marsh, Director
P O James, Director
The notes on pages 121 to 124 form part of these financial statements.
119
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2022
Share
Capital
£’000
Share
Premium
reserve
£’000
Capital
Redemption
Reserve
£’000
Retained
earnings
£’000
Shares
Held in
Treasury
£’000
Share-
holders
Funds
£’000
Balance at 31 March 2021
428
3,625
5
2,139
(70)
6,127
Total comprehensive
income for the year ended
31 March 2022
Shares issued
Purchase of treasury
shares
Transfer of treasury shares
to AESP
Dividends
Share based payment
credit
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,450
-
-
-
-
1,450
-
(80)
(80)
(93)
93
-
(1,453)
295
-
-
(1,453)
295
_______
_______
_______
_______
_______
_______
Balance at 31 March 2022
428
_______
3,625
_______
5
_______
2,338
_______
(57)
_______
6,339
_______
Share
Capital
£’000
Share
Premium
reserve
£’000
Capital
Redemption
Reserve
£’000
Retained
earnings
£’000
Shares
Held in
Treasury
£’000
Share-
holders
Funds
£’000
Balance at 31 March 2020
427
3,626
5
2,821
(43)
6,836
Total comprehensive
income for the year ended
31 March 2021
Shares issued
Purchase of treasury shares
Transfer of treasury shares
to AESP
Dividends
-
1
-
-
-
-
(1)
-
-
-
-
-
-
-
-
284
-
-
-
-
284
-
(95)
(95)
(68)
68
-
(1,069)
-
(1,069)
Share based payment credit
-
_______
-
_______
-
_______
171
_______
-
_______
171
_______
Balance at 31 March 2021
428
_______
3,625
_______
5
_______
2,139
_______
(70)
_______
6,127
_______
The notes on pages 121 to 124 form part of these financial statements.
120
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2022
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).
The company has taken advantage of the exemption from disclosing the following information in its company
only accounts, as permitted by the reduced disclosure regime within FRS 102:
•
Section 7 ‘Statement of Cash Flows’ – Presentation of a Statement of Cash Flow and related notes and
disclosures
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 profit for the year ended 31 March 2022 and the profit for the year ended 31
March 2021 are 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 Solid
State PLC entity balance sheet reflects £5.6m net current liabilities (excluding group balances) due to the
recognition of the short term £4.6m of deferred consideration. The deferred consideration can be settled
through the Group’s bank facilities which are committed until Nov 2023 with £6.0m undrawn at the balance
sheet date. Dividends totalling £3.24m were received from subsidiary companies in this financial year and
subsidiary companies have the reserves available to pay dividends in the next financial year. 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 83 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 87 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 84 as there is no material difference between FRS102 and IFRS.
121
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2022
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.
The material judgement / estimate impacting the entity accounts are the estimate of the deferred contingent
consideration on the acquisition of Active Silicon which is set out in the Group disclosure in Note 2.
2.
STAFF COSTS
Wages and salaries
Social security costs
Other pension costs
Share based payment charges
Total staff costs
2022
£’000
985
130
50
295
_______
1,460
_______
2021
£’000
697
118
40
171
_______
1,026
_______
Staff costs amounted £1,460k (2021: £1,026k) and comprised the share based payment expense of £295k (2021:
£171k) and provision for employer’s national insurance on exercise of share options of £45k (2021: £24k).
Included within the Company Staff costs are the salary and related costs in respect of Mr G S Marsh, Mr P O
James, Mr N F Rogers, Mr P Haining and Mr P Magowan. No other Director’s remuneration was paid by the
Company. Details of the Directors whose emoluments were paid by other Group companies are given in the
Remuneration Committee Report on pages 46 to 58.
The average monthly number of employees during the year, including the Executive Directors, was as follows:
Management and administration
3.
SHARE BASED PAYMENT
See Group share based payments disclosures in note 28 to the Group accounts.
2022
Number
15
_______
15
_______
2021
Number
12
_______
12
_______
122
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2022
4.
INVESTMENTS
Subsidiary undertakings
Cost
1 April
Additions
31 March
Net book value
31 March
2022
£’000
34,003
1,651
_______
35,654
_______
2021
£’000
13,255
20,748
_______
34,003
_______
35,654
_______
34,003
_______
The movement in this period relates to the increase in the deferred consideration acquisition cost of the Active
Silicon Group as disclosed in Note 2 to the Group accounts.
Subsidiary undertakings
Net book value of investment in:
Steatite limited
Solid State Supplies Limited
Pacer Technologies Limited
Willow Technologies Group
Active Silicon Group
Total investments at 31 March
Subsidiary undertakings
See Group subsidiary undertakings disclosures in note 14 to the Group accounts.
5.
DEBTORS
Amounts owed by Group undertakings
Other debtors
Prepayments
2022
£’000
5,307
4,201
3,747
13,144
9,255
_______
35,654
_______
2022
£’000
1,710
1
14
_______
1,725
_______
2021
£’000
5,307
4,201
3,747
13,144
7,604
_______
34,003
_______
2021
£’000
3,200
11
12
_______
3,223
_______
123
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2022
6.
CREDITORS – Amounts falling due within one year
Amounts owed to Group undertakings
Other taxes and social security costs
Trade and other creditors
Accruals
Deferred consideration on acquisitions
2022
£’000
22,357
149
28
1,096
4,625
_______
28,255
_______
2021
£’000
19,144
107
86
602
2,572
_______
22,511
_______
The Company has guaranteed bank borrowings of all its subsidiary undertakings, the main trading subsidiaries
are Solid State Supplies Limited, Steatite Limited, Pacer Components Limited, Willow Technologies Limited and
Active Silicon Limited. At the year end the liabilities covered by those guarantees amounted to £nil (2021: £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.
The short-term deferred consideration on acquisitions is £3.5m for Willow Technologies Group and £1.1m for
Active Silicon Group.
All amounts owed to / from Group undertakings are payable / repayable on demand and not interest bearing.
7.
CREDITORS – Amounts falling due after more than one year
Bank borrowings
Deferred consideration on acquisitions
2022
£’000
1,500
1,976
_______
3,476
_______
2021
£’000
3,750
4,950
_______
8,700
_______
The long-term deferred consideration is £1.98m for Active Silicon Group as disclosed in note 2 of the consolidated
Group accounts. See note 19 to the Group accounts for borrowings disclosures.
8.
SHARE CAPITAL
See Group share capital disclosures in note 25 to the Group accounts.
9.
RESERVES
See Group reserves disclosures in note 26 to the Group accounts.
10. OWN SHARES HELD IN TREASURY
See Group treasury shares disclosures in note 27 to the Group accounts.
124
NOTICE OF ANNUAL GENERAL MEETING
The annual general meeting is being held at the registered office of the company in the usual way and in accordance
with the current Articles of Association.
If any shareholders are intending to attend the meeting in person, we would request that they register this intention at
least 48 hours in advance of the meeting at (investor.information@solidstateplc.com).
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 7 September 2022 at 9.30am for the following purposes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
ORDINARY RESOLUTIONS
To receive the accounts for the year ended 31 March 2022, together with the reports of the Directors and
auditors thereon. (Resolution 1)
To approve the Directors’ Annual Report on Remuneration (this is an advisory vote). (Resolution 2)
To declare a final dividend of 13.25p per share. (Resolution 3)
To reappoint Mr Nigel F Rogers as a director of the company. (Resolution 4)
To reappoint Mr Gary S Marsh as a director of the company. (Resolution 5)
To reappoint Mr John L Macmichael as a director of the company. (Resolution 6)
To reappoint Mr Peter O James as a director of the company. (Resolution 7)
To reappoint Mr Matthew T Richards as a director of the company. (Resolution 8)
To reappoint Mr Peter Haining as a director of the company. (Resolution 9)
To reappoint Mr Peter J Magowan as a director of the company. (Resolution 10)
To reappoint RSM UK Audit LLP as auditors of the Company. (Resolution 11)
To authorise the Directors to fix the auditors’ remuneration. (Resolution 12)
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 £186,704.85 (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
125
NOTICE OF ANNUAL GENERAL MEETING (continued)
ii)
in any other case, up to an aggregate nominal amount of £113,154.45 (which is 20% of the issued share
capital) (such amount to be reduced by the nominal amount of any equity securities allotted under
paragraph i) above, provided that this authority shall, unless renewed, varied or revoked by the Company,
expire after a period of 18 months from the passing of this resolution or, if earlier, the date of the next
annual general meeting of the Company save that the Company may, before such expiry, make offers or
agreements which would or might require Relevant Securities to be allotted and the Directors may allot
Relevant Securities in pursuance of such offer or agreement notwithstanding that the authority conferred
by this resolution has expired.
This resolution revokes and replaces all unexercised authorities previously granted to the Directors to
allot Relevant Securities but without prejudice to any allotment of shares or grant of rights already made,
offered or agreed to be made pursuant to such authorities. (Resolution 13)
SPECIAL RESOLUTIONS
(14)
To pass the following resolution:
That the Company is authorised to allot equity securities pursuant to resolution 13 above up to an aggregate
nominal amount of £56,577.20, which is 10% of the issued share capital, as if Section 561 of the Companies Act
2006 (existing shareholders – right of pre-emption):
i) did not apply to the allotment; or
ii) applied to the allotment with such modifications as the Directors may determine provided that this
authority shall, unless renewed, varied or revoked by the company, expire after a period of 18 months
from the passing of this resolution save that the company may, before such expiry, make offers or
agreements which would or might require equity securities to be allotted and the Directors may allot
equity securities in pursuance of such offer or agreement not withstanding that the authority conferred
by the resolution has expired. (Resolution 14)
(15)
To pass the following resolution:
That the Company is, pursuant to Section 701 of the Companies Act 2006, hereby generally and unconditionally
authorised to make market purchases (within the meaning of Section 693 of the Companies Act 2006) of
ordinary shares of 5p each in the capital of the Company (“ordinary shares”) provided that:-
i) the minimum price which may be paid for the ordinary shares is 5p per ordinary share;
ii) the maximum price that may be paid for such shares is, in respect of a share contracted to be purchased on
any day, an amount (exclusive of all expenses) equal to 105 per cent of the average middle market
quotations of the ordinary shares of the company as derived from the Daily Official List of the London Stock
Exchange on the 10 dealing days immediately preceding the day on which the shares are contracted to be
purchased;
iii) the authority hereby conferred shall expire after a period of 18 months from the passing of this resolution
unless such authority is renewed prior to such expiry;
iv) the authority hereby conferred is in substitution for any existing authority to purchase ordinary shares
under the said Section 701;
v) the Company may make a contract to purchase ordinary shares under the authority hereby conferred prior
to the expiry of such authority which will be executed wholly or partly after the expiry of such authority and
may make a purchase or purchases of ordinary shares in pursuance of any such contract; and
vi) the maximum number of ordinary shares hereby authorised to be purchased by the Company does not
exceed 15 per cent of the issued ordinary share capital of the Company at the date of the passing of this
resolution. (Resolution 15)
BY ORDER OF THE BOARD
P Haining FCA
Secretary
5 August 2022
Registered office: 2 Ravensbank Business Park, Hedera Road, Redditch, B98 9EY
126
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).
127
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 5 August 2022 the Company’s issued share capital comprised of 11,322,394 ordinary shares of 5p each which
includes 6,946 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 5 August 2022 is 11,315,448.
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
c. The full rules of the LTIP
d. The full rules of the CSOP
e. Copies of the new Articles of Association of Solid State PLC Company No 00771335.
128
129